1933 Act File No. 333 -
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. [ ]
Post-Effective Amendment No. [ ]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. [ ]
---
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.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement
<PAGE>
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<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
Financial Statements
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 Financial Statements
<PAGE>
PROSPECTUS , 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 , 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.........................15
PURCHASE AND REDEMPTION OF SHARES..................................16
How to Buy Shares.........................................16
How to Redeem Shares .....................................23
Exchange Privilege........................................25
Shareholder Services......................................27
Banking Laws..............................................29
OTHER INFORMATION..................................................29
Dividends, Distributions and Taxes........................29
General Information.......................................31
<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 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."
<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%
===== ===== =====
Examples
Assuming Redemption at Assuming no
End of Period Redemption
Class A Class B Class C Class B Class C
After 1 Year $57 $68 $28 $18 $18
After 3 Years $78 $85 $55 $55 $55
- ---------------
(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, including 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 which are discussed in
"Investment Practices and Restrictions."
<PAGE>
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 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
<PAGE>
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. The Fund's investment adviser will
waive its investment advisory fee on assets invested in securities of other
open-end investment companies.
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. Securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, which have been determined to be
liquid, will not be considered by the Fund's investment adviser to be illiquid
or not readily marketable and, therefore, are not subject to the aforementioned
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. The liquidity of securities purchased by the Fund
<PAGE>
which are eligible for resale pursuant to Rule 144A will be monitored by the
Fund's investment adviser on an ongoing basis, subject to the oversight of the
Board of Trustees. In the event that such a security is deemed to be no longer
liquid, the Fund's holdings will be reviewed to determine what action, if any,
is required to ensure that the retention of such security does not result in the
Fund having more than 15% of its net assets invested in illiquid or not readily
marketable 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.
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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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 transactions, 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.
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,
<PAGE>
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
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 towards a specified goal. In technical
<PAGE>
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 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
<PAGE>
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.
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Fund. As administrator, and subject to the supervision and control of the
Trustees, EIS provides the Fund with facilities, equipment and personnel. For
its services as administrator, EIS is entitled to receive a fee based on the
aggregate average daily net assets of the Fund at a rate based on the total
assets of all the mutual funds advised by First Union Corporation subsidiaries.
The administration fee is calculated in accordance with the following schedule:
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
Sub-administrator
BISYS Fund Services serves as sub-administrator to the Fund. For its
services, BISYS Fund Services is entitled to receive a fee from EIS calculated
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-administration
fee is calculated in accordance with the following schedule:
<PAGE>
Sub-Administration Fee
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
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 that it has 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 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 services 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.
<PAGE>
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 Agreements may be paid by EDI to
the distributors of the acquired funds.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by it 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.
<PAGE>
Box 2121, Boston, Massachusetts 02106-2121, a complete 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:
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
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%
<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
$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
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.
<PAGE>
Class A shares may also be purchased at net asset value by a
corporation 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
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
<PAGE>
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 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% 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.
<PAGE>
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. The payment
of 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. 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 balanced; (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. ("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.
<PAGE>
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 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 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
<PAGE>
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.
From time to time, affiliates of broker-dealers who offer and sell the
Fund's shares may make various benefits available to persons who purchase Fund
shares through such affiliate's cash management or similar type accounts. Such
benefits may include gifts of merchandise, services, or cash which is used to
purchase additional Fund 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 investors 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 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).
<PAGE>
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 5:30 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 sections 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
<PAGE>
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 $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
<PAGE>
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 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
<PAGE>
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.
Shares purchased under the Systematic Investment Plan or Telephone Investment
Plan may not be redeemed for ten days from the date of investment.
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
<PAGE>
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 an Evergreen 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 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
<PAGE>
Plans; 403(b)(7) Plans; 401(k) Plans; Keogh Plans; Profit- Sharing Plans;
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, 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
<PAGE>
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 it does 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 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
<PAGE>
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.
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 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
<PAGE>
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.
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 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
<PAGE>
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 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
<PAGE>
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 , 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 , 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.............................11
Organization..........................................11
Service Providers.....................................12
PURCHASE AND REDEMPTION OF SHARES..............................14
How to Buy Shares.....................................14
How to Redeem Shares .................................15
Exchange Privilege....................................18
Shareholder Services..................................19
Banking Laws..........................................20
OTHER INFORMATION..............................................21
Dividends, Distributions and Taxes....................21
General Information...................................23
<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
Maximum 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 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 .48% After 1 Year $8
Fees
12b-1 Fees --
Other Expenses .27% After 3 Years $24
Total .75%
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, including 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,
<PAGE>
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.
When-Issued, Delayed-Delivery and Forward Commitment
<PAGE>
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. The Fund's investment adviser will
waive its investment advisory fee on assets invested in securities of other
open-end investment companies.
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. Securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, which have been determined to be
liquid, will not be considered by the Fund's investment adviser to be illiquid
or not readily marketable and, therefore, are not subject to the aforementioned
15%
<PAGE>
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. The liquidity of securities purchased by the Fund
which are eligible for resale pursuant to Rule 144A will be monitored by the
Fund's investment adviser on an ongoing basis, subject to the oversight of the
Board of Trustees. In the event that such a security is deemed to be no longer
liquid, the Fund's holdings will be reviewed to determine what action, if any,
is required to ensure that the retention of such security does not result in the
Fund having more than 15% of its net assets invested in illiquid or not readily
marketable 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.
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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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 transactions, 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.
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
<PAGE>
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
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
<PAGE>
Fund Structure. The Fund is an investment pool, which invests shareholders'
money towards 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 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.
<PAGE>
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.
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Fund. As administrator, and subject to the supervision and control of the
Trustees, EIS provides the Fund with facilities, equipment and personnel. For
its services as administrator, EIS is entitled to receive a fee based on the
aggregate average daily net assets of the Fund at a rate based on the total
assets of all the mutual funds advised by First Union Corporation subsidiaries.
The administration fee is calculated in accordance with the following schedule:
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
Sub-administrator
BISYS Fund Services serves as sub-administrator to the Fund. For its
services, BISYS Fund Services is entitled to receive a fee from EIS calculated
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-administration
fee is calculated
<PAGE>
in accordance with the following schedule:
Sub-Administration Fee
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
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
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, (2) certain institutional investors and (3)
investment advisory clients of FUNB, Evergreen Asset Management Corp.
("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
<PAGE>
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 reimburse the Fund or its investment
adviser for any loss. In addition, such investors 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
<PAGE>
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.
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 5:30 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
<PAGE>
must complete the appropriate sections 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 $1,000 and
has remained so for 30 days. Shareholders will
<PAGE>
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 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
<PAGE>
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.
Shares purchased under the Systematic Investment Plan or Telephone Investment
Plan may not be redeemed for ten days from the date of investment.
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,
<PAGE>
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 an Evergreen 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 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; 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
<PAGE>
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, 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
<PAGE>
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 it does 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 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
<PAGE>
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 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 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
<PAGE>
B and Class C shares and the fact that such expenses are not borne by Class Y
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 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.
<PAGE>
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 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 , 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 , 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...........................18
PURCHASE AND REDEMPTION OF SHARES....................................19
How to Buy Shares...........................................19
How to Redeem Shares .......................................26
Exchange Privilege..........................................28
Shareholder Services........................................30
Banking Laws................................................32
OTHER INFORMATION....................................................32
Dividends, Distributions and Taxes..........................32
General Information.........................................34
<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 TRANSACTION Class A Class B Class C
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 March 31, 1998. The examples show what you would pay if you
invested $1,000 over 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%
==== ===== =====
Examples
Assuming Redemption at Assuming no
End of Period Redemption
Class A Class B Class C Class B Class C
After 1 Year $57 $67 $27 $17 $17
After 3 Years $77 $84 $54 $54 $54
- ---------------
(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 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 Baa), 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 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").
The Fund may invest in certain types of derivative
<PAGE>
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.
Zero Coupon Bonds and PIKs. Zero coupon bonds and PIKs
<PAGE>
involve additional special consideration. 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 delivery of the security until some specified date in the
<PAGE>
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. The Fund's investment adviser will
waive its investment advisory fee on assets invested in securities of other
open-end investment companies.
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. Securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, which have been determined to be
liquid, will not be considered by the Fund's investment adviser to be illiquid
or not readily marketable and, therefore, are not subject to the aforementioned
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
<PAGE>
purposes. The liquidity of securities purchased by the Fund which are eligible
for resale pursuant to Rule 144A will be monitored by the Fund's investment
adviser on an ongoing basis, subject to the oversight of the Board of Trustees.
In the event that such a security is deemed to be no longer liquid, the Fund's
holdings will be reviewed to determine what action, if any, is required to
ensure that the retention of such security does not result in the Fund having
more than 15% of its net assets invested in illiquid or not readily marketable
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.
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.
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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 transactions, 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.
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,
<PAGE>
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 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,
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
Fund Structure. The Fund is an investment pool, which invests shareholders'
money towards 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 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.
<PAGE>
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 and has been a
portfolio manager since 1981.
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Fund. As administrator, and subject to the supervision and control of the
Trustees, EIS provides the Fund with facilities, equipment and personnel. For
its services as administrator, EIS is entitled to receive a fee based on the
aggregate average daily net assets of the Fund at a rate based on the total
assets of all the mutual funds advised by First Union Corporation subsidiaries.
The administration fee is calculated in accordance with the following schedule:
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
Sub-administrator
BISYS Fund Services serves as sub-administrator to the Fund. For its
services, BISYS Fund Services is entitled to receive a fee from EIS calculated
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-administration
fee is calculated in accordance with the following schedule:
Sub-Administration Fee
<PAGE>
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
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 that 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 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 services 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.
<PAGE>
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 Agreements may be paid by EDI to
the distributors of the acquired funds.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by it 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.
<PAGE>
Box 2121, Boston, Massachusetts 02106-2121, a complete 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:
Initial Sales Charge
Amount of Purchase As a % As a % of Commission to
of the the Dealer/Agent
Net Offering as a % of
Amount Price Offering Price
Invested
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%
<PAGE>
Amount of Purchase As a % As a % of Commission to
of the the Dealer/Agent
Net Offering as a % of
Amount Price Offering Price
Invested
$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
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.
<PAGE>
Class A shares may also be purchased at net asset value by a
corporation 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
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
<PAGE>
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 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% 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.
<PAGE>
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. The payment
of 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. 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 balanced; (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. ("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.
<PAGE>
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 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
<PAGE>
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.
From time to time, affiliates of broker-dealers who offer and sell the
Fund's shares may make various benefits available to persons who purchase Fund
shares through such affiliate's cash management or similar type accounts. Such
benefits may include gifts of merchandise, services, or cash which is used to
purchase additional Fund 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 investors 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 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).
<PAGE>
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 5:30 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 sections 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
<PAGE>
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 $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
<PAGE>
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 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
<PAGE>
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.
Shares purchased under the Systematic Investment Plan or Telephone Investment
Plan may not be redeemed for ten days from the date of investment.
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
<PAGE>
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 an Evergreen 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 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
<PAGE>
Plans; 403(b)(7) Plans; 401(k) Plans; Keogh Plans; Profit- Sharing Plans;
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, 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
<PAGE>
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 it does 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 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
<PAGE>
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.
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 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
<PAGE>
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.
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 and Class C 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
<PAGE>
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 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
<PAGE>
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 , 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 , 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.....................................14
Organization..................................................14
Service Providers.............................................15
PURCHASE AND REDEMPTION OF SHARES......................................17
How to Buy Shares.............................................17
How to Redeem Shares .........................................18
Exchange Privilege............................................20
Shareholder Services..........................................22
Banking Laws..................................................23
OTHER INFORMATION......................................................24
Dividends, Distributions and Taxes............................24
General Information...........................................26
<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
Maximum 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 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 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 Baa), 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 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
special consideration. 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. The Fund's investment adviser will
waive its investment advisory fee on assets invested in securities of other
open-end investment companies.
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. Securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, which have been determined to be
liquid, will not be considered by the Fund's investment adviser to be illiquid
or not readily marketable
<PAGE>
and, therefore, are not subject to the aforementioned 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.
The liquidity of securities purchased by the Fund which are eligible for resale
pursuant to Rule 144A will be monitored by the Fund's investment adviser on an
ongoing basis, subject to the oversight of the Board of Trustees. In the event
that such a security is deemed to be no longer liquid, the Fund's holdings will
be reviewed to determine what action, if any, is required to ensure that the
retention of such security does not result in the Fund having more than 15% of
its net assets invested in illiquid or not readily marketable 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.
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
<PAGE>
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.
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.
<PAGE>
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 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
<PAGE>
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 transactions, 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.
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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
Fund Structure. The Fund is an investment pool, which invests shareholders'
money towards 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 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.
<PAGE>
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 and has been a portfolio manager since 1981.
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Fund. As administrator, and subject to the supervision and control of the
Trustees, EIS provides the Fund with facilities, equipment and personnel. For
its services as administrator, EIS is entitled to receive a fee based on the
aggregate average daily net assets of the Fund at a rate based on the total
assets of all the mutual funds advised by First Union Corporation subsidiaries.
The administration fee is calculated in accordance with the following schedule:
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
Sub-administrator
BISYS Fund Services serves as sub-administrator to the Fund. For its
services, BISYS Fund Services is entitled to receive a fee from EIS calculated
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-administration
fee is calculated in accordance with the following schedule:
Sub-Administration Fee
<PAGE>
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
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
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, (2) certain institutional investors and (3)
investment advisory clients of FUNB, Evergreen Asset Management Corp.
("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
<PAGE>
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 reimburse the Fund or its investment
adviser for any loss. In addition, such investors 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
<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. 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 5:30 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 sections 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
<PAGE>
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 $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
<PAGE>
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 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,
<PAGE>
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.
Shares purchased under the Systematic Investment Plan or Telephone Investment
Plan may not be redeemed for ten days from the date of investment.
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
<PAGE>
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 an Evergreen 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 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; 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.
<PAGE>
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, 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
<PAGE>
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 it does 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 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
<PAGE>
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 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.
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.
Performance Information. From time to time, the Fund may quote
<PAGE>
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 and Class C 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>
EVERGREEN DOMESTIC EQUITY FUNDS
200 BERKELEY STREET, BOSTON, MASSACHUSETTS
(800) 343-2898
STATEMENT OF ADDITIONAL INFORMATION DATED
NOVEMBER __, 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
________, 1997, as supplemented from time to time. You may obtain a copy of the
prospectuses from the Fund's distributor, Evergreen Distributor, Inc.
22172
1
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES........................................................3
Investment Restrictions And Guidelines............................8
MANAGEMENT OF THE TRUST...................................................10
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......................12
INVESTMENT ADVISORY AND OTHER SERVICES....................................12
Investment Advisory Services.....................................12
Distribution Plans...............................................13
Additional Service Providers.....................................14
BROKERAGE ALLOCATION AND OTHER PRACTICES..................................15
Selection of Brokers.............................................15
Brokerage Commissions............................................15
General Brokerage Policies.......................................15
ORGANIZATION..............................................................15
Form of Organization.............................................15
Description of Shares............................................15
Voting Rights....................................................16
Limitation of Trustees' Liability................................16
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED..............16
How the Fund Offers Shares to the Public.........................16
Sales Charge Waivers or Reductions...............................18
Exchanges........................................................19
How The Fund Values its Shares...................................20
Shareholder Services.............................................20
PRINCIPAL UNDERWRITER.....................................................21
ADDITIONAL TAX INFORMATION................................................22
CALCULATION OF PERFORMANCE DATA...........................................21
ADDITIONAL INFORMATION....................................................22
Other Information................................................22
FINANCIAL STATEMENTS......................................................22
APPENDIX A................................................................23
22172
2
<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; and
(vi) 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.
22172
3
<PAGE>
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.
22166
4
<PAGE>
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.
22166
5
<PAGE>
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.
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.
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.
"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,
22166
6
<PAGE>
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.
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 invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in a particular
industry. This restriction does not apply to securities that are issued or
guaranteed by the United States government or its agencies or instrumentalities.
22166
7
<PAGE>
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 and the guidelines set forth in the Fund's prospectuses and SAI,
as they may be amended from time to time.
UNDERWRITING SECURITIES ISSUED BY OTHER PERSONS
The Fund may not underwrite securities issued by other persons, except
insofar as the Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
REAL ESTATE
The Fund may not buy or sell real estate, except that, to the extent
permitted by law, the Fund may invest in (a) securities that are directly or
indirectly secured by real estate, or (b) securities issued by companies that
invest in real estate.
COMMODITIES
The Fund may not purchase or sell physical commodities or contracts on
commodities, except that the Fund may engage in financial futures contacts and
related options and currency contracts and related options on such contracts and
may otherwise do so in accordance with applicable law and the Fund's prospectus
and SAI, and without registering as a commodity pool operator under the
Commodity Exchange Act.
LOANS TO OTHER PERSONS
The Fund may lend its portfolio securities to the extent permitted by
applicable law and the guidelines set forth in its current prospectuses and SAI.
Otherwise, the Fund may not make loans to other persons. The Fund does not
consider the acquistion of investment instruments in accordance with the Fund's
prospectuses and SAI 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.
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.
22166
8
<PAGE>
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.
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).
22159
11
<PAGE>
NAME AND DATE OF BIRTH POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
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.
22159
12
<PAGE>
NAME AND DATE OF BIRTH POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
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 are the Trustees of the Trust who received more than
$60,000 in aggregate compensation from the Evergreen mutual fund complex during
the fiscal period May 1, 1996 through April 30, 1997. The table also lists the
aggregate compensation received by each such Trustees.
Aggregate Compensation Received From Evergreen
Trustee Mutual Fund Complex
- ----------------------------- -----------------------------------------------
James. S. Howell $76,875
Russell A. Salton, III MD $71,325
Michael S. Scofield $71,325
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.
22166
11
<PAGE>
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
Keystone'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 each Adviser (the "Advisory Agreements") . Under the
Advisory Agreements, 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 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
22166
12
<PAGE>
reports with the Securities and Exchange Commission 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.
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 each
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 each 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.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the 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 each 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
22166
13
<PAGE>
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 a 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 a 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 Evergreen Distributor, Inc., the distributor
of the Fund.
22166
14
<PAGE>
TRANSFER AGENT
Evergreen Service Company, 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.
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.
22166
15
<PAGE>
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 Fund'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.
22166
16
<PAGE>
VOTING RIGHTS
The Trust does not hold annual shareholder meetings; the Trust 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 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.
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 Fund's 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:
22166
17
<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 Evergreen
Service Company ("ESC"), the Fund's transfer and dividend disbursing agent.)
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 Management Corp., 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.
22166
18
<PAGE>
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;
22166
19
<PAGE>
7. employees of FUNB, 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 purchased 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.
22166
20
<PAGE>
HOW THE FUND VALUES ITS SHARES
HOW AND WHEN THE FUND CALCULATES ITS NET ASSET VALUE PER SHARE ("NAV")
The Fund computes its net asset value 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 per share 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, Evergreen Service Company, the Fund's transfer agent, 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.
22166
21
<PAGE>
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 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
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("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 regulated investment company, a 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
22238
22
<PAGE>
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; 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, a 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 a Fund to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each 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). 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 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 a Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and a 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 a Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on a 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,
22238
23
<PAGE>
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. 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 exchanges 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 not allow a shareholder to realize a
loss on the sale of Fund shares held by the shareholder for six months or less
to the extent the shareholder received exempt interest dividends on such shares.
Moreover, the Code will treat the shareholder's loss 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 a 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
a 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 a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (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.
22238
24
<PAGE>
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 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.
22238
25
<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 Corporation ("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 Investor 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.
22238
26
<PAGE>
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.
22238
27
<PAGE>
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:
22238
28
<PAGE>
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
22238
29
<PAGE>
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.
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.
22238
30
<PAGE>
EVERGREEN SPECIALTY GROWTH AND BALANCED FUNDS
200 BERKELEY STREET, BOSTON, MASSACHUSETTS
(800) 343-2898
STATEMENT OF ADDITIONAL INFORMATION DATED
NOVEMBER __, 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
________, 1997, as supplemented from time to time. You may obtain a copy of the
prospectus from the Fund's distributor, Evergreen Distributor, Inc.
22171
1
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES......................................................3
Investment Restrictions And Guidelines .........................8
MANAGEMENT OF THE TRUST.................................................10
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.....................12
INVESTMENT ADVISORY AND OTHER SERVICES..................................12
Investment Advisory Services...................................12
Distribution Plans.............................................13
Additional Service Providers...................................14
BROKERAGE ALLOCATION AND OTHER PRACTICES................................15
Selection of Brokers...........................................15
Brokerage Commissions..........................................15
General Brokerage Policies.....................................15
ORGANIZATION............................................................15
Form of Organization...........................................15
Description of Shares..........................................15
Voting Rights..................................................16
Limitation of Trustees' Liability..............................16
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED............16
How the Fund Offers Shares to the Public.......................16
Sales Charge Waivers or Reductions.............................18
Exchanges......................................................19
How The Fund Values its Shares.................................20
Shareholder Services...........................................20
PRINCIPAL UNDERWRITER...................................................21
ADDITIONAL TAX INFORMATION. . . . . . . . . . . . . . . . . . . . .. . 21
22171
2
<PAGE>
CALCULATION OF PERFORMANCE DATA........................................21
ADDITIONAL INFORMATION.................................................22
Other Information.............................................22
FINANCIAL STATEMENTS...................................................22
APPENDIX A............................................................A-1
22171
3
<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
22171
4
<PAGE>
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
22166
5
<PAGE>
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.
22166
6
<PAGE>
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.
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.
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.
"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
22166
7
<PAGE>
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.
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
22166
8
<PAGE>
The Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in a particular
industry. This restriction does not apply to securities that are issued or
guaranteed by the United States 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 and the guidelines set forth in the Fund's prospectus and SAI, as
they may be amended from time to time.
UNDERWRITING SECURITIES ISSUED BY OTHER PERSONS
The Fund may not underwrite securities issued by other persons, except
insofar as the Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
REAL ESTATE
The Fund may not buy or sell real estate, except that, to the extent
permitted by law, the Fund may invest in (a) securities that are directly or
indirectly secured by real estate, or (b) securities issued by companies that
invest in real estate.
COMMODITIES
The Fund may not purchase or sell physical commodities or contracts on
commodities, except that the Fund may engage in financial futures contacts and
related options and currency contracts and related options on such contracts and
may otherwise do so in accordance with applicable law and the Fund's
prospectuses and SAI, and without registering as a commodity pool operator under
the Commodity Exchange Act.
LOANS TO OTHER PERSONS
The Fund may lend its portfolio securities to the extent permitted by
applicable law and the guidelines set forth in its current prospectuses and SAI.
Otherwise, the Fund may not make loans to other persons. The Fund does not
consider the acquistion of investment instruments in accordance with the Fund's
prospectuses and SAI 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.
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.
22166
9
<PAGE>
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.
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).
22159
11
<PAGE>
NAME AND DATE OF BIRTH POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
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.
22159
12
<PAGE>
NAME AND DATE OF BIRTH POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
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 are the Trustees of the Trust who received more than
$60,000 in aggregate compensation from the Evergreen Mutual fund complex during
the fiscal period May 1, 1996 through April 30, 1997. The table also lists the
the aggregate compensation received by each such Trustees.
Aggregate Compensation Received From Evergreen
Trustee Mutual Fund Complex
- ------------------------------- ----------------------------------------------
James. S. Howell $76,875
Russell A. Salton, III MD $71,325
Michael S. Scofield $71,325
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
22166
12
<PAGE>
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 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 Securities and Exchange Commission 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
22166
13
<PAGE>
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.
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 each
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 each 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.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the 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 each 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
22166
14
<PAGE>
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 a 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 a 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 Evergreen Distributor, Inc., the
distributor of the Fund.
TRANSFER AGENT
Evergreen Service Company, 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.
22166
15
<PAGE>
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
22166
16
<PAGE>
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 Fund'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.
22166
17
<PAGE>
VOTING RIGHTS
The Trust does not hold annual shareholder meetings; the Trust 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 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.
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 Fund 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
18
<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 Evergreen
Service Company ("ESC"), the Fund's transfer and dividend disbursing agent.)
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.
22166
19
<PAGE>
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
22166
20
<PAGE>
with the Fund by the broker-dealer;
7. employees of the Adviser, 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 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 Fund's
Board of Trustees of the Trust reserves the right to discontinue, alter or limit
the exchange privilege at any time.
22166
21
<PAGE>
HOW THE FUND VALUES ITS SHARES
HOW AND WHEN THE FUND CALCULATES ITS NET ASSET VALUE PER SHARE ("NAV")
The Fund computes its net asset value 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 per share 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.
22166
22
<PAGE>
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
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("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 regulated investment company, a 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
22238
23
<PAGE>
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; 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, a 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 a Fund to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each 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 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 a Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and a 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 a Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on a 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.
22238
24
<PAGE>
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. 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 exchanges 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 not allow a shareholder to realize a
loss on the sale of Fund shares held by the shareholder for six months or less
to the extent the shareholder received exempt interest dividends on such shares.
Moreover, the Code will treat the shareholder's loss 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 a 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
a 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 a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (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.
22238
25
<PAGE>
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 Securities and
Exchange Commissions 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.
22238
26
<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.
22238
A-1
<PAGE>
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.
22238
A-2
<PAGE>
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:
22238
A-3
<PAGE>
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
22238
A-4
<PAGE>
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.
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.
22238
A-5
EVERGREEN EQUITY TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements (To be filed by amendment).
Statement of Assets and Liabilities as of , 1997
Report of Independent Auditors
(b) Exhibits. Each of the Exhibits listed below, except as indicated, is
filed herewith.
Exhibit Description
Number -----------
- -------
1 Declaration of Trust
2 By-laws
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 (To be filed
by amendment)
6(a) Form of Principal Underwriting Agreement
between the Registrant and Evergreen
Distributor, Inc. (To be filed by amendment)
6(b) Form of Dealer Agreement for Class A, Class B and Class C
shares used by Evergreen Distributor, Inc. (To be filed by
amendment)
7 Deferred Compensation Plan (To be filed by
amendment)
8 Form of Custodian Agreement between the
Registrant and State Street Bank and Trust
Company (To be filed by amendment)
9(a) Form of Administration Agreement between
Evergreen Investment Services, Inc. and the
Registrant (To be filed by amendment)
<PAGE>
Exhibit Description
Number -----------
- -------
9(b) Form of Sub-Administrator Agreement between
BISYS Fund Services and Evergreen Investment
Services, Inc. (To be filed by amendment)
9(c) Form of Transfer Agent Agreement between the Registrant and
Evergreen Service Company (To be filed by amendment)
10 Opinion and Consent of Sullivan & Worcester
LLP (To be filed by amendment)
11 Independent Auditors' Consent (To be filed
by amendment)
12 Not applicable.
13 Subscription Agreement (To be filed by
amendment)
14 Retirement Plans (To be filed by amendment) 15 Distribution
Plans for Class A, Class B and Class C (To be filed by
amendment) 16 Not applicable.
17 Not applicable.
18 Multiple Class Plan (To be filed by
amendment)
19 Powers of Attorney
Item 25. Persons Controlled by or Under Common Control with
Registrant.
None
Item 26. Number of Holders of Securities (as of September 18,
1997).
Number of Record
Title of Class Shareholders
Shares of Beneficial
Interest without par
value:
Evergreen Small Company
Growth Fund 0
Evergreen Balanced Fund 0
Item 27. Indemnification.
Provisions for the indemnification of the
<PAGE>
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
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
<PAGE>
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:
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,
<PAGE>
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,
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.
<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 7th day of October, 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 7th day of October,
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
- ----------------------
Gerald M. McDonnell
<PAGE>
/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.
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
of
EVERGREEN EQUITY TRUST
a Delaware Business Trust
Principal Place of Business:
200 Berkeley Street
Boston, Massachusetts 02116
Agent for Service of
Process in Delaware:
Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
<PAGE>
TABLE OF CONTENTS
AGREEMENT AND DECLARATION OF TRUST
ARTICLE I Name and Definitions..............................1
1. Name ..................................................1
2. Definitions.................................................1
(a) By-Laws...........................................1
(b) Certificate of Trust..............................1
(c) Class.............................................1
(d) Commission........................................2
(e) Declaration of Trust..............................2
(f) Delaware Act......................................2
(g) Interested Person.................................2
(h) Adviser(s)........................................2
(i) 1940 Act..........................................2
(j) Person............................................2
(k) Principal Underwriter.............................2
(l) Series............................................2
(m) Shareholder.......................................2
(n) Shares............................................2
(o) Trust.............................................2
(p) Trust Property....................................2
(q) Trustees..........................................2
ARTICLE II Purpose of Trust..................................3
ARTICLE III Shares............................................3
1. Division of Beneficial Interest.............................3
2. Ownership of Shares.........................................4
3. Transfer of Shares..........................................4
4. Investments in the Trust....................................5
5. Status of Shares and Limitation of Personal
Liability.........................................................5
6. Establishment, Designation, Abolition or
Termination, etc. of Series or Class........................5
(a) Assets Held with Respect to a
Particular Series............................................5
(b) Liabilities Held with Respect to a
Particular Series............................................6
(c) Dividends, Distributions, Redemptions,
and Repurchases...................................7
(d) Equality..........................................7
(e) Fractions.........................................7
(f) Exchange Privilege................................7
(g) Combination of Series.............................7
<PAGE>
ARTICLE IV Trustees..........................................8
1. Number, Election, and Tenure................................8
2. Effect of Death, Resignation, etc. of a Trustee.............8
3. Powers......................................................9
4. Payment of Expenses by the Trust............................12
5. Payment of Expenses by Shareholders.........................13
6. Ownership of Assets of the Trust............................13
7. Service Contracts...........................................13
8. Trustees and Officers as Shareholders.......................14
9. Compensation................................................15
ARTICLE V Shareholders' Voting Powers and Meetings..........15
1. Voting Powers, Meetings, Notice and Record Dates............15
2. Quorum and Required Vote....................................15
3. Record Dates................................................16
4. Additional Provisions.......................................16
ARTICLE VI Net Asset Value, Distributions and
Redemptions.......................................16
1. Determination of Net Asset Value, Net Income
and Distributions...........................................16
2. Redemptions and Repurchases.................................16
ARTICLE VII Limitation of Liability; Indemnification..........17
1. Trustees, Shareholders, etc. Not Personally
Liable; Notice..............................................17
2. Trustees' Good Faith Action; Expert Advice;
No Bond or Surety...........................................18
3. Indemnification of Shareholders.............................19
4. Indemnification of Trustees, Officers, etc..................19
5. Compromise Payment..........................................20
6. Indemnification Not Exclusive, etc..........................20
7. Liability of Third Persons Dealing with Trustees............20
8. Insurance...................................................21
ARTICLE VIII Miscellaneous
1. Termination of the Trust or Any Series or Class.............21
2. Reorganization..............................................21
3. Amendments..................................................22
4. Filing of Copies; References; Headings......................23
5. Applicable Law..............................................23
6. Provisions in Conflict with Law or Regulations..............24
7. Business Trust Only.........................................24
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
EVERGREEN EQUITY TRUST
THIS AGREEMENT AND DECLARATION OF TRUST is made and entered into as of
the date set forth below by the Trustees named hereunder for the purpose of
forming a Delaware business trust in accordance with the provisions hereinafter
set forth.
NOW, THEREFORE, the Trustees hereby direct that the Certificate of
Trust be filed with the Office of the Secretary of State of the State of
Delaware and do hereby declare that the Trustees will hold IN TRUST all cash,
securities, and other assets which the Trust now possesses or may hereafter
acquire from time to time in any manner and manage and dispose of the same upon
the following terms and conditions for the benefit of the holders of Shares of
this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as Evergreen Equity Trust
and the Trustees shall conduct the business of the Trust under that name or any
other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) "Adviser(s)" means a party or parties furnishing services to the
Trust pursuant to any investment advisory or investment management contract
described in Article IV, Section 6(a) hereof;
(b) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time, which By-Laws are expressly herein incorporated by reference as part of
the "governing instrument" within the meaning of the Delaware Act;
(c) "Certificate of Trust" means the certificate of trust, as amended
or restated from time to time, filed by the Trustees in the Office of the
Secretary of State of the State of Delaware in accordance with the Delaware Act;
<PAGE>
(d) "Class" means a class of Shares of a Series of the Trust
established in accordance with the provisions of Article III hereof;
(e) "Commission" shall have the meaning given such term in the 1940
Act;
(f) "Declaration of Trust" means this Agreement and Declaration of
Trust, as amended or restated from time to time;
(g) "Delaware Act" means the Delaware Business Trust Act,
12 Del. C. ss.ss. 3801 et seq., as amended from time to time;
(h) "Interested Person" shall have the meaning given it in Section
2(a)(19) of the 1940 Act;
(i) "1940 Act" means the Investment Company Act of 1940 and the rules
and regulations thereunder, all as amended from time to time;
(j) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates, and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof, whether domestic or foreign;
(k) "Principal Underwriter" shall have the meaning given such term in
the 1940 Act;
(l) "Series" means each Series of Shares established and designated
under or in accordance with the provisions of Article III hereof; and where the
context requires or where appropriate, shall be deemed to include "Class" or
"Classes";
(m) "Shareholder" means a record owner of outstanding Shares;
(n) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares;
(o) "Trust" means the Delaware Business Trust established under the
Delaware Act by this Declaration of Trust and the filing of the Certificate of
Trust in the Office of the Secretary of State of the State of Delaware;
<PAGE>
(p) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is from time to time owned or held by or for the
account of the Trust; and
(q) "Trustees" means the Person or Persons who have signed this
Declaration of Trust and all other Persons who may from time to time be duly
elected or appointed to serve as Trustees in accordance with the provisions
hereof, in each case so long as such Person shall continue in office in
accordance with the terms of this Declaration of Trust, and reference herein to
a Trustee or the Trustees shall refer to such Person or Persons in his or her or
their capacity as Trustees hereunder.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the
business of an investment company registered under the 1940 Act through one or
more Series and to carry on such other business as the Trustees may from time to
time determine. The Trustees shall not be limited by any law limiting the
investments which may be made by fiduciaries.
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in
the Trust shall be divided into one or more Series. The Trustees may divide each
Series into Classes. Subject to the further provisions of this Article III and
any applicable requirements of the 1940 Act, the Trustees shall have full power
and authority, in their sole discretion, and without obtaining any authorization
or vote of the Shareholders of any Series or Class thereof, (i) to divide the
beneficial interest in each Series or Class thereof into Shares, with or without
par value as the Trustees shall determine, (ii) to issue Shares without
limitation as to number (including fractional Shares) to such Persons and for
such amount and type of consideration, including cash or securities, subject to
any restriction set forth in the By-Laws, at such time or times and on such
terms as the Trustees may deem appropriate, (iii) to establish and designate and
to change in any manner any Series or Class thereof and to fix such preferences,
voting powers, rights, duties and privileges and business purpose of each Series
or Class thereof as the Trustees may from time to time determine, which
preferences, voting powers, rights, duties and
<PAGE>
privileges may be senior or subordinate to (or in the case of business purpose,
different from) any existing Series or Class thereof and may be limited to
specified property or obligations of the Trust or profits and losses associated
with specified property or obligations of the Trust, (iv) to divide or combine
the Shares of any Series or Class thereof into a greater or lesser number
without thereby materially changing the proportionate beneficial interest of the
Shares of such Series or Class thereof in the assets held with respect to that
Series, (v) to classify or reclassify any issued Shares of any Series or Class
thereof into shares of one or more Series or Classes thereof; (vi) to change the
name of any Series or Class thereof; (vii) to abolish or terminate any one or
more Series or Classes thereof; (viii) to refuse to issue Shares to any Person
or class of Persons; and (ix) to take such other action with respect to the
Shares as the Trustees may deem desirable.
Subject to the distinctions permitted among Classes of the same Series
as established by the Trustees, consistent with the requirements of the 1940
Act, each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series, and each holder of Shares of a Series
shall be entitled to receive such Shareholder's pro rata share of distributions
of income and capital gains, if any, made with respect to such Series and upon
redemption of the Shares of any Series, such Shareholder shall be paid solely
out of the funds and property of such Series of the Trust.
All references to Shares in this Declaration of Trust shall be deemed
to be Shares of any or all Series or Classes thereof, as the context may
require. All provisions herein relating to the Trust shall apply equally to each
Series of the Trust and each Class thereof, except as the context otherwise
requires.
All Shares issued hereunder, including, without limitation, Shares
issued in connection with a dividend or other distribution in Shares or a split
or reverse split of Shares, shall be fully paid and nonassessable. Except as
otherwise provided by the Trustees, Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded
on the books of the Trust or those of a transfer or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series or
Class of the Trust. No certificates certifying the ownership
<PAGE>
of Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares of each Series or
Class of the Trust and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent, as the case may be, shall be
conclusive as to the identity of the Shareholders of each Series or Class of the
Trust and as to the number of Shares of each Series or Class of the Trust held
from time to time by each Shareholder.
Section 3. Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the books of the Trust only by the
record holder thereof or by his or her duly authorized agent upon delivery to
the Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence of the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-Laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the holder of record of Shares shall be deemed to be
the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee, or
agent of the Trust, shall be affected by any notice of a proposed transfer.
Section 4. Investments in the Trust. Investments may be accepted by the
Trust from Persons, at such times, on such terms, and for such consideration as
the Trustees from time to time may authorize.
Section 5. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided
in this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof. The
death, incapacity, dissolution, termination, or bankruptcy of a Shareholder
during the existence of the Trust shall not operate to terminate the Trust, nor
entitle the representative of any such Shareholder to an accounting or to take
any action in court or elsewhere against the Trust or the Trustees, but shall
entitle such representative only to the rights of such Shareholder under this
Trust. Ownership of Shares shall not entitle the Shareholder to any title in or
to the whole or any part of the Trust Property or any right to call for a
participation or division of the same or for an accounting, nor shall the
ownership of Shares constitute the
<PAGE>
Shareholders as partners. No Shareholder shall be personally liable for the
debts, liabilities, obligations and expenses incurred by, contracted for, or
otherwise existing with respect to, the Trust or any Series. Neither the Trust
nor the Trustees, nor any officer, employee, or agent of the Trust shall have
any power to bind personally any Shareholder, nor, except as specifically
provided herein, to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay.
Section 6. Establishment, Designation, Abolition or Termination etc. of
Series or Class. The establishment and designation of any Series or Class of
Shares of the Trust shall be effective upon the adoption by a majority of the
Trustees then in office of a resolution that sets forth such establishment and
designation and the relative rights and preferences of such Series or Class of
the Trust, whether directly in such resolution or by reference to another
document including, without limitation, any registration statement of the Trust,
or as otherwise provided in such resolution. The abolition or termination of any
Series or Class of Shares of the Trust shall be effective upon the adoption by a
majority of the Trustees then in office of a resolution that abolishes or
terminates such Series or Class.
Shares of each Series or Class of the Trust established pursuant to
this Article III, unless otherwise provided in the resolution establishing such
Series or Class, shall have the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof from whatever source derived
(including, without limitation, any proceeds derived from the sale, exchange or
liquidation of such assets and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be) shall
irrevocably be held separate with respect to that Series for all purposes, and
shall be so recorded upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits and proceeds thereof, from whatever source
derived, (including, without limitation) any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds), in whatever form the same may be, are herein
referred to as "assets held with respect to" that Series. In the event that
there are any assets, income, earnings, profits
<PAGE>
and proceeds thereof, funds or payments which are not readily identifiable as
assets held with respect to any particular Series (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or among
any one or more of the Series in such manner and on such basis as the Trustees,
in their sole discretion, deem fair and equitable, and any General Assets so
allocated to a particular Series shall be held with respect to that Series. Each
such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes. Separate and distinct records shall
be maintained for each Series and the assets held with respect to each Series
shall be held and accounted for separately from the assets held with respect to
all other Series and the General Assets of the Trust not allocated to such
Series.
(b) Liabilities Held with Respect to a Particular Series. The assets of
the Trust held with respect to each particular Series shall be charged against
the liabilities of the Trust held with respect to that Series and all expenses,
costs, charges, and reserves attributable to that Series, except that
liabilities and expenses allocated solely to a particular Class shall be borne
by that Class. Any general liabilities of the Trust which are not readily
identifiable as being held with respect to any particular Series or Class shall
be allocated and charged by the Trustees to and among any one or more of the
Series or Classes in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. All liabilities, expenses, costs, charges,
and reserves so charged to a Series or Class are herein referred to as
"liabilities held with respect to" that Series or Class. Each allocation of
liabilities, expenses, costs, charges, and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series or Classes for all
purposes. Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets held with respect to such Series only and not
against the assets of the Trust generally or against the assets held with
respect to any other Series. Notice of this contractual limitation on
liabilities among Series may, in the Trustees' discretion, be set forth in the
Certificate of Trust and upon the giving of such notice in the Certificate of
Trust, the statutory provisions of Section 3804 of the Delaware Act relating to
limitations on liabilities among Series (and the statutory effect under Section
3804 of setting forth such notice in the certificate of trust) shall become
applicable to the Trust and each
<PAGE>
Series. Any person extending credit to, contracting with or having any claim
against any Series may look only to the assets of that Series to satisfy or
enforce any debt, with respect to that Series. No Shareholder or former
Shareholder of any Series shall have a claim on or any right to any assets
allocated or belonging to any other Series.
(c) Dividends, Distributions. Redemptions, and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust, including,
without limitation, Article Vl, no dividend or distribution, including, without
limitation, any distribution paid upon termination of the Trust or of any Series
or Class with respect to, nor any redemption or repurchase of, the Shares of any
Series or Class, shall be effected by the Trust other than from the assets held
with respect to such Series, nor shall any Shareholder or any particular Series
or Class otherwise have any right or claim against the assets held with respect
to any other Series except to the extent that such Shareholder has such a right
or claim hereunder as a Shareholder of such other Series. The Trustees shall
have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items shall be treated as income and which items as capital, and
each such determination and allocation shall be conclusive and binding upon the
Shareholders.
(d) Equality. All the Shares of each particular Series shall represent
an equal proportionate interest in the assets held with respect to that Series
(subject to the liabilities held with respect to that Series or Class thereof
and such rights and preferences as may have been established and designated with
respect to any Class within such Series), and each Share of any particular
Series shall be equal to each other Share of that Series. With respect to any
Class of a Series, each such Class shall represent interests in the assets held
with respect to that Series and shall have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
expenses allocated to a Class may be borne solely by such Class as determined by
the Trustees and a Class may have exclusive voting rights with respect to
matters affecting only that Class.
(e) Fractions. Any fractional Share of a Series or Class thereof shall
carry proportionately all the rights and obligations of a whole Share of that
Series or Class, including rights with respect to voting, receipt of dividends
and distributions, redemption of Shares and termination of the Trust.
<PAGE>
(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have the right
to exchange said Shares for Shares of one or more other Series of Shares or
Class of Shares of the Trust or of other investment companies registered under
the 1940 Act in accordance with such requirements and procedures as may be
established by the Trustees.
(g) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series or Class unless otherwise
required by applicable law, to combine the assets and liabilities held with
respect to any two or more Series or Classes into assets and liabilities held
with respect to a single Series or Class.
ARTICLE IV
Trustees
Section 1. Number, Election and Tenure. The number of Trustees shall
initially be 12, who shall be Laurence B. Ashkin, Charles A. Austin, III, K. Dun
Gifford, James S. Howell, Leroy Keith, Jr., Gerald M. McDonnell, Thomas L.
McVerry, David M. Richardson, Russell A. Salton, III, Michael S. Scofield,
Richard J. Shima, and William W. Pettit. Thereafter, the number of Trustees
shall at all times be at least one and no more than such number as determined,
from time to time, by the Trustees pursuant to Section 3 of this Article IV.
Each Trustee shall serve during the lifetime of the Trust until he or she dies,
resigns, has reached any mandatory retirement age as set by the Trustees, is
declared bankrupt or incompetent by a court of appropriate jurisdiction, or is
removed, or, if sooner, until the next meeting of Shareholders called for the
purpose of electing Trustees and until the election and qualification of his or
her successor. In the event that less than a majority of the Trustees holding
office have been elected by the Shareholders, the Trustees then in office shall
take such actions as may be necessary under applicable law for the election of
Trustees. Any Trustee may resign at any time by written instrument signed by him
or her and delivered to any officer of the Trust or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. Except to the extent expressly provided in a
written agreement with the Trust, no Trustee resigning and no Trustee removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal. The
Shareholders may elect Trustees at any meeting of Shareholders called by
<PAGE>
the Trustees for that purpose. Any Trustee may be removed at any meeting of
Shareholders by a vote of two-thirds of the outstanding Shares of the Trust.
Section 2. Effect of Death. Resignation. etc. of a Trustee. The death,
declination to serve, resignation, retirement, removal or incapacity of one or
more Trustees, or all of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
Whenever there shall be fewer than the designated number of Trustees, until
additional Trustees are elected or appointed as provided herein to bring the
total number of Trustees equal to the designated number, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust. As conclusive evidence of such vacancy, a written instrument
certifying the existence of such vacancy may be executed by an officer of the
Trust or by a majority of the Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then Trustees within
a short period of time and without the opportunity for at least one Trustee
being able to appoint additional Trustees to replace those no longer serving,
the Trust's Adviser(s) are empowered to appoint new Trustees subject to the
provisions of the 1940 Act.
Section 3. Powers. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees, and the
Trustees shall have all powers necessary or convenient to carry out that
responsibility including the power to engage in transactions of all kinds on
behalf of the Trust as described in this Declaration of Trust. Without limiting
the foregoing, the Trustees may: adopt By-Laws not inconsistent with this
Declaration of Trust providing for the management of the affairs of the Trust
and may amend and repeal such By-Laws to the extent that such By-Laws do not
reserve that right to the Shareholders; enlarge or reduce the number of
Trustees; remove any Trustee with or without cause at any time by written
instrument signed by at least two-thirds of the number of Trustees prior to such
removal, specifying the date when such removal shall become effective, and fill
vacancies caused by enlargement of their number or by the death, resignation,
retirement or removal of a Trustee; elect and remove, with or without cause,
such officers and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and terminate one or
more committees, consisting of two or more Trustees, that may exercise the
powers and authority of the Board of Trustees to the extent
<PAGE>
that the Trustees so determine; employ one or more custodians of the assets of
the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities or with a Federal Reserve Bank; employ an administrator
for the Trust and may authorize such administrator to employ subadministrators;
employ an investment adviser or investment advisers to the Trust and may
authorize such Advisers to employ subadvisers; retain a transfer agent or a
shareholder servicing agent, or both; provide for the issuance and distribution
of Shares by the Trust directly or through one or more Principal Underwriters or
otherwise; redeem, repurchase and transfer Shares pursuant to applicable law;
set record dates for the determination of Shareholders with respect to various
matters; declare and pay dividends and distributions to Shareholders of each
Series from the assets of such Series; and in general delegate such authority as
they consider desirable to any officer of the Trust, to any committee of the
Trustees and to any agent or employee of the Trust or to any such custodian,
transfer or shareholder servicing agent, or Principal Underwriter. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of this
Declaration of Trust, the presumption shall be in favor of a grant of power to
the Trustees. Unless otherwise specified herein or in the By-Laws or required by
law, any action by the Trustees shall be deemed effective if approved or taken
by a majority of the Trustees present at a meeting of Trustees at which a quorum
of Trustees is present, within or without the State of Delaware.
Without limiting the foregoing, the Trustees shall have the power and
authority to cause the Trust (or to act on behalf of the Trust):
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold,
pledge, sell, assign, transfer, exchange, distribute, write options on, lend or
otherwise deal in or dispose of contracts for the future acquisition or delivery
of fixed income or other securities, and securities of every nature and kind,
including, without limitation, all types of bonds, debentures, stocks,
negotiable or non-negotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial papers,
repurchase agreements, bankers' acceptances, and other securities of any kind,
issued, created, guaranteed, or sponsored by any and all Persons, including
without limitation, states, territories, and possessions of the United States
and the District of Columbia
<PAGE>
and any political subdivision, agency, or instrumentality thereof, any foreign
government or any political subdivision of the United States Government or any
foreign government, or any international instrumentality, or by any bank or
savings institution, or by any corporation or organization organized under the
laws of the United States or of any state, territory, or possession thereof, or
by any corporation or organization organized under any foreign law, or in "when
issued" contracts for any such securities, to change the investments of the
assets of the Trust; and to exercise any and all rights, powers, and privileges
of ownership or interest in respect of any and all such investments of every
kind and description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more Persons
to exercise any of said rights, powers, and privileges in respect of any of said
instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options (including, options on futures contracts) with respect to or
otherwise deal in any property rights relating to any or all of the assets of
the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such Person or Persons as the Trustees shall
deem proper, granting to such Person or Persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its own
name or in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
<PAGE>
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including, but not limited to,
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes and in connection therewith to issue notes or
other evidences of indebtedness; and to mortgage and pledge the Trust Property
or any part thereof to secure any or all of such indebtedness;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust Property or any part thereof to secure any of or all of such obligations;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust or payment of distributions and principal on its portfolio
investments, and insurance polices insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters, or
independent contractors of the Trust, individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such Person as Trustee, officer, employee, agent,
investment adviser, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such Person against
liability;
(m) To adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift
<PAGE>
and other retirement, incentive and benefit plans and trusts, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust;
(n) To operate as and carry out the business of an investment company,
and exercise all the powers necessary or appropriate to the conduct of such
operations;
(o) To enter into contracts of any kind and description;
(p) To employ as custodian of any assets of the Trust one or more
banks, trust companies or companies that are members of a national securities
exchange or such other entities as the Commission may permit as custodians of
the Trust, subject to any conditions set forth in this Declaration of Trust or
in the By-Laws;
(q) To employ auditors, counsel or other agents of the Trust, subject
to any conditions set forth in this Declaration of Trust or in the By-Laws;
(r) To interpret the investment policies, practices, or
limitations of any Series or Class;
(s) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article
III;
(t) To the full extent permitted by the Delaware Act, to allocate
assets, liabilities and expenses of the Trust to a particular Series and Class
or to apportion the same between or among two or more Series or Classes,
provided that any liabilities or expenses incurred by a particular Series or
Class shall be payable solely out of the assets belonging to that Series or
Class as provided for in Article III;
(u) To invest all of the assets of the Trust, or any Series or any
Class thereof in a single investment company;
(v) Subject to the 1940 Act, to engage in any other lawful act or
activity in which a business trust organized under the Delaware Act may engage.
The Trust shall not be limited to investing in
obligations maturing before the possible termination of the
<PAGE>
Trust or one or more of its Series. The Trust shall not in any way be bound or
limited by any present or future law or custom in regard to investment by
fiduciaries. The Trust shall not be required to obtain any court order to deal
with any assets of the Trust or take any other action hereunder.
Section 4. Payment of Expenses by the Trust. The Trustees are
authorized to pay or cause to be paid out of the principal or income of the
Trust, or partly out of the principal and partly out of income, as they deem
fair, all expenses, fees, charges, taxes and liabilities incurred or arising in
connection with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, Advisers, Principal
Underwriter, auditors, counsel, custodian, transfer agent, shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur, which
expenses, fees, charges, taxes and liabilities shall be allocated in accordance
with Article III, Section 6 hereof.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series, to pay directly, in advance or
arrears, expenses of the Trust as described in Section 4 of this Article IV
("Expenses"), in an amount fixed from time to time by the Trustees, by setting
off such Expenses due from such Shareholder from declared but unpaid dividends
owed such Shareholder and/or by reducing the number of Shares in the account of
such Shareholder by that number of full and/or fractional Shares which
represents the outstanding amount of such Expenses due from such Shareholder,
provided that the direct payment of such Expenses by Shareholders is permitted
under applicable law.
Section 6. Ownership of Assets of the Trust. Title to all of the assets
of the Trust shall at all times be considered as vested in the Trust, except
that the Trustees shall have power to cause legal title to any Trust Property to
be held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee, he or she shall
automatically cease to
<PAGE>
have any right, title or interest in any of the Trust Property, and the right,
title and interest of such Trustee in the Trust property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth
under federal and/or state law and in the By-Laws, including, without
limitation, the requirements of Section 15 of the 1940 Act, the Trustees may, at
any time and from time to time, contract for exclusive or nonexclusive advisory,
management and/or administrative services for the Trust or for any Series (or
Class thereof) with any Person and any such contract may contain such other
terms as the Trustees may determine, including, without limitation, authority
for the Adviser(s) or administrator to delegate certain or all of its duties
under such contracts to other qualified investment advisers and administrators
and to determine from time to time without prior consultation with the Trustees
what investments shall be purchased, held sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments, or such other activities as may specifically be
delegated to such party.
(b) The Trustees may also, at any time and from time to time, contract
with any Person, appointing such Person exclusive or nonexclusive distributor or
Principal Underwriter for the Shares of one or more of the Series (or Classes)
or other securities to be issued by the Trust.
(c) The Trustees are also empowered, at any time and from time to
time, to contract with any Person, appointing such Person or Persons the
custodian, transfer agent and/or shareholder servicing agent for the Trust or
one or more of its Series.
(d) The Trustees are further empowered, at any time and from time to
time, to contract with any Person to provide such other services to the Trust or
one or more of the Series, as the Trustees determine to be in the best interests
of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers
of the Trust is a shareholder, director,
officer, partner, trustee, employee, Adviser,
<PAGE>
Principal Underwriter, distributor, or affiliate or
agent of or for any Person, or for any parent or
affiliate of any Person with which an advisory,
management, or administration contract, or Principal
Underwriter's or distributor's contract, or transfer
agent, shareholder servicing agent or other type of
service contract may have been or may hereafter be
made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an
interest in the Trust; or that
(ii) any Person with which an advisory, management,
or administration contract or Principal
Underwriter's or distributor's contract, or
transfer agent or shareholder servicing agent
contract may have been or may hereafter be made
also has an advisory, management, or
administration contract, or Principal
Underwriter's or distributor's or other service
contract with one or more other Persons, or has
other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
shareholders.
Section 8. Trustees and Officers as Shareholders. Any Trustee, officer
or agent of the Trust may acquire, own and dispose of Shares to the same extent
as if he or she were not a Trustee, officer or agent; and the Trustees may issue
and sell and cause to be issued and sold Shares to, and redeem such Shares from,
any such Person or any firm or company in which such Person is interested,
subject only to the general limitations contained herein or in the By-Laws
relating to the sale and redemption of such Shares.
Section 9. Compensation. The Trustees in such capacity shall be
entitled to reasonable compensation from the Trust and they may fix the amount
of such compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for such services by the Trust.
ARTICLE V
Shareholders' Voting Powers and Meetings
<PAGE>
Section 1. Voting Powers. Meetings. Notice. and Record Dates. The
Shareholders shall have power to vote only: (i) for the election or removal of
Trustees as provided in Article IV, Section 1 hereof, and (ii) with respect to
such additional matters relating to the Trust as may be required by applicable
law, this Declaration of Trust, the By-Laws or any registration statement of the
Trust with the Commission (or any successor agency) or as the Trustees may
consider necessary or desirable. Shareholders shall be entitled to one vote for
each dollar, and a fractional vote for each fraction of a dollar, of net asset
value per Share for each Share held, as to any matter on which the Share is
entitled to vote. Notwithstanding any other provision of this Declaration of
Trust, on any matters submitted to a vote of the Shareholders, all shares of the
Trust then entitled to vote shall be voted in aggregate, except: (i) when
required by the 1940 Act, Shares shall be voted by individual Series; (ii) when
the matter involves any action that the Trustees have determined will affect
only the interests of one or more Series, then only Shareholders of such Series
shall be entitled to vote thereon; and (iii) when the matter involves any action
that the Trustees have determined will affect only the interests of one or more
Classes, then only the Shareholders of such Class or Classes shall be entitled
to vote thereon. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy. A proxy may be given in
writing. The By-Laws may provide that proxies may also, or may instead, be given
by an electronic or telecommunications device or in any other manner. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration of Trust or the By-Laws to be
taken by the Shareholders. Meetings of the Shareholders shall be called and
notice thereof and record dates therefor shall be given and set as provided in
the By-Laws.
Section 2. Quorum and Required Vote. Except when a larger quorum is
required by applicable law, by the By-Laws or by this Declaration of Trust,
twenty-five percent (25%) of the Shares issued and outstanding shall constitute
a quorum at a Shareholders' meeting but any lesser number shall be sufficient
for adjourned sessions. When any one or more Series (or Classes) is to vote as a
single Series (or Class) separate from any other Shares, twenty-five percent
(25%) of the Shares of each such Series (or Class) issued and outstanding shall
constitute a quorum at a Shareholders' meeting of that Series (or Class). Except
when a larger vote is required by any provision of this Declaration of Trust or
the By-Laws or by applicable law, when a quorum is present at any meeting, a
majority of the Shares voted shall decide any questions and a
<PAGE>
plurality of the Shares voted shall elect a Trustee, provided that where any
provision of law or of this Declaration of Trust requires that the holders of
any Series shall vote as a Series (or that holders of a Class shall vote as a
Class), then a majority of the Shares of that Series (or Class) voted on the
matter (or a plurality with respect to the election of a Trustee) shall decide
that matter insofar as that Series (or Class) is concerned.
Section 3. Record Dates. For the purpose of determining the
Shareholders of any Series (or Class) who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series (or Class) having the right to receive such dividend or distribution.
Without fixing a record date, the Trustees may for distribution purposes close
the register or transfer books for one or more Series (or Classes) at any time
prior to the payment of a distribution. Nothing in this Section shall be
construed as precluding the Trustees from setting different record dates for
different Series (or Classes).
Section 4. Additional Provisions. The By-Laws may
include further provisions for Shareholders' votes and
meetings and related matters.
ARTICLE VI
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income and
Distributions. Subject to applicable law and Article III, Section 6 hereof, the
Trustees, in their absolute discretion, may prescribe and shall set forth in the
By-Laws or in a duly adopted vote of the Trustees such bases and time for
determining the per Share or net asset value of the Shares of any Series or
Class or net income attributable to the Shares of any Series or Class, or the
declaration and payment of dividends and distributions on the Shares of any
Series or Class, as they may deem necessary or desirable.
Section 2. Redemptions and Repurchases.
(a) The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of a proper instrument of
transfer together with a request directed to the Trust, or a Person designated
by the Trust, that the Trust purchase such Shares or in accordance with such
other
<PAGE>
procedures for redemption as the Trustees may from time to time authorize; and
the Trust will pay therefor the net asset value thereof as determined by the
Trustees (or on their behalf), in accordance with any applicable provisions of
the By-Laws, any registration statement of the Trust and applicable law. Unless
extraordinary circumstances exist, payment for said Shares shall be made by the
Trust to the Shareholder in accordance with the 1940 Act and any rules and
regulations thereunder or as otherwise required by the Commission. The
obligation set forth in this Section 2(a) is subject to the provision that,
during any emergency which makes it impracticable for the Trust to dispose of
the investments of the applicable Series or to determine fairly the value of the
net assets held with respect to such Series, such obligation may be suspended or
postponed by the Trustees. In the case of a suspension of the right of
redemption as provided herein, a Shareholder may either withdraw the request for
redemption or receive payment based on the net asset value per share next
determined after the termination of such suspension.
(b) The redemption price may in any case or cases be paid wholly or
partly in kind if the Trustees determine that such payment is advisable in the
interest of the remaining Shareholders of the Series or Class thereof for which
the Shares are being redeemed. Subject to the foregoing, the fair value,
selection and quantity of securities or other property so paid or delivered as
all or part of the redemption price may be determined by or under authority of
the Trustees. In no case shall the Trust be liable for any delay of any Adviser
or other Person in transferring securities selected for delivery as all or part
of any payment-in-kind.
(c) If the Trustees shall, at any time and in good faith, determine
that direct or indirect ownership of Shares of any Series or Class thereof has
or may become concentrated in any Person to an extent that would disqualify any
Series as a regulated investment company under the Internal Revenue Code of
1986, as amended (or any successor statute thereof), then the Trustees shall
have the power (but not the obligation) by such means as they deem equitable (i)
to call for the redemption by any such Person of a number, or principal amount,
of Shares sufficient to maintain or bring the direct or indirect ownership of
Shares into conformity with the requirements for such qualification, (ii) to
refuse to transfer or issue Shares of any Series or Class thereof to such Person
whose acquisition of the Shares in question would result in such
disqualification, or (iii) to take such other actions as they deem necessary and
appropriate to avoid such disqualification. Any such redemption shall be
effected at the
<PAGE>
redemption price and in the manner provided in this Article
VI.
(d) The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the provisions of the Internal
Revenue Code of 1986, as amended (or any successor statute thereto), or to
comply with the requirements of any other taxing authority.
ARTICLE VII
Limitation of Liability; Indemnification
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice.
The Trustees, officers, employees and agents of the Trust, in incurring any
debts, liabilities or obligations, or in limiting or omitting any other actions
for or in connection with the Trust, are or shall be deemed to be acting as
Trustees, officers, employees or agents of the Trust and not in their own
capacities. No Shareholder shall be subject to any personal liability whatsoever
in tort, contract or otherwise to any other Person or Persons in connection with
the assets or the affairs of the Trust or of any Series, and subject to Section
4 of this Article VII, no Trustee, officer, employee or agent of the Trust shall
be subject to any personal liability whatsoever in tort, contract, or otherwise,
to any other Person or Persons in connection with the assets or affairs of the
Trust or of any Series, save only that arising from his or her own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office or the discharge of his or her
functions. The Trust (or if the matter relates only to a particular Series, that
Series) shall be solely liable for any and all debts, claims, demands,
judgments, decrees, liabilities or obligations of any and every kind, against or
with respect to the Trust or such Series in tort, contract or otherwise in
connection with the assets or the affairs of the Trust or such Series, and all
Persons dealing with the Trust or any Series shall be deemed to have agreed that
resort shall be had solely to the Trust Property of the Trust (or if the matter
relates only to a particular Series, that of such Series), for the payment or
performance thereof.
The Trustees may provide that every note, bond, contract, instrument,
certificate or undertaking made or issued by the Trustees or by any officers or
officer shall give notice that a Certificate of Trust in respect of the Trust is
on file with
<PAGE>
the Secretary of State of the State of Delaware and may recite to the effect
that the same was executed or made by or on behalf of the Trust or by them as
Trustees or Trustee or as officers or officer, and not individually, and that
the obligations of any instrument made or issued by the Trustees or by any
officer of officers of the Trust are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust, or the particular Series in question, as the case may be. The
omission of any statement to such effect from such instrument shall not operate
to bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually, or to subject the assets of any Series to the
obligations of any other Series.
Section 2. Trustees' Good Faith Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to Section 4 of this Article
VII, a Trustee shall be liable for his or her own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law. Subject to the foregoing, (i)
the Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, consultant, Adviser, administrator,
distributor or Principal Underwriter, custodian or transfer agent, dividend
disbursing agent, shareholder servicing agent or accounting agent of the Trust,
nor shall any Trustee be responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and their
duties as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of account of the Trust and upon written reports
made to the Trustees by any officer appointed by them, any independent public
accountant, and (with respect to the subject matter of the contract involved)
any officer, partner or responsible employee of a contracting party employed by
the Trust. The Trustees as such shall not be required to give any bond or surety
or any other security for the performance of their duties.
Section 3. Indemnification of Shareholders. If any Shareholder (or former
Shareholder) of the Trust shall be charged or held to be personally liable for
any obligation or liability of the Trust solely by reason of being or having
<PAGE>
been a Shareholder and not because of such Shareholder's acts or omissions or
for some other reason, the Trust (upon proper and timely request by the
Shareholder) may assume the defense against such charge and satisfy any judgment
thereon or may reimburse the Shareholders for expenses, and the Shareholder or
former Shareholder (or the heirs, executors, administrators or other legal
representatives thereof, or in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled (but solely out of the
assets of the Series of which such Shareholder or former Shareholder is or was
the holder of Shares) to be held harmless from and indemnified against all loss
and expense arising from such liability.
Section 4. Indemnification of Trustees, Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 4, the Trust
shall indemnify (from the assets of one or more Series to which the conduct in
question relates) each of its Trustees, officers, employees and agents
(including Persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter, together with such Person's
heirs, executors, administrators or personal representative, referred to as a
"Covered Person")) against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests of the Trust; or
(ii) had acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office;
and (iii) for a criminal proceeding, had reasonable cause to believe that his or
her conduct was unlawful (the conduct described in (i), (ii) and (iii) being
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
Covered Person to be indemnified was not
<PAGE>
liable by reason of Disabling Conduct, (ii) dismissal of a court action or an
administrative proceeding against a Covered Person for insufficiency of evidence
of Disabling Conduct, or (iii) a reasonable determination, based upon a review
of the facts, that the indemnitee was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a quorum of the Trustees who are neither
"interested persons" of the Trust as defined in the 1940 Act nor parties to the
proceeding (the "Disinterested Trustees"), or (b) an independent legal counsel
in a written opinion. Expenses, including accountants' and counsel fees so
incurred by any such Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties), may be paid from time to
time by one or more Series to which the conduct in question related in advance
of the final disposition of any such action, suit or proceeding; provided that
the Covered Person shall have undertaken to repay the amounts so paid to such
Series if it is ultimately determined that indemnification of such expenses is
not authorized under this Article VII and (i) the Covered Person shall have
provided security for such undertaking, (ii) the Trust shall be insured against
losses arising by reason of any lawful advances, or (iii) a majority of a quorum
of the Disinterested Trustees, or an independent legal counsel in a written
opinion, shall have determined, based on a review of readily available facts (as
opposed to a full trial type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to indemnification.
Section 5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 4 of this
Article VII, pursuant to a consent decree or otherwise, no such indemnification
either for said payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of a quorum of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent legal
counsel pursuant to clause (ii) shall not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in accordance with either of
such clauses as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in or not opposed
to the best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the Covered Person's
office.
<PAGE>
Section 6. Indemnification Not Exclusive, etc. The right of indemnification
provided by this Article VII shall not be exclusive of or affect any other
rights to which any such Covered Person or shareholder may be entitled. As used
in this Article VII, a "disinterested" Person is one against whom none of the
actions, suits or other proceedings in question, and no other action, suit or
other proceeding on the same or similar grounds is then or has been pending or
threatened. Nothing contained in this Article VII shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees and
officers, and other Persons may be entitled by contract or otherwise under law,
nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such Person.
Section 7. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 8. Insurance. The Trustees shall be entitled and empowered to
the fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee, or agent of the Trust in connection with
any claim, action, suit, or proceeding in which he or she may become involved by
virtue of his or her capacity or former capacity as a Trustee of the Trust.
ARTICLE VIII
Miscellaneous
Section 1. Termination of the Trust or Any Series or Class.
(a) Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trustees in their sole discretion may terminate
the Trust.
(b) Upon the requisite action by the Trustees to terminate the Trust or
any one or more Series of Shares or any Class thereof, after paying or otherwise
providing for all charges, taxes, expenses, and liabilities, whether due or
accrued or anticipated, of the Trust or of the particular Series or any Class
thereof as may be determined by the Trustees, the Trust shall in accordance with
such procedures as the Trustees may consider appropriate reduce the remaining
<PAGE>
assets of the Trust or of the affected Series or Class to distributable form in
cash or Shares (if any Series remain) or other securities, or any combination
thereof, and distribute the proceeds to the Shareholders of the Series or
Classes involved, ratably according to the number of Shares of such Series or
Class held by the Shareholders of such Series or Class on the date of
distribution. Thereupon, the Trust or any affected Series or Class shall
terminate and the Trustees and the Trust shall be discharged from any and all
further liabilities and duties relating thereto or arising therefrom, and the
right, title, and interest of all parties with respect to the Trust or such
Series or Class shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of winding up
of its business, the Trustees shall cause a certificate of cancellation of the
Trust's Certificate of Trust to be filed in accordance with the Delaware Act,
which certificate of cancellation may be signed by any one Trustee.
Section 2. Reorganization.
(a) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval unless such approval is required by applicable law, (i)
cause the Trust to merge or consolidate with or into or transfer its assets and
any liabilities to one or more trusts (or series thereof to the extent permitted
by law), partnerships, associations, corporations or other business entities
(including trusts, partnerships, associations, corporations or other business
entities created by the Trustees to accomplish such merger or consolidation or
transfer of assets and any liabilities) so long as the surviving or resulting
entity is an investment company as defined in the 1940 Act, or is a series
thereof, that will succeed to or assume the Trust's registration under the 1940
Act and that is formed, organized, or existing under the laws of the United
States or of a state, commonwealth, possession or colony of the United States,
unless otherwise permitted under the 1940 Act, (ii) cause any one or more Series
(or Classes) of the Trust to merge or consolidate with or into or transfer its
assets and any liabilities to any one or more other Series (or Classes) of the
Trust, one or more trusts (or series or classes thereof to the extent permitted
by law), partnerships, associations, corporations, (iii) cause the Shares to be
exchanged under or pursuant to any state or federal statute to the extent
permitted by law or (iv) cause the Trust to reorganize as a corporation, limited
liability company or limited liability partnership under the laws of Delaware or
any other state or jurisdiction.
<PAGE>
(b) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Declaration of Trust, an agreement of merger or consolidation
or exchange or transfer of assets and liabilities approved by the Trustees in
accordance with this Section 2 may (i) effect any amendment to the governing
instrument of the Trust or (ii) effect the adoption of a new governing
instrument of the Trust if the Trust is the surviving or resulting trust in the
merger or consolidation.
(c) The Trustees may create one or more business trusts to which all or
any part of the assets, liabilities, profits, or losses of the Trust or any
Series or Class thereof may be transferred and may provide for the conversion of
Shares in the Trust or any Series or Class thereof into beneficial interests in
any such newly created trust or trusts or any series or classes thereof.
Section 3. Amendments. Except as specifically provided in this Section
3, the Trustees may, without Shareholder vote, restate, amend, or otherwise
supplement this Declaration of Trust. Shareholders shall have the right to vote
on (i) any amendment that would affect their right to vote granted in Article V,
Section 1 hereof, (ii) any amendment to this Section 3 of Article VIII; (iii)
any amendment that may require their vote under applicable law or by the Trust's
registration statement, as filed with the Commission, and (iv) any amendment
submitted to them for their vote by the Trustees. Any amendment required or
permitted to be submitted to the Shareholders that, as the Trustees determine,
shall affect the Shareholders of one or more Series shall be authorized by a
vote of the Shareholders of each Series affected and no vote of Shareholders of
a Series not affected shall be required. Notwithstanding anything else herein,
no amendment hereof shall limit the rights to insurance provided by Article VII
hereof with respect to any acts or omissions of Persons covered thereby prior to
such amendment nor shall any such amendment limit the rights to indemnification
referenced in Article VIl hereof as provided in the By-Laws with respect to any
actions or omissions of Persons covered thereby prior to such amendment. The
Trustees may, without Shareholder vote, restate, amend, or otherwise supplement
the Certificate of Trust as they deem necessary or desirable.
Section 4. Filing of Copies; References; Headings. The original or a copy
of this instrument and of each restatement and/or amendment hereto shall be kept
at the office of the Trust where it may be inspected by any
<PAGE>
Shareholder. Anyone dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such restatements and/or
amendments have been made and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such restatements and/or amendments. In this instrument and in any such
restatements and/or amendments, references to this instrument, and all
expressions such as "herein," "hereof," and "hereunder," shall be deemed to
refer to this instrument as amended or affected by any such restatements and/or
amendments. Headings are placed herein for convenience of reference only and
shall not be taken as a part hereof or control or affect the meaning,
construction or effect of this instrument. Whenever the singular number is used
herein, the same shall include the plural; and the neuter, masculine and
feminine genders shall include each other, as applicable. This instrument may be
executed in any number of counterparts each of which shall be deemed an
original.
Section 5. Applicable Law.
(a) The Trust is created under, and this Declaration of Trust is to be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware. The Trust shall be of the type commonly called a business
trust, and without limiting the provisions hereof, the Trust specifically
reserves the right to exercise any of the powers or privileges afforded to
business trusts or actions that may be engaged in by business trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege, or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.
(b) Notwithstanding the first sentence of Section 5(a) of this Article
VIII, there shall not be applicable to the Trust, the Trustees, or this
Declaration of Trust either the provisions of Section 3540 of Title 12 of the
Delaware Code or any provisions of the laws (statutory or common) of the State
of Delaware (other than the Delaware Act) pertaining to trusts that relate to or
regulate: (i) the filing with any court or governmental body or agency of
Trustee accounts or schedules of trustee fees and charges; (ii) affirmative
requirements to post bonds for trustees, officers, agents, or employees of a
trust; (iii) the necessity for obtaining a court or other governmental approval
concerning the acquisition, holding, or disposition of real or personal
property; (iv) fees or other sums applicable to trustees, officers, agents or
employees of a trust; (v) the allocation of receipts and expenditures to
<PAGE>
income or principal; (vi) restrictions or limitations on the permissible nature,
amount, or concentration of trust investments or requirements relating to the
titling, storage, or other manner of holding of trust assets; or (vii) the
establishment of fiduciary or other standards or responsibilities or limitations
on the acts or powers or liabilities or authorities and powers of trustees that
are inconsistent with the limitations or liabilities or authorities and powers
of the Trustees set forth or referenced in this Declaration of Trust; or (viii)
activities similar to those referenced in the foregoing items (i) through (vii).
Section 6. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any such
provision is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code of 1986, as amended (or any successor
statute thereto), and the regulations thereunder, the Delaware Act or with other
applicable laws and regulations, the conflicting provision shall be deemed never
to have constituted a part of this Declaration of Trust; provided, however, that
such decision shall not affect any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall, not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration of Trust in any jurisdiction.
Section 7. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Act. It is not the intention of
the Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment, or any form of legal relationship other than
a business trust pursuant to the Delaware Act. Nothing in this Declaration of
Trust shall be construed to make the Shareholders, either by themselves or with
the Trustees, partners, or members of a joint stock association.
<PAGE>
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter
into this Agreement and Declaration of Trust as of the 18th day of September,
1997.
/s/ Laurence B. Ashkin /s/ Thomas L. McVerry
Laurence B. Ashkin Thomas L. McVerry
Trustee and not individually Trustee and not individually
/s/ Charles A. Austin, III /s/ David M. Richardson
Charles A. Austin, III David M. Richardson
Trustee and not individually Trustee and not individually
/s/ K. Dun Gifford /s/ Russell A. Salton, III
K. Dun Gifford Russell A. Salton, III
Trustee and not individually Trustee and not individually
/s/ James S. Howell /s/ Michael S. Scofield
James S. Howell Michael S. Scofield
Trustee and not individually Trustee and not individually
/s/ Leroy Keith, Jr. /s/ Richard J. Shima
Leroy Keith, Jr. Richard J. Shima
Trustee and not individually Trustee and not individually
/s/ Gerald M. McDonnell /s/ William W. Pettit
Gerald M. McDonnell William W. Pettit
Trustee and not individually Trustee and not individually
THE PRINCIPAL PLACE OF BUSINESS
OF THE TRUST IS:
200 Berkeley Street
Boston, Massachusetts 02116
<PAGE>
BY-LAWS
OF
EVERGREEN EQUITY TRUST
a Delaware Business Trust
<PAGE>
TABLE OF CONTENTS
INTRODUCTION...............................................................1
A. Agreement and Declaration of Trust.............................1
B. Definitions....................................................1
ARTICLE I OFFICES.........................................................1
Section 1. Principal Office.......................................1
Section 2. Delaware Office........................................1
Section 3. Other Offices..........................................1
ARTICLE II MEETINGS OF SHAREHOLDERS.......................................1
Section 1. Place of Meetings......................................1
Section 2. Call of Meetings.......................................2
Section 3. Notice of Meetings of Shareholders.....................2
Section 4. Manner of Giving Notice: Affidavit
of Notice......................................2
Section 5. Adjourned Meeting; Notice..............................3
Section 6. Voting.................................................3
Section 7. Waiver of Notice; Consent of Absent
Shareholders...................................3
Section 8. Shareholder Action by Written Consent
Without a Meeting..............................4
Section 9. Record Date for Shareholder Notice;
Voting and Giving Consents.....................4
Section 10. Proxies...............................................5
Section 11. Inspectors of Election................................5
ARTICLE III TRUSTEES......................................................6
Section 1. Powers.................................................6
Section 2. Number of Trustees.....................................6
Section 3. Vacancies..............................................6
Section 4. Chair..................................................6
Section 5. Place of Meetings and Meetings by
Telephone......................................7
Section 6. Regular Meetings.......................................7
Section 7. Special Meetings.......................................7
Section 8. Quorum.................................................7
Section 9. Waiver of Notice.......................................8
Section 10. Adjournment...........................................8
Section 11. Notice of Adjournment.................................8
Section 12. Action Without a Meeting..............................8
Section 13. Fees and Compensation of Trustees.....................8
Section 14. Delegation of Power to Other Trustees.................8
ARTICLE IV COMMITTEES.....................................................9
Section 1. Committees of Trustees.................................9
Section 2. Meetings and Action of Committees......................9
<PAGE>
ARTICLE V OFFICERS.......................................................10
Section 1. Officers..............................................10
Section 2. Election of Officers..................................10
Section 3. Subordinate Officers..................................10
Section 4. Removal and Resignation of Officers...................10
Section 5. Vacancies in Offices..................................10
Section 6. President.............................................10
Section 7. Vice Presidents.......................................11
Section 8. Secretary.............................................11
Section 9. Treasurer.............................................11
ARTICLE VI INSPECTION OF RECORDS AND REPORTS.............................12
Section 1. Inspection by Shareholders............................12
Section 2. Inspection by Trustees................................12
ARTICLE VII GENERAL MATTERS..............................................12
Section 1. Checks, Drafts, Evidences of
Indebtedness..................................12
Section 2. Contracts and Instruments: How Executed...............13
Section 3. Fiscal Year...........................................13
Section 4. Seal..................................................13
ARTICLE VIII AMENDMENTS..................................................13
Section 1. Amendment.............................................13
<PAGE>
BY-LAWS
of
EVERGREEN EQUITY TRUST
a Delaware Business Trust
INTRODUCTION
A. Agreement and Declaration of Trust. These By-Laws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Evergreen Equity Trust, a Delaware business trust
(the "Trust"). In the event of any inconsistency between the terms hereof and
the terms of the Declaration of Trust, the terms of the Declaration of Trust
shall control.
B. Definitions. Capitalized terms used herein and not
herein defined are used as defined in the Declaration of
Trust.
ARTICLE I OFFICES
Section 1. Principal Office. The Trustees shall fix and, from time to
time, may change the location of the principal executive office of the Trust at
any place within or outside the State of Delaware.
Section 2. Delaware Office. The Trustees shall establish a registered
office in the State of Delaware and shall appoint as the Trust's registered
agent for service of process in the State of Delaware an individual who is a
resident of the State of Delaware or a Delaware corporation or a corporation
authorized to transact business in the State of Delaware; in each case the
business office of such registered agent for service of process shall be
identical with the registered Delaware office of the Trust.
Section 3. Other Offices. The Trustees may at any time
establish branch or subordinate offices at any place or places
within or outside the State of Delaware where the Trust
intends to do business.
ARTICLE II MEETINGS OF SHAREHOLDERS
<PAGE>
Section 1. Place of Meetings. Meetings of Shareholders shall be held at
any place designated by the Trustees. In the absence of any such designation,
Shareholders' meetings shall be held at the principal executive office of the
Trust.
Section 2. Call of Meetings. There shall be no annual Shareholders'
meetings. Special meetings of the Shareholders may be called at any time by the
Trustees, the President or any other officer designated for the purpose by the
Trustees, for the purpose of seeking action upon any matter requiring the vote
or authority of the Shareholders as herein provided or provided in the
Declaration of Trust or upon any other matter as to which such vote or authority
is deemed by the Trustees or the President to be necessary or desirable. To the
extent required by the Investment Company Act of 1940, as amended ("1940 Act"),
meetings of the Shareholders for the purpose of voting on the removal of any
Trustee shall be called promptly by the Trustees.
Section 3. Notice of Meetings of Shareholders. All notices of meetings
of Shareholders shall be sent or otherwise given to Shareholders in accordance
with Section 4 of this Article II not less than ten (10) nor more than ninety
(90) days before the date of the meeting. The notice shall specify (i) the
place, date and hour of the meeting, and (ii) the general nature of the business
to be transacted.
Section 4. Manner of Giving Notice: Affidavit of Notice. Notice of any
meeting of Shareholders shall be (i) given either by hand delivery, first-class
mail, telegraphic or other written communication, charges prepaid, and (ii)
addressed to the Shareholder at the address of that Shareholder appearing on the
books of the Trust or its transfer agent or given by the Shareholder to the
Trust for the purpose of notice. If no such address appears on the Trust's books
or is not given to the Trust, notice shall be deemed to have been given if sent
to that Shareholder by first class mail or telegraphic or other written
communication to the Trust's principal executive office, or if published at
least once in a newspaper of general circulation in the county where that office
is located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication or, where notice is given by publication, on the date of
publication.
An affidavit of the mailing or other means of giving any notice of any
meeting of Shareholders shall be filed and maintained in the minute book of the
Trust.
<PAGE>
Section 5. Adjourned Meeting; Notice. Any meeting of Shareholders, whether
or not a quorum is present, may be adjourned from time to time by: (a) the vote
of the majority of the Shares represented at that meeting, either in person or
by proxy; or (b) in his or her discretion by the chair of the meeting.
When any meeting of Shareholders is adjourned to another time or place,
notice need not be given of the adjourned meeting at which the adjournment is
taken, unless a new record date of the adjourned meeting is fixed. Notice of any
such adjourned meeting shall be given to each Shareholder of record entitled to
vote at the adjourned meeting in accordance with the provisions of Sections 3
and 4 of this Article II. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 6. Voting. The Shareholders entitled to vote at any meeting of
Shareholders shall be determined in accordance with the provisions of the
Declaration of Trust of the Trust, as in effect at such time. The Shareholders'
vote may be by voice vote or by ballot, provided, however, that any election for
Trustees must be by ballot if demanded by any Shareholder before the voting has
begun.
Section 7. Waiver of Notice; Consent of Absent Shareholders. The
transaction of business and any actions taken at a meeting of Shareholders,
however called and noticed and wherever held, shall be as valid as though taken
at a meeting duly held after regular call and notice provided a quorum is
present either in person or by proxy at the meeting of Shareholders and if
either before or after the meeting, each Shareholder entitled to vote who was
not present in person or by proxy at the meeting of the Shareholders signs a
written waiver of notice or a consent to a holding of the meeting or an approval
of the minutes. The waiver of notice or consent need not specify either the
business to be transacted or the purpose of any meeting of Shareholders.
Attendance by a Shareholder at a meeting of Shareholders shall
constitute a waiver of notice of that meeting, except if the Shareholder objects
at the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened and except that attendance at a
meeting of Shareholders is not a waiver of any right to object to the
consideration of matters not included in the notice of the meeting of
Shareholders if that objection is expressly made at the beginning of the
meeting.
<PAGE>
Section 8. Shareholder Action by Written Consent Without a Meeting.
Except as provided in the Declaration of Trust, any action that may be taken at
any meeting of Shareholders may be taken without a meeting and without prior
notice if a consent in writing setting forth the action to be taken is signed by
the holders of outstanding Shares having not less than the minimum number of
votes that would be necessary to authorize or take that action at a meeting, at
which all Shares entitled to vote on that action were present and voted,
provided, however, that the Shareholders receive any necessary Information
Statement or other necessary documentation in conformity with the requirements
of the Securities Exchange Act of 1934 or the rules or regulations thereunder.
All such consents shall be filed with the Secretary of the Trust and shall be
maintained in the Trust's records. Any Shareholder giving a written consent or
the Shareholder's proxy holders or a transferee of the Shares or a personal
representative of the Shareholder or their respective proxy holders may revoke
the Shareholder's written consent by a writing received by the Secretary of the
Trust before written consents of the number of Shares required to authorize the
proposed action have been filed with the Secretary.
If the consents of all Shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
Shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the Shareholders without a meeting. This notice
shall be given in the manner specified in Section 4 of this Article II.
Section 9. Record Date for Shareholder Notice; Voting and
Giving Consents.
(a) For purposes of determining the Shareholders entitled to vote or
act at any meeting or adjournment thereof, the Trustees may fix in advance a
record date which shall not be more than ninety (90) days nor less than ten (10)
days before the date of any such meeting. Without fixing a record date for a
meeting, the Trustees may for voting and notice purposes close the register or
transfer books for one or more Series (or Classes) for all or any part of the
period between the earliest date on which a record date for such meeting could
be set in accordance herewith and the date of such meeting.
If the Trustees do not so fix a record date or close the register or
transfer books of the affected Series or Classes, the record date for
determining Shareholders entitled to notice of or to vote at a meeting of
Shareholders shall be the close of business on the business day next preceding
the day on which notice is given or if notice is waived, at the close
<PAGE>
of business on the business day next preceding the day on which the meeting is
held.
(b) The record date for determining Shareholders entitled to give
consent to action in writing without a meeting, (a) when no prior action of the
Trustees has been taken, shall be the day on which the first written consent is
given, or (b) when prior action of the Trustees has been taken, shall be (i)
such date as determined for that purpose by the Trustees, which record date
shall not precede the date upon which the resolution fixing it is adopted by the
Trustees and shall not be more than twenty (20) days after the date of such
resolution, or (ii) if no record date is fixed by the Trustees, the record date
shall be the close of business on the day on which the Trustees adopt the
resolution relating to that action. Nothing in this Section shall be constituted
as precluding the Trustees from setting different record dates for different
Series or Classes. Only Shareholders of record on the record date as herein
determined shall have any right to vote or to act at any meeting or give consent
to any action relating to such record date, notwithstanding any transfer of
Shares on the books of the Trust after such record date.
Section 10. Proxies. Subject to the provisions of the Declaration of
Trust, every Person entitled to vote for Trustees or on any other matter shall
have the right to do so either in person or by proxy, provided that either (i)
an instrument authorizing such a proxy to act is executed by the Shareholder in
writing and dated not more than eleven (11) months before the meeting, unless
the instrument specifically provides for a longer period or (ii) the Trustees
adopt an electronic, telephonic, computerized or other alternative to the
execution of a written instrument authorizing the proxy to act, and such
authorization is received not more than eleven (11) months before the meeting. A
proxy shall be deemed executed by a Shareholder if the Shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the Shareholder or the Shareholder's
attorney-in-fact. A valid proxy which does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the Person
executing it before the vote pursuant to that proxy is taken, (a) by a writing
delivered to the Trust stating that the proxy is revoked, or (b) by a subsequent
proxy executed by such Person, or (c) attendance at the meeting and voting in
person by the Person executing that proxy, or (d) revocation by such Person
using any electronic, telephonic, computerized or other alternative means
authorized by the Trustees for authorizing the proxy to act; or (ii) written
notice of the death or incapacity of the maker of that proxy is received by the
Trust
<PAGE>
before the vote pursuant to that proxy is counted. A proxy with respect to
Shares held in the name of two or more Persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of the two or more Persons.
A proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger.
Section 11. Inspectors of Election. Before any meeting of
Shareholders, the Trustees may appoint any persons other than nominees for
office to act as inspectors of election at the meeting or its adjournments. If
no inspectors of election are so appointed, the Chairman of the meeting may
appoint inspectors of election at the meeting. The number of inspectors shall be
two (2). If any person appointed as inspector fails to appear or fails or
refuses to act, the Chairman of the meeting may appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of Shares outstanding and the voting
power of each, the Shares represented at the meeting, the
existence of a quorum and the authenticity, validity and
effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election
or vote with fairness to all Shareholders.
ARTICLE III TRUSTEES
Section 1. Powers. Subject to the applicable provisions of the 1940 Act,
the Declaration of Trust and these By-Laws relating to action required to be
approved by the Shareholders, the business and affairs of the Trust shall be
<PAGE>
managed and all powers shall be exercised by or under the
direction of the Trustees.
Section 2. Number of Trustees. The exact number of Trustees within the
limits specified in the Declaration of Trust shall be fixed from time to time by
a resolution of the Trustees.
Section 3. Vacancies. Vacancies in the authorized number of Trustees may be
filled as provided in the Declaration of Trust.
Section 4. Chair. The Trustees shall have the power to appoint from
among the members of the Boards of Trustees a Chair. Such appointment shall be
by majority vote of the Trustees. Such Chair shall serve until his or her
successor is appointed or until his or her earlier death, resignation or
removal. The Chair shall preside at meetings of the Trustees and shall, subject
to the control of the Trustees, perform such other powers and duties as may be
from time to time assigned to him or her by the Trustees or prescribed by the
Declaration of Trust or these By-Laws, consistent with his or her position. The
Chair need not be a Shareholder.
Section 5. Place of Meetings and Meetings by Telephone. All meetings of
the Trustees may be held at any place that has been selected from time to time
by the Trustees. In the absence of such an election, regular meetings shall be
held at the principal executive office of the Trust. Subject to any applicable
requirements of the 1940 Act, any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all Trustees
participating in the meeting can hear one another and all such Trustees shall be
deemed to be present in person at the meeting.
Section 6. Regular Meetings. Regular meetings of the Trustees shall be held
without call at such time as shall from time to time be fixed by the Trustees.
Such regular meetings may be held without notice.
Section 7. Special Meetings. Special meetings of the Trustees for any
purpose or purposes may be called at any time by the Chair, the President or the
Secretary or any two (2) Trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail, by
telegram or telecopy (or similar electronic means) or, by nationally recognized
overnight courier, charges prepaid, addressed to each Trustee at that
<PAGE>
Trustee's address as it is shown on the records of the Trust. If the notice is
mailed, it shall be deposited in the United States mail at least seven (7)
calendar days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telegram, telecopy (or similar
electronic means), or overnight courier, it shall be given at least forty eight
(48) hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone must be communicated only to the Trustee. The notice
need not specify the purpose of the meeting or the place of the meeting, if the
meeting is to be held at the principal executive office of the Trust. Notice of
a meeting need not be given to any Trustee if a written waiver of notice,
executed by such Trustee before or after the meeting, is filed with the records
of the meeting, or to any Trustee who attends the meeting without protesting,
prior thereto or at its commencement, the Iack of notice to such Trustee.
Section 8. Quorum. Twenty-five percent (25%) of the Trustees shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 10 of this Article III. Every act or decision done or made
by a majority of the Trustees present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
Trustees if any action taken is approved by at least a majority of the required
quorum for that meeting.
Section 9. Waiver of Notice. Notice of any meeting need not be given to
any Trustee who either before or after the meeting signs a written waiver of
notice, a consent to holding the meeting, or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the records of the
Trust or made a part of the minutes of the meeting. Notice of a meeting shall
also be deemed given to any Trustee who attends the meeting without protesting,
prior to or at its commencement, the lack of notice to that Trustee.
Section 10. Adjournment. A majority of the Trustees present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
Section 11. Notice of Adjournment. Notice of the time and place of holding
an adjourned meeting need not be given.
Section 12. Action Without a Meeting. Unless the 1940 Act requires that a
particular action be taken only at a meeting
<PAGE>
at which the Trustees are present in person, any action to be taken by the
Trustees at a meeting may be taken without such meeting by the written consent
of a majority of the Trustees then in office. Any such written consent may be
executed and given by telecopy or similar electronic means. Such written
consents shall be filed with the minutes of the proceedings of the Trustees. If
any action is so taken by the Trustees by the written consent of less than all
of the Trustees, prompt notice of the taking of such action shall be furnished
to each Trustee who did not execute such written consent, provided that the
effectiveness of such action shall not be impaired by any delay or failure to
furnish such notice.
Section 13. Fees and Compensation of Trustees. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Trustees. This Section 13 of Article III shall not be construed to preclude any
Trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 14. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his or her power for a period not exceeding one (1)
month at any one time to any other Trustee. Except where applicable law may
require a Trustee to be present in person, a Trustee represented by another
Trustee, pursuant to such power of attorney, shall be deemed to be present for
purpose of establishing a quorum and satisfying the required majority vote.
ARTICLE IV COMMITTEES
Section 1. Committees of Trustees. The Trustees may by resolution
designate one or more committees, each consisting of two (2) or more Trustees,
to serve at the pleasure of the Trustees. The Trustees may designate one or more
Trustees as alternate members of any committee who may replace any absent member
at any meeting of the committee. Any committee, to the extent provided for by
resolution of the Trustees, shall have the authority of the Trustees, except
with respect to:
(a) the approval of any action which under applicable
law requires approval by a majority of the Trustees
or certain Trustees;
(b) the filling of vacancies of Trustees;
<PAGE>
(c) the fixing of compensation of the Trustees for
services generally or as a member of any committee;
(d) the amendment or termination of the Declaration of Trust or
any Series or Class or the amendment of the By-Laws or the
adoption of new By-Laws;
(e) the amendment or repeal of any resolution of the Trustees
which by its express terms is not so amendable or repealable;
(f) a distribution to the Shareholders of the Trust, except at a
rate or in a periodic amount or within a designated range
determined by the Trustees; or
(g) the appointment of any other committees of the Trustees or the
members of such new committees.
Section 2. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, held and taken in accordance with the
provisions of Article III of these ByLaws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Trustees generally, except that the time of regular meetings of committees may
be determined either by resolution of the Trustees or by resolution of the
committee. Special meetings of committees may also be called by resolution of
the Trustees. Alternate members shall be given notice of meetings of committees
and shall have the right to attend all meetings of committees. The Trustees may
adopt rules for the governance of any committee not inconsistent with the
provisions of these By-Laws.
ARTICLE V OFFICERS
Section 1. Officers. The officers of the Trust shall be a President, a
Secretary, and a Treasurer. The Trust may also have, at the discretion of the
Trustees, one or more Vice Presidents, one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article V. Any number of
offices may be held by the same person. Any officer may be, but need not be, a
Trustee or Shareholder.
Section 2. Election of Officers. The officers of the Trust, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the Trustees, and each shall
serve at
<PAGE>
the pleasure of the Trustees, subject to the rights, if any,
of an officer under any contract of employment.
Section 3. Subordinate Officers. The Trustees may appoint and may
empower the President to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Trustees may from time to time determine.
Section 4. Removal and Resignation of Officers. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Trustees at any regular or special
meeting of the Trustees or by such officer upon whom such power of removal may
be conferred by the Trustees.
Any officer may resign at any time by giving written notice to the
Trust. Any resignation shall take effect at the date of the receipt of that
notice or at any later time specified in that notice; and unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Trust under any contract to which the officer is a party.
Section 5. Vacancies in Offices. A vacancy in any office because of
death, resignation, removal, disqualification or other cause shall be filled in
the manner prescribed in these By-Laws for regular appointment to that office.
The President may make temporary appointments to a vacant office pending action
by the Trustees.
Section 6. President. The President shall be the chief operating and
chief executive officer of the Trust and shall, subject to the control of the
Trustees, have general supervision, direction and control of the business and
the officers of the Trust. He or she or his or her designee, shall preside at
all meetings of the Shareholders. He or she shall have the general powers and
duties of a president of a corporation and shall have such other powers and
duties as may be prescribed by the Trustees, the Declaration of Trust or these
By-Laws.
Section 7. Vice Presidents. In the absence or disability of the President,
any Vice President, unless there is an Executive Vice President, shall perform
all the duties of the President and when so acting shall have all powers of and
be subject to all the restrictions upon the President. The Executive Vice
President or Vice Presidents, whichever the
<PAGE>
case may be, shall have such other powers and shall perform such other duties as
from time to time may be prescribed for them respectively by the Trustees or the
President or by these By-Laws.
Section 8. Secretary. The Secretary shall keep or cause to be kept at
the principal executive office of the Trust, or such other place as the Trustees
may direct, a book of minutes of all meetings and actions of Trustees,
committees of Trustees and Shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at Trustees' meetings or committee meetings, the
number of Shares present or represented at meetings of Shareholders and the
proceedings of the meetings.
The Secretary shall keep or cause to be kept at the principal
executive office of the Trust or at the office of the Trust's transfer agent or
registrar, a share register or a duplicate share register showing the names of
all Shareholders and their addresses, the number and classes of Shares held by
each, the number and date of certificates issued for the same and the number and
date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of
the Shareholders and of the Trustees (or committees thereof) required to be
given by these By-Laws or by applicable law and shall have such other powers and
perform such other duties as may be prescribed by the Trustees or by these
By-Laws.
Section 9. Treasurer. The Treasurer shall be the chief financial
officer and chief accounting officer of the Trust and shall keep and maintain or
cause to be kept and maintained adequate and correct books and records of
accounts of the properties and business transactions of the Trust and each
Series or Class thereof, including accounts of the assets, liabilities,
receipts, disbursements, gains, losses, capital and retained earnings of all
Series or Classes thereof. The books of account shall at all reasonable times be
open to inspection by any Trustee.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the Trust with such depositaries as may be designated by
the Board of Trustees. He or she shall disburse the funds of the Trust as may be
ordered by the Trustees, shall render to the President and Trustees, whenever
they request it, an account of all of his or her transactions as chief financial
officer and of the financial
<PAGE>
condition of the Trust and shall have other powers and perform such other duties
as may be prescribed by the Trustees or these By-Laws.
ARTICLE VI INSPECTION OF RECORDS AND REPORTS
Section 1. Inspection by Shareholders. The Trustees shall from time to
time determine whether and to what extent, and at what times and places, and
under what conditions and regulations the accounts and books of the Trust or any
of them shall be open to the inspection of the Shareholders; and no Shareholder
shall have any right to inspect any account or book or document of the Trust
except as conferred by law or otherwise by the Trustees or by resolution of the
Shareholders.
Section 2. Inspection by Trustees. Every Trustee shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Trust. This
inspection by a Trustee may be made in person or by an agent or attorney and the
right of inspection includes the right to copy and make extracts of documents.
ARTICLE VII GENERAL MATTERS
Section 1. Checks, Drafts, Evidences of Indebtedness. All checks,
drafts, or other orders for payment of money, notes or other evidences of
indebtedness issued in the name of or payable to the Trust shall be signed or
endorsed in such manner and by such person or persons as shall be designated
from time to time in accordance with the resolution of the Board of Trustees.
Section 2. Contracts and Instruments: How Executed. The Trustees,
except as otherwise provided in these By-Laws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Trust and this authority may be general or
confined to specific instances; and unless so authorized or ratified by the
Trustees or within the agency power of an officer, no officer, agent, or
employee shall have any power or authority to bind the Trust by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for
any amount.
Section 3. Fiscal Year. The fiscal year of each series of the Trust shall
be fixed and refixed or changed from time to time by the Trustees.
<PAGE>
Section 4. Seal. The seal of the Trust shall consist of a flat-faced
dye with the name of the Trust cut or engraved thereon. However, unless
otherwise required by the Trustees, the seal shall not be necessary to be placed
on, and its absence shall not impair the validity of, any document, instrument
or other paper executed and delivered by or on behalf of the Trust.
ARTICLE VIII AMENDMENTS
Section 1. Amendment. Except as otherwise provided by applicable law or by
the Declaration of Trust, these By-Laws may be restated, amended, supplemented
or repealed by a majority vote of the Trustees.
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Laurence B. Ashkin Director/Trustee
- ---------------------
Laurence B. Ashkin
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Charles A. Austin, III Director/Trustee
- -------------------------
Charles A. Austin, III
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/K. Dun Gifford Director/Trustee
- -----------------
K. Dun Gifford
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/James S. Howell Director/Trustee
- ------------------
James S. Howell
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Leroy Keith, Jr. Director/Trustee
- -------------------
Leroy Keith, Jr.
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Gerald M. McDonnell Director/Trustee
- ----------------------
Gerald M. McDonnell
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Thomas L. McVerry Director/Trustee
- --------------------
Thomas L. McVerry
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/William Walt Pettit Director/Trustee
- ----------------------
William Walt Pettit
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/David M. Richardson Director/Trustee
- ----------------------
David M. Richardson
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Russell A. Salton, III MD Director/Trustee
- ----------------------------
Russell A. Salton, III MD
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Michael S. Scofield Director/Trustee
- ----------------------
Michael S. Scofield
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Richard J. Shima Director/Trustee
- -------------------
Richard J. Shima
<PAGE>