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PROSPECTUS November 10, 1997
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Evergreen Short and Intermediate
Term Bond Funds
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Evergreen Intermediate Term Bond Fund
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Intermediate Term Bond Fund (the "Fund") seeks current
income by investing primarily in a broad range of investment quality debt
securities. As a secondary objective, the Fund seeks to protect capital.
This Prospectus provides information regarding the Class A, Class B and
Class C shares offered by the Fund. The Fund is a diversified series of an
open-end, management investment company. This Prospectus sets forth concise
information about the Fund that a prospective investor should know before
investing. The address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116.
A Statement of Additional Information for the Fund dated November 10,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Fund at (800) 343-2898. There can
be no assurance that the investment objectives 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
TABLE OF CONTENTS
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 4
DESCRIPTION OF THE FUND 4
Investment Objectives and Policies 4
Investment Practices and Restrictions 5
ORGANIZATION AND SERVICE PROVIDERS 9
Organization 9
Service Providers 9
Distribution Plans and Agreements 9
PURCHASE AND REDEMPTION OF SHARES 10
How to Buy Shares 10
How to Redeem Shares 13
Exchange Privilege 14
Shareholder Services 15
Banking Laws 16
OTHER INFORMATION 16
Dividends, Distributions and Taxes 16
General Information 17
2
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EXPENSE INFORMATION
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The table and examples below are designed to help you understand the various
expenses that you will bear, directly or indirectly, when you invest in the
Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
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SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of offering price) 3.25% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a % of offering price) None None None
Maximum Contingent Deferred Sales Charge (as a % of original purchase price or redemption
proceeds, whichever is lower) None(1) 5%(2) 1%(2)
</TABLE>
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending June 30, 1998. The examples show what you would pay if you
invested $1,000 over the periods indicated. The examples assume that you
reinvest all of your dividends and that the Fund's average annual return will be
5%. The examples are for illustration purposes only and should not be considered
a representation of past or future expenses or annual return. The Fund's actual
expenses and returns will vary. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
Class A Class B Class C
------- ------- -------
ANNUAL OPERATING EXPENSES(4)
(After Expense Reimbursement)
Management Fees .64% .64% .64%
12b-1 Fees(3) .25% 1.00% 1.00%
Other Expenses .21% .21% .21%
------- ------- -------
Total 1.10% 1.85% 1.85%
======= ======= =======
Examples
Assuming Redemption Assuming no
at end of Period Redemption
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Class A Class B Class C Class B Class C
------- ------- ------- ------- -------
After 1 Year $43 $69 $29 $19 $19
After 3 Years $66 $88 $58 $58 $58
(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.
(4) The Annual Operating Expenses and examples reflect fee waivers and expense
reimbursements where applicable. Projected expenses for Class A, Class B
and Class C shares are expected to be 1.45%, 2.20% and 2.20%, respectively,
for the fiscal period ending June 30, 1998. From time to time certain of
the Fund's expenses may be reduced, waived or reimbursed to the Fund to
reduce its expense ratios. These waivers and reimbursements may cease at
any time.
3
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FINANCIAL HIGHLIGHTS
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As of the date of this Prospectus the Fund had not commenced
operations. Consequently, no financial highlights are currently available.
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DESCRIPTION OF THE FUND
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INVESTMENT OBJECTIVES AND POLICIES
The Fund seeks current income by investing primarily in a broad range
of investment quality debt securities, and as a secondary objective, seeks to
protect capital. Where appropriate, the Fund will take advantage of the
opportunities to realize capital appreciation.
The Fund's investment objectives are nonfundamental; as a result the
Fund may change its objectives 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 objectives will be achieved.
Principal Investments and Investment Policies. The Fund seeks current
income by normally investing at least 80% of its assets in debt securities
including: U.S. Treasury bills, notes and bonds; mortgage-backed securities
issued by the U.S. government, its agencies or instrumentalities;
mortgage-backed securities issued by private issuers; corporate debt securities;
and commercial paper. The Fund's debt securities may also include fixed and
adjustable rate or stripped bonds, debentures, notes, equipment trust
certificates and debt securities convertible into, or exchangeable for,
preferred or common stock. The Fund may also invest in units, which are debt
securities with stock or warrants to buy stock attached, and preferred stock.
Under ordinary circumstances, the Fund expects to invest at least 65%
of its assets in bonds and debentures. The Fund will invest in securities that,
at the time of investment, are rated within the four highest grades 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) or by Fitch Investors Services, L.P.
("Fitch") (AAA, AA, A and BBB), or if not rated or rated under a different
system, are of comparable quality to obligations so rated, as determined by its
investment adviser. The Fund may invest up to 25% of its assets in
below-investment grade securities having a rating range of BB to CCC by S&P and
Ba to Caa by Moody's, or if unrated or rated under a different system, believed
by its investment adviser to be of comparable quality. For a description of such
ratings, see the Fund's SAI.
The Fund may also invest up to 50% of its assets in securities that are
principally traded in securities markets located outside the United States.
The Fund currently expects that the dollar weighted average maturity of
its investments will range from 3 to 7 years. However, the Fund may invest in
securities with remaining maturities of ten years or fewer.
Bonds which are rated BBB or Baa are considered to be 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. 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. Such bonds lack outstanding investment characteristics and may have
speculative characteristics.
When the Fund buys securities, it will consider the ratings of Moody's,
S&P and Fitch assigned to various debt securities as well as many other factors,
including the preservation of capital, the potential for realizing capital
appreciation, maturity and yield to maturity. The Fund will adjust its
investments in particular securities or in types of debt securities in response
to its appraisal of changing economic conditions and trends. The Fund may sell
one security and purchase another security of comparable quality and maturity to
take advantage of what it believes to be short-term differentials in market
value or yield disparities.
Other Eligible Securities. The Fund may invest up to 20% of its total
assets under ordinary circumstances and, when in its investment adviser's
opinion market conditions warrant, up to 100% of its assets for temporary
defensive purposes in the following types of money market instruments: (1)
commercial paper, including master demand notes, that at the date of investment
is rated A-1, the highest grade by S&P, P-1, the highest grade by Moody's or, if
not rated by such services, is issued by a company which at the date of
investment has an outstanding issue rated A or better by S&P or Moody's; (2)
obligations, including certificates of deposit and bankers' acceptances, of
banks or savings and loan associations having at least $1 billion in assets that
are members of the Federal Deposit Insurance Corporation including U.S. branches
of foreign banks and foreign branches of U.S. banks; (3) corporate obligations
which at the date of investment are rated A or better by S&P or Moody's; and (4)
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
4
The Fund may also invest in certain other types of derivative
instruments, including interest rate swaps, equity swaps, index swaps, currency
swaps and caps and floors, in addition to forwards, futures, options,
mortgage-backed securities and other asset-backed securities mentioned below.
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.
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.
Repurchase agreements are agreements 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 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.
5
Securities Lending. To generate income and offset expenses, the Fund
may lend securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may
invest in the securities of other investment companies. As a shareholder of
another investment company, the Fund would pay its portion of the other
investment company's expenses. These expenses would be in addition to the
expenses that the Fund currently bears concerning its own operations and may
result in some duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 331/3% 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. The inability of the Fund to dispose
of illiquid investments readily or at a reasonable price could impair the Fund's
ability to raise cash for redemptions or other purposes.
Restricted Securities. The Fund may invest in restricted securities,
including securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). Generally, Rule 144A establishes a safe
harbor from the registration requirements of the 1933 Act for resale by large
institutional investors of securities not publicly traded in the United States.
The Fund's investment adviser determines the liquidity of Rule 144A securities
according to guidelines and procedures adopted by the Fund's Board of Trustees.
The Board of Trustees monitors the investment adviser's application of those
guidelines and procedures. Securities eligible for resale pursuant to Rule 144A,
which the Fund's investment adviser has determined to be liquid or readily
marketable, are not subject to the 15% limit on illiquid securities.
Futures. The Fund may engage in futures transactions. Futures
transactions are intended to enable the Fund to manage market or interest rate
risk. The Fund does not use these transactions for speculation or leverage.
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 rates, 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 or 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.
6
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract. 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 it would continue to bear market
risk on the transaction.
Risk Characteristics of Futures. Although futures transactions are
intended to enable the Fund to manage market 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 return may be reduced). The Fund's
attempt to use such investment devices for hedging purposes may not be
successful. Successful futures strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors. When
the Fund uses financial futures contracts and options on financial futures
contracts as hedging devices, there is a risk that the prices of the securities
subject to the financial futures contracts and options on financial futures
contracts may not correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the financial futures contract and any related
options to react to market changes differently than the portfolio securities. In
addition, the Fund's investment adviser could be incorrect in its expectations
and forecasts about the direction or extent of market factors, such as interest
rates, securities price movements, and other economic factors. Even if the
Fund's investment adviser correctly predicts interest rate movements, a hedge
could be unsuccessful if changes in the value of the Fund's futures position did
not correspond to changes in the value of its investments. In these events, the
Fund may lose money on the financial futures contracts or the options on
financial futures contracts. It is not certain that a secondary market for
positions in financial futures contracts or for options on financial futures
contracts will exist at all times. Although the Fund's investment adviser will
consider liquidity before entering into financial futures contracts or options
on financial futures contracts, there is no assurance that a liquid secondary
market on an exchange will exist for any particular financial futures contract
or option on a financial futures contract at any particular time. The Fund's
ability to establish and close out financial futures contracts and options on
financial futures contract positions depends on this secondary market. If the
Fund is unable to close out its position due to disruptions in the market or
lack of liquidity, the Fund may lose money on the futures contract or option,
and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based
on an underlying asset, such as a stock or a bond, or an underlying economic
factor, such as an index or an interest rate.
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
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 be affected by the strength
of foreign currencies relative to the U.S. dollar, or by political or economic
developments in foreign countries. Accounting procedures and government
supervision may be less stringent than those applicable to U.S. companies. There
may be less publicly available information about a foreign company than about a
U.S. company. Foreign markets may be less liquid or more volatile than U.S.
markets and may offer less protection to investors. It may also be more
difficult to enforce contractual obligations abroad than would be the case in
the United States because of differences in the legal systems. Foreign
securities may be subject to foreign taxes, which may reduce yield, and may be
less marketable than comparable U.S. securities. All these factors are
considered by the Fund's investment adviser before making any of these types of
investments.
Foreign Currency Transactions. As discussed above, the Fund may invest
in securities of foreign issuers. When the Fund invests in foreign securities,
they usually will be denominated in foreign currencies, and the Fund temporarily
may hold funds in foreign currencies. Thus, the value of Fund shares will be
affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver or receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on the investment adviser's ability to predict accurately
the future exchange rates between foreign currencies and the U.S. dollar. The
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.
7
Stripped Securities. The U.S. Treasury has facilitated transfers of
ownership of zero-coupon securities by accounting separately for the beneficial
ownership of particular interest coupons and corpus payments on U.S. Treasury
securities through the Federal Reserve book-entry record-keeping system. The
Federal Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, the Fund will be able to have its
beneficial ownership of U.S. Treasury zero-coupon securities recorded directly
in the book-entry record-keeping system in lieu of having to hold certificates
or other evidence of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Risk Characteristics Of Asset-Backed Securities. The Fund may invest in
asset-backed securities. Asset-backed securities are created by the grouping of
certain governmental, government-related and private loans, receivables and
other lender assets into pools. Interests in these pools are sold as individual
securities. Payments from the asset pools may be divided into several different
tranches of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which may
be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage-backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Fund receives from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as
collateralized mortgage obligations, prepayments may be allocated to one tranche
of securities ahead of other tranches in order to reduce the risk of prepayment
for the other tranches.
Prepayments may result in a capital loss to the Fund to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be taxed as ordinary
income when distributed to the shareholders. The credit characteristics of
asset-backed securities also differ in a number of respects from those of
traditional debt securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets underlying such
securities, how well the entity issuing the securities is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement to such securities.
8
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ORGANIZATION AND SERVICE PROVIDERS
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ORGANIZATION
Fund Structure. The Fund is an investment pool, which invests
shareholders' money toward a specified goal. In technical terms, the Fund is a
diversified series of an open-end, management investment company, called
Evergreen Fixed Income 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
2.0% of gross dividend and interest income of the Fund plus 0.50% of the first
$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.45% of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35%
of the next $100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of
amounts over $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 Christopher C.
Conkey. Mr. Conkey has served as Chief Investment Officer of Fixed Income for
the past nine months and as Head of the High Grade Bond Team for Keystone for
the last three years. During the past five years at Keystone Mr. Conkey has also
served as portfolio manager of several high grade fixed income funds, several
high grade-high yield fixed income funds and several off-shore closed-end fixed
income funds.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company
("ESC"), 200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's
transfer agent and dividend disbursing agent. ESC is an indirect, wholly-owned
subsidiary of First Union Corporation.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a
subsidiary of The BISYS Group, Inc., located at 125 West 55th Street, New York,
New York 10019, is the principal underwriter of the Fund.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. The Fund's Class A, Class B and Class C shares pay
for the expenses associated with the distribution of such shares according to
distribution plans adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") (each a "Plan" or collectively the "Plans"). Under
the Plans, the Fund may incur 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%
9
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include the Fund's investment adviser or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Fund may not pay any distribution or service fees during any
fiscal period in excess of the amounts set forth above. Amounts paid under the
Distribution Plans are used to compensate the Fund's distributor pursuant to the
Distribution Agreements entered into by the Fund.
Distribution Agreements. The Fund has also entered into distribution
agreements (each a "Distribution Agreement" or collectively the "Distribution
Agreements") with EDI. Pursuant to the Distribution Agreements, the Fund will
compensate EDI for its services as distributor based upon the maximum annual
rate as a percentage of the Fund's average daily net assets attributable to the
Class, as follows:
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
The Distribution Agreements provide that EDI will use the distribution
fee received from the Fund for payments (1) to compensate broker-dealers or
other persons for distributing shares of the Fund, including interest and
principal payments made in respect of amounts paid to broker-dealers or other
persons that have been financed (EDI may assign its rights to receive
compensation under the Plans to secure such financings), (2) to otherwise
promote the sale of shares of the Fund, and (3) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Fund's
shareholders. FUNB or its affiliates may finance the payments made by EDI to
compensate broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of other mutual funds,
compensation paid to EDI under the Distribution Agreements may be paid by EDI to
the distributors of the funds or their predecessors.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by EDI under the Distribution Agreements during any year may be more or
less than its actual expenses and may result in a profit to EDI. Distribution
expenses incurred by EDI in one fiscal year that exceed the level of
compensation paid to EDI for that year may be paid from distribution fees
received from the Fund in subsequent fiscal years.
- -------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- -------------------------------------------------------------------------------
HOW TO BUY SHARES
You may purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of the Fund by mailing to the Fund, c/o Evergreen Service
Company, P.O. Box 2121, Boston, Massachusetts 02106-2121, a completed
Application and a check payable to the Fund. You may also telephone
1-800-343-2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed Application. The
minimum initial investment is $1,000, which may be waived in certain situations.
Subsequent investments in any amount may be made by check, by wiring federal
funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of
$25 or more are allowed under the Systematic Investment Plan. See the
Application for more information. Only Class A, Class B and Class C shares are
offered through this Prospectus. (See "General Information-Other Classes of
Shares.")
10
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
As a % of As a %
the Net of the
Amount Offering
Amount of Purchase Invested Price Commission to Dealer/
Agent as a % of Offering Price
- --------------------- --------- -------- ------------------------------------
Less than $50,000 3.36% 3.25% 2.75%
$ 50,000 - $ 99,999 3.09% 3.00% 2.75%
$ 100,000 - $249,999 2.56% 2.50% 2.25%
$ 250,000 - $499,999 2.04% 2.00% 1.75%
$ 500,000 - $999,999 1.52% 1.50% 1.25%
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
$1,000,000 or more None None 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.
Class A shares may also be purchased at net asset value by corporate or
certain other qualified retirement plans or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees, or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Fund. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to 0.25% of the average
daily net asset value on an annual basis of Class A shares held by their
clients. Certain purchases of Class A shares may qualify for reduced sales
charges in accordance with the Fund's Concurrent Purchases, Rights of
Accumulation, Letter of Intent, certain Retirement Plans and Reinstatement
Privilege. Consult the Application for additional information concerning these
reduced sales charges.
Class B Shares-Deferred Sales Charge Alternative. You may purchase
Class B shares at net asset value without an initial sales charge. However, you
may pay a CDSC if you redeem shares within six years after the month of
purchase. The amount of the CDSC (expressed as a percentage of the lesser of the
current net asset value or original cost) will vary according to the number of
years from the month of purchase of Class B shares as set forth below. 11
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
- -------------------------------------------------------------------------------------- -------
<S> <C>
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%
</TABLE>
No CDSC is imposed on amounts redeemed thereafter.
The CDSC is deducted from the amount of the redemption and is paid to
EDI. In the event the Fund acquires the assets of other mutual funds, the CDSC
may be paid by EDI to the distributors of the acquired funds. Class B shares are
subject to higher distribution and/or shareholder service fees than Class A
shares for a period of seven years after the month of purchase (after which it
is expected that they will convert to Class A shares without imposition of a
front-end sales charge). The higher fees mean a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower net asset value
than Class A shares. The Fund will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the
calendar month in which the shareholder's purchase order was accepted, Class B
shares will automatically convert to Class A shares and will no longer be
subject to the higher distribution services fee imposed on Class B shares. Such
conversion will be on the basis of the relative net asset values of the two
Classes, without the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to reduce the distribution and service fees
paid by holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
Class C Shares-Level-Load Alternative. Class C shares are only offered
through broker-dealers who have special distribution agreements with EDI. You
may purchase Class C shares at net asset value without any initial sales charge
and, therefore, the full amount of your investment will be used to purchase Fund
shares. However, you will pay a 1.00% CDSC if you redeem shares during the month
of purchase and the 12-month period following the month of purchase. No CDSC is
imposed on amounts redeemed thereafter. Class C shares incur higher distribution
and/or shareholder service fees than Class A shares but, unlike Class B shares,
do not convert to any other class of shares of the Fund. The higher fees mean a
higher expense ratio, so Class C shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares. The Fund will not normally
accept any purchase of Class C shares in the amount of $500,000 or more. No CDSC
will be imposed on Class C shares purchased by institutional investors and
through employee benefit and savings plans eligible for the exemption from
front-end sales charges described under "Class A Shares-Front-End Sales Charge
Alternative" above. Broker-dealers and other financial intermediaries whose
clients have purchased Class C shares may receive a trailing commission equal to
0.75% of the average daily net asset value of such shares on an annual basis
held by their clients more than one year from the date of purchase. Trailing
commissions will commence immediately with respect to shares eligible for
exemption from the CDSC normally applicable to Class C shares.
Contingent Deferred Sales Charge. Certain shares with respect to which
the Fund did not pay a commission on issuance, including shares obtained from
dividend or distribution reinvestment, are not subject to a CDSC. Any CDSC
imposed upon the redemption of Class A, Class B or Class C shares is a
percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net asset value at the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event
of: (1) death or disability of the shareholder; (2) a lump-sum distribution from
a 401(k) plan or other benefit plan qualified under the Employee Retirement
Income Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA
plans if the shareholder is at least 591/2 years old; (4) involuntary
redemptions of accounts having an aggregate net asset value of less than $1,000;
(5) automatic withdrawals under the Systematic Withdrawal Plan of up to 1.00%
per month of the shareholder's initial account balance; (6) withdrawals
consisting of loan proceeds to a retirement plan participant; (7) financial
hardship withdrawals made by a retirement plan participant; or (8) withdrawals
consisting of returns of excess contributions or excess deferral amounts made to
a retirement plan participant.
The Fund may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or CDSC to certain Directors, Trustees,
officers and employees of the Fund, Keystone, FUNB, Evergreen Asset Management
Corp. ("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.
12
How the Fund Values Its Shares. The net asset value of each Class of
shares of the Fund is calculated by dividing the value of the amount of the
Fund's net assets attributable to that Class by the number of outstanding shares
of that Class. Shares are valued each day the New York Stock Exchange (the
"Exchange") is open as of the close of regular trading (currently 4:00 p.m.
Eastern time). The securities in the Fund are valued at their current market
values determined on the basis of market quotations or, if such quotations are
not readily available, such other methods as the Trustees believe would
accurately reflect fair value. Non-dollar denominated securities will be valued
as of the close of the Exchange at the closing price of such securities in their
principal trading markets.
General. The decision as to which Class of shares is more beneficial to
you depends on the amount of your investment and the length of time you will
hold it. If you are making a large investment, thus qualifying for a reduced
sales charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year after the month of purchase. Consult your financial intermediary
for further information. The compensation received by broker-dealers and agents
may differ depending on whether they sell Class A, Class B or Class C shares.
There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EDI
may from time to time pay to broker-dealers additional cash or other incentives
that are conditioned upon the sale of a specified minimum dollar amount of
shares of the Fund and/or other Evergreen funds. Such incentives will take the
form of payment for attendance at seminars, lunches, dinners, sporting events or
theater performances, or payment for travel, lodging and entertainment incurred
in connection with travel by persons associated with a broker-dealer and their
immediate family members to urban or resort locations within or outside the
United States. Such a dealer may elect to receive cash incentives of equivalent
amount in lieu of such payments. EDI may also limit the availability of such
incentives to certain specified dealers. EDI from time to time sponsors
promotions involving First Union Brokerage Services, Inc., an affiliate of the
Fund's investment adviser, and select broker-dealers, pursuant to which
incentives are paid, including gift certificates and payments in amounts up to
1% of the dollar amount of shares of the Fund sold. Awards may also be made
based on the opening of a minimum number of accounts. Such promotions are not
being made available to all broker-dealers. Certain broker-dealers may also
receive payments from EDI or the Fund's investment adviser over and above the
usual trail commissions or shareholder servicing payments applicable to a given
Class of shares.
Additional Purchase Information. As a condition of this offering, if a
purchase is canceled due to nonpayment or because an investor's check does not
clear, the investor will be responsible for any loss the Fund or the Fund's
investment adviser incurs. If such investor is an existing shareholder, the Fund
may redeem shares from an investor's account to reimburse the Fund or its
investment adviser for any loss. In addition, such investor may be prohibited or
restricted from making further purchases in any of the Evergreen funds. The Fund
will not accept third party checks other than those payable directly to a
shareholder whose account has been in existence at least 30 days.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your shares in the Fund to the Fund for
cash at their net redemption value on any day the Exchange is open, either
directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent (less any applicable CDSC) next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to 15 days). Once a redemption 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).
13
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate section on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (1) be mailed by check to the shareholder at the address in
which the account is registered or (2) be wired to an account with the same
registration as the shareholder's account in the Fund at a designated commercial
bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific
fund account information and price and yield quotations as well as the ability
to do account transactions, including investments, exchanges and redemptions.
You may access the Evergreen Express Line by dialing toll free 1-800-346-3858 on
any touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income
tax purposes. The Fund may temporarily suspend the right to redeem its shares
when: (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Fund cannot dispose of its investments or fairly determine their value; or
(4) the Securities and Exchange Commission ("SEC") so orders. The Fund reserves
the right to close an account that through redemption has fallen below $1,000
and has remained so for 30 days. Shareholders will receive 60 days' written
notice to increase the account value to at least $1,000 before the account is
closed. The Fund has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Fund is obligated to redeem shares solely in cash, up to
the lesser of $250,000 or 1% of the Fund's total net assets, during any 90 day
period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for
shares of the same class in the other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
14
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 telephone. If you wish to
use the telephone exchange service you should indicate this on the Application.
As noted above, the Fund will employ reasonable procedures to confirm that
instructions for the redemption or exchange of shares communicated by telephone
are genuine. A telephone exchange may be refused by the Fund or ESC if it is
believed advisable to do so. Procedures for exchanging Fund shares by telephone
may be modified or terminated at any time. Written requests for exchanges should
follow the same procedures outlined for written redemption requests in the
section entitled "How to Redeem Shares;" however, no signature guarantee is
required.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
Prospectus. Some services are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may
invest as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing
account electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is
opened or when an existing account reaches that size, you may participate in the
Systematic Withdrawal Plan by filling out the appropriate part of the
Application. Under this Plan, you may receive (or designate a third party to
receive) a monthly or quarterly fixed-withdrawal payment in a stated amount of
at least $75 and as much as 1.0% per month or 3.0% per quarter of the total net
asset value of the Fund shares in your account when the Plan was opened. Fund
shares will be redeemed as necessary to meet withdrawal payments. All
participants must elect to have their dividends and capital gains distributions
reinvested automatically.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified employee benefit and savings plans may make shares
of the Fund and the other Evergreen funds available to their participants.
Investments made by such employee benefit plans may be exempt from front-end
sales charges if they meet the criteria set forth under "Class A
Shares-Front-End Sales Charge Alternative." Evergreen Asset, Keystone or FUNB
may provide compensation to organizations providing administrative and
recordkeeping services to plans which make shares of the Evergreen funds
available to their participants.
15
Automatic Reinvestment Plan. For the convenience of investors, all
dividends and distributions are automatically reinvested in full and fractional
shares of a Fund at the net asset value per share at the close of business on
the record date, unless otherwise requested by a shareholder in writing. If the
transfer agent does not receive a written request for subsequent dividends
and/or distributions to be paid in cash at least three full business days prior
to a given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a
fixed dollar amount each month or each quarter in any Evergreen fund. This
results in more shares being purchased when the selected fund's net asset value
is relatively low and fewer shares being purchased when the fund's net asset
value is relatively high and may result in a lower average cost per share than a
less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the Application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital
gains distributions from any Evergreen fund shares you own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your Application and indicate the Evergreen fund(s)
into which distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Salary
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity Plans;
403(b)(7) Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; Medical
Savings Accounts; Pension and Target Benefit and Money Purchase Plans. For
details, including fees and application forms, call toll free 1-800-247-4075 or
write to ESC.
BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and FUNB are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If Keystone were prevented from continuing to provide
the services called for under the investment advisory agreement, it is expected
that the Trustees would identify, and call upon the Fund's shareholders to
approve, a new investment adviser. If this were to occur, 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 declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly. The Fund intends to
declare and distribute all 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.
16
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front-end sales charge, while Class B and, when
applicable, Class C shares bear such expenses through a higher annual
distribution fee, expenses attributable to Class B shares and Class C shares
will generally be higher than those of Class A shares, and income distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States federal income tax may be entitled, subject to certain
rules and limitations, to claim a federal income tax credit or deduction for
foreign income taxes paid by the Fund. See the SAI for additional details. The
Fund's transactions in options, futures and forward contracts may be subject to
special tax rules. These rules can affect the amount, timing and characteristics
of distributions to shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding. A shareholder who acquires Class A shares of a Fund and sells or
otherwise disposes of such shares within ninety days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of the Fund.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover 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.
17
Portfolio Transactions. Consistent with the Conduct Rules of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, the Fund may consider sales of its shares as a factor in
the selection of broker-dealers to enter into portfolio transactions with the
Fund.
Other Classes of Shares. The Fund currently offers four classes of
shares, Class A, Class B, Class C and Class Y, and may in the future offer
additional classes. Class Y shares are not offered by this Prospectus and are
only available to (1) persons who at or prior to December 31, 1994 owned shares
in a mutual fund advised by Evergreen Asset, (2) certain institutional investors
and (3) investment advisory clients of FUNB, Evergreen Asset, Keystone or their
affiliates. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing-related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares. Investors should telephone (800) 343-2898 to obtain more information on
other classes of shares.
Performance Information. From time to time, the Fund may quote its
"total return" or "yield" for a specified period in 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 a 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 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.
18
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
542082
<PAGE>
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PROSPECTUS
November 10, 1997
- -------------------------------------------------------------------------------
Evergreen Short and
Intermediate Term Bond Funds
- -------------------------------------------------------------------------------
Evergreen Intermediate Term Bond Fund
CLASS Y SHARES
The Evergreen Intermediate Term Bond Fund (the "Fund") seeks current
income by investing primarily in a broad range of investment quality debt
securities. As a secondary objective, the Fund seeks to protect capital.
This Prospectus provides information regarding the Class Y shares
offered by the Fund. The Fund is a diversified series of an open-end, management
investment company. This Prospectus sets forth concise information about the
Fund that a prospective investor should know before investing. The address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Fund dated November 10,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Fund at (800) 343-2898. There can
be no assurance that the investment objectives 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
TABLE OF CONTENTS
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 4
DESCRIPTION OF THE FUND 4
Investment Objectives and Policies 4
Investment Practices and Restrictions 5
ORGANIZATION AND SERVICE PROVIDERS 9
Organization 9
Service Providers 9
PURCHASE AND REDEMPTION OF SHARES 10
How to Buy Shares 10
How to Redeem Shares 10
Exchange Privilege 11
Shareholder Services 12
Banking Laws 13
OTHER INFORMATION 13
Dividends, Distributions and Taxes 13
General Information 14
2
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EXPENSE INFORMATION
- -------------------------------------------------------------------------------
The table and example below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending June 30, 1998. The example shows what you would pay if you
invested $1,000 over the periods indicated. The example assumes that you
reinvest all of your dividends and that the Fund's average annual return will be
5%. The example is for illustration purposes only and should not be considered a
representation of past or future expenses or annual return. The Fund's actual
expenses and returns will vary. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
ANNUAL OPERATING EXPENSES(1) Example
(After Expense Reimbursement)
Management Fees .64% After 1 Year $ 9
12b-1 Fees -
Other Expenses .21% After 3 Years $27
----
Total .85%
====
(1) The Annual Operating Expenses and example reflect fee waivers and expense
reimbursements where applicable. Projected expenses for Class Y shares are
expected to be 1.20%. From time to time the Fund's expenses may be reduced,
waived or reimbursed to the Fund in order to reduce its expense ratios.
These waivers and reimbursements may cease at any time.
3
- -------------------------------------------------------------------------------
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 OBJECTIVES AND POLICIES
The Fund seeks current income by investing primarily in a broad range
of investment quality debt securities, and as a secondary objective, seeks to
protect capital. Where appropriate, the Fund will take advantage of the
opportunities to realize capital appreciation.
The Fund's investment objectives are nonfundamental; as a result the
Fund may change its objectives 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 objectives will be achieved.
Principal Investments and Investment Policies. The Fund seeks current
income by normally investing at least 80% of its assets in debt securities
including: U.S. Treasury bills, notes and bonds; mortgage-backed securities
issued by the U.S. government, its agencies or instrumentalities;
mortgage-backed securities issued by private issuers; corporate debt securities;
and commercial paper. The Fund's debt securities may also include fixed and
adjustable rate or stripped bonds, debentures, notes, equipment trust
certificates and debt securities convertible into, or exchangeable for,
preferred or common stock. The Fund may also invest in units, which are debt
securities with stock or warrants to buy stock attached, and preferred stock.
Under ordinary circumstances, the Fund expects to invest at least 65%
of its assets in bonds and debentures. The Fund will invest in securities that,
at the time of investment, are rated within the four highest grades 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) or by Fitch Investors Services, L.P.
("Fitch") (AAA, AA, A and BBB), or if not rated or rated under a different
system, are of comparable quality to obligations so rated, as determined by its
investment adviser. The Fund may invest up to 25% of its assets in
below-investment grade securities having a rating range of BB to CCC by S&P and
Ba to Caa by Moody's, or if unrated or rated under a different system, believed
by its investment adviser to be of comparable quality. For a description of such
ratings, see the Fund's SAI.
The Fund may also invest up to 50% of its assets in securities that are
principally traded in securities markets located outside the United States.
The Fund currently expects that the dollar weighted average maturity of
its investments will range from 3 to 7 years. However, the Fund may invest in
securities with remaining maturities of ten years or fewer.
Bonds which are rated BBB or Baa are considered to be 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. 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. Such bonds lack outstanding investment characteristics and may have
speculative characteristics.
When the Fund buys securities, it will consider the ratings of Moody's,
S&P and Fitch assigned to various debt securities as well as many other factors,
including the preservation of capital, the potential for realizing capital
appreciation, maturity and yield to maturity. The Fund will adjust its
investments in particular securities or in types of debt securities in response
to its appraisal of changing economic conditions and trends. The Fund may sell
one security and purchase another security of comparable quality and maturity to
take advantage of what it believes to be short-term differentials in market
value or yield disparities.
4
Other Eligible Securities. The Fund may invest up to 20% of its total
assets under ordinary circumstances and, when in its investment adviser's
opinion market conditions warrant, up to 100% of its assets for temporary
defensive purposes in the following types of money market instruments: (1)
commercial paper, including master demand notes, that at the date of investment
is rated A-1, the highest grade by S&P, P-1, the highest grade by Moody's or, if
not rated by such services, is issued by a company which at the date of
investment has an outstanding issue rated A or better by S&P or Moody's; (2)
obligations, including certificates of deposit and bankers' acceptances, of
banks or savings and loan associations having at least $1 billion in assets that
are members of the Federal Deposit Insurance Corporation including U.S. branches
of foreign banks and foreign branches of U.S. banks; (3) corporate obligations
which at the date of investment are rated A or better by S&P or Moody's; and (4)
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Fund may also invest in certain other types of derivative
instruments, including interest rate swaps, equity swaps, index swaps, currency
swaps and caps and floors, in addition to forwards, futures, options,
mortgage-backed securities and other asset-backed securities mentioned below.
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.
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.
Repurchase agreements are agreements 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 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.
7
Securities Lending. To generate income and offset expenses, the Fund
may lend securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may
invest in the securities of other investment companies. As a shareholder of
another investment company, the Fund would pay its portion of the other
investment company's expenses. These expenses would be in addition to the
expenses that the Fund currently bears concerning its own operations and may
result in some duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 331/3% 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. The inability of the Fund to dispose
of illiquid or not readily marketable investments readily or at a reasonable
price could impair the Fund's ability to raise cash for redemptions or other
purposes.
Restricted Securities. The Fund may invest in restricted securities,
including securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). Generally, Rule 144A establishes a safe
harbor from the registration requirements of the 1933 Act for resale by large
institutional investors of securities not publicly traded in the United States.
The Fund's investment adviser determines the liquidity of Rule 144A securities
according to guidelines and procedures adopted by the Fund's Board of Trustees.
The Board of Trustees monitors the investment adviser's application of those
guidelines and procedures. Securities eligible for resale pursuant to Rule 144A,
which the Fund's investment adviser has determined to be liquid or readily
marketable, are not subject to the 15% limit on illiquid securities.
Futures. The Fund may engage in futures transactions. Futures
transactions are intended to enable the Fund to manage market or interest rate
risk. The Fund does not use these transactions for speculation or leverage.
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 rates, 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 or 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.
6
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract. 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 it would continue to bear market
risk on the transaction.
Risk Characteristics of Futures. Although futures transactions are
intended to enable the Fund to manage market 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 return may be reduced). The Fund's
attempt to use such investment devices for hedging purposes may not be
successful. Successful futures strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors. When
the Fund uses financial futures contracts and options on financial futures
contracts as hedging devices, there is a risk that the prices of the securities
subject to the financial futures contracts and options on financial futures
contracts may not correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the financial futures contract and any related
options to react to market changes differently than the portfolio securities. In
addition, the Fund's investment adviser could be incorrect in its expectations
and forecasts about the direction or extent of market factors, such as interest
rates, securities price movements, and other economic factors. Even if the
Fund's investment adviser correctly predicts interest rate movements, a hedge
could be unsuccessful if changes in the value of the Fund's futures position did
not correspond to changes in the value of its investments. In these events, the
Fund may lose money on the financial futures contracts or the options on
financial futures contracts. It is not certain that a secondary market for
positions in financial futures contracts or for options on financial futures
contracts will exist at all times. Although the Fund's investment adviser will
consider liquidity before entering into financial futures contracts or options
on financial futures contracts, there is no assurance that a liquid secondary
market on an exchange will exist for any particular financial futures contract
or option on a financial futures contract at any particular time. The Fund's
ability to establish and close out financial futures contracts and options on
financial futures contract positions depends on this secondary market. If the
Fund is unable to close out its position due to disruptions in the market or
lack of liquidity, the Fund may lose money on the futures contract or option,
and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based
on an underlying asset, such as a stock or a bond, or an underlying economic
factor, such as an index or an interest rate.
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
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 be affected by the strength
of foreign currencies relative to the U.S. dollar, or by political or economic
developments in foreign countries. Accounting procedures and government
supervision may be less stringent than those applicable to U.S. companies. There
may be less publicly available information about a foreign company than about a
U.S. company. Foreign markets may be less liquid or more volatile than U.S.
markets and may offer less protection to investors. It may also be more
difficult to enforce contractual obligations abroad than would be the case in
the United States because of differences in the legal systems. Foreign
securities may be subject to foreign taxes, which may reduce yield, and may be
less marketable than comparable U.S. securities. All these factors are
considered by the Fund's investment adviser before making any of these types of
investments.
Foreign Currency Transactions. As discussed above, the Fund may invest
in securities of foreign issuers. When the Fund invests in foreign securities,
they usually will be denominated in foreign currencies, and the Fund temporarily
may hold funds in foreign currencies. Thus, the value of Fund shares will be
affected by changes in exchange rates.
7
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.
Stripped Securities. The U.S. Treasury has facilitated transfers of
ownership of zero-coupon securities by accounting separately for the beneficial
ownership of particular interest coupons and corpus payments on U.S. Treasury
securities through the Federal Reserve book-entry record-keeping system. The
Federal Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, the Fund will be able to have its
beneficial ownership of U.S. Treasury zero-coupon securities recorded directly
in the book-entry record-keeping system in lieu of having to hold certificates
or other evidence of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Risk Characteristics Of Asset-Backed Securities. The Fund may invest in
asset-backed securities. Asset-backed securities are created by the grouping of
certain governmental, government-related and private loans, receivables and
other lender assets into pools. Interests in these pools are sold as individual
securities. Payments from the asset pools may be divided into several different
tranches of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which may
be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage-backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Fund receives from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as
collateralized mortgage obligations, prepayments may be allocated to one tranche
of securities ahead of other tranches in order to reduce the risk of prepayment
for the other tranches.
Prepayments may result in a capital loss to the Fund to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be taxed as ordinary
income when distributed to the shareholders. The credit characteristics of
asset-backed securities also differ in a number of respects from those of
traditional debt securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets underlying such
securities, how well the entity issuing the securities is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement to such securities.
8
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ORGANIZATION AND SERVICE PROVIDERS
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ORGANIZATION
Fund Structure. The Fund is an investment pool, which invests
shareholders' money toward a specified goal. In technical terms, the Fund is a
diversified series of an open-end management investment company, called
Evergreen Fixed Income 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
2.0% of gross dividend and interest income of the Fund plus 0.50% of the first
$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.45% of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35%
of the next $100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of
amounts over $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 Christopher C.
Conkey. Mr. Conkey has served as Chief Investment Officer of Fixed Income for
the past nine months and as Head of the High Grade Bond Team for Keystone for
the last three years. During the past five years at Keystone Mr. Conkey has also
served as portfolio manager of several high grade fixed income funds, several
high grade-high yield fixed income funds and several off-shore closed-end fixed
income funds.
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.
9
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PURCHASE AND REDEMPTION OF SHARES
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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 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 investor may be prohibited or
restricted from making further purchases in any of the Evergreen funds. The Fund
will not accept third party checks other than those payable directly to a
shareholder whose account has been in existence at least 30 days.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your Class Y shares in the Fund to the
Fund for cash at their net redemption value on any day the Exchange is open,
either directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, the Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must
receive instructions from your financial intermediary before 4:00 p.m. (Eastern
time) for you to receive that day's net asset value. Your financial intermediary
is responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners.
10
Signature guarantees are required for all redemption requests for
shares with a value of more than $50,000. Currently, the requirement for a
signature guarantee has been waived on redemptions of $50,000 or less when the
account address of record has been the same for a minimum period of 30 days. The
Fund and ESC reserve the right to withdraw this waiver at any time. A signature
guarantee must be provided by a bank or trust company (not a Notary Public), a
member firm of a domestic stock exchange or by other financial institutions
whose guarantees are acceptable under the Securities Exchange Act of 1934 and
ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 6:00 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate section on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (1) be mailed by check to the shareholder at the address in
which the account is registered or (2) be wired to an account with the same
registration as the shareholder's account in the Fund at a designated commercial
bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific
fund account information and price and yield quotations as well as the ability
to do account transactions, including investments, exchanges and redemptions.
You may access the Evergreen Express Line by dialing toll free 1-800-346-3858 on
any touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income
tax purposes. The Fund may temporarily suspend the right to redeem its shares
when: (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Fund cannot dispose of its investments or fairly determine their value; or
(4) the Securities and Exchange Commission ("SEC") so orders. The Fund reserves
the right to close an account that through redemption has fallen below $1,000
and has remained so for 30 days. Shareholders will receive 60 days' written
notice to increase the account value to at least $1,000 before the account is
closed. The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 (the "1940 Act") pursuant to which the Fund is obligated to
redeem shares solely in cash, up to the lesser of $250,000 or 1% of the Fund's
total net assets, during any 90 day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your Class Y
shares for shares of the same class in the other Evergreen funds through your
financial intermediary, by calling or writing to ESC or by using the Evergreen
Express Line as described above. Once an exchange request has been telephoned or
mailed, it is irrevocable and may not be modified or canceled. Exchanges will be
made on the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
11
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, the Fund will employ reasonable procedures to confirm that
instructions for the redemption or exchange of shares communicated by telephone
are genuine. A telephone exchange may be refused by the Fund or ESC if it is
believed advisable to do so. Procedures for exchanging Fund shares by telephone
may be modified or terminated at any time. Written requests for exchanges should
follow the same procedures outlined for written redemption requests in the
section entitled "How to Redeem Shares;" however, no signature guarantee is
required.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
Prospectus. Some services are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may
invest as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing
account electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is
opened or when an existing account reaches that size, you may participate in the
Systematic Withdrawal Plan by filling out the appropriate part of the
Application. Under this Plan, you may receive (or designate a third party to
receive) a monthly or quarterly fixed-withdrawal payment in a stated amount of
at least $75 and as much as 1.0% per month or 3.0% per quarter of the total net
asset value of the Fund shares in your account when the Plan was opened. Fund
shares will be redeemed as necessary to meet withdrawal payments. All
participants must elect to have their dividends and capital gains distributions
reinvested automatically.
Automatic Reinvestment Plan. For the convenience of investors, all
dividends and distributions are automatically reinvested in full and fractional
shares of a Fund at the net asset value per share at the close of business on
the record date, unless otherwise requested by a shareholder in writing. If the
transfer agent does not receive a written request for subsequent dividends
and/or distributions to be paid in cash at least three full business days prior
to a given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a
fixed dollar amount each month or each quarter in any Evergreen fund. This
results in more shares being purchased when the selected fund's net asset value
is relatively low and fewer shares being purchased when the fund's net asset
value is relatively high and may result in a lower average cost per share than a
less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the Application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
12
Two Dimensional Investing. You may elect to have income and capital
gains distributions from any Class Y Evergreen fund shares you own automatically
invested to purchase the same class of shares of any other Evergreen fund. You
may select this service on your Application and indicate the Evergreen fund(s)
into which distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Salary
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity Plans;
403(b)(7) Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; Medical
Savings Accounts; Pension and Target Benefit and Money Purchase Plans. For
details, including fees and application forms, call toll free 1-800-247-4075 or
write to ESC.
BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and FUNB are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If Keystone were prevented from continuing to provide
the services called for under the investment advisory agreement, it is expected
that the Trustees would identify, and call upon the Fund's shareholders to
approve, a new investment adviser. If this were to occur, it is not anticipated
that the shareholders of the Fund would suffer any adverse financial
consequences.
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OTHER INFORMATION
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DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly. The Fund intends to
declare and distribute all net realized capital gains at least annually.
Shareholders receive Fund distributions in the form of additional shares of that
class of shares upon which the distribution is based or, at the shareholder's
option, in cash. Shareholders of the Fund who have not opted to receive cash
prior to the payable date for any dividend from net investment income or the
record date for any capital gains distribution will have the number of such
shares determined on the basis of the Fund's net asset value per share computed
at the end of that day after adjustment for the distribution. Net asset value is
used in computing the number of shares in both capital gains and income
distribution investments.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
13
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 capital
gain dividend.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover 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. Investors should telephone (800)
343-2898 to obtain more information on other classes of shares.
Performance Information. From time to time, the Fund may quote its
"total return" or "yield" for a specified period in advertisements, reports or
other communications to shareholders. Total return and yield are computed
separately for Class A, Class B, Class C and Class Y shares. The Fund's total
return for each such period is computed by finding, through the use of a formula
prescribed by the SEC, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to the value of the
investment at the end of the period. For purposes of computing total return,
dividends and capital gains distributions paid on shares of the Fund are assumed
to have been reinvested when paid and the maximum sales charges applicable to
purchases of the Fund's shares are assumed to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share 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.
14
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 a 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 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.
15
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
542083
