1933 Act Registration No. 333-37643
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [X] Post-Effective
Amendment No. Amendment No. 1
EVERGREEN FIXED INCOME TRUST
[Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------
(Address of Principal Executive Offices)
Rosemary D. Van Antwerp, Esq.
Keystone Investment Management Company
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------------
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP 1025
Connecticut Avenue, N.W.
Washington, D.C. 20036
Approximate date of proposed public offering: As soon as possible after
the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940 (File No. 333-37433); accordingly, no fee is payable
herewith. Registrant is filing as an exhibit to this Registration Statement a
copy of an earlier declaration under Rule 24f-2. Pursuant to Rule 429, this
Registration Statement relates to the aforementioned registration on Form N-1A.
A Rule 24f-2 Notice for the Registrant's fiscal year ending June 30, 1998 will
be filed with the Commission on or about August 29, 1998.
<PAGE>
It is proposed that this filing will become effective :
X immediately upon filing pursuant to paragraph (b)
on ____________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on ____________ pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(1)
on ____________ pursuant to paragraph (a)(2) of Rule 485
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
EVERGREEN FIXED INCOME TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Registration Cross Reference Sheet; Cover
Statement and Outside Page
Front Cover Page of
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis and Comparison of Fees and
Risk Factors Expenses; Summary; Comparison
of Investment Objectives and
Policies; Risks
4. Information About the Summary; Reasons for the
Transaction Reorganizations; Comparative
Information on Shareholders'
Rights; Exhibits A-1 and A-2
(Agreements and Plans of
Reorganization)
5. Information about the Cover Page; Summary; Risks;
Registrant Comparison of Investment
Objectives and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
6. Information about the Cover Page; Summary; Risks;
Company Being Acquired Comparison of Investment
Objective and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
<PAGE>
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
7. Voting Information
Cover Page; Summary; Voting
Information Concerning the
Meeting
8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
9. Additional Information Inapplicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information Statement of Additional
About the Registrant Information of the Evergreen
Fixed Income Trust - Evergreen
Intermediate Term Bond Fund
dated November 10, 1997
13. Additional Information Statement of Additional
about the Company Being Information of The Evergreen
Acquired Lexicon Fund - Evergreen
Intermediate-Term Bond Fund
dated September 3, 1997;
Statement of Additional
Information of Keystone
Intermediate Term Bond Fund
dated September 3, 1997
14. Financial Statements Financial Statements dated
June 30, 1997 of Evergreen
Intermediate-Term Bond Fund;
Financial Statements of
Keystone Intermediate Term
Bond Fund dated June 30, 1997;
Pro Forma Financial Statements
<PAGE>
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to
Part A Caption - "Comparative
Information on Shareholders'
Rights - Liability and
Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
EVERGREEN INTERMEDIATE TERM BOND FUND II
(FORMERLY EVERGREEN INTERMEDIATE-TERM BOND FUND)
EVERGREEN (FORMERLY KEYSTONE INTERMEDIATE TERM BOND FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
November 14, 1997
Dear Shareholder,
I am writing to shareholders of the Evergreen Intermediate Term Bond Fund II
(formerly Evergreen Intermediate-Term Bond Fund) and the Evergreen (formerly
Keystone) Intermediate Term Bond Fund to inform you of a Special Shareholders'
meeting to be held on January 6, 1998. Before that meeting, I would like your
vote on the important issues affecting your fund as described in the attached
Prospectus/Proxy Statement.
The Prospectus/Proxy Statement includes the proposed reorganization of the
Evergreen Intermediate Term Bond Fund II and the Evergreen Intermediate Term
Bond Fund. All of the assets of both funds would be acquired by a new fund, also
called Evergreen Intermediate Term Bond Fund. Details about the new fund's
investment objective, portfolio management team, performance, etc. are contained
in the attached Prospectus/Proxy Statement.
The Boards of Trustees have unanimously approved the proposal and recommend that
you vote FOR this proposal.
You will receive shares of the new fund in the same class, with the same letter
designation, the same fees and the same contingent deferred sales charges as the
shares you held prior to the reorganization. This is a non-taxable event for
shareholders.
I realize that this Prospectus/Proxy Statement will take time to review, but
your vote is very important. Please take the time to familiarize yourself with
the proposal presented and sign and return your proxy card(s) in the enclosed
postage-paid envelope today. You may receive more than one proxy card if you own
shares in more than one fund. Please sign and return each card you receive.
If we do not receive your completed proxy card(s) after several weeks, you may
be contacted by our proxy solicitor, Shareholder Communications Corporation.
They will remind you to vote your shares or will record your vote over the phone
if you choose to vote in that manner. You may also call
<PAGE>
Shareholder Communications Corporation directly at 1-800-733-
8481 ext. 404 and vote by phone.
<PAGE>
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
William M. Ennis
Managing Director
Evergreen Funds
<PAGE>
November 1997
IMPORTANT NEWS
FOR EVERGREEN SHAREHOLDERS
We encourage you to read the attached Prospectus/Proxy Statement in full;
however, the following questions and answers represent some typical concerns
that shareholders might have regarding this document.
Q: WHY IS EVERGREEN SENDING ME THIS PROSPECTUS/PROXY
STATEMENT?
Mutual funds are required to get shareholders' votes for certain types of
changes. As a shareholder, you have a right to vote on major policy decisions,
such as those included here.
Q: WHAT ARE THE ISSUES CONTAINED IN THIS PROSPECTUS/PROXY
STATEMENT?
You are being asked to vote to approve a proposal to reorganize the Evergreen
Intermediate Term Bond Fund II (formerly Evergreen Intermediate- Term Bond Fund)
and the Evergreen (formerly Keystone) Intermediate Term Bond Fund into a new
fund, also called Evergreen Intermediate Term Bond Fund. The new fund's
investment objective is substantially the same as that of the former funds.
Q: HOW WILL THIS CHANGE AFFECT ME AS A FUND SHAREHOLDER?
The reorganization of these funds into the Evergreen Intermediate Term Bond Fund
means that the former Evergreen Intermediate Term Bond Fund II and the former
Evergreen Intermediate Term Bond Fund would no longer exist after January 23,
1998. Shareholders would receive shares of the new Evergreen Intermediate Term
Bond Fund in the same class, with the same letter designation, the same fees and
the same contingent deferred sales charges as the shares held prior to the
reorganization. This is a non-taxable event for shareholders.
<PAGE>
Q: WHY IS EVERGREEN PROPOSING THIS CHANGE?
This proposal represents one of the final steps we are undertaking to unify the
Evergreen and Keystone fund families. Shareholders can anticipate the following
benefits:
A comprehensive fund family with a common risk/reward spectrum
The elimination of any overlap or gaps in fund offerings
Reduced confusion surrounding privileges associated with each fund,
specifically regarding exchangeability, letter
of
intent, and rights of accumulation
A user-friendly product line for both shareholders and investment
professionals
A single location for fund information, whether you're looking up funds
in the newspaper or locating a Morningstar report on the Internet.
Q: HOW DO THE BOARD MEMBERS OF MY FUND RECOMMEND THAT I VOTE?
The Board members of each fund recommend that you vote in favor of or FOR the
proposal on the enclosed proxy card.
Q: WHOM DO I CALL FOR MORE INFORMATION OR TO PLACE MY VOTE?
Please call Shareholder Communications Corporation at 1-800-
733-8481 ext. 404 for additional information. You can vote one
of three ways:
Use the enclosed proxy card to record your vote either FOR, Against or
Abstain, then return the card in the postpaid envelope provided.
or
Complete the enclosed proxy card and FAX to 1-800-733- 1885.
or
Call 1-800-733-8481 ext. 404 and record your vote by
telephone.
Q: WHY ARE MULTIPLE CARDS ENCLOSED?
<PAGE>
If you own shares of more than one fund, you will receive a proxy card for each
fund you own. Please sign, date and return each proxy card you receive.
<PAGE>
EVERGREEN INTERMEDIATE TERM BOND FUND II
(FORMERLY EVERGREEN INTERMEDIATE-TERM BOND FUND)
EVERGREEN (FORMERLY KEYSTONE) INTERMEDIATE TERM BOND FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 6, 1998
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of each of Evergreen Intermediate Term Bond Fund II (formerly
Evergreen Intermediate-Term Bond Fund), a series of The Evergreen Lexicon Fund
and Evergreen (formerly Keystone) Intermediate Term Bond Fund (each a "Fund")
will be held at the offices of the Evergreen Keystone Funds, 200 Berkeley
Street, Boston, Massachusetts 02116, on January 6, 1998 at 3:00 p.m. for the
following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of September 30, 1997, providing for the acquisition of
all of the assets of the Fund by the Evergreen Intermediate Term Bond Fund, a
series of Evergreen Fixed Income Trust, ("Evergreen Intermediate Bond") in
exchange for shares of Evergreen Intermediate Bond and the assumption by
Evergreen Intermediate Bond of certain identified liabilities of the Fund. The
Plan also provides for distribution of such shares of Evergreen Intermediate
Bond to shareholders of the Fund in liquidation and subsequent termination of
the Fund. A vote in favor of the Plan is a vote in favor of the liquidation and
dissolution of the Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of The Evergreen Lexicon Fund on behalf of Evergreen
Intermediate Term Bond Fund II and the Trustees of Evergreen Intermediate Term
Bond Fund have fixed the close of business on November 10, 1997 as the record
date for the determination of shareholders of each respective Fund entitled to
notice of and to vote at the Meeting or any adjournment thereof.
<PAGE>
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Boards of Trustees
George O. Martinez
Secretary
November 14, 1997
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense involved in
validating your vote if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as
it appears in the Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name
of the party signing should conform exactly to a name shown in
the Registration on the proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of Registration.
For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr.,
Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED NOVEMBER 14, 1997
Acquisition of Assets of
EVERGREEN INTERMEDIATE TERM BOND FUND II
(FORMERLY EVERGREEN INTERMEDIATE-TERM BOND FUND)
a series of
The Evergreen Lexicon Fund
200 Berkeley Street
Boston, Massachusetts 02116
and
EVERGREEN (FORMERLY KEYSTONE) INTERMEDIATE TERM BOND
FUND
200 Berkeley Street
Boston, Massachusetts 02116
By and in Exchange for Shares of
EVERGREEN INTERMEDIATE TERM 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
Evergreen Intermediate Term Bond Fund II (formerly Evergreen Intermediate-Term
Bond Fund) ("Evergreen Intermediate II") and Evergreen (formerly Keystone)
Intermediate Term Bond Fund ("Evergreen Intermediate") in connection with a
proposed Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of each of Evergreen Intermediate II and Evergreen Intermediate for
consideration at a Special Meeting of Shareholders to be held on January 6, 1998
at 3:00 p.m. at the offices of the Evergreen Keystone Funds, 200 Berkeley
Street, Boston, Massachusetts 02116, and any adjournments thereof (the
"Meeting"). Each Plan provides for all of the assets of Evergreen Intermediate
II and Evergreen Intermediate, respectively, to be acquired by Evergreen
Intermediate Term Bond Fund ("Evergreen Intermediate Bond") in exchange for
shares of Evergreen Intermediate Bond and the assumption by Evergreen
Intermediate Bond of certain identified liabilities of Evergreen Intermediate II
and Evergreen Intermediate, respectively (hereinafter referred to individually
as the "Reorganization" or collectively as the "Reorganizations"). Evergreen
Intermediate Bond, Evergreen Intermediate II and Evergreen Intermediate are
sometimes hereinafter referred to individually as the "Fund" and collectively as
the "Funds." Following the
<PAGE>
Reorganizations, shares of Evergreen Intermediate Bond will be distributed to
shareholders of Evergreen Intermediate II and Evergreen Intermediate in
liquidation of Evergreen Intermediate II and Evergreen Intermediate and such
Funds will be terminated. Holders of shares of Evergreen Intermediate II and
Evergreen Intermediate will receive shares of the class of Evergreen
Intermediate Bond (the "Corresponding Shares") having the same letter
designation and the same distribution-related fees, shareholder
servicing-related fees and contingent deferred sales charges ("CDSCs"), if any,
as the shares of the class of Evergreen Intermediate II and Evergreen
Intermediate held by them prior to the Reorganizations. As a result of the
proposed Reorganizations, shareholders of Evergreen Intermediate II and
Evergreen Intermediate will receive that number of full and fractional
Corresponding Shares of Evergreen Intermediate Bond having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
of Evergreen Intermediate II and Evergreen Intermediate. Each Reorganization is
being structured as a tax-free reorganization for federal income tax purposes.
Evergreen Intermediate 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
objectives of Evergreen Intermediate Bond are to seek current income by
investing primarily in a broad range of investment quality debt securities and,
as a secondary objective, to protect capital. Such investment objectives are
substantially similar to those of Evergreen Intermediate II and Evergreen
Intermediate.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Intermediate
Bond that shareholders of Evergreen Intermediate II and Evergreen Intermediate
should know before voting on the Reorganizations. Certain relevant documents
listed below, which have been filed with the Securities and Exchange Commission
("SEC"), are incorporated in whole or in part by reference. A Statement of
Additional Information dated November 14, 1997 relating to this Prospectus/Proxy
Statement and the Reorganizations incorporating by reference the financial
statements of Evergreen Intermediate II dated June 30, 1997 and Evergreen
Intermediate dated June 30, 1997 has been filed with the SEC and is incorporated
by reference in its entirety into this Prospectus/Proxy Statement. Evergreen
Intermediate Bond is a newly created series of Evergreen Fixed Income Trust
<PAGE>
and has had no operations to date. Consequently, there are no current financial
statements of Evergreen Intermediate Bond. A copy of such Statement of
Additional Information is available upon request and without charge by writing
to Evergreen Intermediate Bond at 200 Berkeley Street, Boston, Massachusetts
02116, or by calling toll-free 1-800-343-2898.
The two Prospectuses of Evergreen Intermediate Bond dated November 10,
1997 are incorporated herein by reference in their entirety. The Prospectuses,
which pertain (i) to Class Y shares and (ii) to Class A, Class B and Class C
shares, differ only insofar as they describe the separate distribution and
shareholder servicing arrangements applicable to the classes. Shareholders of
Evergreen Intermediate II and Evergreen Intermediate will receive, with this
Prospectus/Proxy Statement, copies of the Prospectus pertaining to the class of
shares of Evergreen Intermediate Bond that they will receive as a result of the
consummation of each Reorganization. Additional information about Evergreen
Intermediate Bond is contained in its Statement of Additional Information of the
same date which has been filed with the SEC and which is available upon request
and without charge by writing to or calling Evergreen Intermediate Bond at the
address or telephone number listed in the preceding paragraph.
The two Prospectuses of Evergreen Intermediate II (which pertain to (i)
Class Y shares and (ii) Class A, Class B and Class C shares) dated September 3,
1997, as supplemented, and the Prospectus of Evergreen Intermediate (which
pertains to Class A, Class B and Class C shares) dated September 3, 1997, as
supplemented, insofar as they relate to such Funds only, and not to any other
funds described therein, are incorporated herein in their entirety by reference.
Copies of the Prospectuses and related Statements of Additional Information
dated the same respective dates are available upon request without charge by
writing or calling the Fund of which you are a shareholder at the address listed
in the second preceding paragraph.
Included as Exhibits A-1 and A-2 to this Prospectus/Proxy Statement are
copies of each Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of any bank and are not insured or otherwise protected by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency and involve investment risk,
including possible loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES...........................................5
SUMMARY...................................................................12
Proposed Plans of Reorganization.................................12
Tax Consequences.................................................13
Investment Objectives and Policies
of the Funds...................................................14
Comparative Performance Information
for each Fund................................................
Management of the Funds..........................................16
Investment Advisers .............................................16
Portfolio Management.............................................17
Distribution of Shares...........................................17
Purchase and Redemption Procedures...............................20
Exchange Privileges..............................................20
Dividend Policy..................................................20
Risks............................................................21
REASONS FOR THE REORGANIZATIONS...........................................23
Agreements and Plans of Reorganization...........................27
Federal Income Tax Consequences..................................29
Pro-forma Capitalization.........................................31
Shareholder Information..........................................32
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES..........................37
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS...........................40
Forms of Organization............................................40
Capitalization...................................................41
Shareholder Liability............................................41
Shareholder Meetings and Voting Rights...........................42
Liquidation or Dissolution.......................................43
Liability and Indemnification of Trustees........................43
ADDITIONAL INFORMATION....................................................45
VOTING INFORMATION CONCERNING THE MEETINGS................................46
FINANCIAL STATEMENTS AND EXPERTS..........................................49
LEGAL MATTERS.............................................................50
OTHER BUSINESS............................................................50
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y, Class A, Class B, and Class C shares of
Evergreen Intermediate II set forth in the following tables and in the examples
are based on the expenses for Evergreen Intermediate II's fiscal year ended June
30, 1997. It is anticipated that prior to the Reorganization a majority of the
Class Y shares of Evergreen Intermediate II will be redeemed. The amounts for
Class A, Class B and Class C shares of Evergreen Intermediate set forth in the
following tables and in the examples are based on the expenses for Evergreen
Intermediate's fiscal year ended June 30, 1997. The pro forma amounts for Class
Y, Class A, Class B and Class C shares of Evergreen Intermediate Bond are based
on the estimated expenses of Evergreen Intermediate Bond for the fiscal year
ending June 30, 1998. All amounts are adjusted for voluntary expense waivers.
The pro forma numbers reflect the anticipated redemption of Class Y shares of
Evergreen Intermediate II. See "Reasons for the Reorganizations - Pro- forma
Capitalization."
The following tables show for Evergreen Intermediate II, Evergreen
Intermediate and Evergreen Intermediate Bond pro forma the shareholder
transaction expenses and annual fund operating expenses associated with an
investment in the Class Y, Class A, Class B and Class C shares of each Fund, as
applicable.
<TABLE>
<CAPTION>
Comparison of Class Y, Class A, Class B and Class C
Shares of Evergreen Intermediate Bond With
Corresponding Shares of
Evergreen Intermediate II and Evergreen Intermediate
Evergreen Intermediate II
----------------------
Shareholder
Transaction Expenses Class Y Class A Class B Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Load None 3.25% None None
Imposed on Purchases
(as a percentage of
offering price)
<PAGE>
Maximum Sales Load None None None None
Imposed on
Reinvested Dividends
(as a percentage of
offering price)
Contingent None None 5.00% in 1.00% in
Deferred Sales the first the first
Charge (as a year, year and
percentage of declining 0.00%
original purchase to 1.00% thereafter
price or redemption in the
proceeds, whichever sixth year
is lower) and 0.00%
thereafter
Exchange Fee None None None None
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee 0.60% 0.60% 0.60% 0.60%
12b-1 Fees (1)(2) None 0.05% 1.00% 1.00%
Other Expenses 0.21% 0.20% 0.21% 0.20%
-------- -------- ---------- ----------
Annual Fund
Operating 0.81% 0.85% 1.81% 1.80%
Expenses(3) -------- -------- ---------- ----------
-------- -------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Evergreen
Intermediate
---------------------
Shareholder Transaction Class A Class B Class C
Expenses ------- ------- -------
<S> <C> <C> <C>
Maximum Sales Load Imposed on 3.25% None
Purchases (as a percentage of None
offering price)
<PAGE>
Maximum Sales Load Imposed on None None None
Reinvested Dividends (as a
percentage of offering price)
None 5.00% in 1.00% in
Contingent Deferred Sales the first the first
Charge (as a percentage of year, year and
original purchase price or declining 0.00%
redemption proceeds, whichever to 1.00% thereafter
is lower) in the
sixth year
and 0.00%
thereafter
Exchange Fee None None None
Annual Fund Operating Expenses
(as a percentage of average
daily net assets)
Management Fee 0.64% 0.64% 0.64%
12b-1 Fees (1) 0.23% 1.00% 1.00%
Other Expenses (2) 0.25% 0.23% 0.23%
-------- ---------- ----------
Annual Fund Operating Expenses 1.12% 1.87% 1.87%
(3)(4) -------- ---------- ----------
-------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Evergreen Intermediate Bond Pro Forma
Shareholder
Transaction Class Y Class A Class B Class C
Expenses ------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Load None 3.25% None None
Imposed on
Purchases (as a
percentage of
offering price)
Maximum Sales Load None None None
Imposed on None
Reinvested
Dividends (as a
percentage of
offering price)
<PAGE>
Contingent Deferred
Sales Charge (as a None None 5.00% in 1.00% in
percentage of the first the first
original purchase year, year and
price or redemption declining 0.00%
proceeds, whichever to 1.00% thereafter
is lower) in the
sixth year
and 0.00%
thereafter
Exchange Fee None None None None
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee 0.64% 0.64% 0.64% 0.64%
12b-1 Fees (1) None 0.25% 1.00% 1.00%
Other Expenses (2) 0.21% 0.21% 0.21% 0.21%
--------- ------- ---------- ----------
Annual Fund
Operating Expenses 1.10% 1.85% 1.85%
0.85% ------- ---------- ----------
--------- ------- ---------- ----------
---------
</TABLE>
- ---------------
(1) Class A Shares of Evergreen Intermediate Bond, Evergreen Intermediate II
and Evergreen Intermediate can pay up to 0.75% of average daily net assets
as a 12b-1 fee. For the foreseeable future, the Class A 12b-1 fees will be
limited to 0.25% of average daily net assets. For Class B and Class C
shares of the Fund, 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) Reflects voluntary reimbursements of certain expenses and expense
waivers for Evergreen Intermediate II and Evergreen Intermediate .
These reimbursements and waivers may be modified or may cease at any
time. Absent such reimbursements and waivers, the operating expenses,
<PAGE>
including indirectly paid expenses, for the year ended June 30, 1997
for Evergreen Intermediate II and Evergreen Intermediate and estimated
pro forma expenses for Evergreen Intermediate Bond for the fiscal year
ending June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Class Y Class A Class B Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Evergreen Intermediate 0.81% 1.04% 1.81% 1.80%
II
Evergreen N/A 1.58% 2.35% 2.35%
Intermediate
Evergreen Intermediate 1.20% 1.45% 2.20% 2.20%
Bond
</TABLE>
(3) Expense ratios include indirectly paid expenses, which represent
expense offset arrangements with the Fund's custodian.
(4) The Annual Operating Expenses for Evergreen Intermediate Class A, Class
B and Class C shares for the fiscal year ended June 30, 1997 were
limited to 1.10%, 1.85% and 1.85%, respectively, excluding indirectly
paid expenses.
Examples. The following tables show for Evergreen Intermediate II and
Evergreen Intermediate, and for Evergreen Intermediate 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, no redemption at the end of
each period.
<TABLE>
<CAPTION>
Evergreen Intermediate II
----------------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y $8 $26 $45 $100
Class A $41 $59 $78 $134
<PAGE>
Class B
(Assuming $68 $87 $118 $175
redemption at end
of period)
Class B $18 $57 $97 $175
(Assuming no
redemption at end
of period)
Class C $28 $57 $97 $212
(Assuming
redemption at end
of period)
Class C $18 $57 $97 $212
(Assuming no
redemption at end
of period)
</TABLE>
<TABLE>
<CAPTION>
Evergreen Intermediate
---------------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y N/A N/A N/A N/A
Class A $44 $67 $92 $164
Class B $69 $89 $121 $190
(Assuming
redemption at end
of period)
Class B $19 $59 $101 $190
(Assuming no
redemption at end
of period)
Class C $29 $59 $101 $219
(Assuming
redemption at end
of period)
<PAGE>
Class C $19 $59 $101 $219
(Assuming no
redemption at end
of period)
</TABLE>
<TABLE>
<CAPTION>
Evergreen Intermediate Bond Pro Forma
-------------------------------------
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y $9 $27 $47 $105
Class A $43 $66 $91 $162
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 Evergreen
Intermediate II and Evergreen Intermediate shareholders in understanding the
various costs and expenses that an investor in Evergreen Intermediate 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
<PAGE>
expenses or annual return. Actual expenses may be greater or
less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement
and, to the extent not inconsistent with such additional information, the
Prospectuses of Evergreen Intermediate Bond dated November 10, 1997 and the
Prospectuses of Evergreen Intermediate II and Evergreen Intermediate each dated
September 3, 1997, as supplemented, (which are incorporated herein by
reference), and the Plans, forms of which are attached to this Prospectus/Proxy
Statement as Exhibits A-1 and A-2.
Proposed Plans of Reorganization
The Plans provide for the transfer of all of the assets of Evergreen
Intermediate II and Evergreen Intermediate, as applicable, in exchange for
shares of Evergreen Intermediate Bond and the assumption by Evergreen
Intermediate 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 Intermediate
Bond to Evergreen Intermediate II and Evergreen Intermediate shareholders in
liquidation of those Funds as part of the Reorganizations. As a result of the
Reorganizations, the shareholders of Evergreen Intermediate II and Evergreen
Intermediate will become the owners of that number of full and fractional
Corresponding Shares of Evergreen Intermediate Bond having an aggregate net
asset value equal to the aggregate net asset value of the shareholder's shares
of Evergreen Intermediate II and Evergreen Intermediate as of the close of
business immediately prior to the date that such Fund's assets are exchanged for
shares of Evergreen Intermediate Bond. See "Reasons for the Reorganizations
Agreements and Plans of Reorganization."
The Trustees of The Evergreen Lexicon Fund and the Trustees of
Evergreen Intermediate, including the Trustees who are not "interested persons,"
(the "Trustees") as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganizations would be in the best
interests of shareholders of Evergreen Intermediate II and Evergreen
Intermediate, respectively, and that the interests of the shareholders of
<PAGE>
Evergreen Intermediate II and Evergreen Intermediate, respectively, will not be
diluted as a result of the transactions contemplated by the Reorganizations.
Accordingly, the Trustees have submitted the Plans for the approval of Evergreen
Intermediate II's and Evergreen Intermediate's shareholders.
THE BOARD OF TRUSTEES OF THE EVERGREEN LEXICON FUND
RECOMMENDS APPROVAL BY SHAREHOLDERS OF EVERGREEN
INTERMEDIATE II OF THE PLAN EFFECTING THE
REORGANIZATION.
THE BOARD OF TRUSTEES OF EVERGREEN INTERMEDIATE
RECOMMENDS APPROVAL BY SHAREHOLDERS OF EVERGREEN
INTERMEDIATE OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Fixed Income Trust have also
approved the Plans, and accordingly, Evergreen Intermediate
Bond's participation in the Reorganizations.
Approval of a Reorganization on the part of Evergreen Intermediate II
and Evergreen Intermediate will require for Evergreen Intermediate II the
affirmative vote of a majority of the shares voted and, for Evergreen
Intermediate, the affirmative vote of a majority of the Fund's shares present
and entitled to vote, with all classes voting together as a single class at
Meetings at which a quorum of each Fund's shares is present. A majority of the
outstanding shares of each Fund entitled to vote, represented in person or by
proxy, is required to constitute a quorum at the Meetings. See "Voting
Information Concerning the Meetings."
The Reorganizations are scheduled to take place on or about January 23,
1998.
If the shareholders of Evergreen Intermediate II or Evergreen
Intermediate do not vote to approve the Reorganizations, the Trustees will
consider other possible courses of action in the best interests of shareholders.
Tax Consequences
Prior to or at the completion of a Reorganization, Evergreen
Intermediate II and Evergreen Intermediate 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 Intermediate Bond in the
Reorganization. The holding period and aggregate tax basis of shares of
Evergreen Intermediate Bond that are received by each Fund's
<PAGE>
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 Intermediate 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 Intermediate Bond upon the receipt of the assets of each Fund in
exchange for shares of Evergreen Intermediate Bond and the assumption by
Evergreen Intermediate Bond of certain identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives of Evergreen Intermediate Bond are to seek
current income by investing primarily in a broad range of investment quality
debt securities and, as a secondary objective, to protect capital. Under normal
circumstances, it is anticipated that Evergreen Intermediate Bond will invest at
least 65% of its assets in bonds and debentures rated within the four highest
categories by a nationally recognized statistical ratings organization
("NRSRO"). Evergreen Intermediate Bond may invest up to 25% of its assets in
below investment-grade bonds and up to 50% of its assets in foreign securities.
Evergreen Intermediate Bond may also invest in high grade money market
instruments, stripped mortgage securities and certain derivative securities,
including futures and options. The investment objectives and policies of
Evergreen Intermediate are identical to those of Evergreen Intermediate Bond.
The investment objectives and policies of Evergreen Intermediate II are
substantially similar to those of Evergreen Intermediate Bond except that
Evergreen Intermediate II may only invest in debt securities rated within the
three highest categories by a NRSRO and may not engage in futures and options
transactions or purchase certain other derivative 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 Intermediate Bond, as of the date of this Prospectus/Proxy
Statement, had not commenced operations. The total return of Evergreen
Intermediate II for the one year period ended August 31, 1997, the total return
of Evergreen Intermediate for the
<PAGE>
one, five and ten year periods ended August 31, 1997 and for both Funds for the
periods from inception through August 31, 1997 are set forth in the table below.
The calculations of total return assume the reinvestment of all dividends and
capital gains distributions on the reinvestment date and the deduction of all
recurring expenses (including sales charges) that were charged to shareholders'
accounts.
<TABLE>
<CAPTION>
Average Annual Total Return (1)
1 Year 5 Years
Ended Ended 10 Years From
August August Ended Inception
31, 31, August To August Inception
1997 1997 31, 1997 31, 1997 Date
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
Evergreen
Intermediate
II
Class A 5.13% N/A N/A 5.54% 5/2/95
shares
Class B 2.70% N/A N/A (0.13)% 1/30/96
shares
Class C 6.70% N/A N/A 5.72% 4/29/96
shares
Class Y 8.78% 6.16% N/A 7.20% 11/1/91
shares
Evergreen
Intermediate
Class A 6.30% 5.33% 6.91% 6.26% 2/13/87
shares
Class B 4.08% N/A N/A 4.76% 2/1/93
shares
Class C 8.09% N/A N/A 5.11% 2/1/93
shares
</TABLE>
- --------------
(1) Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average
annual total return during the periods would have been lower.
<PAGE>
Management of the Funds
The overall management of Evergreen Intermediate Bond, of Evergreen
Intermediate II and of Evergreen Intermediate is the responsibility of, and is
supervised by, the Board of Trustees of Evergreen Fixed Income Trust, The
Evergreen Lexicon Fund, and Evergreen Intermediate,
respectively.
Investment Advisers
The investment adviser to Evergreen Intermediate Bond and Evergreen
Intermediate 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 Intermediate Bond and Evergreen Intermediate 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
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.
The Capital Management Group ("CMG") of FUNB serves as investment
adviser to Evergreen Intermediate II. CMG manages investments and supervises the
daily business affairs of the
<PAGE>
Fund and, as compensation therefor, is entitled to receive an annual fee equal
to 0.60% of the Fund's average daily net assets.
Each investment adviser 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. Each investment adviser may reduce or cease these voluntary
waivers and reimbursements at any time.
Portfolio Management
The portfolio manager of both Evergreen Intermediate Bond and Evergreen
Intermediate is Christopher C. Conkey, who is the Chief Investment Officer of
Fixed Income and Head of the High Grade Bond Team for Keystone. Mr. Conkey
joined Keystone as a fixed income portfolio manager in 1988 and has managed
Evergreen Intermediate's portfolio since that time.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen Intermediate Bond's, Evergreen
Intermediate II's and Evergreen Intermediate's shares. EDI distributes each
Fund's shares directly or through broker-dealers, banks (including FUNB), or
other financial intermediaries. Evergreen Intermediate Bond and Evergreen
Intermediate II both offer four classes of shares: Class A, Class B, Class C and
Class Y. Evergreen Intermediate offers three classes of shares: Class A, Class B
and Class C. Each class has separate distribution arrangements. (See
"Distribution-Related and Shareholder Servicing-Related Expenses" below.) No
class bears the distribution expenses relating to the shares of any other class.
In the proposed Reorganizations, shareholders of Evergreen Intermediate
II and Evergreen Intermediate will receive the corresponding class of shares of
Evergreen Intermediate Bond which they currently hold. The Class A, Class B,
Class C and Class Y shares of Evergreen Intermediate Bond have substantially
identical arrangements with respect to the imposition of initial sales charges,
CDSCs and distribution and service fees as the comparable classes of shares of
Evergreen Intermediate II and Evergreen Intermediate. Because the
Reorganizations will be effected at net asset value without the imposition of a
sales charge, Evergreen Intermediate Bond shares acquired by shareholders of
<PAGE>
Evergreen Intermediate II and Evergreen Intermediate pursuant to the proposed
Reorganizations would not be subject to any initial sales charge or CDSC as a
result of the Reorganizations. However, holders of Evergreen Intermediate Bond
shares acquired as a result of the Reorganizations would continue to be subject
to a CDSC upon subsequent redemption to the same extent as if shareholders had
continued to hold their shares of Evergreen Intermediate II and Evergreen
Intermediate.
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 Intermediate Bond Prospectuses, the Evergreen Intermediate II
Prospectuses, the Evergreen Intermediate Prospectus and in each Fund's
respective Statement of Additional Information.
Class Y Shares. Class Y shares are sold at net asset value without any
initial sales charge and are not subject to distribution-related fees. Class Y
shares are only available to certain classes of investors as is more fully
described in the Prospectus for each Fund.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees.
Class B Shares. Class B shares are sold without an initial sales charge
but are subject to a CDSC, which ranges from 5% to 1%, if shares are redeemed
during the first six years after the month of purchase. In addition, Class B
shares are subject to distribution-related fees and shareholder
servicing-related fees as described below. Class B shares issued in the
Reorganizations will automatically convert to Class A shares in accordance with
the conversion schedule of Evergreen Intermediate Bond in effect at the time of
the Reorganizations. For purposes of determining when Class B shares issued in
the Reorganizations to shareholders of Evergreen Intermediate II and Evergreen
Intermediate will convert to Class A shares, such shares will be deemed to have
been purchased as of the date the shares of Evergreen Intermediate II and
Evergreen Intermediate were originally purchased.
Class B shares are subject to higher distribution-related fees than the
corresponding Class A shares of each Fund on which a front-end sales charge is
imposed (until they convert to Class A shares). The higher fees mean a higher
expense
<PAGE>
ratio, so Class B shares pay correspondingly lower dividends and may have a
lower net asset value than Class A shares of the Fund.
Class C Shares. Class C shares are sold without an initial sales charge
but, as indicated below, are subject to distribution and shareholder
servicing-related fees. Class C shares are subject to a 1% CDSC if such shares
are redeemed during the month of purchase and the 12-month period following the
month of purchase. No CDSC is imposed on amounts redeemed thereafter. Class C
shares incur higher distribution and shareholder servicing-related fees than
Class A shares but, unlike Class B shares, do not convert to any other class of
shares.
The amount of the CDSC applicable to redemptions of shares of each Fund
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 Intermediate
Bond received by Evergreen Intermediate II's or Evergreen Intermediate's
shareholders in the Reorganizations, Evergreen Intermediate Bond will treat such
shares as having been sold on the date the shares of Evergreen Intermediate II
or Evergreen Intermediate 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 Intermediate Bond, Evergreen Intermediate II and Evergreen
Intermediate have each adopted a Rule 12b-1 plan with respect to its Class A
shares under which the Class may pay for distribution-related expenses at an
annual rate which may not exceed 0.75% of average daily net assets attributable
to the Class. Payments with respect to Class A shares of Evergreen Intermediate
Bond, Evergreen Intermediate II and Evergreen Intermediate are currently limited
to 0.25% of average daily net assets attributable to the Class, which amount may
be increased to the full plan rate for such Fund by the Trustees without
shareholder approval.
Each Fund has also adopted a Rule 12b-1 plan with respect to its Class
B and Class C shares under which each Class may
<PAGE>
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., following the
Reorganizations Evergreen Intermediate Bond may make distribution-related and
shareholder servicing-related payments with respect to Evergreen Intermediate II
and Evergreen Intermediate shares sold prior to the Reorganizations, including
payments to Evergreen Intermediate's former underwriter.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectus and Statement of Additional
Information.
Purchase and Redemption Procedures
Information concerning applicable sales charges, distribution-related
fees and shareholder servicing-related fees is described above. Investments in
the Funds are not insured. The minimum initial purchase requirement for each
Fund is $1,000. There is no minimum for subsequent purchases of shares of any
Fund. Each Fund provides for telephone, mail or wire redemption of shares at net
asset value, less any CDSC, as next determined after receipt of a redemption
request on each day the New York Stock Exchange ("NYSE") is open for trading.
Additional information concerning purchases and redemptions of shares, including
how each Fund's net asset value is determined, is contained in the respective
Prospectus for each Fund. Each Fund may involuntarily redeem shareholders'
accounts that have less than $1,000 of invested funds. All funds invested in
each Fund are invested in full and fractional shares. The Funds reserve the
right to reject any purchase order.
Exchange Privileges
Each Fund currently has identical exchange privileges. 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.
<PAGE>
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 Evergreen Intermediate II
and Evergreen Intermediate who have elected to have their dividends and/or
distributions reinvested will have dividends and/or distributions received from
Evergreen Intermediate Bond reinvested in shares of Evergreen Intermediate Bond.
Shareholders of Evergreen Intermediate II and Evergreen Intermediate who have
elected to receive dividends and/or distributions in cash will receive dividends
and/or distributions from Evergreen Intermediate 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
Intermediate Bond.
Each of Evergreen Intermediate II and Evergreen Intermediate has
qualified and intends to continue to qualify, and Evergreen Intermediate 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 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 Intermediate Bond and Evergreen Intermediate
may invest in debt securities rated within the four highest categories by a
NRSRO, may invest up to 50% of their assets in
<PAGE>
foreign securities and up to 25% of their assets in high yield, high risk bonds
rated below investment grade by a NRSRO. For a discussion of each Fund's
objectives and policies, see "Comparison of Investment Objectives and Policies."
Evergreen Intermediate II's purchases of debt securities are limited to those
rated within the three highest categories by a NRSRO. Bonds rated in the fourth
highest category, although considered investment grade, have speculative
characteristics. 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.
Each Fund stresses earning income by investing in fixed income
securities, which are generally considered to be interest rate sensitive. This
means that their market values (and the Fund's share prices) will tend to vary
inversely with changes in interest rates (i.e., decreasing when interest rates
rise and increasing when interest rates fall). For example, if interest rates
increase after a security is purchased, the security, if sold prior to maturity,
may return less than its cost. 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.
Unlike Evergreen Intermediate II, Evergreen Intermediate Bond and
Evergreen Intermediate may invest in derivatives. The market values of
derivatives or structured securities may vary depending upon the manner in which
the investments have been structured and may fluctuate much more rapidly and to
a much greater extent than investments in other securities. As a result, the
values of such investments may change at rates in excess of the rates at which
traditional fixed income securities change and, depending on the structure of a
derivative, would change in a manner opposite to the change in the market value
of a traditional fixed income security. See each Fund's Prospectus and Statement
of Additional Information for further discussion of the risks inherent in the
use of derivatives.
Each Fund may invest in foreign securities. Investing in securities of
foreign issuers generally involves greater risk than investing in securities of
domestic issuers for the
<PAGE>
following reasons: publicly available information on issuers and securities may
be scarce; many foreign countries do not follow the same accounting, auditing,
and financial reporting standards as are used in the U.S.; market trading
volumes may be smaller, resulting in less liquidity and more price volatility
compared to U.S. securities of comparable quality; there may be less regulation
of securities trading and its participants; the possibility may exist for
expropriation, confiscatory taxation, nationalization, establishment of exchange
controls, political or social instability or negative diplomatic developments;
and dividend or interest withholding may be imposed at the source.
Fluctuations in foreign exchange rates impose an additional level of
risk, possibly affecting the value of 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 16, 1997, the Board of Trustees
of The Evergreen Lexicon Fund considered and approved the Reorganization as in
the best interests of shareholders of Evergreen Intermediate II and determined
that the interests of existing shareholders of Evergreen Intermediate II will
not be diluted as a result of the transactions contemplated by the
Reorganization.
At a regular meeting held on September 17, 1997, the Board of Trustees
of Evergreen Intermediate considered and approved the Reorganization as in the
best interests of shareholders and determined that the interests of existing
shareholders of Evergreen Intermediate will not be diluted as a result of the
transactions contemplated by the Reorganization.
In approving each Plan, the Trustees reviewed various factors about the
respective Funds and the proposed Reorganizations. The Reorganizations are part
of an overall plan to convert the Evergreen Keystone funds into series of
Delaware business trusts and, to the extent practicable, simplify and make
consistent various investment restrictions and policies. Holders of shares of
beneficial interest in a Massachusetts business trust 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
<PAGE>
liability, some degree of exposure, however unlikely, continues to exist with
respect to the Funds as long as they are governed by Massachusetts law.
Substantially all written agreements, obligations, instruments, or undertakings
made by The Evergreen Lexicon Fund or Evergreen Intermediate 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 The Evergreen Lexicon Fund and Evergreen Intermediate provide for
indemnification out of the Funds' property of any shareholder held personally
liable for the obligations of a Fund solely by reason of his or her being or
having been a shareholder, a shareholder could conceivably incur financial loss
exceeding any amounts indemnified on account of shareholder liability if the
circumstances were such that the Fund had insufficient assets or would otherwise
be unable to meet its obligations.
As a Delaware business trust, the Evergreen Fixed Income Trust's
operations will be governed by applicable Delaware law rather than by
Massachusetts 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
<PAGE>
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 Evergreen Intermediate II and
Evergreen Intermediate each sell all of its assets to Evergreen Intermediate
Bond, a newly established series of Evergreen Fixed Income Trust, an important
part of the Reorganizations is that Evergreen Intermediate II, for all practical
purposes, will be combined with Evergreen Intermediate. For tax purposes, the
Reorganizations are structured so that Evergreen Intermediate II would be deemed
the surviving fund. However, the investment objectives and policies of Evergreen
Intermediate Bond are substantially identical to those of Evergreen
Intermediate. Consequently, in considering the Reorganizations, each Fund's
Trustees reviewed the Reorganization in the context of Evergreen Intermediate II
being combined with Evergreen Intermediate.
There are substantial similarities between Evergreen Intermediate II
and Evergreen Intermediate. Except for the fact that Evergreen Intermediate may
invest in debt securities rated slightly lower than those permitted to be
purchased by Evergreen Intermediate II and the fact that Evergreen Intermediate
may purchase certain derivatives, Evergreen Intermediate II and Evergreen
Intermediate 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 The Evergreen Lexicon Fund
and Evergreen Intermediate evaluated the potential economies of scale associated
with larger mutual funds and concluded that operational efficiencies may be
achieved upon the combination of Evergreen Intermediate II with another
Evergreen Keystone fund with a greater level of assets. As of August 31, 1997,
Evergreen Intermediate's net assets were approximately $27 million and Evergreen
Intermediate II's net assets were approximately $164 million. However, it is
intended that prior to the Reorganization, substantially all of Evergreen
Intermediate II's Class Y shares will be redeemed, resulting in Evergreen
Intermediate having greater assets than Evergreen Intermediate II.
In addition, assuming that an alternative to the Reorganizations would
be to propose that Evergreen Intermediate II and Evergreen Intermediate continue
their existences as separate series of Evergreen Fixed Income
<PAGE>
Trust, Evergreen Intermediate II would be offered through common distribution
channels with the substantially identical Evergreen Intermediate. Evergreen
Intermediate II would also have to bear the cost of maintaining its separate
existence. FUNB and Keystone believe 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, FUNB and Keystone believe that the proposed Reorganizations
would be in the best interests of each Fund and its shareholders.
The Board of Trustees of The Evergreen Lexicon Fund on behalf of
Evergreen Intermediate II and the Board of Trustees of Evergreen Intermediate
met and considered the recommendation of FUNB and Keystone, and, in addition,
considered among other things, (i) the disadvantages which apply to operating
each Fund as a Massachusetts business trust or a series of a Massachusetts
business 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 Evergreen
Intermediate II and Evergreen Intermediate; (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 shareholders of the respective
Funds and Evergreen Intermediate Bond; (x) the fact that FUNB will bear the
expenses incurred by Evergreen Intermediate II and Evergreen Intermediate in
connection with the Reorganizations; (xi) the fact that Evergreen Intermediate
Bond will assume certain identified liabilities of Evergreen Intermediate II and
Evergreen Intermediate; and (xii) the expected federal income tax consequences
of the Reorganizations.
The Trustees of The Evergreen Lexicon Fund also considered the benefits
to be derived by shareholders of Evergreen Intermediate II from its combination,
for all practical purposes, with Evergreen Intermediate. In this regard, the
Trustees considered the potential benefits of being associated with a larger
entity and the economies of scale that could be realized by the participation by
shareholders of Evergreen Intermediate II.
<PAGE>
In addition, the Trustees of The Evergreen Lexicon Fund and Evergreen
Intermediate considered that there are alternatives available to shareholders of
Evergreen Intermediate II and Evergreen Intermediate, 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
Intermediate Bond also approved at a meeting on September 17,
1997 the proposed Reorganizations.
THE TRUSTEES OF THE EVERGREEN LEXICON FUND RECOMMEND
THAT THE SHAREHOLDERS OF EVERGREEN INTERMEDIATE II APPROVE
THE PROPOSED REORGANIZATION.
THE TRUSTEES OF EVERGREEN INTERMEDIATE 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 Intermediate Bond will acquire all of
the assets of Evergreen Intermediate II and Evergreen Intermediate,
respectively, in exchange for shares of Evergreen Intermediate Bond and the
assumption by Evergreen Intermediate Bond of certain identified liabilities of
Evergreen Intermediate II and Evergreen Intermediate on or about January 23,
1998 or such other date as may be agreed upon by the parties (the "Closing
Date"). Prior to the Closing Date, Evergreen Intermediate II and Evergreen
Intermediate will endeavor to discharge all of their known liabilities and
obligations. Evergreen Intermediate Bond will not assume any liabilities or
obligations of Evergreen Intermediate II and Evergreen Intermediate other than
those reflected in an unaudited statement of assets and liabilities of Evergreen
Intermediate II and Evergreen Intermediate 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 Intermediate Bond will provide
the Trustees of Evergreen Intermediate with certain indemnifications as set
forth in the Plan. The number of full and fractional shares of each class of
Evergreen Intermediate Bond to be received by the shareholders of Evergreen
Intermediate II and Evergreen Intermediate will be as
<PAGE>
follows. Shareholders of Evergreen Intermediate will receive the number of
shares of each class of Evergreen Intermediate Bond equal to the number of
shares of each corresponding class as they currently hold of Evergreen
Intermediate. Shareholders of Evergreen Intermediate II will receive the number
of shares of Evergreen Intermediate Bond determined by multiplying the
respective outstanding class of shares of Evergreen Intermediate II by a factor
which shall be computed by dividing the net asset value per share of the
respective class of shares of Evergreen Intermediate II by the net asset value
per share of the respective class of shares of Evergreen Intermediate 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 Evergreen Intermediate II's and Evergreen Intermediate's
respective portfolio securities. The method of valuation employed will be
consistent with the procedures set forth in the Prospectuses and Statement of
Additional Information of Evergreen Intermediate 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, Evergreen Intermediate II may
(although for tax purposes it is not required to do so) and Evergreen
Intermediate will have declared a dividend or dividends and distribution or
distributions which, together with all previous dividends and distributions,
shall have the effect of distributing to each Fund's shareholders (in shares of
each Fund, or in cash, as the shareholder has previously elected) all of each
Fund's investment company taxable income for the taxable period ending on the
Closing Date (computed without regard to any deduction for dividends paid) and
all of its net capital gains realized in all taxable periods ending on the
Closing Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, Evergreen
Intermediate II and Evergreen Intermediate will liquidate and distribute pro
rata to shareholders of record as of the close of business on the Closing Date
the full and fractional Corresponding Shares of Evergreen Intermediate Bond
received by each Fund. Such liquidation and distribution will be accomplished by
the
<PAGE>
establishment of accounts in the names of each Fund's shareholders on the share
records of Evergreen Intermediate Bond's transfer agent. Each account will
represent the respective pro rata number of full and fractional Corresponding
Shares of Evergreen Intermediate 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 Intermediate Bond to be
issued will have no preemptive or conversion rights. After such distributions
and the winding up of its affairs, each of Evergreen Intermediate II and
Evergreen Intermediate will be terminated. In connection with such terminations,
Evergreen Intermediate II and Evergreen Intermediate will file with the SEC
applications for termination as registered investment companies.
The consummation of each Reorganization is subject to the conditions
set forth in the Plan for Evergreen Intermediate II and the Plan for Evergreen
Intermediate, 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 Intermediate 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 Evergreen Intermediate II and Evergreen Intermediate 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 The Evergreen Lexicon Fund and Evergreen Intermediate,
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 The Evergreen Lexicon Fund and Evergreen Intermediate, as
applicable, will consider other possible courses of action in the best interests
of shareholders.
<PAGE>
Federal Income Tax Consequences
Each Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368(a) of the Code. As a
condition to the closing of a Reorganization, Evergreen Intermediate II and
Evergreen Intermediate 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 Intermediate Bond and the assumption by Evergreen
Intermediate Bond of certain identified liabilities, followed by the
distribution of Evergreen Intermediate 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)(F) (with respect to Evergreen Intermediate II and
368(a)(1)(D) with respect to Evergreen Intermediate) of the Code, and Evergreen
Intermediate 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 Intermediate Bond solely in exchange for
Evergreen Intermediate Bond's shares and the assumption by Evergreen
Intermediate Bond of certain identified liabilities of the Fund or upon the
distribution of Evergreen Intermediate 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 Intermediate 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 Intermediate Bond will include the period during which
the assets were held by the Fund;
(4) No gain or loss will be recognized by Evergreen Intermediate Bond
upon the receipt of the assets from the Fund solely in exchange for the shares
of Evergreen Intermediate Bond and the assumption by Evergreen Intermediate 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 Intermediate Bond to them, provided they
receive solely such
<PAGE>
shares (including fractional shares) in exchange for their
shares of the Fund; and
(6) The aggregate tax basis of the shares of Evergreen Intermediate
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 the shares of the Fund held by such shareholder immediately prior to
the Reorganization, and the holding period of the shares of Evergreen
Intermediate 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 Evergreen Intermediate
II and Evergreen Intermediate 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 Intermediate Bond shares he or she received.
Shareholders of Evergreen Intermediate II and Evergreen Intermediate 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 Intermediate Bond. Since the foregoing discussion relates only to the
federal income tax consequences of the Reorganization, shareholders of Evergreen
Intermediate II and Evergreen Intermediate should also consult their tax
advisers as to the state and local tax consequences, if any, of the
Reorganization.
Pro-forma Capitalization
The following table sets forth the capitalizations of Evergreen
Intermediate II and Evergreen Intermediate as of August 31, 1997 and the
capitalization of Evergreen Intermediate Bond on a pro forma basis as of that
date, giving effect to the proposed acquisitions of assets at net asset value
and the redemption of certain Class Y shares of Evergreen Intermediate II. As a
result of the anticipated redemption of Class Y shares, the aggregate net assets
of Evergreen Intermediate Bond are expected to be reduced by approximately
$160,000,000. As a newly created series of
<PAGE>
Evergreen Fixed Income Trust, Evergreen Intermediate Bond, immediately preceding
the Closing Date, will have nominal assets and liabilities. The pro forma data
reflects an exchange ratio of approximately 1.14, 1.14, 1.14, and 1.14 Class A,
Class B, Class C and Class Y shares, respectively, of Evergreen Intermediate
Bond issued for each Class A, Class B, Class C and Class Y share, respectively,
of Evergreen Intermediate II and an exchange ratio of approximately 1.00, 1.00,
and 1.00 Class A, Class B and Class C shares, respectively, of Evergreen
Intermediate Bond issued for each Class A, Class B and Class C share,
respectively, of Evergreen Intermediate.
<TABLE>
<CAPTION>
Capitalization of Evergreen Intermediate II,
Evergreen Intermediate and Evergreen
Intermediate Bond (Pro Forma)
Evergreen
Intermediate
Evergreen Bond (After
Intermediate Reorgani-
II Evergreen zations)
------------ Intermediate ------------
------------
<S> <C> <C> <C>
Net Assets
Class A........................ $3,067,918 $10,062,884 $13,130,802
Class B........................ $1,208,481 $10,910,695 $12,119,176
Class C........................ $29,225 $6,432,719 $6,461,944
Class Y........................ $160,134,198 N/A $135,227
------------ ------------ -----------
Total Net
Assets....................... $164,439,822 $27,406,298 $31,847,149
Net Asset Value Per
Share
Class A........................ $10.23 $8.98 $8.98
Class B........................ $10.23 $8.99 $8.99
Class C........................ $10.23 $8.99 $8.99
Class Y........................ $10.23 N/A $8.98
Shares Outstanding
Class A........................ 299,926 1,120,805 1,462,480
Class B........................ 118,145 1,213,507 1,347,948
Class C........................ 2,857 715,725 718,976
Class Y........................ 15,654,109 N/A 15,059
---------- --------- ---------
All Classes.................... 16,075,037 3,050,037 3,544,463
</TABLE>
The table set forth above should not be relied upon to
reflect the number of shares to be received in the
<PAGE>
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 the following
number of each Class of shares of beneficial interest of Evergreen Intermediate
II and Evergreen Intermediate outstanding:
<TABLE>
<CAPTION>
Evergreen
Intermediate
Class of Shares II Evergreen
- --------------- ------------ Intermediate
------------
<S> <C> <C>
Class A........................................ 303,779.381 1,079,915.823
Class B........................................ 113,265.632 1,162,829.110
Class C........................................ 8,567.482 814,673.415
Class Y........................................ 15,991,691.697 N/A
-------------- --------------
All Classes.................................... 16,417,304.192 3,057,418.348
</TABLE>
As of September 30, 1997, the officers and Trustees of The Evergreen
Lexicon Fund beneficially owned as a group less than 1% of the outstanding
shares of Evergreen Intermediate II. To Evergreen Intermediate II's knowledge,
the following persons owned beneficially or of record more than 5% of Evergreen
Intermediate II's total outstanding shares as of September 30, 1997:
<TABLE>
<CAPTION>
Percen-
Percen- tage of
tage of Shares of
Shares of Class
Class Outstand-
Before ing After
No. of Reorgani- Reorgani-
Name and Address Class Shares zations zations
- ---------------- ----- ------ --------- ---------
<S> <C> <C> <C> <C>
First Union Natl B 15,110 12.19 1.30
Bank-Fl C/F
Lurene N. Roser IRA
5200 N. Ocean Dr.
Apt. 17D
Singer Island, Fl
33404-2618
<PAGE>
Percen-
Percen- tage of
tage of Shares of
Shares of Class
Class Outstand-
Before ing After
No. of Reorgani- Reorgani-
Name and Address Class Shares zations zations
- ---------------- ----- ------ --------- ---------
Fubs & Co. FEBO
Veronica B. Birdsong B 9,843 7.94 0.85
1255 B Road
Loxahatchee, Fl
33470-4248
Fubs & Co. FEBO B 9,745 7.86 0.84
Frances E. Clyma Rev
Trust
Frances E. Clyma and
Robert L. Mastin Co-
Trustee
U/A/D 01/25/96
Palm Beach Garde, Fl
33410
Fubs & Co. FEBO B 7,907 6.38 0.68
Mary Louise Chatman
Flora Louise Chatman
Wages POA
9532 Ft. Foote Road
Ft. Washington, MD
20744-5753
Donaldson Lufkin B 7,799 6.29 0.67
Jenrette Securities
Corporation
P.O. Box 2052
Jersey City, NJ
07303-9998
Margaret S. Collins C 2,115 43.67 0.35
1106 Lothian Drive
Tallahassee, FL
32312-2836
<PAGE>
Percen-
Percen- tage of
tage of Shares of
Shares of Class
Class Outstand-
Before ing After
No. of Reorgani- Reorgani-
Name and Address Class Shares zations zations
- ---------------- ----- ------ --------- ---------
C 1,956 40.37 0.32
First Union Brokerage
Services
Strobel & Hunter
A/C 8145-3592
715 East Gadsden
Street
Pensacola, FL 32501
Stifel Nicolaus & C 497 10.26 0.08
Co., Inc.
A/C 4907-3283
Peter M. Kopp and
Mary Jean Kopp Jt.
Wros
500 North Broadway
St. Louis, MO 63102
Fubs & Co. FEBO C 247 5.09 0.04
Chris J. Thigpen
4497 Pineland Dr.
Evans, GA 30809-3233
First Union National Y 10,200,189 64.01 0
Bank
Trust Accounts
Attn: Ginny Batten
301 S. Tryon Street
11th Floor CMG-1151
Charlotte, NC 28288-
0002
First Union National Y 5,656,543 35.49 0
Bank
Trust Accounts
Attn: Ginny Batten
301 S. Tryon Street
11th Floor CMG-1151
Charlotte, NC 28288-
0002
</TABLE>
<PAGE>
As of September 30, 1997, the officers and Trustees of Evergreen
Intermediate beneficially owned as a group less than 1% of the outstanding
shares of Evergreen Intermediate. To Evergreen Intermediate's knowledge, the
following persons owned beneficially or of record more than 5% of Evergreen
Intermediate's total outstanding shares as of September 30, 1997:
<TABLE>
<CAPTION>
Percen-
Percen- tage of
tage of Shares of
Shares of Class
Class Outstand-
Before ing After
No. of Reorgani- Reorgani-
Name and Address Class Shares zations zations
- ---------------- ----- ------ --------- ---------
<S> <C> <C> <C> <C>
Merrill, Lynch, A 239,372 21.78 16.61
Pierce, Fenner &
Smith
For the sole benefit
of its customers
Attn: Fund
Administration
4800 Deer Lake Dr.
E. 3rd Fl.
Jacksonville, FL
32246-6484
Donaldson Lufkin A 64,047 5.83 4.44
Jenrette
Securities
Corporation
P.O. Box 2052
Jersey City, NJ
07303-2052
Merrill, Lynch, B 144,804 12.24 10.94
Pierce, Fenner &
Smith
For the sole benefit
of its customers
Attn: Fund
Administration
4800 Deer Lake Dr.
E. 3rd Floor
Jacksonville, FL
32246-6484
<PAGE>
Percen-
Percen- tage of
tage of Shares of
Shares of Class
Class Outstand-
Before ing After
No. of Reorgani- Reorgani-
Name and Address Class Shares zations zations
- ---------------- ----- ------ --------- ---------
Merrill, Lynch,
Pierce, Fenner & C 199,062 28.77 28.54
Smith
For the sole benefit
of its customers
Attn: Fund
Administration
4800 Deer Lake Drive
E. 3rd Floor
Jacksonville, FL
32246-6484
NFSC FEBO #BNG-522228 C 36,442 5.27 5.23
CTR for the
Advancement of HLT
Rena Convissor
2000 Florida Ave., NW
Suite 210 Washington, D.C.
20009-1231
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectuses and Statements of
Additional Information of the Funds. The investment objectives, policies and
restrictions of Evergreen Intermediate Bond can be found in the Prospectuses of
Evergreen Intermediate Bond under the caption "Investment Objectives and
Policies." The investment objectives, policies and restrictions of Evergreen
Intermediate II and Evergreen Intermediate can be found in the respective
Prospectus of each Fund under the caption "Investment Objectives and Policies."
The investment objectives of Evergreen Intermediate Bond and Evergreen
Intermediate are identical. These Funds seek current income by investing
primarily in a broad range of investment quality debt securities. As a secondary
<PAGE>
objective, each Fund seeks to protect capital. Unlike Evergreen Intermediate
Bond, the investment objectives of Evergreen Intermediate cannot be changed
without shareholder approval.
The following discussion of Evergreen Intermediate Bond's investment
policies and restrictions applies equally to Evergreen Intermediate. Evergreen
Intermediate Bond seeks current income by normally investing at least 80% of its
assets in debt securities including U.S. Treasury bills, notes and bonds;
mortgage-backed securities issued by the U.S. government, its agencies or
instrumentalities; mortgage-backed securities issued by private issuers;
corporate debt securities; and commercial paper. The Fund's debt securities may
also include fixed and adjustable rate or stripped bonds, debentures, notes,
equipment trust certificates and debt securities convertible into, or
exchangeable for, preferred or common stock. Evergreen Intermediate Bond may
also invest in units, which are debt securities with stock or warrants to buy
stock attached, and preferred stock.
Under ordinary circumstances, Evergreen Intermediate Bond expects to
invest at least 65% of its assets in bonds and debentures. Evergreen
Intermediate Bond will invest in securities that, at the time of investment, are
rated within the four highest categories by Standard & Poor's Ratings Group
("S&P") (AAA, AA, A and BBB), by Moody's Investors Service ("Moody's") (Aaa, Aa,
A and Baa) or by Fitch Investors Service, L.P. ("Fitch") (AAA, AA, A and BBB),
or if not rated or rated under a different system, are of comparable quality to
obligations so rated, as determined by its investment adviser.
In addition, Evergreen Intermediate Bond may invest up to 25% of its
assets in below-investment grade securities having a rating range of BB to CCC
by S&P and Ba to Caa by Moody's, or if unrated or rated under a different
system, believed by its investment adviser to be of comparable quality. For a
description of such ratings, see Evergreen Intermediate Bond's Statement of
Additional Information. Evergreen Intermediate Bond may also invest up to 50% of
its assets in securities that are principally traded in securities markets
located outside of the United States.
<PAGE>
Evergreen Intermediate Bond currently expects that the dollar weighted
average maturity of its investments will range from 3 to 7 years. However,
Evergreen Intermediate Bond may invest in securities with remaining maturities
of ten years or fewer.
Evergreen Intermediate Bond may invest up to 20% of its total assets
under ordinary circumstances and, when in its investment adviser's opinion
market conditions warrant, up to 100% of its assets for temporary defensive
purposes in the following types of money market instruments: (1) commercial
paper, including master demand notes, that at the date of investment is rated
A-1, the highest grade by S&P, P-1, the highest grade by Moody's or, if not
rated by such services, is issued by a company which at the date of investment
has an outstanding issue rated A or better by S&P or Moody's; (2) obligations,
including certificates of deposit and bankers' acceptances, of banks or savings
and loan associations having at least $1 billion in assets that are members of
the Federal Deposit Insurance Corporation including U.S. branches of foreign
banks and foreign branches of U.S. banks; (3) corporate obligations which at the
date of investment are rated A or better by S&P or Moody's; and (4) obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Evergreen Intermediate Bond may also invest in certain 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 as mentioned above.
The investment objective of Evergreen Intermediate II, which cannot be
changed without shareholder approval, is to maximize current yield consistent
with the preservation of capital. The Fund invests its assets in U.S. Treasury
obligations; obligations issued or guaranteed as to principal and interest by
agencies and instrumentalities of the U.S. government; receipts evidencing
separately traded principal and interest components of U.S. government
obligations; corporate bonds and debentures 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;
mortgage-backed securities and asset-backed securities rated, at the time of
purchase, at
<PAGE>
least AA by S&P or Aa by Moody's; commercial paper rated A-1 or better by
Moody's or P-1 or better by S&P or, if unrated, determined to be of comparable
quality at the time of investment as determined by its investment adviser;
short-term bank obligations; U.S. dollar denominated securities issued or
guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities; U.S. dollar denominated obligations of supranational
entities; repurchase agreements involving any of the foregoing securities; and
U.S. dollar denominated securities of other foreign issuers. Evergreen
Intermediate II will maintain an average weighted maturity of approximately five
to fifteen years, although under normal conditions the Fund's investment adviser
expects the Fund to maintain an average weighted maturity of five to ten years.
The principal differences between Evergreen Intermediate Bond and
Evergreen Intermediate on the one hand, and Evergreen Intermediate II on the
other, relate to: (i) the minimum credit quality of the Funds' debt securities
(BBB or better with respect to at least 65% of its assets for Evergreen
Intermediate Bond and Evergreen Intermediate and A or better for Evergreen
Intermediate II with respect to its portfolio of debt securities); (ii) the fact
that Evergreen Intermediate Bond and Evergreen Intermediate may invest up to 25%
of each Fund's assets in high yield, high risk bonds; (iii) the fact that
Evergreen Intermediate Bond and Evergreen Intermediate may invest up to 50% of
their assets in foreign securities; and (iv) each Fund's policy regarding
investments in derivatives. While Evergreen Intermediate II is not permitted to
do so, Evergreen Intermediate Bond and Evergreen Intermediate may invest in
certain derivative instruments such as options, futures, swaps, caps and floors.
For a discussion of the risks associated with such investments, see "Investment
Practices and Restrictions" in Evergreen Intermediate Bond's Prospectuses.
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
<PAGE>
Evergreen Fixed Income Trust, The Evergreen Lexicon Fund and Evergreen
Intermediate are open-end management investment companies registered with the
SEC under the 1940 Act, which continuously offer shares to the public. Each of
The Evergreen Lexicon Fund and Evergreen Intermediate is organized as a
Massachusetts business 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, Massachusetts and federal law. Evergreen Intermediate Bond is a series
of Evergreen Fixed Income Trust and Evergreen Intermediate II is a series of The
Evergreen Lexicon Fund. Evergreen Intermediate II changed its name from
Evergreen Intermediate-Term Bond Fund, and Evergreen Intermediate changed its
name from Keystone Intermediate Term Bond Fund, effective October 31, 1997.
Capitalization
The beneficial interests in Evergreen Intermediate Bond are represented
by an unlimited number of transferable shares of beneficial interest $.001 par
value per share. The beneficial interests in Evergreen Intermediate II and
Evergreen Intermediate are represented by an unlimited number of transferable
shares of beneficial interest with a $.0001 and $.001 par value per share,
respectively. The respective Declaration of Trust under which each Fund has been
established permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued. Except with respect to
Evergreen Intermediate 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 amounts as determined by the
Trustees. Shareholders of each Fund vote separately, by class, as to matters,
such as approval of or amendments to Rule 12b-1 distribution plans, that affect
only their particular class and by series as to matters, such as approval of or
amendments to investment advisory agreements or proposed reorganizations, that
affect only their particular series.
Shareholder Liability
Under Massachusetts law, shareholders of a business trust could, under
certain circumstances, be held personally liable
<PAGE>
for the obligations of the business trust. However, the respective Declaration
of Trust under which Evergreen Intermediate II and Evergreen Intermediate was
established disclaims shareholder liability for acts or obligations of the
series and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the Trustees.
Each Declaration of Trust provides for indemnification out of the series
property for all losses and expenses of any shareholder held personally liable
for the obligations of the series. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote since it
is limited to circumstances in which a disclaimer is inoperative and the series
or the Trust itself would be unable to meet its obligations. A substantial
number of mutual funds in the United States are organized as Massachusetts
business trusts.
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a 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
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
<PAGE>
Neither Evergreen Fixed Income Trust on behalf of Evergreen
Intermediate Bond, The Evergreen Lexicon Fund on behalf of Evergreen
Intermediate II nor Evergreen Intermediate 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, for Evergreen
Intermediate Bond, twenty-five percent (25%) of the outstanding shares entitled
to vote, and for Evergreen Intermediate II and Evergreen Intermediate, a
majority of the outstanding shares entitled to vote on a matter, constitutes a
quorum for consideration of such matter. For Evergreen Intermediate Bond and
Evergreen Intermediate II, a majority of the shares voted, and for Evergreen
Intermediate, 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 Intermediate Bond is entitled to one vote for each dollar of
net asset value applicable to each share. Under the current voting provisions
governing Evergreen Intermediate II and Evergreen Intermediate, 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 Intermediate Bond,
Evergreen Intermediate II and Evergreen Intermediate, 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
<PAGE>
liabilities belonging to the Fund or attributable to the class. In either case,
the assets so distributable to shareholders of the Fund will be distributed
among the shareholders in proportion to the number of shares of a class of the
Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
The Declaration of Trust of The Evergreen Lexicon Fund provides that no
Trustee shall be liable except for his or her own bad faith, willful
misfeasance, gross negligence or reckless disregard of the duties involved in
the conduct of his or her office. The Declaration of Trust of Evergreen
Intermediate provides that a Trustee shall be liable only for his own willful
defaults, and that no Trustee shall be protected against any liability to which
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
The Declaration of Trust of The Evergreen Lexicon Fund provides that
present and former Trustees or officers are generally entitled to
indemnification against liabilities and expenses with respect to claims related
to their position with the Fund unless, in the case of any liability to the Fund
or its shareholders, it shall have been adjudicated that such Trustee or officer
engaged in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office, or such Trustee
or officer shall have been adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interests of the Fund. In the
event of settlement, no indemnification shall be provided to a Trustee or
officer unless there has been a determination that such person did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
The Declaration of Trust of Evergreen Intermediate provides that a
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
<PAGE>
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 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 Massachusetts 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
Massachusetts law directly for more complete information.
ADDITIONAL INFORMATION
Evergreen Intermediate Bond. Information concerning the
operation and management of Evergreen Intermediate Bond is
<PAGE>
incorporated herein by reference from the Prospectuses dated November 10, 1997,
copies of which are enclosed, and the 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 Intermediate
Bond at the address listed on the cover page of this Prospectus/Proxy Statement
or by calling toll-free 1-800-343-2898.
Evergreen Intermediate II. Information about the Fund is included in
its current Prospectuses dated September 3, 1997, as supplemented, and in the
Statement of Additional Information of the same date that have been filed with
the SEC, all of which are incorporated herein by reference. Copies of the
Prospectuses and Statement of Additional Information are available upon request
and without charge by writing to the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343- 2898.
Evergreen Intermediate. Information about the Fund is included in its
current Prospectus dated September 3, 1997, as supplemented, and in the
Statement of Additional Information of the same date that have been filed with
the SEC, all of which are incorporated herein by reference. A copy of the
Prospectus and Statement of Additional Information are available upon request
and without charge by writing to the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Evergreen Intermediate Bond, Evergreen Intermediate II and Evergreen
Intermediate are each subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act, and in accordance therewith
file reports and other information, including proxy material and charter
documents, with the SEC. These items can be inspected and copies obtained at the
Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located at Northwest
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and Seven
World Trade Center, Suite 1300, New York, New York 10048.
VOTING INFORMATION CONCERNING THE MEETINGS
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Trustees of The Evergreen Lexicon Fund and
Evergreen Intermediate 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
<PAGE>
Keystone Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and at any
adjournments thereof. This Prospectus/Proxy Statement, along with a Notice of
the meeting and a proxy card, is first being mailed to shareholders of Evergreen
Intermediate II and Evergreen Intermediate on or about November 14, 1997. Only
shareholders of record as of the close of business on the Record Date will be
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
The holders of a majority of the outstanding shares entitled to vote of each
Fund at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for the Meeting. If the enclosed
form of proxy is properly executed and returned in time to be voted at the
Meeting, the proxies named therein will vote the shares represented by the proxy
in accordance with the instructions marked thereon. Unmarked proxies will be
voted FOR the proposed Reorganization and FOR any other matters deemed
appropriate. Proxies that reflect abstentions and "broker non-votes" (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote or (ii) the
broker or nominee does not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Such proxies with respect to
Evergreen Intermediate II will have no effect on the outcome of the vote to
approve a Plan since the vote required is a majority of the shares voted.
However, with respect to Evergreen Intermediate, such proxies will have the
effect of being counted as votes against the Plan since the vote required is a
majority of the shares present and entitled to vote. A proxy may be revoked at
any time on or before the Meeting by written notice to the Secretary of The
Evergreen Lexicon Fund or Evergreen Intermediate, 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, for Evergreen Intermediate II, the
affirmative vote of a majority of the shares voted, and for Evergreen
Intermediate, a majority of the shares present and entitled to vote, with all
Classes voting together as a single class at Meetings at which a quorum of each
Fund's shares is present. Each full share outstanding is entitled to one vote
and each fractional share outstanding is entitled to a proportionate share of
one vote.
<PAGE>
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 Evergreen Intermediate II and Evergreen Intermediate (who
will not be paid for their soliciting activities). Shareholder Communications
Corporation ("SCC") and its agents have been engaged by Evergreen Intermediate
II and Evergreen Intermediate 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 Massachusetts law or the Declaration of Trust of The
Evergreen Lexicon Fund or Evergreen Intermediate, 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 Intermediate Bond which they receive in the
transaction at their then-current net asset value. Shares of Evergreen
Intermediate II and Evergreen Intermediate may be redeemed at any time prior to
the consummation of the Reorganizations. Shareholders of Evergreen Intermediate
II and Evergreen Intermediate
<PAGE>
may wish to consult their tax advisers as to any differing consequences of
redeeming Fund shares prior to the Reorganizations or exchanging such shares in
the Reorganizations.
Evergreen Intermediate II and Evergreen Intermediate 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 The Evergreen Lexicon Fund or Evergreen Intermediate, 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 Intermediate 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 Evergreen Intermediate II and Evergreen Intermediate whether other
persons are beneficial owners of shares for which proxies are being solicited
and, if so, the number of copies of this Prospectus/Proxy Statement needed to
supply copies to the beneficial owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Evergreen Intermediate II as of June 30,
1997, and the financial statements and financial highlights for the periods
indicated therein, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Evergreen Intermediate as of June 30, 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
<PAGE>
Certain legal matters concerning the issuance of shares of Evergreen
Intermediate Bond will be passed upon by Sullivan & Worcester LLP, Washington,
D.C.
OTHER BUSINESS
The Trustees of The Evergreen Lexicon Fund and Evergreen Intermediate
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 THE EVERGREEN LEXICON FUND AND EVERGREEN
INTERMEDIATE 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 Intermediate Term Bond Fund series (the "Acquiring Fund"), and The
Evergreen Lexicon Fund, a Massachusetts business trust, with its principal place
of business at 200 Berkeley Street, Boston, Massachusetts 02116 ("Evergreen
Lexicon") with respect to its Evergreen Intermediate-Term Bond Fund 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 Class Y, Class A, Class B
and Class C shares of beneficial interest, $.001 par value per share, of the
Acquiring Fund (the "Acquiring Fund Shares"); (ii) the assumption by the
Acquiring Fund of certain identified liabilities of the Selling Fund; and (iii)
the distribution, after the Closing Date hereinafter referred to, of the
Acquiring Fund Shares to the shareholders of the Selling Fund in liquidation of
the Selling Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each 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 Evergreen Lexicon have determined that the Selling
Fund should exchange all of its
<PAGE>
assets and certain identified liabilities for Acquiring Fund Shares and that the
interests of the existing shareholders of the Selling Fund will not be diluted
as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and futures interests and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.
<PAGE>
The Selling Fund reserves the right to sell any of such securities, but will
not, without the prior written approval of the Acquiring Fund, acquire any
additional securities other than securities of the type in which the Acquiring
Fund is permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies, and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph that do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not 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.
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.
<PAGE>
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.
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
<PAGE>
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
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
<PAGE>
"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 Evergreen Lexicon 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, 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:
<PAGE>
(a) The Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing, and in good
standing under the laws of The Commonwealth of Massachusetts.
(b) The Selling Fund is a separate investment series of a
registered investment company classified as a management company of the open-end
type, and its registration with the Securities and Exchange Commission (the
"Commission") as an investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"), is in full force and effect.
(c) The current prospectuses and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of Evergreen Lexicon's Declaration of Trust or
By-Laws or of any material agreement, indenture, instrument, contract, lease, or
other undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely
<PAGE>
affects its business or its ability to consummate the
transactions herein contemplated.
(g) The financial statements of the Selling Fund at June 30,
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 June 30, 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 Massachusetts
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor
<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
<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
<PAGE>
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(j) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement 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.
<PAGE>
(m) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. Evergreen Lexicon 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.
<PAGE>
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 Evergreen Lexicon'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
<PAGE>
reasonably satisfactory to the Selling Fund, covering the
following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of this Agreement by the Selling Fund, is
a valid and binding obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other 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
<PAGE>
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 Evergreen
Lexicon'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 Evergreen Lexicon.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted.
(b) The Selling Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement
<PAGE>
comply with the 1933 Act, the 1934 Act, and the 1940 Act and the rules and
regulations thereunder and, assuming due authorization, execution, and delivery
of this Agreement by the Acquiring Fund, is a valid and binding obligation of
the Selling Fund enforceable against the Selling Fund in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights generally
and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Massachusetts is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, 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 Evergreen Lexicon'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.
<PAGE>
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 may (although for tax purposes it is not required
to do so) 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)(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
<PAGE>
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 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;
<PAGE>
(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 the Selling Fund 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
(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
<PAGE>
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
(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
<PAGE>
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.
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
<PAGE>
addition, either the Acquiring Fund or the Selling Fund may at its option
terminate this Agreement at or prior to the Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, Evergreen Lexicon, 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.
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 Evergreen Lexicon,
<PAGE>
shall be governed and construed in accordance with the laws of The Commonwealth
of Massachusetts, without giving effect to the conflicts of laws provisions
thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of Evergreen Lexicon personally, but shall bind
only the trust property of the Selling Fund, as provided in the Declaration of
Trust of Evergreen Lexicon. The execution and delivery of this Agreement have
been authorized by the Trustees of Evergreen Lexicon on behalf of the Selling
Fund and signed by authorized officers of Evergreen Lexicon, 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
Evergreen Lexicon.
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
INTERMEDIATE TERM BOND FUND
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
THE EVERGREEN LEXICON FUND
<PAGE>
ON BEHALF OF EVERGREEN
INTERMEDIATE-TERM BOND FUND
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 Intermediate Term Bond Fund series (the "Acquiring Fund"), and
Keystone Intermediate Term Bond Fund, a Massachusetts business trust, with its
principal place of business at 200 Berkeley Street, Boston, Massachusetts 02116
(the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(D) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A, Class B and Class
C shares of beneficial interest, $.001 par value per share, of the Acquiring
Fund (the "Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of
certain identified liabilities of the Selling Fund; and (iii) the distribution,
after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to
the shareholders of the Selling Fund in liquidation of the Selling Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are a registered
open-end investment company and a separate investment series of an open-end,
registered investment company of the management type, respectively, and the
Selling Fund owns securities that generally are assets of the character in which
the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares
of beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Selling Fund have determined that the
Selling Fund should exchange all of its assets and
<PAGE>
certain identified liabilities for Acquiring Fund Shares and that the interests
of the existing shareholders of the Selling Fund will not be diluted as a result
of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and futures interests and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.
<PAGE>
The Selling Fund reserves the right to sell any of such securities, but will
not, without the prior written approval of the Acquiring Fund, acquire any
additional securities other than securities of the type in which the Acquiring
Fund is permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies, and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph that do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. Except as specifically provided in this paragraph 1.3, the Acquiring Fund
shall assume only those liabilities, expenses, costs, charges and reserves
reflected on a Statement of Assets and Liabilities of the Selling Fund prepared
on behalf of the Selling Fund, as of the Valuation Date (as defined in paragraph
2.1), in accordance with generally accepted accounting principles consistently
applied from the prior audited period. The Acquiring Fund shall assume only
those liabilities of the Selling Fund reflected in such Statement of Assets and
Liabilities and shall not except as specifically provided in this paragraph 1.3
assume any other liabilities, whether absolute or contingent, known or unknown,
accrued or unaccrued, all of which shall remain the obligation of the Selling
Fund. The Acquiring Fund hereby agrees with the Selling Fund and each Trustee of
the Selling Fund: (i) to indemnify each Trustee of the Selling Fund against all
liabilities and expenses referred to in the indemnification provisions of the
Selling Fund's Declaration of Trust and ByLaws, to the extent provided therein,
incurred by any Trustee of the Selling Fund; and (ii) in addition to the
indemnification provided in (i) above, to indemnify each Trustee of the Selling
Fund against all liabilities and expenses and pay the same as they arise and
become due,
<PAGE>
without any exception, limitation or requirement of approval by any person, and
without any right to require repayment thereof by any such Trustee (unless such
Trustee has had the same repaid to him or her) based upon any subsequent or
final disposition or findings made in connection therewith or otherwise, if such
action, suit or other proceeding involves such Trustee's participation in
authorizing or permitting or acquiescing in, directly or indirectly, by action
or inaction, the making of any distribution in any manner of all or any assets
of the Selling Fund without making provision for the payment of any liabilities
of any kind, fixed or contingent, of the Selling Fund, which liabilities were
not actually and consciously personally known to such Trustee to exist at the
time of such Trustee's participation in so authorizing or permitting or
acquiescing in the making of any such distribution.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount permitted to be charged to the Acquiring Fund
under the National Association of Securities Dealers, Inc. Conduct Rule 2830,
minus the amount of the sales charges paid or accrued (including asset based
sales charges), plus permitted interest ("Aggregate NASD Cap"), the Acquiring
Fund will add to its Aggregate NASD Cap immediately prior to the Reorganization
the Aggregate NASD Cap of the Selling Fund immediately prior to the
Reorganization.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
<PAGE>
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets
<PAGE>
shall be determined by multiplying the shares outstanding of each class of the
Selling Fund by the ratio computed by dividing the net asset value per share of
the Selling Fund attributable to each of its classes by the net asset value per
share of the respective classes of the Acquiring Fund determined in accordance
with paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about January 23, 1998 or such other date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously immediately prior to the opening of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 9:30
a.m. at the offices of the Evergreen Keystone Funds, 200 Berkeley Street,
Boston, MA 02116, or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
<PAGE>
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date ("ESC"), shall
deliver at the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Selling Fund Shareholders and the
number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver or cause ESC, its transfer agent as of the Closing Date, to issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited on
the Closing Date to the Secretary of the Selling Fund or provide evidence
satisfactory to the Selling Fund that such Acquiring Fund Shares have been
credited to the Selling Fund's account on the books of the Acquiring Fund. At
the Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts and other documents as such
other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling
Fund represents and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a Massachusetts business trust duly
organized, validly existing, and in good standing under the laws of The
Commonwealth of Massachusetts.
(b) The Selling Fund is a registered investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.
(c) The current 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
<PAGE>
shareholder approval) will not result, in violation of any provision of the
Selling Fund's Declaration of Trust or By-Laws or of any material agreement,
indenture, instrument, contract, lease, or other undertaking to which the
Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(g) The financial statements of the Selling Fund at June 30,
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 June 30, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports
<PAGE>
shall have been paid, or provision shall have been made for the payment thereof.
To the best of the Selling Fund's knowledge, no such return is currently under
audit, and no assessment has been asserted with respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund (except that, under Massachusetts
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling
Fund for use in no-action letters, applications for orders,
<PAGE>
registration statements, proxy materials, and other documents that may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations thereunder
applicable thereto.
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring
Fund represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
<PAGE>
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise.
(g) At the Closing Date, there will not be any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(j) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement
<PAGE>
constitutes a valid and binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(k) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(m) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(n) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
<PAGE>
5.2 APPROVAL OF SHAREHOLDERS. The Selling Fund will call a meeting of
its Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by its independent
auditors and certified by the Selling Fund's President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund
will provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
ARTICLE VI
<PAGE>
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of this Agreement by the Selling Fund, is
a valid and binding obligation of the Acquiring Fund enforceable against the
Acquiring Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other
<PAGE>
laws relating to or affecting creditors' rights generally and
to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Selling
Fund's President or Vice President and the Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquiring Fund and dated as of the
Closing Date, to such effect and as to such other matters as the Acquiring Fund
shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
<PAGE>
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Selling Fund.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a Massachusetts business trust duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and has the power to own all of its properties and
assets and to carry on its business as presently conducted.
(b) The Selling Fund is a Massachusetts business trust
registered as an investment company under the 1940 Act, and, to such counsel's
knowledge, such registration with the Commission as an investment company under
the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act,
and the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution, and delivery of this Agreement by the Acquiring Fund,
is a valid and binding obligation of the Selling Fund enforceable against the
Selling Fund in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Massachusetts is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall,
<PAGE>
at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of the Selling Fund's
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's investment company
taxable income for all taxable periods ending on the Closing Date (computed
without regard to any deduction for dividends
<PAGE>
paid) and all of its net capital gains realized in all taxable periods ending on
the Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
<PAGE>
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) 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 Selling Fund 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
<PAGE>
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;
<PAGE>
(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
(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.
<PAGE>
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees or
officers, to the other party or its Trustees or officers.
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
<PAGE>
to paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of The Commonwealth of
Massachusetts, without giving effect to the conflicts of laws provisions
thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Selling Fund personally, but shall bind
only the trust property of the Selling Fund, as provided in the Declaration of
Trust of the Selling Fund. The execution and delivery of this Agreement have
been authorized by the Trustees of the Selling Fund and signed by authorized
officers of the Selling Fund, acting as such, and neither such authorization by
such Trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them
<PAGE>
personally, but shall bind only the trust property of the Selling Fund as
provided in the Declaration of Trust of the Selling Fund.
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN FIXED INCOME
TRUST
ON BEHALF OF EVERGREEN
INTERMEDIATE TERM BOND FUND
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
KEYSTONE INTERMEDIATE TERM
BOND FUND
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
EVERGREEN INTERMEDIATE TERM BOND FUND II
(FORMERLY EVERGREEN INTERMEDIATE-TERM BOND FUND)
a Series of
THE EVERGREEN LEXICON FUND
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
and
EVERGREEN (FORMERLY KEYSTONE) INTERMEDIATE TERM BOND
FUND
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
By and In Exchange For Shares of
EVERGREEN INTERMEDIATE TERM BOND FUND
a Series of
EVERGREEN FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Evergreen Intermediate Term
Bond Fund II (formerly Evergreen Intermediate-Term Bond Fund), a series of The
Evergreen Lexicon Fund ("Evergreen Intermediate II"), and Evergreen (formerly
Keystone) Intermediate Term Bond Fund ("Evergreen Intermediate"), to Evergreen
Intermediate Term Bond Fund ("Evergreen Intermediate Bond"), a series of the
Evergreen Fixed Income Trust in exchange, as applicable, for Class A, Class B,
Class C and Class Y shares of beneficial interest, $.001 par value per share, of
Evergreen Intermediate Bond, consists of this cover page and the following
described documents, each of which is attached hereto and incorporated by
reference herein:
<PAGE>
(1) The Statement of Additional Information of Evergreen
Intermediate-Term Bond Fund (currently known as
Evergreen Intermediate II) dated September 3, 1997;
(2) The Statement of Additional Information of Keystone
Intermediate Term Bond Fund (currently known as
Evergreen Intermediate) dated September 3, 1997;
(3) Annual Report of Evergreen Intermediate-Term Bond Fund
(currently known as Evergreen Intermediate II) for the year
ended June 30, 1997;
(4) Annual Report of Keystone Intermediate Term Bond Fund
(currently known as Evergreen Intermediate) for the year ended
June 30, 1997; and
(5) Pro-Forma Combining Financial Statements (unaudited) dated
June 30, 1997.
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of Evergreen Intermediate Bond, Evergreen Intermediate II and
Evergreen Intermediate dated November 14, 1997. A copy of the Prospectus/Proxy
Statement may be obtained without charge by calling or writing to Evergreen
Intermediate Bond, Evergreen Intermediate II or Evergreen Intermediate at the
telephone numbers or addresses set forth above.
The date of this Statement of Additional Information is November 14,
1997.
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1997
EVERGREEN KEYSTONE SHORT AND INTERMEDIATE TERM BOND FUNDS
200 Berkeley Street, Boston, Massachusetts 02116
800-343-2898
Evergreen Short-Intermediate Bond Fund ("Short-Intermediate")
Evergreen Intermediate-Term Bond Fund ("Evergreen Intermediate")
Evergreen Intermediate-Term
Government Securities Fund ("Intermediate Government")
Keystone Capital Preservation and Income Fund ("Capital Preservation")
Keystone Intermediate Term Bond Fund ("Keystone Intermediate")
This Statement of Additional Information pertains to all classes of
shares of the Funds listed above. It is not a prospectus and should be read in
conjunction with the Prospectus dated September 3, 1997, as supplemented from
time to time, for the Fund in which you are making or contemplating an
investment. The Evergreen Keystone Short and Intermediate Term Bond Funds are
offered through two separate Prospectuses: one offering Class A, Class B and
Class C shares of Short-Intermediate, Evergreen Intermediate, Intermediate
Government, Capital Preservation and Keystone Intermediate, and a separate
prospectus offering Class Y shares of Short-Intermediate, Evergreen Intermediate
and Intermediate Government. Copies of each Prospectus may be obtained without
charge by calling the number listed above.
TABLE OF CONTENTS
Investment Objectives and Policies...............................3
Investment Restrictions.........................................15
Certain Risk Considerations.....................................20
Management......................................................20
Investment Advisers.............................................29
Distribution Plans..............................................33
Allocation of Brokerage.........................................35
Additional Tax Information......................................37
Net Asset Value.................................................39
Purchase of Shares..............................................40
General Information about the Funds.............................51
Performance Information.........................................53
Financial Statements............................................57
Appendix A......................................................59
21467
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds Investment Objectives and Policies" in
each Fund's Prospectus)
The investment objective of each Fund and a description of the securities
in which each Fund may invest is set forth under "Description of the Funds
Investment Objectives and Policies" in the relevant Prospectus. The investment
objectives of each Fund are fundamental and cannot be changed without the
approval of shareholders. The following expands the discussion in the Prospectus
regarding certain investments of each Fund.
Types of Investments
United States ("U.S.") Government Obligations (All Funds)
The types of U.S. government obligations in which the Funds may invest
generally include obligations issued or guaranteed by U.S. government agencies
or instrumentalities.
These securities are backed by:
(1)the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
(2)the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive
financial support from the U.S. government are:
(i)Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association;
(vi) Government National Mortgage Association; and
vii) Student Loan Marketing Association
GNMA Securities. The Funds may invest in securities issued by the Government
National Mortgage Association ("GNMA"), a wholly-owned U.S. government
corporation, which guarantees the timely payment of principal and interest, but
not premiums paid to purchase these instruments. The market value and interest
yield of these instruments can vary due to market interest rate fluctuations and
early prepayments of underlying mortgages. These securities represent ownership
in a pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly scheduled
payments of principal and interest. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price to its par value, which may result in a loss.
Mortgage-Backed or Asset-Backed Securities. Short-Intermediate, Evergreen
Intermediate, and Keystone Intermediate may invest in mortgage-backed securities
and asset-backed securities. Capital Preservation may invest in mortgage-backed
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Two principal types of mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the scheduled payments of interest
and principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Funds may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, each Fund's Adviser (as
hereinafter defined) considers the financial strength of the guarantor or other
provider of credit support, the type and extent of credit enhancement provided
as well as the documentation and structure of the issue itself and the credit
support.
Restricted and Illiquid Securities (All Funds)
The ability of the Board of Trustees of Evergreen Investment Trust, in
the case of Short-Intermediate, The Evergreen Lexicon Trust, in the case of
Evergreen Intermediate and Intermediate Government, Capital Preservation and
Keystone Intermediate ("Trustees") to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for sale under the
Rule. The Funds which invest in Rule 144A securities believe that the Staff of
the SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under the Rule) for determination by the
Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
Variable or Floating Rate Instruments
Certain of the investments of Evergreen Intermediate, Intermediate
Government, Capital Preservation and Keystone Intermediate may include variable
or floating rate instruments which may involve a demand feature and may include
variable amount master demand notes which may or may not be backed by bank
letters of credit. Variable or floating rate instruments bear interest at a rate
which varies with changes in market rates. The holder of an instrument with a
demand feature may tender the instrument back to the issuer at par prior to
maturity. A variable amount master demand note is issued pursuant to a written
agreement between the issuer and the holder, its amount may be increased by the
holder or decreased by the holder or issuer, it is payable on demand, and the
rate of interest varies based upon an agreed formula. The quality of the
underlying credit must, in the opinion of each Fund's Adviser, be equivalent to
the long-term bond or commercial paper ratings applicable to permitted
investments for each Fund. The Adviser will monitor, on an ongoing basis, the
earning power, cash flow, and liquidity ratios of the issuers of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
When-Issued and Delayed Delivery Securities (All Funds)
The Funds may enter into securities transactions on a when-issued
basis. These transactions involve the purchase of debt obligations on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of commitment to purchase. The Funds will only make
commitments to purchase obligations on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery. Capital Preservation
and Keystone Intermediate do not intend to invest more than 5% of their assets
in when issued or delayed delivery transactions.
Segregated accounts will be established with the custodian, and Short-
Intermediate, Evergreen Intermediate and Intermediate Government will maintain
liquid assets in an amount at least equal in value to a Fund's commitments to
purchase when-issued securities. If the value of these assets declines, a Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause segregation of more than 20%, of the
total value of their assets.
Lending of Portfolio Securities (All Funds)
The Funds may lend securities pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. government or its agencies,
or any combination of cash and such securities, as collateral equal at all times
to 100% of the market value of the securities lent. The collateral received when
a Fund lends portfolio securities must be valued daily and, should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to the lending Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Fund or the
borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. A Fund
does not have the right to vote securities on loan, but would terminate the loan
and regain the right to vote if that were considered important with respect to
the investment. Any loan may be terminated by either party upon reasonable
notice to the other party. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by the Adviser to be of good
standing and when, in the judgment of the Adviser, the consideration which can
be earned currently from such securities loans justifies the attendant risk.
Such loans will not be made if, as a result, the aggregate amount of all
outstanding securities loans for Evergreen Intermediate and Intermediate
Government exceed one-third of the value of a Fund's total assets taken at fair
market value. Loans of securities by Short-Intermediate, Capital Preservation
and Keystone Intermediate are limited to 15% of each Fund's total assets.
Reverse Repurchase Agreements
Short-Intermediate, Capital Preservation and Keystone Intermediate may
also enter into reverse repurchase agreements. These transactions are similar to
borrowing cash. In a reverse repurchase agreement, a Fund transfers possession
of a portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market value
in cash, and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Options and Futures Transactions
Options in which Short-Intermediate trades must be listed on national
securities exchanges.
Purchasing Put and Call Options on Financial Futures Contracts
Short-Intermediate may purchase listed put and call options on
financial futures contracts for U.S. Government securities. Keystone
Intermediate may enter into currency and other financial futures contracts and
related options transactions for hedging purposes and not for speculation.
Unlike entering directly into a futures contract, which requires the purchaser
to buy a financial instrument on a set date at an undetermined price, the
purchase of a put option on a futures contract entitles (but does not obligate)
its purchaser to decide on or before a future date whether to assume a short
position at the specified price.
A Fund may purchase put and call options on futures to protect
portfolio securities against decreases in value resulting from an anticipated
increase in market interest rates. Generally, if the hedged portfolio securities
decrease in value during the term of an option, the related futures contracts
will also decrease in value and the put option will increase in value. In such
an event, a Fund will normally close out its option by selling an identical put
option. If the hedge is successful, the proceeds received by the Fund upon the
sale of the put option plus the realized decrease in value of the hedged
securities.
Alternately, a Fund may exercise its put option to close out the
position. To do so, it would enter into a futures contract of the type
underlying the option. If the Fund neither closes out nor exercises an option,
the option will expire on the date provided in the option contract, and the
premium paid for the contract will be lost.
Purchasing Options
Short-Intermediate may purchase both put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which a Fund holds or will be purchasing against decreases or
increases in value. A Fund may purchase call and put options for the purpose of
offsetting previously written call and put options of the same series. If the
Fund is unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised.
Keystone Intermediate may purchase call and put options to close out
existing positions.
Short-Intermediate intends to purchase put and call options on currency
and other financial futures contracts for hedging purposes. A put option
purchased by the Fund would give it the right to assume a position as the seller
of a futures contract. A call option purchased by the Fund would give it the
right to assume a position as the purchaser of a futures contract. The purchase
of an option on a futures contract requires the Fund to pay a premium. In
exchange for the premium, the Fund becomes entitled to exercise the benefits,
if any, provided by the futures contract, but is not required to take any action
under the contract. If the option cannot be exercised profitably before it
expires, the Fund's loss will be limited to the amount of the premium and any
transaction costs.
Short-Intermediate currently does not intend to invest more than 5% of
its net assets in options transactions.
Short-Intermediate may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for related
options would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases futures contracts, an amount of cash and cash equivalents, equal
to the underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with the Fund's
custodian (or the broker, if legally permitted) to collateralize the position
and thereby insure that the purchase of such futures contracts is unleveraged.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, a Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, a Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by a Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, a Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Derivatives - Keystone Intermediate Only
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes. Each of these uses entails greater risk than if
derivatives were used solely for hedging purposes. The Fund uses futures
contracts and related options for hedging purposes. Derivatives are a valuable
tool which, when used properly, can provide significant benefit to Fund
shareholders. Keystone Investment Management Company ("Keystone") is not an
aggressive user of derivatives with respect to the Fund. However, the Fund may
take positions in those derivatives that are within its investment policies if,
in Keystone's judgement, this represents an effective response to current or
anticipated market conditions. Keystone's use of derivatives is subject to
continuous risk assessment and control from the standpoint of the Fund's
investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options,
futures, forwards and swaps -- from which virtually any type of derivative
transaction can be created.
Debt instruments that incorporate one or more of these building blocks for
the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities." An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued in
connection with the restructuring of certain foreign obligations. See
"Structured Securities" below. The term "derivative" is also sometimes used to
describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities.
While the judicious use of derivatives by experienced investment managers
such as Keystone can be beneficial, derivatives also involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in the Fund.
o Market Risk -- This is the general risk attendant to all investments
that the value of a particular investment will decline or otherwise
change in a way detrimental to the Fund's interest.
o Management Risk -- Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of a
derivative requires an understanding not only of the underlying
instrument, but also of the derivative itself, without the benefit of
observing the performance of the derivative under all possible market
conditions. In particular, the use and complexity of derivatives
require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess
the risk that a derivative adds to the Fund's portfolio and the ability
to forecast price, interest rate or currency exchange rate movements
correctly.
o Credit Risk -- This is the risk that a loss may be sustained by the
Fund as a result of the failure of another party to a derivative
(usually referred to as a "counterparty") to comply with the terms of
the derivative contract. The credit risk for exchange traded
derivatives is generally less than for privately negotiated
derivatives, since the clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee
of performance. This guarantee is supported by a daily payment system
(i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there
is no similar clearing agency guarantee. Therefore, the Fund considers
the creditworthiness of each counterparty to a privately negotiated
derivative in evaluating potential credit risk.
o Liquidity Risk -- Liquidity risk exists when a particular instrument
is difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
o Leverage Risk -- Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
o Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are
complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counter parties or a loss of
value to a Fund. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, the Fund's use of derivatives
may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
Writing Put and Call Options - Short-Intermediate and Keystone Intermediate Only
A Fund may write (i.e., sell) covered call and put options. By writing
a call option, the Fund becomes obligated during the term of the option to
deliver the securities underlying the option upon payment of the exercise price.
By writing a put option, the Fund becomes obligated during the term of the
option to purchase the securities underlying the option at the exercise price if
the option is exercised. Short-Intermediate also may write straddles
(combinations of covered puts and calls on the same underlying security).
The Funds may only write "covered" options. This means that so long as a
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written options against all of its securities which are available
for writing options, the Fund may be unable to write additional options unless
it sells a portion of its portfolio holdings to obtain new securities against
which it can write options. If this were to occur, higher portfolio turnover and
correspondingly greater brokerage commissions and other transaction costs may
result. However, each Fund does not expect that this will occur.
Each Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of the put option, it
deposits and maintains with its custodian in a segregated account liquid assets
having a value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through
a receipt of premiums, a greater current return than would be realized on the
underlying securities alone. A Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, a Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
Section 4(2) Commercial Paper
Short-Intermediate may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2)of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Fund, who agrees that it is purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2)commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Fund's Adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Fund does not intend to subject such paper to
the limitation applicable to restricted securities.
Repurchase Agreements (All Funds)
Certain of the investments of the Funds may include agreements which
are agreements by which a person (e.g., a Fund) obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or recognized securities dealer) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
A Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Trustees.
Foreign Securities
Short-Intermediate may invest up to 20% of its assets in foreign
securities or U.S. securities traded in foreign markets and Evergreen
Intermediate may invest in U.S. dollar denominated obligations or securities of
foreign issuers. Keystone Intermediate may invest in foreign securities and in
securities denominated in foreign currencies. Permissible investments may
consist of obligations of foreign branches of U.S. banks and of foreign banks,
including European certificates of deposit, European time deposits, Canadian
time deposits and Yankee certificates of deposit, and investments in Canadian
commercial paper, foreign securities and Europaper. These instruments may
subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
Foreign Currency Transactions
As one way of managing exchange rate risk, Short-Intermediate and
Keystone Intermediate may enter into forward currency exchange contracts
(agreements to purchase or sell currencies at a specified price and date). The
exchange rate for the transaction (the amount of currency the Fund will deliver
and receive when the contract is completed) is fixed when a Fund enters into the
contract. A Fund usually will enter into these contracts to stabilize the U.S.
dollar value of a security it has agreed to buy or sell. A Fund intends to use
these contracts to hedge the U.S. dollar value of a security it already owns,
particularly if the Fund expects a decrease in the value of the currency in
which the foreign security is denominated. Although the Fund will attempt to
benefit from using forward contracts, the success of its hedging strategy will
depend on the Adviser's ability to predict accurately the future exchange rates
between foreign currencies and the U.S. dollar. The value of a Fund's
investments denominated in foreign currencies will depend on the relative
strengths of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the U.S. dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by a Fund. A Fund
may also purchase and sell options related to foreign currencies in connection
with hedging strategies.
Short-Intermediate will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the Fund's assets
denominated in that currency, but as consistent with its other investment
policies, is not otherwise limited in its ability to use this strategy.
Interest Rate Transactions - Swaps, Caps and Floors
Capital Preservation and Keystone Intermediate
If a Fund enters into interest rate swap, cap or floor transactions, it
expects to do so primarily for hedging purposes, which may include preserving a
return or spread on a particular investment or portion of its portfolio or
protecting against an increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use these transactions
in a speculative manner.
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a contractually-based principal
("notional") amount from the party selling the interest rate cap or floor. The
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to a Fund from
interest rate transactions is limited to the net amount of interest payments
that the Fund is contractually obligated to make.
Other Investments
The Funds are not prohibited from investing in obligations of banks
which are clients of the Distributor (as herein after defined). However, the
purchase of shares of the Funds by such banks or by their customers will not be
a consideration in determining which bank obligations the Funds will purchase.
The Funds will not purchase obligations of its Adviser or its affiliates.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by each Fund's
Adviser without shareholder approval, subject to review and approval by the
Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1.....Concentration of Assets in Any One Issuer
Diversification of Investments
With respect to 75% of the value of its assets, a Fund will not purchase
securities of any one issuer (other than cash, cash items or securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities) if as a
result more than 5% of the value of its total assets would be invested in the
securities of the issuer. Evergreen Intermediate and Intermediate Government
will not acquire more than 10% of the outstanding voting securities of any one
issuer.
2.....Purchase of Securities on Margin
.......No Fund will purchase securities on margin, except that each Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions.
A deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options transactions is
not considered the purchase of a security on margin.
3.....Unseasoned Issuers
.......Neither Short-Intermediate*, Capital Preservation or Keystone Intermediate
may invest more than 5% of its total assets in securities of unseasoned issuers
that have been in continuous operation for less than three years, including
operating periods of their predecessors.
4.....Underwriting
.......Short-Intermediate, Evergreen Intermediate and Intermediate Government
will not underwrite any issue of securities except as they may be deemed an
underwriter under the Securities Act of 1933 in connection with the sale of
securities in accordance with their investment objectives, policies and
limitations.
.......Capital Preservation and Keystone Intermediate will not underwrite
securities of other issuers, except that each Fund may purchase securities from
the issuer or others and dispose of such securities in a manner consistent with
its investment objective.
5.....Interests in Oil, Gas or Other Mineral Exploration or Development
Programs.
Short-Intermediate*, Evergreen Intermediate and Intermediate Government
will not purchase interests in oil, gas or other mineral exploration or
development programs or eases, although each Fund may purchase the securities of
other issuers which invest in or sponsor such programs.
6.....Concentration in Any One Industry
.......Short-Intermediate will not invest more than 25% of the value of its total
assets in any one industry except the Fund may invest more than 25% of its total
assets in securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities.
.......Keystone Intermediate may not purchase any security (other than U.S.
government securities) of any issuer if as a result more than 25% of its total
assets would be invested in a single industry; except that (a) there is no
restriction with respect to obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities' (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; (c)
the industry classification of utilities will be determined according to their
services (for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; and (d) the industry classification of
medically related industries will be determined according to their services (for
example, management, hospital supply, medical equipment and pharmaceuticals will
each be considered a separate industry).
7.....Warrants
.......Short-Intermediate*, Evergreen Intermediate* and Intermediate Government*
will not invest more than 5% of their assets in warrants, including those
acquired in units or attached to other securities. For purposes of this
restriction, warrants acquired by the Funds in units or attached to securities
may be deemed to be without value.
8.....Ownership by Trustees/Officers
None of Short-Intermediate*, Evergreen Intermediate or Intermediate
Government may purchase or retain the securities of any issuer if (i) one or
more officers or Trustees of a Fund or its investment adviser individually
owns or would own, directly or beneficially, more than 1/2 of 1% of the
securities of such issuer, and (ii) in the aggregate, such persons own or would
own, directly or beneficially, more than 5% of such securities.
9.....Short Sales
.......Short-Intermediate, Capital Preservation and Keystone Intermediate will
not make short sales of securities or maintain a short position, unless at all
times when a short position is open it owns an equal amount of such securities
or of securities which, without payment of any further consideration are
convertible into or exchangeable for securities of the same issue as, and equal
in amount to, the securities sold short.
The use of short sales will allow a Fund to retain certain bonds in its
portfolio longer than it would without such sales. To the extent that the Fund
receives the current income produced by such bonds for a longer period than it
might otherwise, the Fund's investment objective is furthered.
.......Evergreen Intermediate and Intermediate Government will not sell any
securities short.
10....Lending of Funds and Securities
.......Short-Intermediate will not lend portfolio securities valued at more than
15% of its total assets to broker-dealers.
.......Capital Preservation and Keystone Intermediate may not make loans, except
that a Fund may (a) purchase or hold debt securities consistent with its
investment objective, (b) lend portfolio securities valued at not more than 15%
of its total assets to broker-dealers and (c) enter into repurchase agreements.
.......Evergreen Intermediate and Intermediate Government may not make loans,
except that (a) a Fund may purchase or hold debt instruments in accordance with
its investment objective and policies; (b) a Fund may enter into repurchase
agreements, and (c) the Funds may engage in securities lending as described in
the Prospectus and in this Statement of Additional Information.
11....Commodities
.......Short-Intermediate will not purchase or sell commodities or commodity
contracts; however, the Fund may enter into futures contracts on financial
instruments or currency and sell or buy options on such contracts. Evergreen
Intermediate and Intermediate Government may not purchase commodities or
commodities contracts. However, subject to their permitted investments, any Fund
may invest in companies which invest in commodities and commodities contracts.
.......Capital Preservation and Keystone Intermediate may not purchase or sell
commodities or commodity contracts.
12....Real Estate
.......Short-Intermediate may not buy or sell real estate although the Fund may
invest in securities of companies whose business involves the purchase or sale
of real estate or in securities which are secured by real estate or interests in
real estate.
.......Evergreen Intermediate and Intermediate Government may not purchase or
sell real estate, real estate limited partnership interests, and interests in a
pool of securities that are secured by interests in real estate. However,
subject to their permitted investments, any Fund may invest in companies which
invest in real estate.
.......Capital Preservation and Keystone Intermediate may not purchase or sell
real estate, except that each Fund may purchase and sell securities secured by
real estate and securities of companies which invest in real estate, and may
engage in financial futures contracts and related options transactions.
13....Borrowing, Senior Securities, Reverse Repurchase Agreements
.......Evergreen Intermediate and Intermediate Government will not borrow money
except as a temporary measure for extraordinary or emergency purposes in an
amount up to one-third of the value of total assets, including the amounts
borrowed. Any borrowing will be done from a bank and to the extent such
borrowing exceeds 5% of the value of a Fund's total assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any time
fall below 300%, the Fund shall within three days thereafter or such longer
period as the Securities and Exchange Commission (the "SEC") may prescribe by
rules and regulations, reduce the amount of its borrowings to such an extent
that the asset coverage of such borrowings shall be at least 300%. This
borrowing provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate heavy redemption requests if they should
occur and is not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such borrowings will
reduce income.
Short-Intermediate may borrow only in amounts not in excess of 5% of
the value of its total assets in order to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The entry by Short-Intermediate into futures contracts shall be
deemed a borrowing. Any such borrowings need not be collateralized.
Short-Intermediate will not purchase any securities while borrowings in excess
of 5% of the value of their total assets are outstanding.
.......Capital Preservation and Keystone Intermediate will not borrow money or
enter into reverse repurchase agreements, except that each Fund may enter into
reverse repurchase agreements or borrow money from banks for temporary or
emergency purposes in aggregate amounts of up to one-third of the value of each
Fund's net assets; provided that, while borrowings from banks (not including
reverse repurchase agreements) exceed 5% of the Fund's net assets, any such
excess borrowings will be repaid before additional investments are made.
.......Capital Preservation and Keystone Intermediate may not issue senior
securities; the purchase or sale of securities on a "when issued" basis or
collateral arrangement with respect to the writing of options on securities are
not deemed to be the issuance of a senior security.
14....Pledging Assets
.......No Fund will mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. In these cases, Short-Intermediate may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of borrowing and Evergreen
Intermediate and Intermediate Government may do so in amounts up to 10% of their
total assets. Margin deposits for the purchase and sale of financial futures
contracts and related options and segregation or collateral arrangements made in
connection with options activities are not deemed to be a pledge.
.......Capital Preservation and Keystone Intermediate may not pledge more than
15% of each Fund's net assets to secure indebtedness; the purchase or sale of
securities on a "when issued" basis or collateral arrangement with respect to
the writing of options on securities are not deemed to be a pledge of assets.
15....Investing in Securities of Other Investment Companies
.......Short-Intermediate will purchase securities of investment companies only
in open-market transactions involving customary broker's commissions. Evergreen
Intermediate and Intermediate Government may only purchase securities of other
investment companies which are money market funds and CMOs and REMICs deemed to
be investment companies.
In each case the Funds will only make such purchases to the extent
permitted by the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation or acquisition of assets. It
should be noted that investment companies incur certain expenses such as
management fees and therefore any investment by a Fund in shares of another
investment company would be subject to such duplicate expenses.
It is the position of the SEC's Staff that certain nongovernmental issuers
of CMOs and REMICs constitute investment companies pursuant to the 1940 Act and
either (a) investments in such instruments are subject to the limitations set
forth above or (b) the issuers of such instruments have received orders from the
SEC exempting such instruments from the definition of investment company.
.......Capital Preservation and Keystone Intermediate may not purchase securities
of other investment companies, except as part of a merger, consolidation,
purchase of assets or similar transaction.
16....Restricted Securities
.......Short-Intermediate will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
17....Illiquid Securities
.......Short-Intermediate, Evergreen Intermediate* and Intermediate Government*
will not invest more than 10% of their net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven days
after notice and certain securities determined by the Trustees not to be liquid.
18....Options
.......Evergreen Intermediate and Intermediate Government may not write or
purchase puts, calls, options or combinations thereof.
19....Control
.......Evergreen Intermediate and Intermediate Government may not invest in
companies for the purpose of exercising control.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
The Funds did not borrow money, sell securities short, invest in
reverse repurchase agreements in excess of 5% of the value of their net assets,
or invest more than 5% of their net assets in the securities of other investment
companies in the last fiscal year, and have no present intent to do so during
the coming year.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan association, having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment, to be
"cash items".
CERTAIN RISK CONSIDERATIONS
There can be no assurance that a Fund will achieve its investment
objectives and an investment in the Fund involves certain risks which are
described under "Description of the Funds - Investment Objectives and Policies"
in the Prospectus.
MANAGEMENT
The Evergreen Keystone funds consist of sixty-six mutual funds. Each
mutual fund is, or is a series of, a registered, open-end management company.
Trustees and executive officers of each mutual fund, their ages, and
their principal occupations during the last five years are shown below.
JAMES S. HOWELL (72), 4124 Crossgate Road, Charlotte, NC-Chairman of the
Evergreen group of mutual funds and Trustee. Retired Vice President of Lance
Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the
Carolinas from 1989 to 1993.
RUSSELL A. SALTON, III, M.D. (49), 205 Regency Executive Park, Charlotte, NC
- -Trustee. Medical Director, U.S. Healthcare of Charlotte, North Carolina since
1996; President, Primary Physician Care from 1990 to 1996.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee.
Attorney, Law Offices of Michael S. Scofield since 1969.
Messrs. Howell, Salton and Scofield are Trustees of all Evergreen Keystone
mutual funds.
GERALD M. MCDONNELL (57), 821 Regency Drive, Charlotte, NC -Trustee. Sales
Representative with Nucor-Yamoto Inc. (steel producer) since 1988.
THOMAS L. McVERRY (58), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of
Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from
1988 to 1990; Vice President of Rexham Industries, Inc. (diversified
manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham
Corporation from 1979 to 1990.
WILLIAM WALT PETTIT (41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC- Trustee. Partner in the law firm Holcomb and Pettit, P.A. since
1990.
Messrs. McDonnell, McVerry and Pettit are Trustees of all Evergreen Keystone
mutual funds, except those established within the Evergreen Variable Trust.
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL- Trustee. Real
estate developer and construction consultant since 1980; President of Centrum
Equities since 1987 and Centrum Properties, Inc. since 1980.
FOSTER BAM (70), Greenwich Plaza, Greenwich, CT- Trustee. Partner in the law
firm of Cummings and Lockwood since 1968.
Messrs. Ashkin and Bam are Trustees of all Evergreen Keystone mutual funds,
except those established within the Evergreen Variable Trust and Evergreen
Investment Trust.
FREDERICK AMLING (69) Trustee. Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member, Board of
Advisers, Credito Emilano (banking); and former Economics and Financial
Consultant, Riggs National Bank.
CHARLES A. AUSTIN III (61) Trustee. Investment Counselor to Appleton
Partners, Inc.; former Managing Director, Seaward Management Corporation
(investment advice); and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment advice).
GEORGE S. BISSELL* (67) Chairman of the Keystone group of mutual funds, and
Trustee. Chairman of the Board and Trustee of Anatolia College; Trustee of
University Hospital (and Chairman of its Investment Committee); former Director
and Chairman of the Board of Hartwell Keystone; and former Chairman of the Board
and Chief Executive Officer of Keystone Investments, Inc..
EDWIN D. CAMPBELL (69) Trustee. Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; former Dean, School of Business, Adelphi University; and former
Executive Director, Coalition of Essential Schools, Brown University.
CHARLES F. CHAPIN (67) Trustee. Former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, NC).
K. DUN GIFFORD (57) Trustee. Chairman of the Board, Director, and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments, Inc. and Keystone Investment Management Company.
LEROY KEITH, JR. (57) Trustee. Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund, and
The Phoenix Big Edge Series Fund; and former President, Morehouse College.
F. RAY KEYSER, JR. (69) Trustee and Advisor to the Boards of Trustees of the
Evergreen group of mutual funds. Counsel, Keyser, Crowley & Meub, P.C.; Member,
Governor's (VT) Council of Economic Advisers; Chairman of the Board and
Director, Central Vermont Public Service Corporation and Hitchcock Clinic;
Director, Vermont Yankee Nuclear Power Corporation, Vermont Electric Power
Company, Inc., Grand Trunk Corporation, Central Vermont Railway, Inc., S.K.I.
Ltd., Sherburne Corporation, Union Mutual Fire Insurance Company, New England
Guaranty Insurance Company, Inc., and the Investment Company Institute; former
Governor of Vermont.
DAVID M. RICHARDSON (55) Trustee. Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director, Commerce and Industry Association of
New Jersey, 411 International, Inc., and J&M Cumming Paper Co.
RICHARD J. SHIMA (57) Trustee and Advisor to the Boards of Trustees of the
Evergreen group of mutual funds. Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director of
Connecticut Natural Gas Corporation, Trust Company of Connecticut, Hartford
Hospital, Old State House Association, and Enhance Financial Services, Inc.;
Chairman, Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-
Oxford School and Greater Hartford YMCA; former Director, Executive Vice
President, and Vice Chairman of The Travelers Corporation.
ANDREW J. SIMONS (57) Trustee. Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; former President, Nassau County Bar Association;
former Associate Dean and Professor of Law, St. John's University School of Law.
Messrs. Amling, Austin, Bissell, Campbell, Chapin, Gifford, Keith, Keyser,
Richardson, Shima and Simons are Trustees or Directors of the twenty-five funds
in the Keystone group of mutual funds. Their addresses are 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, Fl Trustee
Emeritus. Corporate consultant since 1967.
Mr. Jeffries has been serving as a Trustee Emeritus of eleven Evergreen Keystone
Mutual Funds since January 1, 1996 (excluded are Evergreen Variable Trust,
Evergreen Investment Trust, as well as the Keystone group of mutual funds).
EXECUTIVE OFFICERS
JOHN J. PILEGGI (37), 230 Park Avenue, Suite 910, New York, NY- President and
Treasurer. Consultant to BISYS Fund Services since 1996. Senior Managing
Director, Furman Selz LLC since 1992, Managing Director from 1984 to 1992.
GEORGE O. MARTINEZ (37), 3435 Stelzer Road, Columbus, OH-Secretary. Senior Vice
President/Director of Administration and Regulatory Services, BISYS Fund
Services since April 1995. Vice President/Assistant General Counsel, Alliance
Capital Management from 1988 to 1995.
* This Trustee may be considered an "interested person" of the Funds within the
meaning of the 1940 Act.
For the fiscal period ended June 30, 1997, Trustees of the Funds
received $9,451 and $175,376 in retainers and fees from The Evergreen Lexicon
Fund and Evergreen Investment Trust, respectively. For the year ending June 30,
1997, fees paid to Independent Trustees on a fund complex wide basis were
approximately $1,110,975.
The officers of the Trusts are all officers and/or employees of The BISYS Group,
Inc. ("BISYS Group"), except for Mr. Pileggi, who is a consultant to The BISYS
Group. The BISYS Group is an affiliate of Evergreen Keystone Distributor, Inc.
("EKD"), the distributor of each Class of shares of each Fund.
No officer or Trustee of the Trusts owned more than 1.0% of any Class
of shares of any of the Funds as of August 31, 1997.
Set forth below for each of the Trustees receiving in excess of $60,000
for the fiscal period of July 1, 1996 through June 30, 1997 is the aggregate
compensation paid to such Trustee by the Evergreen Keystone funds:
Total Compensation
From Fund Complex
Name Paid To Trustee
James S. Howell $93,800
Gerald M. McDonnell 80,000
Thomas L. McVerry 85,000
William Walt Pettit 82,500
Russell A Salton, III M.D. 87,000
Michael S. Scofield 88,200
Set forth below is information with respect to each person, who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of August 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of % of
Name and Address Fund/Class No. of Shares Class
- ---------------- ---------- ------------- ----------
FUBS & Co. FEBO Short-Intermediate/A 104,641 5.77%
Ronald L. Spector
D/B/A River Walk
1800 Second Street, Suite 808
Sarasota, FL 34236-5904
FUBS & Co. FEBO Short-Intermediate/C 11,335 10.90%
Dreamland Skating Rink Inc
PO Drawer 13207
Pensacola, FL 32591-3207
MLPF&S for sole benefit Short-Intermediate/C 10,680 10.27%
of its customersAttn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl.
Jacksonville, FL 32246-6484
Florida Osteopathic Short-Intermediate/C 10,373 9.98%
Medical Assoc.
2007 Apalachee Pky
Tallahassee, FL 32301-4847
FUBS & Co. FEBO Short-Intermediate/C 6,963 6.70%
Rachel W. Fort and Edward C Fort
2737 Stockton St.
Winston Salem, NC 27127
FUBS & Co. FEBO Short-Intermediate/C 5,573 5.36%
Victor Wozniak and
Vermell Wozniak Dreamland Trst
PO Drawer 13207
Pensacola, FL 32591-3207
FUBS & Co. FEBO Short-Intermediate/C 5,402 5.20%
Emmaus Lutheran Church
2500 So. Volusia Ave.
Orange City, FL 32763-9124
PaineWebber for the Short-Intermediate/C 5,199 5.00%
benefit of Robert Bowen &
Mona Carpenter-Bowen
Jt Ten Wros
1686 Massachusetts Ave.
Lunenburg, MA 01462-1843
First Union National Bank Short-Intermediate/Y 18,345,872 49.60%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Short-Intermediate/Y 18,249,273 49.33%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
FUBS & Co. FEBO Evergreen Intermediate/B 9,843 8.56%
Veronica B. Birdsong
1255 B Road
Loxahatchee, FL 33470-4248
First Union Natl Bank-FL Evergreen Intermediate/B 15,110 13.15%
C/F Lurene N. Roser IRA
5200 N. Ocean Dr. Apt. 17D
Singer Island, FL 33404-2618
FUBS & Co. FEBO Evergreen Intermediate/B 9,745 8.48%
Frances E. Clyma Rev Trust
Frances E. Clyma and
Robert L. Mastin Co-Tttees
U/A/D 01/25/96
Palm Beach Garde, FL 33410
FUBS & Co. FEBO Evergreen Intermediate/B 7,907 6.88%
Mary Louise Chatman
Flora Louise Chatman Wages POA
9532 Ft. Foote Road
Ft. Washington, MD 20744-5753
Margaret S. Collins Evergreen Intermediate/C 2,106 73.72%
1106 Lothian Drive
Tallahassee, FL 32312-2836
Peter M. Kopp and Evergreen Intermediate/C 495 17.33%
Mary Jean Kopp JtWros
C/O OC International
5801 North Union Blvd.
Colorado Springs, CO 80918
FUBS & Co. FEBO Evergreen Intermeidate/C 246 8.60%
Chris J. Thigpen
4497 Pineland Dr.
Evans, GA 30809-3233
First Union National Bank Evergreen Intermediate/Y 10,131,742 64.61%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Evergreen Intermediate/Y 5,508,432 35.13%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
First Union Bank-CT C/F Inc Intermediate Government/A 8,663 15.09%
F/B/O Zeno Chicarilli PSP
Attn: Zeno Chicarilli
2 Cobblefield Lane
Guilford, CT 06437-2384
FUBS & Co. FEBO Intermediate Government/A 7,023 12.24%
Upper Saucon Volunteer Fire
Department #1
C/O Joseph Hoffstetter
4888 Lanark Rd.
Center Valley, PA 18034-8605
NJ State Fireman's Assoc. Intermediate Government/A 5,258 9.20%
Of Morris Township
11 Catalpa Rd.
Morristown, NJ 07960-6132
Ignaz Keglovits & Intermediate Government/A 4,755 8.28%
Mary Keglovits Jtten
15 North 9th Street
Coplay, PA 18037-1527
Doris Mack Intermediate Government/A 4,412 7.69%
8 Mountain View Dr.
Chester, NJ 07930-3104
FUBS & Co. FEBO Intermediate Government/A 3,051 5.32%
Alice T. Brophy
30 Rosedale Ave.
Madison, NJ 07940-2146
FUBS & Co. FEBO Intermediate Government/B 10,160 17.29%
Joseph Kacsur
7040 Woodside Oak Circle
Sarasota, FL 34231-5565
FUBS & Co. FEBO Intermediate Government/B 9,921 16.88%
Carmela M. Woodruff
1 College Lane Apt 86
Brevard, NC 28712
FUBS & Co. FEBO Intermediate Government/B 9,833 16.73%
Frances E. Clyma Rev Trust
Frances E. Clyma and
Robert L Mastin Co-Ttees
U/A/D 01/25/96
Palm Beach Garde, FL 33410
FUBS & Co. FEBO Intermediate Government/B 3,444 5.86%
First Union Natl Bank/TN F/B/O
Geri McNamara Loan Account
Attn: Tracy Brown
600 S. Main St.
Goodlettsville, TN 37072-1701
First Union Natl Bank-TN C/F Intermediate Government/B 3,392 5.77%
William E. Bass Sr. IRA
102 Grace Drive
Goodlettsville, TN 37072-3537
FUBS & Co. FEBO Intermediate Government/B 3,193 5.43%
Loretta Bukowski and
Helen Bukowski
8860 Taft Street
Pembroke Pines, FL 33024-4635
FUBS & Co. FEBO Intermediate Government/B 3,182 5.47%
Howard J. Carroll
4019 N. Chesterbrook Road
Arlington, VA 22207-4635
Donaldson Lufkin Jenrette Intermediate Government/C 10,753 89.85%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S for sole benefit Intermediate Government/C 1,185 9.90%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
First Union National Bank Intermediate Government/Y 6,111,264 85.32%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Intermediate Government/Y 1,018,405 14.22%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
Smith Barney Inc. Capital Preservation/A 243,272 14.78%
00154924733
388 Greenwich Street
New York, NY 10013
MLPF&S for the sole benefit Capital Preservation/A 287,313 16.24%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
Gary W. Grant & Capital Preservation/A 112,183 6.81%
Eva Grant Jt/Wros
10906 Wickline
Houston, TX 77024
MLPF&S for the sole benefit Capital Preservation/B 420,391 13.24%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
MLPF&S for sole benefit Capital Preservation/C 80,684 19.86%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
St. Ann's Catholic Church Capital Preservation/C 20,673 5.09%
Attn: Fr Peter McKenna
PO Box 256
La Vernia, TX 78121-0256
MLPF&S for the sole benefit Keystone Intermediate/A 251,460 22.38%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette Keystone Intermediate/A 64,213 5.71%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S for the sole benefit Keystone Intermediate/B 167,500 13.80%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
MLPF&S for sole benefit Keystone Intermediate/C 206,121 28.80%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
NFSC FEBO #BNG-522228 Keystone Intermediate/C 36,285 5.07%
Ctr for the Advancement of HLT
Rena Convissor
k2000 Florida Ave. NW
Suite 210
Washington, DC 20009-1231
</TABLE>
INVESTMENT ADVISERS
(See also "Management of the Funds" in each Fund's Prospectus) The
investment adviser of Short-Intermediate, Evergreen Intermediate and
Intermediate Government is First Union National Bank ("FUNB"), located at 201
South College Street, Charlotte, North Carolina 28288 which, in turn, is a
subsidiary of First Union Corporation ("First Union"), a bank holding company
headquartered in Charlotte, North Carolina. FUNB provides investment advisory
services to the Funds through its Capital Management Group ("CMG"). Keystone
Investment Management Company ("Keystone"), a subsidiary of FUNB located at 200
Berkeley Street, Boston, Massachusetts 02116, is investment adviser to Capital
Preservation and Keystone Intermediate.
Under their respective Investment Advisory Agreements with each Fund, CMG
and Keystone (each an "Adviser" and, collectively, the "Advisers") have agreed
to furnish reports, statistical and research services and recommendations with
respect to each Fund's portfolio of investments. In addition, each Adviser
provides office facilities to the Funds and performs a variety of administrative
services. Each Fund pays the cost of all of its other expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining their
registration under the Securities Act of 1933, as amended, and the 1940 Act,
printing prospectuses (for existing shareholders) as they are updated, state
qualifications, mailings, brokerage, custodian and stock transfer charges,
printing, legal and auditing expenses, expenses of shareholder meetings and
reports to shareholders. Notwithstanding the foregoing, the Adviser will pay the
costs of printing and distributing prospectuses used for prospective
shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
three most recent fiscal periods reflected in its registration statement are set
forth below. Prior to December 11, 1997, Keystone Management Inc., ("Keystone
Management") provided investment management services to Keystone Intermediate.
Keystone, the Fund's investment adviser, was entitled to a certain percentage of
the fee paid by the Fund to Keystone Management, and was paid by Keystone
Management. Total dollar amounts paid by the Fund to Keystone Management, the
Fund's former investment manager, for investment management and administrative
services rendered, are inclusive of the amounts paid to by Keystone Management
to Keystone for investment advisory services are shown:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Six Months
SHORT-INTERMEDIATE Year Ended Year Ended Ended
06/30/97 6/30/96 6/30/95
--------- -------- --------
Advisory Fee $1,998,063 $1,951,949 $961,697
========= ========= =========
Ten Months
EVERGREEN Year Ended Ended Year Ended
INTERMEDIATE 06/30/97 6/30/96 8/31/95
---------- ---------- ---------
Advisory Fee $987,044 $600,081 $544,577
Waiver ( 0) ( 64,983) (128,003)
-------- -------- --------
Net Advisory Fee $987,044 $535,098 $416,574
========= ========= =========
Ten Months
INTERMEDIATE Year Ended Ended Year Ended
GOVERNMENT 06/30/97 06/30/96 8/31/95
---------- -------- --------
Advisory Fee $546,941 $506,065 $634,185
Waiver ( 73,557) (61,160) (144,507)
--------- --------- --------
Net Advisory Fee $473,384 $444,905 $489,678
========= ========= =========
Nine Months
CAPITAL Ended Year Ended Year Ended
PRESERVATION 06/30/97 09/30/96 09/30/95
---------- -------- --------
Advisory Fee $284,977 $493,147 $605,247
Waiver/Reimb. (245,255) (341,016) (503,005)
---------- -------- --------
Net Advisory Fee $ 39,722 $152,131 $102,242
========== ========= =========
Eleven Months
KEYSTONE Ended Year Ended Year Ended
INTERMEDIATE 06/30/97 07/31/96 07/31/95
Advisory Fee $202,102 $273,644 $291,834
Waiver/Reimb. (145,636) (191,096) (207,571)
-------- -------- --------
Net Advisory Fee $ 56,466 $ 82,548 $ 84,263
======== ========= ========
</TABLE>
Expense Limitations
Keystone voluntarily limits the annual expenses, excluding indirectly
paid expenses, of Class A, Class B and Class C shares to 0.90%, 1.65% and 1.65%
of average net class assets, respectively, for Capital Preservation and to
1.10%, 1.85% and 1.85% of average net class assets, respectively, for Keystone
Intermediate. Keystone intends to continue the foregoing expense limitations on
a calendar month-by-month basis. Keystone will periodically evaluate the
foregoing expense limitations and may modify or terminate them in the future.
The Investment Advisory Agreements are terminable, without the payment
of any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of the
Trust's Trustees or by the Adviser. The Investment Advisory Agreements will
automatically terminate in the event of their assignment. Each Investment
Advisory Agreement provides in substance that the Adviser shall not be liable
for any action or failure to act in accordance with its duties thereunder in the
absence of wilful misfeasance, bad faith or gross negligence on the part of the
Adviser or of reckless disregard of its obligations thereunder. Each Investment
Advisory Agreement continues for two years from its effective date and will
continue from year to year with respect to each Fund provided that such
continuance is approved annually by a vote of a majority of the Trustees
including a majority of those Trustees who are not parties thereto or
"interested persons" of any such party cast in person at a meeting duly called
for the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities of each Fund.
Certain other clients of the Adviser may have investment objectives and
policies similar to those of the Funds. An Adviser may, from time to time, make
recommendations which result in the purchase or sale of a particular security by
its other clients simultaneously with a Fund. If transactions on behalf of more
than one client during the same period increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price or quantity. It is the policy of the Advisers to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by each Adviser to the accounts involved, including the Funds. When two or more
clients of an Adviser (including one or more of the Funds) are purchasing or
selling the same security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
Although the investment objectives of the Funds are not the same, and
their investment decisions are made independently of each other, they rely upon
the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to
permit purchase and sales transactions to be effected between each Fund and the
other registered investment companies for which Evergreen Asset Management
Corp., a subsidiary of FUNB ("Evergreen Asset"), Keystone or FUNB act as
investment adviser or between the Fund and any advisory clients of Evergreen
Asset, Keystone, FUNB or their affiliates. Each Fund may from time to time
engage in such transactions but only in accordance with these procedures and if
they are equitable to each participant and consistent with each participant's
investment objectives.
Prior to July 1, 1995, Federated Administrative Services, a subsidiary of
Federated Investors, provided legal, accounting and other administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust.
Prior to January 19, 1996, SEI Financial Management Company acted as
administrator for Evergreen Intermediate and Intermediate Government. For the
ten months ended June 30, 1996, and the fiscal year ended August 31, 1995
Evergreen Intermediate incurred $97,364 and $154,291, respectively, in
administrative service costs. For ten months ended June 30, 1996 and the fiscal
year ended August 31, 1995 Government incurred $91,283 and $179,686,
respectively, in administrative service costs.
Commencing July 8, 1995, in the case of Evergreen Investment Trust, and on
January 19, 1996, in the case of The Evergreen Lexicon Fund, Evergreen Asset
began providing administrative services to each of the portfolios of the Trusts
for a fee based on the average daily net assets of each Fund administered by
Evergreen Asset for which FUNB affiliates also served as investment adviser,
calculated daily and payable monthly at the following annual rates: .050% on the
first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion;
..020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets
in excess of $30 billion.
At present, Evergreen Keystone Investment Services ("EKIS") serves as
administrator to Short-Intermediate, Evergreen Intermediate and Intermediate
Government subject to the supervision and control of the Trustees of each Trust.
As administrator, EKIS provides facilities, equipment and personnel to the Funds
and is entitled to receive a fee based on the average daily net assets of all
mutual funds for which CMG, Keystone or Evergeen Asset serve as investment
adviser, calculated in accordance with the following schedule:.050% on the first
$7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on
the next $10 billion; .015% on the next $5 billion; and .010% on assets in
excess of $30 billion.
EKIS also provides administrative services to Capital Preservation and
Keystone Intermediate on behalf of their investment adviser.
Prior to January 1, 1997, Furman Selz LLC, an affiliate of Evergreen
Keystone Distributor, Inc. (formerly Evergreen Funds Distributor, Inc.,
distributor for the Evergreen Keystone funds (the "Distributor"), served as
sub-administrator to Short-Intermediate, Evergreen Intermediate and Intermediate
Government and was entitled to receive a fee from each Fund calculated on the
average daily net assets of each Fund at a rate based on the total assets of the
mutual funds administered by Evergreen Asset for which FUNB affiliates also
served as investment adviser, calculated in accordance with the following
schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050%
on the next $15 billion; and .0040% on assets in excess of $25 billion.
BISYS Fund Services ("BISYS"), an affiliate of EKD, now serves as
sub-administrator to each Fund and is entitled to receive a fee from each Fund
calculated daily and payable monthly at an annual rate based on the aggregate
average daily net assets of the mutual funds for which FUNB, Evergreen Asset,
Keystone or any affiliate of First Union serves as investment adviser,
calculated in accordance with the following schedule: .0100% of the first $7
billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and
..0040% on assets in excess of $25 billion. The total assets of mutual funds for
which Evergreen Asset, FUNB or Keystone serve as investment adviser as of June
30, 1997 were approximately $30.5 billion.
For the fiscal years ended June 30, 1997 and 1996, and the fiscal
period ended June 30, 1995, Short-Intermediate incurred $167,636, $205,938 and
$159,002, respectively, in administrative service costs.
For the fiscal year ended June 30, 1997, the fiscal period ended June
30, 1996 and the fiscal year ended August 31, 1995, Evergreen Intermediate
incurred $69,536, $97,364 and $154,291, respectively, in administrative service
costs.
For the fiscal year ended June 30, 1997, the fiscal period ended June
30, 1996 and the fiscal year ended August 31, 1995, Intermediate Government
incurred $38,083, $91,283 and $179,686, respectively, in administrative service
costs.
For the fiscal period ended June 30, 1997, and the fiscal years ended
September 30, 1996 and 1995, Capital Preservation incurred $34,481, $24,177 and
$17,744 in administrative service costs.
For the fiscal period ended June 30, 1997, and the fiscal years ended
July 31, 1996 and 1995, Keystone Intermediate incurred $11,267, $23,963 and
$17,790 in administrative service costs.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A, Class B and Class C shares and are charged as class
expenses, as accrued. The distribution fees attributable to the Class B shares
and Class C shares are designed to permit an investor to purchase such shares
through broker-dealers without the assessment of a front-end sales charge, and,
in the case of Class C shares, without the assessment of a contingent deferred
sales charge after the first year following the month of purchase, while at the
same time permitting the Distributor to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and function of the
combined contingent deferred sales charge and distribution services fee on the
Class B shares and the Class C shares are the same as those of the front-end
sales charge and distribution fee with respect to the Class A shares in that in
each case the sales charge and/or distribution fee provide for the financing of
the distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (each
a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the
amounts expended under the Plans and the purposes for which such expenditures
were made to the Trustees of each Trust for their review on a quarterly basis.
Also, each Plan provides that the selection and nomination of the Independent
Trustees are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of each Trust or by vote
of the holders of a majority of the outstanding voting securities of that Class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.
In addition to the Plans, Short-Intermediate, Evergreen Intermediate
and Intermediate Government have adopted Shareholder Services Plans whereby
shareholder servicing agents may receive fees from each Fund for providing
services which include, but are not limited to, distributing prospectuses and
other information, providing shareholder assistance, and communicating or
facilitating purchases and redemptions of Class B and Class C shares of a Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of a Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class. Any Plan, Shareholder Service Plan or
Distribution Agreement may be terminated (i) by a Fund without penalty at any
time by a majority vote of the holders of the outstanding voting securities of
the Fund, voting separately by Class or by a majority vote of the Independent
Trustees, or (ii) by the Distributor. To terminate any Distribution Agreement,
any party must give the other parties 60 days' written notice; to terminate a
Plan only, the Fund need give no notice to the Distributor. Any Distribution
Agreement will terminate automatically in the event of its assignment.
The Funds incurred the following Distribution Plan and, where
applicable, Shareholder Services Plan fees:
Distribution Fees:
Short-Intermediate. For the fiscal year ended June 30, 1997 $18,961, $222,264
and $10,470 on behalf of Class A, Class B and Class C shares.
Evergreen Intermediate. For the fiscal year ended June 30, 1997 $6,972, $7,180
and $255 on behalf of Class A, Class B and Class C shares.
Intermediate Government. For the fiscal year ended June 30, 1997 $2,047, $6,442
and $242 on behalf of Class A, Class B and Class C shares.
Capital Preservation. For the fiscal period ended June 30, 1997 $28,581,
$285,293 and $32,267 on behalf of Class A, Class B and Class C shares.
Keystone Intermediate. For the fiscal period ended June 30, 1997 $24,268,
$129,648 and $74,834 on behalf of Class A, Class B and Class C shares.
Shareholder Services Fees:
Short-Intermediate. For the fiscal years ended June 30, 1997 and 1996, $55,566
and $47,700, respectively, on behalf of Class B shares; and $2,618 and $2,221,
respectively, on behalf on Class C shares.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of the
Adviser. In general, the same individuals perform the same functions for the
other funds managed by the Adviser. A Fund will not effect any brokerage
transactions with any broker or dealer affiliated directly or indirectly with
the Adviser unless such transactions are fair and reasonable, under the
circumstances, to the Fund's shareholders. Circumstances that may indicate that
such transactions are fair or reasonable include the frequency of such
transactions, the selection process and the commissions payable in connection
with such transactions.
A portion of any transactions in equity securities for each Fund will
occur on domestic stock exchanges. Transactions on stock exchanges involve the
payment of brokerage commissions. In transactions on stock exchanges in the
United States, these commissions are negotiated, whereas on many foreign stock
exchanges these commissions are fixed. In the case of securities traded in the
foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market maker, although the Fund may place an over-the-counter order with a
broker-dealer if a better price (including commission) and execution are
available.
It is anticipated that most of each Fund's purchase and sale transactions
involving fixed income securities will be with the issuer or an underwriter or
with major dealers in such securities acting as principals. Such transactions
are normally on a net basis and generally do not involve payment of brokerage
commissions. However, the cost of securities purchased from an underwriter
usually includes a commission paid by the issuer to the underwriter. Purchases
or sales from dealers will normally reflect the spread between bid and ask
prices.
In selecting firms to effect securities transactions, the primary
consideration of each Fund shall be prompt execution at the most favorable
price. A Fund will also consider such factors as the price of the securities and
the size and difficulty of execution of the order. If these objectives may be
met with more than one firm, the Fund will also consider the availability of
statistical and investment data and economic facts and opinions helpful to the
Fund. The extent of receipt of such services would tend to reduce the expenses
of the Adviser or its affiliates.
For the fiscal period ending June 30, 1997, none of the Funds paid
commissions to affiliated brokers.
None of the Funds, with the exception of Keystone Intermediate, paid
brokerage commissions for each of their three most recent fiscal periods.
Keystone Intermediate paid no brokerage commissions for the fiscal periods ended
June 30, 1997 and July 31, 1996. For the fiscal year ended July 31, 1995, the
Fund paid $34,700 in brokerage commissions.
ADDITIONAL TAX INFORMATION
(See also "Other Information - Dividends, Distributions,
and Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a regulated investment company, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities or foreign currencies and other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities; (b) derive less than 30% of its gross income from the sale
or other disposition of securities, options, futures or forward contracts (other
than those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the RIC's principal
business of investing in securities (or options and futures with respect
thereto) held for less than three months this provision is repealed; and (c)
diversify its holdings so that, at the end of each quarter of its taxable year,
(i) at least 50% of the market value of the Fund's total assets is represented
by cash, U.S. government securities and other securities limited in respect of
any one issuer, to an amount not greater than 5% of the Fund's total assets and
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. government securities and securities of other regulated
investment companies). By so qualifying, a Fund is not subject to Federal income
tax if it timely distributes its investment company taxable income and any net
realized capital gains. A 4% nondeductible excise tax will be imposed on a Fund
to the extent it does not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any). Any dividends received by a Fund from domestic
corporations will constitute a portion of the Fund's gross investment income. It
is anticipated that this portion of the dividends paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction for corporations. Shareholders will be informed of the amounts of
dividends which so qualify.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders (who are not exempt from tax) as ordinary income.
Such distributions are not eligible for the dividends-received deduction. Any
loss recognized upon the sale of shares of a Fund held by a
shareholder for six months or less will be treated as a long-term capital loss
to the extent that the shareholder received a long-term capital gain
distribution with respect to such shares.
Distributions by each Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the
forthcoming distribution. Those purchasing just prior to a distribution will
then receive what is in effect a return of capital upon the distribution which
will nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gain or loss
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Long term capital gains on assets held
for more than 18 months are taxable at a maximum rate of 28%; such gains on
assets held for more than 18 months are taxable at a maximum rate of 20%.
Generally, any loss realized on a sale or exchange will be disallowed to the
extent shares disposed of are replaced within a period of sixty-one days
beginning thirty days before and ending thirty days after the shares are
disposed of. Any loss realized by a shareholder on the sale of shares of the
Fund held by the shareholder for six months or less will be treated for tax
purposes as a long-term capital loss to the extent of any distributions of net
capital gains received by the shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported by
each shareholder on his or her Federal income tax return. Shareholders electing
to receive distributions in the form of additional shares will have a cost basis
for Federal income tax purposes in each share so received equal to the net asset
value of a share of a Fund on the reinvestment date. Each shareholder should
consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% Federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to Federal, state and local tax consequences of investing in shares of
a Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
NET ASSET VALUE
The following information supplements that set forth in each Prospectus
under the subheading "How to Buy Shares - How the Funds Value Their Shares" in
the Section entitled "Purchase and Redemption of Shares".
The public offering price of shares of a Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge
"Alternative". On each Fund business day on which a purchase or redemption order
is received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any weekday,
exclusive of national holidays on which the Exchange is closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic
or foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked price and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
The respective per share net asset values of the Class A, Class B,
Class C and Class Y shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class Band
Class C shares may be lower than the per share net asset value of the Class A
shares (and, in turn, that of Class A shares may be lower than Class Y shares)as
a result of the greater daily expense accruals, relative to Class A and Class Y
shares, of Class B and Class C shares relating to distribution services fees
(and, with respect to Short-Intermediate, Evergreen Intermediate and
Intermediate Government) Shareholder Service Plan fee and, to the extent
applicable, transfer agency fees and the fact that Class Y shares bear no
additional distribution, shareholder service or transfer agency related fees.
While it is expected that, in the event each Class of shares of a Fund realizes
net investment income or does not realize a net operating loss for a period, the
per share net asset values of the four classes will tend to converge immediately
after the payment of dividends, which dividends will differ by approximately the
amount of the expense accrual differential among the Classes, there is no
assurance that this will be the case. In the event one or more Classes of a Fund
experiences a net operating loss for any fiscal period, the net asset value per
share of such Class or Classes will remain lower than that of Classes that
incurred lower expenses for the period.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York.
In addition, European or Far Eastern securities trading generally or in
a particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and on which the Fund's net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the Exchange will
not be reflected in a Fund's calculation of net asset value unless the Trustees
deem that the particular event would materially affect net asset value, in which
case an adjustment will be made. Securities transactions are accounted for on
the trade date, the date the order to buy or sell is executed. Dividend income
and other distributions are recorded on the ex-dividend date, except certain
dividends and distributions from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date.
PURCHASE OF SHARES
The following information supplements that set forth in each Fund's
Prospectus under the heading "Purchase and Redemption of Shares - How To Buy
Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), with a contingent deferred
sales charge (the "deferred sales charge alternative"), or without any front-end
sales charge, but with a contingent deferred sales charge imposed only during
the first year after the month of purchase (the "level-load alternative"), as
described below. Class Y shares which, as described below, are not offered to
the general public, are offered without any front-end or contingent sales
charges. Shares of each Fund are offered on a continuous basis through (i)
investment dealers that are members of the National Association of Securities
Dealers, Inc. and have entered into selected dealer agreements with the
Distributor ("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered into selected
agent agreements with the Distributor ("selected agents"), or (iii) the
Distributor. The minimum for initial investment is $1,000; there is no minimum
for subsequent investments. The subscriber may use the Application available
from the Distributor for his or her initial investment. Sales personnel of
selected dealers and agents distributing a Fund's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
through selected dealers or agents or directly through the Distributor. A Fund
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be executed
at the public offering price equal to the net asset value next determined (plus
for Class A shares, the applicable sales charges), as described below. Orders
received by the Distributor prior to the close of regular trading on the
Exchange on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the Exchange on that
day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m Eastern time.
If the selected dealer or agent fails to do so, the investor's right to that
day's closing price must be settled between the investor and the selected dealer
or agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of shares of a Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Application. Payment for shares
purchased by telephone can be made only by Electronic Funds Transfer from a bank
account maintained by the shareholder at a bank that is a member of the National
Automated Clearing House Association ("ACH"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a Fund business
day, the order to purchase shares is automatically placed the same Fund business
day for non-money market funds, and two days following the day the order is
received for money market funds, and the applicable public offering price will
be the public offering price determined as of the close of business on such
business day. Full and fractional shares are credited to a subscriber's account
in the amount of his or her subscription. As a convenience to the subscriber,
and to avoid unnecessary expense to a Fund, stock certificates representing
shares of a Fund are not issued. This facilitates later redemption and relieves
the shareholder of the responsibility for and inconvenience of lost or stolen
certificates.
Alternative Purchase Arrangements
Short-Intermediate, Evergreen Intermediate and Intermediate Government
issue four classes of shares: (i) Class A shares, which are sold to investors
choosing the front-end sales charge alternative; (ii) Class B shares, which are
sold to investors choosing the deferred sales charge alternative; (iii) Class C
shares, which are sold to investors choosing the level-load sales charge
alternative; and (iv) Class Y shares, which are offered only to (a) persons who
at or prior to December 30, 1994 owned shares in a mutual fund advised by
Evergreen Asset, (b) certain investment advisory clients of the Advisers and
their affiliates, and (c) institutional investors. Capital Preservation and
Keystone Intermediate offer Class A, Class B and Class C shares. Each class of
shares each represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that (i)
only Class A, Class B and Class C shares are subject to a Rule 12b-1
distribution fee, (ii) Class B and Class C shares of Short- Intermediate,
Evergreen Intermediate and Intermediate Government are subject to a Shareholder
Service Plan fee, (iii) Class A shares bear the expense of the front-end sales
charge and Class B and Class C shares bear the expense of the deferred sales
charge, (iv) Class B shares and Class C shares each bear the expense of a higher
Rule 12b-1 distribution services fee and, where applicable, Shareholder Service
Plan fee than Class A shares and, in the case of Class B shares, higher transfer
agency costs, (v) with the exception of Class Y shares, each Class of each Fund
has exclusive voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services (and, to the extent applicable,
Shareholder Service Plan fee) is paid which relates to a specific Class and
other matters for which separate Class voting is appropriate under applicable
law, provided that, if the Fund submits to a simultaneous vote of Class A, Class
B and Class C shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect to the Class A
shares, the Class A shareholders and the Class B and Class C shareholders will
vote separately by Class, and (vi) only the Class B shares are subject to a
conversion feature. Each Class has different exchange privileges and certain
different shareholder service options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent applicable, Shareholder Service Plan) fee and contingent deferred sales
charges on Class B shares prior to conversion, or the accumulated distribution
services (and, to the extent applicable, Shareholder Service Plan) fee on Class
<PAGE>
Evergreen Keystone
Short & Intermediate
Term Bond Funds
(photo of Grand Canyon)
1997 Annual Report
Evergreen Keystone
(logo) FUNDS (SM) (logo)
<PAGE>
EVERGREEN KEYSTONE
(logo
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders............................... 1
Keystone Capital Preservation and Income Fund
Fund at a Glance................................... 2
Management Report.................................. 3
</TABLE>
Evergreen Intermediate-Term Bond Fund
<TABLE>
<S> <C>
Fund at a Glance................................... 4
Management Report.................................. 5
Keystone Intermediate Term Bond Fund
Fund at a Glance................................... 6
Management Report.................................. 7
Evergreen Intermediate-Term Government Securities
Fund
Fund at a Glance................................... 8
Management Report.................................. 9
Evergreen Short-Intermediate Bond Fund
Fund at a Glance................................... 10
Management Report.................................. 11
Growth of Investments................................ 12
Financial Highlights
Keystone Capital Preservation and Income Fund...... 14
Evergreen Intermediate-Term Bond Fund.............. 16
Keystone Intermediate Term Bond Fund............... 18
Evergreen Intermediate-Term Government Securities
Fund............................................ 20
Evergreen Short-Intermediate Bond Fund............. 22
Schedule of Investments
Keystone Capital Preservation and Income Fund...... 25
Evergreen Intermediate-Term Bond Fund.............. 27
Keystone Intermediate Term Bond Fund............... 29
Evergreen Intermediate-Term Government Securities
Fund............................................ 31
Evergreen Short-Intermediate Bond Fund............. 32
Statements of Assets and Liabilities................. 34
Statements of Operations............................. 35
Statements of Changes in Net Assets.................. 37
Combined Notes to Financial Statements............... 40
Independent Auditors' Report-- KPMG Peat Marwick
LLP................................................ 49
</TABLE>
ABOUT EVERGREEN KEYSTONE
Since 1971, the Evergreen Funds have been providing investors with a proven,
value-driven approach to equity investment management. For over 60 years of
changing economic conditions, Keystone has taken pride in helping investors meet
their financial goals through a broad range of financial products and services.
Combined, Evergreen Keystone offers over 70 funds designed to meet a broad range
of objectives, including fixed-income, balanced, growth and income, and
aggressive growth. Assets under management total more than $30 billion.
<PAGE>
EVERGREEN KEYSTONE (logo)
LETTER TO SHAREHOLDERS
August 1997
(photo of William M. Ennis)
WILLIAM M. ENNIS
Dear Shareholders:
Investors in fixed income funds may sometimes feel as if they are watching all
the fun from the sidelines. Certainly, during the past year, investors in many
equity-oriented mutual funds enjoyed another year in which many funds returned
20% or more.
At times such as this, however, it is important to remind ourselves that seeking
equity-like returns is not what some funds are supposed to be doing. The five
mutual funds discussed in this annual report all have similar objectives-- to
provide regular income and to conserve principal.
We believe each of these funds did a very good job of meeting that objective
during a year which was challenging for fixed income investors. While interest
rates finished the 12-month period at about the same point at which they
started, the point-to-point comparison masked a great deal of rate fluctuations
during the year, with longer-term rates falling and then rising by almost a full
percentage point. In this environment, the short-to-intermediate term strategies
employed by each of the funds worked very well, delivering regular income and
protecting principal. By the end of the 12-month period, each of the funds
provided handsome real returns, especially when measured against the low rate of
inflation we have been enjoying. And they provided these returns without taking
the significant credit risks of high yield bonds or the market risks of
longer-maturity bonds.
These conservative investment strategies make sense for investors who are
interested in regular income, but who want to limit the risks they take with
their investment dollars. However, after the stock market's sharp ascent this
spring and summer, these strategies also make sense for growth-oriented
investors who want to reduce their overall portfolio risks by putting at least
part of their investments in conservative fixed income funds. Diversification
always is prudent, but it is especially prudent when one asset class (in this
case common stocks) has risen dramatically in relative price after a prolonged
period of above-average returns.
At Evergreen Keystone, we encourage all shareholders to consult regularly with
their financial advisers to help determine whether their mix of investments
continues to be appropriate, given current needs, tolerance for risk, and market
conditions.
I am delighted to inform you that Evergreen Keystone has successfully integrated
all service functions of Evergreen and Keystone Funds. This means that you now
have full exchange privileges among all Evergreen and Keystone America funds. In
addition, you will be receiving the top-flight service that earned Evergreen
Keystone the 1996 Dalbar Quality Tested Service Seal, the highest award for
mutual fund service presented by Dalbar, an independent mutual fund survey and
rating firm.
In the following pages, Evergreen Keystone investment professionals will give
you more detailed information about the investment environment and the
strategies employed in managing your funds. You will notice that this annual
report is a departure from past reports in format. It represents the effort of
Evergreen Keystone Funds to provide thoughtful reports and to present them in a
format that is attractive and makes information easily accessible. We are very
interested in hearing your thoughts on this new format, and we welcome your
suggestions.
Sincerely,
/s/WILLIAM M. ENNIS
WILLIAM M. ENNIS
MANAGING DIRECTOR
1
<PAGE>
KEYSTONE
(Logo and picture) CAPITAL PRESERVATION AND INCOME FUND
of capital)
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C
<S> <C> <C> <C>
One year with sales charge 3.26 % 1.04 % 5.05 %
One year w/o sales charge 6.73 % 6.04 % 6.05 %
One year dividends per share 57.1(cents) 49.4(cents) 49.4 (cents)
30-day SEC Yield
(as of 6/30/97) 5.81 % 5.22 % 5.25 %
<CAPTION>
AVERAGE
ANNUAL RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Three years N/A 4.59 % 5.54 %
Five years N/A 3.80 % N/A
Since Inception* 5.84 % 4.51 % 4.55 %
<CAPTION>
CUMULATIVE RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Nine months w/o sales charge 5.12 % 4.53 % 4.53 %
Three years N/A 14.41 % 17.55 %
Five years N/A 20.50 % N/A
Since Inception* 15.26 % 30.35 % 21.70 %
</TABLE>
* CLASS A BEGAN 12/30/94; CLASS B BEGAN 7/1/91;
CLASS C BEGAN 2/1/93.
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C> <C> <C>
Total Net Assets (all classes) $52.8 million
Average Credit Quality AAA
Average Maturity 4.92 years
Average Duration 0.75 years
</TABLE>
PORTFOLIO ALLOCATIONS JUNE 30, 1997
(AS A PERCENTAGE OF NET ASSETS)
(A PIE GRAPH APPEARS HERE. SEE TABLE BELOW FOR PLOT POINTS.)
U.S. Treasuries 3.7%
Fixed rate mortgages 2.2%
Repurchase agreements & other net assets 2.8%
Adjustable-rate mortgages 91.3%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Keystone Capital Preservation and Income Fund seeks high current income
consistent with low volatility of principal by investing in adjustable-rate
mortgage-backed securities and loan pools. The Fund may be appropriate for
investors seeking monthly dividends, an investment in a fund composed 100% of
government securities and therefore of the highest credit quality, and the
potential for less share price fluctuation than intermediate and longer-term
bond funds.
STRATEGY
The Fund invests primarily in adjustable-rate mortgage securities issued by the
U.S. Government, its agencies or instrumentalities. Adjustable-rate mortgage
securities (ARMS) are pools of residential mortgage loans on which the interest
rate is periodically adjusted to reflect the current interest rate environment.
By investing in ARMS, the Fund seeks to minimize fluctuations in its share price
relative to other bond funds. However, unlike money market funds, the Fund does
not seek to maintain a completely stable share price.
PORTFOLIO MANAGER
(picture of
Gary Pzegeo) Gary Pzegeo, a Vice President and Portfolio Manager in the
Fixed Income Group of Keystone Investment Management Company,
is Portfolio Manager of Keystone Capital Preservation and
Income Fund. An investment professional with seven years'
experience, Mr. Pzegeo also is manager of Keystone
Institutional Adjustable Rate Fund. Mr. Pzegeo joined Keystone
in 1990. He has several years' experience in analysis of
mortgage-backed securities. A Chartered Financial Analyst, Mr.
Pzegeo is a member of the Boston Securities Analysts Society,
the Government Bond Club of New England, and the Association
of Investment Management and Research. He holds a B.A. in
business administration from the University of Massachusetts.
2
<PAGE>
KEYSTONE (logo and picture
CAPITAL PRESERVATION AND INCOME FUND of capital)
MANAGEMENT REPORT
August 1997
Dear Shareholder:
We are pleased to report to you on the Keystone Capital Preservation and Income
Fund for the fiscal period that ended on June 30, 1997. This report is an annual
report, reflecting the new fiscal year ending date of June 30, replacing the
former fiscal year ending each September 30.
PERFORMANCE
Your Fund performed well during the past year, as the relatively high
concentration of adjustable-rate mortgage securities helped the Fund be
responsive to changes in interest rates. In addition to providing a yield
premium over money market funds, the Fund was able to protect principal by
maintaining a relatively stable net asset value. The Fund concentrated its
investments in relatively low-risk, geographically diverse adjustable-rate
securities. As an example of the Fund's price stability during the past year,
the net asset value of Class A Shares began the fiscal period at $9.74 per share
on September 30, 1996. The net asset value was $9.76 on December 31, 1996 and
$9.80 on June 30, 1997.
ENVIRONMENT
In late 1996 and the first half of 1997, the investment environment was marked
by changing attitudes about the pace of economic growth in the United States. In
the latter part of 1996 and early this year, the economy appeared to be
accelerating, primarily driven by consumer demand. Slowing retail sales and
stable housing sales began to be evident late in the first quarter, however,
signaling a slowdown in consumer activity.
In the bond market, after long-term interest rates hit a low point in November
1996, they started rising because of reports of strong growth late in 1996 and
in expectation that the Federal Reserve Board might increase short-term rates.
In fact, the Federal Reserve Board did increase short-term rates by one-quarter
of one percent in late March.
Interest rates appeared to peak in late March before gradually moving back down.
For example, the interest rate of a two-year Treasury declined from 6.41% on
March 31 to 6.06% on June 30.
STRATEGY
Starting in the second half of 1996, following reports of strong economic growth
and in anticipation of increases in interest rates, your Fund's management team
began increasing the emphasis on adjustable-rate mortgages, both as a defensive
measure to protect the net asset value and to gain the benefit of additional
interest income from higher rates. This increased emphasis continued into 1997.
Adjustable-rate mortgages, whose interest payments reset at regular intervals as
interest rates rise and fall, increased from about 85% of net assets on
September 30, 1996 to 96% by March 31, 1997. By the close of the fiscal year,
the percentage was about 91%.
Within the fixed-rate portion of the portfolio, maturities were extended
somewhat as the threat of higher rates subsided.
The overriding strategy of the Fund has been to seek a yield advantage over
other short-term investments, while providing capital protection. In pursuing
this strategy, the portfolio management team has purchased adjustable-rate
mortgages that are mature, with an average age of seven years. Mortgages of this
age historically have tended not to be refinanced as frequently as younger
mortgages. The geographical sources of these mortgages also has been
diversified, to reduce the risk that events in any one section of the country
could have a disproportionate impact on the Fund. The reset dates of the
adjustable-rate mortgages also are diversified to reduce the risk that market
interest rates at any one point could have a disproportionate impact on the
Fund.
All mortgages are backed by the U.S. government or government agencies. The
average credit rating remains AAA.
OUTLOOK
Going forward, we believe the economy may increase its growth rate in the third
quarter of 1997 after the apparent slowdown of the second, with gross domestic
product growing at an anticipated 2 1/2-to-3% during the second half of the
year. At the same time, we believe inflation can be contained within the present
2 1/2-to-3% range, and that interest rates will remain stable. We expect to
continue to manage the Fund conservatively, with a relatively high concentration
of adjustable-rate mortgages.
Thank you for your support of Keystone Capital Preservation and Income Fund.
Sincerely,
/s/ ALBERT H. ELFNER, III
ALBERT H. ELFNER, III
CHAIRMAN
Keystone Investment Management Company
/s/GARY E. PZEGEO
GARY E. PZEGEO
VICE PRESIDENT
PORTFOLIO MANAGER
3
<PAGE>
EVERGREEN
(logo and picture INTERMEDIATE-TERM BOND FUND
of a star)
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR
PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
One year with sales
charge 3.41 % 0.91 % 4.91 % 6.97 %
One year w/o sales
charge 6.88 % 5.91 % 5.91 % 6.97 %
One year dividends per
share 60.6(cents) 51.3(cents) 51.3(cent) 61.5(cents)
30-day SEC Yield
(as of 6/30/97) 5.57 % 4.81 % 4.83 % 5.82 %
<CAPTION>
AVERAGE ANNUAL
RETURNS**
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 7.18 %
Five years N/A N/A N/A 6.60 %
Since Inception* 5.24 % -1.15 % 5.31 % 7.13 %
<CAPTION>
CUMULATIVE
RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 23.14 %
Five years N/A N/A N/A 37.67 %
Since Inception* 11.71 % -1.62 % 6.26 % 47.77 %
</TABLE>
* CLASS A BEGAN 5/2/95; CLASS B BEGAN 1/30/96; CLASS C BEGAN 4/29/96; CLASS Y
BEGAN 11/1/91.
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C>
Total Net Assets (all classes) $160.4 million
Average Credit Quality AAA
Average Maturity 8.89 years
Duration 4.61 years
</TABLE>
CREDIT QUALITY JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
AA 6%
A 21%
AAA 73%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Evergreen Intermediate-Term Bond Fund seeks to preserve principal while
maximizing current yield.
STRATEGY
The Fund invests primarily in U.S. Government obligations, mortgage-backed
securities and corporate bonds and debentures. These securities typically have
average maturities of five to 10 years.
PORTFOLIO MANAGER
(photo of Bruce J. Besecker, C.F.A., a Vice President and Senior
Bruce J. Portfolio Manager of First Union Capital Management Group, is
Besecker) Portfolio Manager of Evergreen Intermediate-Term Bond Fund.
Mr. Besecker, who has more than 16 years' professional
investment experience, is manager of the Philadelphia Taxable
Fixed Income Unit of First Union Capital Management. Prior to
joining First Union, Mr. Besecker was an Assistant Vice
President in Institutional Sales at Merrill Lynch in New York,
and a Senior Trust Officer and Portfolio Manager at First
Fidelity Bank. He also has served as a Research Assistant in
the Economics Department at the Federal Reserve Bank in
Philadelphia. Mr. Besecker, a Chartered Financial Analyst, is
a member of the Philadelphia Financial Analysts Society. He is
a graduate of the University of Pennsylvania and holds an
M.B.A. from The Wharton School.
4
<PAGE>
EVERGREEN (logo and picture
INTERMEDIATE-TERM BOND FUND of a star)
MANAGEMENT REPORT
August 1997
Dear Shareholders:
We are pleased to report to you on the Evergreen Intermediate-Term Bond Fund for
the 12-month fiscal year that ended on June 30, 1997.
PERFORMANCE
Your Fund performed very well during the past fiscal year, buoyed by the
addition of higher yielding securities that increased yield and total return,
and by the decision to maintain a fully invested position.
ENVIRONMENT
During the 12-month fiscal year, the U.S. economy grew at an exceptional pace.
As this growth persisted, often in defiance of predictions of an economic
slowdown, bond market participants became increasingly concerned that the
strength of the economy could provoke an increase in inflation. In response to
these concerns, interest rates rose dramatically during the early months of
1997. Conversely, during the second quarter of 1997, investors' fears receded as
economic data indicated slower economic growth and little inflationary pressure.
This resulted in a steady decline in interest rates, reversing most of the first
quarter's increase. However, the financial markets are keeping a wary eye on
each new economic report, searching for any signs of inflationary pressure that
could prompt the Federal Reserve Board to raise the Federal Funds rate beyond
the 0.25% increase of March 25.
STRATEGY
The fluctuating interest rate environment and seemingly trendless market over
the past 12 months have made portfolio management increasingly challenging.
During this period, duration was maintained in a range of 90% to 110% of the
Fund's benchmark, the Lehman Brothers Intermediate Government Corporate Bond
Index. As of June 30, the duration was at the lower end of this range. We
anticipate maintaining our shorter relative duration as we believe rates may
modestly rise in the coming months. At the end of the fiscal year, duration was
4.61 years and average maturity was 8.89 years.
In addition, your Fund's Treasury position has been reduced and the allocations
to both corporate bonds and mortgage-backed securities have been increased both
to increase yield and to improve total return opportunities. We also adjusted
the maturity structure of the portfolio by underweighting the intermediate
position and overweighting both short-term and longer-term securities. This
strategy is being pursued to enhance returns as yield spreads narrow between
short-term and long-term maturities.
MATURITY AS OF JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
0-1 Year 21%
1-3 Years 10%
3-5 Years 15%
5-10 Years 8%
10-20 Years 25%
20+ Years 21%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
We enter the second half of 1997 with a degree of caution. The principal concern
in the bond market remains the inflation "wildcard," as investors try to
determine whether interest rates can continue their bullish run in this economic
environment. According to traditional analysis, this cannot continue. Our
primary concern is that strong economic growth ultimately brings inflationary
pressures, which in turn would push the Federal Reserve Board to raise interest
rates. With this uncertainty in the market, we plan to keep portfolio structure
and duration relatively neutral. We also will continue to look for opportunities
to increase yield through the addition of attractive mortgage-backed securities
and other higher yielding instruments.
Thank you for your investment in Evergreen Intermediate-Term Bond Fund.
Sincerely,
/s/RICHARD K. WAGONER
RICHARD K. WAGONER
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
First Union Capital Management Group
/s/BRUCE J. BESECKER
BRUCE J. BESECKER
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
5
<PAGE>
KEYSTONE
INTERMEDIATE TERM BOND FUND
(logo and picture of stars)
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C
<S> <C> <C> <C>
One year with sales charge 5.30 % 3.17 % 7.06 %
One year w/o sales charge 8.83 % 8.17 % 8.06 %
One year dividends per share 52.0 (cents) 46.3(cents) 46.3 (cents)
30-day SEC Yield
(as of 6/30/97) 5.82 % 5.25 % 5.26 %
<CAPTION>
AVERAGE
ANNUAL RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Three years 6.34 % 5.82 % 6.67 %
Five years 5.89 % N/A N/A
Ten years 6.56 % N/A N/A
Since Inception* N/A 4.61 % 4.96 %
<CAPTION>
CUMULATIVE RETURNS** CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Eleven months w/o sales charge 8.40 % 7.81 % 7.70 %
Three years 20.24 % 18.51 % 21.38 %
Five years 33.11 % N/A N/A
Ten years 88.72 % N/A N/A
Since Inception* N/A 22.01 % 23.80 %
</TABLE>
* CLASSES B AND C BEGAN 2/1/93.
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE. FOR CLASSES WITH
MORE THAN A 10-YEAR HISTORY, THE 10-YEAR HISTORY IS PRESENTED.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C>
Total Net Assets (all classes) $29.0 million
Average Credit Quality AA-
Average Maturity 6.3 years
Duration 4.6 years
</TABLE>
PORTFOLIO QUALITY JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
BBB 18%
A 32%
AAA 38%
AA 12%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Keystone Intermediate Term Bond Fund seeks current income and, secondarily,
capital preservation from investments in investment grade and high quality
bonds.
STRATEGY
The Fund is designed to balance the benefits of short-and long-term bonds, by
providing more income than short-term bonds and greater price stability than
long-term bonds. The Fund invests primarily in government and corporate bonds
and mortgage-backed securities with maturities of less than 10 years.
PORTFOLIO MANAGER
(photo of Christopher P. Conkey, Senior Vice President and Chief
Christopher Investment Officer, Fixed Income, of Keystone Investment
P. Conkey) Management Company, is Portfolio Manager of Keystone
Intermediate Term Bond Fund. An investment professional with
more than 14 years' experience, Mr. Conkey also is Portfolio
Manager of Keystone Diversified Bond Fund (B-2). Mr. Conkey
joined Keystone in 1988 from Constitution Capital, where he
was a Vice President. A Chartered Financial Analyst, Mr.
Conkey is a member of the Government Bond Club of New England
and the Bond Analysts Society of Boston. He is a graduate of
Clark University and received his M.B.A. from Boston
University.
6
<PAGE>
KEYSTONE
INTERMEDIATE TERM BOND FUND (logo and picture
of stars)
MANAGEMENT REPORT
August 1997
Dear Shareholder:
We are pleased to report to you on the Keystone Intermediate Term Bond Fund for
the fiscal period that ended on June 30, 1997. This report is an annual report,
reflecting the new fiscal year ending date of June 30, replacing the former
fiscal year ending each July 31.
PERFORMANCE
Your Fund performed very well during the past year. In an environment of
moderate economic growth, modest inflation, and relatively stable interest
rates, your Fund was able to take advantage of opportunities among better
quality corporate bonds and mortgage-backed securities to provide generous
income consistent with limited price fluctuation.
ENVIRONMENT
During the past year, the U.S. economy enjoyed healthy economic growth and low
inflation. If one were to look at interest rates at the beginning and end of the
year, despite some near-term volatility one would see remarkable stability in
rates. For example, the yield on a 30-year Treasury bond was 6.78% on June 30,
just slightly below the 6.97% of July 31, 1996. This was an environment in which
corporate bonds tended to do very well, as credit risk was low because of the
overall strength of the economy.
STRATEGY
In the relatively stable interest rate environment of the past year, your Fund
did not try to manage the portfolio maturities significantly in an effort to
anticipate the direction of interest rate movements. Rather, the portfolio
management team has searched for relative value among the various sectors in
which the Fund invests.
Your Fund took advantage of the strong economy to increase its emphasis on high
grade and investment grade corporate bonds and mortgage-backed securities, while
de-emphasizing U.S. Treasuries. Between December 31, 1996 and June 30, 1997, for
example, the allocation to U.S. government bonds in the portfolio was reduced
from 21% to 9% of net assets, while the allocation to industrial bonds was
increased from 13% to 16% and the allocation to collateralized mortgage
obligations was increased from 21% to 28%.
The Fund also has increased its allocation to foreign securities from 9% on
December 31, 1996 to approximately 24% at the end of the fiscal year. The
foreign emphasis was increased to take advantage of the yield advantage of
foreign bonds and to give the portfolio greater diversification. The Fund, which
has hedged all foreign securities back into the U.S. dollar to protect against
currency fluctuations, has invested in government bonds issued in Canada,
Denmark and Germany. All three countries are enjoying low inflation and
benefiting from sound fiscal policies.
PORTFOLIO COMPOSITION JUNE 30, 1997
(AS A PERCENTAGE OF NET ASSETS)
(A pie graph appears here. See table below for plot points)
Repurchase agreements and other net assets 2.2%
U.S Government 8.8%
Financial Corp. 15.3%
Industrial Corp. 15.9%
International/U.S.$ 15.4%
International/non-U.S.$* 8.8%
Mortgage-backed 27.5%
Asset-backed 6.1%
* NON-U.S.-DOLLAR-DENOMINATED BONDS WERE FULLY HEDGED BACK INTO U.S. CURRENCY.
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
We believe the economy may increase its growth rate in the third quarter of 1997
after the apparent slowdown of the second, with gross domestic product growing
at an anticipated annualized rate of 2 1/2-to-3% during the second half of the
year. At the same time, we believe inflation can be contained within the present
2 1/2-to-3% range, and that interest rates will remain stable. We will continue,
however, to monitor wage costs very closely to watch for early signs of
inflation. With this favorable outlook, we anticipate a continued emphasis on
corporate and mortgage-backed securities for at least the next several months.
Thank you for your support of Keystone Intermediate Term Bond Fund.
Sincerely,
/s/ALBERT H. ELFNER, III
ALBERT H. ELFNER, III
CHAIRMAN
Keystone Investment Management Company
/s/CHRISTOPHER P. CONKEY
CHRISTOPHER P. CONKEY
SENIOR VICE PRESIDENT
CHIEF INVESTMENT OFFICER, FIXED INCOME
7
<PAGE>
EVERGREEN
(logo and photo of George Washington)
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
One year with sales
charge 2.55 % 0.03 % 4.03 % 6.08 %
One year w/o sales
charge 6.00 % 5.03 % 5.03 % 6.08 %
One year dividends per
share 55.4(cents) 46.3(cents) 46.3(cents) 56.2 (cents)
30-day SEC Yield
(as of 6/30/97) 5.25 % 4.44 % 4.17 % 5.49 %
<CAPTION>
AVERAGE ANNUAL
RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 6.19 %
Five years N/A N/A N/A 5.38 %
Since Inception* 4.38 % -0.66 % 4.85 % 5.82 %
<CAPTION>
CUMULATIVE RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 19.76 %
Five years N/A N/A N/A 29.94 %
Since Inception* 9.74 % -0.92 % 5.97 % 37.82 %
</TABLE>
* CLASS A BEGAN 5/2/95; CLASS B BEGAN 2/9/96; CLASS C BEGAN 4/10/96;
CLASS Y BEGAN 11/1/91
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C> <C> <C>
Total Net Assets (all classes) $72.9 million
Average Credit Quality AAA
Average Maturity 3.88 years
Duration 2.93 years
</TABLE>
PORTFOLIO COMPOSITION JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See tables below for plot points.)
U.S. Treasuries 71%
Mortgage-backed securities 18%
U.S. Govt. Agencies 10%
Short-term securities 1%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Evergreen Intermediate-Term Government Securities Fund seeks to maximize total
return and preserve principal while providing current income.
STRATEGY
The Fund invests primarily in securities issued by the U.S. Government and its
agencies. These securities typically have an average maturity of three to six
years, with a maximum maturity of ten years. The Fund seeks its objective over
full interest rate cycles, which typically last three to five years.
PORTFOLIO MANAGER
(photo of L. L. Robert Cheshire, a Vice President and Senior Portfolio
Robert Cheshire) Manager of First Union Capital Management Group, is Portfolio
Manager of Evergreen Intermediate-Term Government Securities
Fund. Mr. Cheshire also is in charge of the Newark Taxable
Fixed Income Unit of First Union. Prior to joining First
Union, Mr. Cheshire was a Vice President at Shearson Lehman
Hutton for 11 years in the Asset Management and Institutional
Government Securities Division. He was also a Vice President
of Government Securities for Charles E. Quincey and an
Assistant Vice President in the Municipal Securities
Department with Bankers Trust Co. in New York. Mr. Cheshire is
a graduate of Rutgers University and holds an M.B.A. from
Fairleigh Dickinson University.
8
<PAGE>
EVERGREEN (logo and
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND photo of
George Washington)
MANAGEMENT REPORT
August 1997
Dear Shareholders:
We are pleased to report on Evergreen Intermediate-Term Government Securities
Fund for the 12-month fiscal year that ended on June 30, 1997.
PERFORMANCE
During the year, the Fund delivered satisfactory returns, consistent with its
objective to seek total return while preserving principal. For the first nine
months of the fiscal year, as interest rates rose, the Fund's slightly long
duration caused some underperformance against industry benchmarks. However, the
Fund outperformed its benchmark during the final three months of the year as
interest rates fell.
ENVIRONMENT
During the 12-month fiscal period, the U.S. economy experienced a pattern best
described as a series of "mini-cycles," with bonds trading within a relatively
narrow range of interest rates. Economic growth surged during the fourth quarter
of 1996 into the first quarter of 1997, subsequently causing concern over
inflationary pressure. Against this backdrop, bond market participants reviewed
each new economic report for any signs of inflation that could prompt the
Federal Reserve Board to increase interest rates. These market concerns resulted
in rising interest rates throughout the first quarter of 1997, culminating in
the March 25 decision by the Federal Reserve Board to raise the Federal Funds
rate by 0.25%. Conversely, investors' fears of inflation receded during the
second quarter of 1997 amid reports of slowing economic growth. As a result,
interest rates fell.
STRATEGY
The Fund's duration, or sensitivity to interest rate changes, was consistent
with that of the benchmark Lehman Brothers Intermediate Government Index during
the fiscal year. In implementing duration strategy, your Fund's investment
manager uses a disciplined process focusing on longer-term trends in the
economic environment. The Fund's duration was modestly shortened following the
Federal Reserve Board's decision to raise the Federal Funds rate in late March.
In response to the declining interest rate environment in the second quarter,
portfolio duration was brought back to neutral. To capture additional yield, the
Fund's emphasis on mortgage-backed securities was also increased, ending the
fiscal year at more than 18% of net assets.
Consistent with the Fund's concentration on government securities, average
credit quality was maintained at AAA.
MATURITY AS OF JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
0-1 Year 4%
1-5 Years 45%
5-10 Years 51%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
We are continuing to monitor closely new economic reports, vigilant for any
indications of a resurgence of inflationary pressure that could cause the
Federal Reserve Board to raise the Federal Funds rate during the second half of
1997. The overall bond market continues to be characterized by near-term
interest rate fluctuations, without any over-riding trend. This environment
dictates a very cautious approach in the coming quarters, with portfolio
duration adjusted consistent with a changing market environment.
We anticipate that your Fund's relatively neutral duration and conservative
style should protect the fund from any significant fluctuations in the market.
In addition, we will continue to seek attractive opportunities by increasing the
Fund's yield through the addition of mortgage-backed securities and other
relatively higher yielding instruments.
Thank you for your investment in Evergreen Intermediate-Term Government
Securities Fund.
Sincerely,
/s/RICHARD K. WAGONER
RICHARD K. WAGONER
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
First Union Capital Management Group
/s/ L. ROBERT CHESHIRE
L. ROBERT CHESHIRE
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
9
<PAGE>
EVERGREEN
(logo and photo of flag) SHORT-INTERMEDIATE BOND FUND
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
One year with sales
charge 3.30 % 0.78 % 4.77 % 6.88 %
One year w/o sales
charge 6.77 % 5.78 % 5.77 % 6.88 %
One year dividends per
share 63.5(cents) 54.5(cents) 54.5(cents) 64.6(cents)
30-day SEC Yield
(as of 6/30/97) 5.99 % 5.29 % 5.28 % 6.30 %
<CAPTION>
AVERAGE ANNUAL
RETURNS**
CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years 5.62 % 4.98 % N/A 6.92 %
Five years 5.05 % N/A N/A 5.92 %
Since Inception* 7.14 % 4.17 % 5.73 % 7.01 %
<CAPTION>
CUMULATIVE
RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years 17.84 % 15.68 % N/A 22.23 %
Five years 27.92 % N/A N/A 33.29 %
Since Inception* 78.78 % 19.87 % 16.99 % 55.28 %
</TABLE>
* CLASS A BEGAN 1/3/89; CLASS B BEGAN 1/25/93; CLASS C BEGAN 9/6/94; CLASS Y
BEGAN 1/4/91.
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C> <C> <C>
Total Net Assets (all classes) $398.7 million
Average Credit Quality AA+
Average Maturity 4.06 years
Duration 2.96 years
</TABLE>
CREDIT QUALITY JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
A 26%
AA 3%
AAA 67%
BBB 4%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Evergreen Short-Intermediate Bond Fund seeks to provide a high level of current
income with the potential for some capital appreciation.
STRATEGY
The Fund seeks to attain its objective by investing in a broad range of higher
quality and investment-grade debt securities. The Fund normally will invest at
least 80% of its assets in debt securities. The Fund also intends to maintain an
average maturity of five years or less to control price fluctuations.
PORTFOLIO MANAGER
(photo of Thomas L. Ellis, a Vice President and Senior Portfolio Manager
Thomas L. Ellis) of First Union Capital Management Group, is Portfolio Manager
of Evergreen Short-Intermediate Bond Fund. At First Union, Mr.
Ellis is responsible for managing more than $1 billion in
fixed income portfolios, including the Fixed Income Fund, a
common trust fund. Prior to joining First Union, Mr. Ellis
served in the Bond Department of First Tennessee Bank. He is a
graduate of the University of Baltimore and holds an M.B.A.
from Morgan State University.
10
<PAGE>
EVERGREEN
SHORT-INTERMEDIATE BOND FUND (logo and a photo
of flag)
MANAGEMENT REPORT
August 1997
Dear Shareholders:
We are pleased to report to you on the Evergreen Short-Intermediate Bond Fund
for the 12-month fiscal year that ended on June 30, 1997.
PERFORMANCE
During the fiscal year, concentrations in corporate bonds and mortgage-backed
securities helped the Fund deliver strong performance, consistent with its
objective. At the same time, the Fund's relatively short duration gave the Fund
a relative advantage over the first nine months of the year, although it held
back performance during the final three months when interest rates declined.
ENVIRONMENT
Throughout the fiscal year, the U.S. economy experienced strong growth
accompanied by relatively low levels of inflation. During this period, the bond
market was characterized by near-term interest rate volatility. For example, the
yield on the 10-year U.S. Treasury fell from 6.80% to 6.10% during the final six
months of 1996, only to rise back to 7.0% by April 1997, then to fall again to
6.5% by June of 1997. We believe this volatility mirrors changes in the
underlying economy. While Gross Domestic Product (GDP) grew at a 2.5% rate in
1996, real GDP surged by a 5.9% annualized rate during the first quarter 1997.
This led the Federal Reserve Board to increase the Federal Funds rate by 0.25%
in March, with many observers anticipating that further rate increases would
follow. However, growth slowed during the second quarter to an annualized rate
of 2.0%. This, coupled with surprisingly low inflation, led the bond market to
rally amid optimistic expectations.
STRATEGY
As a result of our belief that interest rates may rise during the remainder of
1997, at this writing we are maintaining a portfolio duration of 2.9 years,
slightly less than the short-intermediate benchmark.
We will continue to slightly overweight the Fund's focus on corporate bonds and
mortgage-backed securities. Although the "spread," or yield differential, that
corporates and mortgages enjoy over U.S. Treasuries has narrowed, we have a
positive fundamental outlook for both these sectors and expect to maintain an
emphasis on them to increase the Fund's yield.
The Fund's portfolio maintains an average credit quality of AA+.
MATURITY JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
0-1 Year 22%
1-3 Years 44%
3-5 Years 18%
5-10 Years 16%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
For the final half of 1997, we anticipate that economic growth, spurred by
increased consumer spending, may increase to an annualized rate of about 3.0%.
We believe that with unemployment rates approaching 25-year lows, tight labor
markets could eventually be reflected in upward pressure on prices. This
potential for increased inflation, combined with the possibility of a fall-off
in optimism in the bond market, could lead to rising interest rates during the
second half of 1997. In response to the possibility of increased inflationary
pressure, we expect that the Federal Reserve Board may again tighten monetary
policy, increasing the Federal Funds rate by 0.25% to 0.50% before the end of
the year.
Thank you for your investment in Evergreen Short-Intermediate Bond Fund.
Sincerely,
/s/RICHARD K. WAGONER
RICHARD K. WAGONER
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
First Union Capital Management Corp.
/s/THOMAS L. ELLIS
THOMAS L. ELLIS
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
11
<PAGE>
EVERGREEN KEYSTONE
(logo)
GROWTH OF INVESTMENTS
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
Comparison of a $10,000 investment in Keystone Capital Preservation and Income
Fund, Class B sharess, versus a similar investment in a 6-Month Treasury Bill
and the Consumer Price Index (CPI).
In Thousands
7/91 6/92 6/93 6/94 6/95 6/96 6/97
Class B Shares (CUSTOMER: PLEASE FILL IN) $13,124
CPI $13,034
6-Month T-Bill $11,786
Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 3.26% N/A 5.84%
Class B 1.04% 3.80% 4.51%
Class C 5.05% N/A 4.55%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The 6-Month Treasuty Bill is an unmanaged market
index. The index does not include transaction costs assciated with buying and
selling securities nor any management fees. The Consumer Price Index, a measure
of inflation, is through June 30, 1997.
EVERGREEN INTERMEDIATE-TERM BOND FUND
Comparison of a $10,000 investment in Evergreen Intermediate-Term Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index and the Consumer Price Index (CPI).
In Thousands
5/95 6/96 12/95 6/96 12/96 6/97
CPI (CUSTOMER: PLEASE FILL IN) $11,171
LBIGCBI $10,554
Class A Shares $11,817
Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 3.41% N/A 5.24%
Class B 0.91% N/A -1.15%
Class C 4.91% N/A 5.31%
Class Y 6.97% 6.60% 7.13%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged market index. The index does not
include transaction costs assciated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
June 30, 1997.
KEYSTONE INTERMEDIATE TERM BOND FUND
Comparison of a $10,000 investment in Keystone Intermediate Term Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index and the Consumer Price Index (CPI).
In Thousands
6/87 6/88 6/89 6/90 6/91 6/92 6/93 6/94 6/95 6/96 6/97
CPI (CUSTOMER: PLEASE FILL IN) $18,870
LBIGCBI $14,118
Class A Shares $22,184
Average Annual Total Returns
1 Year 5 Year 10 Year Life of Class
Class A 5.30% 5.89% 6.56% N/A
Class B 3.17% N/A N/A 4.61%
Class C 7.06% N/A N/A 4.96%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged market index. The index does not
include transaction costs assciated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
June 30, 1997.
EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND
Comparison of a $10,000 investment in Evergreen Intermediate-Term Government
Securities Fund, Class A shares, versus a similar investment in the
Lehman Brothers Intermediate Government Bond Index and the Consumer Price Index
(CPI).
5/95 6/95 12/95 6/96 12/96 6/97
CPI (CUSTOMER: PLEASE FILL IN) $10,974
LBIGBI $10,554
Class A Shares $11,661
In Thousands
Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 2.55% N/A 4.38%
Class B 0.03% N/A -0.66%
Class C 4.03% N/A 4.85%
Class Y 6.08% 5.28% 5.82%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Intermediate Government Bond
Index is an unmanaged market index. The index does not include transaction costs
assciated with buying and selling securities nor any management fees. The
Consumer Price Index, a measure of inflation, is through June 30, 1997.
12
<PAGE>
EVERGREEN KEYSTONE
(logo)
GROWTH OF INVESTMENTS (CONTINUED)
EVERGREEN SHORT-INTERMEDIATE BOND FUND
Comparison of a $10,000 investment in Evergreen Short-Intermediate Bond Fund,
Class A shares, versus a similar investment in the Lehman Brothers Intermediate
Government/Corporate Bond Index and the Consumer Price Index (CPI).
1/89 6/89 6/90 6/91 6/92 6/93 6/94 6/95 6/96 6/97
CPI (CUSTOMER: PLEASE FILL IN) $17,879
LBIGCBI $13,235
Class A Shares $19,937
In Thousands
Average Annual Total Returns
1 Year 5 Year Life of Class
Class A 3.30% 5.05% 7.14%
Class B 0.78% N/A 4.17%
Class C 4.77% N/A 5.73%
Class Y 6.88% 5.92% 7.01%
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Intermediate
Government/Corporate Bond Index is an unmanaged market index. The index does not
include transaction costs assciated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
June 30, 1997.
13
<PAGE>
(logo and a photo KEYSTONE
of capital) CAPITAL PRESERVATION AND INCOME FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
DECEMBER 30, 1994
YEAR ENDED (COMMENCEMENT OF
NINE MONTHS ENDED SEPTEMBER 30, CLASS OPERATIONS) TO
JUNE 30, 1997 (D) 1996 (C) SEPTEMBER 30, 1995
<S> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.74 $ 9.68 $ 9.51
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.46 0.61 0.46
Net realized and unrealized gain on investments..................... 0.03 0.01 0.14
Total from investment operations.................................... 0.49 0.62 0.60
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.42) (0.53) (0.42)
In excess of net investment income.................................. (0.01) 0 (0.01)
Tax basis return of capital......................................... 0 (0.03) 0
Total distributions................................................. (0.43) (0.56) (0.43)
NET ASSET VALUE END OF PERIOD....................................... $ 9.80 $ 9.74 $ 9.68
Total return (b).................................................... 5.12% 6.56% 6.36%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 0.92%(a) 0.91% 0.86%(a)
Total expenses excluding indirectly paid expenses................. 0.90%(a) 0.90% 0.82%(a)
Total expenses excluding waivers and reimbursements............... 1.47%(a) 1.33% 1.27%(a)
Net investment income............................................. 6.24%(a) 6.31% 6.37%(a)
Portfolio turnover rate............................................. 52% 74% 67%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $15,751 $22,684 $ 19,293
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30,
JUNE 30, 1997 (D) 1996 (C) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF
PERIOD........................ $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.39 0.55 0.52 0.47 0.45 0.58
Net realized and unrealized gain
(loss) on investments......... 0.04 0.01 0.03 (0.41) (0.05) (0.21)
Total from investment
operations.................... 0.43 0.56 0.55 0.06 0.40 0.37
LESS DISTRIBUTIONS FROM:
Net investment income........... (0.36) (0.46) (0.48) (0.34) (0.37) (0.55)
In excess of net investment
income........................ (0.01) 0 (0.01) (0.01) 0 0
Tax basis return of capital..... 0 (0.03) 0 0 0 0
Total distributions............. (0.37) (0.49) (0.49) (0.35) (0.37) (0.55)
NET ASSET VALUE END OF PERIOD... $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88
Total return (b)................ 4.53% 5.90% 5.81% 0.58% 4.16% 3.71%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses................ 1.67%(a) 1.63% 1.53% 1.50% 1.50% 1.36%
Total expenses excluding
indirectly paid expenses.... 1.65%(a) 1.62% 1.50% -- -- --
Total expenses excluding
waivers and
reimbursements.............. 2.23%(a) 2.09% 2.09% 1.93% 1.94% 2.03%
Net investment income......... 5.52%(a) 5.63% 5.46% 4.05% 4.44% 5.50%
Portfolio turnover rate......... 52% 74% 67% 34% 60% 41%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $32,964 $ 44,096 $62,998 $95,761 $144,725 $186,742
<CAPTION>
JULY 1, 1991
(COMMENCEMENT OF
CLASS OPERATIONS) TO
SEPTEMBER 30, 1991
<S> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF
PERIOD........................ $ 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.18
Net realized and unrealized gain
(loss) on investments......... 0.06
Total from investment
operations.................... 0.24
LESS DISTRIBUTIONS FROM:
Net investment income........... (0.18)
In excess of net investment
income........................ 0
Tax basis return of capital..... 0
Total distributions............. (0.18)
NET ASSET VALUE END OF PERIOD... $ 10.06
Total return (b)................ 2.43%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses................ 1.19%(a)
Total expenses excluding
indirectly paid expenses.... --
Total expenses excluding
waivers and
reimbursements.............. 3.19%(a)
Net investment income......... 6.42%(a)
Portfolio turnover rate......... 2%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $ 25,769
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
KEYSTONE (logo and photo of
CAPITAL PRESERVATION AND INCOME FUND capital)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
YEAR ENDED (COMMENCEMENT OF
NINE MONTHS ENDED SEPTEMBER 30, CLASS OPERATIONS) TO
JUNE 30, 1997 (D) 1996 (C) 1995 1994 SEPTEMBER 30, 1993
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD..................... $ 9.74 $ 9.67 $ 9.60 $ 9.90 $ 9.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.40 0.54 0.52 0.40 0.23
Net realized and unrealized gain (loss) on
investments........................................... 0.03 0.02 0.04 (0.35) 0.09
Total from investment operations........................ 0.43 0.56 0.56 0.05 0.32
LESS DISTRIBUTIONS FROM:
Net investment income................................... (0.36) (0.46) (0.48) (0.34) (0.24)
In excess of net investment income...................... (0.01) 0 (0.01) (0.01) 0
Tax basis return of capital............................. 0 (0.03) 0 0 0
Total distributions..................................... (0.37) (0.49) (0.49) (0.35) (0.24)
NET ASSET VALUE END OF PERIOD........................... $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90
Total return (b)........................................ 4.53% 5.91% 5.93% 0.48% 3.28%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses........................................ 1.67%(a) 1.64% 1.53% 1.50% 1.50%(a)
Total expenses excluding indirectly paid expenses..... 1.65%(a) 1.62% 1.50% -- --
Total expenses excluding waivers and reimbursements... 2.23%(a) 2.09% 2.08% 1.94% 1.67%(a)
Net investment income................................. 5.53%(a) 5.60% 5.51% 4.08% 2.91%(a)
Portfolio turnover rate................................. 52% 74% 67% 34% 60%
NET ASSETS END OF PERIOD (THOUSANDS).................... $ 4,105 $4,152 $2,755 $2,874 $2,077
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
EVERGREEN
INTERMEDIATE-TERM BOND FUND
(logo and photo of a star)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996 (C)
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 10.10 $10.30
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. 0.60 0.48
Net realized and unrealized gain (loss) on investments................. 0.08 (0.20)
Total from investment operations....................................... 0.68 0.28
LESS DISTRIBUTIONS FROM:
Net investment income.................................................. (0.59) (0.48)
Tax basis return of capital............................................ (0.02) 0
Total distributions.................................................... (0.61) (0.48)
NET ASSET VALUE END OF PERIOD.......................................... $ 10.17 $10.10
Total return (b)....................................................... 6.88% 2.72%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................................................... 0.85% 0.82%(a)
Total expenses excluding indirectly paid expenses.................... 0.85% --
Total expenses excluding waivers and reimbursements.................. 1.04% 1.10%(a)
Net investment income................................................ 5.92% 6.30%(a)
Portfolio turnover rate................................................ 86% 52%
NET ASSETS END OF PERIOD (THOUSANDS)................................... $ 3,038 $2,943
MAY 2, 1995
(COMMENCEMENT OF
CLASS OPERATIONS)
AUGUST 31, 1995
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 9.98
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. 0.18
Net realized and unrealized gain (loss) on investments................. 0.33
Total from investment operations....................................... 0.51
LESS DISTRIBUTIONS FROM:
Net investment income.................................................. (0.19)
Tax basis return of capital............................................ 0
Total distributions.................................................... (0.19)
NET ASSET VALUE END OF PERIOD.......................................... $10.30
Total return (b)....................................................... 5.17%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................................................... 0.80%(a)
Total expenses excluding indirectly paid expenses.................... --
Total expenses excluding waivers and reimbursements.................. 1.38%(a)
Net investment income................................................ 5.53%(a)
Portfolio turnover rate................................................ 73%
NET ASSETS END OF PERIOD (THOUSANDS)................................... $160
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from August 31 to June 30.
<TABLE>
<CAPTION>
JANUARY 30, 1996
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 10.10 $10.68
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................................... 0.50 0.20
Net realized and unrealized gain (loss) on investments.................................... 0.08 (0.58)
Total from investment operations.......................................................... 0.58 (0.38)
LESS DISTRIBUTIONS FROM:
Net investment income..................................................................... (0.49) (0.20)
Tax basis return of capital............................................................... (0.02) 0
Total distributions....................................................................... (0.51) (0.20)
NET ASSET VALUE END OF PERIOD............................................................. $ 10.17 $10.10
Total return (b).......................................................................... 5.91% (3.52%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................................................... 1.81% 1.80%(a)
Total expenses excluding indirectly paid expenses....................................... 1.81% --
Total expenses excluding waivers and reimbursements..................................... 1.81% 1.89%(a)
Net investment income................................................................... 5.00% 5.18%(a)
Portfolio turnover rate................................................................... 86% 52%
NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 1,013 $402
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
EVERGREEN (logo and photo of a star)
INTERMEDIATE-TERM BOND FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
APRIL 29, 1996
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 10.10 $10.15
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................................... 0.51 0.08
Net realized and unrealized gain (loss) on investments.................................... 0.07 (0.05)
Total from investment operations.......................................................... 0.58 0.03
LESS DISTRIBUTIONS FROM:
Net investment income..................................................................... (0.49) (0.08)
Tax basis return of capital............................................................... (0.02) 0
Total distributions....................................................................... (0.51) (0.08)
NET ASSET VALUE END OF PERIOD............................................................. $ 10.17 $10.10
Total return (b).......................................................................... 5.91% 0.33%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................................................... 1.80% 1.80%(a)
Total expenses excluding indirectly paid expenses....................................... 1.80% --
Total expenses excluding waivers and reimbursements..................................... 1.80% 1.88%(a)
Net investment income................................................................... 4.97% 5.30%(a)
Portfolio turnover rate................................................................... 86% 52%
NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $29 $25
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED AUGUST 31,
JUNE 30, 1997 JUNE 30, 1996 (b) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD...... $ 10.10 $ 10.29 $ 9.93 $ 10.99 $ 10.56
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.61 0.48 0.56 0.55 0.63
Net realized and unrealized gain (loss)
on investments......................... 0.08 (0.19) 0.40 (0.86) 0.66
Total from investment operations......... 0.69 0.29 0.96 (0.31) 1.29
LESS DISTRIBUTIONS FROM:
Net investment income.................... (0.60) (0.48) (0.56) (0.55) (0.64)
Net realized gains on investments........ 0 0 (0.04) (0.20) (0.22)
Tax basis return of capital.............. (0.02) 0 0 0 0
Total distributions...................... (0.62) (0.48) (0.60) (0.75) (0.86)
NET ASSET VALUE END OF PERIOD............ $ 10.17 $ 10.10 $ 10.29 $ 9.93 $ 10.99
Total return............................. 6.97% 2.82% 10.13% (2.91%) 12.90%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses......................... 0.81% 0.80%(a) 0.69% 0.55% 0.55%
Total expenses excluding indirectly
paid expenses........................ 0.81% -- -- -- --
Total expenses excluding waivers and
reimbursements....................... 0.81% 0.87%(a) 0.83% 0.83% 0.83%
Net investment income.................. 5.97% 5.75%(a) 5.63% 5.32% 5.93%
Portfolio turnover rate.................. 86% 52% 73% 69% 49%
NET ASSETS END OF PERIOD (THOUSANDS)..... $ 156,346 $ 157,814 $95,961 $91,724 $86,892
<CAPTION>
NOVEMBER 1, 1991
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
AUGUST 31, 1992
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD...... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.55
Net realized and unrealized gain (loss)
on investments......................... 0.55
Total from investment operations......... 1.10
LESS DISTRIBUTIONS FROM:
Net investment income.................... (0.54)
Net realized gains on investments........ 0
Tax basis return of capital.............. 0
Total distributions...................... (0.54)
NET ASSET VALUE END OF PERIOD............ $ 10.56
Total return............................. 11.29%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses......................... 0.55%(a)
Total expenses excluding indirectly
paid expenses........................ --
Total expenses excluding waivers and
reimbursements....................... 0.86%(a)
Net investment income.................. 6.49%(a)
Portfolio turnover rate.................. 65%
NET ASSETS END OF PERIOD (THOUSANDS)..... $ 66,695
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year from August 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
(logo and picture KEYSTONE
of stars) INTERMEDIATE TERM BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY 31,
JUNE 30, 1997 (e) 1996 1995 1994 (c)
<S> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 8.73 $ 8.88 $ 8.84 $ 9.46
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.54 0.59 0.63 0.57
Net realized and unrealized gain (loss) on investments, closed
futures contracts and foreign currency related transactions....... 0.18 (0.16) 0.02 (0.59 )
Total from investment operations.................................... 0.72 0.43 0.65 (0.02 )
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.52) (0.58) (0.57) (0.57 )
In excess of net investment income.................................. 0 0 (0.04) (0.02 )
Tax basis return of capital......................................... 0 0 0 (0.01 )
Total distributions................................................. (0.52) (0.58) (0.61) (0.60 )
NET ASSET VALUE END OF PERIOD....................................... $ 8.93 $ 8.73 $ 8.88 $ 8.84
Total return (b).................................................... 8.40% 4.95% 7.76% (0.29%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 1.12%(a) 1.10% 1.00% 1.00%
Total expenses excluding indirectly paid expenses................. 1.10%(a) 1.08% -- --
Total expenses excluding waivers and reimbursements............... 1.58%(a) 1.54% 1.48% 1.80%
Net investment income............................................. 6.43%(a) 6.57% 7.13% 6.81%
Portfolio turnover rate............................................. 179% 231% 149% 280%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $10,341 $12,958 $14,558 $16,036
<CAPTION>
1993
<S> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.23
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.70
Net realized and unrealized gain (loss) on investments, closed
futures contracts and foreign currency related transactions....... 0.18
Total from investment operations.................................... 0.88
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.65)
In excess of net investment income.................................. 0
Tax basis return of capital......................................... 0
Total distributions................................................. (0.65)
NET ASSET VALUE END OF PERIOD....................................... $ 9.46
Total return (b).................................................... 9.88%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 1.52%
Total expenses excluding indirectly paid expenses................. --
Total expenses excluding waivers and reimbursements............... 1.99%
Net investment income............................................. 7.48%
Portfolio turnover rate............................................. 160%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $18,032
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
CLASS A SHARES (CONTINUED)
NET ASSET VALUE BEGINNING OF PERIOD....................... $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.71 0.72 0.67 0.69 0.72
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................ 0.60 0.05 (0.45) 0.10 (0.45)
Total from investment operations.......................... 1.31 0.77 0.22 0.79 0.27
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.71) (0.72) (0.70) (0.73) (0.83)
In excess of net investment income........................ (0.01) (0.01) (0.03) 0 0
Total distributions....................................... (0.72) (0.73) (0.73) (0.73) (0.83)
NET ASSET VALUE END OF PERIOD............................. $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05
Total return (b).......................................... 15.65% 9.42% 2.71% 9.13% 2.95%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................... 1.88% 2.00% 2.00% 1.92% 1.30%
Total expenses excluding indirectly paid expenses....... -- -- -- -- --
Total expenses excluding waivers and reimbursements..... 1.88% 2.06% 2.33% 2.19% 2.65%
Net investment income................................... 7.85% 8.42% 7.90% 7.88% 7.48%
Portfolio turnover rate................................... 90% 76% 107% 148% 208%
NET ASSETS END OF PERIOD (THOUSANDS)...................... $19,288 $20,227 $23,694 $30,337 $38,615
<CAPTION>
FEBRUARY 13, 1987
(COMMENCEMENT
OF OPERATIONS)
THROUGH
JULY 31, 1987
<S> <C>
CLASS A SHARES (CONTINUED)
NET ASSET VALUE BEGINNING OF PERIOD....................... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.17
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................ (0.42)
Total from investment operations.......................... (0.25)
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.14)
In excess of net investment income........................ 0
Total distributions....................................... (0.14)
NET ASSET VALUE END OF PERIOD............................. $ 9.61
Total return (b).......................................... (2.50%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................... 1.00%(d)
Total expenses excluding indirectly paid expenses....... --
Total expenses excluding waivers and reimbursements..... 12.47%(d)
Net investment income................................... 6.86%(d)
Portfolio turnover rate................................... 14%
NET ASSETS END OF PERIOD (THOUSANDS)...................... $ 1,679
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to July 31, 1987.
(e) The Fund changed its fiscal year end from July 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
KEYSTONE (logo and picture
INTERMEDIATE TERM BOND FUND of stars)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY 31,
JUNE 30, 1997 (d) 1996 1995 1994 (c)
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 8.74 $ 8.89 $ 8.85 $ 9.47
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.47 0.52 0.56 0.49
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions.............................................. 0.20 (0.16) 0.02 (0.58)
Total from investment operations............................ 0.67 0.36 0.58 (0.09)
LESS DISTRIBUTIONS FROM:
Net investment income....................................... (0.46) (0.51) (0.51) (0.49)
In excess of net investment income.......................... 0 0 (0.03) (0.03)
Tax basis return of capital................................. 0 0 0 (0.01)
Total distributions......................................... (0.46) (0.51) (0.54) (0.53)
NET ASSET VALUE END OF PERIOD............................... $ 8.95 $ 8.74 $ 8.89 $ 8.85
Total return (b)............................................ 7.81% 4.10% 6.87% (1.05%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 1.87%(a) 1.85% 1.75% 1.75%
Total expenses excluding indirectly paid expenses......... 1.85%(a) 1.83% -- --
Total expenses excluding waivers and reimbursements....... 2.35%(a) 2.32% 2.21% 2.36%
Net investment income..................................... 5.68%(a) 5.82% 6.38% 5.48%
Portfolio turnover rate..................................... 179% 231% 149% 280%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $11,368 $16,034 $17,985 $ 17,819
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
PUBLIC OFFERING)
THROUGH
JULY 31, 1993
<S> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD......................... $ 9.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.29
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions.............................................. 0.12
Total from investment operations............................ 0.41
LESS DISTRIBUTIONS FROM:
Net investment income....................................... (0.29)
In excess of net investment income.......................... 0
Tax basis return of capital................................. 0
Total distributions......................................... (0.29)
NET ASSET VALUE END OF PERIOD............................... $ 9.47
Total return (b)............................................ 4.42%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................ 1.76%(a)
Total expenses excluding indirectly paid expenses......... --
Total expenses excluding waivers and reimbursements....... 2.71%(a)
Net investment income..................................... 5.67%(a)
Portfolio turnover rate..................................... 160%
NET ASSETS END OF PERIOD (THOUSANDS)........................ $8,159
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY 31,
JUNE 30, 1997 (d) 1996 1995 1994 (c)
<S> <C> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.......................... $ 8.74 $ 8.89 $ 8.85 $ 9.46
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ 0.46 0.52 0.55 0.49
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................... 0.20 (0.16) 0.03 (0.57)
Total from investment operations............................. 0.66 0.36 0.58 (0.08)
LESS DISTRIBUTIONS FROM:
Net investment income........................................ (0.46) (0.51) (0.51) (0.49)
In excess of net investment income........................... 0 0 (0.03) (0.03)
Tax basis return of capital.................................. 0 0 0 (0.01)
Total distributions.......................................... (0.46) (0.51) (0.54) (0.53)
NET ASSET VALUE END OF PERIOD................................ $ 8.94 $ 8.74 $ 8.89 $ 8.85
Total return (b)............................................. 7.70% 4.10% 6.87% (0.95%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................. 1.87%(a) 1.85% 1.75% 1.75%
Total expenses excluding indirectly paid expenses.......... 1.85%(a) 1.83% -- --
Total expenses excluding waivers and reimbursements........ 2.35%(a) 2.31% 2.23% 2.37%
Net investment income...................................... 5.68%(a) 5.82% 6.37% 5.44%
Portfolio turnover rate...................................... 179% 231% 149% 280%
NET ASSETS END OF PERIOD (THOUSANDS)......................... $ 7,259 $9,084 $10,185 $ 13,086
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
PUBLIC OFFERING)
THROUGH
JULY 31, 1993
<S> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.......................... $ 9.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ 0.29
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................... 0.11
Total from investment operations............................. 0.40
LESS DISTRIBUTIONS FROM:
Net investment income........................................ (0.29)
In excess of net investment income........................... 0
Tax basis return of capital.................................. 0
Total distributions.......................................... (0.29)
NET ASSET VALUE END OF PERIOD................................ $ 9.46
Total return (b)............................................. 4.31%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................................. 1.77%(a)
Total expenses excluding indirectly paid expenses.......... --
Total expenses excluding waivers and reimbursements........ 2.61%(a)
Net investment income...................................... 5.61%(a)
Portfolio turnover rate...................................... 160%
NET ASSETS END OF PERIOD (THOUSANDS)......................... $7,522
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
(logo and picture EVERGREEN
of president) INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MAY 2, 1995
(COMMENCEMENT
TEN MONTHS OF CLASS OPERATIONS)
YEAR ENDED ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996 (c) AUGUST 31, 1995
<S> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................... $ 9.99 $ 10.15 $ 9.95
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................................. 0.55 0.46 0.19
Net realized and unrealized gain (loss) on investments................. 0.03 (0.16) 0.20
Total from investment operations....................................... 0.58 0.30 0.39
LESS DISTRIBUTIONS FROM:
Net investment income.................................................. (0.55) (0.46) (0.19)
Total distributions.................................................... (0.55) (0.46) (0.19)
NET ASSET VALUE END OF PERIOD.......................................... $ 10.02 $ 9.99 $10.15
Total return (b)....................................................... 6.00% 3.00% 3.90%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................................................... 0.86% 0.81%(a) 0.80%(a)
Total expenses excluding indirectly paid expenses.................... 0.86% -- --
Total expenses excluding waivers and reimbursements.................. 0.94% 1.06%(a) 1.34%(a)
Net investment income................................................ 5.47% 5.49%(a) 5.42%(a)
Portfolio turnover rate................................................ 68% 28% 45%
NET ASSETS END OF PERIOD (THOUSANDS)................................... $ 571 $ 497 $ 9
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from August 31 to June 30.
<TABLE>
<CAPTION>
FEBRUARY 9, 1996
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 9.99 $10.38
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................................... 0.45 0.18
Net realized and unrealized gain (loss) on investments.................................... 0.04 (0.39)
Total from investment operations.......................................................... 0.49 (0.21)
LESS DISTRIBUTIONS FROM:
Net investment income..................................................................... (0.46) (0.18)
Total distributions....................................................................... (0.46) (0.18)
NET ASSET VALUE END OF PERIOD............................................................. $ 10.02 $ 9.99
Total return (b).......................................................................... 5.03% (1.99)%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................................................... 1.81% 1.80%(a)
Total expenses excluding indirectly paid expenses....................................... 1.81% --
Total expenses excluding waivers and reimbursements..................................... 1.89% 1.91%(a)
Net investment income................................................................... 4.53% 4.62%(a)
Portfolio turnover rate................................................................... 68% 28%
NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 742 $ 359
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
EVERGREEN
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
(logo and picture of
FINANCIAL HIGHLIGHTS (CONTINUED) George
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Washington)
<TABLE>
<CAPTION>
APRIL 10, 1996
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD....................................................... $ 9.99 $10.01
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................................................... 0.40 0.11
Net realized and unrealized gain (loss) on investments.................................... 0.09 (0.02)
Total from investment operations.......................................................... 0.49 0.09
LESS DISTRIBUTIONS FROM:
Net investment income..................................................................... (0.46) (0.11)
Total distributions....................................................................... (0.46) (0.11)
NET ASSET VALUE END OF PERIOD............................................................. $ 10.02 $ 9.99
Total return (b).......................................................................... 5.03% 0.89%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................................................... 1.81% 1.80%(a)
Total expenses excluding indirectly paid expenses....................................... 1.81% --
Total expenses excluding waivers and reimbursements..................................... 1.90% 1.91%(a)
Net investment income................................................................... 4.53% 4.47%(a)
Portfolio turnover rate................................................................... 68% 28%
NET ASSETS END OF PERIOD (THOUSANDS)...................................................... $ 12 $ 32
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED AUGUST 31,
JUNE 30, 1997 JUNE 30, 1996 (b) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 9.99 $ 10.15 $ 9.92 $ 10.61 $ 10.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.56 0.46 0.55 0.54 0.57
Net realized and unrealized gain
(loss) on investments............... 0.03 (0.16) 0.23 (0.64) 0.24
Total from investment operations...... 0.59 0.30 0.78 (0.10) 0.81
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.56) (0.46) (0.55) (0.54) (0.58)
Net realized gains on investments..... 0 0 0 (0.05) (0.03)
Total distributions................... (0.56) (0.46) (0.55) (0.59) (0.61)
NET ASSET VALUE END OF PERIOD......... $ 10.02 $ 9.99 $ 10.15 $ 9.92 $ 10.61
Total return.......................... 6.08% 3.00% 8.16% (0.99%) 8.03%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.81% 0.80%(a) 0.70% 0.55% 0.55%
Total expenses excluding indirectly
paid expenses..................... 0.81% -- -- -- --
Total expenses excluding waivers and
reimbursements.................... 0.89% 0.87%(a) 0.84% 0.82% 0.83%
Net investment income............... 5.52% 5.47%(a) 5.54% 5.22% 5.48%
Portfolio turnover rate............... 68% 28% 45% 45% 31%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $71,588 $87,004 $106,066 $106,448 $119,172
<CAPTION>
NOVEMBER 1, 1991
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
AUGUST 31, 1992
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.48
Net realized and unrealized gain
(loss) on investments............... 0.40
Total from investment operations...... 0.88
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.47)
Net realized gains on investments..... 0
Total distributions................... (0.47)
NET ASSET VALUE END OF PERIOD......... $ 10.41
Total return.......................... 9.04%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.55%(a)
Total expenses excluding indirectly
paid expenses..................... --
Total expenses excluding waivers and
reimbursements.................... 0.86%(a)
Net investment income............... 5.68%(a)
Portfolio turnover rate............... 47%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $ 87,648
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from August 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
(logo and picture of EVERGREEN
flag) SHORT-INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
JUNE 30, ENDED DECEMBER 31,
1997 1996 JUNE 30, 1995 (c) 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.82 $ 10.02 $ 9.52 $ 10.42 $ 10.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.63 0.63 0.32 0.65 0.65
Net realized and unrealized gain (loss) on investments.............. 0.02 (0.19) 0.50 (0.91) 0.19
Total from investment operations.................................... 0.65 0.44 0.82 (0.26) 0.84
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.64) (0.64) (0.32) (0.64) (0.65)
In excess of net investment income.................................. 0 0 0 0 0
Net realized gains on investments................................... 0 0 0 0 (0.18)
Total distributions................................................. (0.64) (0.64) (0.32) (0.64) (0.83)
NET ASSET VALUE END OF PERIOD....................................... $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.42
Total return (b).................................................... 6.77% 4.45% 8.77% (2.57%) 8.29%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 0.72% 0.79% 0.77%(a) 0.75% 0.93%
Total expenses excluding indirectly paid expenses................. 0.72% -- -- -- --
Total expenses excluding waivers and reimbursements............... -- -- -- -- --
Net investment income............................................. 6.37% 6.35% 6.58%(a) 6.46% 6.15%
Portfolio turnover rate............................................. 45% 76% 34% 48% 73%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $17,703 $18,630 $18,898 $19,127 $22,865
</TABLE>
<TABLE>
<CAPTION>
JANUARY 28, 1989
(COMMENCEMENT OF
CLASS
YEAR ENDED NINE MONTHS OPERATIONS)
DECEMBER 31, ENDED YEAR ENDED THROUGH
1992 1991 DECEMBER 31, 1990 (d) MARCH 31, 1990 MARCH 31, 1989
<S> <C> <C> <C> <C> <C>
CLASS A SHARES (CONTINUED)
NET ASSET VALUE BEGINNING OF PERIOD.......... $ 10.54 $ 9.99 $ 9.72 $ 9.50 $ 9.70
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.71 0.73 0.55 0.79 0.10
Net realized and unrealized gain (loss) on
investments................................ (0.06) 0.60 0.24 0.20 (0.14)
Total from investment operations............. 0.65 1.33 0.79 0.99 (0.04)
LESS DISTRIBUTIONS FROM:
Net investment income........................ (0.67) (0.70) (0.52) (0.77) (0.16)
In excess of net investment income........... 0 (0.01) 0 0 0
Net realized gains on investments............ (0.11) (0.07) 0 0 0
Total distributions.......................... (0.78) (0.78) (0.52) (0.77) (0.16)
NET ASSET VALUE END OF PERIOD................ $ 10.41 $ 10.54 $ 9.99 $ 9.72 $ 9.50
Total return (b)............................. 6.39% 13.74% 8.31% 10.51% (0.31%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................. 0.90% 0.80% 1.01%(a) 1.00% 1.78%(a)
Total expenses excluding indirectly paid
expenses................................. -- -- -- -- --
Total expenses excluding waivers and
reimbursements........................... -- 0.89% 1.82%(a) 1.50% --
Net investment income...................... 6.79% 7.30% 7.53%(a) 7.57% 6.10%(a)
Portfolio turnover rate...................... 66% 53% 27% 32% 18%
NET ASSETS END OF PERIOD (THOUSANDS)......... $21,488 $17,680 $11,765 $6,496 $ 11,580
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
(d) The Fund changed its fiscal year end from March 31 to December 31.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
EVERGREEN
SHORT-INTERMEDIATE BOND FUND
(logo and picture
FINANCIAL HIGHLIGHTS (CONTINUED) of flag)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS YEAR ENDED
JUNE 30, ENDED DECEMBER 31,
1997 1996 JUNE 30, 1995 (c) 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD............ $ 9.84 $ 10.04 $ 9.54 $ 10.44
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................... 0.54 0.55 0.28 0.58
Net realized and unrealized gain (loss) on
investments.................................. 0.01 (0.19) 0.50 (0.92)
Total from investment operations............... 0.55 0.36 0.78 (0.34)
LESS DISTRIBUTIONS FROM:
Net investment income.......................... (0.54) (0.56) (0.28) (0.56)
Net realized gains on investments.............. 0 0 0 0
Total distributions............................ (0.54) (0.56) (0.28) (0.56)
NET ASSET VALUE END OF PERIOD.................. $ 9.85 $ 9.84 $ 10.04 $ 9.54
Total return (b)............................... 5.78% 3.62% 8.31% (3.33%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................... 1.62% 1.69% 1.67%(a) 1.50%
Total expenses excluding indirectly paid
expenses................................... 1.62% -- -- --
Net investment income........................ 5.48% 5.45% 5.68%(a) 5.75%
Portfolio turnover rate........................ 45% 76% 34% 48%
NET ASSETS END OF PERIOD (THOUSANDS)........... $22,237 $21,006 $17,366 $17,625
<CAPTION>
JANUARY 25, 1993
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
DECEMBER 31, 1993
<S> <C>
CLASS B SHARES
NET ASSET VALUE BEGINNING OF PERIOD............ $10.57
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................... 0.58
Net realized and unrealized gain (loss) on
investments.................................. 0.05
Total from investment operations............... 0.63
LESS DISTRIBUTIONS FROM:
Net investment income.......................... (0.58)
Net realized gains on investments.............. (0.18)
Total distributions............................ (0.76)
NET ASSET VALUE END OF PERIOD.................. $10.44
Total return (b)............................... 6.08%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............................... 1.57%(a)
Total expenses excluding indirectly paid
expenses................................... --
Net investment income........................ 5.42%(a)
Portfolio turnover rate........................ 73%
NET ASSETS END OF PERIOD (THOUSANDS)........... $8,876
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JUNE 30, ENDED
1997 1996 JUNE 30, 1995 (c)
<S> <C> <C> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................. $ 9.84 $10.05 $ 9.55
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................ 0.54 0.55 0.26
Net realized and unrealized gain (loss) on investments............... 0.01 (0.20) 0.50
Total from investment operations..................................... 0.55 0.35 0.76
LESS DISTRIBUTIONS FROM:
Net investment income................................................ (0.54) (0.56) (0.26)
Total distributions.................................................. (0.54) (0.56) (0.26)
NET ASSET VALUE END OF PERIOD........................................ $ 9.85 $ 9.84 $ 10.05
Total return (b)..................................................... 5.77% 3.51% 8.23%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................................................... 1.62% 1.69% 1.67%(a)
Total expenses excluding indirectly paid expenses.................. 1.62% -- --
Net investment income.............................................. 5.47% 5.46% 5.69%(a)
Portfolio turnover rate............................................ 45% 76% 34%
NET ASSETS END OF PERIOD (THOUSANDS)................................. $1,029 $1,155 $ 527
<CAPTION>
SEPTEMBER 6, 1994
COMMENCEMENT OF
CLASS OPERATION
THROUGH
DECEMBER 31, 1994
<S> <C>
CLASS C SHARES
NET ASSET VALUE BEGINNING OF PERIOD.................................. $ 9.85
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................................ 0.18
Net realized and unrealized gain (loss) on investments............... (0.30)
Total from investment operations..................................... (0.12)
LESS DISTRIBUTIONS FROM:
Net investment income................................................ (0.18)
Total distributions.................................................. (0.18)
NET ASSET VALUE END OF PERIOD........................................ $ 9.55
Total return (b)..................................................... (1.27%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................................................... 1.65%(a)
Total expenses excluding indirectly paid expenses.................. --
Net investment income.............................................. 5.87%(a)
Portfolio turnover rate............................................ 48%
NET ASSETS END OF PERIOD (THOUSANDS)................................. $ 512
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
EVERGREEN
(logo and a picture SHORT-INTERMEDIATE BOND FUND
of flag)
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JUNE 30, ENDED YEAR ENDED DECEMBER 31,
1997 1996 JUNE 30, 1995 (b) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 9.82 $ 10.02 $ 9.52 $ 10.43 $ 10.41 $ 10.54
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.64 0.64 0.33 0.65 0.69 0.70
Net realized and unrealized gain
(loss) on investments............... 0.02 (0.19) 0.49 (0.91) 0.19 (0.02)
Total from investment operations...... 0.66 0.45 0.82 (0.26) 0.88 0.68
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.65) (0.65) (0.32) (0.65) (0.68) (0.70)
In excess of net investment income.... 0 0 0 0 0 0
Net realized gains on investments..... 0 0 0 0 (0.18) (0.11)
Total distributions................... (0.65) (0.65) (0.32) (0.65) (0.86) (0.81)
NET ASSET VALUE END OF PERIOD......... $ 9.83 $ 9.82 $ 10.02 $ 9.52 $ 10.43 $ 10.41
Total return.......................... 6.88% 4.63% 8.80% (2.55%) 8.67% 6.64%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.62% 0.69% 0.67%(a) 0.65% 0.66% 0.69%
Total expenses excluding indirectly
paid expenses..................... 0.62% -- -- -- -- --
Net investment income............... 6.48% 6.45% 6.68%(a) 6.56% 6.41% 6.67%
Portfolio turnover rate............... 45% 76% 34% 48% 73% 66%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $357,706 $352,095 $ 347,050 $345,025 $376,445 $324,068
<CAPTION>
JANUARY 4, 1991
(COMMENCEMENT OF
CLASS OPERATIONS)
THROUGH
DECEMBER 31, 1991
<S> <C>
CLASS Y SHARES
NET ASSET VALUE BEGINNING OF PERIOD... $ 10.06
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.71
Net realized and unrealized gain
(loss) on investments............... 0.56
Total from investment operations...... 1.27
LESS DISTRIBUTIONS FROM:
Net investment income................. (0.71)
In excess of net investment income.... (0.01)
Net realized gains on investments..... (0.07)
Total distributions................... (0.79)
NET ASSET VALUE END OF PERIOD......... $ 10.54
Total return.......................... 13.80%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses...................... 0.69%(a)
Total expenses excluding indirectly
paid expenses..................... --
Net investment income............... 7.12%(a)
Portfolio turnover rate............... 53%
NET ASSETS END OF PERIOD
(THOUSANDS)......................... $ 256,254
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from December 31 to June 30.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND (logo and picture
of capital)
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ADJUSTABLE-RATE MORTGAGE SECURITIES-- 91.3%
<S> <C> <C>
FHLMC-- 44.4%
$1,291,156 FHLMC Pool #846163, Cap 13.08%,
Margin 1.99% + WTAL, Resets
Annually
7.66%, 7/1/30...................... $ 1,349,465
1,507,099 FHLMC Pool #605386, Cap 12.89%,
Margin 2.12% + CMT, Resets Annually
7.95%, 9/1/17...................... 1,582,212
1,637,125 FHLMC Pool #605343, Cap 13.60%,
Margin 2.13% + CMT, Resets Annually
7.83%, 3/1/19...................... 1,692,341
141,104 FHLMC Pool #645062, Cap 14.11%,
Margin 2.31% + CMT, Resets Annually
8.10%, 5/1/19...................... 146,461
145,638 FHLMC Pool #785114, Cap 13.23%,
Margin 2.13% + CMT, Resets Annually
7.81%, 7/1/19...................... 153,147
587,551 FHLMC Pool #865220, Cap 15.05%,
Margin 2.35% + WTAL, Resets
Triennially
8.37%, 4/1/20...................... 606,741
69,528 FHLMC Pool #785147, Cap 12.79%,
Margin 2.02% + CMT, Resets Annually
7.68%, 5/1/20...................... 72,069
725,921 FHLMC Pool #606541, Cap 13.56%,
Margin 2.04% + CMT, Resets Annually
7.71%, 3/1/21...................... 761,084
2,257,810 FHLMC Pool #845039, Cap 12.50%,
Margin 2.09% + CMT, Resets Annually
7.82%, 10/1/21..................... 2,338,245
1,369,007 FHLMC Pool #606679, Cap 12.07%,
Margin 2.16% + CMT, Resets Annually
7.97%, 10/1/21..................... 1,437,882
1,916,889 FHLMC Pool #845063, Cap 12.05%,
Margin 2.18% + CMT, Resets Annually
7.91%, 11/1/21..................... 1,991,168
2,263,629 FHLMC Pool #845070, Cap 11.84%,
Margin 2.12% + CMT, Resets Annually
7.80%, 1/1/22...................... 2,359,834
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED
<C> <S> <C>
FHLMC-- CONTINUED
$1,088,728 FHLMC Pool #845082, Cap 12.34%,
Margin 1.98% + CMT, Resets Annually
7.58%, 3/1/22...................... $ 1,122,071
4,051,462 FHLMC Pool #607352, Cap 13.62%,
Margin 2.17% + CMT, Resets Annually
7.84%, 4/1/22...................... 4,267,972
3,452,568 FHLMC Pool #846298, Cap 13.04%,
Margin 1.85% + CMT, Resets Annually
7.44%, 8/1/22...................... 3,589,048
TOTAL FHLMC.......................... 23,469,740
FNMA-- 46.9%
1,402,664 FNMA Pool #124497, Cap 12.97%,
Margin 2.80% + CMT, Resets Annually
7.78%, 9/1/22...................... 1,477,188
1,040,611 FNMA Pool #094564, Cap 15.86%,
Margin 1.98% + CMT, Resets Annually
7.70%, 1/1/16...................... 1,088,094
448,069 FNMA Pool #092086, Cap 15.47%,
Margin 2.08% + CMT, Resets Annually
7.85%, 10/1/16..................... 466,691
739,969 FNMA Pool #070033, Cap 14.35%,
Margin 1.75% + CMT, Resets Annually
7.50%, 10/1/17..................... 768,872
3,318,250 FNMA Pool #070119, Cap 12.01%,
Margin 2.00% + CMT, Resets Annually
7.68%, 11/1/17..................... 3,450,980
302,549 FNMA Pool #062610, Cap 12.75%,
Margin 2.13% + CMT, Resets Annually
7.75%, 6/1/18...................... 316,826
2,589,728 FNMA Pool #090678, Cap 13.14%,
Margin 2.18% + CMT, Resets Annually
7.91%, 9/1/18...................... 2,732,163
1,059,213 FNMA Pool #124015, Cap 13.24%,
Margin 2.57% + CMT, Resets Annually
7.57%, 11/1/18..................... 1,100,925
</TABLE>
(CONTINUED)
25
<PAGE>
KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND
(logo and picture
of capital) SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED
FNMA-- CONTINUED
<S> <C> <C>
$ 311,452 FNMA Pool #114714, Cap
12.62%,
Margin 1.75% + CMT, Resets
Annually
7.47%, 3/1/19.............$ 323,814
307,339 FNMA Pool #105007, Cap
13.13%,
Margin 2.03% + CMT, Resets
Annually
7.85%, 7/1/19............. 318,240
1,274,325 FNMA Pool #095405, Cap
13.70%,
Margin 2.08% + CMT, Resets
Annually
7.83%, 12/1/19............ 1,321,316
162,598 FNMA Pool #391290, Cap
12.68%,
Margin 2.72% + CMT, Resets
Annually
7.74%, 2/1/17............. 167,096
539,539 FNMA Pool #102905, Cap
13.08%,
Margin 2.00% + CMT, Resets
Annually
7.74%, 7/1/20............. 567,358
481,731 FNMA Pool #142963, Cap
11.03%,
Margin 2.63% + CMT, Resets
Annually
7.45%, 1/1/22............. 498,591
6,564,994 FNMA Pool #124289, Cap
13.44%,
Margin 2.01% + CMT, Resets
Annually
7.70%, 9/1/21............. 6,889,171
990,524 FNMA Pool #124204, Cap
13.60%,
Margin 2.01% + CMT, Resets
Annually
7.72%, 1/1/22............. 1,038,970
252,868 FNMA Pool #070327, Cap
12.95%,
Margin 2.75% + CMT, Resets
Annually
7.60%, 6/1/19............. 262,510
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ADJUSTABLE-RATE MORTGAGE SECURITIES-- CONTINUED
FNMA-- CONTINUED
$1,865,470 FNMA Pool #124945, Cap
12.73%,
Margin 2.11% + CMT, Resets
Annually
7.81%, 1/1/31.............$ 1,966,914
TOTAL FNMA.................. 24,755,719
TOTAL ADJUSTABLE-RATE
MORTGAGE SECURITIES
(COST-- $47,698,037)...... 48,225,459
FIXED RATE MORTGAGE SECURITIES-- 2.2%
FHLMC-- 0.1%
24,914 FHLMC CMO, Series 11 Class 11C,
(Est. Mat. 1998) (b)
9.50%, 4/15/19............
25,771
FNMA-- 2.1%
355,662 FNMA Pool #100051
9.50%, 4/1/05............. 371,778
462,692 FNMA Pool #002497
11.00%, 1/1/16............ 510,798
230,612 FNMA Pool #058442
11.00%, 1/1/18............ 254,462
TOTAL FNMA.................. 1,137,038
TOTAL FIXED RATE MORTGAGE
SECURITIES
(COST-- $1,158,066)....... 1,162,809
U.S. TREASURY NOTES-- 3.7%
(COST-- $1,958,136)
1,950,000 U.S. Treasury Notes
6.63%, 4/30/02............ 1,967,979
REPURCHASE AGREEMENT-- 1.4% (COST-- $742,000)
742,000 Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in
a joint trading account,
6.04% dated 6/30/97, due
7/1/97, maturity value
$742,125 (a))............. 742,000
TOTAL INVESTMENTS
(COST-- $51,556,239)...... 98.6% 52,098,247
<C> <S> <C> <C>
OTHER ASSETS AND
LIABILITIES-- NET......... 1.4 721,440
NET ASSETS--................ 100.0% $52,819,687
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at June 30, 1997.
(b) The estimated maturity of a Collateralized Motgage Obligation (CMO) is based
on current and projected prepayment rates. Changes in interest rates can
cause the estimated maturity to differ from the listed dates.
LEGEND OF PORTFOLIO ABBREVIATIONS
CMT-- 1, 3, or 5 year Constant Maturity Treasury Index
FHLMC-- Federal Home Loan Mortgage Corporation
FNMA-- Federal National Mortgage Association
WTAL-- 1 or 3 year Weekly Treasury Average Lookback Index
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
EVERGREEN (logo and picture
INTERMEDIATE-TERM BOND FUND of star)
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS-- 19.2%
<C> <S> <C>
BANKS-- 5.0%
$ 500,000 Cenfed Financial Corp., Senior
Debenture (a),
11.17%, 12/15/01................. $ 533,750
800,000 Harris Bancorp.,
9.38%, 6/1/01.................... 868,088
2,000,000 NationsBank Corp.,
8.13%, 6/15/02................... 2,108,780
4,000,000 NBD Bank N.A.,
Subordinated Note,
8.25%, 11/1/24................... 4,461,932
7,972,550
FINANCE & INSURANCE-- 7.8%
6,500,000 Associates Corporation North
America, Note,
5.96%, 5/15/37................... 6,514,196
2,500,000 General Electric Capital Corp.,
6.29%, 12/15/07.................. 2,473,247
1,000,000 Goldman Sachs Group L.P. (a),
6.38%, 6/15/00................... 990,333
1,500,000 Grand Metropolitan Investment
Corp.,
6.50%, 9/15/99................... 1,504,614
1,000,000 KFW International Finance,
Guaranteed Note,
8.85%, 6/15/99................... 1,046,610
12,529,000
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES-- 3.2%
2,000,000 Baxter International, Inc.,
9.25%, 12/15/99.................. 2,125,250
600,000 Deere & Co.,
8.95%, 6/15/19................... 673,289
2,000,000 Jet Equipment Trust, (a)
9.41%, 6/15/10................... 2,292,488
5,091,027
UTILITIES-- 3.2%
3,100,000 ALLTEL Corp.,
6.50%, 11/1/13................... 2,857,199
2,000,000 Carolina Power & Light Co.,
8.63%, 9/15/21................... 2,272,160
5,129,359
TOTAL CORPORATE BONDS
(COST $30,200,050)............... 30,721,936
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE-BACKED SECURITIES-- 20.7%
Federal Home Loan Mortgage Corp.,
$ 2,521,993 6.55%, 9/1/26...................... $ 2,593,539
2,027,061 7.50%, 5/1/09...................... 2,058,734
1,210,345 8.00%, 10/1/25..................... 1,241,776
1,293,208 Federal National Mortgage
Association,
6.69%, 12/1/25................... 1,328,618
Government National Mortgage
Association,
1,400,389 6.00%, 6/20/26..................... 1,406,241
8,356,714 6.50%, 10/15/23-- 10/20/26......... 8,362,955
3,922,487 7.00%, 9/20/25-- 3/15/26........... 3,919,730
3,087,455 7.13%, 7/20/25..................... 3,182,360
3,599,131 7.50%, 9/15/23-- 3/15/26........... 3,616,198
3,144,302 8.00%, 10/15/24.................... 3,216,030
1,209,660 9.00%, 4/15/20-- 8/15/21........... 1,278,837
563,266 9.50%, 2/15/21..................... 607,799
414,383 Paine Webber Trust P-3,
9.00%, 10/1/12................... 417,549
TOTAL MORTGAGE-BACKED SECURITIES
(COST $33,064,340)............... 33,230,366
U. S. AGENCY OBLIGATIONS-- 3.7%
2,500,000 Farm Credit Systems Financial
Assistance Co.,
8.80%, 6/10/05................... 2,814,268
3,000,000 Federal Home Loan Bank,
Consolidated Bond,
7.70%, 9/20/04................... 3,174,930
TOTAL U. S. AGENCY OBLIGATIONS
(COST $5,651,434)................ 5,989,198
<CAPTION>
U. S. TREASURY OBLIGATIONS-- 28.0%
<C> <S> <C>
U.S. Treasury Bonds:
11,450,000 6.88%, 8/15/25..................... 11,489,354
4,500,000 7.50%, 11/15/16.................... 4,810,779
1,400,000 8.75%, 5/15/17..................... 1,684,812
3,950,000 8.88%, 8/15/17..................... 4,810,357
U.S. Treasury Notes:
1,400,000 5.13%, 12/31/98.................... 1,383,812
12,900,000 5.63%, 8/31/97..................... 12,904,024
6,100,000 6.38%, 1/15/99..................... 6,138,125
1,600,000 8.25%, 7/15/98..................... 1,639,000
TOTAL U.S. TREASURY OBLIGATIONS
(COST $44,311,257)............... 44,860,263
</TABLE>
(CONTINUED)
27
<PAGE>
EVERGREEN
INTERMEDIATE-TERM BOND FUND
(logo and picture of
star) SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
YANKEE OBLIGATIONS-- 14.5%
Bayerische Landesbank Girozen
New York,
Tranche Sr 00001,
$2,500,000 6.38%, 8/31/00............ $2,492,183
Tranche Trust 00007,
2,000,000 6.20%, 2/9/06............. 1,907,344
3,000,000 Hydro-Quebec,
8.00%, 2/1/13........... 3,160,257
3,500,000 Japan Finance Corp. Municipal
Enterprises, Guaranteed Bond,
6.85%, 4/15/06.......... 3,504,071
2,000,000 Manitoba Province (Canada),
8.00%, 4/15/02.......... 2,109,140
800,000 Petro Canada Ltd.,
8.60%, 1/15/10.......... 907,463
5,300,000 Philips Electers N V,
Debenture,
7.13%, 5/15/25.......... 5,282,685
Svenska Handelsbanken,
2,000,000 8.13%, 8/15/07............ 2,123,682
1,000,000 8.35%, 7/15/04............ 1,075,661
700,000 Westpac Banking,
Subordinated Debenture,
9.13%, 8/15/01.......... 758,563
TOTAL YANKEE OBLIGATIONS
(COST $22,612,971)...... 23,321,049
PRINCIPAL
AMOUNT VALUE
<C> <C> <C>
REPURCHASE AGREEMENT-- 12.8%
$20,495,557 Donaldson, Lufkin &
Jenrette Securities
Corp, 5.90% dated
6/30/97, due 7/1/97,
maturity value
$20,498,916
(collateralized by
$20,553,000 U.S.
Treasury Notes, 5.00%,
due 1/31/98; value,
including accrued
interest $20,905,756)
(cost $20,495,557)...... $ 20,495,557
TOTAL INVESTMENTS--
(COST $156,335,609)..... 98.9% 158,618,369
OTHER ASSETS AND
LIABILITIES-- NET....... 1.1 1,807,246
NET ASSETS--.............. 100.0% $160,425,615
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
KEYSTONE (logo and picture
INTERMEDIATE TERM BOND FUND of stars)
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ASSET-BACKED SECURITIES-- 6.1%
<C> <S> <C>
$1,000,000 Southern Pacific Secured Assets
Corporation, Series 1996-3 Class
A4,
7.60%, 10/25/27.................... $ 1,001,875
750,000 U.S. Home Equity Loan Asset Backed,
Series 1991-2 Class B,
9.13%, 4/15/21..................... 752,812
TOTAL ASSET-BACKED SECURITIES
(COST $1,748,125).................. 1,754,687
<CAPTION>
CORPORATE BONDS-- 31.2%
<C> <S> <C>
DIVERSIFIED-- 1.7%
500,000 Belo (A. H.) Corporation,
Senior Note,
7.13%, 6/1/07...................... 495,723
FINANCE & BANKING-- 15.3%
1,000,000 Amsouth Bancorporation,
Sub Debentures Puttable 2005,
6.75%, 11/1/25..................... 977,750
1,250,000 Chase Manhattan Corporation,
Subordinated Notes,
9.38%, 7/1/01...................... 1,358,712
1,000,000 CIT Group Holdings Incorporated,
Medium Term Note, Tranche Trust
00001,
9.25%, 3/15/01..................... 1,083,480
500,000 General Mtrs Acceptance Corporation,
Note,
7.13%, 5/1/01...................... 506,015
500,000 Prudential Insurance, Note (b),
7.13%, 7/1/07...................... 499,000
4,424,957
INDUSTRIALS-- 12.5%
700,000 Ford Motor Co., Debenture,
9.00%, 9/15/01..................... 756,252
800,000 Occidental Petroleum Corporation,
Medium Term Note, Tranche Trust
00134,
8.50%, 11/9/01..................... 847,336
1,000,000 Philip Morris Cos Inc., Senior Note,
7.20%, 2/1/07...................... 986,760
1,000,000 Transocean Offshore Inc, Note,
7.45%, 4/15/27..................... 1,028,740
3,619,088
TRANSPORTATION-- 1.7%
500,000 Norfolk Southern Corporation, Note,
7.05%, 5/1/37...................... 507,470
TOTAL CORPORATE BONDS
(COST $9,126,551).................. 9,047,238
<CAPTION>
PRINCIPAL
AMOUNT VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS-- 27.5%
<C> <S> <C>
$ 500,000 Chase Commercial Mortgage Security
Corporation (a),
7.37%, 6/19/29..................... $ 508,281
478,831 Chase Mortgage Finance Corporation
(a)(b),
7.87%, 11/25/25.................... 468,207
443,548 Criimi Mae Financial Corporation (a),
7.00%, 1/1/33...................... 433,984
1,000,000 Federal National Mortgage Association
Guaranteed (a)(d),
3.26%, 8/25/23..................... 758,125
653,517 GE Capital Mortgage Services
Incorporated (a),
6.50%, 3/25/24..................... 626,355
500,000 Merrill Lynch Trust (a),
8.45%, 11/1/18..................... 525,000
700,000 Morgan Stanley Capital I
Incorporated,
1997 C1 Class B (a),
7.69%, 1/15/07..................... 724,719
953,300 Paine Webber Mortgage Acceptance
Corporation (a),
7.50%, 5/25/23..................... 951,214
1,250,000 Resolution Trust Corp. (a),
7.50%, 10/25/28.................... 1,256,055
698,466 Ryland Acceptance Corporation Four
(a),
7.95%, 1/1/19...................... 709,159
996,752 Independent National Mortgage Corp. (a)(b),
7.84%, 12/26/26...................... 1,000,413
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(COST $7,870,825).................. 7,961,512
<CAPTION>
U.S. AGENCY OBLIGATIONS-- 2.6% (COST $749,062)
<C> <S> <C>
750,000 Federal Home Loan Mortgage Corp,
Global Note,
6.70%, 1/5/07...................... 745,080
<CAPTION>
U.S. TREASURY OBLIGATIONS-- 6.2% (COST $1,796,303)
<C> <S> <C>
1,810,000 U.S. Treasury Notes,
6.50%, 10/15/06.................... 1,802,362
<CAPTION>
FOREIGN BONDS-- (US DOLLAR DENOMINATED)-- 15.4%
<C> <S> <C>
500,000 Export Import Bank Korea, Note,
7.10%, 3/15/07..................... 504,570
1,250,000 Fomento Economico Mexico,
Euro-Dollars,
9.50%, 7/22/97..................... 1,250,000
500,000 Korea Electric Power Corp, Debenture,
7.00%, 2/1/27...................... 490,205
</TABLE>
(CONTINUED)
29
<PAGE>
KEYSTONE
INTERMEDIATE TERM BOND FUND
(logo and picture
of stars) SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
FOREIGN BONDS-- (US DOLLAR DENOMINATED)--
CONTINUED
<C> <S> <C>
$1,000,000 Southern Peru Limited,
Secured Export Note (b),
7.90%, 5/30/07.............$1,019,400
1,200,000 Telebras,
10.38%, 9/9/97............. 1,210,500
TOTAL FOREIGN BONDS--
(US DOLLAR DENOMINATED)
(COST $4,453,359).......... 4,474,675
FOREIGN BONDS-- (NON-US DOLLAR DENOMINATED)-- 8.8%
1,150,000 Canada Government,
CAD Canadian Series A79,
8.75%, 12/1/05............. 967,917
3,698,000 Denmark Kingdom,
DKK 7.00%, 11/15/07..............585,061
<CAPTION>
PRINCIPAL
AMOUNT VALUE
FOREIGN BONDS-- (NON-US DOLLAR DENOMINATED)--
CONTINUED
1,575,000 Germany Federal Republic,
DEM 6.88%, 5/12/05............... 986,125
18,000 Nykredit,
DKK 6.00%, 10/1/26............... 2,463
TOTAL FOREIGN BONDS--
(NON-US DOLLAR DENOMINATED)
(COST $2,689,307).......... 2,541,566
REPURCHASE AGREEMENT-- 0.8%
$ 243,000 Keystone Joint Repurchase
Agreement, (Investments in
repurchase agreements, in a
joint trading account,
6.04% dated 6/30/97, due
7/1/97, maturity value
$243,043(c))
(cost $243,000)............ 243,000
TOTAL INVESTMENTS--
(COST $28,676,532)......... 98.6% 28,570,120
OTHER ASSETS AND
LIABILITIES-- NET.......... 1.4 397,464
NET ASSETS--................. 100.0% $28,967,584
</TABLE>
(a) The estimated maturity of a Collateralized Mortgage Obligation ("CMO") is
based on current and projected prepayment rates. Changes in interest rates
can cause the estimated maturity to differ from the listed date.
(b) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at June 30, 1997.
(d) Inverse floater, resets monthly.
LEGEND OF PORTFOLIO ABBREVIATIONS
CAD-- Canadian Dollar
DKK-- Danish Kroner
DEM-- German Deutschemark
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
NET UNREALIZED
EXCHANGE U.S. $ VALUE AT IN EXCHANGE APPRECIATION/
DATE JUNE 30, 1997 FOR U.S. $ (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Forward Foreign Currency Exchange Contracts to
Buy:
Contracts to Receive
8/12/97 1,150,000 Deutsche Marks $ 661,452 679,790 $(18,338)
Forward Foreign Currency Exchange Contracts to
Sell:
Contracts to Deliver
8/27/97 1,324,225 Canadian Dollars 962,359 970,947 8,588
8/12/97 2,860,000 Deutsche Marks 1,645,000 1,675,255 30,255
8/20/97 4,041,900 Danish Krone 610,524 627,098 16,574
$ 55,417
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
EVERGREEN (logo and picture
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND of George
Washington)
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES-- 19.4%
<C> <S> <C>
$5,000,000 Federal Home Loan Mortgage Corp.,
5.60%, 2/15/13..................... $ 4,975,120
4,250,909 Federal Home Loan Mortgage Corp.
Gold,
9.00%, 1/1/17...................... 4,552,550
3,688,718 Federal National Mortgage Assn.,
7.00%, 3/1/24...................... 3,639,285
1,000,000 U.S. Department of Veteran Affairs,
7.00%, 5/15/12..................... 1,002,350
TOTAL MORTGAGE-BACKED SECURITIES
(COST $14,039,691)................. 14,169,305
<CAPTION>
U.S. AGENCY OBLIGATIONS-- 10.4%
<C> <S> <C>
1,300,000 Federal Home Loan Bank,
8.60%, 1/25/00..................... 1,370,776
Federal National Mortgage Assn.,
2,000,000 7.50%, 2/11/02....................... 2,077,826
2,000,000 7.875%, 2/24/05...................... 2,137,652
2,000,000 Tennessee Valley Authority,
6.375%, 6/15/05.................... 1,960,340
TOTAL U.S. AGENCY OBLIGATIONS
(COST $7,352,820).................. 7,546,594
<CAPTION>
U.S. TREASURY OBLIGATIONS-- 77.9%
<C> <S> <C>
U.S. Treasury Notes:
4,500,000 5.50%, 2/28/99....................... 4,463,437
6,800,000 5.88%, 1/31/99....................... 6,787,250
500,000 6.00%, 11/30/97...................... 500,937
3,400,000 6.00%, 9/30/98....................... 3,404,250
3,500,000 6.13%, 12/31/01...................... 3,467,188
4,000,000 6.25%, 7/31/98....................... 4,018,748
4,000,000 6.38%, 7/15/99....................... 4,023,748
<CAPTION>
PRINCIPAL
AMOUNT VALUE
U.S. TREASURY OBLIGATIONS-- CONTINUED
<C> <S> <C>
U.S. Treasury Notes-- continued
$3,000,000 6.50%, 4/30/99....................... $ 3,023,436
3,000,000 6.63%, 6/30/01....................... 3,030,936
1,000,000 6.75%, 4/30/00....................... 1,013,437
4,300,000 7.00%, 7/15/06....................... 4,424,967
4,000,000 7.50%, 10/31/99...................... 4,115,000
2,000,000 7.50%, 11/15/01...................... 2,085,000
2,000,000 7.50%, 5/15/02....................... 2,093,124
3,250,000 7.50%, 2/15/05....................... 3,439,920
1,700,000 7.88%, 4/15/98....................... 1,728,155
3,500,000 7.88%, 11/15/04...................... 3,776,717
1,300,000 8.50%, 11/15/00...................... 1,386,531
TOTAL U. S. TREASURY OBLIGATIONS
(COST $56,635,374)................. 56,782,781
<CAPTION>
REPURCHASE AGREEMENT-- 1.4%
<C> <S> <C>
1,039,957 Donaldson, Lufkin & Jenrette
Securities Corp., 5.90% dated
6/30/97, due 7/1/97, maturity value
$1,040,127 (collateralized by
$347,000 U.S. Treasury Bonds,
11.25%, due 2/15/15; $540,000 U.S.
Treasury Bills, due 7/3/97; value,
including accrued interest
$1,061,419)
(cost $1,039,957).................. 1,039,957
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS--
(COST $79,067,842)......... 109.1% 79,538,637
OTHER ASSETS AND
LIABILITIES-- NET.......... (9.1) (6,625,429)
NET ASSETS--................. 100.0% $72,913,208
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
(logo and picture of EVERGREEN
a flag) SHORT-INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ASSET-BACKED SECURITIES-- 12.2%
<C> <S> <C>
$ 4,334,324 Advanta Home Equity Loan Trust,
7.20%, 11/25/08.................. $ 4,379,662
541,975 Bank of West Trust,
9.50%, 2/15/05................... 547,075
1,750,000 Case Equipment Loan Trust,
6.45%, 9/15/02................... 1,719,865
2,000,000 EQCC Home Equity Loan Trust,
5.82%, 9/15/09................... 1,983,940
3,309,037 FCC Grantor Trust,
9.00%, 7/15/97................... 3,306,489
2,020,649 First Bank Auto Receivable,
8.30%, 1/15/00................... 2,051,646
3,082,064 First Security Auto Grantor Trust,
6.25%, 1/15/01................... 3,099,016
483,220 Fleet Financial Home Equity Trust,
6.70%, 1/16/06-- 10/15/06........ 485,893
6,439,643 Fleetwood Credit Grantor Trust,
4.95%, 8/15/08................... 6,334,483
7,500,000 Household Affinity Credit Card
Master Trust,
7.20%, 12/15/99.................. 7,567,650
1,259,186 SCFC Recreational Vehicle Loan
Trust,
7.25%, 9/15/06................... 1,267,887
Western Financial Grantor Trust:
4,828,859 5.88%, 3/1/02...................... 4,819,684
2,179,177 6.20%, 2/1/02...................... 2,188,155
9,000,000 Xerox Rental Equipment Trust (a),
6.20%, 12/26/05.................. 8,956,406
TOTAL ASSET-BACKED SECURITIES
(COST $48,706,732)............... 48,707,851
<CAPTION>
CORPORATE BONDS-- 24.8%
<C> <S> <C>
BANKS-- 7.5%
3,400,000 Abbey National Plc,
6.69%, 10/17/05.................. 3,330,909
3,350,000 Amsouth Bancorporation,
6.75%, 11/1/25................... 3,287,057
3,000,000 Cenfed Financial Corp. (a),
11.17%, 12/15/01................. 3,202,500
2,000,000 Chase Manhattan Corporation,
8.00%, 5/15/04................... 2,046,792
First Chicago Corp.:
4,000,000 9.00%, 6/15/99..................... 4,187,408
2,000,000 9.20%, 12/17/01.................... 2,180,510
5,000,000 First Security Corp.,
6.40%, 2/10/03................... 4,854,390
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS-- CONTINUED
<C> <S> <C>
BANKS-- CONTINUED
$ 6,000,000 National Bank of Canada,
8.13%, 8/15/04................... $ 6,316,668
500,000 Security Pacific Corp.,
10.45%, 5/8/01................... 559,918
29,966,152
ENERGY-- 0.5%
2,000,000 Ras Laffan Liquefied Natural Gas
(a),
7.63%, 9/15/06................... 2,033,704
FINANCE & INSURANCE-- 13.4%
2,000,000 American Express Credit Corp.,
6.25%, 8/10/05................... 1,981,028
3,000,000 Associated P&C Holdings, Inc. (a),
6.75%, 7/15/03................... 2,893,680
3,000,000 Bear Stearns Co., Inc.,
7.63%, 4/15/00................... 3,075,390
1,000,000 Horace Mann Educators Corp.,
6.63%, 1/15/06................... 963,587
Lehman Brothers Holdings, Inc.:
5,000,000 6.63%, 11/15/00.................... 4,979,145
2,500,000 6.84%, 10/7/99..................... 2,510,392
5,000,000 8.88%, 3/1/02...................... 5,357,505
Metropolitan Life Insurance Co.
(a):
5,000,000 6.30%, 11/1/03..................... 4,800,750
5,000,000 7.00%, 11/1/05..................... 4,934,405
5,000,000 Money Store, Inc.,
7.88%, 9/15/00................... 5,090,000
6,000,000 Progressive Corp., Ohio,
6.60%, 1/15/04................... 5,870,634
7,000,000 Salomon Incorporated,
7.20%, 2/1/04.................... 6,978,097
4,000,000 Traveler's Group, Inc.,
6.88%, 6/1/25.................... 3,991,232
53,425,845
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES-- 2.7%
5,000,000 Boral Limited Australia Co.,
7.90%, 11/19/99.................. 5,151,045
5,000,000 GTE Corp.,
10.25%, 11/1/20.................. 5,720,350
10,871,395
TRANSPORTATION-- 0.7%
2,500,000 Continental Airlines, Inc. (a),
7.46%, 4/1/13.................... 2,523,495
TOTAL CORPORATE BONDS
(COST $98,853,357)............... 98,820,591
</TABLE>
(CONTINUED)
32
<PAGE>
EVERGREEN (logo and picture of
SHORT-INTERMEDIATE BOND FUND flag)
SCHEDULE OF INVESTMENTS (CONTINUED)
June 30, 1997
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES-- 39.5%
AFC Home Equity Loan Trust:
$ 275,254 6.60%, 10/26/26.................... $ 274,973
153,907 8.05%, 4/27/26..................... 155,624
3,150,000 Chase Commercial Mortgage Security Corp.,
6.90%, 11/19/28.................... 3,075,455
3,139,786 CMC Securities Corp.,
10.00%, 7/25/23.................. 3,322,688
2,500,000 DLJ Mortgage Acceptance Corp.,
7.95%, 5/25/23................... 2,587,109
Federal Home Loan Mortgage Corp.:
1,126,515 6.75%, 2/15/04..................... 1,129,703
4,000,000 6.80%, 10/15/05.................... 4,023,880
2,000,000 6.97%, 6/16/05..................... 1,995,910
2,945,000 7.30%, 7/30/01..................... 2,946,832
9,833,952 7.40%, 10/15/05.................... 9,938,340
2,200,000 7.99%, 3/23/05..................... 2,217,195
391,210 10.50%, 9/1/15..................... 430,820
Federal Housing Administration-
Puttable Project Loans:
GMAC 56,
4,017,498 7.43%, 11/1/22..................... 4,057,299
Merrill Lynch 199,
4,672,669 8.43%, 12/31/99.................... 4,859,356
Reilly 18,
2,939,118 6.88%, 4/1/15...................... 2,924,422
Reilly 55,
1,571,878 7.43%, 3/1/24...................... 1,589,591
Reilly 64,
10,310,265 7.43%, 1/1/24...................... 10,421,616
USGI,
5,331,922 7.43%, 7/1/22...................... 5,394,380
Federal National Mortgage Assn.:
1,500,000 5.30%, 8/25/98..................... 1,490,037
500,000 6.00%, 12/15/00.................... 491,826
2,766,670 6.23%, 12/25/25.................... 2,772,987
12,000,000 6.60%, 2/14/02..................... 11,981,244
7,500,000 6.64%, 6/19/00..................... 7,502,768
5,000,000 7.11%, 8/7/01...................... 4,995,665
2,500,000 7.65%, 5/4/05...................... 2,515,170
2,100,000 8.00%, 11/25/06.................... 2,176,257
9,000,000 8.10%, 4/25/25..................... 9,343,260
9,518,330 11.00%, 1/1/99..................... 10,749,764
38,645 14.00%, 6/1/11..................... 44,743
5,000,000 Federal National Mortgage Assn.,
Medium Term Note,
6.02%, 4/14/00................... 4,997,500
1,521,066 GCC Second Mortgage Trust,
10.00%, 7/15/05.................. 1,551,275
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES-- CONTINUED
$ 5,547,633 Government National
Mortgage Assn.,
7.50%, 11/20/08..........$5,621,389
4,000,000 Kidder Peabody Acceptance
Corp.,
6.65%, 2/1/06............ 3,987,612
Potomac Gurnee Finance
Corp. (a):
2,483,287 6.89%, 12/21/26.......... 2,455,573
2,500,000 7.00%, 12/21/26.......... 2,474,625
Prudential Home Mortgage
Securities:
5,419,711 6.30%, 5/25/99............. 5,417,705
4,788,537 6.50%, 10/25/08............ 4,649,286
4,302,927 Prudential Securities
Secured Financing Corp.,
8.12%, 2/17/25........... 4,427,548
6,305,826 Saxon Mortgage Securities
Corp.,
7.38%, 9/25/23........... 6,348,265
TOTAL MORTGAGE-BACKED
SECURITIES
(COST $156,702,480) 157,339,692
U.S. GOVERNMENT AGENCY OBLIGATIONS-- 3.7%
(cost $15,000,000)
15,000,000 Federal Farm Credit Bank
Consolidated Disc. Note,
6.82%, 6/15/01........... 14,919,195
U.S. TREASURY NOTES-- 19.3%
U.S. Treasury Notes:
35,000,000 5.13%, 2/28/98.............34,868,785
9,980,000 7.00%, 7/15/06.............10,270,039
2,000,000 7.13%, 9/30/99.............2,041,874
11,000,000 7.75%, 11/30/99............11,385,000
17,400,000 8.88%, 2/15/99.............18,161,250
TOTAL U. S. TREASURY NOTES
(COST $79,099,261).......76,726,948
REPURCHASE AGREEMENT-- 0.0%
143,985 Donaldson, Lufkin &
Jenrette Securities
Corp., 5.90% dated
6/30/97, due 7/1/97,
maturity value $144,009
(Collateralized by
$98,000 U.S. Treasury
Bonds, 11.25%, due
02/15/15; value,
including accrued
interest $147,318)
(cost $143,985).......... 143,985
TOTAL INVESTMENTS--
(COST $398,505,815)...... 99.5% 396,658,262
OTHER ASSETS AND
LIABILITIES-- NET........ 0.5 2,017,390
NET ASSETS--............... 100.0% $398,675,652
(a) Securities that may be sold to qualified institutional buyers under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1997
<TABLE>
<CAPTION> (picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
CAPITAL EVERGREEN KEYSTONE INTERMEDIATE
PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
ASSETS
Investments at market value (identified
cost-- $51,556,239, $156,335,609, $28,676,532,
$79,067,842 and $398,505,815, respectively)........ $52,098,247 $158,618,369 $28,570,120 $79,538,637
Cash................................................. 16,515 283 1,758 20
Interest receivable.................................. 476,566 2,037,735 500,852 1,240,062
Receivable for investments sold...................... 135,662 0 1,388,640 0
Principal paydown receivable......................... 134,735 0 0 0
Receivable for Fund shares sold...................... 135,285 11,761 1,596 2,720
Unrealized appreciation on forward foreign currency
contracts.......................................... 0 0 55,417 0
Due from investment adviser.......................... 11,877 0 16,749 0
Prepaid expenses and other assets.................... 25,636 14,435 20,302 15,257
Total assets..................................... 53,034,523 160,682,583 30,555,434 80,796,696
LIABILITIES
Payable for investments purchased.................... 0 0 1,357,677 0
Payable for Fund shares redeemed..................... 80,751 75,274 99,777 7,807,242
Dividends payable.................................... 96,575 0 69,273 0
Distribution fee payable............................. 6,513 891 7,736 759
Due to related parties............................... 1,060 136,213 762 45,121
Unrealized depreciation on forward foreign currency
contracts.......................................... 0 0 18,338 0
Accrued expenses and other liabilities............... 29,937 44,590 34,287 30,366
Total liabilities................................ 214,836 256,968 1,587,850 7,883,488
NET ASSETS............................................. $52,819,687 $160,425,615 $28,967,584 $72,913,208
NET ASSETS REPRESENTED BY
Paid-in capital...................................... $59,369,842 $162,631,066 $32,844,616 $74,620,343
Undistributed net investment income (accumulated
distributions in excess of net investment
income)............................................ (95,813) (5,106) 242,787 (5,097)
Accumulated net realized loss on investments and
foreign currency related transactions.............. (6,996,350) (4,483,105) (4,050,016) (2,172,833)
Net unrealized appreciation (depreciation) on
investments and foreign currency related
transactions....................................... 542,008 2,282,760 (69,803) 470,795
Total net assets................................. $52,819,687 $160,425,615 $28,967,584 $72,913,208
NET ASSETS CONSIST OF
Class A.............................................. $15,751,098 $ 3,037,664 $10,340,563 $ 571,508
Class B.............................................. 32,963,820 1,012,650 11,368,453 741,650
Class C.............................................. 4,104,769 28,812 7,258,568 12,097
Class Y.............................................. -- 156,346,489 -- 71,587,953
$52,819,687 $160,425,615 $28,967,584 $72,913,208
SHARES OUTSTANDING
Class A.............................................. 1,607,197 298,775 1,157,517 57,029
Class B.............................................. 3,360,676 99,621 1,270,826 74,011
Class C.............................................. 418,845 2,834 811,659 1,207
Class Y.............................................. -- 15,380,764 -- 7,142,890
NET ASSET VALUE PER SHARE
Class A.............................................. $ 9.80 $ 10.17 $ 8.93 $ 10.02
Class A-- Offering price (based on sales charge of
3.25%)............................................. $ 10.13 $ 10.51 $ 9.23 $ 10.36
Class B.............................................. $ 9.81 $ 10.17 $ 8.95 $ 10.02
Class C.............................................. $ 9.80 $ 10.17 $ 8.94 $ 10.02
Class Y.............................................. -- $ 10.17 -- $ 10.02
<CAPTION> (picture of
flag)
SHORT-
INTERMEDIATE
FUND
<S> <C>
ASSETS
Investments at market value (identified
cost-- $51,556,239, $156,335,609, $28,676,532,
$79,067,842 and $398,505,815, respectively)........ $396,658,262
Cash................................................. 997
Interest receivable.................................. 5,731,695
Receivable for investments sold...................... 0
Principal paydown receivable......................... 0
Receivable for Fund shares sold...................... 271,580
Unrealized appreciation on forward foreign currency
contracts.......................................... 0
Due from investment adviser.......................... 0
Prepaid expenses and other assets.................... 56,168
Total assets..................................... 402,718,702
LIABILITIES
Payable for investments purchased.................... 0
Payable for Fund shares redeemed..................... 3,803,972
Dividends payable.................................... 0
Distribution fee payable............................. 16,078
Due to related parties............................... 186,244
Unrealized depreciation on forward foreign currency
contracts.......................................... 0
Accrued expenses and other liabilities............... 36,756
Total liabilities................................ 4,043,050
NET ASSETS............................................. $398,675,652
NET ASSETS REPRESENTED BY
Paid-in capital...................................... $416,539,149
Undistributed net investment income (accumulated
distributions in excess of net investment
income)............................................ (16,203)
Accumulated net realized loss on investments and
foreign currency related transactions.............. (15,999,741)
Net unrealized appreciation (depreciation) on
investments and foreign currency related
transactions....................................... (1,847,553)
Total net assets................................. $398,675,652
NET ASSETS CONSIST OF
Class A.............................................. $ 17,703,034
Class B.............................................. 22,237,190
Class C.............................................. 1,029,416
Class Y.............................................. 357,706,012
$398,675,652
SHARES OUTSTANDING
Class A.............................................. 1,800,182
Class B.............................................. 2,257,458
Class C.............................................. 104,492
Class Y.............................................. 36,392,215
NET ASSET VALUE PER SHARE
Class A.............................................. $ 9.83
Class A-- Offering price (based on sales charge of
3.25%)............................................. $ 10.16
Class B.............................................. $ 9.85
Class C.............................................. $ 9.85
Class Y.............................................. $ 9.83
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF OPERATIONS
Period Ended June 30, 1997
<TABLE>
<CAPTION>
(picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
CAPITAL EVERGREEN KEYSTONE INTERMEDIATE
PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT
FUND* FUND*** FUND** FUND***
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest (net of foreign withholding taxes of $0,
$3,364, $0, $0, $0, respectively)................... $3,173,485 $11,145,047 $2,343,240 $5,768,839
EXPENSES
Management fee........................................ 284,977 987,044 202,102 546,941
Distribution Plan expenses............................ 346,141 14,407 228,750 8,731
Transfer agent fees................................... 83,571 66,508 83,025 35,360
Custodian fees........................................ 51,296 82,597 39,350 51,941
Administrative services fees.......................... 34,481 69,536 11,267 38,083
Professional fees..................................... 23,622 17,269 26,033 16,910
Registration and filing fees.......................... 42,963 53,298 25,890 90,281
Trustees' fees and expenses........................... 0 4,106 0 4,047
Organization expenses................................. 0 986 0 1,035
Other................................................. 25,905 44,367 32,197 26,280
Fee waivers and/or expense reimbursement by
affiliates.......................................... (245,255) (5,480) (145,636) (73,557)
Total expenses...................................... 647,701 1,334,638 502,978 746,052
Less: Indirectly paid expenses........................ (11,507) (640) (6,039) (641)
Net expenses........................................ 636,194 1,333,998 496,939 745,411
NET INVESTMENT INCOME................................. 2,537,291 9,811,049 1,846,301 5,023,428
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain (loss) on:
Investments......................................... (101,173) (1,614,828) (207,489) (16,049)
Foreign currency related transactions............... 0 0 311,507 0
Net realized gain on investments and foreign currency
related transactions................................ (101,173) (1,614,828) 104,018 (16,049)
Net change in unrealized appreciation on:
Investments......................................... 279,120 2,782,704 589,966 219,766
Foreign currency related transactions............... 0 0 79,789 0
Net change in unrealized appreciation on investments
and foreign currency related transactions........... 279,120 2,782,704 669,755 219,766
Net realized and unrealized gain on investments and
foreign currency related transactions............... 177,947 1,167,876 773,773 203,717
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $2,715,238 $10,978,925 $2,620,074 $5,227,145
<CAPTION>
(picture of
flag)
SHORT-
INTERMEDIATE
FUND***
<S> <C>
INVESTMENT INCOME
Interest (net of foreign withholding taxes of $0,
$3,364, $0, $0, $0, respectively)................... $28,349,460
EXPENSES
Management fee........................................ 1,998,063
Distribution Plan expenses............................ 251,695
Transfer agent fees................................... 96,271
Custodian fees........................................ 78,107
Administrative services fees.......................... 167,636
Professional fees..................................... 19,246
Registration and filing fees.......................... 57,771
Trustees' fees and expenses........................... 9,310
Organization expenses................................. 0
Other................................................. 47,316
Fee waivers and/or expense reimbursement by
affiliates.......................................... 0
Total expenses...................................... 2,725,415
Less: Indirectly paid expenses........................ (2,308)
Net expenses........................................ 2,723,107
NET INVESTMENT INCOME................................. 25,626,353
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain (loss) on:
Investments......................................... (2,101,788)
Foreign currency related transactions............... 0
Net realized gain on investments and foreign currency
related transactions................................ (2,101,788)
Net change in unrealized appreciation on:
Investments......................................... 2,666,233
Foreign currency related transactions............... 0
Net change in unrealized appreciation on investments
and foreign currency related transactions........... 2,666,233
Net realized and unrealized gain on investments and
foreign currency related transactions............... 564,445
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... $26,190,798
</TABLE>
* Nine months ended June 30, 1997. During the period, the Fund changed its
fiscal year end from September 30 to June 30.
** Eleven months ended June 30, 1997. During the period, the Fund changed its
fiscal year end from July 31 to June 30.
*** Year ended June 30, 1997.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF OPERATIONS
Prior Periods
<TABLE>
<CAPTION> (picture of (picture of
capital) stars)
CAPITAL KEYSTONE
PRESERVATION INTERMEDIATE
FUND* FUND**
<S> <C> <C>
INVESTMENT INCOME
Interest................................................................................... $5,536,633 $3,205,120
EXPENSES
Management fee............................................................................. 493,147 273,644
Distribution Plan expenses................................................................. 610,933 312,408
Transfer agent fees........................................................................ 139,248 106,796
Custodian fees............................................................................. 57,386 46,630
Administrative services fees............................................................... 24,176 23,963
Professional fees.......................................................................... 37,958 29,575
Registration and filing fees............................................................... 45,925 41,731
Organization expenses...................................................................... 3,896 0
Other...................................................................................... 34,903 27,827
Fee waivers and/or expense reimbursement by affiliates..................................... (341,016) (191,096)
Total expenses........................................................................... 1,106,556 671,478
Less: Indirectly paid expenses............................................................. (12,182) (6,981)
Net expenses............................................................................. 1,094,374 664,497
NET INVESTMENT INCOME...................................................................... 4,442,259 2,540,623
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments.............................................................................. (549,777) (35,859)
Foreign currency related transactions.................................................... 0 62,463
Net realized gain (loss) on investments and foreign currency related transactions.......... (549,777) 26,604
Net change in unrealized appreciation (depreciation) on:
Investments.............................................................................. 648,310 (687,165)
Foreign currency related transactions.................................................... 0 (43,181)
Net change in unrealized appreciation (depreciation) on investments and foreign currency
related transactions..................................................................... 648,310 (730,346)
Net realized and unrealized gain (loss) on investments and foreign currency related
transactions............................................................................. 98,533 (703,742)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....................................... $4,540,792 $1,836,881
</TABLE>
* Year ended September 30, 1996.
** Year ended July 31, 1996.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Period Ended June 30, 1997
<TABLE>
<CAPTION> (picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
CAPITAL EVERGREEN KEYSTONE INTERMEDIATE
PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT
FUND* FUND*** FUND** FUND***
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income................................ $ 2,537,291 $ 9,811,049 $ 1,846,301 $ 5,023,428
Net realized gain (loss) on investments and foreign
currency related transactions...................... (101,173) (1,614,828) 104,018 (16,049)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions....................................... 279,120 2,782,704 669,755 219,766
<CAPTION>
Net increase in net assets resulting from
operations....................................... 2,715,238 10,978,925 2,620,074 5,227,145
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................ (710,409) (179,161) (666,667) (31,632)
Class B............................................ (1,412,040) (36,467) (719,674) (29,748)
Class C............................................ (160,768) (1,275) (417,078) (1,189)
Class Y............................................ 0 (9,653,448) 0 (4,959,781)
In excess of net investment income:
Class A............................................ (20,595) 0 0 (97)
Class B............................................ (40,936) 0 0 (91)
Class C............................................ (4,661) 0 0 (4)
Class Y............................................ 0 0 0 (15,207)
Tax basis return of capital
Class A............................................ 0 (1,220) 0 0
Class B............................................ 0 (248) 0 0
Class C............................................ 0 (9) 0 0
Class Y............................................ 0 (65,758) 0 0
Total distributions to shareholders................ (2,349,409) (9,937,586) (1,803,419) (5,037,749)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 8,631,265 50,138,853 3,559,906 35,487,793
Proceeds from reinvestment of distributions.......... 1,854,608 6,780,391 1,095,398 3,993,534
Payment for shares redeemed.......................... (28,964,306) (58,718,452) (14,580,292) (54,650,906)
Net increase (decrease) in net assets resulting
from capital share transactions.................. (18,478,433) (1,799,208) (9,924,988) (15,169,579)
Total increase (decrease) in net assets.......... (18,112,604) (757,869) (9,108,333) (14,980,183)
NET ASSETS
Beginning of period.................................. 70,932,291 161,183,484 38,075,917 87,893,391
END OF PERIOD........................................ $52,819,687 $160,425,615 $28,967,584 $72,913,208
Undistributed net investment income (accumulated
distributions in excess of net investment income).... $ (95,813) $ (5,106) $ 242,787 $ (5,097)
<CAPTION>
(picture of
flag)
SHORT-
INTERMEDIATE
FUND***
<S> <C>
OPERATIONS
Net investment income................................ $ 25,626,353
Net realized gain (loss) on investments and foreign
currency related transactions...................... (2,101,788)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions....................................... 2,666,233
Net increase in net assets resulting from
operations....................................... 26,190,798
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................ (1,217,283)
Class B............................................ (1,225,460)
Class C............................................ (58,085)
Class Y............................................ (23,369,583)
In excess of net investment income:
Class A............................................ 0
Class B............................................ 0
Class C............................................ 0
Class Y............................................ 0
Tax basis return of capital
Class A............................................ 0
Class B............................................ 0
Class C............................................ 0
Class Y............................................ 0
Total distributions to shareholders................ (25,870,411)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 122,641,025
Proceeds from reinvestment of distributions.......... 15,137,626
Payment for shares redeemed.......................... (132,309,835)
Net increase (decrease) in net assets resulting
from capital share transactions.................. 5,468,816
Total increase (decrease) in net assets.......... 5,789,203
NET ASSETS
Beginning of period.................................. 392,886,449
END OF PERIOD........................................ $398,675,652
Undistributed net investment income (accumulated
distributions in excess of net investment income).... $ (16,203)
</TABLE>
* Nine months ended June 30, 1997. During the period, the Fund changed its
fiscal year end from September 30 to June 30.
** Eleven months ended June 30, 1997. During the period, the Fund changed its
fiscal year end from July 31 to June 30.
*** Year ended June 30, 1997.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Fiscal Periods Ended 1996
<TABLE>
<CAPTION>
(picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
CAPITAL EVERGREEN KEYSTONE INTERMEDIATE
PRESERVATION INTERMEDIATE INTERMEDIATE GOVERNMENT
FUND* FUND** FUND*** FUND**
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income................................ $ 4,442,259 $ 5,797,073 $ 2,540,623 $ 4,606,598
Net realized gain (loss) on investments and foreign
currency related transactions...................... (549,777) 314,598 26,604 11,468
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions....................................... 648,310 (3,327,986) (730,346) (1,507,190)
Net increase in net assets resulting from
operations....................................... 4,540,792 2,783,685 1,836,881 3,110,876
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................ (1,089,444) (35,386) (898,299) (23,774)
Class B............................................ (2,568,398) (2,841) (1,028,103) (2,363)
Class C............................................ (147,748) (169) (576,335) (255)
Class Y............................................ 0 (5,670,902) 0 (4,562,840)
Tax basis return of capital:
Class A............................................ (52,292) 0 0 0
Class B............................................ (123,279) 0 0 0
Class C............................................ (7,092) 0 0 0
Total distributions to shareholders................ (3,988,253) (5,709,298) (2,502,737) (4,589,232)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 12,691,883 38,531,458 10,120,565 13,828,502
Proceeds from shares issued in the acquisition of
Evergreen Managed Bond Fund........................ 0 79,773,557 0 0
Proceeds from reinvestment of distributions.......... 2,823,494 4,544,198 1,417,473 4,095,518
Payment for shares redeemed.......................... (30,181,809) (54,860,961) (15,524,524) (34,626,524)
Net increase (decrease) in net assets resulting
from capital share transactions.................. (14,666,432) 67,988,252 (3,986,486) (16,702,504)
Total increase (decrease) in net assets.......... (14,113,893) 65,062,639 (4,652,342) (18,180,860)
NET ASSETS
Beginning of period.................................. 85,046,184 96,120,845 42,728,259 106,074,251
END OF PERIOD........................................ $70,932,291 $161,183,484 $38,075,917 $87,893,391
Undistributed net investment income (accumulated
distributions in excess of net investment income).... $ (305,808) $ 87,592 $ (21,199) $ 17,332
<CAPTION>
(picture of
flag)
SHORT-
INTERMEDIATE
FUND****
<S> <C>
OPERATIONS
Net investment income................................ $ 24,943,586
Net realized gain (loss) on investments and foreign
currency related transactions...................... (4,715,061)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency related
transactions....................................... (2,841,758)
Net increase in net assets resulting from
operations....................................... 17,386,767
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................ (1,165,625)
Class B............................................ (1,059,184)
Class C............................................ (49,329)
Class Y............................................ (23,005,091)
Tax basis return of capital:
Class A............................................ 0
Class B............................................ 0
Class C............................................ 0
Total distributions to shareholders................ (25,279,229)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................ 170,338,605
Proceeds from shares issued in the acquisition of
Evergreen Managed Bond Fund........................ 0
Proceeds from reinvestment of distributions.......... 18,879,027
Payment for shares redeemed.......................... (172,279,164)
Net increase (decrease) in net assets resulting
from capital share transactions.................. 16,938,468
Total increase (decrease) in net assets.......... 9,046,006
NET ASSETS
Beginning of period.................................. 383,840,443
END OF PERIOD........................................ $392,886,449
Undistributed net investment income (accumulated
distributions in excess of net investment income).... $ 98,373
</TABLE>
* Year ended September 30, 1996.
** Ten months ended June 30, 1996. The Fund changed its fiscal year end from
August 31 to June 30.
*** Year ended July 31, 1996.
**** Year ended June 30, 1996.
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
EVERGREEN KEYSTONE
(logo)
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION> picture of (picture of (picture of (picture of
capital) star) stars) George
Washington)
EVERGREEN KEYSTONE
CAPITAL INTERMEDIATE INTERMEDIATE INTERMEDIATE
PRESERVATION FUND FUND FUND GOVERNMENT FUND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 AUGUST 31, 1995 JULY 31, 1995 AUGUST 31, 1995
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income................................. $ 5,308,068 $ 5,110,145 $ 2,911,914 $ 5,851,118
Net realized gain (loss) on investments and foreign
currency related transactions....................... (1,162,200) (741,577) (583,642) (1,236,390)
Net change in unrealized appreciation (depreciation)
on investments and futures contracts................ 1,169,382 4,454,061 628,176 3,611,699
Net increase in net assets resulting from
operations........................................ 5,315,250 8,822,629 2,956,448 8,226,427
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income:
Class A............................................. (909,585) (2,134) (1,002,996) (10,951)
Class B............................................. (3,706,229) 0 (1,010,554) 0
Class C............................................. (143,406) 0 (654,159) 0
Class Y............................................. 0 (5,105,153) 0 (5,850,108)
In excess of net investment income:
Class A............................................. (26,148) 0 (61,783) 0
Class B............................................. (106,543) 0 (62,249) 0
Class C............................................. (4,122) 0 (40,296) 0
Net realized gain on investments:
Class Y............................................. 0 (401,810) 0 0
Total distributions to shareholders................. (4,896,033) (5,509,097) (2,832,037) (5,861,059)
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold............................. 28,808,789 16,277,483 8,978,216 19,842,837
Proceeds from shares issued in the acquisition of
Keystone America Capital Preservation and Income
Fund-- Class A...................................... 23,825,980 0 0 0
Proceeds from reinvestment of distributions........... 3,281,799 4,957,099 1,575,164 5,214,391
Payment for shares redeemed........................... (69,924,430) (20,151,849) (14,890,499) (27,796,468)
Net increase (decrease) in net assets resulting from
capital share transactions........................ (14,007,862) 1,082,733 (4,337,119) (2,739,240)
Total increase (decrease) in net assets........... (13,588,645) 4,396,265 (4,212,708) (373,872)
NET ASSETS
Beginning of period................................... 98,634,829 91,724,580 46,940,967 106,448,123
END OF PERIOD......................................... $ 85,046,184 $96,120,845 $42,728,259 $ 106,074,251
Accumulated distributions in excess of net investment
income................................................ $ (415,117) $ (183) $ (94,328) $ (34)
</TABLE>
SEE COMBINED NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Evergreen Keystone Short and Intermediate Term Bond Funds consist of
Keystone Capital Preservation and Income Fund ("Capital Preservation Fund"),
Evergreen Intermediate-Term Bond Fund ("Evergreen Intermediate Fund"), Keystone
Intermediate Term Bond Fund ("Keystone Intermediate Fund"), Evergreen
Intermediate-Term Government Securities Fund ("Intermediate Government Fund")
and Evergreen Short-Intermediate Bond Fund ("Short-Intermediate Fund"),
(collectively, the "Funds"), all of which are registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as diversified, open-end
management investment companies. The Evergreen Intermediate Fund and the
Intermediate Government Fund are separate series of The Evergreen Lexicon Fund
and Short-Intermediate Fund is a separate series of the Evergreen Investment
Trust.
The Funds offer Class A, Class B, Class C and/or Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 3.25%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending on
how long the shares have been held. Class C shares are sold subject to a
contingent deferred sales charge payable on shares redeemed within one year
after the month of purchase. Class B shares purchased after January 1, 1997 will
automatically convert to Class A shares after seven years. Class B shares
purchased prior to January 1, 1997 retain their existing conversion rights.
Class Y shares are sold at net asset value and are not subject to contingent
deferred sales charges or distribution fees. Class Y shares are sold only to
investment advisory clients of First Union and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other funds
managed by First Union and its affiliates as of December 30, 1994.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
U.S. government obligations held by the Funds are valued at the mean between the
over-the-counter bid and asked prices. Corporate bonds, other fixed-income
securities, and mortgage and other asset-backed securities are valued at prices
provided by an independent pricing service. In determining value for normal
institutional-size transactions, the pricing service uses methods based on
market transactions for comparable securities and analysis of various
relationships between similar securities which are generally recognized by
institutional traders. Securities for which valuations are not available from an
independent pricing service (including restricted securities) are valued at fair
value as determined in good faith according to procedures established by the
Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securities
pledged falls below the carrying value of the repurchase agreement, including
accrued interest. Each Fund will only enter into repurchase agreements with
banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Capital Preservation and Keystone Intermediate Funds, along with certain
other funds managed by Keystone, may transfer uninvested cash balances into a
joint trading account. These balances are invested in one or more repurchase
agreements that are fully collateralized by U.S. Treasury and/or federal agency
obligations.
C. REVERSE REPURCHASE AGREEMENTS
To obtain short-term financing, Capital Preservation and Keystone Intermediate
Fund may enter into reverse repurchase agreements with qualified third-party
broker-dealers. Interest on the value of reverse repurchase agreements is based
upon competitive market rates at the time of issuance. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with the custodian containing qualifying assets having a
value not less than the repurchase price, including accrued interest. If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
D. FOREIGN CURRENCY
The books and records of the Funds are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net unrealized
foreign exchange gain (loss) resulting from changes in foreign currency exchange
rates is a component of net unrealized appreciation (depreciation) on
investments and foreign currency related transactions. Net realized foreign
currency gains and losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date on
investment securities transactions and foreign currency related transactions and
is included in realized gain (loss) on foreign currency related transactions.
Foreign currency transactions related to the difference between the amounts of
interest and dividends recorded on the books of the Fund and the amount actually
received is included in gross investment income. The portion of foreign currency
gains and losses related to fluctuations in exchange rates between the initial
purchase trade date and subsequent sale trade date is included in realized gain
(loss) on investments.
40
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premium.
F. DISTRIBUTIONS
Distributions from net investment income for the Capital Preservation and
Keystone Intermediate Funds are declared daily and paid monthly. Distributions
from net investment income are declared and paid monthly for the Evergreen
Intermediate, Intermediate Government and Short-Intermediate Funds.
Distributions from net realized capital gains, if any, are paid at least
annually. Distributions to shareholders are recorded at the close of business on
the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. The significant differences between financial statement
amounts available for distributions and distributions made in accordance with
income tax regulations are primarily due to differing treatment for mortgage
paydown gains (losses) and foreign securities transactions, if any.
G. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for each class.
H. ORGANIZATION EXPENSES
For the Evergreen Intermediate and Intermediate Government Funds, organization
expenses were amortized to operations over a five-year period on a straight-line
basis. During the year ended June 30, 1997, organization costs were fully
amortized for the Evergreen Intermediate and Intermediate Government Funds.
I. FEDERAL INCOME TAXES
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable
income, net tax-exempt income and net capital gains, if any, to their
shareholders. The Funds also intend to avoid any excise tax liability by making
the required distributions under the Code. Accordingly, no provision for federal
income taxes is required. To the extent that realized capital gains can be
offset by capital loss carryforwards, it is each Fund's policy not to distribute
such gains.
2. CAPITAL SHARE TRANSACTIONS
The Capital Preservation Fund and Keystone Intermediate Fund have unlimited
number of shares of beneficial interest with no par value authorized. The
Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate
Fund each have unlimited number of shares of beneficial interest with a par
value of $0.0001 authorized. Shares of beneficial interest of the Funds are
currently divided into Class A, Class B, Class C and/or Class Y. Transactions in
shares of the Funds were as follows:
CAPITAL PRESERVATION FUND
<TABLE>
<CAPTION>
DECEMBER 30, 1994
(COMMENCEMENT OF
NINE MONTHS ENDED YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 534,956 $ 5,229,171 808,295 $ 7,859,112 72,460 $ 699,481
Share issued in acquisition of Keystone America
Capital Preservation Income Fund.............. 0 0 0 0 2,506,041 23,825,980
Shares issued in reinvestment of
distributions................................. 61,902 604,810 89,475 865,840 71,420 689,075
Shares redeemed................................. (1,318,046) (12,878,080) (563,085) (5,471,951) (656,221) (6,023,682)
Net increase (decrease)......................... (721,188) $ (7,044,099) 334,685 $ 3,253,001 1,993,700 $ 19,190,854
</TABLE>
41
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CAPITAL PRESERVATION FUND-- continued
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS B
Shares sold..................................... 182,841 $ 1,788,928 282,004 $ 2,742,007 2,758,618 $ 26,668,622
Shares issued in reinvestment of
distributions................................. 114,536 1,119,992 187,040 1,829,883 257,649 2,480,740
Shares redeemed................................. (1,459,187) (14,270,487) (2,455,640) (23,865,587) (6,464,191) (62,204,625)
Net decrease.................................... (1,161,810) $(11,361,567) (1,986,596) $(19,293,697) (3,447,924) $(33,055,263)
CLASS C
Shares sold..................................... 164,962 $ 1,613,166 215,390 $ 2,090,764 150,700 $ 1,440,686
Shares issued in reinvestment of
distributions................................. 13,283 129,806 12,718 127,771 11,638 111,984
Shares redeemed................................. (185,566) (1,815,739) (86,982) (844,271) (176,498) (1,696,123)
Net increase (decrease)......................... (7,321) $ (72,767) 141,126 $ 1,374,264 (14,160) $ (143,453)
</TABLE>
EVERGREEN INTERMEDIATE FUND
<TABLE>
<CAPTION>
MAY 2, 1995
(COMMENCEMENT OF
YEAR ENDED TEN MONTHS ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 52,051 $ 529,465 292,734 $ 2,962,857 24,799 $ 255,892
Shares issued in reinvestment of
distributions................................. 17,590 178,344 3,368 34,080 209 2,134
Shares redeemed................................. (62,211) (632,271) (20,323) (206,789) (9,442) (96,968)
Net increase.................................... 7,430 $ 75,538 275,779 $ 2,790,148 15,566 $ 161,058
</TABLE>
<TABLE>
<CAPTION>
JANUARY 30, 1996
(COMMENCEMENT OF
YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS B
Shares sold..................................... 62,610 $ 633,834 40,844 $ 415,640
Shares issued in reinvestment of
distributions................................. 2,120 21,504 228 2,296
Shares redeemed................................. (4,937) (50,000) (1,244) (12,553)
Net increase.................................... 59,793 $ 605,338 39,828 $ 405,383
</TABLE>
<TABLE>
<CAPTION>
APRIL 29, 1996
(COMMENCEMENT OF
YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS C
Shares sold..................................... 490 $ 5,000 2,450 $ 24,797
Shares issued in reinvestment of
distributions................................. 126 1,282 16 167
Shares redeemed................................. (249) (2,514) 0 0
Net increase.................................... 367 $ 3,768 2,466 $ 24,964
</TABLE>
42
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
EVERGREEN INTERMEDIATE FUND-- continued
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS Y
Shares sold..................................... 4,825,919 $ 48,970,554 3,399,442 $ 35,128,164 1,606,066 $ 16,021,590
Shares issued in acquisition of Evergreen
Managed Bond Fund............................. 0 0 7,674,423 79,773,557 0 0
Shares issued in reinvestment of
distributions................................. 649,188 6,579,261 438,427 4,507,655 498,736 4,954,965
Shares redeemed................................. (5,719,188) (58,033,667) (5,208,789) (54,641,619) (2,018,177) (20,054,880)
Net increase (decrease)......................... (244,081) $ (2,483,852) 6,303,503 $ 64,767,757 86,625 $ 921,675
</TABLE>
KEYSTONE INTERMEDIATE FUND
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JULY 31, 1996 JULY 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold........................................ 175,221 $ 1,566,271 258,497 $ 2,283,194 214,382 $ 1,875,188
Shares issued in reinvestment of distributions..... 45,592 404,429 52,934 469,775 61,155 533,202
Shares redeemed.................................... (547,872) (4,863,536) (465,961) (4,141,580) (449,814) (3,937,486)
Net decrease....................................... (327,059) $(2,892,836) (154,530) $(1,388,611) (174,277) $(1,529,096)
CLASS B
Shares sold........................................ 170,620 $ 1,528,256 555,555 $ 4,965,806 566,892 $ 4,978,695
Shares issued in reinvestment of distributions..... 46,270 411,336 63,537 565,232 66,016 576,332
Shares redeemed.................................... (779,593) (6,943,044) (808,199) (7,205,208) (624,636) (5,447,096)
Net increase (decrease)............................ (562,703) $(5,003,452) (189,107) $(1,674,170) 8,272 $ 107,931
CLASS C
Shares sold........................................ 52,022 $ 465,379 318,799 $ 2,871,565 243,954 $ 2,124,333
Shares issued in reinvestment of distributions..... 31,491 279,633 42,997 382,466 53,388 465,630
Shares redeemed.................................... (311,128) (2,773,712) (468,122) (4,177,736) (630,936) (5,505,917)
Net decrease....................................... (227,615) $(2,028,700) (106,326) $ (923,705) (333,594) $(2,915,954)
</TABLE>
INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
MAY 2, 1995
TEN MONTHS (COMMENCEMENT OF
YEAR ENDED ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold..................................... 10,763 $ 107,284 64,791 $ 663,129 879 $ 8,925
Shares issued in reinvestment of
distributions................................. 2,429 24,330 1,503 15,239 0 0
Shares redeemed................................. (5,953) (59,462) (17,382) (175,816) 0 0
Net increase.................................... 7,239 $ 72,152 48,912 $ 502,552 879 $ 8,925
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 9, 1996
(COMMENCEMENT OF
YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS B
Shares sold..................................... 49,960 $ 500,124 35,925 $ 359,696
Shares issued in reinvestment of
distributions................................. 1,735 17,379 67 666
Shares redeemed................................. (13,674) (136,147) (2) (23)
Net increase.................................... 38,021 $ 381,356 35,990 $ 360,339
</TABLE>
43
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT FUND-- continued
APRIL 10, 1996
(COMMENCEMENT OF
YEAR ENDED CLASS OPERATIONS) TO
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS C
Shares sold..................................... 2,288 $ 22,910 3,551 $ 35,538
Shares issued in reinvestment of
distributions................................. 85 967 26 254
Shares redeemed................................. (4,419) (44,414) (324) (3,205)
Net increase (decrease)......................... (2,046) $ (20,537) 3,253 $ 32,587
</TABLE>
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996 AUGUST 31, 1995
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
CLASS Y
Shares sold..................................... 3,476,575 $ 34,857,475 1,257,974 $ 12,770,139 1,999,05 $ 19,833,912
Shares issued in reinvestment of
distributions................................. 394,427 3,950,858 402,054 4,079,359 526,254 5,214,391
Shares redeemed................................. (5,437,776) (54,410,883) (3,404,763) (34,447,480) (2,799,781) (27,796,468)
Net increase (decrease)......................... (1,566,774) $(15,602,550) 1,744,735 $ 17,597,982 (274,476) $ (2,748,165)
</TABLE>
SHORT-INTERMEDIATE FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
SHARES AMOUNT SHARES AMOUNT
CLASS A
Shares sold........................................................... 584,893 $ 5,786,371 417,422 $ 4,161,754
Shares issued in reinvestment of distributions........................ 93,998 924,863 91,045 906,558
Shares redeemed....................................................... (775,720) (7,650,833) (498,266) (4,979,754)
Net increase (decrease)............................................... (96,829) $ (939,599) 10,201 $ 88,558
CLASS B
Shares sold........................................................... 520,912 $ 5,138,212 844,991 $ 8,456,439
Shares issued in reinvestment of distributions........................ 87,527 862,791 74,101 739,247
Shares redeemed....................................................... (486,579) (4,795,124) (512,788) (5,128,366)
Net increase.......................................................... 121,860 $ 1,205,879 406,304 $ 4,067,320
CLASS C
Shares sold........................................................... 35,729 $ 354,646 94,089 $ 944,432
Shares issued in reinvestment of distributions........................ 4,508 44,442 3,083 30,731
Shares redeemed....................................................... (53,064) (524,077) (32,296) (321,263)
Net increase (decrease)............................................... (12,827) $ (124,989) 64,876 $ 653,900
CLASS Y
Shares sold........................................................... 11,302,391 $111,361,796 15,667,603 $156,775,980
Shares issued in reinvestment of distributions........................ 1,353,407 13,305,530 1,726,865 17,202,491
Shares redeemed....................................................... (12,121,462) (119,339,801) (16,165,702) (161,849,781)
Net increase.......................................................... 534,336 $ 5,327,525 1,228,766 $ 12,128,690
</TABLE>
44
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended June 30, 1997:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OTHER U.S. GOVERNMENT OTHER
<CAPTION>
<S> <C> <C> <C> <C>
Capital Preservation Fund*............ $ 30,413,800 $ 0 $ 42,505,286 $ 0
Evergreen Intermediate Fund........... 108,340,939 24,077,086 138,666,138 6,840,920
Keystone Intermediate Fund**.......... 28,261,905 30,738,558 31,902,091 36,582,139
Intermediate Government Fund.......... 59,320,521 0 65,407,081 0
Short-Intermediate Fund............... 103,309,243 113,815,506 71,256,326 99,358,914
</TABLE>
* For the nine months ended June 30, 1997
** For the eleven months ended June 30, 1997
The average daily balance of reverse repurchase agreements outstanding for the
Capital Preservation Fund and the Keystone Intermediate Fund during the period
ended June 30, 1997 was approximately $988,000 and $1,102,000, respectively, at
a weighted average interest rate of 5.40% and 5.58%, respectively. The maximum
amount outstanding under reverse repurchase agreements during the period ended
June 30, 1997 for the Capital Preservation Fund was $4,066,236 (including
accrued interest) and $2,017,983 (including accrued interest) for Keystone
Intermediate Fund. There were no reverse repurchase agreements outstanding at
June 30, 1997 for either Fund.
On June 30, 1997, the composition of gross unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal tax purposes was as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
TAX UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
<S> <C> <C> <C> <C>
Capital Preservation Fund.................. $ 51,559,754 $ 541,790 $ (3,297) $ 538,493
Evergreen Intermediate Fund................ 156,347,538 3,200,532 (929,701) 2,270,831
Keystone Intermediate Fund................. 28,676,532 258,959 (365,371) (106,412)
Intermediate Government Fund............... 79,147,737 712,159 (321,259) 390,900
Short-Intermediate Fund.................... 398,505,815 3,176,863 (5,024,416) (1,847,553)
</TABLE>
As of June 30, 1997, the Funds had capital loss carryovers for federal income
tax purposes as follows:
<TABLE>
<CAPTION>
EXPIRATION
<S> <C> <C> <C> <C> <C> <C>
1999 2001 2002 2003 2004 2005
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Capital Preservation Fund.......... -- $5,900,000 $ 197,000 $642,000 $ 254,000 $ --
Evergreen Intermediate Fund........ -- 1,440,000 -- 907,000 211,000 1,200,000
Keystone Intermediate Fund......... $970,000 -- 2,688,000 94,000 -- 147,000
Intermediate Government Fund....... -- -- -- 642,000 1,140,000 --
Short-Intermediate Fund............ -- -- 6,021,000 -- 4,049,000 4,374,000
</TABLE>
4. DISTRIBUTION PLANS
Since December 11, 1996, Evergreen Keystone Distributor, Inc. (formerly,
Evergreen Funds Distributor, Inc.) ("EKD"), a wholly-owned subsidiary of The
BISYS Group Inc. ("BISYS") has served as principal underwriter to the Capital
Preservation Fund and the Keystone Intermediate Fund. Prior to December 11,
1996, Evergreen Keystone Investment Services, Inc. ("EKIS"), a wholly-owned
subsidiary of Keystone, served as the principal underwriter. EKD also serves as
the principal underwriter for the Evergreen Intermediate, Intermediate
Government and Short-Intermediate Funds.
Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit each Fund to reimburse its
principal underwriter for costs related to selling shares of the Fund and for
various other services. These costs, which consist primarily of commissions and
service fees to broker-dealers who sell shares of the Fund, are paid by
shareholders through expenses called "Distribution Plan expenses". Each class,
except Class Y, currently pays a service fee equal to 0.25% of the average daily
net assets of the class. The service fee for Class A shares of
Short-Intermediate is currently limited to 0.10% of average daily net assets.
Class B and Class C also presently pay distribution fees equal to 0.75% of the
average daily net assets of each respective class. Distribution Plan expenses
are calculated daily and paid monthly.
With respect to Class B and Class C shares of the Capital Preservation Fund and
the Keystone Intermediate Fund, the principal underwriter may incur costs
greater than the allowable annual amounts the Fund is permitted to pay. The Fund
may reimburse the principal underwriter for such excess amounts in later years
with annual interest at the prime rate plus 1.00%.
45
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the year ended June 30, 1997, amounts accrued or paid to EKD and/or EKIS
pursuant to each Fund's Class A, Class B and Class C Distribution Plans were as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Capital Preservation Fund*............................................ $28,581 $285,293 $32,267
Evergreen Intermediate Fund........................................... 6,972 7,180 255
Keystone Intermediate Fund**.......................................... 24,268 129,648 74,834
Intermediate Government Fund.......................................... 2,047 6,442 242
Short-Intermediate Fund............................................... 18,961 222,264 10,470
</TABLE>
* For the nine months ended June 30, 1997
** For the eleven months ended June 30, 1997
For the year ended June 30, 1997, EKD voluntarily waived Class A distribution
fees for the Evergreen Intermediate and Intermediate Government Funds in the
amounts of $5,480 and $1,763, respectively.
Each of the Distribution Plans for the Capital Preservation and the Keystone
Intermediate Funds may be terminated at any time by vote of the Independent
Trustees or by vote of a majority of the outstanding voting shares of the
respective class. However, after the termination of any Distribution Plan, and
subject to the discretion of the Independent Trustees, payments to EKIS and/or
EKD may continue as compensation for services which had been earned while the
Distribution Plan was in effect.
EKD intends, but is not obligated, to continue to pay distribution costs that
exceed the current annual payments from the Fund. EKD intends to seek full
payment of such distribution costs from the Fund at such time in the future as,
and to the extent that, payment thereof by the Class B or Class C shares would
be within permitted limits.
EKD and/or its predecessor has advised the Funds that it has retained front-end
sales charges resulting from the sales of Class A shares during the period ended
June 30, 1997 as follows:
<TABLE>
<S> <C>
Capital Preservation Fund....................................................... $ 9,851
Evergreen Intermediate Fund..................................................... 504
Keystone Intermediate Fund...................................................... 11,043
Intermediate Government Fund.................................................... 77
Short-Intermediate Fund......................................................... 6,833
</TABLE>
Contingent deferred sales charges paid by redeeming shareholders are paid to EKD
or its predecessor.
5. INVESTMENT MANAGEMENT AGREEMENT AND OTHER AFFILIATED TRANSACTIONS
Keystone Investment Management Company ("Keystone"), a subsidiary of First Union
Corporation ("First Union"), is the investment adviser for the Capital
Preservation Fund and the Keystone Intermediate Fund. In return for providing
investment management and administrative services, each Fund pays Keystone a
management fee that is calculated daily and paid monthly. The management fee is
computed at an annual rate of 2.00% of the each respective Fund's gross
investment income plus an amount determined by applying percentage rates
starting at 0.50% and declining to 0.25% per annum as net assets increase, to
the average daily net asset value of the Fund. Prior to December 11, 1996,
Keystone Management, Inc. ("KMI"), a wholly-owned subsidiary of Keystone, served
as investment manager to the Keystone Intermediate Fund and provided investment
management and administrative services. Under an investment advisory agreement
between KMI and Keystone, Keystone served as the investment adviser and provided
investment advisory and management services to the Keystone Intermediate Fund.
In return for its services, Keystone received an annual fee equal to 85% of the
management fee received by KMI.
Effective January 1, 1997, BISYS became the sub-administrator to the Capital
Preservation and Keystone Intermediate Funds and is paid by Keystone.
First Union serves as the investment adviser to the Evergreen Intermediate Fund,
Intermediate Government Fund and Short-Intermediate Fund and is paid a
management fee that is computed daily and paid monthly. For the Evergreen
Intermediate Fund and the Intermediate Government Fund, First Union is entitled
to a fee at an annual rate of 0.60% of each Fund's respective average daily net
assets. For the Short-Intermediate Fund, First Union is entitled to a fee at an
annual rate of 0.50% of the Fund's average daily net assets.
For Evergreen Intermediate Fund, Intermediate Government Fund and
Short-Intermediate Fund, Evergreen Keystone Investment Services, Inc. ("EKIS"),
a subsidiary of First Union, is the administrator. Prior to March 11, 1997,
Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly-owned subsidiary
of First Union, was the administrator. Furman Selz LLC ("Furman Selz") was the
sub-administrator through December 31, 1996. Effective January 1, 1997, BISYS
acquired Furman Selz' mutual fund unit and accordingly BISYS became
sub-administrator. The administrator and sub-administrator for each Fund is
entitled to an annual fee based on the average daily net assets of the funds
administered by EKIS for which First Union or its investment advisory
subsidiaries are also the investment advisors. The administration fee is
calculated by applying percentage rates, which start at 0.05% and decline to
0.01% per annum as net assets increase, to the average daily net asset value of
the
46
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Fund. The sub-administration fee is calculated by applying percentage rates,
which start at 0.01% and decline to .004% as net assets increase, to the average
daily net asset value of the Fund.
For the Capital Preservation and Keystone Intermediate Funds, Keystone has
voluntarily limited the expenses, excluding indirectly paid expenses, to the
following rates based on the average daily net assets of each respective class:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Capital Preservation Fund............................................... 0.90% 1.65% 1.65%
Keystone Intermediate Fund.............................................. 1.10% 1.85% 1.85%
</TABLE>
For the period ended June 30, 1997, the Funds waived management fees as follows:
<TABLE>
<S> <C>
Capital Preservation Fund.................................................................. $245,255
Keystone Intermediate Fund................................................................. 145,636
Intermediate Government Fund............................................................... 71,794
</TABLE>
During the period ended June 30, 1997, the Funds paid or accrued to EKIS the
following amounts for certain administrative services:
<TABLE>
<S> <C>
Capital Preservation Fund................................................................... $34,481
Evergreen Intermediate Fund................................................................. 57,505
Keystone Intermediate Fund.................................................................. 11,267
Intermediate Government Fund................................................................ 31,665
Short-Intermediate Fund..................................................................... 139,440
</TABLE>
Evergreen Keystone Service Company ("EKSC"), a wholly-owned subsidiary of
Keystone, serves as the transfer and dividend disbursing agent for the Capital
Preservation and Keystone Intermediate Funds. Effective May 5, 1997, EKSC also
began providing transfer and dividend disbursing agent services for the
Evergreen Intermediate Fund, Intermediate Government Fund and Short-Intermediate
Fund that were formerly provided by State Street Bank and Trust Company ("State
Street"). For certain accounts, State Street had and subsequent to May 5, 1997,
EKSC has sub-contracted First Union to maintain shareholder sub-account records,
take fund purchase and redemption orders and answer inquiries. For each account
of the Evergreen Intermediate Fund, Intermediate Government Fund and
Short-Intermediate Fund, First Union earned a fee which in aggregate totaled
$23,547, $24 and $103,428, respectively for the year ended June 30, 1997.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds. Currently the Independent Trustees of the Capital Preservation
and the Keystone Intermediate Funds receive no compensation for their services.
As sub-administrator, BISYS provides the officers of the Funds.
6. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
7. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Evergreen Intermediate Fund, Intermediate
Government Fund and Short-Intermediate Fund may defer any or all compensation
related to performance of duties as a Trustee. Each Trustee's deferred balances
are allocated to deferral accounts which are included in the accrued expenses
for the Fund. The investment performance of the deferral accounts are based on
the investment performance of certain Evergreen Keystone Funds. Any gains earned
or losses incurred in the deferral accounts are reported in each Fund's
Trustees' fees and expenses. Trustees will be paid either in one lump sum or in
quarterly installments for up to ten years at their election, not earlier than
either the year in which the Trustee ceases to be a member of the Board of
Trustees or January 1, 2000. As of June 30, 1997, the value of the Trustees'
deferral accounts for the Evergreen Intermediate Fund, Intermediate Government
Fund and Short-Intermediate Fund were $5,106, $5,097 and $16,203, respectively.
8. FINANCING AGREEMENT
On October 31, 1996, a financing agreement between all of the Evergreen Funds
and State Street, Societe Generale and ABN Amro Bank N.V. (collectively, the
"Banks") became effective. Under this agreement, the Banks provide an unsecured
credit facility in the aggregate amount of $225 million ($112.5 million
committed and $112.5 million uncommitted) allocated evenly between the Banks.
Borrowings under this facility bear interest at 0.75% per annum above the
Federal Funds rate. A commitment fee of 0.10% per annum will be incurred on the
unused portion of the committed facility which will be allocated to all
participating funds. State Street acts as agent for the Banks, and as agent is
entitled to a fee of $15,000 which is allocated to all of the Evergreen Funds.
During the period ended June 30, 1997, the Funds had no borrowings under this
agreement.
47
<PAGE>
EVERGREEN KEYSTONE
(logo)
COMBINED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITIONS
On December 30, 1994, the Capital Preservation Fund acquired the net assets of
Keystone America Capital Preservation and Income Fund ("Preservation and Income
Fund") in exchange for Class A shares and on February 29, 1996 the Evergreen
Intermediate Fund acquired the net assets of Evergreen Managed Bond Fund
("Managed Bond Fund") in exchange for Class Y shares. Both acquisitions were
accomplished by a tax-free exhange of the respective shares of each respective
fund. The value of assets acquired, number of shares issued, unrealized
appreciation acquired and aggregate net assets of each fund immediately after
the acquisition are as follows:
<TABLE>
<CAPTION>
UNREALIZED
VALUE OF NET NUMBER OF APPRECIATION
ACQUIRING FUND ACQUIRED FUND ASSETS ACQUIRED SHARES ISSUED (DEPRECIATION)
<S> <C> <C> <C> <C>
Capital Preservation Fund Preservation and Income Fund $23,825,980 2,506,041 $ (301,751)
Evergreen Intermediate Fund Managed Bond Fund 79,773,557 7,674,423 1,789,417
<CAPTION>
NET ASSETS
AFTER
ACQUISITION
<C>
$115,746,857
158,097,520
</TABLE>
48
<PAGE>
EVERGREEN KEYSTONE
(logo)
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Capital Preservation and Income Fund
The Evergreen Lexicon Fund
Keystone Intermediate Term Bond Fund
Evergreen Investment Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of the Evergreen Keystone Short and Intermediate
Term Bond Funds listed below as of June 30, 1997, and the related statements of
operations, statements of changes in net assets, and financial highlights for
each of the years or periods listed below:
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND-- statements of operations for
the nine months ended June 30, 1997 and the year ended September 30, 1996,
statements of changes in net assets for the nine months ended June 30, 1997
and each of the years in the two-year period ended September 30, 1996, and
financial highlights for the periods presented on pages 14 and 15.
EVERGREEN INTERMEDIATE-TERM BOND FUND (ONE OF THE PORTFOLIOS CONSTITUTING
THE EVERGREEN LEXICON FUND)-- statement of operations for the year ended
June 30, 1997, statements of changes in net assets for the year ended June
30, 1997 and the ten months ended June 30, 1996, and the financial
highlights for the periods presented on pages 16 and 17, except for the
periods prior to June 30, 1996. The financial highlights for the periods
prior to June 30, 1996 and the statements of changes in net assets for the
year ended August 31, 1995 were audited by other auditors whose report dated
October 6, 1995 expressed an unqualified opinion thereon.
KEYSTONE INTERMEDIATE TERM BOND FUND-- statements of operations for the
eleven months ended June 30, 1997 and the year ended July 31, 1996,
statements of changes in net assets for the eleven months ended June 30,
1997 and each of the years in the two-year period ended July 31, 1996, and
the financial highlights for the periods presented on pages 18 and 19.
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND (ONE OF THE
PORTFOLIOS CONSTITUTING THE EVERGREEN LEXICON FUND)-- statement of
operations for the year ended June 30, 1997, statements of changes in net
assets for the year ended June 30, 1997 and the ten months ended June 30,
1996, and the financial highlights for the periods presented on pages 20 and
21, except for the periods ended prior to June 30, 1996. The financial
highlights for the periods prior to June 30, 1996 and the statements of
changes in net assets for the year ended August 31, 1995 were audited by
other auditors whose report dated October 6, 1995 expressed an unqualified
opinion thereon.
EVERGREEN SHORT-INTERMEDIATE BOND FUND (ONE OF THE PORTFOLIOS CONSTITUTING
EVERGREEN INVESTMENT TRUST)-- statement of operations for the year ended
June 30, 1997, statements of changes in net assets for each of the years in
the two-year period ended June 30, 1997, and the financial highlights for
the periods presented on pages 22-24.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Capital Preservation and Income Fund, Evergreen Intermediate-Term Bond
Fund, Keystone Intermediate Term Bond Fund, Evergreen Intermediate-Term
Government Securities Fund and Evergreen Short-Intermediate Bond Fund as of June
30, 1997, the results of their operations for the years or periods then ended,
and the changes in their net assets and financial highlights for each of the
years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
August 8, 1997
49
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
This brochure must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully
before investing or sending money.
NOT May lose value
FDIC No bank guarantee
INSURED
Evergreen Keystone Distributor, Inc.
<PAGE>
EVERGREEN INTERMEDIATE TERM BOND FUND
Pro Forma Combining Financial Statements (Unaudited)
Portfolio of Investments (000's)
June 30, 1997
<TABLE>
<CAPTION>
Keystone Intermediate
Term Bond Fund
Principal Market
Coupon Maturity Amount Value
--------- --------------- -----------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities-5.3%
Southern Pacific Secured Assets Corporation
Series 1996-3 Class A4 7.60% 10/25/27 $ 1,000 $ 1,002
US Home Equity Loan Asset, series 1991-2 Class B 9.13% 4/15/21 750 753
---------------
1,755
---------------
Corporate Bonds-28.7%
Banks-7.4%
Amsouth Bancorporation, Sub Debentures, Puttable 2005 6.75% 11/1/25 1,000 977
Cenfed Financial Corp., Senior Debenture (b) 11.17% 12/15/01
Chase Manhattan Corporation, Subordinated Notes 9.38% 7/1/01 1,250 1,359
NationsBank Corp. 8.13% 6/15/02
NBD Bank N.A., Subordinated Note 8.25% 11/1/24
---------------
2,336
---------------
Diversified-1.5%
Belo (A.H.) Corporation, Senior Note 7.13% 6/1/07 500 496
---------------
Finance & Insurance-6.9%
Associates Corporation North America, Notes 5.96% 5/15/37
CIT Group Holdings Incorporated, Medium Term Notes,
Tranche Trust 00001 9.25% 3/15/01 1,000 1,083
General Electric Capital Corp. 7.98% 12/15/07
General Motors Acceptance Corp., Notes 7.13% 5/1/01 500 506
Goldman Sachs Group L.P. (b) 6.38% 6/15/00
Grand Metropolitan Investment Corp., 6.50% 9/15/99
Harris Bancorp. 9.38% 6/1/01
KFW International Finance, Guaranteed Note 8.85% 6/15/99
Prudential Insurance, Notes (b) 7.13% 7/1/07 500 499
---------------
2,088
---------------
Industrials-11.1%
Baxter International, Inc. 9.25% 12/15/99
Deere & Co. 8.95% 6/15/19
Ford Motor Co., Debenture 9.00% 9/15/01 700 756
Jet Equipment Trust (b) 9.41% 6/15/10
Occidental Petroleum Corporation, Medium Term Note,
Tranche Trust 00134 8.50% 11/9/01 800 847
Philip Morris Cos., Inc., Senior Note 7.20% 2/1/07 1,000 987
Transocean Offshore Inc., Notes 7.45% 4/15/27 1,000 1,030
---------------
3,620
---------------
Transportation-1.5%
Norfolk Southern Corporation, Notes 7.05% 5/1/37 500 507
----------- ---------------
Utilities-0.3%
ALLTEL Corp. 6.50% 11/1/13
Carolina Power & Light Co. 8.63% 9/15/21
---------------
---------------
Total Corporate Bonds 9,047
---------------
Mortgaged-Backed Securities- 1.5%
Federal Home Loan Mortgage Corp. 6.55% 9/1/26
Federal Home Loan Mortgage Corp. 7.50% 5/1/09
Federal Home Loan Mortgage Corp. 8.00% 10/1/25
Federal National Mortgage Assn. 6.69% 12/1/25
Government National Mortgage Assn. 6.00% 6/20/26
Government National Mortgage Assn. 6.50% 10/15/23-10/20/26
Government National Mortgage Assn. 7.00% 9/20/25-3/15/26
Government National Mortgage Assn. 7.13% 7/20/25
Government National Mortgage Assn. 7.50% 9/15/23-3/15/26
Government National Mortgage Assn. 8.00% 10/15/24
Government National Mortgage Assn. 9.00% 4/15/20-8/15/21
Government National Mortgage Assn. 9.50% 2/15/21
Paine Webber Trust P-3 9.00% 10/1/12
Collateralized Mortgage Obligations-24.0%
Chase Commercial Mortgage Securities Corp. 7.37% 6/19/29 500 508
Chase Mortgage Finance Corp.(a) 7.87% 11/15/25 479 468
Criimi Mae Financial Corp. 7.00% 1/1/33 444 434
Federal National Mortgage Assn. Guaranteed (c) 3.26% 8/25/23 1,000 758
GE Capital Mortgage Services Inc. 6.50% 3/25/24 654 626
Independent National Mortgage Corp.(a) 7.84% 12/26/26 997 1,000
Merrill Lynch Trust 8.45% 11/1/18 500 525
Morgan Stanley Capital I Inc., 1997 C1 Class B 7.69% 1/15/07 700 725
Paine Webber Mortgage Acceptance Corp. 7.50% 5/25/23 953 951
Resolution Trust Corp. 7.50% 10/15/28 1,250 1,258
Ryland Acceptance Corp. Four 7.95% 1/1/19 698 709
---------------
7,962
---------------
Yankee Obligations-1.1%
Bayerische Landesbank Girozen New York,
Tranche Senior 00001 6.38% 8/31/00
Bayerische Landesbank Girozen New York,
Tranche Trust 00007 6.20% 2/9/06
Hydro-Quebec 8.00% 2/1/13
Japan Finance Corp. Municipal Enterprises,
Guaranteed Bond 6.85% 4/15/06
Manitoba Province (Canada) 8.00% 4/15/02
Petro Canada Ltd. 8.60% 1/15/10
Philips Electers N.V., Debenture 7.13% 5/15/25
<CAPTION>
Evergreen Intermediate- Adjustment for Liquidation
Term Bond Fund of Trust Assets (Note 1)
Principal Market Principal Market
Amount Value Amount Value
----------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities-5.3%
Southern Pacific Secured Assets Corporation
Series 1996-3 Class A4
US Home Equity Loan Asset, series 1991-2 Class B
Corporate Bonds-28.7%
Banks-7.4%
Amsouth Bancorporation, Sub Debentures, Puttable 2005
Cenfed Financial Corp., Senior Debenture (b) $500 $534 ($492) (526)
Chase Manhattan Corporation, Subordinated Notes
NationsBank Corp. 2,000 2,109 (1,969) (2,076)
NBD Bank N.A., Subordinated Note 4,000 4,462 (3,938) (4,393)
---------- ---------
7,105 (6,995)
---------- ---------
Diversified-1.5%
Belo (A.H.) Corporation, Senior Note
Finance & Insurance-6.9%
Associates Corporation North America, Notes 6,500 6,514 (6,400) (6,413)
CIT Group Holdings Incorporated, Medium Term Notes,
Tranche Trust 00001
General Electric Capital Corp. 2,500 2,473 (2,461) (2,435)
General Motors Acceptance Corp., Notes
Goldman Sachs Group L.P. (b) 1,000 990 (985) (975)
Grand Metropolitan Investment Corp., 1,500 1,505 (1,477) (1,482)
Harris Bancorp. 800 868 (788) (855)
KFW International Finance, Guaranteed Note 1,000 1,047 (985) (1,031)
Prudential Insurance, Notes (b)
---------- ---------
13,397 (13,191)
---------- ---------
Industrials-11.1%
Baxter International, Inc. 2,000 2,126 (1,969) (2,093)
Deere & Co. 600 673 (591) (663)
Ford Motor Co., Debenture
Jet Equipment Trust (b) 2,000 2,292 (1,969) (2,257)
Occidental Petroleum Corporation, Medium Term Note,
Tranche Trust 00134
Philip Morris Cos., Inc., Senior Note
Transocean Offshore Inc., Notes
---------- ---------
5,091 (5,013)
---------- ---------
Transportation-1.5%
Norfolk Southern Corporation, Notes
Utilities-0.3%
ALLTEL Corp. 3,100 2,857 (3,052) (2,813)
Carolina Power & Light Co. 2,000 2,272 (1,969) (2,237)
---------- ---------
5,129 (5,050)
---------- ---------
Total Corporate Bonds 30,722 (30,249)
---------- ---------
Mortgaged-Backed Securities- 1.5%
Federal Home Loan Mortgage Corp. 2,522 2,594 (2,483) (2,554)
Federal Home Loan Mortgage Corp. 2,027 2,059 (1,996) (2,027)
Federal Home Loan Mortgage Corp. 1,210 1,242 (1,191) (1,223)
Federal National Mortgage Assn. 1,293 1,329 (1,273) (1,308)
Government National Mortgage Assn. 1,400 1,406 (1,378) (1,384)
Government National Mortgage Assn. 8,357 8,362 (8,228) (8,233)
Government National Mortgage Assn. 3,922 3,920 (3,861) (3,860)
Government National Mortgage Assn. 3,087 3,182 (3,039) (3,133)
Government National Mortgage Assn. 3,599 3,615 (3,543) (3,559)
Government National Mortgage Assn. 3,144 3,216 (3,095) (3,166)
Government National Mortgage Assn. 1,210 1,279 (1,191) (1,259)
Government National Mortgage Assn. 563 608 (554) (599)
Paine Webber Trust P-3 414 418 (408) (412)
---------- ---------
33,230 (32,717)
---------- ---------
Collateralized Mortgage Obligations-24.0%
Chase Commercial Mortgage Securities Corp.
Chase Mortgage Finance Corp.(a)
Criimi Mae Financial Corp.
Federal National Mortgage Assn. Guaranteed (c)
GE Capital Mortgage Services Inc.
Independent National Mortgage Corp.(a)
Merrill Lynch Trust
Morgan Stanley Capital I Inc., 1997 C1 Class B
Paine Webber Mortgage Acceptance Corp.
Resolution Trust Corp.
Ryland Acceptance Corp. Four
Yankee Obligations-1.1%
Bayerische Landesbank Girozen New York,
Tranche Senior 00001 2,500 2,492 (2,461) (2,454)
Bayerische Landesbank Girozen New York,
Tranche Trust 00007 2,000 1,907 (1,969) (1,878)
Hydro-Quebec 3,000 3,160 (2,954) (3,111)
Japan Finance Corp. Municipal Enterprises,
Guaranteed Bond 3,500 3,505 (3,446) (3,451)
Manitoba Province (Canada) 2,000 2,110 (1,969) (2,077)
Petro Canada Ltd. 800 907 (788) (893)
Philips Electers N.V., Debenture 5,300 5,282 (5,218) (5,200)
<CAPTION>
Pro Forma
Combined
Principal Market
Amount Value
---------------------
<S> <C> <C>
Asset Backed Securities-5.3%
Southern Pacific Secured Assets Corporation
Series 1996-3 Class A4 $ 1,000 $ 1,002
US Home Equity Loan Asset, series 1991-2 Class B 750 753
---------
1,755
---------
Corporate Bonds-28.7%
Banks-7.4%
Amsouth Bancorporation, Sub Debentures, Puttable 2005 1,000 977
Cenfed Financial Corp., Senior Debenture (b) 8 8
Chase Manhattan Corporation, Subordinated Notes 1,250 1,359
NationsBank Corp. 31 33
NBD Bank N.A., Subordinated Note 62 69
---------
2,446
---------
Diversified-1.5%
Belo (A.H.) Corporation, Senior Note 500 496
---------
Finance & Insurance-6.9%
Associates Corporation North America, Notes 100 101
CIT Group Holdings Incorporated, Medium Term Notes,
Tranche Trust 00001 1,000 1,083
General Electric Capital Corp. 39 38
General Motors Acceptance Corp., Notes 500 506
Goldman Sachs Group L.P. (b) 15 15
Grand Metropolitan Investment Corp., 23 23
Harris Bancorp. 12 13
KFW International Finance, Guaranteed Note 15 16
Prudential Insurance, Notes (b) 500 499
---------
2,294
---------
Industrials-11.1%
Baxter International, Inc. 31 33
Deere & Co. 9 10
Ford Motor Co., Debenture 700 756
Jet Equipment Trust(b) 31 35
Occidental Petroleum Corporation, Medium Term Note,
Tranche Trust 00134 800 847
Philip Morris Cos., Inc., Senior Note 1,000 987
Transocean Offshore Inc., Notes 1,000 1,030
---------
3,698
---------
Transportation-1.5%
Norfolk Southern Corporation, Notes 500 507
---------
Utilities-0.3%
ALLTEL Corp. 48 44
Carolina Power & Light Co. 31 35
---------
79
---------
Total Corporate Bonds 9,520
---------
Mortgaged-Backed Securities- 1.5%
Federal Home Loan Mortgage Corp. 39 40
Federal Home Loan Mortgage Corp. 31 32
Federal Home Loan Mortgage Corp. 19 19
Federal National Mortgage Assn. 20 21
Government National Mortgage Assn. 22 22
Government National Mortgage Assn. 129 129
Government National Mortgage Assn. 61 60
Government National Mortgage Assn. 48 49
Government National Mortgage Assn. 56 56
Government National Mortgage Assn. 49 50
Government National Mortgage Assn. 19 20
Government National Mortgage Assn. 9 9
Paine Webber Trust P-3 6 6
---------
513
---------
Collateralized Mortgage Obligations-24.0%
Chase Commercial Mortgage Securities Corp. 500 508
Chase Mortgage Finance Corp.(a) 479 468
Criimi Mae Financial Corp. 444 434
Federal National Mortgage Assn. Guaranteed (c) 1,000 758
GE Capital Mortgage Services Inc. 654 626
Independent National Mortgage Corp.(a) 997 1,000
Merrill Lynch Trust 500 525
Morgan Stanley Capital I Inc., 1997 C1 Class B 700 725
Paine Webber Mortgage Acceptance Corp. 953 951
Resolution Trust Corp. 1,250 1,258
Ryland Acceptance Corp. Four 698 709
---------
7,962
---------
Yankee Obligations-1.1%
Bayerische Landesbank Girozen New York,
Tranche Senior 00001 39 38
Bayerische Landesbank Girozen New York,
Tranche Trust 00007 31 29
Hydro-Quebec 46 49
Japan Finance Corp. Municipal Enterprises,
Guaranteed Bond 54 54
Manitoba Province (Canada) 31 33
Petro Canada Ltd. 12 14
Philips Electers N.V., Debenture 82 82
</TABLE>
<PAGE>
EVERGREEN INTERMEDIATE TERM BOND FUND
Pro Forma Combining Financial Statements (Unaudited)
Portfolio of Investments (000's)
June 30, 1997
<TABLE>
<CAPTION>
Keystone Intermediate
Term Bond Fund
Principal Market
Coupon Maturity Amount Value
---------- -------- --------------------------
<S> <C> <C> <C> <C>
Svenska Handelsbanken 8.13% 8/15/07
Svenska Handelsbanken 8.35% 7/15/04
Westpac Banking, Subordinated Debenture 9.13% 8/15/01
Foreign Bonds (US Dollar Denominated)-13.5%
Fomento Economico Mexico, Euro-Dollars 9.50% 7/22/97 1,250 1,250
Korea Electric Power Corp., Debenture 7.00% 2/1/27 500 490
Export Import Bank Korea, Note 7.10% 3/15/07 500 505
Southern Peru Limited, Secured Export Note (b) 7.90% 5/30/07 1,000 1,019
Telebras 10.38% 9/9/97 1,200 1,211
----------
4,475
----------
Foreign Bonds (Non-US Denominated)-7.6%
Canada Government, Canadian Series A79 8.75% 12/1/05 1,150,000 CAD 968
Denmark Kingdom 7.00% 11/15/07 3,698,000 DKK 585
Germany Federal Republic 6.88% 5/12/05 1,575,000 DEM 986
Nykredit 6.00% 10/1/26 18,000 DKK 2
----------
2,541
----------
U.S. Agency Obligations-2.5%
Farm Credit Systems Financial Assistance Co. 8.80% 6/10/05
Federal Home Loan Bank, Consolidated Bond 7.70% 9/20/04
Federal Home Loan Mortgage Corp., Global Note 6.70% 1/15/07 750 745
----------
745
----------
U.S. Treasury Obligations-7.5%
U.S. Treasury Notes 6.50% 10/15/06 1,810 1,802
U.S. Treasury Notes 5.13% 12/31/98
U.S. Treasury Notes 5.63% 8/31/97
U.S. Treasury Notes 6.38% 1/15/99
U.S. Treasury Notes 8.25% 7/15/98
U.S. Treasury Bonds 6.88% 8/15/25
U.S. Treasury Bonds 7.50% 11/15/16
U.S. Treasury Bonds 8.75% 5/15/17
U.S. Treasury Bonds 8.88% 8/15/17
----------
1,802
----------
Repurchase Agreements-1.7%
Donaldson, Lufkin & Jenrette Repurchase Agreement, 5.90% 7/1/97
5.90% dated 6/30/97, due 7/1/97, maturity value $20,499
(collateralized by $20,553 US Treasury Notes, 5.00%, due
1/13/98: value, including accrued interest $20,496)
Keystone Joint Repurchase Agreement, 6.04% 7/1/97 243 243
----------
(Investments in repurchase agreements, in a joint trading 243
----------
account, 6.04% dated 6/30/97, due 7/1/97,
maturity value $243,043 (b))
Total Investments-93.4% (cost $31,084) 28,570
Other Assets and Liabilities-6.6% 398
----------
Total Net Assets-100.0% $ 28,968
==========
<CAPTION>
Evergreen Intermediate- Adjustment for Liquidation
Term Bond Fund of Trust Assets (Note 1)
Principal Market Principal Market
Amount Value Amount Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Svenska Handelsbanken 2,000 2,123 (1,969) (2,090)
Svenska Handelsbanken 1,000 1,076 (985) (1,059)
Westpac Banking, Subordinated Debenture 700 758 (689) (746)
------------ -------------
23,320 (22,959)
------------ -------------
Foreign Bonds (US Dollar Denominated)-13.5%
Fomento Economico Mexico, Euro-Dollars
Korea Electric Power Corp., Debenture
Export Import Bank Korea, Note
Southern Peru Limited, Secured Export Note (b)
Telebras
Foreign Bonds (Non-US Denominated)-7.6%
Canada Government, Canadian Series A79
Denmark Kingdom
Germany Federal Republic
Nykredit
U.S. Agency Obligations-2.5%
Farm Credit Systems Financial Assistance Co. 2,500 2,814 (2,461) (2,771)
Federal Home Loan Bank, Consolidated Bond 3,000 3,175 (2,954) (3,126)
Federal Home Loan Mortgage Corp., Global Note
------------ -------------
5,989 (5,897)
------------ -------------
U.S. Treasury Obligations-7.5%
U.S. Treasury Notes
U.S. Treasury Notes 1,400 1,384 (1,378) (1,363)
U.S. Treasury Notes 12,900 12,905 (12,701) (12,705)
U.S. Treasury Notes 6,100 6,138 (6,006) (6,043)
U.S. Treasury Notes 1,600 1,639 (1,575) (1,614)
U.S. Treasury Bonds 11,450 11,490 (11,273) (11,312)
U.S. Treasury Bonds 4,500 4,811 (4,431) (4,737)
U.S. Treasury Bonds 1,400 1,685 (1,378) (1,659)
U.S. Treasury Bonds 3,950 4,810 (3,889) (4,736)
------------ -------------
44,862 (44,169)
------------ -------------
Repurchase Agreements-1.7%
Donaldson, Lufkin & Jenrette Repurchase Agreement, 20,495 20,495 (20,179) (20,179)
5.90% dated 6/30/97, due 7/1/97, maturity value $20,499
(collateralized by $20,553 US Treasury Notes, 5.00%, due
1/13/98: value, including accrued interest $20,496)
Keystone Joint Repurchase Agreement,
------------ -------------
(Investments in repurchase agreements, in a joint trading 20,495 (20,179)
------------ -------------
account, 6.04% dated 6/30/97, due 7/1/97,
maturity value $243,043 (b))
Total Investments-93.4% (cost $31,084) 158,618 (156,170)
Other Assets and Liabilities-6.6% 1,808
------------ -------------
Total Net Assets-100.0% $ 160,426 $ (156,170)
============ =============
<CAPTION>
Pro Forma
Combined
Principal Market
Amount Value
----------------------------
<S> <C> <C>
Svenska Handelsbanken 31 33
Svenska Handelsbanken 15 17
Westpac Banking, Subordinated Debenture 11 12
--------------
361
--------------
Foreign Bonds (US Dollar Denominated)-13.5%
Fomento Economico Mexico, Euro-Dollars 1,250 1,250
Korea Electric Power Corp., Debenture 500 490
Export Import Bank Korea, Note 500 505
Southern Peru Limited, Secured Export Note (b) 1,000 1,019
Telebras 1,200 1,211
--------------
4,475
--------------
Foreign Bonds (Non-US Denominated)-7.6%
Canada Government, Canadian Series A79 1,150,000 CAD 968
Denmark Kingdom 3,698,000 DKK 585
Germany Federal Republic 1,575,000 DEM 986
Nykredit 18,000 DKK 2
--------------
2,541
--------------
U.S. Agency Obligations-2.5%
Farm Credit Systems Financial Assistance Co. 39 43
Federal Home Loan Bank, Consolidated Bond 46 49
Federal Home Loan Mortgage Corp., Global Note 750 745
--------------
837
--------------
U.S. Treasury Obligations-7.5%
U.S. Treasury Notes 1,810 1,802
U.S. Treasury Notes 22 21
U.S. Treasury Notes 199 200
U.S. Treasury Notes 94 95
U.S. Treasury Notes 25 25
U.S. Treasury Bonds 177 178
U.S. Treasury Bonds 69 74
U.S. Treasury Bonds 22 26
U.S. Treasury Bonds 61 74
--------------
2,495
--------------
Repurchase Agreements-1.7%
Donaldson, Lufkin & Jenrette Repurchase Agreement, 316 316
5.90% dated 6/30/97, due 7/1/97, maturity value $20,499
(collateralized by $20,553 US Treasury Notes, 5.00%, due
1/13/98: value, including accrued interest $20,496)
Keystone Joint Repurchase Agreement, 243 243
--------------
(Investments in repurchase agreements, in a joint trading 559
--------------
account, 6.04% dated 6/30/97, due 7/1/97,
maturity value $243,043 (b))
Total Investments-93.4% (cost $31,084) 31,018
Other Assets and Liabilities-6.6% 2,206
--------------
Total Net Assets-100.0% $ 33,224
==============
</TABLE>
(a) Securities that may be sold to qualified institutional buyers under
rule 144A or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended. These securities have been
determined to be liquid under guidelines established by the Board of
Trustees.
(b) The repurchase agreements are fully collateralized by the U.S.
government and/or agency obligations based on market prices at June
30, 1997.
(c) Inverse floater, resets monthly.
Legend of Portfolio Abbreviations
CAD-Canadian Dollars
DEM-German Deutschemark
DKK-Danish Krone
See Notes to Pro Forma Combining Financial Statements
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
Pro Forma Combining Financial Statements (unaudited)
Statement of Assets and Liabilities (000's omitted) withoutTrust
June 30, 1997
<TABLE>
<CAPTION>
Keystone Evergreen
Intermediate Intermediate-
Term Bond Term Bond Pro Forma
Fund Fund Adjustments Combined
-------------- -------------- -----------
<S> <C> <C> <C> <C>
Assets:
Investments at value (cost $31,084) $28,570 $158,618 ($156,170)a $31,018
Cash 2 0 2
Receivable for investments sold 1,389 0 1,389
Interest receivable 501 2,038 2,539
Unrealized appreciation on forward foreign currency contracts 55 0 55
Due from investment advisor 17 0 17
Receivable for Fund shares sold 2 12 14
Prepaid expenses 20 15 35
-------------- -------------- -----------
Total Assets 30,556 160,683 (156,170) 35,069
Liabilities:
Payable for investments purchased 1,358 0 1,358
Payable for Fund shares repurchased 100 75 175
Dividends payable 69 0 69
Unrealized depreciation on forward foreign currency contracts 18 0 18
Distributions payable 8 1 9
Due to related parties 1 136 137
Accrued expenses 34 45 79
-------------- -------------- -----------
Total Liabilities 1,588 257 1,845
Net Assets $28,968 $160,426 ($156,170) $33,224
============== ============================= ===========
Net Assets are comprised of:
Paid-in capital $32,845 $162,631 (153,928)a $41,548
Accumulated net realized gain (loss)on investments and
foreign currency related transactions 243 (5) 238
Distributions in excess of net investment income (4,050) (4,483) (8,533)
Net unrealized appreciation(depreciation) on investments
and foreign currency related transactions (70) 2,283 (2,242)d (29)
-------------- ----------------------------- -----------
Net Assets $28,968 $160,426 ($156,170) $33,224
============== ============================= ===========
Class A Shares
Net Assets $10,341 $3,038 $13,379
Shares of beneficial interest outstanding 1,158 299 42 b 1,499
Net Asset Value $8.93 $10.17 $8.93
Maximum Offer Price $9.23 $10.51 $9.23
Class B Shares
Net Assets $11,368 $1,013 $12,381
Shares of beneficial interest outstanding 1,271 100 14 b 1,385
Net Asset Value $8.95 $10.17 $8.95
Class C Shares
Net Assets $7,259 $29 $7,288
Shares of beneficial interest outstanding 812 3 0 815
Net Asset Value $8.94 $10.17 $8.94
Class Y Shares
Net Assets - $156,346 ($156,170)a $176
Shares of beneficial interest outstanding - 15,381 (15,361)c 20
Net Asset Value - $10.17 $8.93
</TABLE>
a Reflects the liquidation of Trust shareholders.
b Reflects the impact of converting shares of the target fund into the survivor
fund.
c Reflects the liquidation of Trust shareholders and the conversion of the
remaining Class Y shares.
d Reflects the impact of the liquidation of Trust shareholders.
See Notes to Pro Forma Combining Financial Statements.
Page 1
<PAGE>
EVERGREEN INTERMEDIATE TERM BOND FUND
Pro Forma Combining Financial Statements (unaudited)
Statement of Operations (000's omitted)
June 30, 1997
<TABLE>
<CAPTION>
Keystone Evergreen
Intermediate Intermediate- Pro
Term Bond Term Bond Forma
Fund Fund Adj Combined
------------- -------------- ------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income $2,580 $11,145 ($10,850)d $2,875
Expenses:
Advisory fees 222 987 (939)a 270
Administrative fees 14 70 (70)c 14
Distribution fees 251 14 2 b 267
Transfer agent fees 91 67 (45)c 113
Custodian fees 43 83 (80)c 46
Registration and filing fees 30 53 (53)c 30
Professional fees 28 17 (20)c 25
Organizational expenses 0 1 (1)c 0
Trustees' fees and expenses 0 4 (4)c 0
Miscellaneous fees 34 44 (51)c 27
Fee waivers and/or expense reimbursements by affiliates (162) (5) 23 b (144)
------------- -------------- ------------ ------------
Total expenses 551 1,335 648
Less: Indirectly paid expenses (6) (1) (7)
------------- -------------- ------------ ------------
Net expenses 545 1,334 (1,238) 641
Net investment income 2,035 9,811 (9,612) 2,234
Net realized gain (loss)on investments and foreign
currency related transactions 72 (1,615) (1,543)
Net change in unrealized appreciation (depreciation)
of investments and foreign currency related transactions 585 2,783 (2,242)e 1,126
------------- -------------- ------------ ------------
Net realized and unrealized gain on investments and
foreign currency related transactions 657 1,168 (2,242) (417)
------------- -------------- ------------ ------------
Net increase in net assets resulting from operations $2,692 $10,979 ($11,854) $1,817
============= ============== ============ ============
</TABLE>
a Reflects a decrease based on surviving fund's fee schedule and pro forma
combined assets
b Reflects an increase based on combined assets.
c Reflects expected cost savings when the fund's are combined.
d Reflects the reduced income generated by the Evergreen fund with less
assets invested due to the liquidation of Trust shareholders.
e Reflects the impact of the liquidation of Trust shareholders.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
EVERGREEN INTERMEDIATE TERM BOND FUND
Notes to Pro Forma Combining Financial Statements (Unaudited)
June 30, 1997
1. Basis of Combination - The Pro Forma Statement of Assets and Liabilities,
including the Pro Forma Portfolio of Investments, and the related Pro Forma
Statement of Operations ("Pro Forma Statements") reflect the accounts of
Keystone Intermediate Term Bond Fund ("Keystone") and Evergreen Intermediate
Term Bond Fund ("Evergreen") at June 30, 1997 and for the year then ended.
The Pro Forma Statements give effect to the proposed Agreement and Plan of
Reorganizations (the "Reorganizations") to be submitted to shareholders of
Evergreen and Keystone. The Reorganizations provide for the acquisition of all
assets and liabilities of Evergreen and Keystone by Evergreen Intermediate Term
Bond Fund ("Evergreen Intermediate"), a series of Evergreen Fixed Income Trust,
in exchange for shares of Evergreen Intermediate. Thereafter, there will be a
distribution of such shares of Evergreen Intermediate to shareholders of
Evergreen and Keystone in liquidation and subsequent termination thereof. As a
result of the Reorganizations, the shareholders of Evergreen and Keystone will
become the owners of that number of full and fractional shares of Evergreen
Intermediate having an aggregate net asset value of their shares of Evergreen
and Keystone as of the close of business immediately prior to the date that such
Fund's assets are exchanged for shares of Evergreen Intermediate.
The Pro Forma Statements reflect the expense of each Fund in carrying out its
obligations under the Reorganizations as though the merger occurred at the
beginning of the period presented. It is anticipated that before the
Reorganizations occur, Trust shareholders in Class Y of Evergreen will liquidate
their shares which will be effected by an in-kind transfer of assets for the
Trust shareholders in Class Y. As reflected in the Pro Forma Statements,
Keystone will be the accounting survivor upon completion of the Reorganization.
The information contained herein is based on the experience of each Fund for the
period ended June 30, 1997 and is designed to permit shareholder of the
consolidating mutual funds to evaluate the financial effect of the proposed
Reorganizations. The expenses of Evergreen and Keystone in connection with the
Reorganizations (including the cost of any proxy soliciting agents) will be
borne by First Union National Bank of North Carolina.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund incorporated by reference in the Statements of
Additional Information.
2. Shares of Beneficial Interest - The Pro Forma net asset values per share
assume the issuance of Class A, Class B, Class C and Class Y shares of Evergreen
Intermediate which would have been issued at June 30, 1997 in connection with
the proposed Reorganizations. Shareholders of Keystone would receive the same
number of shares of each class as they held on June 30, 1997. Shareholders of
Evergreen would receive shares of Evergreen Intermediate based on a conversion
ratio determined on June 30, 1997. The number of such shares issued is
calculated by applying the conversion ratio which is calculated by dividing the
net asset value per share of Evergreen Class A, Class B and Class C by the net
asset value per share of the respective class of Evergreen.
<PAGE>
The conversion ratio for Evergreen Class Y shareholder remaining after the
liquidation (as discussed above) is determined based on the net asset value of
Evergreen Class Y divided by the net asset value of Keystone Class A.
3. Pro Forma Operations - The Pro Forma Statement of Operations assumes similar
rates of gross investment income for the investments of each Fund adjusted for
the liquidation of Trust shareholders. Pro Forma operating expenses include the
actual expenses of each Fund adjusted to reflect the expected expenses of the
combined entity. The investment advisory and distribution fees have been charged
to the combined Fund based on the fee schedule in effect for Keystone at the
combined level of average net assets for the year ended June 30, 1997.
<PAGE>
EVERGREEN FIXED INCOME TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability
and Indemnification of Trustees" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
Number Description
1 Declaration of Trust (1)
2 By-Laws (1)
3 Not applicable
4 Agreements and Plans of Reorganization (included
as Exhibits A-1 and A-2 to the Prospectus
contained in Part A to this registration
statement)
5 Declaration of Trust Articles II, III.(6)(c),
IV.(3), IV.(8), V, VI, VII, VIII and By-Laws
Articles II, III, and VIII
6 Investment Advisory Agreement between Keystone
Investment Management Company and the Registrant
(1)
7(A) Distribution Agreement between Evergreen Keystone
Distributor, Inc. and the Registrant (1)
(B) Form of Dealer Agreement for Class A, Class B and Class C
shares used by Evergreen Keystone Distributor, Inc. (1)
8 Deferred Compensation Plan (1)
9 Custody Agreement between State Street Bank and
Trust Company and Registrant (1)
10(A) Rule 12b-1 Distribution Plan (1)
(B) Multiple Class Plan (1)
11 Opinion and consent of counsel as to the legality
of the shares being issued (3)
12 Tax opinion and consent of counsel (2)
13 Not applicable
14 Consent of KPMG Peat Marwick LLP (3)
15 Not applicable
16 Powers of Attorney (3)
17(A) Forms of Proxy Card (2)
(B) Registrant's Rule 24f-2 Declaration (1)
<PAGE>
- ----------------------
(1) Incorporated by reference to Registrant's registration statement (File
Nos. 333-37433/ 811-08415) (the "Registration Statement") dated October
8, 1997.
(2) Filed herewith.
(3) Previously filed .
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus that is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective
amendment, opinions of counsel or copies of an Internal Revenue Service ruling
supporting the tax consequences of the proposed Reorganizations within a
reasonable time after receipt of such opinions or rulings.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of New York and State
of New York, on the 9th day of November, 1997.
EVERGREEN FIXED INCOME
TRUST
By: /s/ John J. Pileggi
----------------------
Name: John J. Pileggi
Title: President
As required by the Securities Act of 1933, the following persons have
signed this Registration Statement in the capacities on the 9th day of November,
1997.
Signatures Title
- ---------- -----
/s/John J. Pileggi President and
- ------------------ Treasurer
John J. Pileggi
/s/Laurence B. Ashkin* Trustee
- ---------------------
Laurence B. Ashkin
/s/Charles A. Austin III* Trustee
- -------------------------
Charles A. Austin III
/s/K. Dun Gifford* Trustee
- -----------------
K. Dun Gifford
/s/James S. Howell* Trustee
- ------------------
James S. Howell
/s/Leroy Keith, Jr.* Trustee
- -------------------
Leroy Keith, Jr.
/s/Gerald M. McDonnell* Trustee
- ----------------------
Gerald M. McDonnell
<PAGE>
/s/Thomas L. McVerry* Trustee
- --------------------
Thomas L. McVerry
/s/William Walt Pettit* Trustee
- ---------------------
William Walt Pettit
/s/David M. Richardson* Trustee
- ----------------------
David M. Richardson
/s/Russell A. Salton III* Trustee
- -------------------------
Russell A. Salton III
/s/Michael S. Scofield* Trustee
- ----------------------
Michael S. Scofield
/s/Richard J. Shima* Trustee
- -------------------
Richard J. Shima
* By: /s/Martin J. Wolin
------------------
Martni J. Wolin
Attorney-in-Fact
Martin J. Wolin, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons and included as Exhibit 16 to this
Registration Statement.
<PAGE>
INDEX TO EXHIBITS
N-14
EXHIBIT NO.
12 Tax Opinion and Consent of Counsel
17(A) Forms of Proxy Cards
- --------------------
<PAGE>
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
November 7, 1997
Evergreen Intermediate Term Bond Fund
Keystone Intermediate Term Bond Fund
Evergreen Intermediate Bond Fund
200 Berkeley Street
Boston, Massachusetts 02116
Re: Conversion of Evergreen Intermediate Term Bond Fund
to a Series of a Delaware Business Trust (Evergreen
Intermediate Bond Fund), and Acquisition of Assets
of Keystone Intermediate Term Bond Fund by Evergreen
Intermediate Bond Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax
consequences of the transactions described below.
Parties to the Transaction. Evergreen Intermediate Term
Bond Fund ("Target Fund I") is a series of The Evergreen
Lexicon Fund, a Massachusetts business trust.
Keystone Intermediate Term Bond Fund ("Target Fund II") is a
Massachusetts business trust.
Evergreen Intermediate Bond Fund ("Acquiring Fund") is a
series of Evergreen Fixed Income Trust, a Delaware business
trust.
Description of Proposed Transaction. The proposed transaction involves
two steps, Transaction 1 and Transaction 2. In Transaction 1, Acquiring Fund
will issue its shares to Target Fund I and assume certain stated liabilities of
Target Fund I, in exchange for all of the assets of Target Fund I. Target Fund I
will then immediately dissolve and distribute all of the Acquiring Fund shares
which it holds to its shareholders pro rata in proportion to their shareholdings
in Target Fund I, in complete redemption of all outstanding shares of Target
Fund I. Prior to the consummation of Transaction 1, holders of a large portion
of the Class Y shares in Target Fund 1 will redeem such shares in order to
<PAGE>
reinvest the proceeds in a similar fund established for
institutional investors.
<PAGE>
In Transaction 2, which will occur immediately following the closing of
Transaction 1, Acquiring Fund will acquire all of the assets of Target Fund II
in exchange for shares of Acquiring Fund of equivalent value and the assumption
of certain specified liabilities of Target Fund II. Target Fund II will then
immediately dissolve and distribute all of the Acquiring Fund shares which it
holds to its shareholders pro rata in proportion to their shareholdings in
Target Fund II, in complete redemption of all outstanding shares of Target Fund
II.
Scope of Review and Assumptions
In rendering our opinion, we have reviewed and relied upon the form of
Agreement and Plan of Reorganization (each, a "Reorganization Agreement")
between Acquiring Fund and Target Fund I (in the case of Transaction 1) and
between Acquiring Fund and Target Fund II (in the case of Transaction 2), each
of which is enclosed in a draft prospectus/proxy statement dated November 14,
1997 which describes the proposed transactions, and on the information provided
in such prospectus/proxy statement. We have relied, without independent
verification, upon the factual statements made therein, and assume that there
will be no change in material facts disclosed therein between the date of this
letter and the date of the closing of the Transactions. We further assume that
the Transactions will be carried out in accordance with the Reorganization
Agreements. We have also relied upon the following representations, each of
which has been made to us by officers of the Trusts of which Acquiring Fund,
Target Fund I and Target Fund II are series:
Representations as to Transaction 1
A. Target Fund I has not redeemed and will not redeem the shares of any
of its shareholders in connection with Transaction 1, except to the extent
necessary to comply with its legal obligation to redeem its shares.
B. The management of Acquiring Fund has no plan or intention to redeem
or reacquire any of the Acquiring Fund shares to be received by Target Fund I
shareholders in connection with Transaction 1, except to the extent necessary to
comply with its legal obligation to redeem its shares.
C. The management of Acquiring Fund has no plan or intention to sell or
dispose of any of the assets of Target Fund I which will be acquired by
Acquiring Fund in Transaction 1 except for dispositions made in the ordinary
course of business.
D. Following Transaction 1, Acquiring Fund will continue the historic
business of Target Fund I in a substantially unchanged manner as part of the
regulated investment company business of Acquiring Fund, or will use a
significant portion of Target Fund I's historic business assets in a business.
<PAGE>
E. Acquiring Fund will not make any payment of cash or of property
other than shares to Target Fund I or to any shareholder of Target Fund I in
connection with Transaction 1.
F. To the best knowledge of management of Target Fund I, there is no
plan or intention on the part of the holders of shares of Target Fund I to sell,
exchange or otherwise dispose of any of the shares of Acquiring Fund received in
the transaction.
G. Immediately following consummation of the transaction, Acquiring
Fund will possess the same assets and liabilities, except for assets used to pay
expenses incurred in connection with the transaction, as those possessed by
Target Fund I immediately prior to Transaction 1.
H. Neither Target Fund I nor Acquiring Fund expects to issue additional
shares other than in the ordinary course of its business as a regulated
investment company or in Transaction 2.
I. Acquiring Fund has never carried on a business and will not carry on
any business between the date of this letter and the date of closing of
Transaction 1.
Representations as to Transaction 2
A. Acquiring Fund will acquire from Target Fund II at least 90% of the
fair market value of the net assets and at least 70% of the fair market value of
the gross assets held by Target Fund II immediately prior to Transaction 2. For
purposes of this representation, assets of Target Fund II used to pay
reorganization expenses, cash retained to pay liabilities, and redemptions and
distributions (except for regular and normal distributions) made by Target Fund
II immediately preceding the transfer which are part of the plan of
reorganization will be considered as assets held by Target Fund II immediately
prior to the transfer.
B. To the best of the knowledge of management of Target Fund II, there
is no plan or intention on the part of the shareholders of Target Fund II to
sell, exchange, or otherwise dispose of a number of Acquiring Fund shares
received in Transaction 2 that would reduce the former Target Fund II
shareholders' ownership of Acquiring Fund shares to a number of shares having a
value, as of the date of closing of Transaction 2 (the "Closing Date"), of less
than 50 percent of the value of all of the formerly outstanding shares of Target
Fund II as of the same date. For purposes of this representation, Target Fund II
shares exchange for cash or other property will be treated as outstanding Target
Fund II shares on the Closing Date. There are no dissenters' rights in
Transaction 2 and no cash will be exchanged for Target Fund II shares in lieu of
fractional shares of Acquiring Fund. Moreover, shares of Target Fund II and
shares of Acquiring
<PAGE>
Fund held by Target Fund II shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to Transaction 2 will be considered in making
this representation.
C. Target Fund II has not redeemed and will not redeem the shares of
any of its shareholders in connection with Transaction 2 except to the extent
necessary to comply with its legal obligation to redeem its shares.
D. The management of Acquiring Fund has no plan or intention to redeem
or reacquire any of the Acquiring Fund shares to be received by Target Fund II
shareholders in connection with Transaction 2 except to the extent necessary to
comply with its legal obligation to redeem its shares.
E. The management of Acquiring Fund has no plan or intention to sell or
dispose of any of the assets of Target Fund II which will be acquired by
Acquiring Fund in Transaction 2 except for dispositions made in the ordinary
course of business, and to the extent necessary to enable Acquiring Fund to
comply with its legal obligation to redeem its shares.
F. Following Transaction 2, Acquiring Fund will continue the historic
business of Target Fund II in a substantially unchanged manner as part of the
regulated investment company business of Acquiring Fund, or will use a
significant portion of Target Fund II's historic business assets in a business.
G. There is no intercorporate indebtedness between Acquiring Fund and
Target Fund II.
H. Acquiring Fund does not own, directly or indirectly, and has not
owned in the last five years, directly or indirectly, any shares of Target Fund
II. Acquiring Fund will not acquire any shares of Target Fund II prior to the
Closing Date.
I. Acquiring Fund will not make any payment of cash or of property
other than shares to Target Fund II or to any shareholder of Target Fund II in
connection with Transaction 2.
J. Pursuant to the Reorganization Agreement, the shareholders of Target
Fund II will receive solely Acquiring Fund voting shares in exchange for their
voting shares of Target Fund II.
K. The fair market value of the Acquiring Fund shares to be received by
the Target Fund II shareholders will be approximately equal to the fair market
value of the Target Fund II shares surrendered in exchange therefor.
L. Subsequent to the transfer of Target Fund II's assets to Acquiring
Fund pursuant to the Reorganization Agreement, Target Fund II will distribute
the shares of
<PAGE>
Acquiring Fund, together with other assets it may have, in final liquidation as
expeditiously as possible.
M. The sum of the liabilities of Target Fund II to be assumed by
Acquiring Fund and the expenses of Transaction 2 does not exceed twenty percent
of the fair market value of the assets of Target Fund II.
N. The sum of the liabilities of Target Fund II to be assumed by
Acquiring Fund and the liabilities to which transferred assets are subject will
not exceed the adjusted tax basis of the assets transferred.
General Representations
A. None of Acquiring Fund, Target Fund I or Target Fund II are under
the jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
B. Each of Acquiring Fund, Target Fund I and Target Fund II are treated
as a corporation for federal income tax purposes and at all times in its
existence has qualified as a regulated investment company, as defined in Section
851 of the Code.
C. The foregoing representations are true on the date of this letter
and will be true on the date of closing of Transaction 2.
Opinions
Based on and subject to the foregoing, and our examination of the legal
authority we have deemed to be relevant, we have the following opinions:
Opinions as to Transaction 1:
1. The acquisition by Acquiring Fund of substantially all of the assets
of Target Fund I solely in exchange for shares of Acquiring Fund and the
assumption by Acquiring Fund of Target Fund I's liabilities, if any, followed by
the distribution by Target Fund I of said Acquiring Fund shares to the
shareholders of Target Fund I in exchange for their Target Fund I shares, will
constitute a reorganization within the meaning of Section 368(a)(1)(F) of the
Code, and Acquiring Fund and Target Fund I 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 to Target Fund I upon the
transfer of substantially all of its assets to Acquiring Fund solely in exchange
for Acquiring Fund shares and assumption by Acquiring Fund of any liabilities of
Target Fund I, or upon the distribution of such Acquiring Fund shares to the
shareholders of Target Fund I in exchange for all of their Target Fund I shares.
<PAGE>
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund I (including any cash retained initially by
Target Fund I to pay liabilities but later transferred) solely in exchange for
Acquiring Fund shares and assumption by Acquiring Fund of any liabilities of
Target Fund I.
4. The basis of the assets of Target Fund I acquired by Acquiring Fund
will be the same as the basis of those assets in the hands of Target Fund I
immediately prior to the transfer, and the holding period of the assets of
Target Fund I in the hands of Acquiring Fund will include the period during
which those assets were held by Target Fund I.
5. The shareholders of Target Fund I will recognize no gain or loss
upon the exchange of all of their Target Fund I shares solely for Acquiring Fund
shares.
6. The basis of the Acquiring Fund shares to be received by the Target
Fund I shareholders will be the same as the basis of the Target Fund I shares
surrendered in exchange therefor.
7. The holding period of the Acquiring Fund shares to be received by
the Target Fund I shareholders will include the period during which the Target
Fund I shares surrendered in exchange therefor were held, provided the Target
Fund I shares were held as a capital asset on the date of the exchange.
Opinions as to Transaction 2:
1. The acquisition by Acquiring Fund of substantially all of the assets
of Target Fund II solely in exchange for voting shares of Acquiring Fund and
assumption of certain specified liabilities of Target Fund II followed by the
distribution by Target Fund II of said Acquiring Fund shares to the shareholders
of Target Fund II in exchange for their Target Fund II shares will constitute a
reorganization within the meaning of Section 368(a)(1)(D) of the Code, and
Acquiring Fund and Target Fund II 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 to Target Fund II upon the
transfer of substantially all of its assets to Acquiring Fund solely in exchange
for Acquiring Fund voting shares and assumption by Acquiring Fund of certain
specified liabilities of Target Fund II, or upon the distribution of such
Acquiring Fund voting shares to the shareholders of Target Fund II in exchange
for all of their Target Fund II shares.
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund II (including any cash retained initially
by Target Fund II to pay liabilities but later transferred) solely in exchange
for
<PAGE>
Acquiring Fund voting shares and assumption by Acquiring Fund of any liabilities
of Target Fund II.
4. The basis of the assets of Target Fund II acquired by Acquiring Fund
will be the same as the basis of those assets in the hands of Target Fund II
immediately prior to the transfer, and the holding period of the assets of
Target Fund II in the hands of Acquiring Fund will include the period during
which those assets were held by Target Fund II.
5. The shareholders of Target Fund II will recognize no gain or loss
upon the exchange of all of their Target Fund II shares solely for Acquiring
Fund voting shares. Gain, if any, will be realized by Target Fund II
shareholders who in exchange for their Target Fund II shares receive other
property or money in addition to Acquiring Fund shares, and will be recognized,
but not in excess of the amount of cash and the value of such other property
received. If the exchange has the effect of the distribution of a dividend, then
the amount of gain recognized that is not in excess of the ratable share of
undistributed earnings and profits of Target Fund II will be treated as a
dividend.
6. The basis of the Acquiring Fund voting shares to be received by the
Target Fund II shareholders will be the same as the basis of the Target Fund II
shares surrendered in exchange therefor.
7. The holding period of the Acquiring Fund voting shares to be
received by the Target Fund II shareholders will include the period during which
the Target Fund II shares surrendered in exchange therefor were held, provided
the Target Fund II shares were held as a capital asset on the date of the
exchange.
This opinion letter is delivered to you in satisfaction of the
requirements of Section 8.6 of each Reorganization Agreement. We hereby consent
to the filing of this opinion as an exhibit to the Registration Statement on
Form N-14 and to use of our name and any reference to our firm in such
Registration Statement or in the Prospectus/Proxy Statement constituting a part
thereof. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER LLP
---------------------------
SULLIVAN & WORCESTER LLP
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
EVERGREEN INTERMEDIATE TERM BOND FUND II
(FORMERLY EVERGREEN INTERMEDIATE-TERM BOND FUND)
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 6, 1998
The undersigned, revoking all Proxies heretofore given, hereby appoints
Dorothy E. Bourassa, Terrence J. Cullen, Martin Wolin or Rosemary Van Antwerp or
any of them as Proxies of the undersigned, with full power of substitution, to
vote on behalf of the undersigned all shares of Evergreen Intermediate Term Bond
Fund II (formerly Evergreen Intermediate-Term Bond Fund) ("Evergreen
Intermediate II") that the undersigned is entitled to vote at the special
meeting of shareholders of Evergreen Intermediate II to be held at 3:00 p.m. on
Tuesday, January 6, 1998 at the offices of the Evergreen Keystone Funds, 26th
Floor, 200 Berkeley Street, Boston, Massachusetts 02116 and at any adjournments
thereof, as fully as the undersigned would be entitled to vote if personally
present, as follows:
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON
THIS PROXY. If joint owners, EITHER may sign this
Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a
minor, please give your full title. When signing on
behalf of a corporation or as a partner for a
partnership, please give the full corporate or
partnership name and your title, if any.
Date , 199
----------------------------------------
<PAGE>
----------------------------------------
Signature(s) and Title(s), if applicable
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE
EVERGREEN LEXICON FUND. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT
TO THE ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED
HEREBY WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS
INDICATED. THE BOARD OF TRUSTEES OF THE EVERGREEN LEXICON FUND RECOMMENDS A VOTE
FOR THE PROPOSALS. PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE
RED INK. EXAMPLE: X
---
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
Intermediate Term Bond Fund, a series of Evergreen Fixed Income Trust, will (i)
acquire all of the assets of Evergreen Intermediate II in exchange for shares of
Evergreen Intermediate Term Bond Fund; and (ii) assume certain identified
liabilities of Evergreen Intermediate II, as substantially described in the
accompanying Prospectus/Proxy Statement.
---- FOR ---- AGAINST ---- ABSTAIN
2. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
<PAGE>
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
EVERGREEN (FORMERLY KEYSTONE) INTERMEDIATE TERM BOND
FUND
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 6, 1998
The undersigned, revoking all Proxies heretofore given, hereby appoints
Dorothy E. Bourassa, Terrence J. Cullen, Martin Wolin or Rosemary Van Antwerp or
any of them as Proxies of the undersigned, with full power of substitution, to
vote on behalf of the undersigned all shares of Evergreen (formerly Keystone)
Intermediate Term Bond Fund ("Evergreen Intermediate") that the undersigned is
entitled to vote at the special meeting of shareholders of Evergreen
Intermediate to be held at 3:00 p.m. on Tuesday, January 6, 1998 at the offices
of the Evergreen Keytsone Funds, 26th Floor, 200 Berkeley Street, Boston,
Massachusetts 02116 and at any adjournments thereof, as fully as the undersigned
would be entitled to vote if personally present, as follows:
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON
THIS PROXY. If joint owners, EITHER may sign this
Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a
minor, please give your full title. When signing on
behalf of a corporation or as a partner for a
partnership, please give the full corporate or
partnership name and your title, if any.
Date , 199
----------------------------------------
<PAGE>
----------------------------------------
Signature(s) and Title(s), if applicable
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF EVERGREEN
INTERMEDIATE. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE
ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY
WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE
BOARD OF TRUSTEES OF EVERGREEN INTERMEDIATE RECOMMENDS A VOTE FOR THE PROPOSALS.
PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK. EXAMPLE: X
- ---
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
Intermediate Term Bond Fund, a series of Evergreen Fixed Income Trust, will (i)
acquire all of the assets of Evergreen Intermediate in exchange for shares of
Evergreen Intermediate Term Bond Fund; and (ii) assume certain identified
liabilities of Evergreen Intermediate, as substantially described in the
accompanying Prospectus/Proxy Statement.
---- FOR ---- AGAINST ---- ABSTAIN
2. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
<PAGE>
<PAGE>
