1933 Act File No. 333 -37453
1940 Act File No. 811 -08413
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A EL
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 1 [X]
---
EVERGREEN EQUITY TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
Dorothy E. Bourassa, Esquire
200 Berkeley Street
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Registrant declares that it hereby elects pursuant to Rule 24f-2
promulgated under the Investment Company Act of 1940 to register by this
Registration Statement an indefinite number or amount of shares of its Evergreen
Small Company Growth Fund and Evergreen Balanced Fund series under the
Securities Act of 1933, as amended.
Approximate Date of Proposed Offering:
As soon as practicable after the effective date
of the Registration Statement.
<PAGE>
<PAGE>
EVERGREEN EQUITY TRUST
CONTENTS OF
REGISTRATION STATEMENT ON
FORM N-1A
This Registration Statement on Form N-1A of the Registrant consists of
the following pages, items of information and documents, together with the
exhibits indicated in Part C as being filed herewith:
Facing Sheet
Contents Page
Cross-Reference Sheet
PART A
Prospectuses of Evergreen Small Company Growth Fund
Prospectuses of Evergreen Balanced Fund
PART B
Statement of Additional Information
PART C
Exhibits
Number of Security Holders
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Signatures
<PAGE>
EVERGREEN EQUITY TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
ITEM OF PART A OF FORM N-1A LOCATION IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis and Fee Table Cover Page; Expense
Information
3. Condensed Financial Not applicable.
Information
4. General Description of Cover Page; Description of
Registrant the Fund; Organization;
General Information
5. Management of the Fund Service Providers
6. Capital Stock and Other Dividends, Distributions
Securities and Taxes; General
Information
7. Purchase of Securities Purchase and Redemption of
Being Offered Shares
8. Redemption or Repurchase Purchase and Redemption of
Shares
9. Pending Legal Proceedings Not Applicable.
ITEM IN PART B OF FORM N-1A LOCATION IN STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Not Applicable.
History
13. Investment Objectives and Securities and Investment
Policies Practices; Investment
Restrictions and Guidelines
14. Management of the Fund Investment Advisory
Services
<PAGE>
15. Control Persons and Control Persons and
Principal Holders of Principal Holders of
Securities Securities
16. Investment Advisory and Investment Advisory and
Other Services Other Services
17. Brokerage Allocation Brokerage Allocation and
Other Practices
18. Capital Stock and Other Description of Shares;
Securities Voting Rights; Limitation
of Trustees' Liability
19. Purchase, Redemption and Purchase, Redemption and
Pricing of Securities Pricing of Securities Being
Being Offered Offered
20. Tax Status Additional Tax Information
21. Underwriters Principal Underwriter
22. Calculation of Calculation of Performance
Performance Data Data
23. Financial Statements Not
Applicable
<PAGE>
PROSPECTUS November 10, 1997
EVERGREEN DOMESTIC EQUITY FUNDS
Evergreen Small Company Growth Fund (Evergreen Tree Logo)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Small Company Growth Fund (the "Fund") seeks long-term
growth of capital.
This Prospectus provides information regarding the Class A, Class B and
Class C shares offered by the Fund. The Fund is a diversified series of an
open-end, management investment company. This Prospectus sets forth concise
information about the Fund that a prospective investor should know before
investing. The address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116.
A Statement of Additional Information for the Fund dated November 10,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Fund at (800) 343-2898. There can
be no assurance that the investment objective of the Fund will be achieved.
Investors are advised to read this Prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is 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 involves risk,
including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
<PAGE>
TABLE OF CONTENTS
EXPENSE INFORMATION....................................................3
FINANCIAL HIGHLIGHTS...................................................4
DESCRIPTION OF THE FUND................................................4
Investment Objective and Policies.............................4
Investment Practices and Restrictions.........................6
ORGANIZATION AND SERVICE PROVIDERS....................................12
Organization.................................................12
Service Providers............................................13
Distribution Plans and Agreements......................... 14
PURCHASE AND REDEMPTION OF SHARES.....................................16
How to Buy Shares............................................16
How to Redeem Shares ..................................... 22
Exchange Privilege........................................ 24
Shareholder Services...................................... 26
Banking Laws.............................................. 28
OTHER INFORMATION.................................................. 28
Dividends, Distributions and Taxes........................ 28
General Information....................................... 30
<PAGE>
EXPENSE INFORMATION
The table and examples below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
SHAREHOLDER Class A Class B Class C
TRANSACTION EXPENSES Shares Shares Shares
Maximum Sales Charge 4.75% None None
Imposed on Purchases
(as a % of offering
price)
Maximum Sales Charge None None None
Imposed on Reinvested
Dividends (as a % of
offering price)
Maximum Contingent None(1) 5%(2) 1%(2)
Deferred Sales Charge
(as a % of original
purchase price or
redemption proceeds,
whichever is lower)
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending September 30, 1998. The examples show what you would pay if you
invested $1,000 over the periods indicated. The examples assume that you
reinvest all of your dividends and that the Fund's average annual return will be
5%. The examples are for illustration purposes only and should not be considered
a representation of past or future expenses or annual return. The Fund's actual
expenses and returns will vary. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
Annual Operating Expenses
Class A Class B Class C
<PAGE>
Annual Operating Expenses
Management Fees .48% .48% .48%
12b-1 Fees(3) .25% 1.00% 1.00%
Other Expenses .27% .27% .27%
Total 1.00% 1.75% 1.75%
===== ===== =====
<TABLE>
<CAPTION>
Examples
Assuming Redemption at Assuming no
End of Period Redemption
Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C>
After 1 Year $57 $68 $28 $18 $18
After 3 Years $78 $85 $55 $55 $55
</TABLE>
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(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5% to 1% on
amounts redeemed within six years after the month of purchase. The deferred
sales charge on Class C shares is 1% on amounts redeemed within one year
after the month of purchase. No sales charge is imposed on redemptions made
thereafter. See "Purchase and Redemption of Shares" for more information.
(3) Long-term shareholders may pay more than the economic equivalent
front-end sales charges permitted by the National Association of Securities
Dealers, Inc.
FINANCIAL HIGHLIGHTS
As of the date of this Prospectus the Fund had not commenced
operations. Consequently, no financial highlights are currently available.
DESCRIPTION OF THE FUND
Investment Objective and Policies
The Fund seeks long-term growth of capital.
<PAGE>
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. The Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit the Fund's exposure to risk. The Fund's fundamental policies cannot be
changed without a shareholder vote. See the Statement of Additional Information
("SAI") for more information regarding the Fund's fundamental investment
policies or other related investment policies. There can be no assurance that
the Fund's investment objective will be achieved.
Principal Investments and Investment Policies. The 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 capitalizations 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 cap for
this purpose.
While the 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.
Other Eligible Securities. The Fund also may invest, for temporary defensive
purposes, up to 100% of its assets in short-term obligations. Such obligations
may include master demand notes, commercial paper and notes, bank deposits and
other financial institution obligations.
The Fund may invest in limited partnerships, including master limited
partnerships, and up to 25% of its assets in foreign securities. The 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.
In addition to the investment policies detailed above, the Fund may
employ certain additional investment strategies
<PAGE>
which are discussed in "Investment Practices and
Restrictions."
Investment Practices and Restrictions
Risk Factors. Investing in companies with small market capitalizations involves
greater risk than investing in larger 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.
Moreover, a need for cash due to large liquidations from the Fund when
the prices of small cap stocks are declining could result in losses to the Fund.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which the Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Fund's risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, the
Fund may incur costs in disposing of the security which would increase Fund
expenses. The Fund's investment adviser will monitor the creditworthiness of the
firms with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by the Fund to sell a
security and repurchase it at a specified time and price. The Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of the Fund.
When-Issued, Delayed-Delivery and Forward Commitment
Transactions. The Fund may enter into transactions whereby it
<PAGE>
commits to buying a security, but does not pay for or take delivery of the
security until some specified date in the future. The value of these securities
is subject to market fluctuation during this period and no income accrues to the
Fund until settlement. At the time of settlement, a when- issued security may be
valued at less than its purchase price. When entering into these transactions,
the Fund relies on the other party to consummate the transaction; if the other
party fails to do so, the Fund may be disadvantaged.
Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that the
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may only borrow as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights. The
Fund does not intend to leverage.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities longer than seven days will be included for the
purpose of the foregoing 15% limit.
<PAGE>
The inability of the Fund to dispose of illiquid investments readily or at a
reasonable price could impair the Fund's ability to raise cash for redemptions
or other purposes.
Restricted Securities. The Fund may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the United States. The Fund's
investment adviser determines the liquidity of Rule 144A securities according to
guidelines and procedures adopted by the Fund's Board of Trustees. The Board of
Trustees monitors the investment adviser's application of those guidelines and
procedures. Securities eligible for resale pursuant to rule 144A, which the
Fund's investment adviser has determined to be liquid or readily marketable, are
not subject to the 15% limit on illiquid securities.
Options and Futures. The Fund may engage in options and futures transactions.
Options and futures transactions are intended to enable the Fund to manage
market, interest rate or exchange rate risk, and the Fund does not use these
transactions for speculation or leverage.
The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and listed
put options on financial futures contracts for portfolio securities. The Fund
may also purchase call options on financial futures contracts. The Fund may
write covered call options on its portfolio securities to attempt to increase
its current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
<PAGE>
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. The Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price (i.e.,
"go long") to hedge against a decline in market interest rates.
<PAGE>
The Fund may also enter into currency and other financial futures
contracts and write options on such contracts. The Fund intends to enter into
such contracts and related options for hedging purposes. The Fund will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Fund does not make
payment or deliver securities upon entering into a futures contract. Instead, it
puts down a margin deposit, which is adjusted to reflect changes in the value of
the contract and which remains in effect until the contract is terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of the underlying securities or
currencies declines and to fall when the value of such securities or currencies
increases. Thus, the Fund sells futures contracts in order to offset a possible
decline in the profit on its securities or currencies. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities or currencies increases and to fall when the
value of such securities or currencies declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case the Fund would continue to
bear market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Fund to manage market, exchange, or
interest rate risks, these
<PAGE>
investment devices can be highly volatile, and the Fund's use of them can result
in poorer performance (i.e., the Fund's returns may be reduced). The Fund's
attempt to use such investment devices for hedging purposes may not be
successful. Successful futures strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors. When
the Fund uses financial futures contracts and options on financial futures
contracts as hedging devices, there is a risk that the prices of the securities
subject to the financial futures contracts and options on financial futures
contracts may not correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the financial futures contract and any related
options to react to market changes differently than the portfolio securities. In
addition, the Fund's investment adviser could be incorrect in its expectations
and forecasts about the direction or extent of market factors, such as interest
rates, securities price movements, and other economic factors. Even if the
Fund's investment adviser correctly predicts interest rate movements, a hedge
could be unsuccessful if changes in the value of the Fund's futures position did
not correspond to changes in the value of its investments. In these events, the
Fund may lose money on the financial futures contracts or the options on
financial futures contracts. It is not certain that a secondary market for
positions in financial futures contracts or for options on financial futures
contracts will exist at all times. Although the Fund's investment adviser will
consider liquidity before entering into financial futures contracts or options
on financial futures contracts , there is no assurance that a liquid secondary
market on an exchange will exist for any particular financial futures contract
or option on a financial futures contract at any particular time. The Fund's
ability to establish and close out financial futures contracts and options on
financial futures contract positions depends on this secondary market. If the
Fund is unable to close out its position due to disruptions in the market or
lack of liquidity, the Fund may lose money on the futures contract or option,
and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate.
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
<PAGE>
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
Foreign Investments. Foreign securities may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and may be less marketable than comparable U.S.
securities. All these factors are considered by the Fund's investment adviser
before making any of these types of investments.
Foreign Currency Transactions. As discussed above, the Fund may invest in
securities of foreign issuers. When the Fund invests in foreign securities, they
usually will be denominated in foreign currencies, and the Fund temporarily may
hold funds in foreign currencies. Thus, the value of Fund shares will be
affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver or receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on the investment adviser's ability to predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
<PAGE>
value of the Fund's investments denominated in foreign currencies will depend on
the relative strength of those currencies and the U.S. dollar, and the Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. Although the Fund does not currently intend to do so,
the Fund may also purchase and sell options related to foreign currencies. The
Fund does not intend to enter into foreign currency transactions for speculation
or leverage.
ORGANIZATION AND SERVICE PROVIDERS
Organization
Fund Structure. The Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, the Fund is a diversified
series of an open-end, management investment company, called Evergreen Equity
Trust (the "Trust"). The Trust is a Delaware business trust organized on
September 17, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee the Fund's activities, reviewing,
among other things, the Fund's performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders participate in dividends and distributions
from the Fund's assets and have equal voting, liquidation and other rights.
Shareholders may exchange shares as described under "Exchanges," but will have
no other preference, conversion, exchange or preemptive rights. When issued and
paid for, shares will be fully paid and nonassessable. Shares of the Fund are
redeemable, transferable and freely assignable as collateral. The Fund may
establish additional classes or series of shares.
The Fund does not hold annual shareholder meetings; the Fund may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies and approving investment advisory
agreements or 12b-1 plans. In addition, the Fund is prepared to assist
shareholders in communicating with one another for the purpose of convening a
meeting to elect Trustees. If any matters are to be voted on
<PAGE>
by shareholders, each share owned as of the record date for the meeting would be
entitled to one vote for each dollar of net asset value applicable to each
share.
Service Providers
Investment Adviser. The investment adviser to the Fund is Keystone Investment
Management Company ("Keystone"). Keystone has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is an indirect subsidiary of First Union National
Bank ("FUNB"). FUNB is a subsidiary of First Union Corporation. Both FUNB and
First Union Corporation are located at 201 South College Street, Charlotte,
North Carolina 28288-0630. First Union Corporation and its subsidiaries provide
a broad range of financial services to individuals and businesses throughout the
United States.
The Fund pays Keystone a fee, calculated on an annual basis, equal to
0.70% of the first $100,000,000 of the aggregate net asset value of the shares
of the Fund, 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, computed as of the
close of business each business day and paid monthly.
Portfolio Manager.
The Portfolio Manager of the Fund 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.
<PAGE>
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union Corporation.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Fund.
Distribution Plans and Agreements
Distribution Plans. The Fund's Class A, Class B and Class C shares pay for the
expenses associated with the distribution of such shares according to
distribution plans adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") (each a "Plan" or collectively the "Plans"). Under
the Plans, the Fund may incur
<PAGE>
distribution-related and shareholder servicing-related expenses which are based
upon a maximum annual rate as a percentage of the Fund's average daily net
assets attributable to the Class, as follows:
Class A shares 0.75% (currently limited to 0.25%)
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include the Fund's investment adviser or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Fund may not pay any distribution or service fees during any
fiscal period in excess of the amounts set forth above. Amounts paid under the
Distribution Plans are used to compensate the Fund's distributor pursuant to the
Distribution Agreements entered into by the Fund.
Distribution Agreements. The Fund has also entered into distribution agreements
(each a "Distribution Agreement" or collectively the "Distribution Agreements")
with EDI. Pursuant to the Distribution Agreements, the Fund will compensate EDI
for its services as distributor based upon the maximum annual rate as a
percentage of the Fund's average daily net assets attributable to the Class, as
follows:
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
The Distribution Agreements provide that EDI will use the distribution
fee received from the Fund for payments (1) to compensate broker-dealers or
other persons for distributing shares of the Fund, including interest and
principal payments made in respect of amounts paid to broker-dealers or other
persons that have been financed (EDI may assign its rights to receive
compensation under the Plans to secure such financings), (2) to otherwise
promote the sale of shares of the Fund, and (3) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Fund's
shareholders. FUNB or its affiliates may finance the payments made by EDI to
compensate broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of other mutual funds,
compensation paid to EDI under the Distribution
<PAGE>
Agreements may be paid by EDI to the distributors of the acquired funds or their
predecessors.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by EDI under the Distribution Agreements during any year may be more or
less than its actual expenses and may result in a profit to EDI. Distribution
expenses incurred by EDI in one fiscal year that exceed the level of
compensation paid to EDI for that year may be paid from distribution fees
received from the Fund in subsequent fiscal years.
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
You may purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of the Fund by mailing to the Fund, c/o Evergreen Service
Company, P.O. Box 2121, Boston, Massachusetts 02106-2121, a completed
Application and a check payable to the Fund. You may also telephone
1-800-343-2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed Application. The
minimum initial investment is $1,000, which may be waived in certain situations.
Subsequent investments in any amount may be made by check, by wiring federal
funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the Application
for more information. Only Class A, Class B and Class C shares are offered
through this Prospectus. (See "General Information - Other Classes of Shares.")
Class A Shares - Front-End Sales Charge Alternative. You may purchase Class A
shares of the Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 or more of Class A shares without
a front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12-month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
<PAGE>
Amount of Purchase As a % of As a % of Commission to
the Net the Dealer/Agent
Amount Offering as a % of
Invested Price Offering Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 - $99,999 4.71% 4.50% 4.25%
$100,000 - $249,999 3.90% 3.75% 3.25%
$250,000 - $499,999 2.56% 2.50% 2.00%
$500,000 - $999,999 2.04% 2.00% 1.75%
$1,000,000 or more None None 1.00% of the
amount
invested up to
$2,999,999;
.50% of the
amount
invested over
$2,999,999, up
to $4,999,999;
and .25% of
the excess
over
$4,999,999
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisers; (b) investment advisers, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of FUNB and its affiliates, EDI and any broker-dealer with whom EDI
has entered into an agreement to sell shares of the Fund, and members of the
immediate families of
<PAGE>
such employees; (g) and upon the initial purchase of an Evergreen fund by
investors reinvesting the proceeds from a redemption within the preceding thirty
days of shares of other mutual funds, provided such shares were initially
purchased with a front-end sales charge or subject to a CDSC. Certain
broker-dealers or other financial institutions may impose a fee on transactions
in shares of the Fund.
Class A shares may also be purchased at net asset value by corporate or
certain other qualified retirement plans or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees, or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Fund. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to 0.25% of the average
daily net asset value on an annual basis of Class A shares held by their
clients. Certain purchases of Class A shares may qualify for reduced sales
charges in accordance with the Fund's Concurrent Purchases, Rights of
Accumulation, Letter of Intent, certain Retirement Plans and Reinstatement
Privilege. Consult the Application for additional information concerning these
reduced sales charges.
Class B Shares - Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC (expressed as a percentage of the lesser of the current net
asset value or original cost) will vary according to the number of years from
the month of purchase of Class B shares as set forth below.
CDSC
Redemption Timing Imposed
<PAGE>
Month of purchase and the first twelve-month
period following the month of purchase....................5.00%
Second twelve-month period following the
month of purchase.........................................4.00%
Third twelve-month period following the
month of purchase.........................................3.00%
Fourth twelve-month period following the
month of purchase.........................................3.00%
Fifth twelve-month period following the
month of purchase.........................................2.00%
Sixth twelve-month period following the
month of purchase.........................................1.00%
No CDSC is imposed on amounts redeemed thereafter.
The CDSC is deducted from the amount of the redemption and is paid to
EDI. In the event the Fund acquires the assets of other mutual funds, the CDSC
may be paid by EDI to the distributors of the acquired funds. Class B shares are
subject to higher distribution and/or shareholder service fees than Class A
shares for a period of seven years after the month of purchase (after which it
is expected that they will convert to Class A shares without imposition of a
front-end sales charge). 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. The Fund will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the
calendar month in which the shareholder's purchase order was accepted, Class B
shares will automatically convert to Class A shares and will no longer be
subject to the higher distribution services fee imposed on Class B shares. Such
conversion will be on the basis of the relative net asset values of the two
Classes, without the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to reduce the distribution and service fees
paid by holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
Class C Shares - Level-Load Alternative. Class C shares are only offered through
broker-dealers who have special distribution agreements with EDI. You may
purchase Class C shares at net asset value without any initial sales charge and,
therefore, the full amount of your investment will be used to purchase Fund
shares. However, you will pay a 1.00% CDSC if you redeem shares during the month
of purchase and the 12-month period following the month of purchase. No CDSC
<PAGE>
is imposed on amounts redeemed thereafter. Class C shares incur higher
distribution and/or shareholder service fees than Class A shares but, unlike
Class B shares, do not convert to any other class of shares of the Fund. The
higher fees mean a higher expense ratio, so Class C shares pay correspondingly
lower dividends and may have a lower net asset value than Class A shares. The
Fund will not normally accept any purchase of Class C shares in the amount of
$500,000 or more. No CDSC will be imposed on Class C shares purchased by
institutional investors and through employee benefit and savings plans eligible
for the exemption from front-end sales charges described under "Class A Shares -
Front-End Sales Charge Alternative" above. Broker-dealers and other financial
intermediaries whose clients have purchased Class C shares may receive a
trailing commission equal to 0.75% of the average daily net asset value of such
shares on an annual basis held by their clients more than one year from the date
of purchase. Trailing commissions will commence immediately with respect to
shares eligible for exemption from the CDSC normally applicable to Class C
shares.
Contingent Deferred Sales Charge. Certain shares with respect to which the Fund
did not pay a commission on issuance, including shares obtained from dividend or
distribution reinvestment, are not subject to a CDSC. Any CDSC imposed upon the
redemption of Class A, Class B or Class C shares is a percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the net asset value at
the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event
of: (1) death or disability of the shareholder; (2) a lump-sum distribution from
a 401(k) plan or other benefit plan qualified under the Employee Retirement
Income Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA
plans if the shareholder is at least 59 1/2 years old; (4) involuntary
redemptions of accounts having an aggregate net asset value of less than $1,000;
(5) automatic withdrawals under the Systematic Withdrawal Plan of up to 1.00%
per month of the shareholder's initial account balance; (6) withdrawals
consisting of loan proceeds to a retirement plan participant; (7) financial
hardship withdrawals made by a retirement plan participant; or (8) withdrawals
consisting of returns of excess contributions or excess deferral amounts made to
a retirement plan participant.
The Fund may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or CDSC to certain Directors, Trustees,
officers and employees of the Fund, Keystone, FUNB, Evergreen Asset Management
Corp.
<PAGE>
("Evergreen Asset"), EDI and certain of their affiliates, and to members of the
immediate families of such persons, to registered representatives of firms with
dealer agreements with EDI, and to a bank or trust company acting as a trustee
for a single account.
How the Fund Values Its Shares. The net asset value of each Class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in the Fund are valued at their current market values determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees believe would accurately reflect
fair value. Non-dollar denominated securities will be valued as of the close of
the Exchange at the closing price of such securities in their principal trading
markets.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year after the month of purchase. Consult your financial intermediary
for further information. The compensation received by broker-dealers and agents
may differ depending on whether they sell Class A, Class B or Class C shares.
There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EDI
may from time to time pay to broker-dealers additional cash or other incentives
that are conditioned upon the sale of a specified minimum dollar amount of
shares of the Fund and/or other Evergreen funds. Such incentives will take the
form of payment for attendance at seminars, lunches, dinners, sporting events or
theater performances, or payment for travel, lodging and entertainment incurred
in connection with travel by persons associated with a broker-dealer and their
immediate family members to urban or resort locations
<PAGE>
within or outside the United States. Such a dealer may elect to receive cash
incentives of equivalent amount in lieu of such payments. EDI may also limit the
availability of such incentives to certain specified dealers. EDI from time to
time sponsors promotions involving First Union Brokerage Services, Inc., an
affiliate of the Fund's investment adviser, and select broker-dealers, pursuant
to which incentives are paid, including gift certificates and payments in
amounts up to 1% of the dollar amount of shares of the Fund sold. Awards may
also be made based on the opening of a minimum number of accounts. Such
promotions are not being made available to all broker-dealers. Certain
broker-dealers may also receive payments from EDI or the Fund's investment
adviser over and above the usual trail commissions or shareholder servicing
payments applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, the Fund may redeem
shares from an investor's account to reimburse the Fund or its investment
adviser for any loss. In addition, such investor may be prohibited or restricted
from making further purchases in any of the Evergreen funds. The Fund will not
accept third party checks other than those payable directly to a shareholder
whose account has been in existence at least 30 days.
How to Redeem Shares
You may "redeem" (i.e., sell) your shares in the Fund to the Fund for
cash at their net redemption value on any day the Exchange is open, either
directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent (less any applicable CDSC) next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to 15 days). Once a redemption
<PAGE>
request has been telephoned or mailed, it is irrevocable and
may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to the Fund and may charge you for this service. Certain financial
intermediaries may require that you give instructions earlier than 4:00 p.m.
(Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically.
<PAGE>
Shareholders wishing to use the telephone redemption service must complete the
appropriate section on the Application and choose how the redemption proceeds
are to be paid. Redemption proceeds will either (1) be mailed by check to the
shareholder at the address in which the account is registered or (2) be wired to
an account with the same registration as the shareholder's account in the Fund
at a designated commercial bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800- 346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when:
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission ("SEC") so orders. The Fund reserves the
right to close an account that through redemption has fallen below
<PAGE>
$1,000 and has remained so for 30 days. Shareholders will receive 60 days'
written notice to increase the account value to at least $1,000 before the
account is closed. The Fund has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of the Fund's total net assets, during
any 90 day period for any one shareholder.
Exchange Privilege
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon 60 days' notice to shareholders and is only available in
states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event shares are exchanged for shares of
the same class of other Evergreen funds. If you redeem shares, the CDSC
applicable to the shares of the Evergreen fund originally purchased for cash is
applied. Also, Class B shares will continue to age following an exchange for the
purpose of conversion to Class A shares and for the purpose of determining the
amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary
<PAGE>
before 4:00 p.m. (Eastern time) for you to receive that day's net asset value.
Your financial intermediary is responsible for furnishing all necessary
documentation to the Fund and may charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares;" however, no signature guarantee is required.
Shareholder Services
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
Prospectus. Some services are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling
<PAGE>
out the appropriate part of the Application. Under this Plan, you may receive
(or designate a third party to receive) a monthly or quarterly fixed-withdrawal
payment in a stated amount of at least $75 and as much as 1.0% per month or 3.0%
per quarter of the total net asset value of the Fund shares in your account when
the Plan was opened. Fund shares will be redeemed as necessary to meet
withdrawal payments. All participants must elect to have their dividends and
capital gains distributions reinvested automatically.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified employee benefit and savings plans may make shares of the Fund and
the other Evergreen funds available to their participants. Investments made by
such employee benefit plans may be exempt from front-end sales charges if they
meet the criteria set forth under "Class A Shares -Front-End Sales Charge
Alternative." Evergreen Asset, Keystone or FUNB may provide compensation to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen funds available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the Application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will
<PAGE>
automatically be redeemed from your initial account and invested in shares of
the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Evergreen fund shares you own automatically invested to
purchase the same class of shares of any other Evergreen fund. You may select
this service on your Application and indicate the Evergreen fund(s) into which
distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans;
Keogh Plans; Profit- Sharing Plans; Medical Savings Accounts; Pension and Target
Benefit and Money Purchase Plans. For details, including fees and application
forms, call toll free 1-800-247-4075 or write to ESC.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and FUNB are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If Keystone were prevented from continuing to provide
the services called for under the investment advisory agreement, it is expected
that the Trustees would identify, and call upon the Fund's shareholders to
approve, a new investment adviser. If this were to occur,
<PAGE>
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
Dividends, Distributions and Taxes
The Fund intends to distribute its investment company taxable income
annually and net capital realized gains at least annually. Shareholders receive
Fund distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Shareholders of the Fund who have not opted to receive cash prior to the payable
date for any dividend from net investment income or the record date for any
capital gains distribution will have the number of such shares determined on the
basis of the Fund's net asset value per share computed at the end of that day
after adjustment for the distribution. Net asset value is used in computing the
number of shares in both capital gains and income distribution investments.
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front-end sales charge, while Class B and, when
applicable, Class C shares bear such expenses through a higher annual
distribution fee, expenses attributable to Class B shares and Class C shares
will generally be higher than those of Class A shares, and income distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do not meet certain distribution requirements by the end
<PAGE>
of each calendar year. The Fund anticipates meeting such distribution
requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States federal income tax may be entitled, subject to certain
rules and limitations, to claim a federal income tax credit or deduction for
foreign income taxes paid by the Fund. See the SAI for additional details. The
Fund's transactions in options, futures and forward contracts may be subject to
special tax rules. These rules can affect the amount, timing and characteristics
of distributions to shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding. A shareholder who acquires Class A shares of a Fund and sells or
otherwise disposes of such shares within ninety days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of the Fund.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
<PAGE>
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
General Information
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 200%. A portfolio turnover rate of 100% would occur if
all of the Fund's portfolio securities were replaced in one year. The portfolio
turnover rate experienced by the Fund directly affects the transaction costs
relating to the purchase and sale of securities which the Fund bears directly. A
high rate of portfolio turnover will increase such costs. See the SAI for
further information regarding the practices of the Fund affecting portfolio
turnover.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of broker-dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers four classes of shares, Class
A, Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are not offered by this Prospectus and are only available to (1)
persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by Evergreen Asset, (2) certain institutional investors and (3)
investment advisory clients of FUNB, Evergreen Asset, Keystone or their
affiliates. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing- related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares. Investors should telephone (800) 343-2898 to obtain more information on
other classes of shares.
Performance Information. From time to time, the Fund may quote its "total
return" or "yield" for a specified period in
<PAGE>
advertisements, reports or other communications to shareholders. Total return
and yield are computed separately for Class A, Class B, Class C and Class Y
shares. The Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the SEC, the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, dividends and capital gains distributions
paid on shares of the Fund are assumed to have been reinvested when paid and the
maximum sales charges applicable to purchases of the Fund's shares are assumed
to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, the Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest and dividend income it earned from its portfolio of investments (as
defined by the SEC formula) for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. This yield does not reflect gains or losses from
selling securities.
Performance data may be included in any advertisement or sales
literature of the Fund. These advertisements may quote performance rankings or
ratings of the Fund by financial publications or independent organizations such
as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices. The Fund may also advertise in items of sales
literature an "actual distribution rate" which is computed by dividing the total
ordinary income distributed (which may include the excess of short-term capital
gains over losses) to shareholders for the latest twelve-month period by the
maximum public offering price per share on the last day of the period. Investors
should be aware that past performance may not be indicative of future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general
<PAGE>
principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting; a questionnaire designed to help create a personal
financial profile; and an action plan offering investment alternatives. The
information provided to investors may also include discussions of other
Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. The
materials may also reprint, and use as advertising and sales literature,
articles from Evergreen Events, a quarterly magazine provided free of charge to
Evergreen fund shareholders.
Additional Information. This Prospectus and the SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC under the Securities Act
of 1933, as amended. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
offices of the SEC in Washington, D.C.
<PAGE>
Investment Adviser
Keystone Investment Management Company, 200 Berkeley Street,
Boston, Massachusetts 02116-5034
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston,
Massachusetts 02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts
02110
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New
York 10019
<PAGE>
PROSPECTUS November 10, 1997
EVERGREEN DOMESTIC EQUITY FUNDS
Evergreen Small Company Growth Fund (Evergreen Tree Logo)
CLASS Y SHARES
The Evergreen Small Company Growth Fund (the "Fund") seeks long-term
growth of capital.
This Prospectus provides information regarding the Class Y shares
offered by the Fund. The Fund is a diversified series of an open-end, management
investment company. This Prospectus sets forth concise information about the
Fund that a prospective investor should know before investing. The address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Fund dated November 10,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Fund at (800) 343-2898. There can
be no assurance that the investment objective of the Fund will be achieved.
Investors are advised to read this Prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is 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 involves risk,
including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
<PAGE>
TABLE OF CONTENTS
EXPENSE INFORMATION...................................................3
FINANCIAL HIGHLIGHTS..................................................3
DESCRIPTION OF THE FUND...............................................4
Investment Objective and Policies............................4
Investment Practices and Restrictions........................5
ORGANIZATION AND SERVICE PROVIDERS................................ 12
Organization............................................. 12
Service Providers...........................................12
PURCHASE AND REDEMPTION OF SHARES................................. 13
How to Buy Shares........................................ 13
How to Redeem Shares .................................... 14
Exchange Privilege....................................... 17
Shareholder Services..................................... 18
Banking Laws................................................20
OTHER INFORMATION................................................. 20
Dividends, Distributions and Taxes....................... 20
General Information...................................... 22
<PAGE>
EXPENSE INFORMATION
The table and example below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending September 30, 1998. The example shows what you would pay if you
invested $1,000 over the periods indicated. The example assumes that you
reinvest all of your dividends and that the Fund's average annual return will be
5%. The example is for illustration purposes only and should not be considered a
representation of past or future expenses or annual return. The Fund's actual
expenses and returns will vary. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
<TABLE>
<CAPTION>
Annual
Operating
Expenses Example
<S> <C> <C> <C>
Management .48% After 1 Year $8
Fees
12b-1 Fees --
Other Expenses .27% After 3 Years $24
Total .75%
</TABLE>
FINANCIAL HIGHLIGHTS
As of the date of this Prospectus the Fund had not commenced
operations. Consequently, no financial highlights are currently available.
DESCRIPTION OF THE FUND
<PAGE>
Investment Objective and Policies
The Fund seeks long-term growth of capital.
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. The Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit the Fund's exposure to risk. The Fund's fundamental policies cannot be
changed without a shareholder vote. See the Statement of Additional Information
("SAI") for more information regarding the Fund's fundamental investment
policies or other related investment policies. There can be no assurance that
the Fund's investment objective will be achieved.
Principal Investments and Investment Policies. The 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 capitalizations 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 cap for
this purpose.
While the 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.
Other Eligible Securities. The Fund also may invest, for temporary defensive
purposes, up to 100% of its assets in short-term obligations. Such obligations
may include master demand notes, commercial paper and notes, bank deposits and
other financial institution obligations.
The Fund may invest in limited partnerships, including master limited
partnerships, and up to 25% of its assets in foreign securities. The 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.
<PAGE>
In addition to the investment policies detailed above, the Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions."
Investment Practices and Restrictions
Risk Factors. Investing in companies with small market capitalizations involves
greater risk than investing in larger 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.
Moreover, a need for cash due to large liquidations from the Fund when
the prices of small cap stocks are declining could result in losses to the Fund.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which the Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Fund's risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, the
Fund may incur costs in disposing of the security which would increase Fund
expenses. The Fund's investment adviser will monitor the creditworthiness of the
firms with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by the Fund to sell a
security and repurchase it at a specified time and price. The Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of the Fund.
<PAGE>
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuation during
this period and no income accrues to the Fund until settlement. At the time of
settlement, a when- issued security may be valued at less than its purchase
price. When entering into these transactions, the Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged.
Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that the
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may only borrow as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights. The
Fund does not intend to leverage.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities
<PAGE>
longer than seven days will be included for the purpose of the foregoing 15%
limit. The inability of the Fund to dispose of illiquid investments readily or
at a reasonable price could impair the Fund's ability to raise cash for
redemptions or other purposes.
Restricted Securities. The Fund may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the United States. The Fund's
investment adviser determines the liquidity of Rule 144A securities according to
guidelines and procedures adopted by the Fund's Board of Trustees. The Board of
Trustees monitors the investment adviser's application of those guidelines and
procedures. Securities eligible for resale pursuant to Rule 144A, which the
Fund's investment adviser has determined to be liquid or readily marketable, are
not subject to the 15% limit on illiquid securities.
Options and Futures. The Fund may engage in options and futures transactions.
Options and futures transactions are intended to enable the Fund to manage
market, interest rate or exchange rate risk, and the Fund does not use these
transactions for speculation or leverage.
The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and listed
put options on financial futures contracts for portfolio securities. The Fund
may also purchase call options on financial futures contracts. The Fund may
write covered call options on its portfolio securities to attempt to increase
its current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be
<PAGE>
closed out only on an exchange which provides a secondary market for an option
of the same series.
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. The Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund would enter into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase
<PAGE>
securities in the future at a predetermined price (i.e., "go long") to hedge
against a decline in market interest rates.
The Fund may also enter into currency and other financial futures
contracts and write options on such contracts. The Fund intends to enter into
such contracts and related options for hedging purposes. The Fund will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Fund does not make
payment or deliver securities upon entering into a futures contract. Instead, it
puts down a margin deposit, which is adjusted to reflect changes in the value of
the contract and which remains in effect until the contract is terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of the underlying securities or
currencies declines and to fall when the value of such securities or currencies
increases. Thus, the Fund sells futures contracts in order to offset a possible
decline in the profit on its securities or currencies. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities or currencies increases and to fall when the
value of such securities or currencies declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case the Fund would continue to
bear market risk on the transaction.
<PAGE>
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Fund to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's returns
may be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, the Fund's investment adviser could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Fund's investment adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of the Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Fund may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although the Fund's
investment adviser will consider liquidity before entering into financial
futures contracts or options on financial futures contracts , there is no
assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Fund's ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate.
<PAGE>
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
Foreign Investments. Foreign securities may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and may be less marketable than comparable U.S.
securities. All these factors are considered by the Fund's investment adviser
before making any of these types of investments.
Foreign Currency Transactions. As discussed above, the Fund may invest in
securities of foreign issuers. When the Fund invests in foreign securities, they
usually will be denominated in foreign currencies, and the Fund temporarily may
hold funds in foreign currencies. Thus, the value of Fund shares will be
affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver or receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund
<PAGE>
will attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on the investment adviser's ability to predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
value of the Fund's investments denominated in foreign currencies will depend on
the relative strength of those currencies and the U.S. dollar, and the Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. Although the Fund does not currently intend to do so,
the Fund may also purchase and sell options related to foreign currencies. The
Fund does not intend to enter into foreign currency transactions for speculation
or leverage.
ORGANIZATION AND SERVICE PROVIDERS
Organization
Fund Structure. The Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, the Fund is a diversified
series of an open-end, management investment company, called Evergreen Equity
Trust (the "Trust"). The Trust is a Delaware business trust organized on
September 17, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee the Fund's activities, reviewing,
among other things, the Fund's performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders participate in dividends and distributions
from the Fund's assets and have equal voting, liquidation and other rights.
Shareholders may exchange shares as described under "Exchanges," but will have
no other preference, conversion, exchange or preemptive rights. When issued and
paid for, shares will be fully paid and nonassessable. Shares of the Fund are
redeemable, transferable and freely assignable as collateral. The Fund may
establish additional classes or series of shares.
The Fund does not hold annual shareholder meetings; the Fund may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies
<PAGE>
and approving investment advisory agreements or 12b-1 plans. In addition, the
Fund is prepared to assist shareholders in communicating with one another for
the purpose of convening a meeting to elect Trustees. If any matters are to be
voted on by shareholders, each share owned as of the record date for the meeting
would be entitled to one vote for each dollar of net asset value applicable to
each share.
Service Providers
Investment Adviser. The investment adviser to the Fund is Keystone Investment
Management Company ("Keystone"). Keystone has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is an indirect subsidiary of First Union National
Bank ("FUNB"). FUNB is a subsidiary of First Union Corporation. Both FUNB and
First Union Corporation are located at 201 South College Street, Charlotte,
North Carolina 28288-0630. First Union Corporation and its subsidiaries provide
a broad range of financial services to individuals and businesses throughout the
United States.
The Fund pays Keystone a fee, calculated on an annual basis, equal to
0.70% of the first $100,000,000 of the aggregate net asset value of the shares
of the Fund, 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, computed as of the
close of business each business day and paid monthly.
Portfolio Manager.
The Portfolio Manager of the Fund 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.
<PAGE>
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union Corporation.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Fund.
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
<PAGE>
Class Y shares are offered at net asset value without a front-end sales
charge or a contingent deferred sales load. Class Y shares are only offered to
(1) persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by Evergreen Asset Management Corp. ("Evergreen Asset"), (2) certain
institutional investors and (3) investment advisory clients of FUNB, Evergreen
Asset , Keystone or their affiliates.
Eligible investors may purchase Class Y shares of the Fund through
broker-dealers, banks or other financial intermediaries, or directly through
EDI. In addition, you may purchase Class Y shares of the Fund by mailing to the
Fund, c/o Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121, a completed Application and a check payable to the Fund. You may
also telephone 1-800-343-2898 to obtain the number of an account to which you
can wire or electronically transfer funds and then send in a completed
Application. The minimum initial investment is $1,000, which may be waived in
certain situations. Subsequent investments in any amount may be made by check,
by wiring federal funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of
$25 or more are allowed under the Systematic Investment Plan. See the
Application for more information. Only Class Y shares are offered through this
Prospectus (see "General Information" -- "Other Classes of Shares").
How the Fund Values Its Shares. The net asset value of each Class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in the Fund are valued at their current market values determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees of the Trust believe would
accurately reflect fair value. Non-dollar denominated securities will be valued
as of the close of the Exchange at the closing price of such securities in their
principal trading markets.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, the Fund may redeem
shares from an investor's account to
<PAGE>
reimburse the Fund or its investment adviser for any loss. In addition, such
investor may be prohibited or restricted from making further purchases in any of
the Evergreen funds. The Fund will not accept third party checks other than
those payable directly to a shareholder whose account has been in existence at
least 30 days.
How to Redeem Shares
You may "redeem" (i.e., sell) your Class Y shares in the Fund to the
Fund for cash at their net redemption value on any day the Exchange is open,
either directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, the Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m.
(Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
<PAGE>
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate section on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (1) be mailed by check to the shareholder at the address in
which the account is registered or (2) be wired to an account with the same
registration as the shareholder's account in the Fund at a designated commercial
bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when
<PAGE>
following instructions received over the Evergreen Express Line or by telephone
that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800- 346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when:
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission ("SEC") so orders. The Fund reserves the
right to close an account that through redemption has fallen below $1,000 and
has remained so for 30 days. Shareholders will receive 60 days' written notice
to increase the account value to at least $1,000 before the account is closed.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 (the "1940 Act") pursuant to which the Fund is obligated to redeem
shares solely in cash, up to the lesser of $250,000 or 1% of the Fund's total
net assets, during any 90 day period for any one shareholder.
Exchange Privilege
How to Exchange Shares. You may exchange some or all of your Class Y shares for
shares of the same Class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to
<PAGE>
be exchanged. An exchange is treated for federal income tax purposes as a
redemption and purchase of shares and may result in the realization of a capital
gain or loss. Shareholders are limited to five exchanges per calendar year, with
a maximum of three per calendar quarter. This exchange privilege may be modified
or discontinued at any time by the Fund upon 60 days' notice to shareholders and
is only available in states in which shares of the fund being acquired may
lawfully be sold.
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares;" however, no signature guarantee is required.
Shareholder Services
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
Prospectus. Some services are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
<PAGE>
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and as
much as 1.0% per month or 3.0% per quarter of the total net asset value of the
Fund shares in your account when the Plan was opened. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must elect
to have their dividends and capital gains distributions reinvested
automatically.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the Application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will
<PAGE>
automatically be redeemed from your initial account and invested in shares of
the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Class Y Evergreen fund shares you own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your Application and indicate the Evergreen fund(s)
into which distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans;
Keogh Plans; Profit- Sharing Plans; Medical Savings Accounts; Pension and Target
Benefit and Money Purchase Plans. For details, including fees and application
forms, call toll free 1-800-247-4075 or write to ESC.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and FUNB are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If Keystone were prevented from continuing to provide
the services called for under the investment advisory agreement, it is expected
that the Trustees would identify, and call upon the Fund's shareholders to
approve, a new investment adviser. If this were to occur,
<PAGE>
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
Dividends, Distributions and Taxes
The Fund intends to distribute its investment company taxable income
annually and net realized capital gains at least annually. Shareholders receive
Fund distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Shareholders of the Fund who have not opted to receive cash prior to the payable
date for any dividend from net investment income or the record date for any
capital gains distribution will have the number of such shares determined on the
basis of the Fund's net asset value per share computed at the end of that day
after adjustment for the distribution. Net asset value is used in computing the
number of shares in both capital gains and income distribution investments.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. Tax treaties
<PAGE>
between certain countries and the United States may reduce or eliminate such
taxes. Shareholders of a Fund who are subject to United States federal income
tax may be entitled, subject to certain rules and limitations, to claim a
federal income tax credit or deduction for foreign income taxes paid by the
Fund. See the SAI for additional details. The Fund's transactions in options,
futures and forward contracts may be subject to special tax rules. These rules
can affect the amount, timing and characteristics of distributions to
shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
General Information
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 200%. A portfolio turnover rate of 100% would occur if
all of the
<PAGE>
Fund's portfolio securities were replaced in one year. The portfolio turnover
rate experienced by the Fund directly affects the transaction costs relating to
the purchase and sale of securities which the Fund bears directly. A high rate
of portfolio turnover will increase such costs. See the SAI for further
information regarding the practices of the Fund affecting portfolio turnover.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of broker-dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers four classes of shares, Class
A, Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are the only class of shares offered by this Prospectus and are
only available to (1) persons who at or prior to December 31, 1994 owned shares
in a mutual fund advised by Evergreen Asset, (2) certain institutional investors
and (3) investment advisory clients of FUNB, Evergreen Asset, Keystone or their
affiliates. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing-related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares. Investors should telephone (800) 343-2898 to obtain more information on
other classes of shares.
Performance Information. From time to time, the Fund may quote its "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for Class A, Class B, Class C and Class Y shares. The Fund's total return for
each such period is computed by finding, through the use of a formula prescribed
by the SEC, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, dividends and
capital gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charges applicable to purchases of
the Fund's shares are assumed to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share
<PAGE>
price. The Fund's yield is calculated according to accounting methods that are
standardized by the SEC for all stock and bond funds. Because yield accounting
methods differ from the method used for other accounting purposes, the Fund's
yield may not equal its distribution rate, the income paid to your account or
the net investment income reported in the Fund's financial statements. To
calculate yield, the Fund takes the interest and dividend income it earned from
its portfolio of investments (as defined by the SEC formula) for a 30-day period
(net of expenses), divides it by the average number of shares entitled to
receive dividends, and expresses the result as an annualized percentage rate
based on the Fund's share price at the end of the 30-day period. This yield does
not reflect gains or losses from selling securities.
Performance data may be included in any advertisement or sales
literature of the Fund. These advertisements may quote performance rankings or
ratings of the Fund by financial publications or independent organizations such
as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices. The Fund may also advertise in items of sales
literature an "actual distribution rate" which is computed by dividing the total
ordinary income distributed (which may include the excess of short-term capital
gains over losses) to shareholders for the latest twelve-month period by the
maximum public offering price per share on the last day of the period. Investors
should be aware that past performance may not be indicative of future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. The
materials may also reprint, and use as advertising and sales literature,
articles from Evergreen
<PAGE>
Events, a quarterly magazine provided free of charge to Evergreen fund
shareholders.
Additional Information. This Prospectus and the SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC under the Securities Act
of 1933, as amended. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
offices of the SEC in Washington, D.C.
<PAGE>
Investment Adviser
Keystone Investment Management Company, 200 Berkeley Street,
Boston, Massachusetts 02116-5034
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston,
Massachusetts 02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts
02110
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New
York 10019
<PAGE>
PROSPECTUS November 10, 1997
EVERGREEN SPECIALTY GROWTH AND BALANCED FUNDS
Evergreen Balanced Fund (Evergreen Tree Logo)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Balanced Fund (the "Fund") seeks to provide shareholders
with current income.
This Prospectus provides information regarding the Class A, Class B and
Class C shares offered by the Fund. The Fund is a diversified series of an
open-end, management investment company. This Prospectus sets forth concise
information about the Fund that a prospective investor should know before
investing. The address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116.
A Statement of Additional Information for the Fund dated November 10,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Fund at (800) 343-2898. There can
be no assurance that the investment objective of the Fund will be achieved.
Investors are advised to read this Prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is 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 involves risk,
including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
<PAGE>
TABLE OF CONTENTS
EXPENSE INFORMATION........................................................3
FINANCIAL HIGHLIGHTS.......................................................4
DESCRIPTION OF THE FUND....................................................4
Investment Objective and Policies.................................4
Investment Practices and Restrictions.............................6
ORGANIZATION AND SERVICE PROVIDERS........................................15
Organization.....................................................15
Service Providers................................................16
Distribution Plans and Agreements............................. 17
PURCHASE AND REDEMPTION OF SHARES.........................................19
How to Buy Shares................................................19
How to Redeem Shares ......................................... 25
Exchange Privilege............................................ 27
Shareholder Services.......................................... 29
Banking Laws.................................................. 31
OTHER INFORMATION...................................................... 31
Dividends, Distributions and Taxes............................ 31
General Information........................................... 33
<PAGE>
EXPENSE INFORMATION
The table and examples below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION Class A Class B Class C
EXPENSES Shares Shares Shares
<S> <C> <C> <C>
Maximum Sales Charge 4.75% None None
Imposed on Purchases
(as a % of offering
price)
Maximum Sales Charge None None None
Imposed on Reinvested
Dividends (as a % of
offering price)
Maximum Contingent None(1) 5%(2) 1%(2)
Deferred Sales Charge
(as a % of original
purchase price or
redemption proceeds,
whichever is lower)
</TABLE>
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending March 31, 1998. The examples show what you would pay if you
invested $1,000 over the periods indicated. The examples assume that you
reinvest all of your dividends and that the Fund's average annual return will be
5%. The examples are for illustration purposes only and should not be considered
a representation of past or future expenses or annual return. The Fund's actual
expenses and returns will vary. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
Annual Operating Expenses
Class A Class B Class C
<PAGE>
Annual Operating Expenses
Management Fees .45% .45% .45%
12b-1 Fees(3) .25% 1.00% 1.00%
Other Expenses .27% .27% .27%
Total .97% 1.72% 1.72%
==== ===== =====
<TABLE>
<CAPTION>
Examples
Assuming Redemption at Assuming no
End of Period Redemption
Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C>
After 1 Year $57 $67 $27 $17 $17
After 3 Years $77 $84 $54 $54 $54
</TABLE>
- ---------------
(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5% to 1% on
amounts redeemed within six years after the month of purchase. The deferred
sales charge on Class C shares is 1% on amounts redeemed within one year
after the month of purchase. No sales charge is imposed on redemptions made
thereafter. See "Purchase and Redemption of Shares" for more information.
(3) Long-term shareholders may pay more than the economic equivalent
front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
FINANCIAL HIGHLIGHTS
As of the date of this Prospectus the Fund had not commenced
operations. Consequently, no financial highlights are currently available.
DESCRIPTION OF THE FUND
Investment Objective and Policies
The Fund seeks current income.
<PAGE>
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. The Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit the Fund's exposure to risk. The Fund's fundamental policies cannot be
changed without a shareholder vote. See the Statement of Additional Information
("SAI") for more information regarding the Fund's fundamental investment
policies or other related investment policies. There can be no assurance that
the Fund's investment objective will be achieved.
Principal Investments and Investment Policies. The Fund invests in a combination
of equity and debt securities chosen primarily for their potential for current
income and secondarily, to the extent consistent with the Fund's investment
objective, for their potential for capital appreciation. The Fund normally
emphasizes securities having a liberal current yield consistent with investment
quality on which the interest or dividend payments are considered reasonably
secure. Under normal circumstances, the Fund maintains at least 25% of its total
assets in fixed income senior securities. The Fund will invest, under normal
circumstances, at leats 50% of its total assets in equity securities. The Fund
may invest in any type of security, including bonds, debentures and income
obligations as well as common and preferred stocks.
Debt securities, which include both secured and unsecured obligations,
will, at the time of investment, be rated within the four highest categories by
Standard & Poor's Ratings Group ("S&P") (AAA, AA, A and BBB), by Moody's
Investors Service ("Moody's") (Aaa, Aa, A and Baa), by Fitch Investors Services,
L.P. ("Fitch") (AAA, AA, A and BBB), or if not rated or rated under a different
system, will be of comparable quality to obligations so rated, as determined by
the Fund's investment adviser.
Other Eligible Investments. The Fund may also invest in limited partnerships,
including master limited partnerships, and in foreign securities (up to 25% of
its assets). The Fund may also invest up to 25% of its assets in high yield,
high risk bonds and similar securities of United States (U.S.) and foreign
issuers having a rating range of BB to CCC by S&P or Fitch and/or Ba to Caa by
Moody's, or if unrated or rated under a different system, believed by the Fund's
investment adviser to be of comparable quality.
The Fund's debt securities may include zero coupon bonds and
payment-in-kind securities ("PIKs").
<PAGE>
The Fund may invest in certain types of derivative instruments,
including mortgage-related securities, such as collateralized mortgage
obligations, and enter into interest rate transactions, such as "swaps," "caps,"
and "floors." These vehicles can also be combined to create more complex
products called hybrid derivatives or structured securities.
The Fund also may invest, for temporary defensive purposes, up to 100%
of its assets in short-term obligations. Such obligations may include master
demand notes, commercial paper and notes, bank deposits and other financial
institution obligations.
In addition to the investment policies detailed above, the Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions."
Investment Practices and Restrictions
Risk Factors. Bond prices move inversely to interest rates, i.e., as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
obligations in which the Fund may invest may be variable or floating rate
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Below-Investment Grade Bonds. Below-investment grade bonds have low ratings, and
a degree of doubt surrounds the safety of investment and the ability of the
issuer to continue interest payments. These bonds are also called "high risk,
high yield" bonds or "junk" bonds. Junk bonds are usually backed by issuers of
less proven or questionable financial strength. Compared with higher-grade
bonds, issuers of junk bonds are more likely to face financial problems and to
be materially affected by those problems. As a result, the ability of issuers of
junk bonds to pay interest and principal is uncertain. Moreover, the junk bond
market may react strongly to real or perceived unfavorable news about an issuer
or the economy. If a junk bond issuer defaults, the bond will lose some or all
of its value.
<PAGE>
Zero Coupon Bonds and PIKs. Zero coupon bonds and PIKs involve additional risks.
Zero coupon bonds and PIKs do not require the periodic payment of interest. PIKs
are debt obligations that provide that the issuer may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments may experience greater fluctuation in value due to changes in
interest rates than debt obligations that pay interest currently. Even though
these investments do not pay current interest in cash, the Fund is nonetheless
required by tax laws to accrue interest income on such investments and to
distribute such amounts, at least annually, to shareholders. Thus, the Fund
could be required at times to liquidate investments in order to fulfill its
intention to distribute substantially all of its net income as dividends.
Downgrades. If any security invested in by the Fund loses its rating or has its
rating reduced after the Fund has purchased it, the Fund is not required to sell
or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which the Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Fund's risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, the
Fund may incur costs in disposing of the security which would increase Fund
expenses. The Fund's investment adviser will monitor the creditworthiness of the
firms with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by the Fund to sell a
security and repurchase it at a specified time and price. The Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of the Fund.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take
<PAGE>
delivery of the security until some specified date in the future. The value of
these securities is subject to market fluctuation during this period and no
income accrues to the Fund until settlement. At the time of settlement, a when-
issued security may be valued at less than its purchase price. When entering
into these transactions, the Fund relies on the other party to consummate the
transaction; if the other party fails to do so, the Fund may be disadvantaged.
Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that the
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may only borrow as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights. The
Fund does not intend to leverage.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities longer than seven days will be included for the
purpose of the foregoing 15% limit.
<PAGE>
The inability of the Fund to dispose of illiquid investments readily or at a
reasonable price could impair the Fund's ability to raise cash for redemptions
or other purposes.
Restricted Securities. The Fund may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the United States. The Fund's
investment adviser determines the liquidity of Rule 144A securities according to
guidelines and procedures adopted by the Fund's Board of Trustees. The Board of
Trustees monitors the investment adviser's application of those guidelines and
procedures. Securities eligible for resale pursuant to Rule 144A, which the
Fund's investment adviser has determined to be liquid or readily marketable, are
not subject to the 15% limit on illiquid securities.
Options and Futures. The Fund may engage in options and futures transactions.
Options and futures transactions are intended to enable the Fund to manage
market, interest rate or exchange rate risk, and the Fund does not use these
transactions for speculation or leverage.
The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on their portfolio securities and
listed put options on financial futures contracts for portfolio securities. The
Fund may also purchase call options on financial futures contracts. The Fund may
also write covered call options on its portfolio securities to attempt to
increase its current income. The Fund will maintain its positions in securities,
option rights, and segregated cash subject to puts and calls until the options
are exercised, closed, or have expired. An option position may be closed out
only on an exchange which provides a secondary market for an option of the same
series.
<PAGE>
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. The Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price (i.e.,
"go long") to hedge against a decline in market interest rates.
<PAGE>
The Fund may also enter into currency and other financial futures
contracts and write options on such contracts. The Fund intends to enter into
such contracts and related options for hedging purposes. The Fund will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Fund does not make
payment or deliver securities upon entering into a futures contract. Instead, it
puts down a margin deposit, which is adjusted to reflect changes in the value of
the contract and which remains in effect until the contract is terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of the underlying securities or
currencies declines and to fall when the value of such securities or currencies
increases. Thus, the Fund sells futures contracts in order to offset a possible
decline in the profit on its securities or currencies. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities or currencies increases and to fall when the
value of such securities or currencies declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case the Fund would continue to
bear market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Fund to manage market, exchange, or
interest rate risks, these
<PAGE>
investment devices can be highly volatile, and the Fund's use of them can result
in poorer performance (i.e., the Fund's returns may be reduced). The Fund's
attempt to use such investment devices for hedging purposes may not be
successful. Successful futures strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors. When
the Fund uses financial futures contracts and options on financial futures
contracts as hedging devices, there is a risk that the prices of the securities
subject to the financial futures contracts and options on financial futures
contracts may not correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the financial futures contract and any related
options to react to market changes differently than the portfolio securities. In
addition, the Fund's investment adviser could be incorrect in its expectations
and forecasts about the direction or extent of market factors, such as interest
rates, securities price movements, and other economic factors. Even if the
Fund's investment adviser correctly predicts interest rate movements, a hedge
could be unsuccessful if changes in the value of the Fund's futures position did
not correspond to changes in the value of its investments. In these events, the
Fund may lose money on the financial futures contracts or the options on
financial futures contracts. It is not certain that a secondary market for
positions in financial futures contracts or for options on financial futures
contracts will exist at all times. Although the Fund's investment adviser will
consider liquidity before entering into financial futures contracts or options
on financial futures contracts , there is no assurance that a liquid secondary
market on an exchange will exist for any particular financial futures contract
or option on a financial futures contract at any particular time. The Fund's
ability to establish and close out financial futures contracts and options on
financial futures contract positions depends on this secondary market. If the
Fund is unable to close out its position due to disruptions in the market or
lack of liquidity, the Fund may lose money on the futures contract or option,
and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate.
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
<PAGE>
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
Foreign Investments. Foreign securities may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and may be less marketable than comparable U.S.
securities. All these factors are considered by the Fund's investment adviser
before making any of these types of investments.
Investing in securities of issuers in emerging markets countries
involves exposure to economic systems that are generally less mature and
political systems that are generally less stable than those of developed
countries. In addition, investing in companies in emerging markets countries may
also involve exposure to national policies that may restrict investment by
foreigners and undeveloped legal systems governing private and foreign
investments and private property. The typically small size of the markets for
securities issued by companies in emerging markets countries and the possibility
of a low or nonexistent volume of trading in those securities may also result in
a lack of liquidity and in price volatility of those securities.
Foreign Currency Transactions. As discussed above, the Fund may invest in
securities of foreign issuers. When the Fund invests in foreign securities, they
usually will be denominated in foreign currencies, and the Fund temporarily may
hold funds in foreign currencies. Thus, the value of Fund shares will be
affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to
<PAGE>
purchase or sell currencies at a specified price and date). The exchange rate
for the transaction (the amount of currency the Fund will deliver or receive
when the contract is completed) is fixed when the Fund enters into the contract.
The Fund usually will enter into these contracts to stabilize the U.S. dollar
value of a security it has agreed to buy or sell. The Fund intends to use these
contracts to hedge the U.S. dollar value of a security it already owns,
particularly if the Fund expects a decrease in the value of the currency in
which the foreign security is denominated. Although the Fund will attempt to
benefit from using forward contracts, the success of its hedging strategy will
depend on the investment adviser's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar. The value of the
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the U.S. dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Fund.
Although the Fund does not currently intend to do so, the Fund may also purchase
and sell options related to foreign currencies. The Fund does not intend to
enter into foreign currency transactions for speculation or leverage.
Interest Rate Transactions (Swaps, Caps, and Floors). If the Fund enters into
interest rate swap, cap or floor transactions, it expects to do so primarily for
hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund does not currently intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a contractually-based principal
("notional") amount from the party selling the interest rate cap or floor. The
Fund may enter into interest
<PAGE>
rate swaps, caps, and floors on either an asset-based or liability-based basis,
depending upon whether it is hedging its assets or liabilities, and will usually
enter into interest rate swaps on a net basis (i.e., the two payment streams are
netted out, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments).
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to the Fund from
interest rate transactions is limited to the net amount of interest payments
that the Fund is contractually obligated to make.
Mortgage-Backed Securities. A mortgage-backed security represents an interest in
a "pool" of commercial or residential mortgages. Payments of interest and
principal made by the individual borrowers on the mortgages that underlie the
securities are passed through to the Fund. The Fund may invest in
mortgage-backed securities and other complex asset backed securities, including
collateralized mortgage obligations and stripped mortgage-backed securities.
Early repayment of the mortgages underlying the securities may expose
the Fund to a lower rate of return when it reinvests the principal. The rate of
prepayments will affect the price and volatility of the mortgage-backed security
and may have the effect of shortening or extending the effective maturity beyond
what the Fund anticipated at the time of purchase.
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates and difficult to predict.
Structured Securities. Structured securities represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations or foreign government securities.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or Brady Bonds) and the issuance by that entity of one or more
classes
<PAGE>
of structured securities backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow on the
underlying instruments. Because structured securities typically involve no
credit enhancement, their credit risk generally will be equivalent to that of
the underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities.
ORGANIZATION AND SERVICE PROVIDERS
Organization
Fund Structure. The Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, the Fund is a diversified
series of an open-end, management investment company, called Evergreen Equity
Trust (the "Trust"). The Trust is a Delaware business trust organized on
September 17, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee the Fund's activities, reviewing,
among other things, the Fund's performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders participate in dividends and distributions
from the Fund's assets and have equal voting, liquidation and other rights.
Shareholders may exchange shares as described under "Exchanges," but will have
no other preference, conversion, exchange or preemptive rights. When issued and
paid for, shares will be fully paid and nonassessable. Shares of the Fund are
redeemable, transferable and freely assignable as collateral. The Fund may
establish additional classes or series of shares.
The Fund does not hold annual shareholder meetings; the Fund may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies and approving investment advisory
agreements or 12b-1 plans. In addition, the Fund is prepared to assist
shareholders in
<PAGE>
communicating with one another for the purpose of convening a meeting to elect
Trustees. If any matters are to be voted on by shareholders, each share owned as
of the record date for the meeting would be entitled to one vote for each dollar
of net asset value applicable to each share.
Service Providers
Investment Adviser. The investment adviser to the Fund is Keystone Investment
Management Company ("Keystone"). Keystone has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is an indirect subsidiary of First Union National
Bank ("FUNB"). FUNB is a subsidiary of First Union Corporation. Both FUNB and
First Union Corporation are located at 201 South College Street, Charlotte,
North Carolina 28288-0630. First Union Corporation and its subsidiaries provide
a broad range of financial services to individuals and businesses throughout the
United States.
The Fund pays Keystone a fee, calculated on an annual basis, equal to
1.5% of gross divided and interest income of the Fund plus 0.60% of the first
$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.55% of the next $100,000,000, plus 0.50% of the next $100,000,000, plus 0.45%
of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35% of the
next $500,000,000, plus 0.30% of amounts over $1,000,000,000, computed as of the
close of business each business day and paid monthly.
Portfolio Manager. The Portfolio Manager of the Fund is Walter McCormick. Mr.
McCormick is a Keystone Senior Vice President and Senior Portfolio Manager with
more than 27 years of experience in equity and fixed-income investing. Mr.
McCormick has served as a balanced fund manager at Keystone since 1984 and as a
growth and income fund manager since 1987.
<PAGE>
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union Corporation.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Fund.
Distribution Plans and Agreements
Distribution Plans. The Fund's Class A, Class B and Class C shares pay for the
expenses associated with the distribution of such shares according to
distribution plans adopted
<PAGE>
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act")
(each a "Plan" or collectively the "Plans"). Under the Plans, the Fund may incur
distribution- related and shareholder servicing-related expenses which are based
upon a maximum annual rate as a percentage of the Fund's average daily net
assets attributable to the Class, as follows:
Class A shares 0.75% (currently limited to 0.25%)
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include the Fund's investment adviser or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Fund may not pay any distribution or service fees during any
fiscal period in excess of the amounts set forth above. Amounts paid under the
Distribution Agreements are used to compensate the Fund's distributor pursuant
to the Distribution Agreements entered into by the Fund.
Distribution Agreements. The Fund has also entered into distribution agreements
(each a "Distribution Agreement" or collectively the "Distribution Agreements")
with EDI. Pursuant to the Distribution Agreements, the Fund will compensate EDI
for its services as distributor based upon the maximum annual rate as a
percentage of the Fund's average daily net assets attributable to the Class, as
follows:
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
The Distribution Agreements provide that EDI will use the distribution
fee received from the Fund for payments (1) to compensate broker-dealers or
other persons for distributing shares of the Fund, including interest and
principal payments made in respect of amounts paid to broker-dealers or other
persons that have been financed (EDI may assign its rights to receive
compensation under the Plans to secure such financings), (2) to otherwise
promote the sale of shares of the Fund, and (3) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Fund's
shareholders. FUNB or its affiliates may finance the payments made by EDI to
compensate broker-dealers or other persons for distributing shares of the Fund.
<PAGE>
In the event the Fund acquires the assets of other mutual funds,
compensation paid to EDI under the Distribution Agreements may be paid by EDI to
the distributors of the acquired funds or their predecessors.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by EDI under the Distribution Agreements during any year may be more or
less than its actual expenses and may result in a profit to EDI. Distribution
expenses incurred by EDI in one fiscal year that exceed the level of
compensation paid to EDI for that year may be paid from distribution fees
received from the Fund in subsequent fiscal years.
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
You may purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of the Fund by mailing to the Fund, c/o Evergreen Service
Company, P.O. Box 2121, Boston, Massachusetts 02106-2121, a completed
Application and a check payable to the Fund. You may also telephone
1-800-343-2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed Application. The
minimum initial investment is $1,000, which may be waived in certain situations.
Subsequent investments in any amount may be made by check, by wiring federal
funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the Application
for more information. Only Class A, Class B and Class C shares are offered
through this Prospectus. (See "General Information - Other Classes of Shares.")
Class A Shares - Front-End Sales Charge Alternative. You may purchase Class A
shares of the Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 or more of Class A shares without
a front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12-month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
<PAGE>
<TABLE>
<CAPTION>
Initial Sales Charge
Amount of Purchase As a % of As a % of Commission to
the Net the Dealer/Agent
Amount Offering as a % of
Invested Price Offering Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 - $99,999 4.71% 4.50% 4.25%
$100,000 - $249,999 3.90% 3.75% 3.25%
$250,000 - $499,999 2.56% 2.50% 2.00%
$500,000 - $999,999 2.04% 2.00% 1.75%
$1,000,000 or more None None 1.00% of the
amount
invested up to
$2,999,999;
.50% of the
amount
invested over
$2,999,999, up
to $4,999,999;
and .25% of
the excess
over
$4,999,999
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisers; (b) investment advisers, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of FUNB and its affiliates, EDI and any broker-dealer with whom EDI
has entered into an agreement to sell shares of the Fund, and members of the
immediate families of such employees; (g) and upon the initial purchase of an
Evergreen fund by investors reinvesting the proceeds from a redemption within
the preceding thirty days of shares of other mutual funds, provided such shares
were initially purchased with a front-end sales charge or subject to a CDSC.
Certain broker-dealers or other financial institutions may impose a fee on
transactions in shares of the Fund.
Class A shares may also be purchased at net asset value by corporate or
certain other qualified retirement plans or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees, or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Fund. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to 0.25% of the average
daily net asset value on an annual basis of Class A shares held by their
clients. Certain purchases of Class A shares may qualify for reduced sales
charges in accordance with the Fund's Concurrent Purchases, Rights of
Accumulation, Letter of Intent, certain Retirement Plans and Reinstatement
Privilege. Consult the Application for additional information concerning these
reduced sales charges.
Class B Shares - Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC (expressed as a percentage of the lesser of the current net
asset value or original cost) will vary according to the number of years from
the month of purchase of Class B shares as set forth below.
<PAGE>
CDSC
Redemption Timing Imposed
Month of purchase and the first twelve-month
period following the month of purchase..........................5.00%
Second twelve-month period following the
month of purchase...............................................4.00%
Third twelve-month period following the
month of purchase...............................................3.00%
Fourth twelve-month period following the
month of purchase...............................................3.00%
Fifth twelve-month period following the
month of purchase...............................................2.00%
Sixth twelve-month period following the
month of purchase...............................................1.00%
No CDSC is imposed on amounts redeemed thereafter.
The CDSC is deducted from the amount of the redemption and is paid to
EDI. In the event the Fund acquires the assets of other mutual funds, the CDSC
may be paid by EDI to the distributors of the acquired funds. Class B shares are
subject to higher distribution and/or shareholder service fees than Class A
shares for a period of seven years after the month of purchase (after which it
is expected that they will convert to Class A shares without imposition of a
front-end sales charge). 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. The Fund will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the
calendar month in which the shareholder's purchase order was accepted, Class B
shares will automatically convert to Class A shares and will no longer be
subject to the higher distribution and service fees imposed on Class B shares.
Such conversion will be on the basis of the relative net asset values of the two
Classes, without the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
Class C Shares - Level-Load Alternative. Class C shares are only offered through
broker-dealers who have special distribution agreements with EDI. You may
purchase Class C shares at net asset value without any initial sales charge and,
therefore, the full amount of your investment will be used to purchase Fund
shares. However, you will pay a 1.00%
<PAGE>
CDSC if you redeem shares 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/or shareholder service
fees than Class A shares but, unlike Class B shares, do not convert to any other
class of shares of the Fund. The higher fees mean a higher expense ratio, so
Class C shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares. The Fund will not normally accept any purchase
of Class C shares in the amount of $500,000 or more. No CDSC will be imposed on
Class C shares purchased by institutional investors, and through employee
benefit and savings plans eligible for the exemption from front-end sales
charges described under "Class A Shares - Front-End Sales Charge Alternative"
above. Broker-dealers and other financial intermediaries whose clients have
purchased Class C shares may receive a trailing commission equal to 0.75% of the
average daily net asset value of such shares on an annual basis held by their
clients more than one year from the date of purchase. Trailing commissions will
commence immediately with respect to shares eligible for exemption from the CDSC
normally applicable to Class C shares.
Contingent Deferred Sales Charge. Certain shares with respect to which the Fund
did not pay a commission on issuance, including shares obtained from dividend or
distribution reinvestment, are not subject to a CDSC. Any CDSC imposed upon the
redemption of Class A, Class B or Class C shares is a percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the net asset value at
the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event
of: (1) death or disability of the shareholder; (2) a lump-sum distribution from
a 401(k) plan or other benefit plan qualified under the Employee Retirement
Income Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA
plans if the shareholder is at least 59 1/2 years old; (4) involuntary
redemptions of accounts having an aggregate net asset value of less than $1,000;
(5) automatic withdrawals under the Systematic Withdrawal Plan of up to 1.00%
per month of the shareholder's initial account balance; (6) withdrawals
consisting of loan proceeds to a retirement plan participant; (7) financial
hardship withdrawals made by a retirement plan participant; or (8) withdrawals
consisting of returns of excess contributions or excess deferral amounts made to
a retirement plan participant.
The Fund may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or CDSC to
<PAGE>
certain Directors, Trustees, officers and employees of the Fund, Keystone, FUNB,
Evergreen Asset Management Corp. ("Evergreen Asset"), EDI and certain of their
affiliates, and to members of the immediate families of such persons, to
registered representatives of firms with dealer agreements with EDI, and to a
bank or trust company acting as a trustee for a single account.
How the Fund Values Its Shares. The net asset value of each Class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in the Fund are valued at their current market values determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees believe would accurately reflect
fair value. Non-dollar denominated securities will be valued as of the close of
the Exchange at the closing price of such securities in their principal trading
markets.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year after the month of purchase. Consult your financial intermediary
for further information. The compensation received by broker-dealers and agents
may differ depending on whether they sell Class A, Class B or Class C shares.
There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EDI
may from time to time pay to broker-dealers additional cash or other incentives
that are conditioned upon the sale of a specified minimum dollar amount of
shares of the Fund and/or other Evergreen funds. Such incentives will take the
form of payment for attendance at seminars, lunches, dinners, sporting events or
theater performances, or payment for travel, lodging and entertainment incurred
in connection
<PAGE>
with travel by persons associated with a broker-dealer and their immediate
family members to urban or resort locations within or outside the United States.
Such a dealer may elect to receive cash incentives of equivalent amount in lieu
of such payments. EDI may also limit the availability of such incentives to
certain specified dealers. EDI from time to time sponsors promotions involving
First Union Brokerage Services, Inc., an affiliate of the Fund's investment
adviser, and select broker-dealers, pursuant to which incentives are paid,
including gift certificates and payments in amounts up to 1% of the dollar
amount of shares of the Fund sold. Awards may also be made based on the opening
of a minimum number of accounts. Such promotions are not being made available to
all broker-dealers. Certain broker-dealers may also receive payments from EDI or
the Fund's investment adviser over and above the usual trail commissions or
shareholder servicing payments applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, the Fund may redeem
shares from an investor's account to reimburse the Fund or its investment
adviser for any loss. In addition, such investor may be prohibited or restricted
from making further purchases in any of the Evergreen funds. The Fund will not
accept third party checks other than those payable directly to a shareholder
whose account has been in existence at least 30 days.
How to Redeem Shares
You may "redeem" (i.e., sell) your shares in the Fund to the Fund for
cash at their net redemption value on any day the Exchange is open, either
directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent (less any applicable CDSC) next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
<PAGE>
collected (which may take up to 15 days). Once a redemption request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to the Fund and may charge you for this service. Certain financial
intermediaries may require that you give instructions earlier than 4:00 p.m.
(Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption
<PAGE>
service is not made available to shareholders automatically. Shareholders
wishing to use the telephone redemption service must complete the appropriate
section on the Application and choose how the redemption proceeds are to be
paid. Redemption proceeds will either (1) be mailed by check to the shareholder
at the address in which the account is registered or (2) be wired to an account
with the same registration as the shareholder's account in the Fund at a
designated commercial bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800- 346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when:
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission ("SEC") so orders. The Fund reserves the
right to
<PAGE>
close an account that through redemption has fallen below $1,000 and has
remained so for 30 days. Shareholders will receive 60 days' written notice to
increase the account value to at least $1,000 before the account is closed. The
Fund has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Fund is obligated to redeem shares solely in cash, up to the lesser of
$250,000 or 1% of the Fund's total net assets, during any 90 day period for any
one shareholder.
Exchange Privilege
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon 60 days' notice to shareholders and is only available in
states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event shares are exchanged for shares of
the same class of other Evergreen funds. If you redeem shares, the CDSC
applicable to the shares of the Evergreen fund originally purchased for cash is
applied. Also, Class B shares will continue to age following an exchange for the
purpose of conversion to Class A shares and for the purpose of determining the
amount of the applicable CDSC.
<PAGE>
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares;" however, no signature guarantee is required.
Shareholder Services
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
Prospectus. Some services are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
<PAGE>
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and as
much as 1.0% per month or 3.0% per quarter of the total net asset value of the
Fund shares in your account when the Plan was opened. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must elect
to have their dividends and capital gains distributions reinvested
automatically.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified employee benefit and savings plans may make shares of the Fund and
the other Evergreen funds available to their participants. Investments made by
such employee benefit plans may be exempt from front-end sales charges if they
meet the criteria set forth under "Class A Shares -Front-End Sales Charge
Alternative." Evergreen Asset, Keystone or FUNB may provide compensation to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen funds available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the Application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter,
<PAGE>
on the first day of the designated month, an amount equal to the specified
monthly or quarterly investment will automatically be redeemed from your initial
account and invested in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Evergreen fund shares you own automatically invested to
purchase the same class of shares of any other Evergreen fund. You may select
this service on your Application and indicate the Evergreen fund(s) into which
distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans;
Keogh Plans; Profit- Sharing Plans; Medical Savings Accounts; Pension and Target
Benefit and Money Purchase Plans. For details, including fees and application
forms, call toll free 1-800-247-4075 or write to ESC.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and FUNB are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If Keystone were prevented from continuing to provide
the services called for under the investment advisory agreement, it is expected
that the Trustees would identify, and call upon the Fund's shareholders
<PAGE>
to approve, a new investment adviser. If this were to occur, it is not
anticipated that the shareholders of the Fund would suffer any adverse financial
consequences.
OTHER INFORMATION
Dividends, Distributions and Taxes
The Fund intends to distribute its investment company taxable income
quarterly and net realized capital gains at least annually. Shareholders receive
Fund distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Shareholders of the Fund who have not opted to receive cash prior to the payable
date for any dividend from net investment income or the record date for any
capital gains distribution will have the number of such shares determined on the
basis of the Fund's net asset value per share computed at the end of that day
after adjustment for the distribution. Net asset value is used in computing the
number of shares in both capital gains and income distribution investments.
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front-end sales charge, while Class B and, when
applicable, Class C shares bear such expenses through a higher annual
distribution fee, expenses attributable to Class B shares and Class C shares
will generally be higher than those of Class A shares, and income distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do not meet certain distribution requirements by the end
<PAGE>
of each calendar year. The Fund anticipates meeting such
distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States federal income tax may be entitled, subject to certain
rules and limitations, to claim a federal income tax credit or deduction for
foreign income taxes paid by the Fund. See the SAI for additional details. The
Fund's transactions in options, futures and forward contracts may be subject to
special tax rules. These rules can affect the amount, timing and characteristics
of distributions to shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding. A shareholder who acquires Class A shares of a Fund and sells or
otherwise disposes of such shares within ninety days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of the Fund.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
<PAGE>
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
General Information
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 100%. A portfolio turnover rate of 100% would occur if
all of the Fund's portfolio securities were replaced in one year. The portfolio
turnover rate experienced by the Fund directly affects the transaction costs
relating to the purchase and sale of securities which the Fund bears directly. A
high rate of portfolio turnover will increase such costs. See the SAI for
further information regarding the practices of the Fund affecting portfolio
turnover.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of broker-dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers four classes of shares, Class
A, Class B, Class C and Class Y, and may in the future offer additional classes.
are not offered by this Prospectus and are only available to (1)
persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by Evergreen Asset, (2) certain institutional investors and (3)
investment advisory clients of FUNB, Evergreen Asset, Keystone or their
affiliates. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing- related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares. Investors should telephone (800) 343-2898 to obtain more information on
other classes of shares.
Performance Information. From time to time, the Fund may quote its "total
return" or "yield" for a specified period in
<PAGE>
advertisements, reports or other communications to shareholders. Total return
and yield are computed separately for Class A, Class B , Class C and Class Y
shares. The Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the SEC, the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, dividends and capital gains distributions
paid on shares of the Fund are assumed to have been reinvested when paid and the
maximum sales charges applicable to purchases of the Fund's shares are assumed
to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, the Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest and dividend income it earned from its portfolio of investments (as
defined by the SEC formula) for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. This yield does not reflect gains or losses from
selling securities.
Performance data may be included in any advertisement or sales
literature of the Fund. These advertisements may quote performance rankings or
ratings of the Fund by financial publications or independent organizations such
as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices. The Fund may also advertise in items of sales
literature an "actual distribution rate" which is computed by dividing the total
ordinary income distributed (which may include the excess of short-term capital
gains over losses) to shareholders for the latest twelve-month period by the
maximum public offering price per share on the last day of the period. Investors
should be aware that past performance may not be indicative of future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general
<PAGE>
principles of investing, such as asset allocation, diversification, risk
tolerance, and goal setting; a questionnaire designed to help create a personal
financial profile; and an action plan offering investment alternatives. The
information provided to investors may also include discussions of other
Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. The
materials may also reprint, and use as advertising and sales literature,
articles from Evergreen Events, a quarterly magazine provided free of charge to
Evergreen fund shareholders.
Additional Information. This Prospectus and the SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC under the Securities Act
of 1933, as amended. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
offices of the SEC in Washington, D.C.
<PAGE>
Investment Adviser
Keystone Investment Management Company, 200 Berkeley Street,
Boston, Massachusetts 02116-5034
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston,
Massachusetts 02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts
02110
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New
York 10019
<PAGE>
PROSPECTUS November 10, 1997
EVERGREEN SPECIALTY GROWTH AND BALANCED FUNDS
Evergreen Balanced Fund (Evergreen Tree Logo)
CLASS Y SHARES
The Evergreen Balanced Fund (the "Fund") seeks to provide shareholders
with current income.
This Prospectus provides information regarding the Class Y shares
offered by the Fund. The Fund is a diversified series of an open-end management
investment company. This Prospectus sets forth concise information about the
Fund that a prospective investor should know before investing. The address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Fund dated November 10,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Fund at (800) 343-2898. There can
be no assurance that the investment objective of the Fund will be achieved.
Investors are advised to read this Prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is 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 involves risk,
including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
<PAGE>
TABLE OF CONTENTS
EXPENSE INFORMATION........................................................3
FINANCIAL HIGHLIGHTS.......................................................3
DESCRIPTION OF THE FUND....................................................4
Investment Objective and Policies.................................4
Investment Practices and Restrictions.............................5
ORGANIZATION AND SERVICE PROVIDERS..................................... 15
Organization.................................................. 15
Service Providers................................................15
PURCHASE AND REDEMPTION OF SHARES...................................... 16
How to Buy Shares............................................. 16
How to Redeem Shares ......................................... 17
Exchange Privilege...............................................20
Shareholder Services.......................................... 21
Banking Laws.....................................................23
OTHER INFORMATION...................................................... 23
Dividends, Distributions and Taxes............................ 23
General Information........................................... 25
<PAGE>
EXPENSE INFORMATION
The table and example below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending March 31, 1998. The example shows what you would pay if you
invested $1,000 over the periods indicated. The example assumes that you
reinvest all of your dividends and that the Fund's average annual return will be
5%. The example is for illustration purposes only and should not be considered a
representation of past or future expenses or annual return. The Fund's actual
expenses and returns will vary. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
Annual
Operating
Expenses Example
Management .45% After 1 Year $7
Fees
12b-1 Fees --
Other Expenses .27% After 3 Years $23
Total .72%
FINANCIAL HIGHLIGHTS
As of the date of this Prospectus the Fund had not commenced
operations. Consequently, no financial highlights are currently available.
DESCRIPTION OF THE FUND
<PAGE>
Investment Objective and Policies
The Fund seeks current income.
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. The Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit the Fund's exposure to risk. The Fund's fundamental policies cannot be
changed without a shareholder vote. See the Statement of Additional Information
("SAI") for more information regarding the Fund's fundamental investment
policies or other related investment policies. There can be no assurance that
the Fund's investment objective will be achieved.
Principal Investments and Investment Policies. The Fund invests in a combination
of equity and debt securities chosen primarily for their potential for current
income and secondarily, to the extent consistent with the Fund's investment
objective, for their potential for capital appreciation. The Fund normally
emphasizes securities having a liberal current yield consistent with investment
quality on which the interest or dividend payments are considered reasonably
secure. Under normal circumstances, the Fund maintains at least 25% of its total
assets in fixed income senior securities. The Fund will invest, under normal
circumstances, at least 50% of its total assets in equity securities. The Fund
may invest in any type of security, including bonds, debentures and income
obligations as well as common and preferred stocks.
Debt securities, which include both secured and unsecured obligations
will, at the time of investment, be rated within the four highest categories by
Standard & Poor's Ratings Group ("S&P") (AAA, AA, A and BBB), by Moody's
Investors Service ("Moody's") (Aaa, Aa, A and Baa), by Fitch Investors Services,
L.P. ("Fitch") (AAA, AA, A and BBB), or if not rated or rated under a different
system, will be of comparable quality to obligations so rated, as determined by
the Fund's investment adviser.
Other Eligible Investments. The Fund may also invest in limited partnerships,
including master limited partnerships, and in foreign securities (up to 25% of
its assets). The Fund may also invest up to 25% of its assets in high yield,
high risk bonds and similar securities of United States (U.S.) and foreign
issuers having a rating range of BB to CCC by S&P or Fitch and/or Ba to Caa by
Moody's, or if unrated or rated under a different system, believed by the Fund's
investment adviser to be of comparable quality.
<PAGE>
The Fund's debt securities may include zero coupon bonds and
payment-in-kind securities ("PIKs").
The Fund may invest in certain types of derivative
instruments, including mortgage-related securities, such as collateralized
mortgage obligations, and enter into interest rate transactions, such as
"swaps," "caps," and "floors." These vehicles can also be combined to create
more complex products called hybrid derivatives or structured securities.
The Fund also may invest, for temporary defensive purposes, up to 100%
of its assets in short-term obligations. Such obligations may include master
demand notes, commercial paper and notes, bank deposits and other financial
institution obligations.
In addition to the investment policies detailed above, the Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions."
Investment Practices and Restrictions
Risk Factors. Bond prices move inversely to interest rates, i.e., as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
obligations in which the Fund may invest may be variable or floating rate
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Below-Investment Grade Bonds. Below-investment grade bonds have low ratings, and
a degree of doubt surrounds the safety of investment and the ability of the
issuer to continue interest payments. These bonds are also called "high risk,
high yield" bonds or "junk" bonds. Junk bonds are usually backed by issuers of
less proven or questionable financial strength. Compared with higher-grade
bonds, issuers of junk bonds are more likely to face financial problems and to
be materially affected by those problems. As a result, the ability of issuers of
junk bonds to pay interest and principal is uncertain. Moreover, the junk bond
market may react strongly to real or perceived unfavorable news about an issuer
<PAGE>
or the economy. If a junk bond issuer defaults, the bond will
lose some or all of its value.
Zero Coupon Bonds and PIKs. Zero coupon bonds and PIKs involve additional risks.
Zero coupon bonds and PIKs do not require the periodic payment of interest. PIKs
are debt obligations that provide that the issuer may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments may experience greater fluctuation in value due to changes in
interest rates than debt obligations that pay interest currently. Even though
these investments do not pay current interest in cash, the Fund is nonetheless
required by tax laws to accrue interest income on such investments and to
distribute such amounts, at least annually, to shareholders. Thus, the Fund
could be required at times to liquidate investments in order to fulfill its
intention to distribute substantially all of its net income as dividends.
Downgrades. If any security invested in by the Fund loses its rating or has its
rating reduced after the Fund has purchased it, the Fund is not required to sell
or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which the Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Fund's risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, the
Fund may incur costs in disposing of the security which would increase Fund
expenses. The Fund's investment adviser will monitor the creditworthiness of the
firms with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by the Fund to sell a
security and repurchase it at a specified time and price. The Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of the Fund.
<PAGE>
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuation during
this period and no income accrues to the Fund until settlement. At the time of
settlement, a when- issued security may be valued at less than its purchase
price. When entering into these transactions, the Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged.
Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that the
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may only borrow as a temporary
measure for extraordinary or emergency purposes such as the redemption of Fund
shares. The Fund will not purchase securities while borrowings are outstanding
except to exercise prior commitments and to exercise subscription rights. The
Fund does not intend to leverage.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities
<PAGE>
longer than seven days will be included for the purpose of the foregoing 15%
limit. The inability of the Fund to dispose of illiquid investments readily or
at a reasonable price could impair the Fund's ability to raise cash for
redemptions or other purposes.
Restricted Securities. The Fund may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the United States. The Fund's
investment adviser determines the liquidity of Rule 144A securities according to
guidelines and procedures adopted by the Fund's Board of Trustees. The Board of
Trustees monitors the investment adviser's application of those guidelines and
procedures. Securities eligible for resale pursuant to Rule 144A, which the
Fund's investment adviser has determined to be liquid or readily marketable, are
not subject to the 15% limit on illiquid securities.
Options and Futures. The Fund may engage in options and futures transactions.
Options and futures transactions are intended to enable the Fund to manage
market, interest rate or exchange rate risk, and the Fund does not use these
transactions for speculation or leverage.
The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on their portfolio securities and
listed put options on financial futures contracts for portfolio securities. The
Fund may also purchase call options on financial futures contracts. The Fund may
also write covered call options on its portfolio securities to attempt to
increase its current income. The Fund will maintain its positions in securities,
option rights, and segregated cash subject to puts and calls until the options
are exercised, closed, or have expired. An option position may
<PAGE>
be closed out only on an exchange which provides a secondary market for an
option of the same series.
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. The Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase
<PAGE>
securities in the future at a predetermined price (i.e., "go long") to hedge
against a decline in market interest rates.
The Fund may also enter into currency and other financial futures
contracts and write options on such contracts. The Fund intends to enter into
such contracts and related options for hedging purposes. The Fund will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Fund does not make
payment or deliver securities upon entering into a futures contract. Instead, it
puts down a margin deposit, which is adjusted to reflect changes in the value of
the contract and which remains in effect until the contract is terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of the underlying securities or
currencies declines and to fall when the value of such securities or currencies
increases. Thus, the Fund sells futures contracts in order to offset a possible
decline in the profit on its securities or currencies. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities or currencies increases and to fall when the
value of such securities or currencies declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case the Fund would continue to
bear market risk on the transaction.
<PAGE>
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Fund to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's returns
may be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, the Fund's investment adviser could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Fund's investment adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of the Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Fund may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although the Fund's
investment adviser will consider liquidity before entering into financial
futures contracts or options on financial futures contracts , there is no
assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Fund's ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate.
<PAGE>
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
Foreign Investments. Foreign Securities may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and may be less marketable than comparable U.S.
securities. All these factors are considered by the Fund's investment adviser
before making any of these types of investments.
Investing in securities of issuers in emerging markets countries
involves exposure to economic systems that are generally less mature and
political systems that are generally less stable than those of developed
countries. In addition, investing in companies in emerging markets countries may
also involve exposure to national policies that may restrict investment by
foreigners and undeveloped legal systems governing private and foreign
investments and private property. The typically small size of the markets for
securities issued by companies in emerging markets countries and the possibility
of a low or nonexistent volume of trading in those securities may also result in
a lack of liquidity and in price volatility of those securities.
Foreign Currency Transactions. As discussed above, the Fund may invest in
securities of foreign issuers. When the Fund invests in foreign securities, they
usually will be denominated in foreign currencies, and the Fund temporarily may
hold funds in foreign currencies. Thus, the value of Fund shares will be
affected by changes in exchange rates.
<PAGE>
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver or receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on the investment adviser's ability to predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
value of the Fund's investments denominated in foreign currencies will depend on
the relative strength of those currencies and the U.S. dollar, and the Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. Although the Fund does not currently intend to do so,
the Fund may also purchase and sell options related to foreign currencies. The
Fund does not intend to enter into foreign currency transactions for speculation
or leverage.
Interest Rate Transactions (Swaps, Caps, and Floors). If the Fund enters into
interest rate swap, cap or floor transactions, it expects to do so primarily for
hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund does not currently intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to
<PAGE>
receive payments of interest on a contractually-based principal ("notional")
amount from the party selling the interest rate cap or floor. The Fund may enter
into interest rate swaps, caps, and floors on either an asset-based or
liability-based basis, depending upon whether it is hedging its assets or
liabilities, and will usually enter into interest rate swaps on a net basis
(i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to the Fund from
interest rate transactions is limited to the net amount of interest payments
that the Fund is contractually obligated to make.
Mortgage-Backed Securities. A mortgage-backed security represents an interest in
a "pool" of commercial or residential mortgages. Payments of interest and
principal made by the individual borrowers on the mortgages that underlie the
securities are passed through to the Fund. The Fund may invest in
mortgage-backed securities and other complex asset backed securities, including
collateralized mortgage obligations and stripped mortgage-backed securities.
Early repayment of the mortgages underlying the securities may expose
the Fund to a lower rate of return when it reinvests the principal. The rate of
prepayments will affect the price and volatility of the mortgage-backed security
and may have the effect of shortening or extending the effective maturity beyond
what the Fund anticipated at the time of purchase.
Like other debt securities, changes in interest rates generally affect
the value of a mortgage-backed security. Additionally, some mortgage-backed
securities may be structured so that they may be particularly sensitive to
interest rates and difficult to predict.
Structured Securities. Structured securities represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations or foreign government securities.
This type of restructuring involves the deposit with or
<PAGE>
purchase by an entity, such as a corporation or trust, of specified instruments
(such as commercial bank loans or Brady Bonds) and the issuance by that entity
of one or more classes of structured securities backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued structured securities to
create securities with different investment characteristics such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to structured securities is dependent on the
extent of the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk generally
will be equivalent to that of the underlying instruments. Structured securities
of a given class may be either subordinated or unsubordinated to the right of
payment of another class. Subordinated structured securities typically have
higher yields and present greater risks than unsubordinated structured
securities.
ORGANIZATION AND SERVICE PROVIDERS
Organization
Fund Structure. The Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, the Fund is a diversified
series of an open-end, management investment company, called Evergreen Equity
Trust (the "Trust"). The Trust is a Delaware business trust organized on
September 17, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee the Fund's activities, reviewing,
among other things, the Fund's performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders participate in dividends and distributions
from the Fund's assets and have equal voting, liquidation and other rights.
Shareholders may exchange shares as described under "Exchanges", but will have
no other preference, conversion, exchange or preemptive rights. When issued and
paid for, shares will be fully paid and nonassessable. Shares of the Fund are
redeemable, transferable and freely assignable as collateral. The Fund may
establish additional classes or series of shares.
The Fund does not hold annual shareholder meetings; the Fund may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies
<PAGE>
and approving investment advisory agreements or 12b-1 plans. In addition, the
Fund is prepared to assist shareholders in communicating with one another for
the purpose of convening a meeting to elect Trustees. If any matters are to be
voted on by shareholders, each share owned as of the record date for the meeting
would be entitled to one vote for each dollar of net asset value applicable to
each share.
Service Providers
Investment Adviser. The investment adviser to the Fund is Keystone Investment
Management Company ("Keystone"). Keystone has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is an indirect subsidiary of First Union National
Bank ("FUNB"). FUNB is a subsidiary of First Union Corporation. Both FUNB and
First Union Corporation are located at 201 South College Street, Charlotte,
North Carolina 28288-0630. First Union Corporation and its subsidiaries provide
a broad range of financial services to individuals and businesses throughout the
United States.
The Fund pays Keystone a fee, calculated on an annual basis, equal to
1.5% of gross divided and interest income of the Fund plus 0.60% of the first
$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.55% of the next $100,000,000, plus 0.50% of the next $100,000,000, plus 0.45%
of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35% of the
next $500,000,000, plus 0.30% of amounts over $1,000,000,000, computed as of the
close of business each business day and paid monthly.
Portfolio Manager. The Portfolio Manager of the Fund is Walter McCormick. Mr.
McCormick is a Keystone Senior Vice President and Senior Portfolio Manager with
more than 27 years of experience in equity and fixed-income investing. Mr.
McCormick has served as a balanced fund manager at Keystone since 1984 and as a
growth and income fund manager since 1987.
<PAGE>
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union Corporation.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Fund.
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
<PAGE>
Class Y shares are offered at net asset value without a front-end sales
charge or a contingent deferred sales load. Class Y shares are only offered to
(1) persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by Evergreen Asset Management Corp. ("Evergreen Asset"), (2) certain
institutional investors and (3) investment advisory clients of FUNB, Evergreen
Asset , Keystone or their affiliates.
Eligible investors may purchase Class Y shares of the Fund through
broker-dealers, banks or other financial intermediaries, or directly through
EDI. In addition, you may purchase Class Y shares of the Fund by mailing to the
Fund, c/o Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121, a completed Application and a check payable to the Fund. You may
also telephone 1-800-343-2898 to obtain the number of an account to which you
can wire or electronically transfer funds and then send in a completed
Application. The minimum initial investment is $1,000, which may be waived in
certain situations. Subsequent investments in any amount may be made by check,
by wiring federal funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of
$25 or more are allowed under the Systematic Investment Plan. See the
Application for more information. Only Class Y shares are offered through this
Prospectus (see "General Information" -- "Other Classes of Shares").
How the Fund Values Its Shares. The net asset value of each Class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in the Fund are valued at their current market values determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees of the Trust believe would
accurately reflect fair value. Non-dollar denominated securities will be valued
as of the close of the Exchange at the closing price of such securities in their
principal trading markets.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, the Fund may redeem
shares from an investor's account to
<PAGE>
reimburse the Fund or its investment adviser for any loss. In addition, such
investor may be prohibited or restricted from making further purchases in any of
the Evergreen funds. The Fund will not accept third party checks other than
those payable directly to a shareholder whose account has been in existence at
least 30 days.
How to Redeem Shares
You may "redeem" (i.e., sell) your Class Y shares in the Fund to the
Fund for cash at their net redemption value on any day the Exchange is open,
either directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, the Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m.
(Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
<PAGE>
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate section on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (1) be mailed by check to the shareholder at the address in
which the account is registered or (2) be wired to an account with the same
registration as the shareholder's account in the Fund at a designated commercial
bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when
<PAGE>
following instructions received over the Evergreen Express Line or by telephone
that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800- 346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when:
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission ("SEC") so orders. The Fund reserves the
right to close an account that through redemption has fallen below $1,000 and
has remained so for 30 days. Shareholders will receive 60 days' written notice
to increase the account value to at least $1,000 before the account is closed.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 (the "1940 Act") pursuant to which the Fund is obligated to redeem
shares solely in cash, up to the lesser of $250,000 or 1% of the Fund's total
net assets, during any 90 day period for any one shareholder.
Exchange Privilege
How to Exchange Shares. You may exchange some or all of your Class Y shares for
shares of the same class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to
<PAGE>
be exchanged. An exchange is treated for federal income tax purposes as a
redemption and purchase of shares and may result in the realization of a capital
gain or loss. Shareholders are limited to five exchanges per calendar year, with
a maximum of three per calendar quarter. This exchange privilege may be modified
or discontinued at any time by the Fund upon 60 days' notice to shareholders and
is only available in states in which shares of the fund being acquired may
lawfully be sold.
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares;" however, no signature guarantee is required.
Shareholder Services
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
Prospectus. Some services are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
<PAGE>
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and as
much as 1.0% per month or 3.0% per quarter of the total net asset value of the
Fund shares in your account when the Plan was opened. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must elect
to have their dividends and capital gains distributions reinvested
automatically.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the Application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will
<PAGE>
automatically be redeemed from your initial account and invested in shares of
the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Class Y Evergreen fund shares you own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your Application and indicate the Evergreen fund(s)
into which distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans;
Keogh Plans; Profit- Sharing Plans; Medical Savings Accounts; Pension and Target
Benefit and Money Purchase Plans. For details, including fees and application
forms, call toll free 1-800-247-4075 or write to ESC.
Banking Laws
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and FUNB are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If Keystone were prevented from continuing to provide
the services called for under the investment advisory agreement, it is expected
that the Trustees would identify, and call upon the Fund's shareholders to
approve, a new investment adviser. If this were to occur,
<PAGE>
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
Dividends, Distributions and Taxes
The Fund intends to distribute its investment company taxable income
quarterly and net realized capital gains at least annually. Shareholders receive
Fund distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Shareholders of the Fund who have not opted to receive cash prior to the payable
date for any dividend from net investment income or the record date for any
capital gains distribution will have the number of such shares determined on the
basis of the Fund's net asset value per share computed at the end of that day
after adjustment for the distribution. Net asset value is used in computing the
number of shares in both capital gains and income distribution investments.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. Tax treaties
<PAGE>
between certain countries and the United States may reduce or eliminate such
taxes. Shareholders of a Fund who are subject to United States federal income
tax may be entitled, subject to certain rules and limitations, to claim a
federal income tax credit or deduction for foreign income taxes paid by the
Fund. See the SAI for additional details. The Fund's transactions in options,
futures and forward contracts may be subject to special tax rules. These rules
can affect the amount, timing and characteristics of distributions to
shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
General Information
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 100%. A portfolio turnover rate of 100% would occur if
all of the Fund's
<PAGE>
portfolio securities were replaced in one year. The portfolio turnover rate
experienced by the Fund directly affects the transaction costs relating to the
purchase and sale of securities which the Fund bears directly. A high rate of
portfolio turnover will increase such costs. See the SAI for further information
regarding the practices of the Fund affecting portfolio turnover.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of broker-dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers four classes of shares, Class
A, Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are the only class of shares offered by this Prospectus and are
only available to (1) persons who at or prior to December 31, 1994 owned shares
in a mutual fund advised by Evergreen Asset, (2) certain institutional investors
and (3) investment advisory clients of FUNB, Evergreen Asset, Keystone or their
affiliates. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing-related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares. Investors should telephone (800) 343-2898 to obtain more information on
other classes of shares.
Performance Information. From time to time, the Fund may quote its "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for Class A, Class B , Class C and Class Y shares. The Fund's total return for
each such period is computed by finding, through the use of a formula prescribed
by the SEC, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, dividends and
capital gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charges applicable to purchases of
the Fund's shares are assumed to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share
<PAGE>
price. The Fund's yield is calculated according to accounting methods that are
standardized by the SEC for all stock and bond funds. Because yield accounting
methods differ from the method used for other accounting purposes, the Fund's
yield may not equal its distribution rate, the income paid to your account or
the net investment income reported in the Fund's financial statements. To
calculate yield, the Fund takes the interest and dividend income it earned from
its portfolio of investments (as defined by the SEC formula) for a 30-day period
(net of expenses), divides it by the average number of shares entitled to
receive dividends, and expresses the result as an annualized percentage rate
based on the Fund's share price at the end of the 30-day period. This yield does
not reflect gains or losses from selling securities.
Performance data may be included in any advertisement or sales
literature of the Fund. These advertisements may quote performance rankings or
ratings of the Fund by financial publications or independent organizations such
as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices. The Fund may also advertise in items of sales
literature an "actual distribution rate" which is computed by dividing the total
ordinary income distributed (which may include the excess of short-term capital
gains over losses) to shareholders for the latest twelve-month period by the
maximum public offering price per share on the last day of the period. Investors
should be aware that past performance may not be indicative of future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. The
materials may also reprint, and use as advertising and sales literature,
articles from Evergreen
<PAGE>
Events, a quarterly magazine provided free of charge to Evergreen fund
shareholders.
Additional Information. This Prospectus and the SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC under the Securities Act
of 1933, as amended. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the
offices of the SEC in Washington, D.C.
<PAGE>
Investment Adviser
Keystone Investment Management Company, 200 Berkeley Street,
Boston, Massachusetts 02116-5034
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston,
Massachusetts 02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts
02110
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New
York 10019
<PAGE>
EVERGREEN DOMESTIC EQUITY FUNDS
200 BERKELEY STREET, BOSTON, MASSACHUSETTS
(800) 343-2898
STATEMENT OF ADDITIONAL INFORMATION DATED
NOVEMBER 10, 1997 FOR THE FOLLOWING SERIES OF THE
EVERGREEN EQUITY TRUST (THE "TRUST"):
EVERGREEN SMALL COMPANY GROWTH FUND
(THE "FUND")
This statement of additional information ("SAI") provides additional
information about all classes of shares of the Fund. It is not a prospectus and
you should read it in conjunction with the prospectuses of the Fund dated
November 10, 1997, as supplemented from time to time. You may obtain a copy of
the prospectuses from the Fund's distributor, Evergreen Distributor, Inc.
TABLE OF CONTENTS
INVESTMENT POLICIES........................................................3
Investment Restrictions And Guidelines............................8
MANAGEMENT OF THE TRUST....................................................9
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......................11
INVESTMENT ADVISORY AND OTHER SERVICES....................................12
Investment Advisory Services.....................................12
Distribution Plans and Agreements................................13
Additional Service Providers.....................................14
BROKERAGE ALLOCATION AND OTHER PRACTICES..................................15
Brokerage Commissions............................................15
Selection of Brokers.............................................15
General Brokerage Policies.......................................16
ORGANIZATION..............................................................16
Form of Organization.............................................16
Description of Shares............................................16
Voting Rights....................................................17
Limitation of Trustees' Liability................................17
PURCHASE, REDEMPTION AND PRICING OF SHARES................................17
How the Fund Offers Shares to the Public.........................17
Sales Charge Waivers or Reductions...............................19
Exchanges........................................................20
How The Fund Values its Shares...................................21
Shareholder Services.............................................21
PRINCIPAL UNDERWRITER.....................................................22
ADDITIONAL TAX INFORMATION................................................22
CALCULATION OF PERFORMANCE DATA...........................................24
ADDITIONAL INFORMATION....................................................25
Other Information................................................25
FINANCIAL STATEMENTS......................................................25
APPENDIX A...............................................................A-1
INVESTMENT POLICIES
SECURITIES AND INVESTMENT PRACTICES
The investment objective of the Fund and a description of the
securities in which the Fund may invest are set forth in the Fund's
prospectuses. The following expands upon the discussion in the prospectuses
regarding certain investments of the Fund.
U.S GOVERNMENT OBLIGATIONS
The types of U.S. Government obligations in which the Fund may invest
generally include obligations that the U.S. Government agencies or
instrumentalities issued or guaranteed.
These securities are backed by:
(1) the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities; or
(2) the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive financial
support from the U.S. Government are:
(i) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
RESTRICTED AND ILLIQUID SECURITIES
Pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A"), the
Board of Trustees of the Trust determines the liquidity of certain restricted
securities Rule 144A is a non-exclusive, safe-harbor for certain secondary
market transactions involving securities subject to restrictions on resale under
federal securities laws. Rule 144A provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional buyers.
Rule 144A was expected to further enhance the liquidity of the secondary market
for securities eligible for sale under Rule 144A. In determining the liquidity
of certain restricted securities the Trustees consider: (1) the frequency of
trades and quotes for the security; (2) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades.
WHEN-ISSUED, DELAYED-DELIVERY AND FORWARD COMMITMENT TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis
and may purchase or sell securities on a forward commitment basis. These
transactions involve the purchase of debt obligations with delivery and payment
normally taking place within a month or more after the date of commitment to
purchase. The Fund will only make commitments to purchase obligations on a
when-issued basis with the intention of actually acquiring the securities, but
may sell them before the settlement date. The when-issued securities are subject
to market fluctuation, and no interest accrues on the security to the purchaser
during this period. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the purchaser enters into
the commitment.
Segregated accounts will be established with the custodian, and the Fund
will maintain liquid assets in an amount at least equal in value to its
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will place additional liquid assets in the account on a daily
basis so that the value of the assets in the account is equal to the amount of
such commitments.
Purchasing obligations on a when-issued basis is a form of leveraging and
can involve a risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself. In that case there could be an unrealized loss at the time of delivery.
The Fund uses when-issued, delayed-delivery and forward commitment
transactions to secure what it considers to be an advantageous price and yield
at the time of purchase. When the Fund engages in when- issued, delayed-delivery
and forward commitment transactions, it relies on the buyer or seller, as the
case may be, to consummate the sale. If the buyer or seller fails to complete
the sale, then the Fund may miss the opportunity to obtain the security at a
favorable price or yield.
Typically, no income accrues on securities the Fund has committed to
purchase prior to the time delivery of the securities is made, although the Fund
may earn income on securities it has deposited in a segregated account. When
purchasing a security on a when-issued, delayed delivery, or forward commitment
basis, the Fund assumes the rights and risks of ownership of the security,
including the risk of price and yield fluctuations, and takes such fluctuations
into account when determining its net asset value. Because the Fund is not
required to pay for the security until the delivery date, these risks are in
addition to the risks associated with its other investments.
LOANS OF SECURITIES
To generate income and offset expenses, the Fund may lend portfolio
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of its total assets.
While securities are on loan, the borrower will pay the Fund any income accruing
on the security. The Fund may invest any collateral it receives in additional
portfolio securities, such as U.S. Treasury notes, certificates of deposit,
other high-grade, short-term obligations or interest bearing cash equivalents.
Gains or losses in the market value of a security lent will affect the Fund and
its shareholders.
When the Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
Although voting rights attendant to securities lent pass to the borrower,
the Fund may call such loans at any time and may vote the securities if it
believes a material event affecting the investment is to occur. The Fund may
experience a delay in receiving additional collateral or in recovering the
securities lent or may even suffer a loss of rights in the collateral should the
borrower of the securities fail financially. The Fund may only make loans to
borrowers deemed to be of good standing, under standards approved by the Board
of Trustees, when the income to be earned from the loan justifies the attendant
risks.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. Government securities or other financial institutions believed by the
Fund's investment adviser (as hereinafter defined) to be creditworthy. In a
repurchase agreement, the Fund obtains a security and simultaneously commits to
return the security to the seller (a member bank of the Federal Reserve System
or recognized securities dealer) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund's investment adviser believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker-dealers, which are
deemed by the investment adviser to be creditworthy pursuant to guidelines
established by the Board of Trustees.
REVERSE REPURCHASE AGREEMENTS
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
FINANCIAL FUTURES CONTRACTS
The Fund may enter into financial futures contracts as a hedge against
decreases or increases in the value of securities it holds or intends to
acquire.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate, the
value of the open positions (marked to market) exceeds the current market value
of its securities portfolio plus or minus the unrealized gain or loss on those
open positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
OPTIONS
The Fund may buy or sell (i.e., write) put and call options on securities
it holds or intends to acquire. The Fund may also buy and sell options on
financial futures contracts. The Fund will use options as a hedge against
decreases or increases in the value of securities it holds or intends to
acquire. The Fund may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series.
The Fund may write only covered options. With regard to a call option, this
means that the Fund will own, for the life of the option, the securities subject
to the call option. The Fund will cover put options by holding, in a segregated
account, liquid assets having a value equal to or greater than the price of
securities subject to the put option. If the Fund is unable to effect a closing
purchase transaction with respect to the covered options it has sold, it will
not be able to sell the underlying securities or dispose of assets held in a
segregated account until the options expire or are exercised.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day, the Fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions. The Fund is also required
to deposit and maintain margin when it writes call options on futures contracts.
The Fund may not buy or sell futures contracts or related options if,
immediately thereafter, the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
FOREIGN SECURITIES
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. Permissible investments may consist of obligations of foreign
branches of U.S. banks and of foreign banks, including European certificates of
deposit, European time deposits, Canadian time deposits and Yankee certificates
of deposit, and investments in Canadian commercial paper, foreign securities and
Europaper. These instruments may subject the Fund to investment risks that
differ in some respects from those related to investments in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, the ossible imposition of withholding taxes on interest or other
income, possible seizure, nationalization, or expropriation of foreign deposits,
the possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. Such investments may also
entail higher custodial fees and sales commissions than domestic investments.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks.
FOREIGN CURRENCY TRANSACTIONS
As one way of managing exchange rate risk, the Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency the Fund will deliver and receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually will enter into
these contracts to stabilize the U.S. dollar value of a security it has agreed
to buy or sell. The Fund intends to use these contracts to hedge the U.S. dollar
value of a security it already owns, particularly if the Fund expects a decrease
in the value of the currency in which the foreign security is denominated.
Although the Fund will attempt to benefit from using forward contracts, the
success of its hedging strategy will depend on the Adviser's ability to predict
accurately the future exchange rates between foreign currencies and the U.S.
dollar. The value of the Fund's investments denominated in foreign currencies
will depend on the relative strengths of those currencies and the U.S. dollar,
and the Fund may be affected favorably or unfavorably by changes in the exchange
rates or exchange control regulations between foreign currencies and the U.S.
dollar. Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The Fund may also purchase and sell options related to
foreign currencies in connection with hedging strategies.
INVESTMENT RESTRICTIONS AND GUIDELINES
FUNDAMENTAL POLICIES
The Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Unless otherwise stated, all references to the assets of the Fund are in
terms of current market value.
DIVERSIFICATION
The Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
CONCENTRATION
The Fund may not concentrate its investments in the securities of issuers
primarily engaged in any particular industry (other than securities that are
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities).
ISSUING SENIOR SECURITIES
Except as permitted under the 1940 Act, the Fund may not issue senior
securities.
BORROWING
The Fund may not borrow money, except to the extent permitted by applicable
law.
UNDERWRITING
The Fund may not underwrite securities of other issuers, except insofar as
the Fund may be deemed an underwriter in connection with the disposition of its
portfolio securities.
REAL ESTATE
The Fund may not purchase or sell real estate, except that, to the extent
permitted by applicable law, the Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
COMMODITIES
The Fund may not purchase or sell commodities or contracts on commodities
except to the extent that the Fund may engage in financial futures contacts and
related options and currency contracts and related options and may otherwise do
so in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act.
LOANS TO OTHER PERSONS
The Fund may not make loans to other persons, except that the Fund may lend
its portfolio securities in accordance with applicable law. The acquistion of
investment securities or other investment instruments shall not be deemed to be
the making of a loan.
GUIDELINES
Unlike the Fundamental Policies above, the following guidelines may be
changed by each the Trust's Board of Trustees without shareholder approval.
DIVERSIFICATION
Under the 1940 Act, with respect to the 75% of its total assets, a
diversified investment company may not invest more than 5% of its total assets,
determined at market or other fair value at the time of purchase, in the
securities of any one issuer, or invest in more than 10% of the outstanding
voting securities of any one issuer, determined at the time of purchase. These
limitations do not apply to investments in securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
BORROWINGS
The Fund may borrow from banks in an amount up to 33 1/3% of its total
assets, taken at market value. The Fund may only borrow as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund shares.
The Fund may not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights (as defined in
the 1940 Act) or enter into reverse repurchase agreements, in amounts up to 33
1/3 % of its total assets (including the amount borrowed). The Fund may borrow
up to an additional 5% of its total assets for temporary purposes. The Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. The Fund may purchase securities on margin
and engage in short sales to the extent permitted by applicable law.
ILLIQUID SECURITIES
The Fund may not invest more than 15% of its net assets in securities that
are Illiquid. A security is Illiquid when the fund may not dispose of it in the
ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stock of another investment company, (2)
invest more than 5% of its assets in any single investment compnay, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.
SHORT SALES
The Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. The Fund may effect
a short sale in connection with an underwriting in which the Fund is a
participant.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen Fund complex, other than Evergreen
Variable Trust of which Messrs. Howell, Salton and Scofield are the only
Trustees.
<TABLE>
<CAPTION>
NAME AND DATE OF BIRTH POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) former Managing Director, Seaward Management
Corporation (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and
Wine; Chairman and President, Oldways Preservation
and Exchange Trust (education); former Chairman of
the Board, Director, and Executive Vice President,
The London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive Officer,
Gifford Gifts of Fine Foods; former Chairman, Gifford,
Drescher & Associates (environmental consulting); former
Director, Keystone Investments, Inc.
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; former Vice President of Lance Inc.
(food manufacturing).
Leroy Keith, Jr. Trustee Director of Phoenis Total Return Fund and Equifax,
Inc.; Trustee of Phoenix Series Fund, Phoenix
(DOB: 2/14/39) Multi-Portfolio Fund, and The Phoenix Big Edge
Series Fund; and former President, Morehouse
College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
*William Walt Pettit Trustee Partner in the law firm of Holcomb and Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President,
(DOB: 9/14/41) DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming
Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; and former Managed Health Care
Consultant; former President, Primary Physician
Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Chairman, Environmental Warranty, Inc. (insurance
(DOB: 8/11/39) agency); Executive Consultant, Drake Beam Morin,
Inc. (executive outplacement); Director of Connecticut
Natural Gas Corporation, Hartford Hospital, Old State
House Association, Middlesex Mutual Assurance Company,
and Enhance Financial Services, Inc.; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation; former
Trustee, Kingswood-Oxford School; and former
Managing Director and Consultant, Russell Miller, Inc.
John J. Pileggi President and Senior Managing Director, Furman Selz LLC since
Treasurer 1992; Managing Director from 1984 to 1992;
Consultant to BISYS Fund Services since 1996;
230 Park Avenue, Suite 910, New York, NY.
George O. Martinez Secretary Senior Vice President and Director of
Administration and Regulatory Services, BISYS
Fund Services; Vice President/Assistant General
Counsel, Alliance Capital Management from 1988
to 1995; 3435 Stelzer Road, Columbus, Ohio.
</TABLE>
*This Trustee may be considered an interested Trustee within the
meaning of the 1940 Act.
The officers of the Trust are all officers and/or employees of BISYS
Fund Services ("BISYS"), except for Mr. Pileggi, who is a consultant to BISYS.
For more information on BISYS, see "Sub-Administrator" below.
Listed below is the estimated Trustee compensation for calendar year 1998.
COMPENSATION TABLE
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<CAPTION>
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Name Of Person, Aggregate Pension Or Estimated Annual Total
Postion Compensation Retirement Benefits Upon Compensation
From Registant Benefits Accrued Retirement From Registrant
As Part Of Fund And Fund
Expenses Complex Paid To
Directors
Laurence B. Ashkin $10,000 $0 $0 $75,000
Charles A. Austin $10,000 $0 $0 $75,000
K. Dun Gifford $ 9,000 $0 $0 $70,000
James S. Howell $12,000 $0 $0 $95,000
Leroy Keith Jr. $ 9,000 $0 $0 $70,000
Gerald M. McDonnell $10,000 $0 $0 $75,000
Thomas L. McVerry $11,000 $0 $0 $86,000
William Walt Petit $ 9,000 $0 $0 $70,000
David M. Richardson $10,000 $0 $0 $75,000
Russell A. Salton, III 9,000 $0 $0 $70,000
Michael S. Scofield $ 9,000 $0 $0 $70,000
Richard J. Shima $ 9,000 $0 $0 $70,000
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the date of this SAI, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding Class A, Class B, Class C or Class Y
shares of the Fund. As of the same date, no person, to the Fund's knowledge,
owned beneficially or of record more than 5% of a class of the Fund's
outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The investment adviser to the Fund (the "Adviser") is KEYSTONE INVESTMENT
MANAGEMENT COMPANY, 200 Berkeley Street, Boston, Massachusetts 02116. The
Adviser is a subsidiary of First Union Corporation, which is a bank holding
company headquartered at 301 South College Street, Charlotte North Carolina
28288. First Union Corporation and its subsidiaries provide a broad range of
financial services to individuals and businesses throughout the United States.
The Fund pays the Adviser a fee for its services at the annual rate set
forth below:
Aggregate Net
Asset Value of
Management Fee Fund Shares
- ----------------------------------------------------
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
The Adviser's fee is computed as of the close of business each business day and
payable monthly.
INVESTMENT ADVISORY CONTRACT
On behalf of the Fund, the Trust has entered into an investment advisory
agreement with the Adviser (the "Advisory Agreement"). Under the Advisory
Agreement, and subject to the supervision of the Trust's Board of Trustees, the
Adviser furnishes to the Fund investment advisory, management and administrative
services, office facilities, and equipment in connection with its services for
managing the investment and reinvestment of the Fund's assets. The Adviser pays
for all of the expenses incurred in connection with the provision of its
services. The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the Adviser, including, but not
limited to, (1) custodian charges and expenses; (2) bookkeeping and auditors'
charges and expenses; (3) transfer agent charges and expenses; (4) fees and
expenses of Independent Trustees; (5) brokerage commissions, brokers' fees and
expenses; (6) issue and transfer taxes; (7) costs and expenses under the
Distribution Plan (as applicable) (8) taxes and trust fees payable to
governmental agencies; (9) the cost of share certificates; (10) fees and
expenses of the registration and qualification of the Fund and its shares with
the Securities and Exchange Commission ("SEC") or under state or other
securities laws; (11) expenses of preparing, printing and mailing prospectuses,
statements of additional information, notices, reports and proxy materials to
shareholders of the Fund; (12) expenses of shareholders' and Trustees' meetings;
(13) charges and expenses of legal counsel for the Fund and for the Independent
Trustees of the Trust on matters relating to the Fund; (14) charges and expenses
of filing annual and other reports with the SEC and other authorities; and all
extraordinary charges and expenses of the Fund.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees (Trustees who are not interested persons of the Trust, as
defined in the 1940 Act) cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
GENERAL
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment adviser. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment adviser. The Fund may
engage in such transactions if they are equitable to each participant and
consistent with each participant's investment objective.
DISTRIBUTOR
Evergreen Distributor, Inc., (the "Distributor") markets the Fund
through broker-dealers and other financial representatives. Its address is 125
W. 55th Street, New York, NY 10019.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid monthly on Class A, Class
B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B shares and Class C shares are
designed to permit an investor to purchase such shares through broker-dealers
without the assessment of a front-end sales charge, and, in the case of Class C
shares, without the assessment of a contingent deferred sales charge after the
first year following the month of purchase, while at the same time permitting
the Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares and
the Class C shares are the same as those of the front-end sales charge and
distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by the
Fund with respect to each of its Class A, Class B and Class C shares (each a
"Plan" and collectively, the "Plans"), the Treasurer of the Fund reports the
amounts expended under the Plans and the purposes for which such expenditures
were made to the Trustees of the Trust for their review on a quarterly basis.
Also, each Plan provides that the selection and nomination of the disinterested
Trustees are committed to the discretion of such disinterested Trustees then in
office.
The Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
("SEC") make payments for distribution services to the Distributor; the latter
may in turn pay part or all of such compensation to brokers or other persons for
their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that Class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of the Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of the Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Any Plan, Shareholder Services
Plan or Distribution Agreement may be terminated (i) by the Fund without penalty
at any time by a majority vote of the holders of the outstanding voting
securities of the Fund, voting separately by Class or by a majority vote of the
disinterested Trustees, or (ii) by the Distributor. To terminate any
Distribution Agreement, any party must give the other parties 60 days' written
notice; to terminate a Plan only, the Fund need give no notice to the
Distributor. Any Distribution Agreement will terminate automatically in the
event of its assignment.
ADDITIONAL SERVICE PROVIDERS
ADMINISTRATOR
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Fund, subject to the supervision and control of the Trust's Board of
Trustees. EIS provides the Fund with facilities, equipment and personnel and is
entitled to receiive a fee based on the aggregate average daily net assets of
the Fund based on the total assets of all mutual funds advised by First Union
Corporation subsidiaries. The fee paid to EIS is calculated in accordance with
the following schedule: 0.50% on the first $7 billion; 0.035% on the next $3
billion; 0.030% on the next $5 billion; 0.020% on the next $10 billion; 0.015%
on the next $5 bilion and 0.010% on assets in excess of $30 billion.
SUB-ADMINISTRATOR
BISYS provides such personnel and certain administrative services to
the Fund pursuant to a sub- administrator agreement. For its services under that
agreement, BISYS receives a fee based on the aggregate average daily net assets
of the Fund at a rate based on the total assets of all mutual funds administered
by EIS for which subsidiaries of First Union Corporation also serve as
investment adviser. The sub-administrator fee is calculated in accordance with
the following schedule: 0.0100% on the first $7 billion; 0.0075% on the next $3
billion; 0.0050% on the next $15 billion; 0.0040% on assets in excess of $25
billion. BISYS is an affiliate of the Distributor.
TRANSFER AGENT
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Fund's transfer agent. The transfer agent issues and redeems
shares, pays dividends and performs other duties in connection with the
maintenance of shareholder accounts. The transfer agent's address is 200
Berkeley Street, Boston, Massachusetts 02116.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP audits the Fund's financial statements. The
auditor's address is 99 High Street, Boston, Massachusetts 02110.
CUSTODIAN
State Street Bank and Trust Company is the Fund's custodian. The bank
keeps custody of the Fund's securities and cash and performs other related
duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts
02110.
LEGAL COUNSEL
Sullivan Worcester LLP provides legal advice to the Fund. Its address
is 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE COMMISSIONS
Generally, the Fund expects to purchase and sell its securities through
brokerage transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's markdown. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
SELECTION OF BROKERS
In effecting transactions in portfolio securities for the Fund, the
Adviser seeks the best execution of orders at the most favorable prices. The
Adviser determines whether a broker has provided the Fund with best execution
and price in the execution of a securities transaction by evaluating, among
other things:
1. overall direct net economic result to the Fund,
2. the efficiency with which they effect the transaction,
3. the broker's ability to effect the transaction where a large
block is involved,
4. the broker's readiness to execute potentially difficult
transactions in the future,
5. the financial strength and stability of the broker, and
6. the receipt of research services, such as analyses and reports
concerning issuers, industries,
securities, economic factors and trends and other statistical
and factual information ("research services").
The Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commissions paid.
The Fund considers the receipt of research services by the Fund or the
Adviser to be in addition to, and not instead of, the services the Adviser is
required to perform under the Advisory Agreement. The Adviser believes that it
cannot determine or practically allocate the cost, value and specific
application of such research services between the Fund and its other clients,
who may indirectly benefit from the availability of such services. Similarly,
the Fund may indirectly benefit from information made available from
transactions effected for the Adviser's other clients. The Advisory Agreement
also permits the Adviser to pay higher brokerage commissions for brokerage and
research services in accordance with Section 28(e) of the Securities Exchange
Act of 1934; if the Adviser does so on a basis that is fair and equitable to the
Fund.
Neither the Fund nor the Adviser intends on placing securities
transactions with any particular broker-dealer. The Trust's Board of Trustees
has determined, however, that the Fund may consider sales of Fund shares when
selecting of broker-dealers to execute portfolio transactions, subject to the
requirements of best execution described above.
GENERAL BROKERAGE POLICIES
The Adviser makes investment decisions for the Fund independently from
those of its other clients. It may frequently develop, however, that the Adviser
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, the Adviser will
allocate the transactions according to a formula that is equitable to each of
its clients. Although, in some cases, this system could have a detrimental
effect on the price or volume of the Fund's securities, the Fund believes that
in other cases its ability to participate in volume transactions will produce
better executions. In order to take advantage of the availability of lower
purchase prices, the Fund may occasionally participate in group bidding for the
direct purchase from an issuer of certain securities.
The Board of Trustees periodically reviews the Fund's brokerage policy.
Because of the possibility of further regulatory developments affecting the
securities exchanges and brokerage practices generally, the Board of Trustees
may change, modify or eliminate any of the foregoing practices.
ORGANIZATION
FORM OF ORGANIZATION
The Fund is a series of an open-end management investment company,
known as "EVERGREEN EQUITY TRUST" (the "Trust"). The Trust was formed as a
Delaware business trust on September 17, 1997 (the "Declaration of Trust"). A
copy of the Declaration of Trust is on file as an exhibit to the Trust's
Registration Statement, of which this SAI is a part. This summary is qualified
in its entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. However, the Trust intends to hold meetings at least
annually. At meetings called for the initial election of Trustees or to consider
other matters, each share is entitled to one vote for each dollar of net asset
value applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining 50% or less of the
shares voting will not be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time, the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
PURCHASE, REDEMPTION AND PRICING OF SHARES
HOW THE FUND OFFERS SHARES TO THE PUBLIC
You may buy shares of the Fund through the distributor, broker-dealers
that have entered into special agreements with the Fund's distributor or certain
other financial institutions. The Fund offers four classes of shares that differ
primarily with respect to sales charges and distribution fees. Depending upon
the class of shares, you will pay an initial sales charge when you buy the
Fund's shares, a contingent deferred sales charge (a "CDSC") when you redeem the
Fund's shares or no sales charges at all.
PURCHASE ALTERNATIVES
CLASS A SHARES
With certain exceptions, when you purchase Class A shares you will pay a
maximum sales charge of 4.75%. (The prospectuses contain a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase. See "Contingent Deferred Sales Charge"
below.
CLASS B SHARES
The Fund offers Class B shares at net asset value (without a front-end
load). With certain exceptions, however, the Fund will charge a CDSC on shares
you redeem within 72 months after the month of your purchase. The Fund will
charge CDSCs at the following rate:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase..............5.00%
Second twelve-month
period following the month of purchase..............4.00%
Third twelve-month
period following the month of purchase..............3.00%
Fourth twelve-month
period following the month of purchase..............3.00%
Fifth twelve-month
period following the month of purchase..............2.00%
Sixth twelve-month
period following the month of purchase..............1.00%
Thereafter...............................................0.00%
Class B shares that have been outstanding for seven years after the month of
purchase will automatically convert to Class A shares without imposition of a
front-end sales charge. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificate to ESC.
CLASS C SHARES
Class C shares are available only through broker-dealers who have entered
into special distribution agreements with the Distributor. The Fund offers Class
C shares at net asset value (without an initial sales charge). With certain
exceptions, however, the Fund will charge a CDSC of 1.00% on shares redeemed
within 12-months after the month of purchase. See "Contingent Deferred Sales
Charge" below.
CLASS Y SHARES
No CDSC is imposed on the redemption of Class Y shares. Class Y shares are
not offered to the general public and are available only to (I) persons who at
or prior to December 31, 1994 owned shares in a mutual fund advised by Evergreen
Asset Management Corp. ("Evergreen Asset"), (2) certain institutional investors
and (3) investment advisory clients of the Capital Management Group of First
Union National Bank, Evergreen Asset, Keystone Investment Management Company, or
their affiliates. Class Y shares are offered at net asset value without a
front-end or back-end sales charge and do not bear any Rule 12b-1 distribution
expenses.
CONTINGENT DEFERRED SALES CHARGE
The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sales of its shares (see "Distribution Plans"). If imposed, the Fund
deducts the CDSC from the redemption proceeds you would otherwise receive. The
CDSC is a percentage of the lesser of (1) the net asset value of the shares at
the time of redemption or (2) the shareholder's original net cost for such
shares. Upon request for redemption, to keep the CDSC a shareholder must pay as
low as possible, the Fund will first seek to redeem shares not subject to the
CDSC and/or shares held the longest, in that order. The CDSC on any redemption
is, to the extent permitted by the National Association of Securities Dealers,
Inc. ("NASD"), paid to the Fund's Distributor or a predecessor distributor.
SALES CHARGE WAIVERS OR REDUCTIONS
REDUCING CLASS A FRONT-END LOADS
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in Evergreen funds and take advantage of
lower sales charges.
COMBINED PURCHASES
You can reduce your sales charge by combining purchases of Class A shares
of multiple Evergreen funds. For example, if you invested $75,000 in each of two
different Evergreen funds, you would pay a sales charge based on a $150,000
purchase (i.e., 3.75% of the offering price, rather than 4.75%).
RIGHTS OF ACCUMULATION
You can reduce your sales charge by adding the value of Class A shares of
Evergreen funds you already own to the amount of your next Class A investment.
For example, if you hold Class A shares valued at $99,999 and purchase an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75%, rather than 4.75%.
LETTER OF INTENT
You can, by completing the "Letter of Intent" section of the application,
purchase Class A shares over a 13-month period and receive the same sales charge
as if you had invested all the money at once. All purchases of Class A shares of
an Evergreen fund during the period will qualify as Letter of Intent purchases.
SHARES THAT ARE NOT SUBJECT TO A SALES CHARGE OR CDSC
WAIVER OF SALES CHARGES
The Fund may sell their shares at net asset value without an initial sales
charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax sheltered
annuity or TSA plan sponsored by an organization having 100 or more
eligible employees (a "Qualifying Plan") or a TSA plan sponsored by a
public educational entity having 5,000 or more eligible employees (an
"Educational TSA Plan");
3. institutional investors, which may include bank trust departments and
registered investment advisers;
4. investment advisers, consultants or financial planners who place trades
for their own accounts or the accounts of their clients and who charge
such clients a management, consulting, advisory or other fee;
5. clients of investment advisers or financial planners who place trades
for their own accounts if the accounts are linked to the master account
of such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased;
6. institutional clients of broker-dealers, including retirement and
deferred compensation plans and the trusts used to fund these plans,
which place trades through an omnibus account maintained with the Fund
by the broker-dealer;
7. employees of First Union National Bank, its affiliates, Evergreen
Distributor, Inc., any broker-dealer with whom Evergreen Distributor,
Inc. has entered into an agreement to sell shares of the Fund, and
members of the immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the Evergreen
funds, the Distributor or their affiliates and to the immediate
families of such persons; or
9. a bank or trust company in a single account in the name of such bank or
trust company as trustee if the initial investment in any Evergreen
fund made pursuant to this waiver is at least $500,000 and any
commission paid at the time of such purchase is not more than 1% of the
amount invested.
With respect to items 8 and 9 above, the Fund will sell shares to these
parties only upon a purchaser's written assurance that the purchases are for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
WAIVER OF CDSCS
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died
or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 1/2 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under an Systematic Withdrawal Plan of
up to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
EXCHANGES
Investors may exchange shares of the Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
the Fund's prospectus. Before you make an exchange, you should read the
prospectus of the Evergreen fund into which you want to exchange. The Trust's
Board of Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
HOW THE FUND VALUES ITS SHARES
HOW AND WHEN THE FUND CALCULATES ITS NET ASSET VALUE PER SHARE ("NAV")
The Fund computes its NAV once daily on Monday through Friday, as described
in the Funds' prospectuses. The Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's net
assets attributable to that class by all of the shares issued for that class.
HOW THE FUND VALUES THE SECURITIES IT OWNS
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis
of the last sales price on the exchange where primarily traded or on
the NMS prior to the time of the valuation, provided that a sale has
occurred.
(2) Securities traded in the over-the-counter market, other than on
NMS, are valued at the mean of the bid and asked prices at the time of
valuation.
(3) Short-term investments maturing in more than sixty days for which
market quotations are readily available are valued at current market
value.
(4) Short-term investments maturing in sixty days or less (including
all master demand notes) are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates
market.
(5) Short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are
valued at amortized cost (market value on the sixtieth day adjusted for
amortization of premium or accretion of discount), which, when combined
with accrued interest, approximates market.
(6) Securities, including restricted securities, for which complete
quotations are not readily available; listed securities or those on NMS
if, in the Fund's opinion, the last sales price does not reflect a
current market value or if no sale occurred; and other assets are
valued at prices deemed in good faith to be fair under procedures
established by the Board of Trustees.
Foreign securities for which market quotations are not readily available
are valued on the basis of valuations provided by a pricing service, approved by
the Trust's Board of Trustees, which uses information with respect to
transactions in such securities, quotations from broker-dealers, market
transactions in comparable securities and various relationships between
securities and yield to maturity in determining value.
SHAREHOLDER SERVICES
As described in the prospectus, a shareholder may elect to receive their
dividends and capital grains distributions in cash instead of shares. However,
ESC will automatically convert a shareholder's distribution option so that the
shareholder reinvests all dividends and distributions in additional shares when
it learns that the postal or other delivery service is unable to deliver checks
or transaction confirmations to the shareholder's address of record. The Fund
will hold the returned distribution or redemption proceeds in a non
interest-bearing account in the shareholder's name until the shareholder updates
his/her address. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with respect
to each class of the Fund (the "Distributor"). The Trust has entered into a
Principal Underwriting Agreement ( "Underwriting Agreement") with the
Distributor with respect to each class of the Fund. The Distributor is a
subsidiary of The BISYS Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the public
offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Trust, and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.
The Distributor has agreed that it will, in all respects, duly conform with
all state and federal laws applicable to the sale of the shares. The Distributor
has also agreed that it will indemnify and hold harmless the Trust and each
person who has been, is, or may be a Trustee or officer of the Trust against
expenses reasonably incurred by any of them in connection with any claim,
action, suit, or proceeding to which any of them may be a party that arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material fact on the part of the Distributor or any other person for whose acts
the Distributor is responsible or is alleged to be responsible, unless such
misrepresentation or omission was made in reliance upon written information
furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as long
as its terms and continuance are approved annually (1) by a vote of a majority
of the Trust's Independent Trustees, and (2) by vote of a majority of the
Trust's Trustees, in each case, cast in person at a meeting called for that
purpose.
The Underwriting Agreement may be terminated, without penalty, on 60 days'
written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in the Distributor's judgment, it could benefit the
sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGISTERED INVESTMENT COMPANY
The Fund intends to qualify for and elect the tax treatment applicable to a
regulated investment company ("RIC") under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). (Such qualification does not involve
supervision of management or investment practices or policies by the Internal
Revenue Service.) In order to qualify as a RIC, the Fund must, among other
things, (i) derive at least 90% of its gross income from dividends, interest,
payments with respect to proceeds from securities loans, gains from the sale or
other disposition of securities or foreign currencies and other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; (ii) derive less than
30% of its gross income from the sale or other disposition of securities,
options, futures or forward contracts (other than those on foreign currencies),
or foreign currencies (or options, futures or forward contracts thereon) that
are not directly related to the RIC's principal business of investing in
securities (or options and futures with respect thereto) held for less than
three months (this requirement is repealed for Fund fiscal years beginning after
August 5, 1997); and (iii) diversify its holdings so that, at the end of each
quarter of its taxable year, (a) at least 50% of the market value of the Fund's
total assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies). By so
qualifying, the Fund is not subject to federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains. A 4% nondeductible excise tax will be imposed on the Fund to the extent
it does not meet certain distribution requirements by the end of each calendar
year. The Fund anticipates meeting such distribution requirements.
TAXES ON DIVIDENDS
Distributions will be taxable to shareholders whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for federal income tax purposes in each share so
received equal to the net asset value of a share of the Fund on the reinvestment
date.
To calculate ordinary income for federal income tax purposes, shareholders
must generally include dividends paid by the Fund from its investment company
taxable income (net investment income plus net realized short-term capital
gains, if any). The Fund will include dividends it receives from domestic
corporations when the Fund calculates its gross investment income. The Fund
anticipates that some of such dividends will qualify for the 70%
dividends-received deduction for corporations. The Fund will inform shareholders
of the amounts that so qualify. Short-term capital gains are not eligible for
the dividends-received deduction.
From time to time, the Fund will distribute the excess of its net long-term
capital gains over its short-term capital loss to shareholders. For federal tax
purposes, shareholders must include such distributions when calculating their
long-term capital gains. Distributions of long-term capital gains are taxable as
such to a shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces the
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder must pay
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported by
each shareholder on his or her federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder will be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than
eighteen months is generally subject to a maximum federal income tax rate of 20%
for an individual. The maximum capital gains tax rate for capital assets held by
an individual for more than twelve months but not more than eighteen months is
generally 28%. Also, a shareholder must treat as long-term capital gains or
losses any capital gains or losses on Fund shares held for more than one year.
Generally, the Code will not allow a shareholder to realize a loss on shares he
or she has sold or exchanged and replaced within a sixty-one-day period
beginning thirty days before and ending thirty days after he or she sold or
exchanged the shares. The Code will treat a shareholder's loss on shares held
for six months or less as a long-term capital loss to the extent the shareholder
received distributions of net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
GENERAL
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisers regarding specific questions relating to federal,
state and local tax consequences of investing in shares of the Fund. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and foreign tax consequences of ownership of shares of the
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
CALCULATION OF PERFORMANCE DATA
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
Current yield quotations as they may appear, from time to time, in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period.
Any given yield or total return quotation should not be considered
representative of the Fund's yield or total return for any future period.
ADDITIONAL INFORMATION
OTHER INFORMATION
Except as otherwise stated in its prospectuses or required by law, the Fund
reserves the right to change the terms of the offer stated in its prospectuses
without shareholder approval, including the right to impose or change fees for
services provided.
No dealer, salesman or other person is authorized to give any information
or to make any representation not contained in the Fund's prospectuses, SAI or
in supplemental sales literature issued by such Fund or the Distributor, and no
person is entitled to rely on any information or representation not contained
therein.
The Fund's prospectuses and SAI omit certain information contained in the
Trust's registration statement. The Fund has filed this SAI with the Securities
and Exchange Commission, and you may obtain a copy of the SAI by writing to the
Securities and Exchange Commission's principal office in Washington, D.C. To
obtain a copy of the SAI from the Securities and Exchange Commission, you will
have to pay the fee prescribed by their rules and regulations.
FINANCIAL STATEMENTS
The audited statement of assets and liabilities and the reports thereon of
KPMG Peat Marwick LLP for the Fund will be filed by amendment.
<PAGE>
APPENDIX A
COMMON AND PREFERRED STOCK RATINGS
A. S&P'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Because the investment process involves assessment of various factors, such
as product and industry position, corporate resources, and financial policy,
with results that make some common stocks more highly esteemed than others,
Standard & Poor's Ratings Group ("S&P") believes that earnings and dividend
performance is the end result of the interplay of these factors and that, over
the long run, the record of this performance has a considerable bearing on
relative quality. S&P rankings, however, do not reflect all of the factors,
tangible or intangible, that bear on stock quality.
Growth and stability of earnings and dividends are deemed key elements in
establishing S&P earnings and dividend rankings for common stocks, which
capsulize the nature of this record in a single symbol.
S&P has established a computerized scoring system based on per share
earnings and dividend records of the most recent ten years, a period deemed long
enough to measure a company's performance under varying economic conditions. S&P
measures growth, stability within the trend line, and cyclicality. The ranking
system also makes allowances for company size, since large companies have
certain inherent advantages over small ones. From these, scores for earnings and
dividends are determined.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample which
is reviewed and sometimes modified with the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
S&P believes its rankings are not a forecast of future market price
performance, but are basically an appraisal of past performance of earnings and
dividends, and relative current standing.
B. MOODY'S COMMON STOCK RANKINGS
Moody's Investors Service ("Moody's") presents a concise statement of the
important characteristics of a company and an evaluation of the grade (quality)
of its common stock. Data presented includes: (a) capsule stock information
which reveals short and long term growth and yield afforded by the indicated
dividend, based on a recent price; (b) a long term price chart which shows
patterns of monthly stock price movements and monthly trading volumes; (c) a
breakdown of a company's capital account which aids in determining the degree of
conservatism or financial leverage in a company's balance sheet; (d) interim
earnings for the current year to date, plus three previous years; (e) dividend
information; (f) company background; (g) recent corporate developments; (h)
prospects for a company in the immediate future and the next few years; and (i)
a ten year comparative statistical analysis.
This information provides investors with information on what a company
does, how it has performed in the past, how it is performing currently, and what
its future performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or
indication of quality. The grade is based on an analysis of each company's
financial strength, stability of earnings, and record of dividend payments.
Other considerations include conservativeness of capitalization, depth and
caliber of management, accounting practices, technological capabilities, and
industry position. Evaluation is represented by the following grades:
(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade
C. MOODY'S PREFERRED STOCK RATINGS
Preferred stock ratings and their definitions are as follows:
1. AAA: An issue that is rated AAA is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
2. AA: An issue that is rated AA is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
3. A: An issue that is rated A is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the AAA
and AA classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
4. BAA: An issue that is rated BAA is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
5. BA: An issue that is rated BA is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
6. B: An issue that is rated B generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
7. CAA: An issue that is rated CAA is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
8. CA: An issue that is rated CA is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
9. C: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
CORPORATE BOND RATINGS
A. S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the United States,
with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers, or lessees. Ratings of
foreign obligors do not take into account currency exchange and related
uncertainties. The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from AA to A may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
B. MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. AAA - Bonds which are rated AAA are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. AA - Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in AAA securities.
3. A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
4. BAA - Bonds which are rated BAA are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. BA - Bonds which are rated BA are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
8. Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
market shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
<PAGE>
EVERGREEN SPECIALTY GROWTH AND BALANCED FUNDS
200 BERKELEY STREET, BOSTON, MASSACHUSETTS
(800) 343-2898
STATEMENT OF ADDITIONAL INFORMATION DATED
NOVEMBER 10, 1997 FOR THE FOLLOWING SERIES OF THE
EVERGREEN EQUITY TRUST (THE "TRUST"):
EVERGREEN BALANCED FUND
(THE "FUND")
This statement of additional information ("SAI") provides additional
information about all classes of shares of the Fund. It is not a prospectus and
you should read it in conjunction with the prospectus of the Fund dated November
10, 1997, as supplemented from time to time. You may obtain a copy of the
prospectus from the Fund's distributor, Evergreen Distributor, Inc.
22171
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<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES......................................................3
Investment Restrictions And Guidelines .........................9
MANAGEMENT OF THE TRUST.................................................11
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.....................13
INVESTMENT ADVISORY AND OTHER SERVICES..................................14
Investment Advisory Services...................................14
Distribution Plans.............................................15
Additional Service Providers...................................16
BROKERAGE ALLOCATION AND OTHER PRACTICES................................17
Brokerage Commissions..........................................17
Selection of Brokers...........................................17
General Brokerage Policies.....................................18
ORGANIZATION............................................................18
Form of Organization...........................................18
Description of Shares..........................................18
Voting Rights..................................................19
Limitation of Trustees' Liability..............................19
PURCHASE, REDEMPTION AND PRICING OF SHARES..............................19
How the Fund Offers Shares to the Public.......................19
Sales Charge Waivers or Reductions.............................21
Exchanges......................................................22
How The Fund Values its Shares.................................23
Shareholder Services...........................................23
PRINCIPAL UNDERWRITER...................................................24
ADDITIONAL TAX INFORMATION..............................................24
22171
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<PAGE>
CALCULATION OF PERFORMANCE DATA........................................26
ADDITIONAL INFORMATION.................................................27
Other Information.............................................27
FINANCIAL STATEMENTS...................................................27
APPENDIX A............................................................A-1
22171
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<PAGE>
INVESTMENT POLICIES
SECURITIES AND INVESTMENT PRACTICES
The investment objective of the Fund and a description of the securities in
which the Fund may invest are set forth in the Fund's prospectuses. The
following expands upon the discussion in the prospectuses regarding certain
investments of the Fund.
U.S GOVERNMENT OBLIGATIONS
The types of U.S. Government obligations in which the Fund may invest
generally include obligations that the U.S. Government agencies or
instrumentalities issued or guaranteed.
These securities are backed by:
(1) the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities; or
(2) the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive financial
support from the U.S. Government are:
(i) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association;
(vi) Government National Mortgage Association; and
(vii) Student Loan Marketing Association
GNMA SECURITIES
The Fund may invest in securities issued by the Government National
Mortgage Association ("GNMA"), a wholly-owned U.S. Government corporation, which
guarantees the timely payment of principal and interest, but not premiums paid
to purchase these instruments. The market value and interest yield of these
instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in a
pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly scheduled
payments of principal and interest. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price compared to its par value, which may result in a
loss.
RESTRICTED AND ILLIQUID SECURITIES
Pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A"), the
Board of Trustees of the Trust determines the liquidity of certain restricted
securities Rule 144A is a non-exclusive, safe-harbor for certain secondary
market transactions involving securities subject to restrictions on resale under
federal securities laws. Rule 144A provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional buyers.
Rule 144A was expected to further enhance the liquidity of the secondary market
for securities eligible for sale under Rule 144A. In determining the liquidity
of certain restricted securities the Trustees consider: (i) the frequency of
trades and quotes for the security; (ii) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (iii)
dealer undertakings to make a market in the security; and (iv) the nature of the
security and the nature of the marketplace trades.
WHEN-ISSUED, DELAYED-DELIVERY AND FORWARD COMMITMENT TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis
and may purchase or sell securities on a forward commitment basis. These
transactions involve the purchase of debt obligations with delivery and payment
normally taking place within a month or more after the date of commitment to
purchase. The Fund will only make commitments to purchase obligations on a
when-issued basis with the intention of actually acquiring the securities, but
may sell them before the settlement date. The when-issued securities are subject
to market fluctuation, and no interest accrues on the security to the purchaser
during this period. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the purchaser enters into
the commitment.
Segregated accounts will be established with the custodian, and the Fund
will maintain liquid assets in an amount at least equal in value to its
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will place additional liquid assets in the account on a daily
basis so that the value of the assets in the account is equal to the amount of
such commitments.
Purchasing obligations on a when-issued basis is a form of leveraging and
can involve a risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself. In that case there could be an unrealized loss at the time of delivery.
The Fund uses when-issued, delayed-delivery and forward commitment
transactions to secure what it considers to be an advantageous price and yield
at the time of purchase. When the Fund engages in when- issued, delayed-delivery
and forward commitment transactions, it relies on the buyer or seller, as the
case may be, to consummate the sale. If the buyer or seller fails to complete
the sale, then the Fund may miss the opportunity to obtain the security at a
favorable price or yield.
Typically, no income accrues on securities the Fund has committed to
purchase prior to the time delivery of the securities is made, although the Fund
may earn income on securities it has deposited in a segregated account. When
purchasing a security on a when-issued, delayed delivery, or forward commitment
basis, the Fund assumes the rights and risks of ownership of the security,
including the risk of price and yield fluctuations, and takes such fluctuations
into account when determining its net asset value. Because the Fund is not
required to pay for the security until the delivery date, these risks are in
addition to the risks associated with its other investments.
LOANS OF SECURITIES
To generate income and offset expenses, the Fund may lend portfolio
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of its total assets.
While securities are on loan, the borrower will pay the Fund any income accruing
on the security. The Fund may invest any collateral it receives in additional
portfolio securities, such as U.S. Treasury notes, certificates of deposit,
other high-grade, short-term obligations or interest bearing cash equivalents.
Gains or losses in the market value of a security lent will affect the Fund and
its shareholders.
When the Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
Although voting rights attendant to securities lent pass to the borrower,
the Fund may call such loans at any time and may vote the securities if it
believes a material event affecting the investment is to occur. The Fund may
experience a delay in receiving additional collateral or in recovering the
securities lent or may even suffer a loss of rights in the collateral should the
borrower of the securities fail financially. The Fund may only make loans to
borrowers deemed to be of good standing, under standards approved by the Board
of Trustees, when the income to be earned from the loan justifies the attendant
risks.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. Government securities or other financial institutions believed by the
Fund's investment adviser (as hereinafter defined) to be creditworthy. In a
repurchase agreement, the Fund obtains a security and simultaneously commits to
return the security to the seller (a member bank of the Federal Reserve System
or recognized securities dealer) at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days (usually not more
than seven) from the date of purchase. The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the underlying security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying security.
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund's investment adviser believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker-dealers, which are
deemed by the investment adviser to be creditworthy pursuant to guidelines
established by the Board of Trustees.
REVERSE REPURCHASE AGREEMENTS
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
FINANCIAL FUTURES CONTRACTS
The Fund may enter into financial futures contracts as a hedge against
decreases or increases in the value of securities it holds or intends to
acquire.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate, the
value of the open positions (marked to market) exceeds the current market value
of its securities portfolio plus or minus the unrealized gain or loss on those
open positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
OPTIONS
The Fund may buy or sell (i.e., write) put and call options on securities
it holds or intends to acquire. The Fund may also buy and sell options on
financial futures contracts. The Fund will use options as a hedge against
decreases or increases in the value of securities it holds or intends to
acquire. The Fund may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series.
The Fund may write only covered options. With regard to a call option, this
means that the Fund will own, for the life of the option, the securities subject
to the call option. The Fund will cover put options by holding, in a segregated
account, liquid assets having a value equal to or greater than the price of
securities subject to the put option. If the Fund is unable to effect a closing
purchase transaction with respect to the covered options it has sold, it will
not be able to sell the underlying securities or dispose of assets held in a
segregated account until the options expire or are exercised.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day, the Fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions. The Fund is also required
to deposit and maintain margin when it writes call options on futures contracts.
The Fund may not buy or sell futures contracts or related options if,
immediately thereafter, the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
FOREIGN SECURITIES
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. Permissible investments may consist of obligations of foreign
branches of U.S. banks and of foreign banks, including European certificates of
deposit, European time deposits, Canadian time deposits and Yankee certificates
of deposit, and investments in Canadian commercial paper, foreign securities and
Europaper. These instruments may subject the Fund to investment risks that
differ in some respects from those related to investments in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
income, possible seizure, nationalization, or expropriation of foreign deposits,
the possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. Such investments may also
entail higher custodial fees and sales commissions than domestic investments.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks.
FOREIGN CURRENCY TRANSACTIONS
As one way of managing exchange rate risk, the Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency the Fund will deliver and receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually will enter into
these contracts to stabilize the U.S. dollar value of a security it has agreed
to buy or sell. The Fund intends to use these contracts to hedge the U.S. dollar
value of a security it already owns, particularly if the Fund expects a decrease
in the value of the currency in which the foreign security is denominated.
Although the Fund will attempt to benefit from using forward contracts, the
success of its hedging strategy will depend on the Adviser's ability to predict
accurately the future exchange rates between foreign currencies and the U.S.
dollar. The value of the Fund's investments denominated in foreign currencies
will depend on the relative strengths of those currencies and the U.S. dollar,
and the Fund may be affected favorably or unfavorably by changes in the exchange
rates or exchange control regulations between foreign currencies and the U.S.
dollar. Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The Fund may also purchase and sell options related to
foreign currencies in connection with hedging strategies.
HIGH YIELD BONDS
The Fund may invest in high yield, high risk bonds. While investment in
high yield bonds provides opportunities to maximize return over time, investors
should be aware of the following risks associated with high yield bonds:
(1) High yield bonds are rated below investment grade, i.e., BB or lower by
Standard & Poor's Rating Group ("S&P") or Ba or lower by Moody's Investors
Service ("Moody's"). Securities so rated are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments.
(2) The lower ratings of these securities reflect a greater possibility
that adverse changes in the financial condition of the issuer or in general
economic conditions, or both, or an unanticipated rise in interest rates may
impair the ability of the issuer to make payments of interest and principal,
especially if the issuer is highly leveraged. Such issuer's ability to meet its
debt obligations may also be adversely affected by specific corporate
developments or the issuer's inability to meet specific projected business
forecasts or the unavailability of additional financing. Also, an economic
downturn or an increase in interest rates may increase the potential for default
by the issuers of these securities.
(3) Their value may be more susceptible to real or perceived adverse
economic, company or industry conditions and publicity than is the case for
higher quality securities.
(4) Their value, like those of other fixed income securities, fluctuates in
response to changes in interest rates, generally rising when interest rates
decline and falling when interest rates rise. For example, if interest rates
increase after a fixed income security is purchased, the security, if sold prior
to maturity, may return less than its cost. The prices of below-investment grade
bonds, however, are generally less sensitive to interest rate changes than the
prices of higher-rated bonds, but are more sensitive to adverse or positive
economic changes or individual corporate developments.
(5) The secondary market for such securities may be less liquid at certain
times than the secondary market for higher quality debt securities, which may
adversely effect (1) the market price of the security, (2) the Fund's ability to
dispose of particular issues and (3) the Fund's ability to obtain accurate
market quotations for purposes of valuing its assets.
(6) Zero coupon bonds and PIKs involve additional special considerations.
For example, zero coupon bonds pay no interest to holders prior to maturity of
interest. PIKs are debt obligations that provide that the issuer may, at its
option, pay interest on such bonds in cash or in the form of additional debt
obligations. Such investments may experience greater fluctuation in value due to
changes in interest rates than debt obligations that pay interest currently.
Even though these investments do not pay current interest in cash, the Fund is,
nonetheless, required by tax laws to accrue interest income on such investments
and to distribute such amounts at least annually to shareholders. Thus, the Fund
could be required at times to liquidate investments in order to fulfill its
intention to distribute substantially all of its net income as dividends. The
Fund will not be able to purchase additional income producing securities with
cash used to make such distributions, and its current income ultimately may be
reduced as a result.
The Fund may also invest in unrated securities that, in the investment
adviser's judgment, offer comparable yields and risks as securities that are
rated. It is possible for securities rated D or C-, respectively, to have
defaulted on payments of principal and/or interest at the time of investment.
(See the Appendix to this SAI for a description of these rating categories.) The
Fund intends to invest in D rated debt only in cases when, in the investment
adviser's judgment, there is a distinct prospect of improvement in the issuer's
financial position as a result of the completion of reorganization or otherwise.
The investment adviser considers the ratings of S&P and Moody's assigned to
various securities, but does not rely solely on these ratings because (1) S&P
and Moody's assigned ratings are based largely on historical financial data and
may not accurately reflect the current financial outlook of companies; and (2)
there can be large differences among the current financial conditions of issuers
within the same category.
INVESTMENT RESTRICTIONS AND GUIDELINES
FUNDAMENTAL POLICIES
The Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Unless otherwise stated, all references to the assets of the Fund are in
terms of current market value.
DIVERSIFICATION
The Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
CONCENTRATION
The Fund may not concentrate its investments in the securities of issuers
primarily engaged in any particular industry (other than securities that are
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities).
ISSUING SENIOR SECURITIES
Except as permitted under the 1940 Act, the Fund may not issue senior
securities.
BORROWING
The Fund may not borrow money, except to the extent permitted by applicable
law.
UNDERWRITING
The Fund may not underwrite securities issued by other persons, except
insofar as the Fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.
REAL ESTATE
The Fund may not purchase or sell real estate, except that, to the extent
permitted applicable by law, the Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
COMMODITIES
The Fund may not purchase or sell commodities or contracts on commodities
except to the extent that the Fund may engage in financial futures contacts and
related options and currency contracts and related options and may otherwise do
so in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act.
LOANS TO OTHER PERSONS
The Fund may not make loans to other persons, except that the Fund may lend
its portfolio securities in accordance with applicable law. The acquistion of
investment securities or other investment instruments shall not be deemed
instruments to be the making of a loan.
GUIDELINES
Unlike the Fundamental Policies above, the following guidelines may be
changed by the Trust's Board of Trustees without shareholder approval.
DIVERSIFICATION
Under the 1940 Act, with respect to the 75% of its total assets, a
diversified investment company may not invest more than 5% of its total assets,
determined at market or other fair value at the time of purchase, in the
securities of any one issuer, or invest in more than 10% of the outstanding
voting securities of any one issuer, determined at the time of purchase. These
limitations do not apply to investments in securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities.
BORROWINGS
The Fund may borrow from banks in an amount up to 33 1/3% of its total
assets, taken at market value. The Fund may only borrow as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund shares.
The Fund may not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights (as defined in
the 1940 Act) or enter into reverse repurchase agreements, in amounts up to 33
1/3 % of its total assets (including the amount borrowed). The Fund may borrow
up to an additional 5% of its total assets for temporary purposes. The Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. The Fund may purchase securities on margin
and engage in short sales to the extent permitted by applicable law.
ILLIQUID SECURITIES
The Fund may not invest more than 15% of its net assets in securities that
are Illiquid. A security is Illiquid when the Fund may not dispose of it in the
ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stock of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.
SHORT SALES
The Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. The Fund may effect
a short sale in connection with an underwriting in which the Fund is a
participant.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen Fund complex other than Evergreen
Variable Trust of which Messrs. Howell, Slaton, and Scofield are the only
Trustees.
<TABLE>
<CAPTION>
NAME AND DATE OF BIRTH POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) former Managing Director, Seaward Management
Corporation (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and
Wine; Chairman and President, Oldways Preservation
and Exchange Trust (education); former Chairman of
the Board, Director, and Executive Vice President,
The London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive Officer,
Gifford Gifts of Fine Foods; former Chairman, Gifford,
Drescher & Associates (environmental consulting); former
Director, Keystone Investments, Inc.
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; former Vice President of Lance Inc.
(food manufacturing).
Leroy Keith, Jr. Trustee Director of Phoenis Total Return Fund and Equifax,
Inc.; Trustee of Phoenix Series Fund, Phoenix
(DOB: 2/14/39) Multi-Portfolio Fund, and The Phoenix Big Edge
Series Fund; and former President, Morehouse
College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
*William Walt Pettit Trustee Partner in the law firm of Holcomb and Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President,
(DOB: 9/14/41) DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming
Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; and former Managed Health Care
Consultant; former President, Primary Physician
Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Chairman, Environmental Warranty, Inc. (insurance
(DOB: 8/11/39) agency); Executive Consultant, Drake Beam Morin,
Inc. (executive outplacement); Director of Connecticut
Natural Gas Corporation, Hartford Hospital, Old State
House Association, Middlesex Mutual Assurance Company,
and Enhance Financial Services, Inc.; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation; former
Trustee, Kingswood-Oxford School; and former
Managing Director and Consultant, Russell Miller, Inc.
John J. Pileggi President and Senior Managing Director, Furman Selz LLC since
Treasurer 1992; Managing Director from 1984 to 1992;
Consultant to BISYS Fund Services since 1996;
George O. Martinez Secretary Senior Vice President and Director of
Administration and Regulatory Services, BISYS
Fund Services; Vice President/Assistant General
Counsel, Alliance Capital Management from 1988
to 1995; 3435 Stelzer Road, Columbus, Ohio.
</TABLE>
*This Trustee may be considered an interested Trustee within the
meaning of the 1940 Act.
The officers of the Trust are all officers and/or employees of BISYS
Fund Services ("BISYS"), except for Mr. Pileggi, who is a consultant to BISYS.
For more information on BISYS, see "Sub-Administrator" below.
Listed below is the estimated aggregate Trustee compensation for calendar
year 1998.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name Of Person, Aggregate Pension Or Estimated Annual Total
Postion Compensation Retirement Benefits Upon Compensation
From Registant Benefits Accrued Retirement From Registrant
As Part Of Fund And Fund
Expenses Complex Paid To
Directors
Laurence B. Ashkin $10,000 $0 $0 $75,000
Charles A. Austin $10,000 $0 $0 $75,000
K. Dun Gifford $ 9,000 $0 $0 $70,000
James S. Howell $12,000 $0 $0 $95,000
Leroy Keith Jr. $ 9,000 $0 $0 $70,000
Gerald M. McDonnell $10,000 $0 $0 $75,000
Thomas L. McVerry $11,000 $0 $0 $86,000
William Walt Petit $ 9,000 $0 $0 $70,000
David M. Richardson $10,000 $0 $0 $75,000
Russell A. Salton, III 9,000 $0 $0 $70,000
Michael S. Scofield $ 9,000 $0 $0 $70,000
Richard J. Shima $ 9,000 $0 $0 $70,000
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the date of this SAI, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding Class A, Class B, Class C or Class Y
shares of the Fund. As of the same date, no person, to the Fund's knowledge,
owned beneficially or of record more than 5% of a class of the Fund's
outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The investment adviser to the Fund (the "Adviser") is KEYSTONE INVESTMENT
MANAGEMENT COMPANY, 200 Berkeley Street, Boston, Massachusetts 02116. The
Adviser is a subsidiary of First Union Corporation, which is a bank holding
company headquartered at 301 South College Street, Charlotte North Carolina
28288. First Union Corporation and its subsidiaries provide a broad range of
financial services to individuals and businesses throughout the United States.
The Fund pays the Adviser a fee for its services at the annual rate set forth
below:
Aggregate Net
1.5% of Gross Dividend Asset Value of the
Management Fee and Interest Income plus Shares of the Fund
- ----------------------------------------------------------------------------
0.60% of the first $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 $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $500,000,000, plus
0.30% of amounts over $1,000,000,000
The Adviser's fee is computed as of the close of business each business day and
payable monthly.
INVESTMENT ADVISORY CONTRACTS
On behalf of the Fund, the Trust has entered into an investment advisory
agreement with the Adviser (the "Advisory Agreement") . Under the Advisory
Agreement, and subject to the supervision of the Trust's Board of Trustees, the
Adviser furnishes to the Fund investment advisory, management and administrative
services, office facilities, and equipment in connection with its services for
managing the investment and reinvestment of the Fund's assets. The Adviser pays
for all of the expenses incurred in connection with the provision of its
services. The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the Adviser, including, but not
limited to, (1) custodian charges and expenses; (2) bookkeeping and auditors'
charges and expenses; (3) transfer agent charges and expenses; (4) fees and
expenses of Independent Trustees; (5) brokerage commissions, brokers' fees and
expenses; (6) issue and transfer taxes; (7) costs and expenses under the
Distribution Plan (as applicable) (8) taxes and trust fees payable to
governmental agencies; (9) the cost of share certificates; (10) fees and
expenses of the registration and qualification of the Fund and its shares with
the Securities and Exchange Commission ("SEC") or under state or other
securities laws; (11) expenses of preparing, printing and mailing prospectuses,
statements of additional information, notices, reports and proxy materials to
shareholders of the Fund; (12) expenses of shareholders' and Trustees' meetings;
(13) charges and expenses of legal counsel for the Fund and for the Independent
Trustees of the Trust on matters relating to the Fund; (14) charges and expenses
of filing annual and other reports with the SEC and other authorities; and all
extraordinary charges and expenses of the Fund.
The Advisory Agreement continues in effect for two years from its effective
date and, thereafter, from year to year only if approved at least annually by
the Board of Trustees of the Trust or by a vote of a majority of the Fund's
outstanding shares. In either case, the terms of the Advisory Agreement and
continuance thereof must be approved by the vote of a majority of the
Independent Trustees (Trustees who are not interested persons of the Fund, as
defined in the 1940 Act) cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
GENERAL
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment adviser. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment adviser. The Fund may
engage in such transactions if they are equitable to each participant and
consistent with each participant's investment objective.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor"), markets the Funds through
broker-dealers and other financial representatives. Its address is 125 W. 55th
Street, New York, NY 10019.
DISTRIBUTION PLANS
Distribution fees are accrued daily and paid monthly on Class A, Class B
and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B shares and Class C shares are
designed to permit an investor to purchase such shares through broker-dealers
without the assessment of a front-end sales charge, and, in the case of Class C
shares, without the assessment of a contingent deferred sales charge after the
first year following the month of purchase, while at the same time permitting
the Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares and
the Class C shares are the same as those of the front-end sales charge and
distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by the Fund
with respect to each of its Class A, Class B and Class C shares (each a "Plan"
and collectively, the "Plans"), the Treasurer of the Fund reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the disinterested Trustees
are committed to the discretion of such disinterested Trustees then in office.
The Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
("SEC") make payments for distribution services to the Distributor; the latter
may in turn pay part or all of such compensation to brokers or other persons for
their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for successive
twelve-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that Class and, in
either case, by a majority of the Independent Trustees of the Trust who have no
direct or indirect financial interest in the operation of the Plan or any
agreement related thereto.
The Plans permit the payment of fees to brokers and others for distribution
and shareholder-related administrative services and to broker-dealers,
depository institutions, financial intermediaries and administrators for
administrative services as to Class A, Class B and Class C shares. The Plans are
designed to (i) stimulate brokers to provide distribution and administrative
support services to each Fund and holders of Class A, Class B and Class C shares
and (ii) stimulate administrators to render administrative support services to
the Fund and holders of Class A, Class B and Class C shares. The administrative
services are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to
providing office space, equipment, telephone facilities, and various personnel
including clerical, supervisory, and computer, as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Class A, Class B and
Class C shares; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Fund
reasonably requests for its Class A, Class B and Class C shares.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of the Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Any Plan, Shareholder Services
Plan or Distribution Agreement may be terminated (i) by the Fund without penalty
at any time by a majority vote of the holders of the outstanding voting
securities of the Fund, voting separately by Class or by a majority vote of the
disinterested Trustees, or (ii) by the Distributor. To terminate any
Distribution Agreement, any party must give the other parties 60 days' written
notice; to terminate a Plan only, the Fund need give no notice to the
Distributor. Any Distribution Agreement will terminate automatically in the
event of its assignment.
ADDITIONAL SERVICE PROVIDERS
ADMINISTRATOR
Evergreen Investment Services, Inc. ("EIS") serves as administrator to the
Fund, subject to the supervision and control of the Trust's Board of Trustees.
EIS provides the Fund with facilities, equipment and personnel and is entitled
to receive a fee based on the aggregate average daily net assets of the Fund
based on the total assets of all mutual funds advised by First Union Corporation
subsidiaries. The fee paid to EIS is calculated in accordance with the following
schedule: 0.50% on the first $7 billion; 0.035% on the next $3 billion; 0.030%
on the next $5 billion; 0.020% on the next $10 billion; 0.015% on the next $5
bilion and 0.010% on assets in excess of $30 billion.
SUB-ADMINISTRATOR
BISYS provides such personnel and certain administrative services to the
Fund pursuant to a sub- administrator agreement. For its services under that
agreement, BISYS receives a fee from EIS (as per prospectus) based on the
aggregate average daily net assets of the Fund at a rate based on the total
assets of all mutual funds administered by EIS for which First Union Corporation
also serves as investment adviser. The sub-administrator fee is calculated in
accordance with the following schedule: 0.0100% on the first $7 billion; 0.0075%
on the next $3 billion; 0.0050% on the next $15 billion; 0.0040% on assets in
excess of $25 billion. BISYS is an affiliate of the Distributor.
TRANSFER AGENT
Evergreen Service Company ("ESC"), a subsidiary of First Union Corporation,
is the Fund's transfer agent. Under an agreement with the Fund, the transfer
agent issues and redeems shares, pays dividends and performs other duties in
connection with the maintenance of shareholder accounts. The transfer agent's
address is 200 Berkeley Street, Boston, Massachusetts 02116.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP audits the Fund's financial statements. The auditor's
address is 99 High Street, Boston, Massachusetts 02110.
CUSTODIAN
State Street Bank and Trust Company is the Fund's custodian. Under an
agreement with the Fund, the bank keeps custody of the Fund's securities and
cash and performs other related duties. The custodian's address is 225 Franklin
Street, Boston, Massachusetts 02110.
LEGAL COUNSEL
Sullivan & Worcester LLP provides legal advice to the Fund. Its address is
1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE COMMISSIONS
Generally, the Fund expects to purchase and sell its securities through
brokerage transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's markdown. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
The Fund expects to buy and sell its fixed-income securities through
principal transactions directly from the issuer or from an underwriter or market
maker for the securities. Generally, the Fund will not pay brokerage commissions
for such purchases. Usually, when the Fund buys a security from an underwriter,
the purchase price will include underwriting commission or concession. The
purchase price for securities bought from dealers serving as market makers will
similarly include the dealer's mark up or reflect a dealer's mark down. When the
Fund executes transactions in the over-the-counter market, it will deal with
primary market makers unless more favorable prices are otherwise obtainable.
SELECTION OF BROKERS
In effecting transactions in portfolio securities for the Fund, the Adviser
seeks the best execution of orders at the most favorable prices. The Adviser
determines whether a broker has provided the Fund with best execution and price
in the execution of a securities transaction by evaluating, among other things:
1. overall direct net economic result to the Fund,
2. the efficiency with which they effect the transaction,
3. the broker's ability to effect the transaction where a large
block is involved,
4. the broker's readiness to execute potentially difficult
transactions in the future,
5. the financial strength and stability of the broker, and
6. the receipt of research services, such as analyses and reports
concerning issuers, industries, securities, economic factors
and trends and other statistical and factual information
("research services").
The Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commissions paid.
The Fund considers the receipt of research services by the Fund or the
Adviser to be in addition to, and not instead of, the services the Adviser is
required to perform under the Advisory Agreement. The Adviser believes that it
cannot determine or practically allocate the cost, value and specific
application of such research services between the Fund and its other clients,
who may indirectly benefit from the availability of such services. Similarly,
the Fund may indirectly benefit from information made available from
transactions effected for the Adviser's other clients. The Advisory Agreement
also permits the Adviser to pay higher brokerage commissions for brokerage and
research services in accordance with Section 28(e) of the Securities Exchange
Act of 1934; if the Adviser does so on a basis that is fair and equitable to the
Fund.
Neither the Fund nor the Adviser intends on placing securities transactions
with any particular broker-dealer. The Trust's Board of Trustees has determined,
however, that the Fund may consider sales of Fund shares when selecting of
broker-dealers to execute portfolio transactions, subject to the requirements of
best execution described above.
GENERAL BROKERAGE POLICIES
The Adviser makes investment decisions for the Fund independently from
those of its other clients. It may frequently develop, however, that the Adviser
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, the Adviser will
allocate the transactions according to a formula that is equitable to each of
its clients. Although, in some cases, this system could have a detrimental
effect on the price or volume of the Fund's securities, the Fund believes that
in other cases its ability to participate in volume transactions will produce
better executions. In order to take advantage of the availability of lower
purchase prices, the Fund may occasionally participate in group bidding for the
direct purchase from an issuer of certain securities.
The Board of Trustees periodically reviews the Fund's brokerage policy.
Because of the possibility of further regulatory developments affecting the
securities exchanges and brokerage practices generally, the Board of Trustees
may change, modify or eliminate any of the foregoing practices.
ORGANIZATION
FORM OF ORGANIZATION
The Fund is a series of an open-end management investment company, known as
"EVERGREEN EQUITY TRUST" (the "Trust"). The Trust was formed as a Delaware
business trust under an Agreement and Declaration of Trust dated September 17,
1997 (the "Declaration of Trust"). A copy of the Declaration of Trust is on file
as an exhibit to the Trust's Registration Statement, of which this SAI is a
part. This summary is qualified in its entirety by reference to the Declaration
of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest of series and classes of shares. Each share of the
Fund represents an equal proportionate interest with each other share of that
series and/or class. Upon liquidation, shares are entitled to a pro rata share
of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required to
hold annual meetings. However, the Trust intends to hold meetings at least
annually. At meetings called for the initial election of Trustees or to consider
other matters, each share is entitled to one vote for each dollar of net asset
value applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of each Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining 50% or less of the
shares voting will not be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time, the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
PURCHASE, REDEMPTION AND PRICING OF SHARES
HOW THE FUND OFFERS SHARES TO THE PUBLIC
You may buy shares of the Fund through the Distributor, broker-dealers that
have entered into special agreements with the Fund's distributor or certain
other financial institutions. The Fund offers four classes of shares that differ
primarily with respect to sales charges and distribution fees. Depending upon
the class of shares, you will pay an initial sales charge when you buy the
Fund's shares, a contingent deferred sales charge (a "CDSC") when you redeem the
Fund's shares or no sales charges at all.
PURCHASE ALTERNATIVES
CLASS A SHARES
With certain exceptions, when you purchase Class A shares you will pay a
maximum sales charge of 4.75%. (The prospectuses contain a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase. See "Contingent Deferred Sales Charge"
below.
CLASS B SHARES
The Fund offers Class B shares at net asset value (without an initial sales
charge). With certain exceptions, however, the Fund will charge a CDSC on shares
you redeem within 72 months after the month of your purchase. The Fund will
charge CDSCs at the following rate:
22166
19
<PAGE>
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase...............5.00%
Second twelve-month
period following the month of purchase...............4.00%
Third twelve-month
period following the month of purchase...............3.00%
Fourth twelve-month
period following the month of purchase...............3.00%
Fifth twelve-month
period following the month of purchase...............2.00%
Sixth twelve-month
period following the month of purchase...............1.00%
Thereafter................................................0.00%
Class B shares that have been outstanding for seven years after the month
of purchase will automatically convert to Class A shares without imposition of a
front-end sales charge. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificate to ESC.
CLASS C SHARES
Class C shares are available only through broker-dealers who have entered
into special distribution agreements with the Distributor. The Fund offers Class
C shares at net asset value (without an initial sales charge). With certain
exceptions, however, the Fund will charge a CDSC of 1.00% on shares redeemed
within 12-months after the month of purchase. See "Contingent Deferred Sales
Charge" below.
CLASS Y SHARES
No CDSC is imposed on the redemption of Class Y shares. Class Y shares are
not offered to the general public and are available only to (I) persons who at
or prior to December 31, 1994 owned shares in a mutual fund advised by Evergreen
Asset Management Corp. ("Evergreen Asset"), (2) certain institutional investors
and (3) investment advisory clients of The Capital Management Group of First
Union National Bank, Evergreen Asset, Keystone Investment Management Company, or
their affiliates. Class Y shares are offered at net asset value without a
front-end or back-end sales charge and do not bear any Rule 12b-1 distribution
expenses.
CONTINGENT DEFERRED SALES CHARGE
The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sales of its shares (see "Distribution Plan"). If imposed, the Fund
deducts the CDSC from the redemption proceeds you would otherwise receive. The
CDSC is a percentage of the lesser of (1) the net asset value of the shares at
the time of redemption or (2) the shareholder's original net cost for such
shares. Upon request for redemption, to keep the CDSC a shareholder must pay as
low as possible, the Fund will first seek to redeem shares not subject to the
CDSC and/or shares held the longest, in that order. The CDSC on any redemption
is, to the extent permitted by the National Association of Securities Dealers,
Inc. ("NASD"), paid to the Distributor or any predecessor distributor.
SALES CHARGE WAIVERS OR REDUCTIONS
REDUCING CLASS A FRONT-END LOADS
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in Evergreen funds and take advantage of
lower sales charges.
COMBINED PURCHASES
You can reduce your sales charge by combining purchases of Class A shares
of multiple Evergreen funds. For example, if you invested $75,000 in each of two
different Evergreen funds, you would pay a sales charge based on a $150,000
purchase (i.e., 3.75% of the offering price, rather than 4.75%).
RIGHTS OF ACCUMULATION
You can reduce your sales charge by adding the value of Class A shares of
Evergreen funds you already own to the amount of your next Class A investment.
For example, if you hold Class A shares valued at $99,999 and purchase an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75%, rather than 4.75%.
LETTER OF INTENT
You can, by completing the "Letter of Intent" section of the Application,
purchase Class A shares over a 13-month period and receive the same sales charge
as if you had invested all the money at once. All purchases of Class A shares of
an Evergreen fund during the period will qualify as Letter of Intent purchases.
SHARES THAT ARE NOT SUBJECT TO A SALES CHARGE OR CDSC
WAIVER OF SALES CHARGES
The Fund may sell their shares at net asset value without an initial sales
charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisers;
4. investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to
the master account of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer;
7. employees of the Adviser, its affiliates, the Distributor, any
broker-dealer with whom the Distributor has entered into an
agreement to sell shares of the Fund, and members of the
immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen funds, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust company as trustee if the initial
investment in any Evergreen fund made pursuant to this waiver
is at least $500,000 and any commission paid at the time of
such purchase is not more than 1% of the amount invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers' written assurance that the purchases are for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
WAIVER OF CDSCS
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died
or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 1/2 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under a Systematic Withdrawal Plan of
up to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
EXCHANGES
Investors may exchange shares of the Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
the Fund's prospectuses. Before you make an exchange, you should read the
prospectus of the Evergreen fund into which you want to exchange. The Trust's
Board of Trustees of the Trust reserves the right to discontinue, alter or limit
the exchange privilege at any time.
HOW THE FUND VALUES ITS SHARES
HOW AND WHEN THE FUND CALCULATES ITS NET ASSET VALUE PER SHARE ("NAV")
The Fund computes its NAV once daily on Monday through Friday, as described
in the Fund's prospectuses. The Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
HOW THE FUND VALUES THE SECURITIES IT OWNS
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis
of the last sales price on the exchange where primarily traded or on
the NMS prior to the time of the valuation, provided that a sale has
occurred.
(2) Securities traded in the over-the-counter market, other than on
NMS, are valued at the mean of the bid and asked prices at the time of
valuation.
(3) Short-term investments maturing in more than sixty days for which
market quotations are readily available are valued at current market
value.
(4) Short-term investments maturing in sixty days or less (including
all master demand notes) are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates
market.
(5) Short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are
valued at amortized cost (market value on the sixtieth day adjusted for
amortization of premium or accretion of discount), which, when combined
with accrued interest, approximates market.
(6) Securities, including restricted securities, for which complete
quotations are not readily available; listed securities or those on NMS
if, in the Adviser's opinion, the last sales price does not reflect a
current market value or if no sale occurred; and other assets are
valued at prices deemed in good faith to be fair under procedures
established by the Board of Trustees.
Foreign securities for which market quotations are not readily available
are valued on the basis of valuations provided by a pricing service, approved by
the Trust's Board of Trustees, which uses information with respect to
transactions in such securities, quotations from broker-dealers, market
transactions in comparable securities and various relationships between
securities and yield to maturity in determining value.
SHAREHOLDER SERVICES
As described in the Prospectuses, shareholder's may elect to receive their
dividends and capital grains distributions in cash instead of shares. However,
ESC, will automatically convert a shareholder's distribution option so that the
shareholder reinvests all dividends and distributions in additional shares when
it learns that the postal or other delivery service is unable to deliver checks
or transaction confirmations to the shareholder's address of record. The Fund
will hold the returned distribution or redemption proceeds in a non
interest-bearing account in the shareholder's name until the shareholder updates
their address. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
PRINCIPAL UNDERWRITER
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New York 10019
is the principal underwriter for the Trust and with respect to each class of the
Fund (the "Distributor"). The Trust has entered into a Principal Underwriting
Agreement ( "Underwriting Agreement") with the Distributor with respect to each
class of the Fund. The Distributor is a subsidiary of The BISYS Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the Fund's shares. The Distributor may retain and employ
representatives to promote distribution of the shares and may obtain orders from
broker-dealers, and others, acting as principals, for sales of shares to them.
The Underwriting Agreement provides that the Distributor will bear the expense
of preparing, printing, and distributing advertising and sales literature and
prospectuses used by it.
All subscriptions and sales of shares by the Distributor are at the public
offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the trust, and the trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the trust is not liable to anyone for failure to
accept any order.
The Distributor has agreed that it will, in all respects, duly conform with
all state and federal laws applicable to the sale of the shares. The Distributor
has also agreed that it will indemnify and hold harmless the Trust and each
person who has been, is, or may be a Trustee or officer of the Trust against
expenses reasonably incurred by any of them in connection with any claim,
action, suit, or proceeding to which any of them may be a party that arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material fact on the part of the Distributor or any other person for whose acts
the Distributor is responsible or is alleged to be responsible, unless such
misrepresentation or omission was made in reliance upon written information
furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as long
as its terms and continuance are approved annually (1) by a vote of a majority
of the Trust's Independent Trustees, and (2) by vote of a majority of the
Trust's Trustees, in each case, cast in person at a meeting called for that
purpose.
The Underwriting Agreement may be terminated, without penalty, on 60 days'
written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment" as that term is defined in the
1940 Act.
From time to time, if, in the Distributor's judgment, it could benefit the
sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGISTERED INVESTMENT COMPANY
The Fund intends to qualify for and elect the tax treatment applicable to a
regulated investment company ("RIC") under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). (Such qualification does not involve
supervision of management or investment practices or policies by the Internal
Revenue Service.) In order to qualify as a RIC, the Fund must, among other
things, (i) derive at least 90% of its gross income from dividends, interest,
payments with respect to proceeds from securities loans, gains from the sale or
other disposition of securities or foreign currencies and other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; (ii) derive less than
30% of its gross income from the sale or other disposition of securities,
options, futures or forward contracts (other than those on foreign currencies),
or foreign currencies (or options, futures or forward contracts thereon) that
are not directly related to the RIC's principal business of investing in
securities (or options and futures with respect thereto) held for less than
three months (this requirement is repealed for Fund fiscal years beginning after
August 5, 1997); and (iii) diversify its holdings so that, at the end of each
quarter of its taxable year, (a) at least 50% of the market value of the Fund's
total assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies). By so
qualifying, the Fund is not subject to federal income tax if it timely
distributes its investment company taxable income and any net realized capital
gains. A 4% nondeductible excise tax will be imposed on the Fund to the extent
it does not meet certain distribution requirements by the end of each calendar
year. The Fund anticipates meeting such distribution requirements.
TAXES ON DIVIDENDS
Distributions will be taxable to shareholders whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for federal income tax purposes in each share so
received equal to the net asset value of a share of a Fund on the reinvestment
date.
To calculate ordinary income for federal income tax purposes, shareholders
must generally include dividends paid by the Fund from its investment company
taxable income (net investment income plus net realized short-term capital
gains, if any). Since none of a Fund's income will consist of corporate
dividends, no distributions will qualify for the 70% corporate dividends
received deduction.
From time to time, the Fund will distribute the excess of its net long-term
capital gains over its short-term capital loss to shareholders. For federal tax
purposes, shareholders must include such distributions when calculating their
long-term capital gains. Distributions of long-term capital gains are taxable as
such to a shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces the
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder must pay
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported by
each shareholder on his or her federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder will be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than
eighteen months is generally subject to a maximum federal income tax rate of 20%
for an individual. The maximum capital gains tax rate for capital assets held by
an individual for more than twelve months but not more than eighteen months is
generally 28%. Also, a shareholder must treat as long-term capital gains or
losses any capital gains or losses on Fund shares held for more than one year.
Generally, the Code will not allow a shareholder to realize a loss on shares he
or she has sold or exchanged and replaced within a sixty-one-day period
beginning thirty days before and ending thirty days after he or she sold or
exchanged the shares. The Code will treat a shareholder's loss on shares held
for six months or less as a long-term capital loss to the extent the shareholder
received distributions of net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers to
the Fund and to certify as to its correctness and certain other shareholders may
be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
GENERAL
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisers regarding specific questions relating to federal,
state and local tax consequences of investing in shares of the Fund. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and foreign tax consequences of ownership of shares of the
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
CALCULATION OF PERFORMANCE DATA
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
Current yield quotations as they may appear, from time to time, in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period.
Any given yield or total return quotation should not be considered
representative of the Fund's yield or total return for any future period.
ADDITIONAL INFORMATION
OTHER INFORMATION
Except as otherwise stated in its prospectuses or required by law, the Fund
reserves the right to change the terms of the offer stated in its prospectuses
without shareholder approval, including the right to impose or change fees for
services provided.
No dealer, salesman or other person is authorized to give any information
or to make any representation not contained in the Fund's prospectuses, SAI or
in supplemental sales literature issued by such Fund or the Distributor, and no
person is entitled to rely on any information or representation not contained
therein.
The Fund's prospectuses and SAI omit certain information contained in its
registration statement. The Fund has filed this SAI with the SEC and you may
obtain a copy of the SAI by writing to the Securities and Exchange Commission's
principal office in Washington, D.C. To obtain a copy of the SAI from the
Securities and Exchange Commission, you will have to pay the fee prescribed by
their rules and regulations.
FINANCIAL STATEMENTS
Attached are the audited statement of assets and liabilities and the
report thereon of KPMG Peat Marwick LLP for the Fund will be filed by amendment.
APPENDIX A
COMMON AND PREFERRED STOCK RATINGS
A. S&P'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Because the investment process involves assessment of various factors,
such as product and industry position, corporate resources, and financial
policy, with results that make some common stocks more highly esteemed than
others, Standard & Poor's Ratings Group ("S&P") believes that earnings and
dividend performance is the end result of the interplay of these factors and
that, over the long run, the record of this performance has a considerable
bearing on relative quality. S&P rankings, however, do not reflect all of the
factors, tangible or intangible, that bear on stock quality.
Growth and stability of earnings and dividends are deemed key elements
in establishing S&P earnings and dividend rankings for common stocks, which
capsulize the nature of this record in a single symbol.
S&P has established a computerized scoring system based on per share
earnings and dividend records of the most recent ten years, a period deemed long
enough to measure a company's performance under varying economic conditions. S&P
measures growth, stability within the trend line, and cyclicality. The ranking
system also makes allowances for company size, since large companies have
certain inherent advantages over small ones. From these, scores for earnings and
dividends are determined.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample which
is reviewed and sometimes modified with the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
S&P believes its rankings are not a forecast of future market price
performance, but are basically an appraisal of past performance of earnings and
dividends, and relative current standing.
B. MOODY'S COMMON STOCK RANKINGS
Moody's Investors Service ("Moody's") presents a concise statement of the
important characteristics of a company and an evaluation of the grade (quality)
of its common stock. Data presented includes: (a) capsule stock information
which reveals short and long term growth and yield afforded by the indicated
dividend, based on a recent price; (b) a long term price chart which shows
patterns of monthly stock price movements and monthly trading volumes; (c) a
breakdown of a company's capital account which aids in determining the degree of
conservatism or financial leverage in a company's balance sheet; (d) interim
earnings for the current year to date, plus three previous years; (e) dividend
information; (f) company background; (g) recent corporate developments; (h)
prospects for a company in the immediate future and the next few years; and (i)
a ten year comparative statistical analysis.
This information provides investors with information on what a company
does, how it has performed in the past, how it is performing currently, and what
its future performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or
indication of quality. The grade is based on an analysis of each company's
financial strength, stability of earnings, and record of dividend payments.
Other considerations include conservativeness of capitalization, depth and
caliber of management, accounting practices, technological capabilities, and
industry position. Evaluation is represented by the following grades:
(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade
C. MOODY'S PREFERRED STOCK RATINGS
Preferred stock ratings and their definitions are as follows:
1. AAA: An issue that is rated AAA is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
2. AA: An issue that is rated AA is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
3. A: An issue that is rated A is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the AAA
and AA classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
4. BAA: An issue that is rated BAA is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
5. BA: An issue that is rated BA is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
6. B: An issue that is rated B generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
7. CAA: An issue that is rated CAA is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
8. CA: An issue that is rated CA is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
9. C: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
CORPORATE BOND RATINGS
A. S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the United States,
with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers, or lessees. Ratings of
foreign obligors do not take into account currency exchange and related
uncertainties. The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from AA to A may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
B. MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. AAA - Bonds which are rated AAA are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. AA - Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in AAA securities.
3. A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
4. BAA - Bonds which are rated BAA are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. BA - Bonds which are rated BA are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
8. Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
market shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
<PAGE>
EVERGREEN EQUITY TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
None
(b) Exhibits. Each of the Exhibits listed below, except as indicated, is
filed herewith.
Exhibit
Number Description
- ------- -----------
1 Declaration of Trust (1)
2 By-laws (1)
3 Not applicable
4 Provisions of instruments defining the
rights of holders of the securities
being registered are contained in the
Declaration of Trust Articles II,
III.(6)(c), IV.(3), IV.(8), V, VI, VII,
VIII and By-laws Articles II, III and
VIII included as part of Exhibits 1 and
2 of this Registration Statement
5 Form of Investment Advisory Agreement
between the Registrant and Keystone
Investment Management Company
6(a) Form of Class A and Class C Principal
Underwriting Agreement between the
Registrant and Evergreen Distributor, Inc.
6(b) Form of Class B Principal Underwriting
Agreement between the Registrant and
Evergreen Investment Services, Inc.
(B-1)
<PAGE>
Exhibit
Number Description
- ------- -----------
6(c) Form of Class B Principal Underwriting Agreement between
the Registrant and Evergreen Distributor, Inc. (B-2)
6(d) Form of Class Y Principal
Underwriting Agreement between the
Registrant and Evergreen Distributor,
Inc.
6(e) Form of Principal Underwriting
Agreement between the Registrant and
Kokusai Securities Company Limited
6(f) Form of Dealer Agreement used by
Evergreen Distributor, Inc.
7 Form of Deferred Compensation Plan
8 Form of Custodian Agreement between the
Registrant and State Street Bank and
Trust Company
<PAGE>
Exhibit
Number Description
- ------- -----------
9 Form of Transfer Agent Agreement
between the Registrant and Evergreen
Service Company
<PAGE>
Exhibit
Number Description
- ------- -----------
10 Opinion and Consent of Sullivan &
Worcester LLP
11 Not applicable.
12 Not applicable.
13 Not applicable.
14 Retirement Plans (2)
15(a) Form of 12b-1 Distribution Plan
for Class A
15(b) Form of 12b-1 Distribution Plan for
Class B (KAF B-1)
15(c) Form of 12b-1 Distribution Plan for
Class B (KAF B-2)
15(d) Form of 12b-1 Distribution Plan for
Class C
16 Not applicable.
17 Not applicable.
18 Multiple Class Plan
19 Powers of Attorney (1)
- ----------------
(1) Previously filed.
(2) To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control with
Registrant.
None
Item 26. Number of Holders of Securities (as of
November 7, 1997).
Number of Record
Title of Class Shareholders
<PAGE>
Shares of Beneficial
Interest without par
value:
Evergreen Small Company
Growth Fund 1
Evergreen Balanced Fund 1
Item 27. Indemnification.
Provisions for the indemnification of the Registrant's
Trustees and officers are contained in the Registrant's Declaration of Trust, a
copy of which is filed herewith.
Provisions for the indemnification of Evergreen Distributor,
Inc., the Registrant's principal underwriter, are contained in the Principal
Underwriting Agreement between Evergreen Distributor, Inc. and the Registrant.
Item 28. Business or Other Connections of Investment Adviser.
The information required by this item with respect to Keystone
Investment Management Company is incorporated by reference to the Form ADV (File
No. 801-08327)
The Directors and principal executive officers of First Union
National Bank are:
Edward E. Crutchfield, Jr. Chairman and Chief
Executive Officer, First
Union Corporation; Chief
Executive Officer and
Chairman, First Union
National Bank
Anthony P. Terracciano President, First Union
Corporation; President,
First Union National Bank
John R. Georgius Vice Chairman, First
Union Corporation; Vice
Chairman, First Union
National Bank
<PAGE>
Edward E. Crutchfield, Jr. Chairman and Chief
Executive Officer, First
Union Corporation; Chief
Executive Officer and
Chairman, First Union
National Bank
Marion A. Cowell, Jr. Executive Vice President,
Secretary & General
Counsel, First Union
Corporation; Secretary
and Executive Vice
President, First Union
National Bank
Robert T. Atwood Executive Vice President
and Chief Financial
Officer, First Union
Corporation; Chief
Financial Officer and
Executive Vice President
First Union National Bank
Executive Officers
Edward E. Crutchfield, Jr. Chairman & CEO, First Union
Corporation
John R. Georgius Vice Chairman, First Union
Corporation
Marion A. Cowell, Jr. Secretary and EVP, First
Union Corporation
Robert T. Atwood EVP & CFO, First Union
Corporation
Anthony P. Terracciano President, First Union
Corporation
All of the above persons are located at the
following address: First Union National Bank, One First
Union Center, Charlotte, NC 28288.
Item 29. Principal Underwriters.
Evergreen Distributor, Inc. The Director and
principal executive officers are:
<PAGE>
Director Michael C. Petrycki
Officers Robert A. Hering President
Michael C. Petrycki Vice President
Lawrence Wagner VP, Chief Financial Officer
Steven J. Blechor VP, Treasurer, Secretary
Elizabeth Q. Solazzo Assistant Secretary
Evergreen Distributor, Inc. acts as principal underwriter for
each registered investment company or series thereof that is a part of the
Evergreen "fund complex" as such term is defined in Item 22(a) of Schedule 14A
under the Securities Exchange Act of 1934.
Item 30. Location of Accounts and Records.
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
Keystone Investment Management Company, 200 Berkeley
Street, Boston, Massachusetts 02116-5034
Evergreen Investment Services, Inc. and Evergreen
Service Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
First Union National Bank, One First Union Center,
301 S. College Street, Charlotte, North Carolina
28288
Iron Mountain, 3431 Sharp Slot Road, Swansea,
Massachusetts 02720
State Street Bank and Trust Company, 2 Heritage
Drive, North Quincy, Massachusetts 02171
Item 31. Management Services.
Not Applicable.
Item 32. Undertakings
The undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission a Post-Effective Amendment to this
Registration Statement using financial statements of its Evergreen Small Company
Growth Fund and Evergreen Balanced Fund series, which need not be audited,
<PAGE>
within four to six months from the effective date of
Registrant's Registration Statement.
Registrant hereby undertakes to comply with the provisions of Section
16(c) of the Investment Company Act of 1940 with respect to the removal of
Trustees and the calling of special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
Registrant hereby undertakes to have a minimum capitalization of $100,000
prior to any offering to the general public.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of New York and State
of New York, on the 9th day of November, 1997.
EVERGREEN EQUITY TRUST
By: /s/ John J. Pileggi
----------------------
Name: John J. Pileggi
Title: President
As required by the Securities Act of 1933, the following persons have
signed this Registration Statement in the capacities on the 9th day of November,
1997.
Signatures Title
- ---------- -----
/s/John J. Pileggi President and
- ------------------ Treasurer (Principal
Financial
John J. Pileggi and Accounting Officer)
/s/Laurence B. Ashkin* Trustee
- ---------------------
Laurence B. Ashkin
/s/Charles A. Austin III* Trustee
- -------------------------
Charles A. Austin III
/s/K. Dun Gifford* Trustee
- -----------------
K. Dun Gifford
/s/James S. Howell* Trustee
- ------------------
James S. Howell
/s/Leroy Keith, Jr.* Trustee
- -------------------
Leroy Keith, Jr.
/s/Gerald M. McDonnell* Trustee
<PAGE>
- ----------------------
Gerald M. McDonnell
/s/Thomas L. McVerry* Trustee
- --------------------
Thomas L. McVerry
/s/William Walt Pettit* Trustee
- ---------------------
William Walt Pettit
/s/David M. Richardson* Trustee
- ----------------------
David M. Richardson
/s/Russell A. Salton III* Trustee
- -------------------------
Russell A. Salton III
/s/Michael S. Scofield* Trustee
- ----------------------
Michael S. Scofield
/s/Richard J. Shima* Trustee
- -------------------
Richard J. Shima
*By: /s/Martin J. Wolin
------------------
Martin J. Wolin
Attorney-in-Fact
Martin J. Wolin, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons and included as Exhibit 19 to this
Registration Statement.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the day of 1997, by and between EVERGREEN EQUITY TRUST,
a Delaware business trust (the "Trust") and KEYSTONE INVESTMENT MANAGEMENT
COMPANY, a Delaware (the "Adviser").
WHEREAS, the Trust and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Trust, its series of shares as listed on Schedule 1 to this agreement and
each series of shares subsequently issued by the Trust (each singly a "Fund" or
collectively the "Funds").
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Trust and the Adviser agree as follows:
1. (a) The Trust hereby employs the Adviser to manage and administer
the operation of the Trust and each of its Funds, to supervise the provision of
the services to the Trust and each of its Funds by others, and to manage the
investment and reinvestment of the assets of each Fund of the Trust in
conformity with such Fund's investment objectives and restrictions as may be set
forth from time to time in the Fund's then current prospectus and statement of
additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Trust, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
(b) In the event that the Trust establishes one or more Funds, in
addition to the Funds listed on Schedule 1, for which it wishes the Adviser to
perform services hereunder, it shall notify the Adviser in writing. If the
Adviser is willing to render such services, it shall notify the Trust in writing
and such Fund shall become a Fund hereunder and the compensation payable to the
Adviser by the new Fund will be as agreed in writing at the time.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Fund with broker-dealers selected
by the Adviser. In executing portfolio transactions and selecting
broker-dealers, the Adviser will use its best efforts to seek best execution on
behalf of each Fund. In assessing the best execution available for any
transaction, the Adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Adviser may
also consider the brokerage and research services (as those terms are used in
Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act")) provided
to a Fund and/or other accounts over which the Adviser or an affiliate of the
Adviser exercises investment discretion. The Adviser is authorized to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for a Fund which is in excess of the amount of
commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
3. The Adviser, at its own expense, shall furnish to the Trust office
space in the offices of the Adviser or in such other place as may be agreed upon
by the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Trust, for members of the Adviser's organization to serve without
salaries from the Trust as officers or, as may be agreed from time to time, as
agents of the Trust. The Adviser assumes and shall pay or reimburse the Trust
for:
(a) the compensation (if any) of the Trustees of the Trust who are
affiliated with the Adviser or with its affiliates, or with any adviser retained
by the Adviser, and of all officers of the Trust as such, and
(b) all expenses of the Adviser incurred in connection with its
services hereunder.
The Trust assumes and shall pay all other expenses of the Trust and its
Funds, including, without limitation:
(a) all charges and expenses of any custodian or depository appointed
by the Trust for the safekeeping of the cash, securities and other property of
any of its Funds;
(b) all charges and expenses for bookkeeping and auditors;
(c) all charges and expenses of any transfer agents and registrars
appointed by the Trust;
(d) all fees of all Trustees of the Trust who are not affiliated with
the Adviser or any of its affiliates, or with any adviser retained by the
Adviser;
(e) all brokers' fees, expenses, and commissions and issue and transfer
taxes chargeable to a Fund in connection with transactions involving securities
and other property to which the Fund is a party;
(f) all costs and expenses of distribution of shares of its Funds
incurred pursuant to Plans of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act");
(g) all taxes and trust fees payable by the Trust or its Funds to
Federal, state, or other governmental agencies;
(h) all costs of certificates representing shares of the Trust or its
Funds;
(i) all fees and expenses involved in registering and maintaining
registrations of the Trust, its Funds and of their shares with the Securities
and Exchange Commission (the "Commission") and registering or qualifying the
Funds' shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses, and statements of additional information for filing with the
Commission and other authorities;
(j) expenses of preparing, printing, and mailing prospectuses and
statements of additional information to shareholders of each Fund of the Trust;
(k) all expenses of shareholders' and Trustees' meetings and of
preparing, printing, and mailing notices, reports, and proxy materials to
shareholders of the Funds;
(l) all charges and expenses of legal counsel for the Trust and its
Funds and for Trustees of the Trust in connection with legal matters relating to
the Trust and its Funds, including, without limitation, legal services rendered
in connection with the Trust and its Funds' existence, trust, and financial
structure and relations with its shareholders, registrations and qualifications
of securities under Federal, state, and other laws, issues of securities,
expenses which the Trust and its Funds has herein assumed, whether customary or
not, and extraordinary matters, including, without limitation, any litigation
involving the Trust and its Funds, its Trustees, officers, employees, or agents;
(m) all charges and expenses of filing annual and other reports with
the Commission and other authorities; and
(n) all extraordinary expenses and charges of the Trust and its Funds.
In the event that the Adviser provides any of these services or pays
any of these expenses, the Trust and any affected Fund will promptly reimburse
the Adviser therefor.
The services of the Adviser to the Trust and its Funds hereunder are
not to be deemed exclusive, and the Adviser shall be free to render similar
services to others.
4. As compensation for the Adviser's services to the Trust with respect
to each Fund during the period of this Agreement, the Trust will pay to the
Adviser a fee at the annual rate set forth on Schedule 2 for such Fund.
The Adviser's fee is computed as of the close of business on each
business day.
A pro rata portion of the Trust's fee with respect to a Fund shall be
payable in arrears at the end of each day or calendar month as the Adviser may
from time to time specify to the Trust. If and when this Agreement terminates,
any compensation payable hereunder for the period ending with the date of such
termination shall be payable upon such termination.
Amounts payable hereunder shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, a firm or firms ("SubAdviser") to provide the Trust with respect to all
or any of its Funds all of the services to be provided by the Adviser hereunder,
if such agreement is approved as required by law. Such agreement may delegate to
such SubAdviser all of Adviser's rights, obligations, and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust or any of its Funds in connection
with the performance of this Agreement, except a loss resulting from the
Adviser's willful misfeasance, bad faith, gross negligence, or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, Director, partner, employee, or agent of the
Adviser, who may be or become an officer, Trustee, employee, or agent of the
Trust, shall be deemed, when rendering services to the Trust or any of its Funds
or acting on any business of the Trust or any of its Funds (other than services
or business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Trust or any of its Funds and not as
an officer, Director, partner, employee, or agent or one under the control or
direction of the Adviser even though paid by it.
7. The Trust shall cause the books and accounts of each of its Funds to
be audited at least once each year by a reputable independent public accountant
or organization of public accountant or organization of public accountants who
shall render a report to the Trust.
8. Subject to and in accordance with the Declaration of Trust of the
Trust, the governing documents of the Adviser and the governing documents of any
SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Trust or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of First Union Corporation or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of First Union Corporation are or may be interested in the Trust or any Adviser
as Trustees, Directors, officers, shareholders or otherwise; that the Adviser
(or any such successor) is or may be interested in the Trust or any SubAdviser
as shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by the Declaration of Trust of the Trust, governing documents
of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect for two years from the date
set forth above and after such date (a) such continuance is specifically
approved at least annually by the Board of Trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the Trust, and (b) such
renewal has been approved by the vote of the majority of Trustees of the Trust
who are not interested persons, as that term is defined in the 1940 Act, of the
Adviser or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Trust or by vote of the holders of a majority of the outstanding
voting securities of the unaffected Funds; and on sixty days' written notice to
the Trust, this Agreement may be terminated at any time without the payment of
any penalty by the Adviser. This Agreement shall automatically terminate upon
its assignment (as that term is defined in the 1940 Act). Any notice under this
Agreement shall be given in writing, addressed and delivered, or mailed postage
prepaid, to the other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Trust shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the affected Funds and by the vote of a
majority of Trustees of the Trust who are not interested persons (as that term
is defined in the 1940 Act) of the Adviser, any predecessor of the Adviser, or
of the Trust, cast in person at a meeting called for the purpose of voting on
such approval. A "majority of the outstanding voting securities of the Trust or
the affected Funds" shall have, for all purposes of this Agreement, the meaning
provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period
other than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed, and
enforced in accordance with the laws of The State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
EVERGREEN EQUITY TRUST
By:
NAME:
TITLE:
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By:
NAME:
TITLE:
22568
5
<PAGE>
Schedule 1
1. Evergreen Small Company Growth Fund
2. Evergreen Balanced Fund
22568
6
<PAGE>
Schedule 2
I. Evergreen Small Company Growth Fund (the "Fund")
As compensation for the Adviser's services to the Fund during the
period of this Agreement, the Fund will pay to the Adviser a fee at the annual
rate of:
Aggregate Net Asset Value
Management Fee Of the Shares 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
- -----------------------------------------------------------------------
computed as of the close of business on each business day.
A pro rata portion of the Fund's fee shall be payable in arrears at the
end of each day or calendar month as the Adviser may from time to time specify
to the Fund. If and when this Agreement terminates, any compensation payable
hereunder for the period ending with the date of such termination shall be
payable upon such termination. Amounts payable hereunder shall be promptly paid
when due.
II. Evergreen Balanced Fund (the "Fund")
As compensation for the Adviser's services to the Fund during the
period of this Agreement, the Fund will pay to the Adviser a fee at the annual
rate of:
Aggregate Net Asset Value
Management Fee Of the Shares of the Fund
- --------------------------------------------------------------------------------
1.5% of gross divided and interest income plus
0.60% of the first $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 $100,000,000, plus
0.40$ of the next $100,000,000, plus
0.35% of the next $500,000,000, plus
0.30% of amounts over $1,000,000,000
- ------------------------------------------------------------------------------
computed as of the close of business on each business day.
A pro rata portion of the Fund's fee shall be payable in arrears at the
end of each day or calendar month as the Adviser may from time to time specify
to the Fund. If and when this Agreement terminates, any compensation payable
hereunder for the period ending with the date of such termination shall be
payable upon such termination. Amounts payable hereunder shall be promptly paid
when due.
PRINCIPAL UNDERWRITING AGREEMENT
CLASS A AND C SHARES
AGREEMENT effective this day of __ , 199_ by and between each of the
parties listed on Exhibit A attached hereto and made a part hereof, each for
itself and not jointly (each a "Fund"), and Evergreen Distributor, Inc., a
Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal underwriter
of the Class A and Class C shares of beneficial interest of the Fund ("Shares")
as an independent contractor upon the terms and conditions hereinafter set
forth. Except as the Fund may from time to time agree, Principal Underwriter
will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers for
the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such broker,
dealer or other person shall have any authority to act as agent for the Fund;
such dealer, broker or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value, and Principal Underwriter shall be entitled to receive commission
payments for sales of Class A and C Shares (as set forth on Exhibit B attached
hereto and made a part hereof).
5. The payment provisions of this Agreement shall be applicable to the
extent necessary to enable the Fund to comply with the obligation of the Fund to
pay Principal Underwriter in accordance with this Agreement in respect of Class
C Shares and shall remain in effect so long as any payments are required to be
made by the Fund pursuant to the irrevocable payment instruction under the
Master Sale Agreement between Principal Underwriter and Mutual Fund Funding
1994-1 dated as of December 6, 1996 (the "Master Sale Agreement").
6. Payment to the Fund for Shares shall be in New York or Boston Clearing
House funds received by Principal Underwriter within (3) business days after
notice of acceptance of the purchase order and the amount of the applicable
public offering price has been given to the purchaser. If such payment is not
received within such 3-day period, the Fund reserves the right, without further
notice, forthwith to cancel its acceptance of any such order. The Fund shall pay
such issue taxes as may be required by law in connection with the issue of the
Shares.
7. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information will be supplied by the Fund to Principal Underwriter in
reasonable quantities upon request.
8. Principal Underwriter agrees to comply with the Business Conduct Rules
of the National Association of Securities Dealers, Inc.
9. The Fund appoints Principal Underwriter as its agent to accept orders
for redemptions and repurchases of Shares at values and in the manner determined
in accordance with the then current prospectus and/or statement of additional
information of the Fund.
10. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or statement of
additional information (including amendments and supplements thereto), or
b) any omission or alleged omission to state a material fact required to be
stated in the Fund's registration statement, prospectus or statement of
additional information necessary to make the statements therein not misleading,
provided, however, that insofar as losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance and in conformity with
information furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall the Fund
indemnify the Principal Underwriter or its controlling person as to any amounts
incurred for any liability arising out of or based upon any action for which the
Principal Underwriter, its officers and Directors or any controlling person
would otherwise be subject to liability by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
11. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and supplements
thereto), or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
if such statement or omission was made in reliance upon information furnished or
confirmed in writing to the Fund by the Principal Underwriter.
12. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by Principal Underwriter for
the purpose of qualifying the Shares for sale under the so-called "blue sky"
laws of any state or for registering Shares under the 1933 Act or the Fund under
the Investment Company Act of 1940 ("1940 Act"). Principal Underwriter shall
bear the expense of preparing, printing and distributing advertising, sales
literature, prospectuses and statements of additional information. The Fund
shall bear the expense of registering Shares under the 1933 Act and the Fund
under the 1940 Act, qualifying Shares for sale under the so-called "blue sky"
laws of any state, the preparation and printing of prospectuses, statements of
additional information and reports required to be filed with the Securities and
Exchange Commission and other authorities, the preparation, printing and mailing
of prospectuses and statements of additional information to shareholders of the
Fund and the direct expenses of the issue of Shares.
13. To the extent required by the Fund's 12b-1 Plans, Principal Underwriter
shall provide to the Board of Trustees of the Fund in connection with such 12b-1
Plans, not less than quarterly, a written report of the amounts expended
pursuant to such 12b-1 Plans and the purposes for which such expenditures were
made.
14. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after two years.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the Trustees of the Fund and a majority
of the 12b-1 Trustees referred to in the 12b-1 Plans of the Fund ("Rule 12b-1
Trustees") at least annually in accordance with the 1940 Act and the rules and
regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of any Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a series of a Delaware business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
[LIST FUNDS]
By:
EVERGREEN DISTRIBUTOR, INC.
By:
<PAGE>
EXHIBIT A
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS A AND C SHARES
OF
[NAME OF FUND]
<PAGE>
EXHIBIT B
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS A AND C SHARES
DATED
, 199__
Schedule of Commissions
Class A Shares Up to 0.25% annually of the average daily net asset
value of Class A shares of a Fund
Class C Shares Up to 1.00% annually of the average daily net asset
value of Class C shares of a Fund, consisting of commissions at
the annual rate of 0.75% of the average daily net asset value
of a Fund and service fees of 0.25% of the average daily net
asset value of a Fund
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
[NAME OF FUND]
AGREEMENT made this __ day of ________ 199_ by and between [Name of Fund],
a series of the Evergreen Trust, a Delaware business trust, ("Fund"), and
Evergreen Investment Services, Inc., a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-1 Shares and to promote distribution of the B-1 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-1 Shares to them.
No such broker, dealer or other person shall have any authority to act as agent
for the Fund; such broker, dealer or other person shall act only as principal in
the sale of B-1 Shares.
3. Sales of B-1 Shares by the Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-1 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-1 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter contingent deferred sales charges ("CDSCs") (as defined in
Section 14 hereof) as set forth in the Fund's current prospectus and statement
of additional information, and as required by Section 14 hereof. The Principal
Underwriter shall also receive payments consisting of shareholder service fees
("Service Fees") at the rate of .25% per annum of the average daily net asset
value of the Class B-1 Shares. The Principal Underwriter may allow all or a part
of said Distribution Fees and CDSCs received by it (not paid to others as
hereinafter provided) to such brokers, dealers or other persons as the Principal
Underwriter may determine.
5. Payment to the Fund for B-1 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-1 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-1 Shares any representations concerning the B-1
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Conduct Rules of the
National Association of Securities Dealers, Inc. (formerly Rules of Fair
Practice) (as defined in the Purchase and Sale Agreement, dated as of May 31,
1995 (the "Purchase Agreement"), between the Principal Underwriter, Citibank,
N.A. and Citicorp North America, Inc., as agent (the "Business Conduct Rules")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or statement of
additional information (including amendments and supplements thereto) or
b. any omission or alleged omission to state a material fact required to be
stated in the Fund's registration statement, prospectus or statement of
additional information necessary to make the statements therein not misleading,
provided, however, that insofar as losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance and in conformity with
information furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall the Fund
indemnify the Principal Underwriter or its controlling person as to any amounts
incurred for any liability arising out of or based upon any action for which the
Principal Underwriter, its officers and Directors or any controlling person
would otherwise be subject to liability by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement. 10. The
Principal Underwriter agrees to indemnify and hold harmless the Fund, its
officers and Trustees and each person, if any, who controls the Fund within the
meaning of Section 15 of the 1933 Act against any loss, claims, damages,
liabilities and expenses (including the cost of any legal fees incurred in
connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which (a) may be based upon any wrongful act by the Principal Underwriter
or any of its employees or representatives, or (b) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in the Fund's
registration statement, prospectus or statement of additional information
(including amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or omission was
made in reliance upon information furnished or confirmed in writing to the Fund
by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-1 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-1 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-1 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-1 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-1 Shares, and the direct expenses of the issue of
B-1 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the "Directors") of
the Fund in connection with sales of B-1 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purposes
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons," as defined in the 1940 Act, of any such party and who have no direct
or indirect financial interest in the operation of the Fund's Rule 12b-1 plan
for Class B-1 Shares or in any agreements related to the plan at least annually
in accordance with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons," as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's Allocable Portion of
Distribution Fees (as hereinafter defined) and its Allocable Portion of CDSCs
(as hereinafter defined) provided for hereunder and/or rights related to such
Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant to the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-1 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the "Irrevocable Payment Instruction")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Business Conduct Rules as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto) in accordance with Schedule I hereto. The Fund agrees to cause its
transfer agent to maintain the records and arrange for the payments on behalf of
the Fund at the times and in the amounts and to the accounts required by
Schedule I hereto, as the same may be amended from time to time. It is
acknowledged and agreed that by virtue of the operation of Schedule I hereto,
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-1 Shares shall be
the Distribution Fees attributable to B-1 Shares which are Distributor Shares
(as defined in Schedule I hereto), and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter the Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution
Fees and the right to payment over to it of its Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby, notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and payment of
such Distribution Fees. The obligation and the method of computing such payment
shall not be changed or terminated except to the extent required by any change
in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the
Business Conduct Rules, in each case enacted or promulgated after June 1, 1995,
or in connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-1 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-1 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) June 1, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee"), and any such assignment shall be effective as to the
Fund upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Business
Conduct Rules, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-1 Shares, except as provided in
the Fund's prospectus or statement of additional information, without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a series of a Delaware business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
[NAME OF FUND]
By:________________________________
Title:
EVERGREEN INVESTMENT SERVICES, INC.
By:_______________________________
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
[NAME OF FUND]
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of May 31, 1995 and the successor Agreement
dated December 11, 1996 between the Instant Fund and the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued prior to Deceember 11, 1996 under circumstances where a CDSC would be
payable upon the redemption of such Share if such CDSC is not waived or shall
have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Evergreen Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
issued prior to December 11, 1996 other than a Commission Share, including,
without limitation: (i) Shares issued in connection with the automatic
reinvestment of Capital Gain Dividends or Other Dividends by such Fund, (ii)
Special Free Shares issued by such Fund and (iii) Shares (or portion thereof)
issued by such Fund in connection with an exchange whereby a Free Share (or
portion thereof) of another Fund is redeemed and the Net Asset Value of such
redeemed Free Share (or portion thereof) is invested in such Shares (or portion
thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean [NAME OF FUND]
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund,
all Shares of such Fund the Month of Original Purchase of which occurs after the
Distributor Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause
(B)(1) hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) Shareholder Accounts and Sub-shareholder Accounts. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) Commission Shares. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the Sub-
transfer Agent in respect thereof maintain daily records of such Sub-shareholder
Account which records shall identify each Commission Share of such Fund
reflected in such Sub- shareholder Account by the Month of Original Purchase;
provided, that until the Sub- transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) Free Shares. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts(other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the
Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date
for such Fund shall be identified as Distributor Shares in a
number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of
business in the last day of the immediately preceding
calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date
for such Fund shall be identified as Post-distributor Shares
in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the
close of business in the last day of the immediately
preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a Class
A Share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cut-off Date for such Fund shall be identified as
Distributor Shares in a number computed as follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a class
A share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor
Last Sale Cut-off Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(4) Appreciation Amount and Cost Accumulation Amount. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub- transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD Cap. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) Identification of Redeemed Shares. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) Identification of Exchanged Shares. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post- distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) Identification of Converted Shares. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) Receivables Constituting CDSCs: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub- shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) Receivables Constituting Asset Based Sales Charges:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge
accrued in respect of such Shareholder
Account (other than an Omnibus Account) on
such day.
B. = Number of Distributor Shares reflected in
such Shareholder Account (other than an
Omnibus Account) on the close of business
on such day
C. = Total number of Distributor Shares and Post-
Distributor Shares reflected in such
Shareholder Account (other than an Omnibus
Account) and outstanding as of the close of
business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in
respect of such Shareholder Account for such day allocated to Post-distributor
Shares will be obtained using the same formula but substituting for "B" the
number of Post-distributor Shares, as the case may be, reflected in such
Shareholder Account and outstanding on the close of business on such day. The
foregoing allocation formula may be adjusted from time to time by notice to the
Fund and the transfer agent for the Fund from the Seller and the Program Agent
pursuant to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub- shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub- shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A X ((B + C)/2) ((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of
the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of
the close of business on the last day of such calendar
month (or portion thereof), times Net Asset Value per
Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on
the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per
Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on
the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such
time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2) ((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on
the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per
Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus
Account outstanding as of the close of business on the
last day of such calendar month, times Net Asset Value
per Share as of such time.
(3) Payments on behalf of each Fund.
On the close of business on each day the Transfer Agent shall cause payment
to be made of the amount of the Asset Based Sales Charge and CDSCs accruing on
such day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to Distributor
Shares in accordance with the preceding rules shall be paid to the Distributor's
Account, unless the Distributor otherwise instructs the Fund in any irrevocable
payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be paid in
accordance with direction received from any future distributor of Shares of the
Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to the
Distributor's Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be paid in
accordance with direction received from any future distributor of Shares of the
Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant Fund.
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
[NAME OF FUND]
AGREEMENT made effective this __ day of ________, 199_ by and between [NAME
OF FUND], a series of the Evergreen Trust, a Delaware business trust, ("Fund"),
and Evergreen Distributor, Inc., a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund'"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act'"), Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Principal Underwriter and
the Fund may from time to time agree, the Principal Underwriter will act as
agent for the Fund and not as principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-2 Shares and to promote distribution of the B-2 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-2 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the Prospectus and/or
Statement of Additional Information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
Evergreen Investment Services Company, Inc. ("EKISC") by other classes of
Shares of the Fund to the extent required in order to comply with Section 14
hereof, and shall pay over to the Principal Underwriter CDSCs (as defined in
Section 14 hereof) as set forth in the Fund's current Prospectus and Statement
of Additional Information, and as required by Section 14 hereof. The Principal
Underwriter shall also receive payments consisting of shareholder service fees
("Service Fees") at the rate of .25% per annum of the average daily net asset
value of the Class B-2 Shares. The Principal Underwriter may allow all or a part
of said Distribution Fees and CDSCs received by it (not paid to others as
hereinafter provided) to such brokers, dealers or other persons as Principal
Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three Business
Days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-2 Shares any representations concerning the B-2
Shares except those contained in the then current Prospectus and/or Statement of
Additional Information covering the Shares and in printed information approved
by the Fund as information supplemental to such Prospectus and Statement of
Additional Information. Copies of the then current Prospectus and Statement of
Additional Information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the National Association
of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d) (2) (the
"Business Conduct Rules") or any successor rule (which succeeds the Rules of
Fair Practice of the NASD defined in the Purchase and Sale Agreement, dated as
of May 31, 1995 (the "Citibank Purchase Agreement"), between Evergreen Keystone
Investment Services Company (formerly Keystone Investment Distributors Company),
Citibank, N.A. and Citicorp North America, Inc., as agent).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current Prospectus and/or Statement of
Additional Information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon:
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, Prospectus or Statement of
Additional Information (including amendments and supplements thereto); or
b. any omission or alleged omission to state a material fact required to be
stated in the Fund's registration statement, Prospectus or Statement of
Additional Information necessary to make the statements therein not misleading,
provided, however, that insofar as losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance and in conformity with
information furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, Prospectus or Statement of Additional
Information, such indemnification is not applicable. In no case shall the Fund
indemnify the Principal Underwriter or its controlling person as to any amounts
incurred for any liability arising out of or based upon any action for which the
Principal Underwriter, its officers and Directors or any controlling person
would otherwise be subject to liability by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement, Prospectus or
Statement of Additional Information (including amendments and supplements
thereto), or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
if such statement or omission was made in reliance upon information furnished or
confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-2 Shares for sale under the so-called "blue
sky'" laws of any state or for registering B-2 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-2 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares for sale under
the so called "blue sky" laws of any state, the preparation and printing of
Prospectuses, Statements of Additional Information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of Prospectuses and Statements of Additional
Information to holders of B-2 Shares, and the direct expenses of the issue of
B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the "Directors") of
the Fund in connection with sales of B-2 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the 1940 Act, of any such party and who have no direct
or indirect financial interest in the operation of the Fund's Rule 12b-l plan
for Class B-2 Shares or in any agreements related to the plan at least annually
in accordance with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 on not more than sixty days written
notice to any other party to the Agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's Allocable Portion of
Distribution Fees (as hereinafter defined) and Allocable Portion of CDSCs
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of B-2 Shares and also permit the Fund to pay, pursuant to the Principal
Underwriting Agreement dated as of December 11, 1996, between the Fund and EKISC
in respect of Class B-2 Shares, the Allocable Portion of Distribution Fees due
EKISC in respect of B-2 Shares and, pursuant to the Principal Underwriting
Agreement dated as of December 11, 1996 between the Fund and EKISC in respect of
Class B-1 Shares, the Allocable Portion of Distribution Fees due EKISC in
respect of B-1 Shares (together the "EKISC Underwriting Agreements"), and shall
remain in effect so long as any payments are required to be made by the Fund
pursuant to the irrevocable payment instructions pursuant to the Citibank
Purchase Agreement and the Master Sale Agreement between the Principal
Underwriter and Mutual Fund Funding 1994-1 dated as of December 6, 1996 (the
"Master Sale Agreement") (the "Irrevocable Payment Instructions")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Business Conduct Rules as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall mean the portion of the Asset Based
Sales Charge allocable to Distributor Shares (as defined in Schedule I hereto to
this Agreement) in accordance with Schedule I hereto. The Fund agrees to cause
its transfer agent (the "Transfer Agent") to maintain the records and arrange
for the payments on behalf of the Fund at the times and in the amounts and to
the accounts required by Schedule I hereto, as the same may be amended from time
to time. It is acknowledged and agreed that by virtue of the operation of
Schedule I hereto the Principal Underwriter's Allocable Portion of Distribution
Fees paid by the Fund in respect of Shares, may, to the extent provided in
Schedule I hereto, take into account Distribution Fees payable by the Fund in
respect of other existing and future classes and/or subclasses of shares of the
Fund which would be treated as "Shares" under Schedule I hereto. The Fund will
limit amounts paid to any subsequent principal underwriters of Shares to the
portion of the Asset Based Sales Charge paid in respect of Shares which is
allocable to Post-distributor Shares (as defined in Schedule I hereto) in
accordance with Schedule I hereto. The Fund's payments to the Principal
Underwriter in consideration of its services in connection with the sale of B-2
Shares shall be the Distribution Fees attributable to B-2 Shares which are
Distributor Shares (as defined in Schedule I hereto) and all other amounts
constituting the Principal Underwriter's Allocable Portion of Distribution Fees
shall be the Distribution Fees related to the sale of other Shares which are
Distributor Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current Prospectus and/or Statement of Additional Information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter the Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall mean the portion thereof allocable to Distributor Shares (as defined in
Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the
Business Conduct Rules, in each case enacted or promulgated after December 1,
1996, or in connection with a Complete Termination (as hereinafter defined). For
the purposes of this Section 14.5, "Complete Termination" means a termination of
the Fund's Rule 12b-l plan for B-2 Shares involving the cessation of payments of
the Distribution Fees, and the cessation of payments of distribution fees
pursuant to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the date upon which all of the B-2
Shares which are Distributor Shares pursuant to Schedule I hereto shall have
been redeemed or converted. For purposes of this Section 14.5, the term
B-Class-of-Shares means each of the B-1 Class of Shares of the Fund, the B-2
Class of Shares of the Fund and each other class of shares of the Fund hereafter
issued which would be treated as Shares under Schedule I hereto or which has
substantially similar economic characteristics to the B-1 or B-2 Classes of
Shares taking into account the total sales charge, CDSC or other similar charges
borne directly or indirectly by the holder of the shares of such class. The
parties agree that the existing C Class of Shares of the Fund does not have
substantially similar economic characteristics to the B-1 or B-2 Classes of
Shares taking into account the total sales charge, CDSC or other similar charges
borne directly or indirectly by the holder of such shares. For purposes of
clarity the parties to this agreement hereby state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign, sell or otherwise transfer any
part of its Allocable Portions and obligations of the Fund related thereto (but
not the Principal Underwriter's obligations to the Fund provided for in this
Agreement, provided, however, the Principal Underwriter may delegate and
sub-contract certain functions to other broker-dealers so long as it remains
employed by the Fund) to any person (an "Assignee") and any such assignment
shall be effective as to the Fund upon written notice to the Fund by the
Principal Underwriter. In connection therewith the Fund shall pay all or any
amounts in respect of its Allocable Portions directly to the Assignee thereof as
directed in a writing by the Principal Underwriter in the Irrevocable Payment
Instruction, as the same may be amended from time to time with the consent of
the Fund, and the Fund shall be without liability to any person if it pays such
amounts when and as so directed, except for underpayments of amounts actually
due, without any amount payable as consequential or other damages due to such
underpayment and without interest except to the extent that delay in payment of
Distribution Fees and CDSCs results in an increase in the maximum Sales Charge
allowable under the Business Conduct Rules, which increases daily at a rate of
prime plus one percent per annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-2 Shares, except as provided in
the Fund's Prospectus or Statement of Additional Information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
14.8 Notwithstanding anything contained herein in this Agreement to the
contrary, the Fund shall comply with its obligations under the EKISC
Underwriting Agreements and the attached Schedule I and any replacement
Agreement, provided that such replacement agreement does not increase the
Allocable Portion currently payable to EKISC, to pay to EKISC its Allocable
Portion (as defined in the EKISC Underwriting Agreement) of the Distribution
Fees (as defined in the EKISC Underwriting Agreement) in respect of Class B-2
Shares as required therein and to comply with its obligations under the
Irrevocable Payment Instructions (as defined in the Citibank Purchase Agreement,
as defined therein).
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a series of a Delaware business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
[NAME OF FUND] EVERGREEN DISTRIBUTOR, INC.
By:_____________________________ By:_________________________________
Title: Title:
<PAGE>
EXHIBIT A TO PRINCIPAL UNDERWRITING AGREEMENT
DATED _______ __, 199_ BETWEEN
[NAME OF FUND] AND EVERGREEN DISTRIBUTOR, INC.
[NAME OF FUND] (the "Fund") and Evergreen Distributor, Inc. ("EDI") agree
that the Collection Rights of EDI, as such term is defined in the Principal
Underwriting Agreement dated as of ________ __, 199_ between the Fund and EDI
(the "Agreement"), paid by the Fund pursuant to the Agreement with respect to
Distributor Shares, as that term is defined in Schedule I to the Agreement, sold
on or after December 1, 1996 will be utilized by EDI as follows:
(a) to the extent that the total amount of Collection Rights received by
EDI with respect to Distributor Shares of all Funds, as that term is defined in
Schedule I, does not exceed 4.25% (except that in the case of Evergreen Capital
Preservation and Income Fund, the amount shall be 3%) of the aggregate net asset
value at the time of sale of the Distributor Shares sold on or after December 1,
1996, plus any interest and other fees, costs and expenses that may be paid in
accordance with the financing of commissions paid to selling brokers regarding
such Distributor Shares of such Funds (the "Brokers Commission and Expenses"),
the entire amount of the Collection Rights with respect to such Distributor
Shares may only be used by the Principal Underwriter for payment of the Brokers
Commission and Expenses and may not be used for any other purpose.
(b) to the extent that there is no longer any unrecovered Brokers
Commission and Expenses with respect to the Distributor Shares sold on or after
December 1, 1996 (including shares purchased in connection with the reinvestment
of dividends on such Distributor Shares as determined in accordance with
Sechedule I ) as provided in (a), above, the Fund will pay the Principal
Underwriter a fee in an amount up to the remaining Collection Rights
attributable to such Shares to compensate Evergreen Investment Services, Inc.,
as marketing services agent for the Principal Underwriter (the "Marketing
Services Agent").
The foregoing calculations shall be the responsibility of the Transfer
Agent and Administrator and not the responsibility of the Principal Underwriter.
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
RELATING TO CLASS B-2 SHARES
OF
[NAME OF FUND]
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
Notwithstanding anything herein to the contrary, no amounts relating to the
EKISC Allocable Portion (as defined in the EKISC Underwriting Agreements) shall
be allocated hereunder and no Shares attributable to EKISC pursuant to the EKISC
Underwriting Agreements shall constitute Distributor Shares or Post-distributor
Shares or otherwise be allocated to any person or entity except as contemplated
by the EKISC Underwriting Agreements and the Irrevocable Payment Instructions.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of ________ __, 199_ between the Instant
Fund and the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) or any successor rule (the "Business Conduct Rules) it being understood that
for purposes of this Schedule I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and The New York Stock
Exchange are not authorized or required to close in New York City or the State
of North Carolina.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Evergreen Distributor, Inc., its successors and
assigns.
"Distributor's Account" shall mean the account designated in the
Irrevocable Payment Instructions of the Distributor.
"Distributor Inception Date" shall mean, in respect of any Fund and solely
for the purpose of making the calculations contained herein, December 1, 1996.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs on or after the
Distributor Inception Date and on or prior to the Distributor Last Sale Cut-off
Date in respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund; (ii) Special Free Shares issued by such Fund; and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Exhibit J to the
Master Sale Agreement, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean [NAME OF FUND].
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be The Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Buyer" shall mean Mutual Fund Funding, as Buyer under the Master Sale
Agreement, and its successors and assigns in such capacity.
"Master Sale Agreement" shall mean that certain Master Sale Agreement dated
as of December 6, 1996 between Evergreen Keystone Distributor, Inc., as Seller,
and Mutual Fund Funding, as Buyer.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Exhibit G to the Master Sale Agreement under the designation
"Keystone America Funds", as the same may be amended from time to time by notice
from the Distributor and the Buyer to the Fund and the Transfer Agent; provided,
that such term shall include, after the Distributor Last Sale Cut-off Date, a
share of a new class of shares of such Fund: (i) with respect to each record
owner of Shares which is not treated in the records of each Transfer Agent and
Sub-transfer Agent for such Fund as an entirely separate and distinct class of
shares from the classes of shares specified Exhibit G to the Master Sale
Agreement or (ii) the shares of which class may be exchanged for shares of
another Fund of the classes of shares specified in Exhibit G to the Master Sale
Agreement under the designation "Keystone America Funds" of any class existing
on or prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on
which can be reinvested in shares of the classes specified on Exhibit G to the
Master Sale Agreement under the automatic dividend reinvestment options; or (iv)
which is otherwise treated as though it were of the same class as the class of
shares specified on Schedule II to the Irrevocable Payment Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(l)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) Shareholder Accounts and Sub-shareholder Accounts. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) Commission Shares. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) Free Shares. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect
of each Omnibus Account maintain daily records for each Sub-shareholder Account
in the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post- distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the
Distributor Last Sale Cutoff Date for such Fund shall be
identified as Distributor Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cutoff Date
for such Fund shall be identified as Distributor Shares in a
number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of
business in the last day of the immediately preceding
calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cutoff Date
for such Fund shall be identified as Post-distributor Shares
in a number computed as follows:
(A * (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the
close of business in the last day of the immediately
preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a Class
A Share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cut-off Date for such Fund shall be identified as
Distributor Shares in a number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a class
A share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cutoff Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last to day of the immediately
preceding calendar month.
(4) Appreciation Amount and Cost Accumulation Amount. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account); provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) Identification of Redeemed Shares. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(6) Identification of Exchanged Shares. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post- distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(7) Identification of Converted Shares. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a Class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a Class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCs AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) Receivables Constituting CDSCs: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) Receivables Constituting Asset Based Sales Charges:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A * (B/C)
where:
A = Total amount of Asset Based Sales Charge accrued in respect
of such Shareholder Account (other than an Omnibus Account) on
such day.
B = Number of Distributor Shares reflected in such Shareholder
Account (other than an Omnibus Account) on the close of
business on such day
C = Total number of Distributor Shares and Post-distributor
Shares reflected in such Shareholder Account (other than an
Omnibus Account) and outstanding as of the close of business
on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in
respect of such Shareholder Account for such day allocated to Post-distributor
Shares will be obtained using the same formula but substituting for "B" the
number of Post-distributor Shares, as the case may be, reflected in such
Shareholder Account and outstanding on the close of business on such day. The
foregoing allocation formula may be adjusted from time to time by notice to the
Fund and the transfer agent for the Fund from the Seller and the Buyer.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A * ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as
of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
D = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month (or portion thereof), times Net Asset
Value per Share as of such time.
E = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of such calendar
month (or portion thereof), times Net Asset Value per
Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed as follows:
A * ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Post- distributor Shares and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as
of such time
C = Shares of such Fund in the ML Omnibus Account and
identified as Post- distributor Shares and
outstanding as of the close of business on the last
day of such calendar month (or portion thereof),
times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month (or portion thereof), times Net Asset
Value per Share as of such time.
E = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of such calendar month (or
portion thereof), times Net Asset Value per Share as
of such time.
(3) Payments on behalf of each Fund.
On the close of business on each day, or to the extent the parties agree
less frequently, the Transfer Agent shall cause payment to be made of the amount
of the Asset Based Sales Charge and CDSCs accruing on such day in respect of the
Shares of such Fund owned of record by Shareholder Accounts (other than Omnibus
Accounts) by two separate wire transfers, directly from accounts of such Fund as
follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to Distributor
Shares in accordance with the preceding rules shall be paid to the Distributor's
Account, unless the Distributor otherwise instructs the Fund in any irrevocable
payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to Post-
distributor Shares in accordance with the preceding rules shall be paid in
accordance with direction received from any future distributor of Shares of the
Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall he paid to the
Distributor's Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be paid in
accordance with direction received from any future distributor of Shares of the
Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant Fund.
PRINCIPAL UNDERWRITING AGREEMENT
CLASS Y SHARES
AGREEMENT effective this__day of__ , 199_ by and between each of the
parties listed on Exhibit A attached hereto and made a part hereof, each for
itself and not jointly (each a "Fund"), and Evergreen Distributor, Inc., a
Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class Y shares of beneficial interest of the Fund ("Shares")
as an independent contractor upon the terms and conditions hereinafter set
forth. Except as the Fund may from time to time agree, Principal Underwriter
will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such brokers,
dealers or other persons shall have any authority to act as agent for the Fund;
such brokers, dealers or other persons shall act only as principal in the sale
of Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right, in its sole discretion, to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within three (3) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such three-day period, the Fund reserves the
right, without further notice, forthwith to cancel its acceptance of any such
order. The Fund shall pay such issue taxes as may be required by law in
connection with the issuance of the Shares.
6. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or statement of
additional information (including amendments and supplements thereto), or
b) any omission or alleged omission to state a material fact required to be
stated in the Fund's registration statement, prospectus or statement of
additional information necessary to make the statements therein not misleading,
provided, however, that insofar as losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance and in conformity with
information furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall the Fund
indemnify the Principal Underwriter or its controlling person as to any amounts
incurred for any liability arising out of or based upon any action for which the
Principal Underwriter, its officers and Directors or any controlling person
would otherwise be subject to liability by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and supplements
thereto), or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
if such statement or omission was made in reliance upon information furnished or
confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by Principal Underwriter for
the purpose of qualifying the Shares for sale under the so-called "blue sky"
laws of any state or for registering Shares under the 1933 Act or the Fund under
the Investment Company Act of 1940 ("1940 Act"). Principal Underwriter shall
bear the expense of preparing, printing and distributing advertising, sales
literature, prospectuses and statements of additional information. The Fund
shall bear the expense of registering Shares under the 1933 Act and the Fund
under the 1940 Act, qualifying Shares for sale under the so-called "blue sky"
laws of any state, the preparation and printing of prospectuses, statements of
additional information and reports required to be filed with the Securities and
Ex change Commission and other authorities, the preparation, printing and
mailing of prospectuses and statements of additional information to shareholders
of the Fund, and the direct expenses of the issuance of Shares.
12. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after two years.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the Trustees of the Fund at least
annually in accordance with the 1940 Act and the rules and regulations
thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Trustees or by a vote of a majority of the
Fund's outstanding Shares on not more than sixty (60) days written notice to any
other party to the Agreement; and shall terminate automatically in the event of
its assignment (as defined in the 1940 Act).
13. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
14. The Fund is a series of a Delaware business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
[List Funds]
By:________________________________
EVERGREEN DISTRIBUTOR, INC.
By: _______________________________
<PAGE>
EXHIBIT A
TO
PRINCIPAL UNDERWRITING AGREEMENT
CLASS Y SHARES
<PAGE>
UNDERWRITING AGREEMENT
December __, 19__
Kokasai Securities Co., Ltd.
Tokyo-Sumitomo Twin Building East
27-1, Shinkawa 2-chome Chuo-ku
Tokyo 104
Gentlemen:
INTRODUCTION
Each of Evergreen Quality Bond Fund, Evergreen Diversified Bond Fund,
Evergreen High Yield Bond Fund, Evergreen Balanced Fund, Evergreen Strategic
Growth Fund, Evergreen Blue Chip Fund and Evergreen Small Company Growth Fund
(hereinafter referred to collectively as the "Evergreen Funds") invites you
("Kokasai") to act as Underwriter in Japan of the shares ("Shares") of the
Evergreen Funds, subject to the following terms and conditions:
1. In the distribution and sale in Japan of Shares, Kokasai agrees to act
as principal. Kokasai shall not have authority to act as agent for the Evergreen
Funds, Keystone Investment Management Company ("Keystone"), Evergreen
Distributor, Inc. ("EDI") or for any other dealer in any respect in such
transactions.
CONCERNING THE CONTINUOUS OFFERING
2. Kokasai intends to undertake the continuous offering and sale of Shares
of Evergreen Small Company Growth Fund (the "Fund") in Japan to Japanese and
non-U.S. nationals (the "Continuous Offering") and the proposed schedule of
sales charges, sub-dealer concessions and net retention by Kokasai will be as
follows:
Kokasai's
Sales Sub-Dealer Net
Amount of Purchase Charge Concession Retention
Y500,000 but less than Y5 million 5.0% 4.0% 1.0%
Y5 million but less than Y10 million 4.0 3.2 0.8
Y10 million but less than Y100 million 3.0 2.4 0.6
Y100 million and over 2.0 1.6 0.4
The minimum unit of sale of Shares shall be Y500,000.
Kokasai will be entitled to continuing maintenance fees for services to its
customers in accordance with the attached schedule of maintenance fees which may
be modified from time to time. Kokasai shall not have any vested right to
receive any continuing maintenance fees on Shares sold by it.
3. The Continuous Offering will be made on a forward pricing basis, i.e.,
orders accepted by Kokasai prior to the close of business in Tokyo and placed
with the Fund the same day prior to the close of the Fund's business day, 5:00
p.m. Boston, Massachusetts time, shall be confirmed at the closing per share net
asset value, which the Fund agrees to furnish to Kokasai each day by telex, and
which Kokasai agrees to make public each day at its head and branch offices.
Orders taken by Kokasai on days when the New York Stock Exchange is closed will
be priced at the closing price on the next day when the New York Stock Exchange
is open. In the event of differences between verbal and telex orders on the one
hand, and written price confirmations on the other, the written price
confirmations shall be considered final.
4. In connection with sales to sub-dealers, the concession to sub-dealers
and Kokasai's net retention shall be subject to the regulations as set forth in
the rules concerning Foreign Securities Transactions of Japanese Securities
Dealers' Association ("Association's Rules"). Kokasai agrees to furnish the
Fund with English copies of agreements entered into between Kokasai and its
sub-dealers. Such agreements and sales by sub-dealers shall conform in all cases
with the terms and conditions of this Agreement.
5. Payment at the appropriate per share net asset value shall be made to
the Fund by Kokasai and shall be received by the Fund within ten business days
after its acceptance of Kokasai's order or such shorter time as may be required
by U.S. law.
If such payment is not received by the Fund, it reserves the right without
notice, forthwith to cancel the sale in which case the Fund may hold Kokasai
responsible for any loss to it, provided, however, that this paragraph shall
have no force and effect if Kokasai's failure to pay shall be caused by reason
of force majeure.
6. Kokasai agrees to act as agent of the Fund for the purpose of
facilitating redemptions of Shares of the Fund sold pursuant to the terms of
this Agreement and held by Japanese investors. If Kokasai repurchases Shares
from its customers or customers of sub-dealers, it agrees to pay not less than
the applicable net asset value as in effect on the date of such repurchase.
7. The Fund will not accept from Kokasai any conditional orders for sales
of Shares.
8. The Fund agrees that whenever Kokasai places orders for purchase of
Shares from the Fund or redemption of Shares by the Fund, the Fund shall
unconditionally accept such orders, unless trading on the New York Stock
Exchange has been suspended or there are other reasons, including force majeure,
which prevent such unconditional acceptance. The Fund also agrees to notify
Kokasai promptly by telex after the Fund has executed any such orders from
Kokasai. In the case of sales of Shares to the Fund, the Fund agrees to make
payment to Kokasai within seven days after its acceptance of Kokasai's order or
such shorter time as may be required by U.S. law. Subject to the provisions of
this Paragraph 8, if the Fund fails to make payment to Kokasai as above
provided, the Fund agrees to indemnify and save Kokasai harmless from any loss
resulting therefrom.
9. Kokasai will pay all costs and expenses directly attributable to the
Continuous Offering, including costs of translation, filing and legal and
accounting fees and disbursements of auditors and counsel of Keystone and the
Fund in conjunction with the filing under the Ordinance of Japanese Ministry of
Finance, costs of advertising, publicity and due diligence and other meetings,
costs and expenses of translating, printing and distributing the Japanese
prospectus (hereinafter referred to, in accordance with the Association's Rules
as the "Explanatory Brochure") and other sales literature for the Continuous
Offering.
10. The Fund agrees that Kokasai, on behalf of the Fund, shall prepare, in
conformance with the Association's Rules and applicable Japanese laws and
regulations, the Explanatory Brochure covering the Fund's Continuous Offering
based on prospectuses, securities reports, semi-annual securities reports and
material information furnished from time to time by the Fund in connection with
the Fund (hereinafter collectively referred to as "Prospectuses-Reports"). In
preparing the Explanatory Brochure, Kokasai shall rely solely on the
representations contained in the "Prospectuses-Reports." Kokasai agrees that it
will furnish a draft of the Explanatory Brochure to the Fund's designated agent
in Tokyo to obtain prior approval for the contents thereof and will also furnish
the Fund with the required number of Japanese and English language translations
of the Explanatory Brochure for filing as required by U.S.law. No person is
authorized to make any representations concerning Shares of the Fund except
those contained in the then current applicable Explanatory Brochure. Kokasai
also agrees that it will deliver a copy of the then current Japanese Explanatory
Brochure, at or prior to the time of sale, to each of its own purchasers and, in
the case of sale by sub-dealers, it will require that they also deliver a copy
of such Explanatory Brochure to each of their purchasers.
11. The Fund agrees to indemnify and save Kokasai harmless from any damages
which shall have occurred in the sale of Shares of the Fund pursuant to this
Agreement to the extent such damages result from a false statement of a material
fact contained in the "Prospectuses- Reports" of the Fund, an omission of a
material fact which should be stated therein or an omission of a material fact
necessary to make the statement therein not misleading. If the
"Prospectuses-Reports" or any other material used in connection with the sale of
the Fund Shares contains information furnished by Kokasai which information
contains a false statement of a material fact, an omission of a material fact
which should be stated therein, or an omission of a material fact necessary to
make the statement therein not misleading, Kokasai likewise agrees to indemnify
and save the Fund harmless from any damages it shall have incurred in any sales
of the Shares of the Fund pursuant to the terms of this Agreement.
12. The Fund agrees to designate Kokasai if Kokasai so requests, or such
other representative as shall meet the qualification requirements as set forth
in Section 1 of Article 6 of the Japanese Standard Rules Relating to Selection
of Foreign Investment Company Shares to be Sold in Japan (the "Standard Rules")
as legal agent for service of process against the Fund.
13. The Fund hereby appoints Kokasai as its agent securities company as
defined in Article 13 of the Association's Rules and Kokasai agrees that it will
submit to the Association on the Fund's behalf all such documents as may be
required by the provisions of the Association's Rules.
14. The Fund agrees that all its financial statements which appear in the
Japanese Explanatory Brochure and Registration Statement, or in annual reports
to the Ministry of Finance will be certified by independent certified public
accountants who are licensed public accountants under the laws of Japan. Any
such financial statements submitted to the Ministry of Finance will be manually
signed and certified by such representative. The Fund also agrees to submit
semi-annual reports to the Ministry of Finance which need not be certified.
15. The Fund hereby represents and warrants that it currently conforms to
the requirements of the Japanese Standard Rules. The Fund understands that if
subsequently it is made aware that it does not so conform, the Fund will advise
Kokasai promptly and Kokasai may suspend further sales of Shares but, even in
such event, the Fund will continue to be obligated to repurchase or redeem
Shares of the Fund from Kokasai as hereinbefore provided.
16. In offering the Shares of the Fund for sale in Japan, Kokasai agrees to
comply with the applicable laws, rules, regulations and criteria of the Ministry
of Finance and Associations' Rules.
Kokasai also agrees that any advertisements used by Kokasai will in general
conform to the Statement of Policy of the United States Securities and Exchange
Commission (U.S. Release No. 40-2621), except for Paragraph (h) which deals with
comparisons.
17. With the consent of the Board of Trustees of the appropriate Evergreen
Fund, Kokasai may also undertake block and/or continuous offerings of the Shares
of such other Evergreen Funds on the terms and conditions herein stated or as
may be contained in any supplemental agreement hereto.
18. This Agreement is, to the extent applicable, governed by the laws of
Japan.
19. This Agreement shall continue in effect as long as permitted under the
U.S. Investment Company Act of 1940, as amended from time to time, the rules
promulgated thereunder or under the Japanese Securities and Exchange Law of
1948, and appropriate exemptions there from. This Agreement may be terminated at
any time by mutual consent or by either party upon thirty days written notice,
and shall terminate automatically in the event of its assignment.
EVERGREEN QUALITY BOND FUND
EVERGREEN DIVERSIFIED BOND FUND
EVERGREEN HIGH YIELD BOND FUND
EVERGREEN BALANCED FUND
EVERGREEN STRATEGIC GROWTH FUND
EVERGREEN BLUE CHIP FUND
EVERGREEN SMALL COMPANY GROWTH FUND
for itself and not jointly
By ________________________________
Title: President
ACCEPTED as of the ____ day of ________ 199_:
KOKASAI SECURITIES CO., LTD.
By
Title:
<PAGE>
SCHEDULE OF MAINTENANCE FEES
Except as otherwise provided for in the Underwriting Agreement, Kokasai
will be entitled to quarterly maintenance fees based on the aggregate net asset
value of shares of the Fund which Kokasai has sold, which remain issued and
outstanding on the books of the Fund on the last business day of the calendar
quarter and which are registered in the names of clients for whom Kokasai is
broker of record ("Eligible Shares"). Such maintenance fees will be calculated
at the rate of 0.0625% per quarter of the aggregate net asset value of all such
Eligible Shares (approximately 0.25% annually); provided, however, that no
maintenance fees will be paid to Kokasai for any calendar quarter if the
aggregate net asset value of such Eligible Shares on the last business day of
the calendar quarter is less than $1 million. Quarterly maintenance fees shall
be payable 90 days after the end of the calendar quarter. Such maintenance fee
rate may be modified by the Fund from time to time without prior notice.
(Evergreen logo appears here)
Effective November 1, 1997
Evergreen Distributor, Inc.
125 West 55th Street
New York, New York 10019
Dear Financial Professional:
This Schedule of Commissions and Service Fees ("Schedule") supersedes any
previous Schedules, is hereby made part of our dealer agreement ("Agreement")
with you and will remain in effect until modified or rescinded by us.
Capitalized terms used in this Schedule and not defined herein have the same
meaning as such terms have in the Agreement. All commission rates and service
fee rates set forth in this Schedule may be modified by us from time to time
without prior notice.
I. EVERGREEN FUNDS
Evergreen State Tax Free Fund
Evergreen State Tax Free Fund - Series II
Evergreen Strategic Income Fund
Evergreen Tax Free Income Fund
Evergreen Latin America Fund
Evergreen Global Opportunities Fund
Evergreen Natural Resources Fund
Evergreen Omega Fund
Evergreen Small Company Growth Fund - II
Evergreen Fund for Total Return
Evergreen U.S. Government Fund
Evergreen High Grade Tax Free Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen New Jersey Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen Pennsylvania Tax Free Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Micro Cap Fund
Evergreen Aggressive Growth Fund
Evergreen International Equity Fund
Evergreen Global Leaders Fund
Evergreen Emerging Markets Growth Fund
Evergreen Global Real Estate Equity Fund
Evergreen Balanced Fund
Evergreen Growth & Income Fund
Evergreen Value Fund
Evergreen American Retirement Fund
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Utility Fund
Evergreen Income & Growth Fund
Evergreen Small Cap Equity Income Fund
(collectively "Evergreen Equity and Long Term Income Funds")
Evergreen Capital Preservation and Income Fund
Evergreen Intermediate Term Bond Fund
Evergreen Short-Intermediate Bond Fund
Evergreen Intermediate-Term Bond Fund II
Evergreen Intermediate-Term Government Securities Fund
Evergreen Short-Intermediate Municipal Fund
(collectively "Evergreen Intermediate Income Funds")
Evergreen Money Market Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Treasury Money Market Fund
Evergreen Pennsylvania Tax Free Money Market Fund
(collectively "Evergreen Money Market Funds")
A. CLASS A SHARES
1. Commissions
Except as otherwise provided in our Agreement, in paragraph 2 below or in
connection with certain types of purchases at net asset value which are
described in the Prospectuses or Statements of Additional Information for the
Evergreen Funds, we will pay you commissions on your sales of Shares of such
Funds in accordance with the following sales charge schedules* on sales where
we receive a commission from the shareholder.
<TABLE>
<CAPTION>
Evergreen Equity and Long Term Income Funds
Sales Charge as Commission as
Amount of a Percentage of a Percentage of
Purchase Offering Price Offering Price
<S> <C> <C>
Less than $50,000 4.75% 4.25%
$50,000-$99,999 4.50% 4.25%
$100,000-$249,999 3.75% 3.25%
$250,000-$499,999 2.50% 2.00%
$500,000-$999,999 2.00% 1.75%
Over $1,000,000 None See paragraph 2
</TABLE>
<TABLE>
<CAPTION>
Evergreen Intermediate Income Funds
Sales Charge as Commission as
Amount of a Percentage of a Percentage of
Purchase Offering Price Offering Price
<S> <C> <C>
Less than $50,000 3.25% 2.75%
$50,000-$99,999 3.00% 2.75%
$100,000-$249,999 2.50% 2.25%
$250,000-$499,999 2.00% 1.75%
$500,000-$999,999 1.50% 1.25%
Over $1,000,000 None See paragraph 2
</TABLE>
Evergreen Money Market Funds
No sales charge for any amount of purchase.
2. Commissions for Certain Types of Purchases
With respect to (a) purchases of Class A Shares in the amount of $1
million or more and/or (b) purchases of Class A Shares made within a 12 month
period by a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title I tax sheltered annuity or
TSA Plan sponsored by an organization having 100 or more eligible employees (a
"Qualifying Plan"), (each such purchase a "NAV Purchase"), we will pay you
commissions as follows:
<TABLE>
<S> <C> <C>
a. Purchases described in 2(a) above
Amount of Commission as a Percentage
Purchase of Offering Price
$1,000,000-$2,999,999 1.00% of the first $2,999,999, plus
$3,000,000-$4,999,999 0.50% of the next $2,000,000, plus
$5,000,000 0.25% of amounts equal to or over $5,000,000
b. Purchases described in 2(b) above .50% of amount of purchase (subject to recapture
upon early redemption)
</TABLE>
* These sales charge schedules apply to purchases made at one time or pursuant
to Rights of Accumulation or Letters of Intent. Any purchase which is made
pursuant to Rights of Accumulation or Letter of Intent is subject to the
terms described in the Prospectus(es) for the Fund(s) whose Shares are being
purchased.
3. Promotional Incentives
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of up to the entire sales charge to certain dealers.
Such incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
4. Service Fees for Evergreen Funds (other than Evergreen Money Market Funds,
Evergreen State Tax Free Fund, Evergreen State Tax Free Fund - Series II and
Evergreen Capital Preservation and Income Fund)
We will pay you service fees based on the average daily net asset value of
Shares of such Funds you have sold which are issued and outstanding on the
books of such Funds during each calendar quarter and which are registered in
the names of customers for whom you are dealer of record ("Eligible Shares").
Such service fees will be calculated quarterly at the rate of 0.0625% per
quarter of the daily average net asset value of all such Eligible Shares
(approximately 0.25% annually) during such quarter, provided, however, that in
any calendar quarter in which total service fees earned by you on Eligible
Shares of all Funds are less than $50.00 in the aggregate, no service fees will
be paid to you nor will such amounts be carried over for payment in a future
quarter. Service fees will be paid by the twentieth day of the month before the
end of the respective quarter. Service fees will only be paid by us to the
extent that such amounts have been paid to us by the Funds.
5. Service Fees for Evergreen State Tax Free Fund and Evergreen State Tax Free
Fund - Series II
We will pay you service fees calculated as provided in section I (A)(4)
above on Shares sold on or after July 1, 1997. For shares sold prior to July 1,
1997 we will pay you service fees calculated as provided in section I (A)(4)
except that the quarterly rate will be 0.0375% (approximately 0.15% annually).
6. Service Fees for Evergreen Capital Preservation and Income Fund
We will pay you service fees calculated as provided in section I (A)(4)
except that for Eligible Shares sold after January 1, 1997 the quarterly rate
will be 0.025% (approximately 0.10% annually).
7. Service Fees for Evergreen Money Market Funds
We will pay you service fees calculated as provided in section I (A)(4)
except that the quarterly rate will be 0.075% (approximately 0.30% annually.)
B. CLASS B SHARES
All Evergreen Funds
1. Commissions
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Class B Shares of the Evergreen Funds at the rate of 4.00% of
the aggregate Offering Price of such Shares, when sold in an eligible sale.
2. Promotional Incentives
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions, to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
3. Service Fees for Evergreen Funds (other than Evergreen State Tax Free Fund
and Evergreen State Tax Free Fund - Series II)
We will pay you service fees calculated as provided in section I (A)(4)
above.
4. Service Fees for Evergreen State Tax Free Fund and Evergreen State Tax Free
Fund - Series II
We will pay you service fees calculated as provided in section I (A)(5)
above.
C. CLASS C SHARES
All Evergreen Funds
1. Commissions
Except as provided in our agreement, we will pay you initial commissions
on your sales of Class C Shares of the Evergreen Funds at the rate of 0.75% of
the aggregate Offering Price of such Shares sold in each eligible sale.
We will also pay you commissions based on the average daily net asset
value of Shares of such Funds you have sold which have been on the books of the
Funds for a minimum of 14 months from the date of purchase (plus any reinvested
distributions attributable to such Shares), which have been issued and
outstanding on the books of such Funds during the calendar quarter and which
are registered in the names of customers for whom you are dealer of record
("Eligible Shares"). Such commissions will be calculated quarterly at the
rate of 0.1875% per quarter of the average daily net asset value of all such
Eligible Shares (approximately 0.75% annually) during such quarter. Such
commissions will be paid by the twentieth day of the month before the end of
the respective quarter.
Such commissions will continue to be paid to you quarterly so long as aggregate
payments do not exceed applicable NASD limitations and other governing
regulations.
2. Service Fees
We will pay you a full year's service fee in advance on your sales of
Class C Shares of such Funds at the rate of 0.25% of the aggregate net asset
value of such Shares.
We will pay you service fees based on the average daily net asset value of
Shares of such Funds you have sold which have been on the books of the Funds
for a minimum of 14 months from the date of purchase (plus any reinvested
distributions attributable to such Shares), which have been issued and
outstanding during the respective quarter and which are registered in the names
of customers for whom you are the dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0625% per quarter of
the average daily net asset value of all such Eligible Shares (approximately
0.25% annually); provided, however, that in any calendar quarter in which total
service fees earned by you on Eligible Shares of Funds are less than $50.00 in
the aggregate, no service fees will be paid to you nor will such amounts be
carried over for payment in a future quarter. Service fees will be paid by the
twentieth day of the month before the end of the respective quarter. Service
fees other than those paid in advance will only be paid by us to the extent
that such amounts have been paid to us by the Funds.
II. KEYSTONE FUNDS
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Small Company Growth Fund (S-4)
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Keystone Tax Free Fund
(collectively "Keystone Funds")
1. Commissions for the Keystone Funds (other than Keystone Precious Metals
Holdings, Inc.)
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Shares of such Keystone Funds at the rate of 4.0% of the
aggregate public offering price of such Shares as described in the Fund's
Prospectus ("Offering Price") when sold in an eligible sale.
2. Commissions for Keystone Precious Metals Holdings, Inc.
Except as otherwise provided for in our Agreement, we will pay you
commissions on your sale of Share of Keystone Precious Metals Holdings, Inc. as
the rate of the Offering Price when sold in an eligible sale as follows:
<TABLE>
<CAPTION>
Amount of Purchase Commission Amount of Purchase Commission
<S> <C> <C> <C>
Less than $100,000 4% $250,000-$499,999 1%
$100,000-$249,999 2% $500,000 and above 0.5%
</TABLE>
3. Service Fees
We will pay you service fees based on the aggregate net asset value of
Shares of the Keystone Funds (other than Keystone Precious Metals Holdings,
Inc.) you have sold on or after June 1, 1983 and of Keystone Precious Metals
Holdings, Inc. you have sold on or after November 19, 1984, which remain issued
and outstanding on the books of such Funds on the fifteenth day of the third
month of each calendar quarter (March 15, June 15, September 15 and December
15, each hereinafter a "Service Fee Record Date") and which are registered in
the names of customers for whom you are dealer of record ("Eligible Shares").
Such service fees will be calculated quarterly at the rate of 0.0625% per
quarter of the aggregate net asset value of all such Eligible Shares
(approximately 0.25% annually) on the Service Fee Record Date; provided,
however, that in any calendar quarter in which service fees earned by you on
Eligible Shares of all Funds are less than $50.00 in the aggregate, no service
fees will be paid to you nor will such amounts be carried over for payment in a
future quarter. Service fees will be payable within five business days after
the Service Fee Record Date. Service fees will only be paid by us to the extent
that such amounts have been paid to us by the Funds.
4. Promotional Incentives
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
<PAGE>
(Evergreen logo appears here)
Dealer Name: ------------------
Dealer
No.: --------------------------
Effective
Date: ------------------------
Evergreen Distributor, Inc.
125 West 55th Street
New York, New York 10019
To Whom It May Concern:
Evergreen Distributor, Inc. ("Company"), principal underwriter, invites
you to participate in the distribution of shares, including separate classes of
shares, ("Shares") of the Keystone Fund Family, the Evergreen Fund Family and
to the extent applicable their separate investment series (collectively "Funds"
and each individually a "Fund") designated by us which are currently or
hereafter underwritten by the Company, subject to the following terms:
1. You will offer and sell Shares of the Funds at the public offering price
with respect to the applicable class described in the then current prospectus
and statement of additional information ("Prospectus") of the Fund whose Shares
you offer. You will offer Shares only on a forward pricing basis, i.e. orders
for the purchase, repurchase or exchange of Shares accepted by you prior to the
close of the New York Stock Exchange and placed with us the same day prior to
the close of our business day, 5:00 p.m. Eastern Time, shall be confirmed at
the closing price for that business day. You agree to place orders for Shares
only with us and at such closing price. In the event of a difference between
verbal and written price confirmation, the written conformation shall be
considered final. Prices of a Fund's Shares are computed by and are subject to
withdrawal by each Fund in accordance with its Prospectus. You agree to place
orders with us only through your central order department unless we accept your
written Power of Attorney authorizing others to place orders on your behalf.
This dealer agreement ("Agreement") on your part runs to us and the respective
Fund and is for the benefit of, and is enforceable, by each.
2. In the distribution and sale of Shares, you shall not have authority to act
as agent for the Fund, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of Shares.
3. In addition to the distribution services provided by you with respect to a
Fund you may be asked to render administrative, account maintenance and other
services as necessary or desirable for shareholders of such Fund ("Shareholder
Services").
4. Notwithstanding anything else contained in this Agreement or in any other
agreement between us, the Company hereby acknowledges and agrees that any
information received from you concerning your customer in the course of this
arrangement is confidential. Except as requested by the customer or as required
by law and except for the respective Fund, its officers, directors or trustees,
employees, agents or service providers, the Company will not provide nor permit
access to such information by any person or entity, including any First Union
Corporation bank or First Union Brokerage Services, Inc.
5. So long as this Agreement remains in effect, we will pay you commissions on
sales of Shares of the Funds and service fees for Shareholder Services, in
accordance with Schedule of Commissions and Service Fees ("Schedule") attached
hereto and made a part of hereof, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay you from time to time on Shares
previously sold by you or by any person who is not a broker or dealer actually
engaged in the investment banking or securities business. You will receive
commissions in accordance with the attached Schedule on all purchase
transactions in shareholder accounts (excluding reinvestment of income
dividends and capital gains distributions) for which you are designated as
Dealer of Record except where we determine that any such purchase was made with
the proceeds of a redemption or repurchase of Shares of the same Fund or
another Fund, whether or not the transaction constitutes the exercise of the
exchange privilege. Commissions will be paid to you twice a month. You will
receive service fees for shareholder accounts for which you are designated
Dealer of Record as provided in the Schedule. You hereby represent that receipt
of such service fees by you will be disclosed to your customers.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your agent shall cease upon termination of this Agreement or
upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
6. Payment for all Shares purchased from us shall be made to the Company and
shall be received by the Company within three business days after the
acceptance of your order or such shorter time as may be required by law. If
such payment is not received by us, we reserve the right, without prior notice,
forthwith to cancel the sale, or, at our option, to sell such Shares back to
the respective Fund in which case we may hold you responsible for any loss,
including loss of profit, suffered by us or by such Fund resulting from your
failure to make payment as aforesaid.
7. You agree to purchase Shares of the Funds only from us or from your
customers. If you purchase Shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
Shares from your customers, you agree to pay such customers the applicable net
asset value per Share less any contingent deferred sales charge ("CDSC") that
would be applicable under the Prospectus ("repurchase price").
8. You will sell Shares only (a) to your customers at the prices described in
paragraph 2 above; or (b) to us as agent for a Fund at the repurchase price. In
such a sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account in
purchasing Shares for resale to us, you agree to pay your customer not less nor
more than the repurchase price which you receive from us. If you act as agent
for your customer in selling Shares to us, you agree not to charge your
customer more than a fair commission for handling the transaction. You shall
not withhold placing with us orders received from your customers so as to
profit yourself as a result of such withholding.
9. We will not accept from you any conditional orders for Shares.
10. If any Shares sold to you under the terms of this Agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a CDSC by the Fund.
We will notify you of any such repurchase or redemption within the next
ten business days after the date on which the certificate or written request
for redemption is delivered to us or to the Fund, and you shall forthwith
refund to us the full amount of any commission you received on such sale. We
agree, in the event of any such repurchase or redemption, to refund to the Fund
any commission we retained on such sale and, upon receipt from you of the
commissions paid to you, to pay such commissions forthwith to the Fund.
11. Shares sold to you hereunder shall not be issued until payment has been
received by the Fund concerned. If transfer instructions are not received
from you within 15 days after our acceptance of your order, the Company reserves
the right to instruct the transfer agent for the Fund concerned to register
Shares sold to you in your name and notify you of such. You agree to hold
harmless and idemnify the Company, the Fund and its transfer agent for any loss
or expense resulting from such registration.
12. You agree to comply with any compliance standards that may be furnished to
you by us regarding when each class of Shares of a Fund may appropriately be
sold to particular customers.
13. No person is authorized to make any representations concerning Shares of a
Fund except those contained in the Prospectus and in sales literature issued by
us supplemental to such Prospectus. In purchasing Shares from us you shall rely
solely on the representations contained in the appropriate Prospectus and in
such sales literature. We will furnish additional copies of such Prospectuses
and sales literature and other releases and information issued by us in
reasonable quantities upon request. You agree that you will in all respects
duly conform with all laws and regulations applicable to the sales of Shares of
the Funds and will idemnify and hold harmless the Funds, their officers,
directors and trustees and the Company from any damage or expenses on account
of any wrongful act or omission by you, your representatives, agents or
sub-agents in connection with any orders or solicitation of orders of Shares of
the Funds by you, your representatives, agents or sub-agents.
14. Each party hereto represents that it is (1) a member of the National
Association of Securities Dealers, Inc., and agrees to notify the other should
it cease to be a member of such Association and agrees to the automatic
termination of this Agreement at the time or (2) excluded from the definition
of broker-dealer under the Securities Exchange Act of 1934. It is further
agreed that all rules or regulations of the Association now in effect or
hereafter adopted, including its Business Conduct Rule 2830(d), which are
binding upon underwriters and dealers in the distribution of the securities of
open-end investment companies, shall be deemed to be a part of this Agreement
to the same extent as if set forth in full herein.
15. You will not offer the Funds for sale in any State where they are not
qualified for sale under the blue sky laws and regulations of such State or
where you are not qualified to act as a dealer except for States in which they
are exempt from qualification.
16. This Agreement supersedes and cancels any prior agreement with respect to
the sales of Shares of any of the Funds underwritten by the Company. The
Agreement may be amended by us at any time upon written notice to you.
17. All sales hereunder are to be made, and title to Shares of the Funds shall
pass in The Commonwealth of Massachusetts. This Agreement shall be interpreted
in accordance with the laws of The Commonwealth of Massachusetts.
18. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the
addressed specified by you.
19. Either party may terminate this Agreement at any time by written notice to
the other party.
Signed:
- --------------------------------------------------------------------------------
Dealer or Broker Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Authorized Signature
Accepted:
EVERGREEN DISTRIBUTOR, INC.
by: ---------------------------------------------------------------------------
title:
As of -------------------------------------------------- , 19----------------
EXHIBIT B
THE EVERGREEN FUNDS
DEFERRED COMPENSATION PLAN
AGREEMENT, made on this ___ day of __________ __, 1995, by and between
the registered open-end investment companies listed in Attachment A hereto (each
a "Fund" and together, the "Funds"), and (the "Trustee").
WHEREAS, the Trustee is serving as a director/trustee of the
Funds for which he is entitled to receive trustees' fees; and
WHEREAS, the Funds and the Trustee desire to permit the Trustee to
defer receipt of trustees' fees payable by the Funds;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Trustee hereby agree
as follows:
1. DEFINITION OF TERMS AND CONDITIONS
1.1 Definitions. Unless a different meaning is plainly implied by the
context, the following terms as used in this Agreement shall have the meanings
specified below:
(a) "Beneficiary" shall mean such person or persons designated
pursuant to Section 4.3 hereof to receive benefits after the death of the
Trustee.
(b) "Board of Trustees" shall mean the Board of Trustees or
the Board of Directors of a Fund.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of trustees' fees
paid by a Fund to the Trustee during a Deferral Year prior to reduction for
Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or amounts
of the Trustee's Compensation deferred under the provisions of Section 3 of this
Agreement.
(f) "Deferral Account" shall mean the account maintained to
reflect the Trustee's Compensation Deferrals made pursuant to Section 3 hereof
and any other credits or debits thereto.
(g) "Deferral Year" shall mean each calendar year during which
the Trustee makes, or is entitled to make, Compensation Deferrals under Section
3 hereof.
(h) "Valuation Date" shall mean the last business day of each
calendar year and any other day upon which a Fund makes a valuation of the
Deferred Account.
1.2 Plurals and Gender. Where appearing in this Agreement the singular
shall include the plural and the masculine shall include the feminine, and vice
versa, unless the context clearly indicates a different meaning.
1.3 Trustees and Directors. Where appearing in this Agreement,
"Trustee" shall also refer to "Director" and "Board of Trustees" shall also
refer to "Board of Directors."
1.4 Headings. The headings and sub-headings in this Agreement are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
1.5 Separate Agreement for Each Fund. This Agreement is drafted, and
shall be construed, as a separate agreement between the Trustee and each of the
Funds.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
2.1 Commencement of Compensation Deferrals. The Trustee may elect, on a
form provided by, and submitted to, the Secretary of a Fund, to commence
Compensation Deferrals under Section 3 hereof for the period beginning on the
later of (i) the date this Agreement is executed or (ii) the date such form is
submitted to the Secretary of the Fund.
2.2 Termination of Deferrals. The Trustee shall not be eligible to make
Compensation Deferrals after the earlier of the following dates:
(a) The date on which he ceases to serve as a Trustee
of the Fund; or
(b) The effective date of the termination of this Agreement.
3. COMPENSATION DEFERRALS
3.1 Compensation Deferral Elections.
(a) Except as provided below, a deferral election on the form
described in Section 2.1 hereof, must be filed with the Secretary of a Fund
prior to the first day of the Deferral Year to which it applies. The form shall
set forth the amount of such Compensation Deferral (in whole percentage
amounts). Such election shall continue in effect for all subsequent Deferral
Years unless it is canceled or modified as provided below. Notwithstanding the
foregoing, (i) any person who is elected to the Board during a fiscal year of a
Fund may elect before becoming a Trustee or within 30 days after becoming a
Trustee to defer any unpaid portion of the retainer of such fiscal year and the
fees for any future meetings during such fiscal year by filing an election form
with the Secretary of the Fund, and (ii) Trustees may elect to defer any unpaid
portion of the retainer for the fiscal year in which Deferred Compensation
Agreements are first authorized by the Board and any unpaid fees for any future
meetings during such fiscal year by submitting an election form to the Secretary
of a Fund within 30 days of such authorization.
(b) Compensation Deferrals shall be withheld from each payment
of Compensation by a Fund to the Trustee based upon the percentage amount
elected by the Trustee under Section 3.1 (a) hereof.
(c) The Trustee may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the Secretary of
a Fund a revised Compensation Deferral election form. Subject to the provisions
of Section 4.2 hereof, such change will be effective as of the first day of the
Deferral Year following the date such revision is submitted to the Secretary of
the Fund.
3.2 Valuation of Deferral Account.
(a) A Fund shall establish a bookkeeping Deferral Account to
which will be credited an amount equal to the Trustee's Compensation Deferrals
under this Agreement. Compensation Deferrals shall be allocated to the Deferral
Account on the day such Compensation Deferrals are withheld from the Trustee's
Compensation and shall be deemed invested pursuant to Section 3.3, below, as of
the same day. The Deferral Account shall be debited to reflect any distributions
from such Account. Such debits shall be allocated to the Deferral Account as of
the date such distributions are made.
(b) As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Account is invested in the manner set
forth under Section 3.3, below) attributable to the period following the next
preceding Valuation Date shall be credited to and/or deducted from the Trustee's
Deferral Account.
3.3 Investment of Deferral Account Balance.
(a) (1) The Trustee may select from various options made
available by the Funds the investment media in which all or part of his Deferral
Account shall be deemed to be invested. The investment media available to the
Trustee as of the date of this Agreement are listed in Attachment B hereto.
(2) The Trustee shall make an investment
designation on a form provided by the Secretary of the Funds (Attachment C)
which shall remain effective until another valid designation has been made by
the Trustee as herein provided. The Trustee may amend his investment designation
daily by giving instructions to the Secretary of the Funds.
(3) Any changes to the investment media to be
made available to the Trustee, and any limitation on the maximum or minimum
percentages of the Trustee's Deferral Account that may be invested in any
particular medium, shall be communicated from time-to-time to the Trustee by the
Secretary of the Funds.
(b) Except as provided below, the Trustee's Deferral Account
shall be deemed to be invested in accordance with his investment designations,
provided such designations conform to the provisions of this Section. If:
(1) the Trustee does not furnish the Secretary of
the Funds with complete, written investment instructions, or
(2) the written investment instructions from the
Trustee are unclear,
then the Trustee's election to make Compensation Deferrals hereunder shall be
held in abeyance and have no force and effect, and he shall be deemed to have
selected the Evergreen Money Market Fund until such time as the Trustee shall
provide the Secretary of the Funds with complete investment instructions. In the
event that any fund under which any portion of the Trustee's Deferral Account is
deemed to be invested ceases to exist, such portion of the Deferral Account
thereafter shall be held in the successor to such Fund, subject to subsequent
deemed investment elections.
The use of the returns on the investment media to determine
the amount of the earnings credited to a Trustee's Deferral Account is subject
to regulatory approval. Until such approval is received, the Compensation
Deferrals of a Trustee under this Agreement shall be continuously credited with
earnings in an amount determined by multiplying the balance credited to the
Deferral Account by an interest rate equal to the yield on 90-day U.S. Treasury
Bills.
The Secretary of the Funds shall provide an annual statement
to the Trustee showing such information as is appropriate, including the
aggregate amount in the Deferral Account, as of a reasonably current date.
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNT
4.1 In General. Distributions from the Trustee's Deferral Account may
be paid in a lump sum or in installments as elected by the Trustee commencing on
or as soon as practicable after a date specified by the Trustee, which may not
be sooner than the earlier of the first business day of January following (a) a
date five years following the deferral election, or (b) the year in which the
Trustee ceases to be a member of the Board of Trustees of the Funds.
Notwithstanding the foregoing, in the event of the liquidation, dissolution or
winding up of a Fund or the distribution of all or substantially all of a Fund's
assets and property relating to one or more series of its shares to the
shareholders of such series (for this purpose a sale, conveyance or transfer of
a Fund's assets to a trust, partnership, association or corporation in exchange
for cash, shares or other securities with the transfer being made subject to, or
with the assumption by the transferee of, the liabilities of the Fund shall not
be deemed a termination of the Fund or such a distribution), all unpaid amounts
in the Deferral Account as of the effective date thereof shall be paid in a lump
sum on such effective date. In addition, upon application by a Trustee and
determination by the Chairman of the Board of Trustees of the Funds that the
Trustee has suffered a severe and unanticipated financial hardship, the
Secretary shall distribute to the Trustee, in a single lump sum, an amount equal
to the lesser of the amount needed by the Trustee to meet the hardship plus
applicable income taxes payable upon such distribution, or the balance of the
Trustee's Deferral Account.
4.2 Death Prior to Complete Distribution of Deferral Account. Upon the
death of the Trustee (whether prior to or after the commencement of the
distribution of the amounts credited to his Deferral Account), the balance of
such Account shall be distributed to his Beneficiary in a lump sum as soon as
practicable after the Trustee's death.
4.3 Designation of Beneficiary. For purposes of Section 4.3 hereof, the
Trustee's Beneficiary shall be the person or persons so designated by the
Trustee in a written instrument submitted to the Secretary of the Funds. In the
event the Trustee fails to properly designate a Beneficiary, his Beneficiary
shall be the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Trustee: the
Trustee's (1) surviving spouse, or (2) estate.
5. AMENDMENT AND TERMINATION
5.1 The Board of Trustees may at any time in its sole discretion amend
or terminate this Plan; provided, however, that no such amendment or termination
shall adversely affect the right of Trustees to receive amounts previously
credited to their Deferral Accounts.
6. MISCELLANEOUS
6.1 Rights of Creditors.
(a) This Agreement is an unfunded and non-qualified deferred
compensation arrangement. Neither the Trustee nor other persons shall have any
interest in any specific asset or assets of a Fund by reason of any Deferral
Account hereunder, nor any rights to receive distribution of his Deferral
Account except as and to the extent expressly provided hereunder. A Fund shall
not be required to purchase, hold or dispose of any investments pursuant to this
Agreement; however, if in order to cover its obligations hereunder the Fund
elects to purchase any investments the same shall continue for all purposes to
be a part of the general assets and property of the Fund, subject to the claims
of its general creditors and no person other than the Fund shall by virtue of
the provisions of this Agreement have any interest in such assets other than an
interest as a general creditor.
(b) The rights of the Trustee and the Beneficiaries to the
amounts held in the Deferral Account are unsecured and shall be subject to the
creditors of the Funds. With respect to the payment of amounts held under the
Deferral Account, the Trustee and his Beneficiaries have the status of unsecured
creditors of the Funds. This Agreement is executed on behalf of the Fund by an
officer of a Fund as such and not individually. Any obligation of a Fund
hereunder shall be an unsecured obligation of the Fund and not of any other
person.
6.2 Agents. The Funds may employ agents and provide for such clerical,
legal, actuarial, accounting, advisory or other services as they deem necessary
to perform their duties under this Agreement. The Funds shall bear the cost of
such services and all other expenses they incur in connection with the
administration of this Agreement.
6.3 Incapacity. If a Fund shall receive evidence satisfactory to it
that the Trustee or any Beneficiary entitled to receive any benefit under this
Agreement is, at the time when such benefit becomes payable, a minor, or is
physically or mentally incompetent to give a valid release therefor, and that
another person or an institution is then maintaining or has custody of the
Trustee or Beneficiary and that no guardian, committee or other representative
of the estate of the Trustee or Beneficiary shall have been duly appointed, the
Fund may make payment of such benefit otherwise payable to the Trustee or
Beneficiary to such other person or institution, including a custodian under a
Uniform Gifts to Minors Act, or corresponding legislation (who shall be a
guardian of the minor or a trust company), and the release of such other person
or institution shall be a valid and complete discharge for the payment of such
benefit.
6.4 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Agreement or any of its provisions.
6.5 Governing Law. This Agreement is made and entered into in the State
of North Carolina and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of North Carolina.
6.6 No Guarantee of Trusteeship. Nothing contained in this Agreement
shall be construed as a guaranty or right of any Trustee to be continued as a
Trustee of one or more of the Evergreen Funds (or of a right of a Trustee to any
specific level of Compensation) or as a limitation of the right of any of the
Evergreen Funds, by shareholder action or otherwise, to remove any of its
trustees.
6.7 Counsel. The Funds may consult with legal counsel with respect to
the meaning or construction of this Agreement, their obligations or duties
hereunder or with respect to any action or proceeding or any question of law,
and they shall be fully protected with respect to any action taken or omitted by
them in good faith pursuant to the advice of legal counsel.
6.8 Spendthrift Provision. The Trustees' and Beneficiaries' interests
in the Deferral Account shall not be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charges and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be void; nor shall any portion of any such right hereunder be in any
manner payable to any assignee, receiver or trustee, or be liable for such
person's debts, contracts, liabilities, engagements or torts, or be subject to
any legal process to levy upon or attach.
6.9 Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
or by nationally recognized overnight delivery service, addressed to the Trustee
at the home address set forth in the Funds' records and to a Fund at its
principal place of business, provided that all notices to a Fund shall be
directed to the attention of the Secretary of the Fund or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
6.10 Entire Agreement. This Agreement contains the entire
understanding between the Funds and the Trustee with respect to the payment of
non-qualified elective deferred compensation by the Funds to the Trustee.
6.11 Interpretation of Agreement. Interpretation of, and determinations
related to, this Agreement made by the Funds in good faith, including any
determinations of the amounts of the Deferral Account, shall be conclusive and
binding upon all parties; and a Fund shall not incur any liability to the
Trustee for any such interpretation or determination so made or for any other
action taken by it in connection with this Agreement in good faith.
6.12 Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the Funds and their successors and assigns and to
the Trustees and his heirs, executors, administrators and personal
representatives.
6.13 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.
6.14 Execution of Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
EVERGREEN TRUST
EVERGREEN EQUITY TRUST
EVERGREEN INVESTMENT TRUST
EVERGREEN TOTAL RETURN FUND
EVERGREEN GROWTH AND INCOME FUND
THE EVERGREEN AMERICAN RETIREMENT
TRUST
EVERGREEN FOUNDATION TRUST
EVERGREEN MUNICIPAL TRUST
EVERGREEN MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND, INC.
THE EVERGREEN LEXICON FUND
EVERGREEN TAX-FREE TRUST
EVERGREEN VARIABLE TRUST
By:
Witness John J. Pileggi
President
Witness Trustee
<PAGE>
ATTACHMENT A
[TRUSTS]
<PAGE>
ATTACHMENT B
[TRUSTS]
Available Fund Options
<PAGE>
ATTACHMENT C
DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
TO: The Secretary of The Evergreen Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of November ___, 1995 by and between the undersigned and
The Evergreen Funds, I hereby make the following elections:
Deferral of Compensation
Starting with Compensation to be paid to me with respect to
services provided by me to The Evergreen Funds after the date this election form
is provided to The Evergreen Funds, and for all periods thereafter (unless
subsequently amended by way of a new election form), I hereby elect that ___
percent (___%) of my Compensation (as defined under the Agreement) be deferred
and that the Funds establish a bookkeeping account credited with amounts equal
to the amount so deferred (the "Deferral Account"). The Deferral Account shall
be further credited with income equivalents as provided under the Agreement.
Each Compensation Deferral (as defined in the Agreement) shall be deemed
invested pursuant to Section 3.3 of the Agreement as of the same day it would
have been paid to me.
I wish the Compensation Deferral to be invested in the Funds and
percentages noted in Annex A to this Form.
I understand that the amounts held in the Deferral Account shall
remain the general assets of The Evergreen Funds and that, with respect to the
payment of such amounts, I am merely a general creditor of The Evergreen Funds.
I may not sell, encumber, pledge, assign or otherwise alienate the amounts held
under the Deferral Account.
Distributions from Deferral Account
I hereby elect that distributions from my Deferral Account be
paid:
_____ in a lump sum or
_____ in quarterly installments for ____ years (specify a number
of years not to exceed ten); commencing on the first business day of January
following:
_____ the year in which I cease to be a member of the
Board of Trustees of the Funds, or
_____ a calendar year but not a year earlier than 2000.
I hereby agree that the terms of the Agreement are incorporated
herein and are made a part hereof. Dated as of the day and year first above
written.
WITNESS: TRUSTEE:
RECEIVED:
[TRUSTS]
By:
Name:
Title:
Date:
<PAGE>
ANNEX A
I desire that my deferred Compensation be invested as follows:
----------------------
100% of Deferred
Compensation Amount
<PAGE>
ATTACHMENT D
[TRUSTS]
DEFERRED COMPENSATION PLAN
DESIGNATION OF BENEFICIARY
You may designate one or more beneficiaries to receive any amount
remaining in your Deferral Account at your death. If your Designated Beneficiary
survives you, but dies before receiving the full amount of the Deferral Account
to which he or she is entitled, the remainder will be paid to the Designated
Beneficiary's estate, unless you specifically elect otherwise in your
Designation of Beneficiary form.
You may indicate the names not only of one or more primary
Designated Beneficiaries but also the names of secondary beneficiaries who would
receive amounts in your Deferral Account in the event the primary beneficiary or
beneficiaries are not alive at your death. In the case of each Designated
Beneficiary, give his or her name, address, relationship to you, and the
percentage of your Deferral Account he or she is to receive. You may change your
Designated Beneficiaries at any time, without their consent, by filing a new
Designation of Beneficiary form with the Secretary of the Funds.
* * * * * * * * * * * * *
As a participant in the Evergreen Funds' Deferred Compensation
Plan (the "Plan"), I hereby designate the person or persons listed below to
receive any amount remaining in my Deferral Account in the event of my death.
This designation of beneficiary shall become effective upon its delivery to the
Secretary of the Funds prior to my death, and revokes any designation(s) of
beneficiary previously made by me. I reserve the right to revoke this
designation of beneficiary at any time without notice to any beneficiary.
<PAGE>
I hereby name the following as primary Designated Beneficiaries
under the Plan:
Name Relationship Percentage Address
Name Relationship Percentage Address
Name Relationship Percentage Address
Name Relationship Percentage Address
In the event that one or more of my primary Designated
Beneficiaries predeceases me, his or her share shall be allocated among the
surviving primary Designated Beneficiaries. I name the following as secondary
Designated Beneficiaries under the Plan, in the event that no primary Designated
Beneficiary survives me:
Name Relationship Percentage Address
Name Relationship Percentage Address
Name Relationship Percentage Address
Name Relationship Percentage Address
<PAGE>
In the event that no primary Designated Beneficiary survives me
and one or more of the secondary Designated Beneficiaries predeceases me, his or
her share shall be allocated among the surviving secondary Designated
Beneficiaries.
(Witness) (Signature of Trustee)
Date: Date:
FORM OF
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
[TRUST]
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this ____ day of ____________, 199_, by and
between [TRUST], a Massachusetts business trust, (the "Fund") having its
principal place of business at 200 Berkeley Street, Boston, Massachusetts,
02116, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking
corporation ("State Street"), having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110.
In consideration of the mutual agreements herein contained, the Fund
and State Street agree as follows:
1. The Fund appoints State Street as its custodian ("Custodian"),
subject to the provisions hereof. State Street hereby accepts such appointment
as Custodian. As such Custodian, State Street shall retain all securities, cash
and other assets now owned or hereafter acquired by the Fund, and the Fund shall
deliver and pay or cause to be delivered and paid to State Street, as Custodian,
all securities, cash and other assets now owned or hereafter acquired by the
Fund during the period of this Agreement.
2. All securities delivered to State Street (other than in bearer form)
shall be properly endorsed and in proper form for transfer into the name of the
Fund or a nominee of State Street for the exclusive use of the Fund or of such
other nominee as may be mutually agreed upon by State Street and the Fund.
3. The Fund shall deliver to State Street certified or authenticated
copies of its Declaration of Trust and By-Laws, all amendments thereto, a
certified copy of the resolution of the Fund's Board of Trustees appointing
State Street to act in the capacities covered by this Agreement and authorizing
the signing of this Agreement and copies of such resolutions of its Board of
Trustees, contracts and other documents as may be reasonably required by State
Street in the performance of its duties hereunder.
4. As Custodian, State Street shall promptly do the following:
A. Safekeeping. State Street shall keep safely in a separate account
the securities and other assets of the Fund, including without limitation all
securities in bearer form, other than (a) securities which are maintained
pursuant to Paragraph 4B in a Securities System (as defined in Paragraph 4B) and
(b) commercial paper of an issuer for which State Street Bank acts as issuing
and paying agent ("Direct Paper") that is deposited and/or maintained in the
Direct Paper System of State Street pursuant to Paragraph 4C, State Street, on
behalf of the Fund, shall receive delivery of certificates, including, without
limitation, all securities in bearer form, for safekeeping and keep such
certificates physically segregated at all times from those of any other person.
State Street shall maintain records of all receipts, deliveries and locations of
such securities, together with a current inventory thereof, and shall conduct
periodic physical inspections of certificates representing bonds and other
securities held by it under this Agreement at least annually in such manner as
State Street shall determine from time to time to be advisable in order to
verify the accuracy of such inventory. State Street shall provide the Fund with
copies of any reports of its internal count or other verification of the
securities of the Fund held in its custody, including reports on its own system
of internal accounting control. In addition, if and when independent certified
public accountants retained by State Street shall count or otherwise verify the
securities of the Fund held in State Street's custody, State Street shall
provide the Fund with a copy of the report of such accountants. With respect to
securities held by any agent or subcustodian ("Subcustodian") appointed pursuant
to Paragraph 7C hereof, State Street may rely upon certificates from such agent
or Subcustodian as to the holdings of such agent or Subcustodian, it being
understood that such reliance in no way releases State Street of its
responsibilities or liabilities under this Agreement. State Street shall
promptly report to the Fund the results of such inspections, indicating any
shortages or discrepancies uncovered thereby, and take appropriate action to
remedy any such shortages or discrepancies.
B. Deposit of Fund Assets in Securities Systems. Notwithstanding any
other provision of this Agreement, State Street may deposit and/or maintain
securities owned by the Fund in (i) Depository Trust Company, a clearing agency
registered with the Securities and Exchange Commission ("Commission") under
Section 17A of the Securities Exchange Act of 1934 ("Exchange Act"), which acts
as a securities depository; (ii) any other clearing agency registered under
Section 17A of the Exchange Act that has been authorized by the Fund's Board of
Trustees; (iii) the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies; or (iv) any other book entry system which
the Commission has authorized for use by investment companies as a securities
depository by order or interpretive or no-action letter that has been authorized
by the Fund's Board of Trustees (all such agencies and systems, collectively
referred to herein as "Securities System(s)") in accordance with applicable
Federal Reserve Board and Commission rules and regulations, if any, and subject
to the following provisions:
1) State Street may keep securities of the Fund in a Securities
System provided that such securities are deposited in an account of State Street
in the Securities System that shall not include any assets of State Street other
than assets held as a fiduciary, custodian or otherwise for customers;
2) The records of State Street with respect to securities of the
Fund that are maintained in a Securities System shall identify by book entry
those securities belonging to the Fund;
3) State Street shall pay for securities purchased for the account
of the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the account, and (ii) the making of an entry
on the records of State Street to reflect such payment and transfer for the
account of the Fund. State Street shall transfer securities sold for the account
of the Fund upon (i) receipt of advice from the Securities System that payment
for such securities has been transferred to the account, and (ii) the making of
an entry on the records of State Street to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the Securities System of
transfers of securities for the account of the Fund shall identify the Fund, be
maintained for the Fund and be provided to the Fund at its request. State Street
shall furnish the Fund confirmation of each transfer to or from the account of
the Fund in the form of a written advice or notice and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund on the next business day;
4) State Street shall promptly provide the Fund with any report
obtained by State Street on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System. State Street shall promptly provide the Fund with any report
on State Street's accounting system, internal accounting control and procedures
for safeguarding securities deposited with State Street that is reasonably
requested by the Fund; and
5) Anything to the contrary in this Agreement notwithstanding, State
Street shall be liable to the Fund for any claim, loss, liability, damage or
expense to the Fund, including attorney's fees, resulting from use of a
Securities System by reason of any negligence, misfeasance or misconduct of
State Street, its agents or any of its or their employees or from failure of
State Street or any such agent to enforce effectively such rights as it may have
against a Securities System. At the election of the Fund, it shall be entitled
to be subrogated to the rights of State Street or its agents with respect to any
claim against the Securities System or any other person that State Street or its
agents may have as a consequence of any such claim, loss, liability, damage or
expense if and to the extent that the Fund has not been made whole for any such
loss or damage.
C. Assets Held in State Street's Direct Paper System. State Street
may deposit and/or maintain securities owned by the Fund in the Direct Paper
System of State Street subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) State Street may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account of State Street in
the Direct Paper System that shall not include any assets of State Street other
than assets held as a fiduciary, custodian or otherwise for customers;
3) The records of State Street with respect to securities of the
Fund that are maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) State Street shall pay for securities purchased for the account
of the Fund upon the making of an entry on the records of State Street to
reflect such payment and transfer of securities to the account of the Fund;
State Street shall transfer securities sold for the account of the Fund upon the
making of an entry on the records of State Street to reflect such transfer and
receipt of payment for the account of the Fund;
5) State Street shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written advice or notice,
of Direct Paper on the next business day following such transfer and shall
furnish to the Fund copies of daily transaction sheets reflecting each day's
transaction in the Securities System for the account of the Fund; and
6) State Street shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request from time to
time.
D. State Street's Records. The records of State Street (and
its agents and Subcustodians) with respect to its services for the Fund shall at
all times during the regular business hours of State Street (or its agents or
Subcustodians) be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Commission.
E. Delivery of Securities. State Street shall release and deliver
securities owned by the Fund held by State Street or in a Securities System
account of State Street or in State Street's Direct Paper book entry system
account ("Direct Paper System Account") only upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate by
the parties, and only in the cases specified in Paragraphs 4F, 4G, 4H, 4I, 4J,
4K, 4L, 4M, 4N and 4O hereof.
F. Registered Name, Nominee. State Street shall register securities
of the Fund held by State Street in the name of the Fund or in the name of a
nominee of State Street for the exclusive use of the Fund, or of such other
nominee as may be mutually agreed upon, or of any mutually acceptable nominee of
any agent or Subcustodian appointed pursuant to Paragraph 7C hereof.
G. Purchases. Upon receipt of proper instructions (as defined in
Paragraph 6A hereof; hereafter "Proper Instructions") and insofar as cash is
available for the purpose, State Street shall pay for and receive all securities
purchased for the account of the Fund, payment being made only upon receipt of
the securities by State Street (or any bank, banking firm, responsible
commercial agent or trust company doing business in the United States and
appointed pursuant to Paragraph 7C hereof as State Street's agent or
Subcustodian for this purpose) registered as provided in Paragraph 4F hereof or
in form for transfer satisfactory to State Street, or, in the case of repurchase
agreements entered into between the Fund and a bank or a dealer, delivery of the
securities either in certificate form or through an entry crediting State
Street's account at the Federal Reserve Bank with such securities, or, upon
receipt by State Street of a facsimile copy of a letter of understanding with
respect to a time deposit account of the Fund signed by any bank, whether
domestic or foreign, and pursuant to Proper Instructions from the Fund, for
transfer to the time deposit account of the Fund in such bank; such transfer may
be effected prior to receipt of a confirmation from a broker and/or the
applicable bank or in the case of a purchase involving the Direct Paper System,
in accordance with the conditions set forth in Paragraph 4C. All securities
accepted by State Street shall be accompanied by payment of, or a "due bill"
for, any dividends, interest or other distributions of the issuer due the
purchaser. In any and every case of a purchase of securities for the account of
the Fund where payment is made by State Street in advance of receipt of the
securities purchased, State Street shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received by
State Street, except that in the case of repurchase agreements entered into by
the Fund with a bank that is a member of the Federal Reserve System, State
Street may transfer funds to the account of such bank prior to the receipt of
written evidence that the securities subject to such repurchase agreement have
been transferred by book-entry into a segregated nonproprietary account of State
Street maintained with the Federal Reserve Bank of Boston, provided that such
securities have in fact been so transferred by book-entry; provided, further,
however, that State Street and the Fund agree to use their best efforts to
insure receipt by State Street of copies of documentation for each such
transaction as promptly as possible.
H. Exchanges. Upon receipt of Proper Instructions, State Street
shall exchange securities, interim receipts or temporary securities held by it
or by any agent or Subcustodian appointed by it pursuant to Paragraph 7C hereof
for the account of the Fund for other securities alone or for other securities
and cash, and expend cash insofar as cash is available in connection with any
merger, consolidation, reorganization, recapitalization, split-up of shares,
changes of par value, conversion or in connection with the exercise of warrants,
subscription or purchase rights, or otherwise, and deliver securities to the
designated depository or other receiving agent or Subcustodian in response to
tender offers or similar offers to purchase received in writing; provided that
in any such case the securities and/or cash to be received as a result of any
such exchange, expenditure or delivery are to be delivered to State Street (or
its agents or Subcustodians). State Street shall give notice as provided under
Paragraph 14 hereof to the Fund in connection with any transaction specified in
this paragraph and at the same time shall specify to the Fund whether such
notice relates to securities held by an agent or Subcustodian appointed pursuant
to Paragraph 7C hereof, so that the Fund may issue to State Street Proper
Instructions for State Street to act thereon prior to any expiration date (which
shall be presumed to be two business days prior to such date unless State Street
has previously advised the Fund of a different period). The Fund shall give to
State Street full details of the time and method of submitting securities in
response to any tender or similar offer, exercising any subscription or purchase
right or making any exchange pursuant to this paragraph. When such securities
are in the possession of an agent or Subcustodian appointed by State Street
pursuant to Paragraph 7C hereof, the Proper Instructions referred to in the
preceding sentence must be received by State Street in timely enough fashion
(which shall be presumed to be three business days unless State Street has
advised the Fund in writing of a different period) for State Street to notify
the agent or Subcustodian in sufficient time to permit such agent to act prior
to any expiration date.
I. Sales. Upon receipt of Proper Instructions and upon receipt of
full payment therefor, State Street shall release and deliver securities which
have been sold for the account of the Fund. At the time of delivery all such
payments are to be made in cash, by a certified check upon or a treasurer's or
cashier's check of a bank, by effective bank wire transfer through the Federal
Reserve Wire System or, if appropriate, outside of the Federal Reserve Wire
System and subsequent credit to the Fund's custodian account, or, in case of
delivery through a stock clearing company, by book-entry credit by the stock
clearing company in accordance with the then current "street" custom.
J. Purchases by Issuer. Upon receipt of Proper Instructions, State
Street shall release and deliver securities owned by the Fund to the issuer
thereof or its agent when such securities are called, redeemed, retired or
otherwise become payable; provided that in any such case, the cash or other
consideration is to be delivered to State Street.
K. Changes of Name and Denomination. Upon receipt of Proper
Instructions, State Street shall release and deliver securities owned by the
Fund to the issuer thereof or its agent for transfer into the name of the Fund
or a nominee of State Street or of the Fund for the exclusive use of the Fund or
for exchange for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions if any; provided that in any
such case, the new securities are to be delivered to State Street.
L. Street Delivery. In connection with delivery in New York City and
upon receipt of Proper Instructions, which in the case of registered securities
may be standing instructions, State Street shall release securities owned by the
Fund upon receipt of a written receipt for such securities to the broker selling
the same for examination in accordance with the existing "street delivery"
custom. In every instance, either payment in full for such securities shall be
made or such securities shall be returned to State Street that same day. In the
event existing "street delivery" custom is modified, State Street shall obtain
authorization from the Board of Trustees of the Fund prior to any use of such
modified "street delivery" custom.
M. Release of Securities for Use as Collateral. Upon receipt of
Proper Instructions and subject to the Declaration of Trust, State Street shall
release securities belonging to the Fund to any bank or trust company for the
purpose of pledge, mortgage or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
State Street of the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made, subject to proper
prior authorization from the Fund, further securities may be released for that
purpose. Upon receipt of Proper Instructions, State Street shall pay such loan
upon redelivery to it of the securities pledged or hypothecated therefor and
upon surrender of the note or notes evidencing the loan.
N. Compliance with Applicable Rules and Regulations of The Options
Clearing Corporation and National Securities or Commodities Exchanges or
Commissions. Upon receipt of Proper Instructions, State Street shall deliver
securities of the Fund in accordance with the provisions of any agreement among
the Fund, State Street and a broker- dealer registered under the Exchange Act
and a member of the National Association of Securities Dealers, Inc. ("NASD")
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund; or, upon receipt of Proper Instructions, State Street
shall deliver securities in accordance with the provisions of any agreement
among the Fund, State Street, and a Futures Commission Merchant registered under
the Commodity Exchange Act relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
O. Release or Delivery of Securities for Other Purposes. Upon
receipt of Proper Instructions, State Street shall release or deliver any
securities held by it for the account of the Fund for any other purpose (in
addition to those specified in Paragraphs 4E, 4F, 4G, 4H, 4I, 4J, 4K, 4L, 4M and
4N hereof) that the Fund declares is a proper corporate purpose pursuant to
Proper Instructions.
P. Proxies, Notices, Etc. State Street shall, upon receipt, promptly
forward to the Fund all forms of proxies and all notices of meetings and any
other notices or announcements affecting or relating to the securities,
including without limitation, notices relating to class action claims and
bankruptcy claims, and upon receipt of Proper Instructions execute and deliver
or cause its nominee to execute and deliver such proxies or other authorizations
as may be required. State Street, its nominee or its agents or Subcustodian
shall not vote upon any of the securities or execute any proxy to vote thereon
or give any consent or take any other action with respect thereto (except as
otherwise herein provided) unless ordered to do so by Proper Instructions. State
Street shall require its agents and Subcustodians appointed pursuant to
Paragraph 7C hereof to forward any such announcements and notices to State
Street upon receipt.
Q. Segregated Account. State Street shall, upon receipt of Proper
Instructions, establish and maintain a segregated account or accounts for and on
behalf of the Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by State Street
pursuant to Paragraph 4B hereof, (i) in accordance with the provisions of any
agreement among the Fund, State Street and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii) for
the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate purposes,
but only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of Trustees signed
by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
R. Property of the Fund Held Outside of the United States.
(1) Appointment of Foreign Subcustodians. State Street is authorized
and instructed to employ as Subcustodians for the Fund's securities and other
assets maintained outside of the United States, the foreign banking institutions
and foreign securities depositories designated on Schedule B hereto as revised
from time to time ("Foreign Subcustodians"). Upon receipt of Proper
Instructions, together with a certified resolution of the Fund's Board of
Trustees, State Street and the Fund may agree to amend Schedule B hereto from
time to time to designate additional foreign banking institutions and foreign
securities depositories to act as Foreign Subcustodians. Upon receipt of Proper
Instructions, the Fund may instruct State Street to cease the employment of any
one or more of such Subcustodians for maintaining custody of the Fund's assets.
(2) Assets to be Held. State Street shall limit the securities and
other assets maintained in the custody of the Foreign Subcustodians to: (a)
"foreign securities," as defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940 ("1940 Act"), and (b) cash and cash equivalents
in such amounts as State Street or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions.
(3) Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by State Street and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Foreign Subcustodians
pursuant to the terms hereof.
(4) Segregation of Securities. State Street shall identify on its
books as belonging to the Fund the foreign securities of the Fund held by each
Foreign Subcustodian. Each agreement pursuant to which State Street employs a
foreign banking institution shall require that such institution establish a
custody account for State Street on behalf of the Fund and physically segregate
in that account securities and other assets of the Fund, and, in the event that
such institution deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging to State Street, as
agent for the Fund, the securities so deposited (all collectively referred to as
the "account").
(5) Agreements with Foreign Banking Institutions. Each agreement with
a foreign banking institution shall be substantially in the form set forth in
Schedule C hereto and shall provide that: (a) the Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) the Foreign
Subcustodian shall maintain insurance covering the Fund's assets; (c) beneficial
ownership of the Fund's assets will be freely transferable without the payment
of money or value other than for custody or administration; (d) adequate records
will be maintained identifying the assets as belonging to the Fund; (e) officers
or auditors employed by, or other representatives of State Street, including, to
the extent permitted under applicable law, the independent public accountants
for the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with State
Street; (f) assets of the Fund held by the Foreign Subcustodian will be subject
only to the instructions of State Street or its agents; and (g) the Foreign
Subcustodian will provide periodic reports with respect to the safekeeping of
the Fund's assets, including notification of any transfer to or from the Fund's
account.
(6) Access of Independent Accountants of the Fund. Upon request of
the Fund, State Street will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Foreign Subcustodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with State Street.
(7) Reports by State Street. State Street will supply to the Fund
from time to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by Foreign Subcustodians,
including, but not limited to, an identification of entities having possession
of the Fund's securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by a
foreign banking institution for State Street on behalf of the Fund indicating,
as to securities acquired for the Fund, the identity of the entity having
physical possession of such securities.
(8) Transactions in Foreign Custody Account. (a) Upon receipt of
Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, State Street shall make or cause its Foreign
Subcustodians to transfer, exchange or deliver foreign securities owned by the
Fund, but, except to the extent explicitly provided in Paragraph 4R(8)(b), only
in any of the cases specified in this Agreement. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate by
the parties, State Street shall pay out or cause its Foreign Subcustodians to
pay out monies of the Fund, but, except to the extent explicitly provided in
Paragraph 4R(8)(b), only in any of the cases specified in this Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of the Fund and
delivery of securities maintained for the account of the Fund may be effected in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer. Securities maintained in the
custody of a Foreign Subcustodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Paragraphs 2 and 4F of this
Agreement, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such securities.
(9) Liability of Foreign Subcustodians. Each agreement pursuant to
which State Street employs a foreign banking institution as a Foreign
Subcustodian shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, State Street and
the Fund from and against any loss, damage, cost, expense, liability or claim
arising out of, or in connection with, the institution's performance of such
obligations. At the election of the Fund, it shall be entitled to be subrogated
to the rights of State Street with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost, expense,
liability or claim if, and to the extent that, the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim.
(10) Liability of State Street. State Street shall be liable to the
Fund for the acts or omissions of a foreign banking institution appointed
pursuant to these provisions to the same extent that such foreign banking
institution is liable to State Street as provided under Paragraph 4R(9);
provided, however, that State Street shall not be liable to the Fund for any
loss resulting from, or caused by, nationalization, expropriation, currency
restrictions, acts of war or terrorism or other similar events or acts.
(11) Monitoring Responsibilities. State Street shall furnish annually
to the Fund, during the month of June, information concerning the Foreign
Subcustodians employed by State Street. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Agreement. In addition, State Street will promptly inform the
Fund in the event that State Street learns of a material adverse change in the
financial condition of a Foreign Subcustodian or any material loss in the assets
of the Fund, or is notified by a foreign banking institution employed as a
Foreign Subcustodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
(12) Branches of U.S. Banks. Except as otherwise set forth in this
Agreement, the provisions hereof shall not apply where the custody of the Fund's
assets are maintained in a foreign branch of a banking institution that is a
"bank" as defined by Section 2(a)(5) of the 1940 Act and which meets the
qualifications set forth in Section 26(a) of the 1940 Act. The appointment of
any such branch as a subcustodian shall be governed by Paragraph 7C of this
Agreement.
S. Miscellaneous. In general, attend to all nondiscretionary details
in connection with the sale, exchange, substitution, purchase, transfer or other
dealing with such securities or property of the Fund, except as otherwise
directed by the Fund pursuant to Proper Instructions. State Street shall render
to the Fund daily a report of all monies received or paid on behalf of the Fund,
an itemized statement of the securities and cash for which it is accountable to
the Fund under this Agreement, and an itemized statement of security
transactions that settled the day before. State Street shall render to the Fund
weekly an itemized statement of security transactions that failed to settle as
scheduled. At the end of each week, State Street shall provide to the Fund a
list of all security transactions that remain unsettled at such time.
5. Additionally, as Custodian, State Street shall promptly do the
following:
A. Bank Account. State Street shall retain safely all cash of the
Fund, other than cash maintained by the Fund, in a bank account, established and
used in accordance with Rule 17f-3 under the 1940 Act, in the banking department
of State Street and in a separate account or accounts in the name of the Fund,
subject only to draft or order by State Street acting pursuant to the terms of
this Agreement. If and when authorized by Proper Instructions in accordance with
a vote of the Board of Trustees of the Fund, State Street may open and maintain
an additional account or accounts in such other bank or trust companies as may
be designated by such instructions; such account or accounts, however, to be
solely in the name of State Street in its capacity as Custodian and subject only
to its draft or order in accordance with the terms of this Agreement. State
Street shall furnish to the Fund, not later than thirty (30) calendar days after
the last business day of each month, a statement reflecting the current status
of its internal reconciliation of the closing balance as of that day in all
accounts described in this paragraph to the balance shown on the daily cash
report for that day rendered to the Fund.
B. Collections. Unless otherwise instructed by receipt of Proper
Instructions, State Street shall collect, receive and deposit in the bank
account or accounts maintained pursuant to Paragraph 5A hereof all income and
other payments with respect to the securities held hereunder, execute ownership
and other certificates and affidavits for all federal and state tax purposes in
connection with the collection of bond and note coupons, do all other things
necessary or proper in connection with the collection of such income, and
without waiving the generality of the foregoing:
1) present for payment on the date of payment all coupons and other
income items requiring presentation;
2) present for payment all securities that may mature or be called,
redeemed, retired or otherwise become payable on the date such
securities become payable;
3) endorse and deposit for collection, in the name of the Fund,
checks, drafts or other negotiable instruments on the same day as
received.
In any case in which State Street does not receive any such due and
unpaid income within a reasonable time after it has made proper demands for the
same (which shall be presumed to consist of at least three demand letters and at
least one telephonic demand), it shall so notify the Fund in writing, including
copies of all demand letters, any written responses thereto, and memoranda of
all oral responses thereto and to telephonic demands, and await proper
instruction; State Street shall not be obliged to take legal action for
collection unless and until reasonably indemnified to its satisfaction for the
reasonable costs of such legal action for collection. It shall also notify the
Fund as soon as reasonably practicable whenever income due on securities is not
collected in due course.
C. Sale of Shares of the Fund. State Street shall make such
arrangements with the Transfer Agent of the Fund as will enable State Street to
make certain it receives the cash consideration due to the Fund for shares of
beneficial interest ("shares") of the Fund as may be issued or sold from time to
time by the Fund, all in accordance with the Fund's Declaration of Trust and
By-Laws, as amended.
D. Dividends and Distributions. Upon receipt of Proper Instructions,
State Street shall release or otherwise apply cash, insofar as cash is
available, for the purpose of the payment of dividends or other distributions to
shareholders of the Fund.
E. Redemption of Shares of the Fund. From such funds as may be
available for the purpose, but subject to the limitation of the Fund's
Declaration of Trust and By-Laws, as amended, and applicable resolutions of the
Board of Trustees of the Fund pursuant thereto, State Street shall make funds
available for payment to shareholders who have delivered to the Transfer Agent a
request for redemption of their shares by the Fund pursuant to such Declaration
of Trust, as amended.
In connection with the redemption of shares of the Fund pursuant to the
Fund's Declaration of Trust and By-Laws, as amended, State Street is authorized
and directed upon receipt of Proper Instructions from the Transfer Agent of the
Fund to make funds available for transfer through the Federal Reserve Wire
System or by other bank wire to a commercial bank account designated by the
redeeming stockholder.
F. Stock Dividends, Rights, Etc. State Street shall receive and
collect all stock dividends, rights and other items of like nature; and deal
with the same pursuant to Proper Instructions relative thereto.
G. Disbursements. Upon receipt of Proper Instructions, State Street
shall make or cause to be made, insofar as cash is available for the purpose,
disbursements for the payment on behalf of the Fund of its expenses, including
without limitation, interest, taxes and fees or reimbursement to State Street or
to the Fund's investment advisers for their payment of any such expenses.
H. Other Proper Corporate Purposes. Upon receipt of Proper
Instructions, State Street shall make or cause to be made, insofar as cash is
available for the purpose, disbursements for any other purpose (in addition to
the purposes specified in Paragraphs 4G, 4H, 5D, 5E, and 5G of this Agreement)
which the Fund declares is a proper corporate purpose.
I. Records. State Street shall create, maintain and retain all
records relating to its activities and obligations under this Agreement in such
manner as shall meet the obligations of the Fund under the 1940 Act,
particularly Section 31 thereof and Rules 31a-1 and 31a-2 thereunder or as
reasonably requested from time to time by the Fund. All records maintained by
State Street in connection with the performance of its duties under this
Agreement shall remain the property of the Fund, and, in the event of
termination of this Agreement, shall be delivered in accordance with the terms
of Paragraph 10 below.
J. Miscellaneous. State Street shall assist generally in the
preparation of routine reports to holders of shares of the Fund, to the
Commission, including form N-SAR, to state "Blue Sky" authorities, to others in
the auditing of accounts and in other matters of like nature and as otherwise
reasonably requested by the Fund.
K. Fund Accounting and Net Asset Value Computation. State Street
shall maintain the general ledger and all other books of account of the Fund,
including the accounting of the Fund. In addition, upon receipt of Proper
Instructions, which may be deemed to be continuing instructions, State Street
shall compute daily, the net asset value of the shares of the Fund and the total
net asset value of the Fund. State Street shall, in addition, perform such other
services incidental to its duties hereunder as may be reasonably requested from
time to time by the Fund.
6. State Street and the Fund further agree as follows:
A. Proper Instructions. State Street shall be deemed to have
received Proper Instructions upon receipt of written instructions signed by the
Fund's Trustees or by one or more person or persons as the Fund's Board of
Trustees shall have from time to time authorized to give the particular class of
instructions for different purposes. Different persons may be authorized to give
instructions for different purposes. A copy of a resolution or action of the
Trustees certified by the Secretary or an Assistant Secretary of the Fund may be
received and accepted by State Street as conclusive evidence of the instruction
of the Fund's Board of Trustees and/or the authority of any person or persons to
act on behalf of the Fund and may be considered as in full force and effect
until receipt of written notice to the contrary. Such instruction may be general
or specific in terms. Oral instructions will be considered Proper Instructions
if State Street reasonably believes them to have been given by a person
authorized by the Board of Trustees to give such oral instructions with respect
to the class of instruction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Proper instructions may include communications
effected directly between electromechanical or electronic devices; provided that
the Fund and State Street are satisfied that such communications afford adequate
safeguards for the assets of the Fund. Use by the Fund of such communication
systems shall constitute approval by the Fund of the safeguards available
therewith.
B. Investments, Limitations. In performing its duties generally,
and more particularly in connection with the purchase, sale and exchange of
securities made by or for the Fund, State Street may take cognizance of the
provisions of the Declaration of Trust of the Fund, as amended; provided,
however, that, except as otherwise expressly provided herein, State Street may
assume unless and until notified in writing to the contrary that instructions
purporting to be Proper Instructions received by it are not in conflict with or
in any way contrary to any provision of the Declaration of Trust of the Fund, as
amended, or resolutions or proceedings of the Board of Trustees of the Fund.
7. State Street and the Fund further agree as follows:
A. Indemnification. State Street, as Custodian, shall be entitled
to receive and act upon advice of counsel (who may be counsel for the Fund) and
shall be without liability for any action reasonably taken or thing reasonably
done pursuant to such advice; provided that such action is not in violation of
applicable federal or state laws or regulations or contrary to written
instructions received from the Fund. State Street shall be indemnified by the
Fund and without liability for any action taken or thing done by it in carrying
out the terms and provisions of this Agreement in good faith and without
negligence, misfeasance or misconduct. However, in order for the indemnification
provision contained in this paragraph to apply, if the Fund is asked to
indemnify or save State Street harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and State
Street shall use all reasonable care to identify and notify the Fund fully and
promptly concerning any situation that presents or appears likely to present the
probability of such a claim for indemnification against the Fund. The Fund shall
have the option to defend State Street against any claim that may be the subject
of this indemnification. In the event that the Fund elects to defend State
Street, it will so notify State Street, and thereupon the Fund shall take over
complete defense of the claim, and State Street shall initiate no further legal
or other expenses for which it shall seek indemnification under this paragraph.
State Street shall in no case confess any claim or make any compromise in any
case in which the Fund will be asked to indemnify State Street except with the
Fund's prior written consent.
B. Expenses Reimbursement. State Street shall be entitled to
receive from the Fund on demand, reimbursement for its cash disbursements,
expenses and charges, excluding salaries and usual overhead expenses with
respect to the Fund, as set forth in Schedule A.
C. Appointment of Agents and Subcustodians. State Street, as
Custodian, may appoint (and may remove), only in compliance with the terms and
conditions of the Fund's Declaration of Trust and By- Laws, as amended, any
other bank, trust company or responsible commercial agent as its agent or
Subcustodian to carry out such of the provisions of this Agreement as State
Street may from time to time direct; provided, however, that the appointment of
any such agent or Subcustodian shall not relieve State Street of any of its
responsibilities under this Agreement.
D. Reliance on Documents. So long as, and to the extent that, it
is in good faith and in the exercise of reasonable care, State Street, as
Custodian, shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement, shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to constitute Proper Instructions under this
Agreement and shall, except as otherwise specifically provided in this
Agreement, be entitled to receive as conclusive proof of any fact or matter
required to be ascertained by it hereunder a certificate signed by the Fund's
Trustees, the Secretary or an Assistant Secretary of the Fund or any other
person expressly authorized by the Board of Trustees of the Fund.
E. Access to Records. Subject to security requirements of State
Street applicable to its own employees having access to similar records within
State Street and such regulations as to the conduct of such monitors as may be
reasonably imposed by State Street after prior consultation with an authorized
officer of the Fund, books and records of State Street pertaining to its actions
under this Agreement shall be open to inspection and audit at reasonable times
by the Trustees of, attorneys for or auditors employed by the Fund or any other
person as the Fund's Board of Trustees shall direct.
F. Recordkeeping. State Street shall maintain such records as
shall enable the Fund to comply with the requirements of all federal and state
laws and regulations applicable to the Fund with respect to the matters covered
by this Agreement.
8. If the Fund requires State Street to advance cash or securities
for any purpose or in the event that State Street or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor. Should the Fund fail to repay State Street promptly, State
Street shall be entitled to utilize available cash and to dispose of the Fund's
assets to the extent necessary to obtain reimbursement. However, the total value
of any property of the Fund which at any time is security for any payment by
State Street hereunder shall not exceed 15% of the Fund's total net asset value.
9. The Fund shall pay State Street for its services as Custodian
such compensation as shall be specified on the attached Schedule A. Such
compensation shall remain fixed until [December 31, 1996], unless this Agreement
is terminated as provided in paragraph 10.
10. State Street and the Fund further agree as follows:
A. Effective Period, Termination, Amendment and Interpretive and
Additional Provisions. This Agreement shall become effective as of the date of
its execution, shall continue in full force and effect until terminated as
hereinafter provided. This Agreement may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid, to the other party.
Such termination shall take effect sixty (60) days after the date of such
delivery or mailing. The Fund may, by action of the Fund's Board of Trustees,
substitute another bank or trust company for State Street by giving notice as
provided above to State Street, provided, however that State Street shall not
act under paragraphs 4B or 4C hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary, certifying that the
Board of Trustees of the Fund has approved the initial use of a particular
Securities System and the receipt of an annual certificate of the Secretary or
an Assistant Secretary, certifying that the Board of Trustees has reviewed the
use by the Fund of such Securities System, as required in each case by Rule
17f-4 under the 1940 Act, and that State Street shall not act under paragraph 4C
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary, certifying that the Board of Trustees has approved the
initial use of the Direct Paper System and the receipt of an annual certificate
of the Secretary or an Assistant Secretary, certifying that the Board of
Trustees has reviewed the use by the Fund of the Direct Paper System. Neither
the Fund nor State Street shall amend or terminate this Agreement in
contravention of any applicable federal or state laws or regulations, or any
provision of the Declaration of Trust of the Fund, as amended; provided,
however, that in the event of such termination State Street shall remain as
Custodian hereunder for a reasonable period thereafter, if the Fund after using
its best efforts is unable to find a Successor Custodian.
In connection with the operation of this Agreement, State Street and
the Fund may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement, any such interpretive or
additional provision to be signed by both parties and annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable federal or state laws or regulations, or any provision of the Fund's
Declaration of Trust as amended. No interpretive provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
B. Successor Custodian. Upon termination hereof or the inability
of State Street to continue to serve hereunder, the Fund shall pay to State
Street such compensation as may be due for services through the date of such
termination. The Fund shall likewise reimburse State Street for its costs,
expenses and disbursements incurred prior to such termination in accordance with
paragraph 7B hereof and such reasonable costs, expenses and disbursements as may
be incurred by State Street in connection with such termination.
If a Successor Custodian is appointed by the Board of Trustees of the
Fund in accordance with the Fund's Declaration of Trust, State Street shall,
upon termination, deliver to such Successor Custodian at the office of State
Street, properly endorsed and in proper form for transfer, all securities then
held hereunder, all cash and other assets of the Fund deposited with or held by
it hereunder.
If no such Successor Custodian is appointed, State Street shall, in
like manner at its office, upon receipt of a certified copy of a resolution of
the shareholders pursuant to the Fund's Declaration of Trust and By-Laws, as
amended, deliver such securities, cash and other properties in accordance with
such resolutions.
In the event that no written order designating a Successor Custodian or
certified copy of a resolution of the shareholders shall have been delivered to
State Street on or before the date when such termination shall become effective,
then State Street shall have the right to deliver to a bank or trust company
doing business in Boston, Massachusetts of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than $5,000,000, all securities, cash and other properties
held by State Street and all instruments held by it relative thereto and all
other property held by it under this Agreement. Thereafter, such bank or trust
company shall be the Successor of State Street under this Agreement and subject
to the restrictions, limitations and other requirements of the Fund's
Declaration of Trust and By-Laws, both as amended.
In the event that securities, funds and other properties remain in the
possession of State Street after the date of termination hereof, owing to
failure of the Fund to procure the certified copy above referred to, or of the
Fund's Board of Trustees to appoint a Successor Custodian, State Street shall be
entitled to fair compensation for its services during such period, and the
provisions of this Agreement relating to the duties and obligations of State
Street shall remain in full force and effect.
C. Duplicate Records and Backup Facilities. State Street shall
not be liable for loss of data occurring by reason of circumstances beyond its
control, including, but not limited, to acts of civil or military authority,
national emergencies, fire, flood or catastrophe, acts of God, insurrection,
war, riots or failure of transportation, communication or power supply. However,
State Street shall keep in a separate and safe place additional copies of all
records required to be maintained pursuant to this Agreement or additional
tapes, disks or other sources of information necessary to reproduce all such
records. Furthermore, at all times during this Agreement, State Street shall
maintain a contractual arrangement whereby State Street will have a back-up
computer facility available for its use in providing the services required
hereunder in the event circumstances beyond State Street's control result in
State Street not being able to process the necessary work at its principal
computer facility. State Street shall, from time to time, upon request from the
Fund provide written evidence and details of its arrangement for obtaining the
use of such a back-up computer facility. State Street shall use its best efforts
to minimize the likelihood of all damage, loss of data, delays and errors
resulting from an uncontrollable event, and should such damage, loss of data,
delays or errors occur, State Street shall use its best efforts to mitigate the
effects of such occurrence. Representatives of the Fund shall be entitled to
inspect the State Street premises and operating capabilities within reasonable
business hours and upon reasonable notice to State Street. Upon request of the
Fund's representative or representatives, State Street shall from time to time
as appropriate, furnish to the Fund a letter setting forth the insurance
coverage thereon, any changes in such coverage which may occur and any claim
relating to the Fund which State Street may have made under such insurance.
D. Confidentiality. State Street agrees to treat all records and
other information relative to the Fund confidentially and State Street, on
behalf of itself and its officers, employees and agents, agrees to keep
confidential all such information, except after prior notification to and
approval by the Fund (which approval shall not be unreasonably withheld and may
not be withheld where State Street may be exposed to civil or criminal contempt
proceedings), when requested to divulge such information by duly constituted
authorities or when so requested by a properly authorized person.
State Street and the Fund agree that they, their officers, employees
and agents shall maintain all information disclosed to them by the other in
connection with this Agreement in confidence and will not disclose any such
information to any other person, nor use such information for their own benefit
or for the benefit of third parties without the consent in writing of the other;
provided, however, that each party shall have the right to use any such
information for its own necessary internal purposes while this Agreement is in
effect. The provisions of the paragraph shall not apply to information which (i)
is in or becomes part of the public domain, (ii) is demonstrably known
previously to the party to whom it is disclosed, (iii) is independently
developed outside this Agreement by the party to whom it is disclosed, or (iv)
is rightfully obtained from third parties by the party to whom it is disclosed.
11. The Fund shall not circulate any printed matter that contains any
reference to State Street without the prior written approval of State Street,
excepting solely such printed matter as merely identifies State Street as
Custodian. The Fund will submit printed matter requiring approval to State
Street in draft form, allowing sufficient time for review by State Street and
its counsel prior to any deadline for printing.
12. In the event of a reorganization of the Fund through a merger,
consolidation, sale of assets or other reorganization, State Street, at the
request of the Fund, shall act as Custodian for shares of any investment company
or other company obtained in any such reorganization by the Fund for
distribution to those Fund shareholders whose shares are represented by
certificates. The Fund shall give notice to each such shareholder of his or her
right to exchange his or her Fund shares represented by certificates for shares
held by State Street upon surrender to State Street of his or her certificates
representing such Fund shares properly endorsed and in proper form for transfer.
Upon the surrender of such Fund certificates, State Street will issue a
certificate or certificates to the surrendering shareholder for an approximate
number of shares held by State Street, unless such shareholder establishes an
Open Account Plan or other similar account at that time in which case such
shares will be credited to his or her account. State Street shall not be
required to issue certificates for any fractional shares held by it. Instead,
fractional interests in such shares shall be distributed to the shareholder in
cash at their then current market value or, if the fractional share represents
an interest in an investment company, it shall be redeemed by State Street at
the then current redemption price for such shares and the proceeds of such
redemption shall be distributed to such shareholder in cash. State Street shall
not release to any shareholder any such shares held by it until such shareholder
has properly surrendered for exchange his or her Fund shares represented by
certificates.
13. This Agreement is executed and delivered in The Commonwealth of
Massachusetts and shall be subject to and be construed in accordance with the
laws of the Commonwealth.
14. Notices and other writings delivered or mailed postage prepaid to
Keystone Balanced Fund II, c/o Keystone Investment Management Company, 200
Berkeley Street, Boston, Massachusetts 02116, or to State Street at 225 Franklin
Street, Boston, Massachusetts 02110, or to such other address as the Fund or
State Street may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
15. This Agreement shall be binding upon and shall inure to the benefit
of the Fund and State Street and their respective successors or assigns.
16. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
17. This Agreement is made on behalf of the Fund by an officer or
Trustee of the Fund, not individually but solely as an officer or Trustee under
the Fund's Declaration of Trust, and the obligations under this Agreement are
not binding upon, nor shall resort be had to the property of any of the
Trustees, shareholders, officers, employees or agents of the fund personally,
but are binding only on the property of the Fund.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: [TRUST]
By:
- --------------------------- -------------------------------
Name:
Title:
ATTEST: STATE STREET BANK AND TRUST COMPANY
By:
- --------------------------- -------------------------------
Name:
Title:
<PAGE>
Schedule A
FEE SCHEDULE
<PAGE>
SCHEDULE B
Approved Foreign Subcustodians
MASTER TRANSFER AND RECORDKEEPING AGREEMENT
AGREEMENT made as of the ______ day of November, 1997 by and between each
of the parties listed on Exhibit A which is attached hereto and made a part
hereof (each a "Fund" or "Funds"), each for itself and not jointly, each having
its principal place of business at 200 Berkeley Street, Boston, Massachusetts
02116, and Evergreen Service Company ("ESC"), having its principal place of
business at 200 Berkeley Street, Boston, Massachusetts 02116.
W I T N E S S E T H T H A T
WHEREAS, each Fund desires ESC to perform certain services for the
Fund, and ESC is willing to perform such services.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, each party, for itself and not jointly, agrees as follows:
1. ADDITIONAL PARTIES - Any other registered investment company for which
Keystone Investment Management Company (KIMCO), Evergreen Asset Management Corp.
("Evergreen Asset"), The Capital Management Group of First Union National Bank
of North Carolina ("CMG") or one of its affiliates serves as investment adviser,
trustee or manager may become a Fund party to this Agreement, for itself and not
jointly, by giving written notice to ESC that it has elected to become a Fund
party hereto, to which election ESC has given its written consent.
2. SERVICES - ESC shall perform for each Fund the services set forth on
Exhibit B which is attached hereto and made a part hereof. ESC shall also
perform for each Fund, without additional charge, any services which it
customarily performs in the ordinary course of business without additional
charge for the investment companies for which ESC acts as transfer agent,
dividend disbursing agent, or shareholder servicing and recordkeeping agent.
ESC shall perform such other services in addition to those set forth on
Exhibit B hereto as a Fund shall request in writing. Any of the services to be
performed hereunder, and the manner in which such services are to be performed,
shall be changed only pursuant to a written agreement signed by the parties
hereto.
ESC will undertake no activity which, in its judgment, will adversely
effect the performance of its obligations to a Fund under this Agreement.
3. FEES - Each Fund shall pay ESC for the services to be performed pursuant
to this Agreement in accordance with and in the manner set forth with respect to
such Fund on Exhibit C attached hereto and made a part hereof.
4. EFFECTIVE DATE - This Agreement shall become effective as of the date
set forth above and shall become effective as to each Fund which gives written
notice to ESC pursuant to Paragraph 1 hereof that it elects to become a party
hereto as of the date of such notice.
5. TERM - This Agreement shall be in effect until terminated in accordance
with Section 17 hereof.
6. USE OF ESC'S NAME - The Funds will not use ESC's name in any sales
literature or other material in a manner not approved by ESC in writing before
such use, unless a similar use was previously approved. Notwithstanding the
foregoing, ESC hereby consents to all uses of ESC's name which merely refer in
accurate terms to ESC's appointments hereunder or which are required by the
Securities and Exchange Commission or a state securities commission, and
provided, further, that in no case will such approval be unreasonably withheld
or delayed.
7. STANDARD OF CARE - ESC shall at all times use its best efforts and act
in good faith and in a non-negligent manner in performing all services pursuant
to this Agreement.
8. UNCONTROLLABLE EVENTS - ESC shall not be liable for damage, loss of
data, delays or errors occurring by reason of circumstances beyond its control,
including, but not limited to, acts of civil or military authority, national
emergencies, fire, flood or catastrophe, acts of God, insurrection, war, riots,
or failure of transportation, communication or power supply. However, ESC shall
keep in a separate and safe place additional copies of all records required to
be maintained pursuant to this Agreement or additional tapes or discs necessary
to reproduce all such records. Furthermore, at all times during this Agreement,
ESC shall maintain an arrangement whereby ESC will have a backup computer
facility available for its use in providing the services required hereunder in
the event circumstances beyond ESC's control result in ESC not being able to
process the necessary work at its principal computer facility. ESC shall, from
time to time, upon request from any Fund provide written evidence and details of
its arrangement for obtaining the use of such a backup computer facility. ESC
shall use reasonable care to minimize the likelihood of all damage, loss of
data, delays and errors resulting from an uncontrollable event. Should such
damage, loss of data, delays or errors occur, ESC shall use its best efforts to
mitigate the effects of such occurrence. Representatives of each Fund shall be
entitled to inspect the ESC premises and operating capabilities within
reasonable business hours and upon reasonable notice to ESC.
9. INDEMNIFICATION - Each Fund shall indemnify and hold ESC, its employees
and agents harmless against any losses, claims, damages, judgments, liabilities
or expenses (including reasonable counsel fees and expenses) resulting from (1)
transactions which occurred prior to the date ESC began serving as Transfer
Agent to the Fund; (2) action taken or permitted by ESC in good faith with due
care and without negligence in reliance upon instructions received from such
Fund in accordance with Section 10 hereof or with respect to a Fund upon the
opinion of counsel for the Fund, as to anything arising in connection with its
performance under this Agreement; or (3) any act done or suffered by ESC with
respect to a Fund in good faith with due care and without negligence in
connection with its performance under this Agreement in reliance upon any
instruction, order, stock certificate or other instrument reasonably believed by
it to be genuine and to bear the genuine signature of any person or persons
authorized to sign, countersign, or execute same, and which complies with all
applicable requirements of the Fund's current prospectus(es) and statement of
additional information, this Agreement and instructions and other governing
documents provided to ESC by the Fund. For purposes of this indemnification, it
is specifically agreed that if any instruction received by ESC in accordance
with Section 10 hereof differs from the requirements set forth in the Fund's
current prospectus(es) or statement of additional information then, with regard
to that difference, the instruction, order, stock certificate or other
instrument relied upon by ESC, ESC need only comply with such instruction (and
not the current prospectus(es) or statement of additional information).
In the event that ESC requests any Fund to indemnify or hold it harmless
hereunder, ESC shall use its best efforts to inform the Fund of the relevant
facts concerning the matter in question. ESC shall use reasonable care to
identify and promptly notify a Fund concerning any matter which ESC believes may
result in a claim for indemnification against such Fund, and shall notify the
Fund within seven days of notice to ESC of the filing of any suit or other legal
action or the institution by a government agency of any administrative action or
investigation against ESC which involves its duties under this Agreement. Each
Fund shall have the election of defending ESC against any claim with respect to
such Fund which may be the subject of indemnification or holding it harmless
hereunder. In the event a Fund so elects, it will so notify ESC. Thereupon the
Fund shall take over defense of the claim, and, if so requested by a Fund, ESC
shall incur no further legal or other expenses related thereto for which it
shall be entitled to indemnity or holding harmless hereunder; provided, however,
that nothing herein shall prevent ESC from retaining counsel to defend any claim
at ESC's own expense.
Except with the prior written consent of a Fund, ESC shall in no event
confess any claim or make any compromise in any matter in which such Fund will
be asked to indemnify or hold ESC harmless hereunder. ESC shall be without
liability to a Fund with respect to anything done or omitted to be done in
accordance with the terms of this Agreement or instructions properly received
pursuant hereto if done in good faith and without negligence or willful or
wanton misconduct. In no event shall ESC be liable for consequential damages,
lost profits, or other special damages, even if ESC has been informed of the
possibility of such damage or loss by the Fund or by third parties.
Notwithstanding the foregoing, ESC shall be liable to each Fund for any
damage or losses suffered by such Fund as a result of a delay or negligence on
the part of ESC in processing a purchase or liquidation transaction or in making
payment to a shareholder of such Fund; it being agreed that, without in any way
limiting ESC's liability for other transactions hereunder, that such damages
shall not be deemed to be consequential or special.
10. INSTRUCTIONS - ESC shall comply with all instructions issued by a Fund
in the form prescribed below which are permitted or required under Exhibit B
attached hereto. Whenever ESC takes action hereunder pursuant to instructions
from a Fund, ESC shall be entitled to rely upon such instructions only when such
instructions are signed by the President or Treasurer of the Fund or by an
individual designated in writing by the President or Treasurer as a person
authorized to give instructions hereunder. A Fund may waive the requirement that
all instructions be in writing, if such waiver defines the occurrences not
requiring written instruction, indicates the persons authorized to give such
non-written instructions, and is signed by one of the persons pursuant to the
immediately preceding sentence of this Section 10. In the event ESC obtains a
Fund's written waiver, it may rely on non-written instructions received pursuant
thereto.
11. CONFIDENTIALITY - ESC agrees to treat as confidential all records and
other information relative to a Fund and the Fund's shareholders. ESC, on behalf
of itself and its employees, agrees to keep confidential all such information,
except, after prior notification to and approval by a Fund (which approval shall
not be unreasonably withheld and may not be withheld where ESC may be exposed to
civil or criminal contempt proceedings) when requested to divulge such
information by duly constituted authorities or when requested by a shareholder
of a Fund seeking information about his own or an appropriately related account.
12. REPORTS - ESC will furnish to each Fund and to properly authorized
auditors, examiners, investment companies, dealers, salesmen, insurance
companies, transfer agents, registrars, investors, and others designated by each
Fund in writing, such reports at such times as are prescribed for each service
in Exhibit B.
13. RIGHT OF OWNERSHIP - ESC agrees that all records and other data
received, computed, developed, used and/or stored pursuant to this Agreement are
the exclusive property of each respective Fund and that all such records and
other data will be furnished without additional charge to a Fund in available
machine readable data form immediately upon termination of this Agreement with
respect to such Fund for any reason whatsoever. Furthermore, upon a Fund's
request at any time or times while this Agreement is in effect, ESC shall
deliver to such Fund, at the Fund's expense, any or all of the data and records
held by ESC pursuant to this Agreement, in the form as requested by the Fund. On
the effective date of termination of this Agreement with respect to a Fund or,
if later, on the date a Fund ceases to use ESC's services, ESC will promptly
return to the Fund any and all records and other data belonging to the Fund free
of any claim or retention of rights by ESC.
14. REDEMPTION OF SHARES - The parties hereto agree that ESC shall process
liquidations, redemptions or repurchases of shares of each Fund, as the agent
for such Fund, in the manner described in the then current prospectus(es) and
statement of additional information for the Fund. Notwithstanding the foregoing,
ESC shall be liable for any losses, damages, claims or expenses resulting from
ESC's failure to obtain the appropriate signature guarantee with regard to any
redemption or transfer processed by ESC even if the current prospectus(es) or
statement of additional information authorizes ESC to waive the requirement of a
signature guarantee unless ESC is authorized in writing by an appropriate party
to waive such a requirement.
15. SUBCONTRACTING - Each Fund may require that ESC, or ESC may, with the
prior written consent of such Fund, subcontract with one or more of its
affiliated or other persons to perform all or part of its obligations hereunder,
provided, however, that, notwithstanding any such subcontract, ESC shall be
fully responsible to each Fund hereunder.
16. ASSIGNMENT - This Agreement and the rights and duties hereunder shall
not be assignable by ESC or any of the Fund parties hereto except by the
specific written consent of the other party.
17. TERMINATION - This Agreement may be terminated with respect to a Fund
on such date on which ESC has given such Fund not less than 180 days prior
written notice or on which such Fund has given ESC not less than 90 days prior
written notice. Upon such termination, ESC will use its best efforts to
cooperate and assist in accomplishing a timely, efficient and accurate
conversion to the person or firm which will provide the services described
hereunder. This Agreement may be terminated by any Fund without the payment of
any penalty, forfeiture, compulsory buyout amount or performance of any other
obligation which could deter termination; provided, however, that for the
purpose of this Section 17 any amount due under Section 3 of this Agreement
which is undisputed is not considered a penalty, forfeiture, compulsory buyout
amount or performance of any other obligation which could deter termination.
This Agreement may be terminated with respect to a Fund after written
notice to ESC by the Fund if there is a material breach or violation of this
Agreement or if ESC fails to perform any of its obligations under this Agreement
and the failure continues for more than 30 days after the Fund gives notice of
the failure to ESC or bankruptcy or insolvency proceedings of any nature are
instituted by or against ESC.
18. INSURANCE - ESC shall maintain throughout the term of this Agreement a
fidelity bond(s) in an amount in excess of the minimum amount required to be
obtained by the Funds which are parties hereto pursuant to Rule 17g-1 under the
Investment Company Act of 1940 (the "1940 Act") covering the acts of its
officers, employees or agents in performing any and all of the services required
to be performed hereunder. ESC agrees to promptly notify each Fund in writing of
any material amendment or cancellation of such bond(s). ESC shall at such times
as the Fund may request, but at least once each year, notify each Fund of any
claims made pursuant to such bond(s).
19. AMENDMENT - This Agreement may be amended at any time by an instrument
in writing executed by both ESC and any Fund which is a party hereto, or each of
their respective successors, provided that any such amendment will conform to
the requirements set forth in the 1940 Act and the rules and regulations
thereunder.
20. NOTICE - Any notice shall be sufficiently given when sent by registered
or certified mail to any party at the address of such party set forth above or
at such other address as such party may from time to time specify in writing to
the other party.
21. SECTION HEADINGS - Section headings are included for convenience only
and are not to be used to construe or interpret this Agreement.
22. INTERPRETIVE PROVISIONS - In connection with the operation of this
Agreement, ESC and one or more of the Funds may agree with respect to such Funds
and ESC from time to time on such provisions interpretive of or in addition to
the provisions of this Agreement as may in their combined opinion be consistent
with the general tenor of this Agreement. Furthermore, ESC and such Fund(s) may
agree to add to, delete from or change the services set forth with respect to
such Fund(s) in Exhibit B of the Agreement. Each such interpretive or additional
provision, and each addition, deletion or change is to be signed by all parties
affected and annexed hereto, and no such provision, addition, deletion or change
shall contravene any applicable federal or state law or regulation and no such
provision, addition, deletion or change shall be deemed to be an amendment of
any provision of this Agreement with the exception of Exhibit B hereto.
23. GOVERNING LAW - This Agreement shall be governed by and its provisions
shall be construed in accordance with the laws of The Commonwealth of
Massachusetts.
24. DELAWARE BUSINESS TRUST - Each of the Funds listed on Exhibit A
attached hereto is a series of a Delaware business trust established under a
Declaration of Trust. The obligations of such Funds are not personally binding
upon, nor shall recourse be had against the private property of, any of the
Trustees, shareholders, officers, employees or agents of the Funds, but only the
property of such Funds shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
EVERGREEN SERVICE COMPANY
By: ___________________________________
Edward J. Falvey
President
Evergreen Select Fixed Income Trust
Evergreen Select Limited Duration Fund
Evergreen Select Fixed Income Fund
Evergreen Select Income Plus Fund
Evergreen Select Intermediate Tax Exempt Bond Fund
Evergreen Select Core Bond Fund
Evergreen Select Intermediate Bond Fund
Evergreen Select Equity Trust
Evergreen Select Strategic Value Fund
Evergreen Select Large Cap Blend Fund
Evergreen Select Social Principles Fund
Evergreen Select Equity Income Fund
Evergreen Select Small Company Value Fund
Evergreen Select Common Stock Fund
Evergreen Select Balanced Fund
Evergreen Select Diversified Value Fund
Evergreen Select Money Market Trust
Evergreen Select 100% Treasury Money Market Fund
Evergreen Equity Trust
Evergreen Balanced Fund
Evergreen Small Company Growth Fund
Evergreen Fixed Income Trust
Evergreen Diversified Bond Fund
Evergreen Intermediate Term Bond Fund
Evergreen Municipal Trust
Evergreen Connecticut Municipal Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Tax Free Fund
By: ____________________
John J. Pileggi
President
<PAGE>
EXHIBIT A
Evergreen Select Fixed Income Trust
Evergreen Select Limited Duration Fund
Evergreen Select Fixed Income Fund
Evergreen Select Income Plus Fund
Evergreen Select Intermediate Tax Exempt Bond Fund
Evergreen Select Core Bond Fund
Evergreen Select Intermediate Bond Fund
EvergreenSelect Equity Trust
Evergreen Select Strategic Value Fund
Evergreen Select Large Cap Blend Fund
Evergreen Select Social Principles Fund
Evergreen Select Equity Income Fund
Evergreen Select Small Company Value Fund
Evergreen Select Common Stock Fund
Evergreen Select Balanced Fund
Evergreen Select Diversified Value Fund
Evergreen Select Money Market Trust
Evergreen Select 100% Treasury Money Market Fund
Evergreen Equity Trust
Evergreen Balanced Fund
Evergreen Small Company Growth Fund
Evergreen Fixed Income Trust
Evergreen Diversified Bond Fund
Evergreen Intermediate Term Bond Fund
Evergreen Municipal Trust
Evergreen Connecticut Municipal Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Tax Free Fund
A-1
<PAGE>
EXHIBIT B
The services provided for in this Agreement shall be performed by ESC, or
any agent appointed by ESC pursuant to Section 15 of this Agreement, under the
name of Evergreen Service Company (ESC) and this name or any similar name or
logo will not be used by ESC or its agents for any purposes other than those
related to this Agreement or to any other agreement which ESC may enter into
with any of the Fund (s) or with companies affiliated with the Fund(s).
The offices of ESC shall be open to perform the services pursuant to this
Agreement on all days when the Fund is open to transact business.
ESC will perform all services normally provided to investment companies
such as the Fund(s), and the quality of such services shall be equal to or
better than that provided to the other investment companies serviced by ESC.
With respect to each Fund, by way of illustration, but not limitation, these
services will include:
1. Establishing, maintaining, safeguarding and reporting on shareholder
account information and account histories, (including registration, name and
address recorded in generally accepted form, dealer, representative, branch, and
territory information, mailing address, distribution address, various codes and
specific information relating to (if applicable); withdrawal plans, letters of
intent, systematic investing, insured redemptions plans, account groupings for
rights of accumulation discount processing, and for account group reporting for
plan accounts and other accounts grouped for master sub-account reporting.)
2. Recording and controlling shares outstanding in certificate ("issued")
and non-certificate ("unissued") form.
3. Maintaining a record for each certificate issued to include certificate
number, account number, issued date, number of shares, canceled date or stop
date, where appropriate.
4. Reconciling the number of outstanding shares of each Fund on a daily
basis with the Fund and the Fund's custodian, promptly correcting any
differences noted.
5. Establishing and maintaining a trade file on behalf of each Fund based
on trade information furnished to the transfer agent by the Fund or its
distributors.
6. Accepting and processing direct cash investments however received and
investing such investments promptly in shareholder accounts.
7. Passing upon the adequacy of documents properly endorsed and guaranteed
submitted by or on behalf of a shareholder to transfer ownership or redeem
shares.
8. Transferring ownership of shares upon the books of each Fund.
9. Redeeming shares and preparing and mailing redemption checks or wire
proceeds as instructed.
10. Preparing and promptly mailing account statements to the shareholder or
such other authorized address and, when appropriate, as instructed by a Fund, to
the dealer or dealer branch, whenever transaction activity effecting share
balances are posted to a Fund account that is of the type that should receive
such statement.
11. Checking surrendered certificates for stop transfer instructions.
12. Canceling certificates surrendered.
13. Issuing certificates as replacements for those canceled, or as an
original issue of additional shares or upon the reduction of an equal number of
unissued shares.
14. Maintaining and updating a stop transfer file, promptly placing stop
transfer codes upon notification of possible loss, destruction or disappearance
of a certificate. Upon receipt of proper documentation obtaining necessary
insurance forms and issuing replacement certificates.
15. Balancing outstanding shares of record with the custodian prior to each
distribution and calculating and paying or reinvesting distributions to
shareholders of record and to open trade receivables and free stock.
16. Processing exchanges of shares of one Fund or Portfolio for another,
calculating proper sales charges and collecting fees as required.
17. Processing withdrawal plan liquidations according to plan instructions.
18. Reporting to each Fund and its custodian daily the capital stock
activities and dollar amounts of transactions.
19. Promptly answering inquiries from shareholders, dealers, Fund
personnel, and others as requested in accordance with the terms of this
Agreement as to account matters, referring policy or investment matters to the
Fund.
20. Mailing reports and special mailings, as directed by a Fund, to all
shareholders or selected holders or dealers.
21. Providing services with regard to the annual or special meetings of a
Fund, including preparation and timely mailing of proxy material to shareholders
of record and others as directed by the Fund, and receiving, examining and
recording all properly executed proxies and performing such follow-up as
required by the Fund.
22. Providing periodic listings and tallies of shareholder votes and
certifying the final tally.
23. Providing an inspector of elections at the annual or any special
meetings of a Fund.
24. Maintaining tax information for each account, deducting amounts where
required and furnishing to a Fund, its shareholders, dealers and, when
appropriate, regulatory bodies, the necessary tax information, all in compliance
with the various applicable laws.
25. Maintaining records of account and distribution information for checks
and confirmations returned as undeliverable by the Post Office.
26. Maintaining records and reporting sales information for Blue Sky
reporting purposes.
27. Calculating and processing Fund mergers or stock dividends, as directed
by a Fund.
28. Maintaining all Fund records as outlined in the record and tape
retention schedule delivered by a Fund.
29. Reconciling all investment, distribution and redemption accounts.
30. Providing for the replacement of uncashed distribution or
redemption checks.
31. Maintaining and safeguarding an inventory of unissued blank stock
certificates, checks and other Fund records.
32. Making available to a Fund and its distributors at their locations
devices which will provide immediate electronic access to computerized records
maintained for a Fund.
33. Providing space and such technical expertise as may be required to
enable a Fund and its properly authorized auditors, examiners and others
designated by the Fund in writing to properly understand and examine all books,
records, computer files, microfilm and other items maintained pursuant to this
Agreement, and to assist as required in such examination.
34. Assigning a single account number to each shareholder regardless of the
number of Funds or Portfolios owned for which Keystone Investment Management
Company, Evergreen Asset Management Corp., The Capital Management Group of First
Union National Bank of North Carolina or one of its affiliates is the trustee,
investment adviser or manager (except as instructed otherwise.)
35. Mailing prospectuses to existing accounts on receipt of the first
direct investment transaction after a new prospectus has been issued by a Fund.
36. Mailing cash election notices when required prior to capital gains
distributions.
37. Maintaining information, performing the necessary research and
producing reports required to comply with all applicable state escheat or
abandoned property laws.
With respect to each Fund, the Transfer Agent will produce reports as
requested by a Fund including, but not limited to, the following:
Shareholder Account Confirmation As required
Redemption Checks When redemption is made
Certificates When requested
Withdrawal plan payment checks On payment cycle
Distribution checks As required
Name and address labels
(per account registration) As requested
Proxy When required
1099 Annually
1042-S Annually
Transaction journals Daily
Record date position control Daily
Daily and (monthly) cash proof Daily
Daily and (monthly) share proof Daily
Daily master control Daily
Blue Sky exception Daily
Blue Sky master list Monthly and whenever a new
permit is issued by a state
Blue Sky sales report Cycle as designated in
advance by distributor
Check register Daily
Account information reports When requested
(Monthly) Cumulative Monthly
transaction
New account list Monthly
Shareholder master list When requested
Sales by State Monthly
Activities statistics Monthly
Distribution journals As required
Proxy tallies and vote listings When requested
Withdrawal plan account check Monthly
reconciliation
Dividend account check As required
reconciliation
<PAGE>
EXHIBIT C
Transfer Agent Fee Schedule
Charges to Funds
Group 1 - Retail Monthly Dividend Funds
Per open account per year $26.50
Per closed account per year 9.00
Per new account 10.00
Group 2 - Retail Quarterly Dividend Funds
Per open account per year $25.50
Per closed account per year 9.00
Per new account 10.00
Group 3 - Semi-Annual and Annual Dividend Funds
Per open account per year $24.50
Per closed account per year 9.00
Per new account 10.00
Group 4 - Retail Money Market Funds
Per open account per year $26.50
Per closed account per year 9.00
Per new account 10.00
Group 5 - Institutional Monthly Dividend Funds
Per open account per year $
Per closed account per year
Per new account
Group 6 - Institutional Quarterly Dividend Funds
Per open account per year $
Per closed account per year
Per new account
Group 7 - Semi-Annual and Annual Institutional Funds
Per open account per year $
Per closed account per year
Per new account
Group 7 - Institutional Money Market Funds
Per open account per year $
Per closed account per year
Per new account
Charges to Shareholders
Group 5 - ERISA **
Per IRA participant per year $10.00 with a maximum of $20.00
Per Keogh participant per year $10.00 with a maximum of $20.00
Per TSA per year $10.00 with a maximum of $20.00
**These fees are not borne by the Funds, but are direct shareholder charges.
Funds that have "seed" capital only will not be charged until the Fund has
public shareholders.
This Fee Schedule is exclusive of out-of-pocket reimbursable expenses and fee
reductions relating to average collected balance credits.
Out-of-pocket expenses include but are not limited to the following:
Stationery and supplies
Checks
Express Delivery
Postage
Printing of forms
Telephone
Photocopies and Microfilm
November 8, 1997
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
Re: Registration Statement on Form N-1A
(REGISTRATION NO. 333-37453)
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters of
Delaware law in connection with the registration statement on Form N-1A
(Registration No. 333-37453) (the "Registration Statement") under the Securities
Act of 1933, as amended, of Evergreen Equity Trust (the "Trust") relating to an
indefinite number of the shares of beneficial interest of the Trust authorized
by the Agreement and Declaration of Trust (the "Shares").
We have reviewed the actions taken by the Trustees of the Trust to
organize the Trust and to authorize the issuance and sale of the Shares. In this
connection we have examined the Agreement and Declaration of Trust and By-Laws
of the Trust, the Registration Statement, including the prospectus and statement
of additional information forming a part thereof, certificates of officers of
the Trust and of public officials as to matters of fact, and such other
documents and instruments, certified or otherwise identified to our
satisfaction, and such questions of law and fact, as we have considered
necessary or appropriate for the purpose of rendering the opinions expressed
herein. In such examination we have assumed, without independent verification,
the genuineness of all signatures (whether original or photostatic), the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as certified or
photostatic copies. As to all questions of fact material to such opinions, we
have relied upon the representations contained in the certificates referred to
above. We have assumed, without independent verification, the accuracy of the
relevant facts stated therein.
<PAGE>
Evergreen Equity Trust
November 8, 1997
Page 2
We are admitted to the Bars of The Commonwealth of Massachusetts and
the District of Columbia and generally do not purport to be familiar with the
laws of the State of Delaware. To the extent that the conclusions based on the
laws of the State of Delaware are involved in the opinions set forth herein
below, we have relied, in rendering such opinions, upon our examination of
Chapter 38 of Title 12 of the Delaware Code Annotated, as amended, entitled
"Treatment of Delaware Business Trusts" (the "Delaware business trust law") and
on our knowledge of interpretation of analogous common law of The Commonwealth
of Massachusetts.
This letter expresses our opinion as to the provisions of the Trust's
Agreement and Declaration of Trust, but does not extend to the Delaware Uniform
Securities Act, or to other federal or state securities laws or other federal
laws.
Based upon the foregoing and subject to the qualifications set forth
herein, we hereby advise you that, in our opinion:
1. The Trust is validly existing as a trust with transferable shares
under the laws of the State of Delaware.
2. The Trust is authorized to issue an unlimited number of shares of
beneficial interest, $.001 par value per share; the Shares have been duly and
validly authorized by all action of the Trustees of the Trust, and no action of
the shareholders of the Trust is required in such connection.
3. When issued and paid for as described in the Registration Statement,
the Shares will be fully paid and nonassessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder.
Very truly yours,
/s/Sullivan & Worcester LLP
---------------------------
SULLIVAN & WORCESTER LLP
DISTRIBUTION PLAN OF CLASS A SHARES
THE EVERGREEN _______________ TRUST
EVERGREEN __________ FUND
SECTION 1. The Evergreen ____________ Trust (the "Trust") individually
and/or on behalf of its series (the "Fund") referred to above in the title of
this Rule 12b-1 Plan of Distribution (the "Plan") may act as the distributor of
securities which are issued in respect of the Fund's Class A shares ("Shares"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act")
according to the terms of this Plan.
SECTION 2. The Trust may expend daily amounts at an annual rate of
0.75% of the average daily net asset value of Class A shares of the Fund. Such
amounts may be expended to finance activity which is principally intended to
result in the sale of Shares including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others in order (i) to make payments to the Principal
Underwriter or others of sales commissions, other fees or other compensation for
services provided or to be provided, to enable payments to be made by the
Principal Underwriter or others for any activity primarily intended to result in
the sale of Shares, to pay interest expenses associated with payments in
connection with the sale of Shares and to pay any expenses of financing
permitted by this clause (i); (ii) to enable the Principal Underwriter or others
to receive, pay or to have paid to others who have sold Shares, or who provide
services to holders of Shares, a service fee, maintenance or other fee in
respect of such services, at such intervals as the Principal Underwriter or such
others may determine, in respect of Shares previously sold and remaining
outstanding during the period in respect of which such fee is or has been paid;
and/or (iii) to compensate the Principal Underwriter or others for efforts
(including without limitation any financing of payments under (i) and (ii) for
the sale of shares) in respect of sales of Shares since inception of the Plan or
any predecessor plan. Appropriate adjustments shall be made to the payments made
pursuant to this Section 2 to the extent necessary to ensure that no payment is
made by the Fund with respect to the Class in excess of the applicable limit
imposed on asset based, front end and deferred sales charges under subsection
(d) of Rule 2830 of the Business Conduct Rules of the National Association of
Securities Dealers Regulation, Inc. (The "NASDR"). In addition, to the extent
any amounts paid hereunder fall within the definition of an "asset based sales
charge" under said NASDR Rule such payments shall be limited to 0.75 of 1% of
the aggregate net asset value of the Shares on an annual basis and, to the
extent that any such payments are made in respect of "shareholder services" as
that term is defined in the NASDR Rule, such payments shall be limited to .25 of
1% of the aggregate net asset value of the Shares on an annual basis and shall
only be made in respect of shareholder services rendered during the period in
which such amounts are accrued.
SECTION 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the Fund's
outstanding Class A shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Trust and (b) those Trustees of the Trust who
are not "interested persons" of the Trust (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of this Plan or
any agreements of the Fund or any other person related to this Plan ("Rule 12b-1
Trustees"), cast in person at a meeting called for the purpose of voting on this
Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trust's Board of Trustees and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees or by vote of a majority of the Fund's outstanding Class
A shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
(a) that such agreement may be terminated at any time, with out
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of the Fund's
outstanding Class A shares on not more than sixty days written
notice to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event
of its assignment.
SECTION 9. This Plan may not be amended to increase materi ally the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
DISTRIBUTION PLAN FOR CLASS B-1 SHARES
THE EVERGREEN ________ TRUST
EVERGREEN _______ FUND
Section 1. The Evergreen ________ Trust (the "Trust"), individually
and/or on behalf of its series, (the "Fund"), referred to above in the title of
this 12b-1 Plan of Distribution (the "Plan"), may act as the distributor of
certain securities of which it is the issuer pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act") according to the terms of this
Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan or any predecessor plan is in effect, together with interest on any
such amounts, at rates approved by the Rule 12b-1 Directors (as defined below)
in the manner referred to below, all whether or not this Plan or any predecessor
plan has been otherwise terminated, if such payment of such expenditures is for
services theretofore provided or for reimbursement of expenses theretofore
incurred or accrued prior to termination of this Plan or any predecessor plan in
other respects and if such payment is or has been so approved by such Rule 12b-1
Directors, or agreed to by the Fund with such approval, all subject to such
specific implementation as such 12b-1 Directors may approve; provided that, at
the time any such payment is made, whether or not this Plan or any predecessor
plan has been
22608
<PAGE>
otherwise terminated, the making of such payment will not cause the limitation
upon such payments set froth in the preceding sentence to be exceeded. Without
limiting the generality of the foregoing, the Fund may pay to, or on the order
of, any person who has served from time to time as principal underwriter (a
"Principal Underwriter") amounts for distribution services pursuant to a
principal underwriting agreement or otherwise. No principal underwriting
agreement or other agreement shall be an agreement related to this Plan, as
referred to in Rule 12b-1 of the Securities and Exchange Commission, unless it
specifically states that it is such a related agreement. Any such principal
underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares and/or
other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (i) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (ii) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fun's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (iii)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable
22608
<PAGE>
law, including without limitation, the Investment Company Act of 1940, the Rules
promulgated thereunder by the Securities and Exchange Commission and the
Business Conduct Rules of the National Association of Securities Dealers, Inc.,
in each case enacted or promulgated after June , 1995, or in connection with a
"Complete Termination" (as hereinafter defined); (iv) that the Fund will not
waive or change any contingent deferred sales charge ("CDSC") in respect of the
Distributor's Allocable Portion thereof, except as provided in the Fund's
prospectus or statement of additional information without the consent of the
Principal Underwriter or any assignee of such Principal Underwriter's rights to
its Allocable Portion; (v) that the termination of the Principal Underwriter,
the principal underwriting agreement or this Plan will not terminate of the
Principal Underwriter's rights to its Allocable Portion of the CDSCs; and (vi)
that any Principal Underwriter may assign its rights to its Allocable Portion of
the Distribution Fees and CDSCs (but not such Principal Underwriter's
obligations to the Fund under its principal underwriting agreement) to raise
funds to make expenditures described in Section 2 above and in connection
therewith, and upon receipt of notice of such assignment, the Fund shall pay to
the assignee such portion of the Principal Underwriter's Allocable Portion of
the Distribution Fees an CDSCs so assigned. For purposes of such principal
underwriting agreement, the term Allocable Portion of Distribution Fees as
applied to any Principal Underwriter may mean the portion of the Distribution
Fee allocable to Distributor Shares in accordance with the "Allocation Schedule"
attached to such Principal Underwriter's principal underwriting agreement. For
purposes of such principal underwriting agreement, the term Allocable Portion of
CDSCs as applied to any Principal Underwriter may mean the portion of the CDSCs
allocable to Distributor Shares in accordance with the Allocation Schedule
attached to such principal Underwriter's principal
22608
<PAGE>
underwriting agreement. For purposes of such principal underwriting agreement,
the term "Complete Termination" may mean a termination of this Plan involving
the cessation of payments of the Distribution Fees thereunder, the cessation of
payments of distribution fees pursuant to every other rule 12b-1 plan of the
Fund for every existing or future B-Class-of-Shares and the cessation of the
offering by the Fund of existing or future B-Class-of-Shares, which conditions
shall be deemed to be satisfied when they are first complied with and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-1 Shares which are Distributor Shares pursuant to the
Allocation Schedule shall have been redeemed or converted or (ii) a specified
date, after either of which times such conditions need no longer be complied
with. For purposes of such principal underwriting agreement, the term
"B-Class-of-Shares" may mean each of the B-1 Class of Shares of a Fund, the B-2
Class of Shares of the Fund and each other class of shares of the Fund hereafter
issued which would be treated as "Shares" under such Allocation Schedule or
which has economic characteristics substantially similar to those of the B- 1 or
B-2 Classes of Shares taking not account the total sales charge, CDSC or other
similar charges borne directly or indirectly by the holder of the shares of such
classes. The parties may agree that the existing C Class of Shares of the Fund
does not have substantially similar economic characteristics to the B-1 or B-2
Classes of Shares taking into account the total sales charge, CDSC or other
similar charges borne directly or indirectly by the holder of such shares. For
purposes of clarity the parties to such principal underwriting agreement may
state that they intend that a new installment load class of shares which may be
authorized by amendments to Rule 6(c)- 10 under the 1940 Act will be considered
to be a B-Class-of-Shares if it has economic characteristics substantially
similar to the economic characteristics of the existing C Class of
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<PAGE>
shares of the Fund taking into account the total sales charge, CDSC or other
similar charges borne directly or indirectly by the holder of such shares. For
purposes of such principal underwriting agreement, "Allocation Schedule" may
mean a schedule which shall be approved by Directors (as defined below) in
connection with their required approval of such principal underwriting agreement
as assigning to each principal Underwriter of Shares the portion f the total
Distribution Fees payable by the Fund under such principal underwriting
agreement which has been earned by such Principal Underwriter to the extent
necessary so that the continued payments thereof if such Principal Underwriter
ceases to serve in that capacity does not penalize the Fund by requiring it to
pay for services that have not been earned.
Section 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Trust and (b) a majority of those Directors of
the Trust who are not "interested persons" of the Trust (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long a such continuance is
specifically approved at least annually in the manner provided for
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<PAGE>
approval of this Plan in Section 4 hereof, except that, if terminated except for
payments provided to be made after termination of other aspects of this Plan,
such payments may be made pursuant to approvals made, and or agreements
approved, as provided above.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trust's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any
time by vote of a majority o the Rule 12b-1 Directors or by vote of a majority
of the outstanding Shares, with the effects provided for in Section 2, as
applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Rule 12b-1 Directors or by a vote
of a majority of the outstanding Shares on not more than sixty days written
notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of
its assignment. Section 9. This Plan may not be amended to increase
materially the amount of distribution
expenses provided for in Section 2 hereof unless such amendment is approved in
the manner provided in Section 3 hereof, and no material amendment to this Plan
shall be made unless approved in the manner provided for in Section 4 hereof.
DISTRIBUTION PLAN FOR CLASS B-2 SHARES
THE EVERGREEN ________ TRUST
EVERGREEN __________ FUND
Section 1. The Evergreen ________ Trust (the "Trust"), individually and/or
on behalf of its series (the "Fund"), referred to above in the title of this
12b-1 Plan of Distribution (the "Plan"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act") according to the terms of this Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan or any predecessor plan is in effect, together with interest on any
such amounts, at rates approved by the Rule 12b-1 Directors (as defined below)
in the manner referred to below, all whether or not this Plan or any predecessor
plan has been otherwise terminated, if such payment of such expenditures is for
services theretofore provided or for reimbursement of expenses theretofore
incurred or accrued prior to termination of this Plan or any predecessor plan in
other respects and if such payment is or has been so approved by such Rule 12b-1
Directors, or agreed to by the Fund with such approval, all subject to such
specific implementation as such 12b-1 Directors may approve; provided that, at
the time any such payment is made, whether or not this Plan or any predecessor
plan has been otherwise terminated, the making of such payment will not cause
the limitation upon such payments set froth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares and/or
other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (i) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (ii) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (iii)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Business Conduct Rules of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June , 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (iv) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate of the
Principal Underwriter's rights to its Allocable Portion of the CDSCs; and (vi)
that any Principal Underwriter may assign its rights to its Allocable Portion of
the Distribution Fees and CDSCs (but not such Principal Underwriter's
obligations to the Fund under its principal underwriting agreement) to raise
funds to make expenditures described in Section 2 above and in connection
therewith, and upon receipt of notice of such assignment, the Fund shall pay to
the assignee such portion of the Principal Underwriter's Allocable Portion of
the Distribution Fees an CDSCs so assigned. For purposes of such principal
underwriting agreement, the term Allocable Portion of Distribution Fees as
applied to any Principal Underwriter may mean the portion of the Distribution
Fee allocable to Distributor Shares in accordance with the "Allocation Schedule"
attached to such Principal Underwriter's principal underwriting agreement. For
purposes of such principal underwriting agreement, the term Allocable Portion of
CDSCs as applied to any Principal Underwriter may mean the portion of the CDSCs
allocable to Distributor Shares in accordance with the Allocation Schedule
attached to such principal Underwriter's principal underwriting agreement. For
purposes of such principal underwriting agreement, the term "Complete
Termination" may mean a termination of this Plan involving the cessation of
payments of the Distribution Fees thereunder, the cessation of payments of
distribution fees pursuant to every other rule 12b-1 plan of the Fund for every
existing or future B-Class-of-Shares and the cessation of the offering by the
Fund of existing or future B-Class-of-Shares, which conditions shall be deemed
to be satisfied when they are first complied with and so long thereafter as they
are complied with prior to the earlier of (I) the date upon which all of the B-2
Shares which are Distributor Shares pursuant to the Allocation Schedule shall
have been redeemed or converted or (ii) a specified date, after either of which
times such conditions need no longer be complied with. For purposes of such
principal underwriting agreement, the term "B-Class-of- Shares" may mean each of
the B-1 Class of Shares of a Fund, the B-2 Class of Shares of the Fund and each
other class of shares of the Fund hereafter issued which would be treated as
"Shares" under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking not
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing C Class of shares of the Fund taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of such principal
underwriting agreement, "Allocation Schedule" may mean a schedule which shall be
approved by Directors (as defined below) in connection with their required
approval of such principal underwriting agreement as assigning to each principal
Underwriter of Shares the portion f the total Distribution Fees payable by the
Fund under such principal underwriting agreement which has been earned by such
Principal Underwriter to the extent necessary so that the continued payments
thereof if such Principal Underwriter ceases to serve in that capacity does not
penalize the Fund by requiring it to pay for services that have not been earned.
Section 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Trust and (b) a majority of those Directors of
the Trust who are not "interested persons" of the Trust (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long a such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trust's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority o the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a vote of a
majority of the outstanding Shares on not more than sixty days written notice to
any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
DISTRIBUTION PLAN OF CLASS C SHARES
THE EVERGREEN ___________ TRUST
EVERGREEN FUND
SECTION 1. The Evergreen ____________ Trust (the "Trust") individually
and/or on behalf of its series (the "Fund") referred to above in the title of
this Rule 12b-1 Plan of Distribution (the "Plan") may act as the distributor of
securities which are issued in respect of the Fund's Class C shares ("Shares"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act")
according to the terms of this Plan.
SECTION 2. The Trust may expend daily amounts at an annual rate of
1.00% of the average daily net asset value of Class C shares of the Fund. Such
amounts may be expended to finance activity which is principally intended to
result in the sale of Shares including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others in order (i) to make payments to the Principal
Underwriter or others of sales commissions, other fees or other compensation for
services provided or to be provided, to enable payments to be made by the
Principal Underwriter or others for any activity primarily intended to result in
the sale of Shares, to pay interest expenses associated with payments in
connection with the sale of Shares and to pay any expenses of financing
permitted by this clause (i); (ii) to enable the Principal Underwriter or others
to receive, pay or to have paid to others who have sold Shares, or who provide
services to holders of Shares, a service fee, maintenance or other fee in
respect of such services, at such intervals as the Principal Underwriter or such
others may determine, in respect of Shares previously sold and remaining
outstanding during the period in respect of which such fee is or has been paid;
and/or (iii) to compensate the Principal Underwriter or others for efforts
(including without limitation any financing of payments under (i) and (ii) for
the sale of shares) in respect of sales of Shares since inception of the Plan or
any predecessor plan. Appropriate adjustments shall be made to the payments made
pursuant to this Section 2 to the extent necessary to ensure that no payment is
made by the Fund with respect to the Class in excess of the applicable limit
imposed on asset based, front end and deferred sales charges under subsection
(d) of Rule 2830 of the Business Conduct Rules of the National Association of
Securities Dealers Regulation, Inc. (The "NASDR"). In addition, to the extent
any amounts paid hereunder fall within the definition of an "asset based sales
charge" under said NASDR Rule, such payments shall be limited to 0.75 of 1% of
the aggregate net asset value of the Shares on an annual basis and, to the
extent that any such payments are made in respect of "shareholder services" as
that term is defined in the NASDR Rule, such payments shall be limited to .25 of
1% of the aggregate net asset value of the Shares on an annual basis and shall
only be made in respect of shareholder services rendered during the period in
which such amounts are accrued.
SECTION 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Trust and (b) those Trustees of the Trust who
are not "interested persons" of the Trust (as said term is defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
this Plan or any agreements of the Fund or any other person related to this Plan
(the "Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose
of voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Trust's Board of Trustees and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) that such agreement may be terminated at any time, with out
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of the outstanding
Class C shares on not more than sixty days written notice to
any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event
of its assignment.
SECTION 9. This Plan may not be amended to increase material ly the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof, and no
material amendment to this Plan shall be made unless approved in the manner
provided for in Section 4 hereof.
11998
MULTIPLE CLASS PLAN
FOR THE
EVERGREEN/KEYSTONE FUND GROUP
Each Fund in the Evergreen/Keystone group of mutual funds currently offers one
or more of the following nine classes of shares with the following class
provisions and current offering and exchange characteristics. Additional classes
of shares (such classes being shares having characteristics referred to in Rule
18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act")),
when created, may have characteristics that differ from those described.
I. CLASSES
A. Class A Shares
1. Class A Shares have a distribution plan adopted pursuant to Rule 12b-1
under the 1940 Act (a "12b-1 Distribution Plan") and/or a shareholder
services plan. The plans provide for annual payments of distribution
and/or shareholder service fees that are based on a percentage of
average daily net assets of Class A shares, as described in a Fund's
current prospectus.
2. Class A Shares are offered with a front-end sales load, except that
purchases of Class A Shares made under certain circumstances are not
subject to the front-end load or may be subject to a contingent
deferred sales charge ("CDSC"), as described in a Fund's current
prospectus.
3. Shareholders may exchange Class A Shares of a Fund for Class A Shares
of any other fund named in a Fund's prospectus.
B. Class B Shares
1. Class B Shares have adopted a 12b-1 Distribution Plan and/or a
shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a
percentage of average daily net assets of Class B shares, as described
in a Fund's current prospectus.
2. Class B Shares are offered at net asset value without a front-end
sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Class B Shares automatically convert to Class A Shares without a sales
load or exchange fee after designated periods.
4. Shareholders may exchange Class B Shares of a Fund for Class B Shares
of any other fund described in a Fund's prospectus.
C. Class C Shares
1. Class C Shares have adopted a 12b-1 Distribution Plan and/or a
shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a
percentage of average daily net assets of Class C shares, as described
in a Fund's current prospectus.
2. Class C Shares are offered at net asset value without a front-end
sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Shareholders may exchange Class C Shares of a Fund for Class C Shares
of any other fund named in a Fund's prospectus.
D. Class Y Shares
1. Class Y Shares have no distribution or shareholder services plans.
2. Class Y Shares are offered at net asset value without a front-end
sales load or CDSC.
3. Shareholders may exchange Class Y Shares of a Fund for Class Y Shares
of any other fund described in a Fund's prospectus.
E. Class K Shares
1. Class K Shares have adopted a 12b-1 Distribution Plan and/or a
shareholder services plan. The plans provide for annual payments of
distribution and/or shareholder services fees that are based on a
percentage of average daily net assets of Class K shares, as described
in a Fund's current prospectus.
2. Class K Shares are offered at net asset value without a front-end
sales load, but may be subject to a CDSC as described in a Fund's
current prospectus.
3. Shareholders may only obtain Class K Shares by exchange of Shares of
funds in the Keystone Classic (Custodian) Fund Family and may only
exchange Class K Shares of a Fund only for Shares of funds in the
Keystone Classic (Custodian) Fund Family.
F. Institutional Service Shares
1. Institutional Service Shares have adopted a 12b-1 Distribution Plan
and/or a shareholder services plan. The plans provide for annual
payments of distribution and/or shareholder services fees that are
based on a percentage of average daily net assets of Institutional
Service Shares, as described in a Fund's current prospectus.
2. Institutional Service Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Institutional Service Shares of a Fund for
Institutional Service Shares of any other fund named in a Fund's
prospectus, to the extent they are offered by a Fund.
G. Institutional Shares
1. Institutional Shares have no distribution or shareholder services
plans.
2. Institutional Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Institutional Shares of a Fund for
Institutional Shares of any other fund described in a Fund's
prospectus, to the extent they are offered by a Fund.
H. Charitable Shares
1. Institutional Shares have no distribution or shareholder services
plans.
2. Institutional Shares are offered at net asset value without a
front-end sales load or CDSC.
3. Shareholders may exchange Institutional Shares of a Fund for
Institutional Shares of any other fund described in a Fund's
prospectus, to the extent they are offered by a Fund.
II. CLASS EXPENSES
Each class bears the expenses of its 12b-1 Distribution Plan and/or shareholder
services plan. There currently are no other class specific expanses.
III. EXPENSE ALLOCATION METHOD
All income, realized and unrealized capital gains and losses and expenses not
assigned to a class will be allocated to each class based on the relative net
asset value of each class.
IV. VOTING RIGHTS
A. Each class will have exclusive voting rights on any matter submitted to its
shareholders that relates solely to its class arrangement.
B. Each class will have separate voting rights on any matter submitted to
shareholders where the interests of one class differ from the interests of
any other class.
C. In all other respects, each class has the same rights and obligations as each
other class.
V. EXPENSE WAIVERS OR REIMBURSEMENTS
Any expense waivers or reimbursements will be in compliance with Rule 18f-3
issued under the 1940 Act.
