PROSPECTUS/PROXY STATEMENT DATED NOVEMBER 14, 1997
Acquisition of Assets of
KEYSTONE QUALITY BOND FUND (B-1)
200 Berkeley Street
Boston, Massachusetts 02116
and
KEYSTONE DIVERSIFIED BOND FUND (B-2)
200 Berkeley Street
Boston, Massachusetts 02116
By and in Exchange for Shares of
EVERGREEN DIVERSIFIED BOND FUND
a series of
Evergreen Fixed Income Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
Keystone Quality Bond Fund (B-1) ("Keystone Quality") and Keystone Diversified
Bond Fund (B-2) ("Keystone Diversified") in connection with a proposed Agreement
and Plan of Reorganization (the "Plan") to be submitted to shareholders of each
of Keystone Quality and Keystone Diversified for consideration at a Special
Meeting of Shareholders to be held on January 6, 1998 at 3:00 p.m. at the
offices of the Evergreen Keystone Funds, 200 Berkeley Street, Boston,
Massachusetts 02116, and any adjournments thereof (the "Meeting"). Each Plan
provides for all of the assets of Keystone Quality and Keystone Diversified,
respectively, to be acquired by Evergreen Diversified Bond Fund ("Evergreen
Diversified Bond") in exchange for shares of Evergreen Diversified Bond and the
assumption by Evergreen Diversified Bond of certain identified liabilities of
Keystone Quality and Keystone Diversified, respectively (hereinafter referred to
individually as the "Reorganization" or collectively as the "Reorganizations").
Evergreen Diversified Bond, Keystone Quality and Keystone Diversified are
sometimes hereinafter referred to individually as the "Fund" and collectively as
the "Funds." Following the Reorganizations, shares of Evergreen Diversified Bond
will be distributed to shareholders of Keystone Quality and Keystone Diversified
in liquidation of Keystone Quality and Keystone Diversified and such Funds will
be terminated. Holders of shares of Keystone Quality and Keystone Diversified
will receive shares of Evergreen Diversified Bond having the same
distribution-related fees, shareholder servicing-related fees and contingent
deferred sales charges ("CDSCs"), if any, as the shares of Keystone Quality and
Keystone Diversified held by them prior to the Reorganizations. As a result of
the proposed Reorganizations, shareholders of Keystone Quality and Keystone
Diversified will
<PAGE>
receive that number of full and fractional shares of Evergreen Diversified Bond
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of Keystone Quality or Keystone Diversified. Each
Reorganization is being structured as a tax-free reorganization for federal
income tax purposes.
Evergreen Diversified Bond is a separate series of Evergreen Fixed
Income Trust, an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The investment
objective of Evergreen Diversified Bond is to seek maximum income without undue
risk of principal . Such investment objective is substantially similar to those
of Keystone Quality and Keystone Diversified.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Diversified Bond
that shareholders of Keystone Quality and Keystone Diversified should know
before voting on the Reorganizations. Certain relevant documents listed below,
which have been filed with the Securities and Exchange Commission ("SEC"), are
incorporated in whole or in part by reference. A Statement of Additional
Information dated November 14, 1997 relating to this Prospectus/Proxy Statement
and the Reorganizations incorporating by reference the financial statements of
Keystone Quality dated October 31, 1996 and April 30, 1997 and Keystone
Diversified dated August 31, 1997 has been filed with the SEC and is
incorporated by reference in its entirety into this Prospectus/Proxy Statement.
Evergreen Diversified Bond is a newly created series of Evergreen Fixed Income
Trust and has had no operations to date. Consequently, there are no current
financial statements of Evergreen Diversified Bond. A copy of such Statement of
Additional Information is available upon request and without charge by writing
to Evergreen Diversified Bond at 200 Berkeley Street, Boston, Massachusetts
02116, or by calling toll-free 1-800-343-2898.
The Prospectus of Evergreen Diversified Bond dated November 10, 1997 is
incorporated herein by reference in its entirety. The Prospectus, which pertains
to Class A, Class B and Class C shares, describes the separate distribution and
shareholder servicing arrangements applicable to the classes. Shareholders of
Keystone Quality and Keystone Diversified will receive, with this
Prospectus/Proxy Statement, copies of the Prospectus which describes the Class B
shares of Evergreen Diversified Bond that they will receive as a result of the
consummation of each Reorganization. Additional information about Evergreen
Diversified Bond is contained in its Statement of Additional Information of the
same date which has been
<PAGE>
filed with the SEC and which is available upon request and without charge by
writing to or calling Evergreen Diversified Bond at the address or telephone
number listed in the preceding paragraph.
The Prospectus of Keystone Quality dated February 28, 1997, as
supplemented, and the Prospectus of Keystone Diversified dated December 10,
1996, as supplemented, are incorporated herein in their entirety by reference.
Copies of the Prospectuses and related Statements of Additional Information
dated the same respective dates are available upon request without charge by
writing or calling the Fund of which you are a shareholder at the address listed
in the second preceding paragraph.
Included as Exhibits A-1 and A-2 to this Prospectus/Proxy Statement are
copies of each Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of any bank and are not insured or otherwise protected by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency and involve investment risk,
including possible loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES........................................ 5
SUMMARY................................................................ 10
Proposed Plans of Reorganization.............................. 10
Tax Consequences.............................................. 12
Investment Objectives and Policies
of the Funds ............................................... 12
Comparative Performance Information
for each Fund...................................... 13
Management of the Funds....................................... 13
Investment Adviser ........................................... 14
Portfolio Management.......................................... 14
Distribution of Shares........................................ 15
Purchase and Redemption Procedures............................ 18
Exchange Privileges........................................... 18
Dividend Policy............................................... 19
Risks......................................................... 20
REASONS FOR THE REORGANIZATIONS........................................ 22
Agreements and Plans of Reorganization........................ 25
Federal Income Tax Consequences............................... 28
Pro-forma Capitalization...................................... 29
Shareholder Information....................................... 30
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES....................... 32
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS........................ 34
Forms of Organization......................................... 34
Capitalization................................................ 35
Shareholder Liability......................................... 35
Shareholder Meetings and Voting Rights........................ 36
Liquidation or Dissolution.................................... 37
Liability and Indemnification of Trustees..................... 37
ADDITIONAL INFORMATION................................................. 39
VOTING INFORMATION CONCERNING THE MEETINGS............................. 39
FINANCIAL STATEMENTS AND EXPERTS....................................... 42
LEGAL MATTERS.......................................................... 43
OTHER BUSINESS......................................................... 43
<PAGE>
COMPARISON OF FEES AND EXPENSES
It is anticipated that on or about January 9, 1998 Keystone Quality and
Keystone Diversified will each become a multiple class fund. As of that date
each Fund will offer Class A, Class B and Class C shares, each of which Class of
shares will be similar in all respects to the Class A, Class B and Class C
shares of Evergreen Diversified Bond. It is further anticipated that at that
time current outstanding shares of Keystone Quality and Keystone Diversified
will become Class B shares of each Fund. On or about January 16, 1998, it is
anticipated that any Class B shares of Keystone Quality and Keystone Diversified
purchased prior to January 1, 1995 will be converted to Class A shares of each
Fund. Should these events occur, shareholders of Keystone Quality and Keystone
Diversified will receive on the date of the Reorganizations the same Class of
shares of Evergreen Diversified Bond held by them in each Fund after January 16,
1998. See "Reasons for the Reorganizations - Pro forma Capitalization."
The amounts for shares of Keystone Quality and Keystone Diversified set
forth in the following tables and in the examples are based on the expenses for
the fiscal year ended October 31, 1996 and August 31, 1997, respectively. The
pro forma amounts for Class A, Class B and Class C shares of Evergreen
Diversified Bond are based on the estimated expenses of Evergreen Diversified
Bond for the fiscal year ending April 30, 1998.
The following tables show for Keystone Quality, Keystone Diversified
and Evergreen Diversified Bond pro forma the shareholder transaction expenses
and annual fund operating expenses associated with an investment in the shares
of each Fund. The pro forma numbers reflect the events described in the first
paragraph of this section.
Comparison of Shares of Evergreen Diversified
Bond With Shares of Keystone Quality
and Keystone Diversified
Keystone Quality
----------------
Shareholder
Transaction Expenses
<PAGE>
Contingent Deferred 4.00% in the
Sales Charge (as a first year,
percentage of original declining to
purchase price or 1.00% in the
redemption proceeds, fourth year and
whichever is lower) 0.00%
thereafter
Exchange Fee None
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee 0.60%
12b-1 Fees (1) 1.00%
Other Expenses 0.35%
--------
Annual Fund Operating
Expenses(3) 1.95%
--------
--------
Keystone Diversified
--------------------
Shareholder
Transaction Expenses
Contingent Deferred 4.00% in the
Sales Charge (as a first year,
percentage of original declining to
purchase price or 1.00% in the
redemption proceeds, fourth year and
whichever is lower) 0.00%
thereafter
Exchange Fee None
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee 0.55%
12b-1 Fees (1) 1.00%
<PAGE>
Other Expenses
0.33%
--------
Annual Fund Operating 1.88%
Expenses(3) --------
--------
<TABLE>
<CAPTION>
Evergreen Diversified Bond Pro Forma
Shareholder Class A Class B Class C
Transaction Expenses ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Load 4.75% None None
Imposed on Purchases
(as a percentage of
offering price)
Maximum Sales Load None None None
Imposed on Reinvested
Dividends (as a
percentage of offering
price)
Contingent Deferred None 5.00% in the 1.00% in
Sales Charge (as a first year, the first
percentage of original declining to year; 0.00%
purchase price or 1.00% in the thereafter
redemption proceeds, sixth year
whichever is lower) and 0.00%
thereafter
(2)
Exchange Fee None None None
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
0.52% 0.52% 0.52%
Management Fee
12b-1 Fees (1) 0.25% 1.00% 1.00%
Other Expenses 0.33% 0.33% 0.33%
----- ------- -----
Annual Fund Operating 1.10% 1.85% 1.85%
Expenses ----- ------- -----
----- ------- -----
- ---------------
</TABLE>
<PAGE>
(1) For shares of Keystone Quality and Keystone Diversified and for Class B
shares of Evergreen Diversified Bond, a portion of the 12b-1 fees
equivalent to 0.25% of average daily net assets will be shareholder
servicing-related. Distribution-related 12b-1 fees will be limited to 0.75%
of average daily net assets as permitted under the rules of the National
Association of Securities Dealers, Inc.
(2) The contingent deferred sales charge, if any, applicable to shares of
Keystone Quality and Keystone Diversified prior to the date of the
Reorganizations will carry over to the shares of Evergreen Diversified
Bond received in the Reorganizations.
(3) Expense ratios include indirectly paid expenses, which represent offset
arrangements with the Fund's custodian.
Examples. The following tables show for Keystone Quality and Keystone
Diversified, and for Evergreen Diversified Bond pro forma, assuming consummation
of the Reorganizations, examples of the cumulative effect of shareholder
transaction expenses and annual fund operating expenses indicated above on a
$1,000 investment in each class of shares for the periods specified, assuming
(i) a 5% annual return, and (ii) redemption at the end of such period, and
additionally for Class B and Class C shares of Evergreen Diversified Bond and
shares of Keystone Quality and Keystone Diversified, no redemption at the end of
each period.
<TABLE>
<CAPTION>
Keystone Quality
----------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
(Assuming $60 $81 $105 $227
redemption at end
of period)
(Assuming no $20 $61 $105 $227
redemption at end
of period)
</TABLE>
<TABLE>
<CAPTION>
Keystone Diversified
--------------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<PAGE>
<S> <C> <C> <C> <C>
(Assuming
redemption at end $59 $79 $220
of period) $102
(Assuming no $19 $59 $220
redemption at end $102
of period)
</TABLE>
<TABLE>
<CAPTION>
Evergreen Diversified Bond Pro Forma
------------------------------------
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
<S> <C> <C> <C> <C>
Class A $58 $81 $105 $175
Class B $69 $88 $120 $188
(Assuming
redemption at end
of period)
Class B $19 $58 $100 $188
(Assuming no
redemption at end
of period)
Class C $29 $58 $100 $217
(Assuming
redemption at end
of period)
Class C $19 $58 $100 $217
(Assuming no
redemption at end
of period)
</TABLE>
The purpose of the foregoing examples is to assist Keystone Quality and
Keystone Diversified shareholders in understanding the various costs and
expenses that an investor in Evergreen Diversified Bond as a result of the
Reorganizations would bear directly and indirectly, as compared with the various
direct and indirect expenses currently borne by a shareholder in each Fund.
These examples should not be considered a representation of past or future
expenses or annual return. Actual expenses may be greater or less than those
shown.
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement
and, to the extent not inconsistent with such additional information, the
Prospectus of Evergreen Diversified Bond dated November 10, 1997 and the
Prospectuses of Keystone Quality and Keystone Diversified dated February 28,
1997, as supplemented, and December 10, 1996, as supplemented, respectively,
(which are incorporated herein by reference), and the Plans, forms of which are
attached to this Prospectus/Proxy Statement as Exhibits A-1 and A-2.
Proposed Plans of Reorganization
The Plans provide for the transfer of all of the assets of Keystone
Quality and Keystone Diversified, as applicable, in exchange for shares of
Evergreen Diversified Bond and the assumption by Evergreen Diversified Bond of
certain identified liabilities of each Fund. The identified liabilities consist
only of those liabilities reflected on each Fund's statement of assets and
liabilities determined immediately preceding the Reorganizations. The Plans also
call for the distribution of shares of Evergreen Diversified Bond to Keystone
Quality and Keystone Diversified shareholders in liquidation of those Funds as
part of the Reorganizations. As a result of the Reorganizations, the
shareholders of Keystone Quality and Keystone Diversified will become the owners
of that number of full and fractional shares of Evergreen Diversified Bond
having an aggregate net asset value equal to the aggregate net asset value of
the shareholder's respective class of shares of Keystone Quality and Keystone
Diversified as of the close of business immediately prior to the date that such
Fund's assets are exchanged for shares of Evergreen Diversified Bond. See
"Reasons for the Reorganizations - Agreements and Plans of Reorganization."
The Trustees of Keystone Quality and the Trustees of Keystone
Diversified, including the Trustees who are not "interested persons," (the
"Trustees") as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganizations would be in the best
interests of shareholders of Keystone Quality and Keystone Diversified,
respectively, and that the interests of the shareholders of Keystone Quality and
Keystone Diversified, respectively, will not be diluted as a result of the
transactions contemplated by the Reorganizations. Accordingly, the Trustees have
submitted the Plans for the approval of Keystone Quality's and Keystone
Diversified's shareholders.
THE BOARD OF TRUSTEES OF KEYSTONE QUALITY
RECOMMENDS APPROVAL BY SHAREHOLDERS OF KEYSTONE
<PAGE>
QUALITY OF THE PLAN EFFECTING THE REORGANIZATION.
THE BOARD OF TRUSTEES OF KEYSTONE DIVERSIFIED
RECOMMENDS APPROVAL BY SHAREHOLDERS OF KEYSTONE
DIVERSIFIED OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Fixed Income Trust have also
approved the Plans, and accordingly, Evergreen Diversified
Bond's participation in the Reorganizations.
Approval of a Reorganization on the part of Keystone Quality and
Keystone Diversified will require the affirmative vote of a majority of each
Fund's shares present and entitled to vote at Meetings at which a quorum of each
Fund's shares is present. A majority of the outstanding shares entitled to vote
of each Fund, represented in person or by proxy, is required to constitute a
quorum at the Meetings. See "Voting Information Concerning the Meetings."
The Reorganizations are scheduled to take place on or about January 23,
1998.
If the shareholders of Keystone Quality or Keystone Diversified do not
vote to approve the Reorganizations, the Trustees will consider other possible
courses of action in the best interests of shareholders.
Tax Consequences
Prior to or at the completion of a Reorganization, Keystone Quality and
Keystone Diversified will each have received an opinion of counsel that the
Reorganization has been structured so that no gain or loss will be recognized by
the Fund or its shareholders for federal income tax purposes as a result of the
receipt of shares of Evergreen Diversified Bond in the Reorganization. The
holding period and aggregate tax basis of shares of Evergreen Diversified Bond
that are received by each Fund's shareholders will be the same as the holding
period and aggregate tax basis of shares of the Fund previously held by such
shareholders, provided that shares of the Fund are held as capital assets. In
addition, the holding period and tax basis of the assets of each Fund in the
hands of Evergreen Diversified Bond as a result of the Reorganization will be
the same as in the hands of each Fund immediately prior to the Reorganization,
and no gain or loss will be recognized by Evergreen Diversified Bond upon the
receipt of the assets of each Fund in exchange for shares of Evergreen
Diversified Bond and the assumption by Evergreen Diversified Bond of certain
identified liabilities.
Investment Objectives and Policies of the Funds
<PAGE>
The investment objective of Evergreen Diversified Bond is to seek
maximum income without undue risk of principal. Evergreen Diversified Bond will
invest at least 65% of its total assets in bonds, which are debt instruments
used by issuers to borrow money from investors. The Fund invests in debt
instruments that are normally characterized by relatively liberal returns and
moderate price fluctuations. Such debt instruments will be rated within the four
highest categories by a nationally recognized statistical ratings organization
("NRSRO").
Evergreen Diversified Bond may also invest in limited partnerships,
including master limited partnerships, up to 50% of its assets in foreign
securities and up to 35% of its assets in high yield, high risk bonds and
similar securities in the lower rating categories of a NRSRO. The Fund may also
invest in high grade money market instruments, fixed and adjustable rate or
stripped bonds and certain derivative securities, including futures and options.
The investment objective and policies of Keystone Diversified are identical to
those of Evergreen Diversified Bond.
The investment objective and policies of Keystone Quality are
substantially similar to those of Evergreen Diversified Bond except that
Keystone Quality invests at least 65% of its total assets in debt securities
rated within the three highest categories by a NRSRO and may not invest any of
its assets in high yield, high risk bonds and similar securities. See
"Comparison of Investment Objectives and Policies" below.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the respective Prospectuses and Statements of Additional Information of the
Funds. Evergreen Diversified Bond, as of the date of this Prospectus/Proxy
Statement, had not commenced operations. The total return of Keystone Quality
and Keystone Diversified for the one, five and ten year periods ended August 31,
1997 and for the periods from inception through August 31, 1997 is set forth in
the table below. The calculations of total return assume the reinvestment of all
dividends and capital gains distributions on the reinvestment date and the
deduction of all recurring expenses (including sales charges) that were charged
to shareholders' accounts.
<TABLE>
<CAPTION>
Average Annual Total Return
<PAGE>
1 Year 5 Years 10 Years From
Ended Ended Ended Inception
August 31, August August To August Inception
1997 31, 1997 31, 1997 31, 1997 Date
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
Keystone 4.74% 6.97% 5.15% 9/11/35
Quality 6.08%
Keystone 9.25% 6.55% 7.16% 6.95% 9/11/35
Diversified
</TABLE>
- --------------
Management of the Funds
The overall management of Evergreen Diversified Bond, of Keystone
Quality and of Keystone Diversified is the responsibility of, and is supervised
by, the Board of Trustees of Evergreen Fixed Income Trust, Keystone Quality and
Keystone
Diversified, respectively.
Investment Adviser
The investment adviser to Evergreen Diversified Bond, Keystone Quality
and Keystone Diversified is Keystone Investment Management Company ("Keystone").
Keystone has provided investment advisory and management services to investment
companies and private accounts since 1932. Keystone is an indirect wholly-owned
subsidiary of First Union National Bank ("FUNB"). Keystone is located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.
FUNB is a subsidiary of First Union Corporation, the sixth largest bank
holding company in the U.S. based on total assets as of June 30, 1997.
Evergreen Diversified Bond, Keystone Quality and Keystone Diversified
each pay Keystone a fee for its services at the annual rate below:
Aggregate Net Asset
Value of the Shares
Management Fee Income of the Fund
2.00% of Gross Dividend
and Interest Income
Plus
0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
<PAGE>
0.25% of amounts
over $500,000,000.
Keystone's fee is computed as of the close of business each business day and
payable monthly.
Keystone may, at its discretion, also reduce or waive its fee or
reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Keystone may reduce or cease these voluntary waivers and
reimbursements at any time.
Portfolio Management
The portfolio manager of both Evergreen Diversified Bond and Keystone
Diversified is Christopher C. Conkey. Mr. Conkey has served as the 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. Mr. Conkey joined Keystone
as a fixed income manager in 1988 and has managed Keystone Diversified's
portfolio since January, 1995.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen Diversified Bond's, Keystone
Quality's and Keystone Diversified's shares. EDI distributes each Fund's shares
directly or through broker-dealers, banks (including FUNB), or other financial
intermediaries. Evergreen Diversified Bond offers three classes of shares: Class
A, Class B and Class C. Keystone Quality and Keystone Diversified currently
offer only one class of shares. However, it is anticipated that on or about
January 9, 1998, Keystone Quality and Keystone Diversified will each offer three
classes of shares, Class A, Class B and Class C. Each class has separate
distribution arrangements. (See "Distribution-Related and Shareholder
Servicing-Related Expenses" below.) No class bears the distribution expenses
relating to the shares of any other class.
In the proposed Reorganizations, shareholders of Keystone Quality and
Keystone Diversified will receive Class A and/or Class B shares of Evergreen
Diversified Bond. As of January 9, 1998, it is anticipated that each class of
shares of Evergreen Diversified Bond, Keystone Quality and Keystone Diversified
will have identical arrangements with respect to CDSCs and distribution and
service fees. Because the Reorganizations will be effected at net asset value
without the imposition of a sales charge, Evergreen Diversified Bond
<PAGE>
shares acquired by shareholders of Keystone Quality and Keystone Diversified
pursuant to the proposed Reorganizations would not be subject to any initial
sales charge or CDSC as a result of the Reorganizations. However, shares
acquired as a result of the Reorganizations would continue to be subject to a
CDSC upon subsequent redemption to the same extent as if shareholders had
continued to hold their shares of Keystone Quality and Keystone Diversified. The
CDSC applicable to a class of shares received in the Reorganizations will be the
CDSC schedule in effect at the time shares of Keystone Quality or Keystone
Diversified were originally purchased.
The following is a summary description of charges and fees for each of
the different classes of shares. More detailed descriptions of the distribution
arrangements applicable to the classes of shares are contained in the respective
Evergreen Diversified Bond Prospectus, the Keystone Quality Prospectus, the
Keystone Diversified Prospectus and in each Fund's respective Statement of
Additional Information.
Currently, Keystone Quality and Keystone Diversified offer only one
class of shares. Shares are sold without any front-end sales charges, but are
subject to a CDSC which ranges from 4% to 1% if shares are redeemed during the
first four calendar years after purchase. In addition, shares are subject to
distribution-related and shareholder servicing- related fees as described below.
It is anticipated that Keystone Quality and Keystone Diversified will each
become a multiple class fund on or about January 9, 1998. Should this occur,
each Fund will offer three classes of shares identical to the Class A, Class B
and Class C shares of Evergreen Diversified Bond and hereafter described,
including identical distribution-related and shareholder servicing-related
expenses.
Class A Shares. Class A Evergreen Diversified Bond shares are sold at
net asset value plus an initial sales charge and, as indicated below, are
subject to distribution- related fees.
Class B Shares. Class B Evergreen Diversified Bond shares are sold
without an initial sales charge but are subject to a CDSC, which ranges from 5%
to 1%, if shares are redeemed during the first six years after the month of
purchase. In addition, Class B shares are subject to distribution-related fees
and shareholder servicing-related fees as described below. Class B shares issued
in the Reorganizations will automatically convert to Class A shares in
accordance with the conversion schedule of Evergreen Diversified Bond in effect
at the time of the Reorganizations. For purposes of determining when Class B
shares issued in the Reorganizations to shareholders of Keystone Quality and
Keystone Diversified will convert to Class A shares, such
<PAGE>
shares will be deemed to have been purchased as of the date the shares of
Keystone Quality and Keystone Diversified were originally purchased.
Class B shares are subject to higher distribution-related fees than the
corresponding Class A shares on which a front-end sales charge is imposed (until
they convert to Class A shares). The higher fees mean a higher expense ratio, so
Class B shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares of the Fund.
Class C Shares. Class C Evergreen Diversified Bond shares are sold
without an initial sales charge but, as indicated below, are subject to
distribution and shareholder servicing-related fees. Class C shares are subject
to a 1% CDSC if such shares are redeemed during the month of purchase and the
12-month period following the month of purchase. No CDSC is imposed on amounts
redeemed thereafter. Class C shares incur higher distribution and shareholder
servicing- related fees than Class A shares but, unlike Class B shares, do not
convert to any other class of shares.
The amount of the CDSC applicable to redemptions of shares of Keystone
Quality, Keystone Diversified and Evergreen Diversified Bond is charged as a
percentage of the lesser of the then current net asset value or original cost.
The CDSC is deducted from the amount of the redemption and is paid to the Fund's
distributor or its predecessor, as the case may be. Shares of each Fund acquired
through dividend or distribution reinvestment are not subject to a CDSC. For
purposes of determining the schedule of CDSCs, and the time of conversion to
Class A shares, applicable to shares of Evergreen Diversified Bond received by
Keystone Quality's or Keystone Diversified's shareholders in the
Reorganizations, Evergreen Diversified Bond will treat such shares as having
been sold on the date the shares of Keystone Quality or Keystone Diversified
were originally purchased by such Fund's shareholder. Additional information
regarding the Classes of shares of each Fund is included in its respective
Prospectus and Statement of Additional Information.
Distribution-Related and Shareholder Servicing-Related Expenses.
Evergreen Diversified Bond has adopted a Rule 12b-1 plan with respect to its
Class A shares under which the Class may pay for distribution-related expenses
at an annual rate which may not exceed 0.75% of average daily net assets
attributable to the Class. Payments with respect to Class A shares of Evergreen
Diversified Bond are currently limited to 0.25% of average daily net assets
attributable to the Class, which amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
<PAGE>
Evergreen Diversified Bond has also adopted a Rule 12b-1 plan with
respect to its Class B and Class C shares under which each Class may pay for
distribution-related and shareholder servicing-related expenses at an annual
rate which may not exceed 1.00% of average daily net assets attributable to the
Class.
The Class B and Class C Rule 12b-1 plans provide that of the total
1.00% 12b-1 fees, up to 0.25% may be for payment in respect of "shareholder
services." Consistent with the requirements of Rule 12b-1 and the applicable
rules of the National Association of Securities Dealers, Inc. ("NASD"),
following the Reorganizations Evergreen Diversified Bond may make
distribution-related and shareholder servicing-related payments with respect to
Keystone Quality and Keystone Diversified shares sold prior to the
Reorganizations, including payments to Keystone Quality's and Keystone
Diversified's former underwriter.
Each of Keystone Quality and Keystone Diversified has adopted a Rule
12b-1 plan with respect to its shares pursuant to which each Fund may pay for
distribution-related and shareholder servicing-related expenses at an annual
rate that may not exceed 1.25% of average daily net assets. The NASD limits the
amount that a Fund may pay annually in distribution costs for the sale of its
shares and shareholder service fees. The NASD currently limits such annual
expenditures to 1.00% of the aggregate average daily net asset value of the
Fund's shares, of which 0.75% may be used to pay distribution costs and 0.25%
may be used to pay shareholder service fees.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectus and Statement of Additional
Information.
Purchase and Redemption Procedures
Information concerning applicable sales charges, distribution-related
fees and shareholder servicing-related fees is described above. Investments in
the Funds are not insured. The minimum initial purchase requirement for each
Fund is $1,000. There is no minimum for subsequent purchases of shares of any
Fund. Each Fund provides for telephone, mail or wire redemption of shares at net
asset value, less any CDSC, as next determined after receipt of a redemption
request on each day the New York Stock Exchange ("NYSE") is open for trading.
Additional information concerning purchases and redemptions of shares, including
how each Fund's net asset value is determined, is contained in the respective
Prospectus for each Fund. Each Fund may involuntarily redeem shareholders'
accounts that have less than $1,000 of invested funds. All funds invested in
each Fund are invested in full
<PAGE>
and fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Keystone Quality and Keystone Diversified currently have identical
exchange privileges. Exchanges are limited to the funds in the Keystone Classic
fund family and Class K shares of Evergreen Money Market Fund. Shares of
Evergreen Diversified Bond may be exchanged for shares of a similar class of any
fund in the Evergreen Keystone fund family, other than shares of any fund in the
Keystone Classic fund family. No sales charge is imposed on an exchange. An
exchange which represents an initial investment in another fund must amount to
at least $1,000. The current exchange privileges, and the requirements and
limitations attendant thereto, are described in each Fund's respective
Prospectus and Statement of Additional Information.
Dividend Policy
Each Fund declares income dividends daily and pays such dividends
monthly. Distributions of any net realized gains of a Fund will be made at least
annually. Shareholders begin to earn dividends on the first business day after
shares are purchased unless shares were not paid for, in which case dividends
are not earned until the next business day after payment is received. Dividends
and distributions are reinvested in additional shares of the same class of the
respective Fund, or paid in cash, as a shareholder has elected. See the
respective Prospectus of each Fund for further information concerning dividends
and distributions.
After the Reorganizations, shareholders of Keystone Quality and
Keystone Diversified who have elected to have their dividends and/or
distributions reinvested will have dividends and/or distributions received from
Evergreen Diversified Bond reinvested in shares of Evergreen Diversified Bond.
Shareholders of Keystone Quality and Keystone Diversified who have elected to
receive dividends and/or distributions in cash will receive dividends and/or
distributions from Evergreen Diversified Bond in cash after the Reorganizations,
although they may, after the Reorganizations, elect to have such dividends
and/or distributions reinvested in additional shares of Evergreen Diversified
Bond.
Each of Keystone Quality and Keystone Diversified has qualified and
intends to continue to qualify, and Evergreen Diversified Bond intends to
qualify, to be treated as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"). While so qualified, so long as
each Fund distributes all of its investment company taxable
<PAGE>
income and any net realized gains to shareholders, it is expected that a Fund
will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
Since the investment objectives and policies of each Fund are
substantially comparable, the risks involved in investing in each Fund's shares
are similar except that Evergreen Diversified Bond and Keystone Diversified
invest at least 65% of their total assets in debt securities rated within the
four highest categories by a NRSRO and Keystone Quality's purchases of debt
securities are limited, with respect to 65% of its assets, to those debt
securities rated within the three highest categories by a NRSRO. For a
discussion of each Fund's objectives and policies, see "Comparison of Investment
Objectives and Policies." Bonds rated in the fourth highest category, although
considered investment grade, have speculative characteristics. In addition,
Evergreen Diversified Bond and Keystone Diversified may invest in high yield,
high risk bonds. Keystone Quality may not purchase high yield, high risk bonds,
although it may with a portion of its assets purchase debt securities rated in
the fourth highest category by a NRSRO. High yield, high risk bonds generally
involve greater volatility of price and risk of principal and income than bonds
in the higher rating categories and are, on balance, considered predominantly
speculative.
Securities rated below-investment grade are considered predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. The lower ratings of certain securities held by the Fund
reflect a greater possibility that adverse changes in the financial condition of
the issuer or in general economic conditions, or both, or an unanticipated rise
in interest rates may impair the ability of the issuer to make payments of
interest and principal, especially if the issuer is highly leveraged. Such
issuer's ability to meet its debt obligations may also be adversely affected by
specific corporate developments, the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
Also, an economic downturn or an increase in interest rates may increase the
potential for default by the issuers of these securities.
Values of such securities are more sensitive to real or perceived
adverse economic, company or industry conditions and publicity than is the case
for higher quality securities.
<PAGE>
Their values, like those of other fixed income securities, fluctuate in response
to changes in interest rates, generally rising when interest rates decline and
falling when interest rates rise. For example, if interest rates increase after
a fixed income security is purchased, the security, if sold prior to maturity,
may return less than its cost. The prices of below-investment grade bonds,
however, are generally less sensitive to interest rate changes than the prices
of higher- rated bonds.
Shorter term bonds are less sensitive to interest rate changes, but longer term
bonds generally offer higher yields.
In addition, to the extent that investments are made in debt securities
(other than U.S. government securities), derivatives or structured securities,
such investments, despite favorable credit ratings, are subject to some risk of
default.
Each Fund may invest in derivatives. The market values of derivatives
or structured securities may vary depending upon the manner in which the
investments have been structured and may fluctuate much more rapidly and to a
much greater extent than investments in other securities. As a result, the
values of such investments may change at rates in excess of rates at which
traditional fixed income securities change and, depending on the structure of a
derivative, would change in a manner opposite to the change in the market value
of a traditional fixed income security. See each Fund's Prospectus and Statement
of Additional Information for further discussion of the risks inherent in the
use of derivatives.
Each Fund may invest in foreign securities. Investing in securities of
foreign issuers generally involves greater risk than investing in securities of
domestic issuers for the following reasons: publicly available information on
issuers and securities may be scarce; many foreign countries do not follow the
same accounting, auditing, and financial reporting standards as are used in the
U.S.; market trading volumes may be smaller, resulting in less liquidity and
more price volatility compared to U.S. securities of comparable quality; there
may be less regulation of securities trading and its participants; the
possibility may exist for expropriation, confiscatory taxation, nationalization,
establishment of exchange controls, political or social instability or negative
<PAGE>
diplomatic developments; and dividend or interest withholding
may be imposed at the source.
Fluctuations in foreign exchange rates impose an additional level of
risk, possibly affecting the value of a Fund's foreign investments and earnings,
gains and losses realized through trades, and the unrealized appreciation or
depreciation of investments. Each Fund may also incur costs when it shifts
assets from one country to another.
REASONS FOR THE REORGANIZATIONS
At a regular meeting held on September 17, 1997, the Board of Trustees
of Keystone Quality considered and approved the Reorganization as in the best
interests of shareholders and determined that the interests of existing
shareholders of Keystone Quality will not be diluted as a result of the
transactions contemplated by the Reorganization.
At a regular meeting held on September 17, 1997, the Board of Trustees
of Keystone Diversified considered and approved the Reorganization as in the
best interests of shareholders and determined that the interests of existing
shareholders of Keystone Diversified will not be diluted as a result of the
transactions contemplated by the Reorganization.
In approving each Plan, the Trustees reviewed various factors about the
respective Funds and the proposed Reorganizations. The Reorganizations are part
of an overall plan to convert the Evergreen Keystone funds into series of
Delaware business trusts and, to the extent practicable, simplify and make
consistent various investment restrictions and policies. Holders of shares of
beneficial interest in a Pennsylvania common law trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. Although provisions of the Declaration of Trust and other legal documents
pertaining to each Fund's affairs seek to minimize the potential for such
liability, some degree of exposure, however unlikely, continues to exist with
respect to the Funds as long as they are governed by Pennsylvania law.
Substantially all written agreements, obligations, instruments, or undertakings
made by Keystone Quality or Keystone Diversified must contain a provision
limiting the obligations created by that transaction to the Fund to which the
transaction relates, as well as related provisions to the effect that the
shareholders of the Fund and Trustees of the Trust under which the Fund operates
are not personally liable thereunder. Although the Declarations of Trust of
Keystone Quality and Keystone Diversified provide for indemnification out of the
Funds' property of any shareholder held personally liable for the obligations of
a Fund solely by reason of his or her being or having been a shareholder, a
shareholder could conceivably
<PAGE>
incur financial loss exceeding any amounts indemnified on account of shareholder
liability if the circumstances were such that the Fund had insufficient assets
or would otherwise be unable to meet its obligations.
As a Delaware business trust, the Evergreen Fixed Income Trust's
operations will be governed by applicable Delaware law rather than by
Pennsylvania law. The Delaware Business Trust Act (the "Delaware Act") provides
that a shareholder of a Delaware business trust shall be entitled to the same
limitation of personal liability extended to stockholders of Delaware
corporations. Shareholders of Delaware corporations do not have personal
liability for obligations of the corporation.
Delaware has obtained a favorable national reputation for its business
laws and business environment. The Delaware courts, which may be called upon to
interpret the Delaware Act, are among the nation's most highly respected and
have an expertise in corporate matters which in part grew out of the fact that
Delaware corporate legal issues are concentrated in the Court of Chancery where
there are no juries and where judges issue written opinions explaining their
decisions. Thus, there is a well established body of precedent which may be
relevant in deciding issues pertaining to a Delaware business trust.
There are other advantages that may be afforded by a Delaware business
trust. Under Delaware law, the Evergreen Fixed Income Trust will have the
flexibility to respond to future business contingencies. For example, the
Trustees will have the power to change the Evergreen Fixed Income Trust to a
corporation, to merge or consolidate it with another entity, to cause each
series to become a separate trust, and to change the Evergreen Fixed Income
Trust's domicile without a shareholder vote. This flexibility could help to
assure that the Evergreen Fixed Income Trust operates under the most advanced
form of organization and could reduce the expense and frequency of future
shareholder meetings for non-investment related issues.
In addition, although it is proposed that Keystone Quality and Keystone
Diversified each sell all of its assets to Evergreen Diversified Bond, a newly
established series of Evergreen Fixed Income Trust, an important part of the
Reorganizations is that Keystone Quality, for all practical purposes, will be
combined with Keystone Diversified. The investment objective and policies of
Evergreen Diversified Bond are substantially identical to those of Keystone
Diversified. Consequently, in considering the Reorganizations, each Fund's
Trustees reviewed the Reorganization in the context of Keystone Quality being
combined with Keystone Diversified.
<PAGE>
There are substantial similarities between Keystone Quality and
Keystone Diversified. Except for the fact that Keystone Diversified may invest a
portion of its assets in high yield, high risk debt securities and may invest
65% of its total assets in debt securities rated slightly lower than those
permitted to be purchased by Keystone Quality with 65% of its assets, Keystone
Quality and Keystone Diversified have substantially similar investment
objectives and policies and comparable risk profiles. See "Comparison of
Investment Objectives and Policies" below. At the same time, the Boards of
Trustees of Keystone Quality and Keystone Diversified evaluated the potential
economies of scale associated with larger mutual funds and concluded that
operational efficiencies may be achieved upon the combination of Keystone
Quality with another Evergreen Keystone fund with a greater level of assets. As
of August 31, 1997, Keystone Diversified's net assets were approximately $458
million and Keystone Quality's net assets were approximately $179 million.
In addition, assuming that an alternative to the Reorganizations would
be to propose that Keystone Quality and Keystone Diversified continue their
existences as separate series of Evergreen Fixed Income Trust, Keystone Quality
would be offered through common distribution channels with the substantially
identical Keystone Diversified. Keystone Quality would also have to bear the
cost of maintaining its separate existence. Keystone believes that the prospect
of dividing the resources of the Evergreen Keystone mutual fund organization
between two substantially identical funds could result in each Fund being
disadvantaged due to an inability to achieve optimum size, performance levels
and the greatest possible economies of scale. Accordingly, for the reasons noted
above and recognizing that there can be no assurance that any economies of scale
or other benefits will be realized, Keystone believes that the proposed
Reorganizations would be in the best interests of each Fund and its
shareholders.
The Board of Trustees of Keystone Quality and the Board of Trustees of
Keystone Diversified met and considered the recommendation of Keystone, and, in
addition, considered among other things, (i) the disadvantages which apply to
operating each Fund as a Pennsylvania common law trust or a series of a
Pennsylvania common law trust; (ii) the advantages which apply to each Fund
operating as a series of a Delaware business trust; (iii) the terms and
conditions of the Reorganization; (iv) whether the Reorganization would result
in the dilution of shareholders' interests; (v) expense ratios, fees and
expenses of Keystone Quality and Keystone Diversified; (vi) the comparative
performance records of each of the Funds; (vii) compatibility of their
investment objectives and policies; (viii) the investment experience, expertise
and resources of Keystone; (ix) service features available to
<PAGE>
shareholders of the respective Funds and Evergreen Diversified Bond; (x) the
fact that FUNB will bear the expenses incurred by Keystone Quality and Keystone
Diversified in connection with the Reorganizations; (xi) the fact that Evergreen
Diversified Bond will assume certain identified liabilities of Keystone Quality
and Keystone Diversified; and (xii) the expected federal income tax consequences
of the Reorganizations.
The Trustees of Keystone Quality also considered the benefits to be
derived by shareholders of Keystone Quality from its combination, for all
practical purposes, with Keystone Diversified. In this regard, the Trustees
considered the potential benefits of being associated with a larger entity and
the economies of scale that could be realized by the participation by
shareholders of Keystone Quality.
In addition, the Trustees of Keystone Quality and Keystone Diversified
considered that there are alternatives available to shareholders of Keystone
Quality and Keystone Diversified, including the ability to redeem their shares,
as well as the option to vote against the Reorganizations.
During their consideration of the Reorganizations the Trustees met with
Fund counsel and counsel to the Independent Trustees regarding the legal issues
involved. The Trustees of Evergreen Fixed Income Trust on behalf of Evergreen
Diversified Bond also approved at a meeting on September 17,
1997 the proposed Reorganizations.
THE TRUSTEES OF KEYSTONE QUALITY RECOMMEND
THAT SHAREHOLDERS APPROVE THE PROPOSED
REORGANIZATION.
THE TRUSTEES OF KEYSTONE DIVERSIFIED RECOMMEND THAT
SHAREHOLDERS APPROVE THE PROPOSED REORGANIZATION.
Agreements and Plans of Reorganization
The following summary is qualified in its entirety by reference to the
Plans (Exhibits A-1 and A-2 hereto).
Each Plan provides that Evergreen Diversified Bond will acquire all of
the assets of Keystone Quality and Keystone Diversified, respectively, in
exchange for shares of Evergreen Diversified Bond and the assumption by
Evergreen Diversified Bond of certain identified liabilities of Keystone Quality
and Keystone Diversified on or about January 23, 1998 or such other date as may
be agreed upon by the parties (the "Closing Date"). Prior to the Closing Date,
Keystone Quality and Keystone Diversified will endeavor to discharge all of
their known liabilities and obligations. Evergreen Diversified Bond will not
assume any liabilities or obligations of Keystone
<PAGE>
Quality and Keystone Diversified other than those reflected in an unaudited
statement of assets and liabilities of Keystone Quality and Keystone Diversified
prepared as of the close of regular trading on the NYSE, currently 4:00 p.m.
Eastern time, on the business day immediately prior to the Closing Date.
Evergreen Diversified Bond will provide the Trustees of Keystone Quality and
Keystone Diversified with certain indemnifications as set forth in each Plan.
The number of full and fractional shares of Evergreen Diversified Bond to be
received by the shareholders of Keystone Quality and Keystone Diversified will
be as follows. Shareholders of Keystone Diversified will receive the number of
shares of each class of Evergreen Diversified Bond equal to the number of shares
of each corresponding class as they currently hold of Keystone Diversified.
Shareholders of Keystone Quality will receive the number of shares of Evergreen
Diversified Bond determined by multiplying the outstanding class of shares of
Keystone Quality by a factor which shall be computed by dividing the net asset
value per share of the respective class of Keystone Quality by the net asset
value per share of the respective class of Evergreen Diversified Bond. Such
computations will take place as of the close of regular trading on the NYSE on
the business day immediately prior to the Closing Date. The net asset value per
share of each class will be determined by dividing assets, less liabilities, in
each case attributable to the respective class, by the total number of
outstanding shares.
State Street Bank and Trust Company, the custodian for the Funds, will
compute the value of Keystone Quality's and Keystone Diversified's respective
portfolio securities. The method of valuation employed will be consistent with
the procedures set forth in the Prospectus and Statement of Additional
Information of Evergreen Diversified Bond, Rule 22c-1 under the 1940 Act, and
with the interpretations of such Rule by the SEC's Division of Investment
Management.
At or prior to the Closing Date, Keystone Quality and Keystone
Diversified will have declared a dividend or dividends and distribution or
distributions which, together with all previous dividends and distributions,
shall have the effect of distributing to each Fund's shareholders (in shares of
each Fund, or in cash, as the shareholder has previously elected) all of each
Fund's investment company taxable income for the taxable period ending on the
Closing Date (computed without regard to any deduction for dividends paid) and
all of its net capital gains realized in all taxable periods ending on the
Closing Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, Keystone
Quality and Keystone Diversified will liquidate and distribute pro rata to
shareholders of record as
<PAGE>
of the close of business on the Closing Date the full and fractional shares of
Evergreen Diversified Bond received by each Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of each Fund's shareholders on the share records of Evergreen Diversified Bond's
transfer agent. Each account will represent the respective pro rata number of
full and fractional shares of Evergreen Diversified Bond due to each Fund's
shareholders. All issued and outstanding shares of each Fund, including those
represented by certificates, will be canceled. The shares of Evergreen
Diversified Bond to be issued will have no preemptive or conversion rights.
After such distributions and the winding up of its affairs, Keystone Quality and
Keystone Diversified will be terminated. In connection with such terminations,
Keystone Quality and Keystone Diversified will file with the SEC applications
for termination as registered investment companies.
The consummation of each Reorganization is subject to the conditions
set forth in the Plan for Keystone Quality and the Plan for Keystone
Diversified, including approval by each Fund's shareholders, accuracy of various
representations and warranties and receipt of opinions of counsel, including
opinions with respect to those matters referred to in "Federal Income Tax
Consequences" below. Notwithstanding approval of each Fund's shareholders, each
Plan may be terminated (a) by the mutual agreement of the Fund and Evergreen
Diversified Bond; or (b) at or prior to the Closing Date by either party (i)
because of a breach by the other party of any representation, warranty, or
agreement contained therein to be performed at or prior to the Closing Date if
not cured within 30 days, or (ii) because a condition to the obligation of the
terminating party has not been met and it reasonably appears that it cannot be
met.
The expenses of Keystone Quality and Keystone Diversified in connection
with the Reorganizations (including the cost of any proxy soliciting agent) will
be borne by FUNB whether or not the Reorganizations are consummated. The current
Trustees of Keystone Quality and Keystone Diversified, including those Trustees
not continuing to serve as Trustees of Evergreen Fixed Income Trust, will retain
their ability to make claims under their existing directors and officers
insurance policy for a period of three years following the consummation of the
Reorganizations.
If the Reorganization is not approved by shareholders of a Fund, the
Board of Trustees of Keystone Quality and Keystone Diversified, as applicable,
will consider other possible courses of action in the best interests of
shareholders.
Federal Income Tax Consequences
<PAGE>
Each Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368(a) of the Code. As a
condition to the closing of a Reorganization, Keystone Quality and Keystone
Diversified will each receive an opinion of counsel to the effect that, on the
basis of the existing provisions of the Code, U.S. Treasury regulations issued
thereunder, current administrative rules, pronouncements and court decisions,
for federal income tax purposes, upon consummation of the Reorganization:
(1) The transfer of all of the assets of the Fund solely in exchange
for shares of Evergreen Diversified Bond and the assumption by Evergreen
Diversified Bond of certain identified liabilities, followed by the distribution
of Evergreen Diversified Bond's shares by the Fund in dissolution and
liquidation of the Fund, will constitute a "reorganization" within the meaning
of section 368(a)(1)(C) (with respect to Keystone Quality and 368(a)(1)(F) with
respect to Keystone Diversified) of the Code, and Evergreen Diversified Bond and
the Fund will each be a "party to a reorganization" within the meaning of
section 368(b) of the Code;
(2) No gain or loss will be recognized by the Fund on the transfer of
all of its assets to Evergreen Diversified Bond solely in exchange for Evergreen
Diversified Bond's shares and the assumption by Evergreen Diversified Bond of
certain identified liabilities of the Fund or upon the distribution of Evergreen
Diversified Bond's shares to the Fund's shareholders in exchange for their
shares of the Fund;
(3) The tax basis of the assets transferred will be the same to
Evergreen Diversified Bond as the tax basis of such assets to the Fund
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Evergreen Diversified Bond will include the period during which
the assets were held by the Fund;
(4) No gain or loss will be recognized by Evergreen Diversified Bond
upon the receipt of the assets from the Fund solely in exchange for the shares
of Evergreen Diversified Bond and the assumption by Evergreen Diversified Bond
of certain identified liabilities of the Fund;
(5) No gain or loss will be recognized by the Fund's shareholders upon
the issuance of the shares of Evergreen Diversified Bond to them, provided they
receive solely such shares (including fractional shares) in exchange for their
shares of the Fund; and
(6) The aggregate tax basis of the shares of Evergreen Diversified
Bond, including any fractional shares, received by each of the shareholders of
the Fund pursuant to the Reorganization will be the same as the aggregate tax
basis of
<PAGE>
the shares of the Fund held by such shareholder immediately prior to the
Reorganization, and the holding period of the shares of Evergreen Diversified
Bond, including fractional shares, received by each such shareholder will
include the period during which the shares of the Fund exchanged therefor were
held by such shareholder (provided that the shares of the Fund were held as a
capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If a Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, shareholders of Keystone Quality and
Keystone Diversified would recognize a taxable gain or loss equal to the
difference between his or her tax basis in his or her Fund shares and the fair
market value of Evergreen Diversified Bond shares he or she received.
Shareholders of Keystone Quality and Keystone Diversified should consult their
tax advisers regarding the effect, if any, of the proposed Reorganization in
light of their individual circumstances. It is not anticipated that the
securities of the combined portfolio will be sold in significant amounts in
order to comply with the policies and investment practices of Evergreen
Diversified Bond. Since the foregoing discussion relates only to the federal
income tax consequences of the Reorganization, shareholders of Keystone Quality
and Keystone Diversified should also consult their tax advisers as to the state
and local tax consequences, if any, of the Reorganization.
Pro-forma Capitalization
The following table sets forth the capitalizations of Keystone Quality and
Keystone Diversified as of August 31, 1997 and the capitalization of Evergreen
Diversified Bond on a pro forma basis as of that date, giving effect to the
proposed acquisitions of assets at net asset value and the conversion of certain
Class B shares to Class A shares of Keystone Quality and Keystone Diversified.
See "Comparison of Fees and Expenses." As a newly created series of Evergreen
Fixed Income Trust, Evergreen Diversified Bond, immediately preceding the
Closing Date, will have nominal assets and liabilities. The pro forma data
reflects an exchange ratio of approximately 0.99 Class B shares of Evergreen
Diversified Bond issued for each share of Keystone Quality and an exchange ratio
of approximately 1.00 Class B share of Evergreen Diversified Bond issued for
each share of Keystone Diversified.
<TABLE>
<CAPTION>
Capitalization of Keystone Quality,
Keystone Diversified and Evergreen
Diversified Bond (Pro Forma)
<PAGE>
Evergreen
Diversified
Bond (After
Keystone Keystone Reorgani-
Quality Diversified zations)
-------- ----------- ------------
<S> <C> <C> <C>
Net Assets
Class A........................ N/A N/A
$555,959,918
Class B........................ $178,993,366 $457,700,855
$80,734,303
Class C........................ N/A N/A N/A
------------ ------------ ------------
Total Net
Assets....................... $178,993,366 $457,700,855 $636,694,121
Net Asset Value Per
Share
Class A........................ N/A N/A $15.42
Class B........................ $15.21 $15.42 $15.42
Class C........................ N/A N/A $15.42
Shares Outstanding
Class A........................ N/A N/A
36,059,000
Class B........................ 11,768,326 29,687,317
5,236,374
Class C........................ N/A N/A N/A
---------- ---------- ----------
All Classes.................... 11,768,326 29,687,317 41,295,374
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Reorganizations; the actual number of
shares to be received will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the Reorganizations.
Shareholder Information
As of November 10, 1997 (the "Record Date"), there were 11,560,603.402
shares of Keystone Quality outstanding and 28,578,829.229 shares of Keystone
Diversified outstanding.
As of September 30, 1997 the officers and Trustees of Keystone Quality
beneficially owned as a group less than 1% of the outstanding shares of Keystone
Quality. To Keystone Quality's knowledge, the following persons owned
beneficially or of record more than 5% of Keystone Quality's total outstanding
shares as of September 30, 1997:
<PAGE>
<TABLE>
<CAPTION>
Percen- Percentage
tage of Shares of
of Class
Class Outstanding
Before After
No. of Reorgani- Reorgani-
Name and Address Shares zations zations
- ---------------- --------- ---------
------
<S> <C> <C> <C>
Merrill Lynch Pierce 1,339,441 11.61 Class A 3.30
Fenner & Smith Class B 2.90
For the Sole Benefit of
its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-
6484
</TABLE>
As of September 30, 1997, the officers and Trustees of Keystone
Diversified beneficially owned as a group less than 1% of the outstanding shares
of Keystone Diversified. To Keystone Diversified's knowledge, the following
persons owned beneficially or of record more than 5% of Keystone Diversified's
total outstanding shares as of September 30, 1997:
Percentage of
Percen- Shares of
tage of Class
Shares Outstanding
After
No. of Before Reorgani-
Name and Address Shares Reorgani- zations
- ---------------- ------ zations ---------
---------
Merrill Lynch Pierce 3,927,911 13.45 Class A 9.62
Fenner & Smith Class B 10.09
For the Sole Benefit of
its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
3rd Floor
Jacksonville, FL 32246-
6484
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectuses and Statements of
Additional Information of the Funds. The investment objective, policies and
restrictions of Evergreen Diversified Bond can be found in the Prospectus of
Evergreen Diversified Bond under the caption "Investment Objectives and
Policies." The investment objectives, policies and restrictions of Keystone
Quality and Keystone Diversified can be found in the respective Prospectus of
each Fund under the caption "Investment Objective and Policies."
The investment objectives of Evergreen Diversified Bond and Keystone
Diversified are identical. These Funds seek maximum income without undue risk of
principal. Unlike Evergreen Diversified Bond, the investment objective of
Keystone Diversified cannot be changed without shareholder approval.
The following discussion of Evergreen Diversified Bond's investment
policies and restrictions applies equally to Keystone Diversified. Evergreen
Diversified Bond seeks maximum income by investing at least 65% of its total
assets in bonds which are debt instruments used by issuers to borrow money from
investors. The Fund invests in debt instruments that are normally characterized
by relatively liberal returns and moderate price fluctuations.
Such debt instruments which include both secured and unsecured
obligations will, at the time of investment, be rated within the four highest
categories by Standard & Poor's Ratings Group ("S&P") (AAA, AA, A and BBB), or
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, will be of comparable quality to instruments so
rated, as determined by the Fund's investment adviser. For a description of such
ratings, see Evergreen Diversified Bond's Statement of Additional Information.
The Fund may also invest up to 50% of its assets in foreign securities
and up to 35% of its assets in high yield, high risk bonds and similar
securities rated below BBB by S&P or Fitch or Baa by Moody's. Evergreen
Diversified Bond may also invest in limited partnerships, including master
limited partnerships, participations in bank loans, fixed and
<PAGE>
adjustable rate or stripped bonds, including zero coupon bonds and
payment-in-kind securities, debentures, notes, equipment trust certificates,
U.S. government securities and debt securities convertible into, or exchangeable
for, preferred or common stock. Evergreen Diversified Bond may also invest in
preferred stock, including adjustable rate preferred stock, and warrants which
can be used to purchase or create otherwise permissible investments.
When market conditions warrant, Evergreen Diversified Bond may invest
up to 100% of its assets for temporary defensive purposes in short-term
obligations. Such obligations may include master demand notes, commercial paper
and notes, bank deposits and other financial institution obligations.
Evergreen Diversified Bond may also invest in certain 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.
The investment objective of Keystone Quality, which cannot be changed
without shareholder approval, is to provide shareholders with the highest
possible income consistent with the preservation of capital. The Fund invests at
least 65% of its assets in high grade bonds rated, at the time of purchase,
within the three highest categories (A or better) by S&P or Moody's or, if
unrated, determined to be of comparable quality by its investment adviser.
Keystone Quality may also invest a portion of its assets in bonds rated BBB by
S&P or Baa by Moody's and in short-term investments. Bonds include U.S.
government securities and municipal bonds. Keystone Quality may invest up to 25%
of its assets in investment grade convertible bonds and up to 25% of its assets
in foreign securities issued by issuers located in developing countries as well
as certain countries with emerging markets.
Short-term investments in which Keystone Quality may invest, which must
mature within one year of their purchase, consist of U.S. government securities;
instruments of banks having assets of at least $500 million, including U.S.
branches of foreign banks and foreign branches of U.S. banks, such as
certificates of deposit, demand and time deposits and bankers' acceptances; high
grade commercial paper; and repurchase agreements secured by U.S. government
securities.
Keystone Quality may also invest in various derivative instruments as
well as limited partnerships, including master limited partnerships, and other
debt securities similar to those discussed above with respect to Evergreen
Diversified Bond.
<PAGE>
The principal differences between Evergreen Diversified Bond and
Keystone Diversified on the one hand, and Keystone Quality on the other, relate
to the minimum credit quality for 65% of the Funds' investments (BBB or better
for Evergreen Diversified Bond and Keystone Diversified and A or better for
Keystone Quality) and Evergreen Diversified Bond's and Keystone Diversified's
ability to invest in high yield, high risk debt securities.
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectus and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Prospectus and Statement of Additional Information of each
Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Forms of Organization
Evergreen Fixed Income Trust, Keystone Quality and Keystone Diversified
are open-end management investment companies registered with the SEC under the
1940 Act, which continuously offer shares to the public. Each of Keystone
Quality and Keystone Diversified is organized as a Pennsylvania common law
trust. Evergreen Fixed Income Trust is organized as a Delaware business trust.
Each Trust is governed by a Declaration of Trust, By-Laws and a Board of
Trustees. Each Trust is also governed by applicable Delaware, Pennsylvania and
federal law. Evergreen Diversified Bond is a series of Evergreen Fixed Income
Trust.
Capitalization
The beneficial interests in Evergreen Diversified Bond are represented
by an unlimited number of transferable shares of beneficial interest $.001 par
value per share. The beneficial interests in Keystone Quality and Keystone
Diversified are represented by an unlimited number of transferable shares of
beneficial interest with a $1.00 par value per share. The respective Declaration
of Trust under which each Fund has been established permits the Trustees to
allocate shares into an unlimited number of series, and classes thereof, with
rights determined by the Trustees, all without shareholder approval. Fractional
shares may be issued. Except with respect to Evergreen Diversified Bond where
each share of the Fund is entitled to one vote for each dollar of net asset
value applicable to such share, each Fund's shares have equal voting rights with
respect to matters affecting shareholders of all classes of each Fund and
represent equal proportionate interests in the assets belonging to each class of
shares of the Funds. Shareholders of each Fund are entitled to receive dividends
and other
<PAGE>
amounts as determined by the Trustees. Shareholders of each Fund vote
separately, by class, as to matters, such as approval of or amendments to Rule
12b-1 distribution plans, that affect only their particular class and by series
as to matters, such as approval of or amendments to investment advisory
agreements or proposed reorganizations, that affect only their particular
series.
Shareholder Liability
Under Pennsylvania law, shareholders of a common law trust could, under
certain circumstances, be held personally liable for the obligations of the
trust. However, the respective Declaration of Trust under which Keystone Quality
and Keystone Diversified was established disclaims shareholder liability for
acts or obligations of the series and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Fund or the Trustees. Each Declaration of Trust provides for indemnification
out of the series property for all losses and expenses of any shareholder held
personally liable for the obligations of the series. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which a disclaimer is
inoperative and the series or the Trust itself would be unable to meet its
obligations.
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result, to
the extent that Evergreen Fixed Income Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject shareholders of a Delaware trust to liability. To guard
against this risk, the Declaration of Trust of Evergreen Fixed Income Trust: (a)
provides that any written obligation of the Trust may contain a statement that
such obligation may only be enforced against the assets of the Trust or the
particular series in question and the obligation is not binding upon the
shareholders of the Trust; however, the omission of such a disclaimer will not
operate to create personal liability for any shareholder; and (b) provides for
indemnification out of Trust property of any shareholder held personally liable
for the obligations of Evergreen Fixed Income Trust. Accordingly, the risk of a
shareholder of the Trust incurring financial loss beyond that shareholder's
investment because of shareholder liability is limited to circumstances in
which: (i) the court refuses to apply Delaware law; (ii) no contractual
limitation of liability was in effect; and (iii) the Trust itself would be
unable to meet its obligations. In light of Delaware law, the nature of the
<PAGE>
Trust's business, and the nature of its assets, the risk of personal liability
to a shareholder of Evergreen Fixed Income Trust is remote.
Shareholder Meetings and Voting Rights
Neither Evergreen Fixed Income Trust on behalf of Evergreen Diversified
Bond, Keystone Quality nor Keystone Diversified is required to hold annual
meetings of shareholders. However, a meeting of shareholders for the purpose of
voting upon the question of removal of a Trustee must be called when requested
in writing by the holders of at least 10% of the outstanding shares. In
addition, each is required to call a meeting of shareholders for the purpose of
electing Trustees if, at any time, less than a majority of the Trustees then
holding office were elected by shareholders. Each Trust currently does not
intend to hold regular shareholder meetings. Each Trust does not permit
cumulative voting. Except when a larger quorum is required by applicable law,
twenty-five percent (25%) of Evergreen Diversified Bond and, with respect to
Keystone Quality and Keystone Diversified, a majority of the outstanding shares
entitled to vote on a matter, constitutes a quorum for consideration of such
matter. In all cases, a majority of the shares present and entitled to vote is
sufficient to act on a matter (unless otherwise specifically required by the
applicable governing documents or other law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Fixed Income Trust, each
share of Evergreen Diversified Bond is entitled to one vote for each dollar of
net asset value applicable to each share. Under the current voting provisions
governing Keystone Quality and Keystone Diversified, each share is entitled to
one vote. Over time, the net asset values of the Funds have changed in relation
to one another and are expected to continue to do so in the future. Because of
the divergence in net asset values, a given dollar investment in a Fund with a
lower net asset value will purchase more shares and, under the Funds' current
voting provisions, have more votes than the same investment in a Fund with a
higher net asset value. Under the Declaration of Trust of Evergreen Fixed Income
Trust, voting power is related to the dollar value of the shareholder's
investment rather than to the number of shares held.
Liquidation or Dissolution
In the event of the liquidation of Evergreen Diversified Bond, Keystone
Quality and Keystone Diversified, the shareholders are entitled to receive,
when, and as declared by the Trustees, the excess of the assets belonging to
such Fund or attributable to the class over the liabilities belonging to the
Fund or attributable to the class. In either case, the assets so distributable
to shareholders of the Fund will be
<PAGE>
distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
The Declaration of Trust of each of Keystone Quality and Keystone
Diversified provides that a Trustee will be liable only for his own willful
defaults, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust provides that a
present or former Trustee or officer is entitled to indemnification against
liabilities and expenses with respect to claims related to his or her position
with the Fund, unless such Trustee or officer shall have been adjudicated not to
have acted in good faith in the reasonable belief that his or her action was in
the best interest of the Fund, or unless such Trustee or officer is otherwise
subject to liability to the Fund or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. In the event of settlement, no such
indemnification shall be provided unless there has been a determination that
such Trustee or officer appears to have acted in good faith in the reasonable
belief that his action was in the best interests of the Fund and that such
indemnification would not protect such person against any liability to the Fund
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
Under the Declaration of Trust of Evergreen Fixed Income Trust, a
Trustee is liable to the Trust and its shareholders only for such Trustee's own
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause
to believe that such Trustee's conduct was unlawful (collectively, "disabling
conduct"). A determination that the Trustee did not engage in disabling conduct
and is, therefore, entitled to indemnification may be based upon the outcome of
a court action or administrative
<PAGE>
proceeding or by (a) a vote of a majority of those Trustees who are neither
"interested persons" within the meaning of the 1940 Act nor parties to the
proceeding or (b) an independent legal counsel in a written opinion. The Trust
may also advance money for such litigation expenses provided that the Trustee
undertakes to repay the Trust if his or her conduct is later determined to
preclude indemnification and certain other conditions are met.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws, Delaware and Pennsylvania law
and is not a complete description of those documents or law. Shareholders should
refer to the provisions of such Declarations of Trust, By-Laws, Delaware and
Pennsylvania law directly for more complete information.
ADDITIONAL INFORMATION
Evergreen Diversified Bond. Information concerning the operation and
management of Evergreen Diversified Bond is incorporated herein by reference
from the Prospectus dated November 10, 1997, a copy of which is enclosed, and
Statement of Additional Information dated November 10, 1997. A copy of such
Statement of Additional Information is available upon request and without charge
by writing to Evergreen Diversified Bond at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling toll-free 1-800-343- 2898.
Keystone Quality. Information about the Fund is included in its current
Prospectus dated February 28, 1997, as supplemented, and in the Statement of
Additional Information of the same date that have been filed with the SEC, all
of which are incorporated herein by reference. A copy of the Prospectus and
Statement of Additional Information are available upon request and without
charge by writing to the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Keystone Diversified. Information about the Fund is included in its
current Prospectus dated December 10, 1996, as supplemented, and in the
Statement of Additional Information of the same date that have been filed with
the SEC, all of which are incorporated herein by reference. A copy of the
Prospectus and Statement of Additional Information are available upon request
and without charge by writing to the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Evergreen Diversified Bond, Keystone Quality and Keystone Diversified
are each subject to the informational requirements of the Securities Exchange
Act of 1934 and the 1940 Act, and
<PAGE>
in accordance therewith file reports and other information, including proxy
material and charter documents, with the SEC. These items can be inspected and
copies obtained at the Public Reference Facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048.
VOTING INFORMATION CONCERNING THE MEETINGS
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Trustees of Keystone Quality and Keystone
Diversified to be used at each Special Meeting of Shareholders to be held at
3:00 p.m., January 6, 1998, at the offices of the Evergreen Keystone Funds, 200
Berkeley Street, Boston, Massachusetts 02116, and at any adjournments thereof.
This Prospectus/Proxy Statement, along with a Notice of the meeting and a proxy
card, is first being mailed to shareholders of Keystone Quality and Keystone
Diversified on or about November 14, 1997. Only shareholders of record as of the
close of business on the Record Date will be entitled to notice of, and to vote
at, the Meeting or any adjournment thereof. The holders of a majority of the
outstanding shares entitled to vote of each Fund at the close of business on the
Record Date present in person or represented by proxy will constitute a quorum
for the Meeting. If the enclosed form of proxy is properly executed and returned
in time to be voted at the Meeting, the proxies named therein will vote the
shares represented by the proxy in accordance with the instructions marked
thereon. Unmarked proxies will be voted FOR the proposed Reorganization and FOR
any other matters deemed appropriate. Proxies that reflect abstentions and
"broker non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum, but
will have the effect of being counted as votes against the Plan since the vote
required is a majority of the shares present and entitled to vote. A proxy may
be revoked at any time on or before the Meeting by written notice to the
Secretary of Keystone Quality or Keystone Diversified, as applicable, 200
Berkeley Street, Boston, Massachusetts 02116. Unless revoked, all valid proxies
will be voted in accordance with the specifications thereon or, in the absence
of such specifications, FOR approval of the Plan and the Reorganization
contemplated thereby.
Approval of each Plan will require the affirmative vote of a majority
of the shares present and entitled to vote at
<PAGE>
Meetings at which a quorum of each Fund's shares is present. Each full share
outstanding is entitled to one vote and each fractional share outstanding is
entitled to a proportionate share of one vote.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees of FUNB, its affiliates or other
representatives of Keystone Quality and Keystone Diversified (who will not be
paid for their soliciting activities). Shareholder Communications Corporation
("SCC") and its agents have been engaged by Keystone Quality and Keystone
Diversified to assist in soliciting proxies, and may call shareholders to ask if
they would be willing to authorize SCC to execute a proxy on their behalf
authorizing the voting of their shares in accordance with the instructions given
over the telephone by the shareholders. In addition, shareholders may call SCC
at 1-800-733-8481 extension 404 between the hours of 9:00 a.m. and 11:00 p.m.
Eastern time in order to initiate the processing of their votes by telephone.
SCC will utilize a telephone vote solicitation procedure designed to
authenticate the shareholder's identity by asking the shareholder to provide his
or her social security number (in the case of an individual) or taxpayer
identification number (in the case of an entity). The shareholder's telephone
instructions will be implemented in a proxy executed by SCC and a confirmation
will be sent to the shareholder to ensure that the vote has been authorized in
accordance with the shareholder's instructions. Although a shareholder's vote
may be solicited and cast in this manner, each shareholder will receive a copy
of this Prospectus/Proxy Statement and may vote by mail using the enclosed proxy
card. The Funds believe that this telephonic voting system complies with
applicable law and have reviewed opinions of counsel to that effect.
<PAGE>
If you wish to participate in the Meeting, but do not wish to give your
proxy by telephone, you may still submit the proxy card included with this
Prospectus/Proxy Statement or attend in person. Any proxy given by you, whether
in writing or by telephone, is revocable.
In the event that sufficient votes to approve a Reorganization are not
received by January 6, 1998, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such adjournment after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.
A shareholder who objects to a proposed Reorganization will not be
entitled under either Pennsylvania law or the Declaration of Trust of Keystone
Quality or Keystone Diversified, as applicable, to demand payment for, or an
appraisal of, his or her shares. However, shareholders should be aware that the
Reorganizations as proposed are not expected to result in recognition of gain or
loss to shareholders for federal income tax purposes and that, if the
Reorganizations are consummated, shareholders will be free to redeem the shares
of Evergreen Diversified Bond which they receive in the transaction at their
then-current net asset value. Shares of Keystone Quality and Keystone
Diversified may be redeemed at any time prior to the consummation of the
Reorganizations. Shareholders of Keystone Quality and Keystone Diversified may
wish to consult their tax advisers as to any differing consequences of redeeming
Fund shares prior to the
<PAGE>
Reorganizations or exchanging such shares in the Reorganizations.
Keystone Quality and Keystone Diversified do not hold annual
shareholder meetings. If a Reorganization is not approved, shareholders wishing
to submit proposals for consideration for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
Secretary of Keystone Quality or Keystone Diversified, as applicable, at the
address set forth on the cover of this Prospectus/Proxy Statement such that they
will be received by the Funds in a reasonable period of time prior to any such
meeting.
The votes of the shareholders of Evergreen Diversified Bond are not
being solicited by this Prospectus/Proxy Statement and are not required to carry
out the Reorganizations.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Keystone Quality and Keystone Diversified whether other persons
are beneficial owners of shares for which proxies are being solicited and, if
so, the number of copies of this Prospectus/Proxy Statement needed to supply
copies to the beneficial owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Keystone Quality as of October 31, 1996,
and the financial statements and financial highlights for the periods indicated
therein, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Keystone Diversified as of August 31, 1997,
and the financial statements and financial highlights for the periods indicated
therein, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen
Diversified Bond will be passed upon by Sullivan & Worcester LLP, Washington,
D.C.
<PAGE>
OTHER BUSINESS
The Trustees of Keystone Quality and Keystone Diversified do not intend
to present any other business at the Meeting. If, however, any other matters are
properly brought before the Meeting, the persons named in the accompanying form
of proxy will vote thereon in accordance with their judgment.
THE RESPECTIVE TRUSTEES OF KEYSTONE QUALITY AND KEYSTONE DIVERSIFIED
RECOMMEND APPROVAL OF EACH RESPECTIVE PLAN AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLANS.
November 14, 1997
<PAGE>
EXHIBIT A-1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 30th day of September, 1997, by and between the Evergreen Fixed Income
Trust, a Delaware business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its
Evergreen Diversified Bond Fund series (the "Acquiring Fund"), and Keystone
Quality Bond Fund (B-1), a Pennsylvania common law trust ("Keystone Trust"),
with its principal place of business at 200 Berkeley Street, Boston,
Massachusetts 02116, with respect to its Keystone Quality Bond Fund (B-1) series
(the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368 (a)(1)(C) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for shares of beneficial
interest, $.001 par value per share, of the Acquiring Fund (the "Acquiring Fund
Shares"); (ii) the assumption by the Acquiring Fund of certain identified
liabilities of the Selling Fund; and (iii) the distribution, after the Closing
Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders
of the Selling Fund in liquidation of the Selling Fund as provided herein, all
upon the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund is the sole investment series of, and the
Acquiring Fund is a separate investment series of, an open-end, registered
investment company of the management type, and the Selling Fund owns securities
that generally are assets of the character in which the Acquiring Fund is
permitted to invest;
WHEREAS, both Funds are authorized to issue their shares
of beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of Keystone Trust have determined that the
Selling Fund should exchange all of its assets and certain identified
liabilities for Acquiring Fund Shares and that the interests of the existing
shareholders of the Selling
<PAGE>
Fund will not be diluted as a result of the transactions
contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and futures interests and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
<PAGE>
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies, and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph that do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. Except as specifically provided in this paragraph 1.3, the Acquiring Fund
shall assume the liabilities, expenses, costs, charges and reserves reflected on
a Statement of Assets and Liabilities of the Selling Fund prepared on behalf of
the Selling Fund, as of the Valuation Date (as defined in paragraph 2.1), in
accordance with generally accepted accounting principles consistently applied
from the prior audited period. The Acquiring Fund shall assume only those
liabilities of the Selling Fund reflected in such Statement of Assets and
Liabilities and shall not except as specifically provided in this paragraph 1.3
assume any other liabilities, whether absolute or contingent, known or unknown,
accrued or unaccrued, all of which shall remain the obligation of the Selling
Fund. The Acquiring Fund hereby agrees with Keystone Trust and each Trustee of
Keystone Trust: (i) to indemnify each Trustee of Keystone Trust against all
liabilities and expenses referred to in the indemnification provisions of
Keystone Trust's Declaration of Trust and By-Laws, to the extent provided
therein, incurred by any Trustee of Keystone Trust; and (ii) in addition to the
indemnification provided in (i) above, to indemnify each Trustee of Keystone
Trust against all liabilities and expenses and pay the same as they arise and
become due, without any exception, limitation or requirement of approval by any
person, and without any right to require repayment thereof by any such Trustee
(unless such Trustee has had the same repaid to him or her) based upon any
subsequent or final disposition or findings made in connection therewith or
otherwise, if such action, suit or other proceeding involves such Trustee's
participation in authorizing or permitting or acquiescing in, directly or
indirectly, by action or inaction, the making of any distribution in any manner
of all or any assets of the Selling Fund without making
<PAGE>
provision for the payment of any liabilities of any kind, fixed or contingent,
of the Selling Fund, which liabilities were not actually and consciously
personally known to such Trustee to exist at the time of such Trustee's
participation in so authorizing or permitting or acquiescing in the making of
any such distribution.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount permitted to be charged to the Acquiring Fund
under the National Association of Securities Dealers, Inc. Conduct Rule 2830,
minus the amount of the sales charges paid or accrued (including asset based
sales charges), plus permitted interest ("Aggregate NASD Cap"), the Acquiring
Fund will add to its Aggregate NASD Cap immediately prior to the Reorganization
the Aggregate NASD Cap of the Selling Fund immediately prior to the
Reorganization.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
<PAGE>
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
<PAGE>
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about January 23, 1998 or such other date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously immediately prior to the opening of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 9:00
a.m. at the offices of the Evergreen Keystone Funds, 200 Berkeley Street,
Boston, MA 02116, or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date ("ESC"), shall
deliver at the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Selling Fund Shareholders and the
number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver or cause ESC, its transfer agent as of the Closing Date, to issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited on
the Closing Date to the Secretary of Keystone Trust on behalf of the Selling
Fund or provide evidence satisfactory to the Selling Fund that such Acquiring
Fund Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any,
<PAGE>
receipts and other documents as such other party or its
counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling
Fund represents and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is the sole investment series of a
Pennsylvania common law trust duly organized, validly existing, and in good
standing under the laws of The Commonwealth of Pennsylvania.
(b) The Selling Fund is the sole investment series of a
Pennsylvania common law trust that is registered as an investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.
(c) The current prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of Keystone Trust's Declaration of Trust or
By-Laws or of any material agreement, indenture, instrument, contract, lease, or
other undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of
<PAGE>
its business, or the ability of the Selling Fund to carry out the transactions
contemplated by this Agreement. The Selling Fund knows of no facts that might
form the basis for the institution of such proceedings and is not a party to or
subject to the provisions of any order, decree, or judgment of any court or
governmental body that materially and adversely affects its business or its
ability to consummate the transactions herein contemplated.
(g) The financial statements of the Selling Fund at October
31, 1996 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since October 31, 1996 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund (except that, under Pennsylvania
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
<PAGE>
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring
Fund represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment
series of a Delaware business trust duly organized, validly
<PAGE>
existing and in good standing under the laws of the State of
Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise.
(g) At the Closing Date, there will not be any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling
<PAGE>
Fund. For the purposes of this subparagraph (g), a decline in
the net asset value of the Acquiring Fund shall not constitute
a material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(j) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights and to general equity
principles.
(k) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(m) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
<PAGE>
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. Keystone Trust will call a meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by its independent
<PAGE>
auditors and certified by Keystone Trust's President and
Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund
will provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment
series of a Delaware business trust registered as an
<PAGE>
investment company under the 1940 Act, and, to such counsel's knowledge, such
registration with the Commission as an investment company under the 1940 Act is
in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of this Agreement by the Selling Fund, is
a valid and binding obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing
<PAGE>
Date, and the Selling Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by Keystone Trust's President or
Vice President and the Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to such
effect and as to such other matters as the Acquiring Fund shall reasonably
request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of Keystone Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is the sole investment series of a
Pennsylvania common law trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Pennsylvania and has the power to
own all of its properties and assets and to carry on its business as presently
conducted.
(b) The Selling Fund is the sole investment series of a
Pennsylvania common law trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution, and delivery of this Agreement by the Acquiring Fund,
is a valid and binding obligation of the Selling Fund enforceable against the
Selling Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Pennsylvania is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
<PAGE>
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of Keystone Trust's
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
<PAGE>
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's investment company
taxable income for all taxable periods ending on the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gains realized in all taxable periods ending on the Closing Date (after
reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which
<PAGE>
the Selling Fund shares exchanged therefor were held by such shareholder
(provided the Selling Fund shares were held as capital assets on the date of the
Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of Keystone Trust responsible for financial and accounting matters,
nothing came to their attention that caused them to believe that such unaudited
pro forma financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder;
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
been obtained from and is consistent with the accounting records of the Selling
Fund;
(d) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and Prospectus and
<PAGE>
Proxy Statement were prepared based on the valuation of the Selling Fund's
assets in accordance with the Trust's Declaration of Trust and the Acquiring
Fund's then current prospectus and statement of additional information pursuant
to procedures customarily utilized by the Acquiring Fund in valuing its own
assets; and
(e) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by Selling Fund's
management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from KPMG Peat
Marwick LLP a letter addressed to the Acquiring Fund dated on the Closing Date,
in form and substance satisfactory to the Acquiring Fund, to the effect, that on
the basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards), the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of any
unaudited pro forma financial statements included in the Registration Statement
and Prospectus and Proxy Statement, and inquiries of appropriate officials of
the Trust responsible for financial and accounting matters, nothing came to
their attention that caused them to believe that such unaudited pro forma
financial statements do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder;
(c) on the basis of limited procedures agreed upon
by the Selling Fund and described in such letter (but not an
<PAGE>
examination in accordance with generally accepted auditing standards), the
Capitalization Table appearing in the Registration Statement and Prospectus and
Proxy Statement has been obtained from and is consistent with the accounting
records of the Acquiring Fund; and
(d) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received
from KPMG Peat Marwick LLP a letter addressed to the Acquiring Fund and the
Selling Fund, dated on the Closing Date in form and substance satisfactory to
the Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank. Such expenses
include, without limitation, (a) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
<PAGE>
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, Keystone Trust, the Trust, the respective
Trustees or officers, to the other party or its Trustees or officers.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
<PAGE>
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of Keystone Trust, shall
be governed and construed in accordance with the laws of The Commonwealth of
Pennsylvania, without giving effect to the conflicts of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of Keystone Trust personally, but shall bind only
the trust property of the Selling Fund, as provided in the Declaration of Trust
of Keystone Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of Keystone Trust and signed by authorized officers
of Keystone Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Selling Fund as
provided in the Declaration of Trust of Keystone Trust.
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN FIXED INCOME TRUST
ON BEHALF OF EVERGREEN
DIVERSIFIED BOND FUND
<PAGE>
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
KEYSTONE QUALITY BOND
FUND (B-1)
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
<PAGE>
EXHIBIT A-2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 30th day of September, 1997, by and between the Evergreen Fixed Income
Trust, a Delaware business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its
Evergreen Diversified Bond Fund series (the "Acquiring Fund"), and Keystone
Diversified Bond Fund (B- 2), a Pennsylvania common law trust ("Keystone
Trust"), with its principal place of business at 200 Berkeley Street, Boston,
Massachusetts 02116, with respect to its Keystone Diversified Bond Fund (B-2)
series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(F) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for shares of beneficial
interest, $.001 par value per share, of the Acquiring Fund (the "Acquiring Fund
Shares"); (ii) the assumption by the Acquiring Fund of certain identified
liabilities of the Selling Fund; and (iii) the distribution, after the Closing
Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders
of the Selling Fund in liquidation of the Selling Fund as provided herein, all
upon the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund is the sole investment series of, and the
Acquiring Fund is a separate investment series of, an open-end, registered
investment company of the management type, and the Selling Fund owns securities
that generally are assets of the character in which the Acquiring Fund is
permitted to invest;
WHEREAS, both Funds are authorized to issue their shares
of beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of Keystone Trust have determined that the
Selling Fund should exchange all of its assets and certain identified
liabilities for Acquiring Fund Shares and that the interests of the existing
shareholders of the Selling
<PAGE>
Fund will not be diluted as a result of the transactions
contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and futures interests and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
<PAGE>
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies, and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph that do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. Except as specifically provided in this paragraph 1.3, the Acquiring Fund
shall assume the liabilities, expenses, costs, charges and reserves reflected on
a Statement of Assets and Liabilities of the Selling Fund prepared on behalf of
the Selling Fund, as of the Valuation Date (as defined in paragraph 2.1), in
accordance with generally accepted accounting principles consistently applied
from the prior audited period. The Acquiring Fund shall assume only those
liabilities of the Selling Fund reflected in such Statement of Assets and
Liabilities and shall not except as specifically provided in this paragraph 1.3
assume any other liabilities, whether absolute or contingent, known or unknown,
accrued or unaccrued, all of which shall remain the obligation of the Selling
Fund. The Acquiring Fund hereby agrees with Keystone Trust and each Trustee of
Keystone Trust: (i) to indemnify each Trustee of Keystone Trust against all
liabilities and expenses referred to in the indemnification provisions of
Keystone Trust's Declaration of Trust and By-Laws, to the extent provided
therein, incurred by any Trustee of Keystone Trust; and (ii) in addition to the
indemnification provided in (i) above, to indemnify each Trustee of Keystone
Trust against all liabilities and expenses and pay the same as they arise and
become due, without any exception, limitation or requirement of approval by any
person, and without any right to require repayment thereof by any such Trustee
(unless such Trustee has had the same repaid to him or her) based upon any
subsequent or final disposition or findings made in connection therewith or
otherwise, if such action, suit or other proceeding involves such Trustee's
participation in authorizing or permitting or acquiescing in, directly or
indirectly, by action or inaction, the making of any distribution in any manner
of all or any assets of the Selling Fund without making
<PAGE>
provision for the payment of any liabilities of any kind, fixed or contingent,
of the Selling Fund, which liabilities were not actually and consciously
personally known to such Trustee to exist at the time of such Trustee's
participation in so authorizing or permitting or acquiescing in the making of
any such distribution.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount permitted to be charged to the Acquiring Fund
under the National Association of Securities Dealers, Inc. Conduct Rule 2830,
minus the amount of the sales charges paid or accrued (including asset based
sales charges), plus permitted interest ("Aggregate NASD Cap"), the Acquiring
Fund will add to its Aggregate NASD Cap immediately prior to the Reorganization
the Aggregate NASD Cap of the Selling Fund immediately prior to the
Reorganization.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
<PAGE>
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by multiplying the shares outstanding
of each class of the Selling Fund by the ratio computed by dividing the net
asset value per share of the Selling Fund attributable to each of its classes by
the net asset value per share of the respective classes of the Acquiring Fund
determined in accordance with paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
<PAGE>
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about January 23, 1998 or such other date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously immediately prior to the opening of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 9:00
a.m. at the offices of the Evergreen Keystone Funds, 200 Berkeley Street,
Boston, MA 02116, or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date ("ESC"), shall
deliver at the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Selling Fund Shareholders and the
number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver or cause ESC, its transfer agent as of the Closing Date, to issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited on
the Closing Date to the Secretary of Keystone Trust or provide evidence
satisfactory to the Selling Fund that such Acquiring Fund Shares have been
credited to the Selling Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts and other documents as such
other party or its counsel may reasonably request.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling
Fund represents and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is the sole investment series of a
Pennsylvania common law trust duly organized, validly existing, and in good
standing under the laws of The Commonwealth of Pennsylvania.
(b) The Selling Fund is the sole investment series of a
Pennsylvania common law trust that is registered as an investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.
(c) The current prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of Keystone Trust's Declaration of Trust or
By-Laws or of any material agreement, indenture, instrument, contract, lease, or
other undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the
<PAGE>
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions herein contemplated.
(g) The financial statements of the Selling Fund at August 31,
1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since August 31, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund (except that, under Pennsylvania
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor
<PAGE>
is there outstanding any security convertible into any of the
Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring
Fund represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
<PAGE>
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise.
(g) At the Closing Date, there will not be any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
<PAGE>
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(j) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights and to general equity
principles.
(k) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(m) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
<PAGE>
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. Keystone Trust will call a meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by its independent
auditors and certified by Keystone Trust's President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT.
The Selling Fund will provide the Acquiring Fund with
<PAGE>
information reasonably necessary for the preparation of a prospectus, which will
include the proxy statement, referred to in paragraph 4.1(o) (the "Prospectus
and Proxy Statement"), all to be included in a Registration Statement on Form
N-14 of the Acquiring Fund (the "Registration Statement"), in compliance with
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the 1940 Act in connection with the meeting of the Selling Fund Shareholders
to consider approval of this Agreement and the transactions contemplated herein.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
<PAGE>
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of this Agreement by the Selling Fund, is
a valid and binding obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by Keystone Trust's
President or Vice President and the Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and dated as of the Closing
<PAGE>
Date, to such effect and as to such other matters as the Acquiring Fund shall
reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of Keystone Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is the sole investment series of a
Pennsylvania common law trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Pennsylvania and has the power to
own all of its properties and assets and to carry on its business as presently
conducted.
(b) The Selling Fund is the sole investment series of a
Pennsylvania common law trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution, and delivery of this Agreement by the Acquiring Fund,
is a valid and binding obligation of the Selling Fund enforceable against the
Selling Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Pennsylvania is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
<PAGE>
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of Keystone Trust's
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's investment company
taxable income for all taxable periods ending on the Closing Date (computed
without regard to any deduction for dividends
<PAGE>
paid) and all of its net capital gains realized in all taxable periods ending on
the Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(F) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets
acquired by the Acquiring Fund will be the same as the tax
<PAGE>
basis of such assets to the Selling Fund immediately prior to the
Reorganization, and the holding period of the assets of the Selling Fund in the
hands of the Acquiring Fund will include the period during which those assets
were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of Keystone Trust responsible for financial and accounting matters,
nothing came to their attention that caused them to believe that such unaudited
pro forma financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder;
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
been obtained from and is consistent with the accounting records of the Selling
Fund;
(d) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and Prospectus and
Proxy Statement were prepared based on the valuation of the Selling Fund's
assets in accordance with the Trust's Declaration of Trust and the Acquiring
Fund's then current prospectus and statement of additional information pursuant
to procedures customarily utilized by the Acquiring Fund in valuing its own
assets; and
<PAGE>
(e) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by Selling Fund's
management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from KPMG Peat
Marwick LLP a letter addressed to the Acquiring Fund dated on the Closing Date,
in form and substance satisfactory to the Acquiring Fund, to the effect, that on
the basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards), the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of any
unaudited pro forma financial statements included in the Registration Statement
and Prospectus and Proxy Statement, and inquiries of appropriate officials of
the Trust responsible for financial and accounting matters, nothing came to
their attention that caused them to believe that such unaudited pro forma
financial statements do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder;
(c) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
<PAGE>
(d) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received
from KPMG Peat Marwick LLP a letter addressed to the Acquiring Fund and the
Selling Fund, dated on the Closing Date in form and substance satisfactory to
the Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank. Such expenses
include, without limitation, (a) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
<PAGE>
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, Keystone Trust, the Trust, the respective
Trustees or officers, to the other party or its Trustees or officers.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of Keystone Trust, shall
be governed and construed in accordance with the laws of The Commonwealth of
Pennsylvania, without giving effect to the conflicts of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of Keystone Trust personally, but shall bind only
the trust property of the Selling Fund, as provided in the Declaration of Trust
of Keystone Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of Keystone Trust and signed by authorized officers
of Keystone Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Selling Fund as
provided in the Declaration of Trust of Keystone Trust.
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN FIXED INCOME
TRUST
ON BEHALF OF EVERGREEN
DIVERSIFIED BOND FUND
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
<PAGE>
Title: President
KEYSTONE DIVERSIFIED BOND
FUND (B-2)
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
