1933 Act File No. 2-58699
1940 Act File No. 811-2740
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 30 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 [X]
KEYSTONE TAX FREE FUND
----------------------
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
-----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 210-3200
Dorothy E. Bourassa, Esq., 200 Berkeley Street
----------------------------------------------
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
<PAGE>
KEYSTONE TAX FREE FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO.30
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 30 to Registrant's Registration Statement
No. 2-58699/811-2740 consists of the following pages, items of information and
documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
------
Prospectus for Keystone Tax Free Fund contained in Post-Effective
Amendment No. 29 to Registration Statement No. 2-58699/811-2740
filed on April 30, 1997 is incorporated by reference herein.
PART B
------
Statement of Additional Information for Keystone Tax Free Fund
contained in Post-Effective Amendment No. 29 to Registration Statement
No. 2-58699/811-2740 filed on April 30, 1997 is incorporated by reference
herein.
PART C
------
Financial Statements
Exhibits
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
KEYSTONE TAX FREE FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
<TABLE>
<CAPTION>
N-1A Item No. Prospectus Caption
<S> <C>
Part A
1 Cover Page
2 Expense Information
3 Financial Highlights
4 Cover Page; Fund Description; Investment Objective and Policies; Investment Restrictions; Risk Factors;
Additional Investment Information
5 Fund Management and Expenses; Additional Information
5A Not applicable
6 Fund Description; Dividends and Taxes; Fund Shares; Shareholder Services
7 How to Buy Shares; Distribution Plan; Shareholder Services; Pricing Shares
8 How to Redeem Shares
9 Not applicable
Part B
10 Cover Page
11 Table of Contents
12 Investment Objective and Policies
13 Investment Objective and Policies; Investment Restrictions; Brokerage; Appendix
14 The Trust Agreement; Trustees and Officers
15 Additional Information
16 Distribution Plan; Investment Management; Principal Underwriter; Additional Information; Expenses
17 Brokerage
18 The Trust Agreement
19 Valuation of Securities; Distribution Plan; Sales Charges
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
</TABLE>
<PAGE>
SUPPLEMENT TO THE PROSPECTUSES OF
KEYSTONE BALANCED FUND (K-1), KEYSTONE DIVERSIFIED BOND FUND (B-2), KEYSTONE
GROWTH AND INCOME FUND (S-1), KEYSTONE HIGH INCOME BOND FUND (B-4), KEYSTONE
INTERNATIONAL FUND, KEYSTONE PRECIOUS METALS HOLDINGS, KEYSTONE QUALITY BOND
FUND (B-1), KEYSTONE SMALL COMPANY GROWTH FUND (S-4), KEYSTONE STRATEGIC GROWTH
FUND (K-2), AND KEYSTONE TAX FREE FUND
(EACH A "FUND" AND, COLLECTIVELY, THE "FUNDS")
The prospectus(es) of each of the Funds are hereby supplemented as follows:
FUND REORGANIZATIONS
Each of Keystone High Income Bond Fund (B-4), Keystone Strategic Growth
Fund (K-2), Keystone Growth and Income Fund (S-1), Keystone International Fund,
and Keystone Precious Metals Holdings has been reorganized as a separate series
of a Delaware business trust, each of which was organized on September 17, 1997.
The name of each trust is set forth below.
<TABLE>
<CAPTION>
NAME OF FUND NAME OF TRUST
- ------------------------------------------------------------------ ------------------------------------
<S> <C>
Keystone Strategic Growth Fund (K-2) Evergreen Equity Trust
Keystone Growth and Income Fund (S-1) Evergreen Equity Trust
Keystone High Income Bond Fund (B-4) Evergreen Fixed Income Trust
Keystone Precious Metals Holdings Evergreen International Trust
Keystone International Fund Evergreen International Trust
</TABLE>
In connection with the reorganizations, the investment objective(s) of each
Fund is now "nonfundamental" (i.e., changeable by vote of the Board without a
shareholder vote). In addition, each Fund is now subject to certain standardized
investment restrictions as set forth in the Supplement to the Statement of
Additional Information of each Fund dated the date hereof.
NAME CHANGES
Effective January 12, 1998, the following name changes will occur:
<TABLE>
<CAPTION>
CURRENT NAME NEW NAME
- ------------------------------------------------------------------ ------------------------------------
<S> <C>
Keystone Growth and Income Fund (S-1) Evergreen Blue Chip Fund
Keystone High Income Bond Fund (B-4) Evergreen High Yield Bond Fund
Keystone International Fund Evergreen International Growth Fund
Keystone Precious Metals Holdings Evergreen Precious Metals Fund
Keystone Strategic Growth Fund (K-2) Evergreen Strategic Growth Fund
Keystone Quality Bond Fund (B-1) Evergreen Quality Bond Fund
Keystone Balanced Fund (K-1) Evergreen Balanced Fund
Keystone Small Company Growth Fund (S-4) Evergreen Small Company Growth Fund
</TABLE>
In addition, the name of the distributor for the Funds has been changed to
Evergreen Distributor, Inc., the name of the administrator for certain of the
Funds has been changed to Evergreen Investment Services, Inc., and the name of
the transfer agent for the Funds has been changed to Evergreen Service Company.
ADDITION OF MULTIPLE CLASS STRUCTURE
Effective January 9, 1998, each Fund will add two classes of shares
designated as Class A and Class C and will designate its current class of shares
as Class B.
For all the Funds, the table set forth below summarizes the shareholder
transaction costs associated with an investment in each Class A, Class B and
Class C shares of the Funds.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares(3) Class C Shares
-------------- ----------------- --------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a % of offering price) 4.75% None None
Contingent Deferred Sales Charge (as a % of original purchase price or None(1) 5.00%(2) 1.00%
redemption proceeds, whichever is lower)
</TABLE>
- -------------
(1) The Funds do not charge a front-end sales charge on purchase of $1 million
or more, but they do charge a contingent deferred sales charge of 1.00% if
you redeem those shares within one year after your purchase.
(2) The deferred sales charge on Class B shares declines from 5.00% to 1.00% of
amounts redeemed within six years after the month of purchase. The Funds do
not charge a contingent deferred sales charge on redemptions made after
that. See "Shareholder Information" for more information.
(3) Long-term shareholders may pay more than the economic equivalent front-end
sales charges permitted by the National Association of Securities Dealers,
Inc. See "Purchase and Redemption of Shares" for more information.
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending on the date set forth besides the Fund's name. The example shows
what you would pay if you invested $1,000 over periods indicated. The example
assumes that you reinvest all of your dividends and that the Fund's average
annual return will be 5%. THE EXAMPLES ARE FOR ILLUSTRATION PURPOSES ONLY AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RETURN. THE FUND'S ACTUAL EXPENSES AND RETURNS WILL VARY.
KEYSTONE BALANCED FUND (K-1) (MARCH 31, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .45% .45% .45% After 1 Year
$ 57 $ 67 $ 27 $ 17 $ 17
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 76 $ 84 $ 54 $ 54 $ 54
Other Expenses .25% .25% .25% After 5 Years
------- ------- ------- $ 98 $ 112 $ 92 $ 92 $ 92
Total .95% 1.70% 1.70% After 10 Years $ 159 $ 171 $ 201 $ 171 $ 201
</TABLE>
KEYSTONE DIVERSIFIED BOND FUND (B-2) (APRIL 30, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .52% .52% .52% After 1 Year
$ 58 $ 69 $ 29 $ 19 $ 19
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 81 $ 88 $ 58 $ 58 $ 58
Other Expenses .33% .33% .33% After 5 Years
------- ------- ------- $ 105 $ 120 $ 100 $ 100 $ 100
Total 1.10% 1.85% 1.85% After 10 Years $ 175 $ 188 $ 217 $ 188 $ 217
</TABLE>
KEYSTONE GROWTH AND INCOME FUND (S-1) (JULY 31, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .64% .64% .64% After 1 Year
$ 59 $ 70 $ 30 $ 20 $ 20
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 84 $ 91 $ 61 $ 61 $ 61
Other Expenses .31% .31% .31% After 5 Years
------- ------- ------- $ 110 $ 125 $ 105 $ 105 $ 105
Total 1.20% 1.95% 1.95% After 10 Years $ 186 $ 198 $ 227 $ 198 $ 227
</TABLE>
KEYSTONE HIGH INCOME BOND FUND (B-4) (APRIL 30, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .58% .58% .58% After 1 Year
$ 59 $ 70 $ 30 $ 20 $ 20
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 83 $ 91 $ 61 $ 61 $ 61
Other Expenses .35% .35% .35% After 5 Years
------- ------- ------- $ 109 $ 124 $ 104 $ 104 $ 104
Total 1.18% 1.93% 1.93% After 10 Years $ 184 $ 196 $ 225 $ 196 $ 225
</TABLE>
KEYSTONE INTERNATIONAL FUND (OCTOBER 31, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% After 1 Year
$ 63 $ 74 $ 34 $ 24 $ 24
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 95 $ 103 $ 73 $ 73 $ 73
Other Expenses .59% .59% .59% After 5 Years
------- ------- ------- $ 130 $ 145 $ 125 $ 125 $ 125
Total 1.59% 2.34% 2.34% After 10 Years $ 227 $ 239 $ 268 $ 239 $ 268
</TABLE>
KEYSTONE PRECIOUS METALS HOLDINGS (OCTOBER 31, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .74% .74% .74% After 1 Year
$ 64 $ 74 $ 34 $ 24 $ 24
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 97 $ 105 $ 75 $ 75 $ 75
Other Expenses .67% .67% .67% After 5 Years
------- ------- ------- $ 133 $ 149 $ 129 $ 129 $ 129
Total 1.66% 2.41% 2.41% After 10 Years $ 235 $ 247 $ 275 $ 247 $ 275
</TABLE>
KEYSTONE QUALITY BOND FUND (B-1) (OCTOBER 31, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .52% .52% .52% After 1 Year
$ 58 $ 69 $ 29 $ 19 $ 19
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 81 $ 88 $ 58 $ 58 $ 58
Other Expenses .33% .33% .33% After 5 Years
------- ------- ------- $ 105 $ 120 $ 100 $ 100 $ 100
Total 1.10% 1.85% 1.85% After 10 Years $ 175 $ 188 $ 217 $ 188 $ 217
</TABLE>
KEYSTONE SMALL COMPANY GROWTH FUND (S-4) (SEPTEMBER 30, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .48% .48% .48% After 1 Year
$ 57 $ 68 $ 28 $ 18 $ 18
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 78 $ 85 $ 55 $ 55 $ 55
Other Expenses .27% .27% .27% After 5 Years
------- ------- ------- $ 100 $ 115 $ 95 $ 95 $ 95
Total 1.00% 1.75% 1.75% After 10 Years $ 164 $ 177 $ 206 $ 177 $ 206
</TABLE>
KEYSTONE STRATEGIC GROWTH FUND (K-2) (SEPTEMBER 30, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .53% .53% .53% After 1 Year
$ 58 $ 69 $ 29 $ 19 $ 19
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 81 $ 88 $ 58 $ 58 $ 58
Other Expenses .32% .32% .32% After 5 Years
------- ------- ------- $ 105 $ 120 $ 100 $ 100 $ 100
Total 1.10% 1.85% 1.85% After 10 Years $ 175 $ 188 $ 217 $ 188 $ 217
</TABLE>
KEYSTONE TAX FREE FUND (MAY 31, 1998)
<TABLE>
<CAPTION>
EXAMPLES
---------------------------------------------------
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
----------------------------- ----------------------------- ------------------
Class A Class B Class C Class A Class B Class C Class B Class C
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .42% .42% .42% After 1 Year
$ 56 $ 66 $ 26 $ 16 $ 16
12b-1 Fees* .25% 1.00% 1.00% After 3 Years
$ 73 $ 80 $ 50 $ 50 $ 50
Other Expenses .16% .16% .16% After 5 Years
------- ------- ------- $ 91 $ 106 $ 86 $ 86 $ 86
Total .83% 1.58% 1.58% After 10 Years $ 145 $ 158 $ 188 $ 158 $ 188
</TABLE>
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. The Fund's Class A, Class B and Class C shares pay for
the expenses associated with the distribution of such shares according to
distribution plans adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") (each a "Plan" or collectively the "Plans"). Under
the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which are based upon a maximum annual rate as a
percentage of the Fund's average daily net assets attributable to the Class, as
follows:
Class A shares 0.75% (currently limited to 0.25%)
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include the Fund's investment adviser or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Fund may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above. Amounts paid under the
Plans are used to compensate the Fund's distributor pursuant to the Distribution
Agreements entered into by the Fund.
Distribution Agreements. The Fund has also entered into distribution
agreements (each a "Distribution Agreement" or collectively the "Distribution
Agreements") with EDI. Pursuant to the Distribution Agreements, the Fund will
compensate EDI for its services as distributor based upon the maximum annual
rate as a percentage of the Fund's average daily net assets attributable to the
Class, as follows:
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
The Distribution Agreements provide that EDI will use the distribution fee
received from the Fund for payments (1) to compensate broker-dealers or other
persons for distributing shares of the Fund, including interest and principal
payments made in respect of amounts paid to broker-dealers or other persons that
have been financed (EDI may assign its rights to receive compensation under the
Plans to secure such financings), (2) to otherwise promote the sale of shares of
the Fund, and (3) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative, accounting and
other services with respect to the Fund's shareholders. FUNB or its affiliates
may finance the payments made by EDI to compensate broker-dealers or other
persons for distributing shares of the Fund.
In the event the Fund acquires the assets of other mutual funds,
compensation paid to EDI under the Distribution Agreements may be paid by EDI to
the distributors of the acquired funds.
Since EDI's compensation under the Distribution Agreements is not directly
tied to the expenses incurred by EDI, the amount of compensation received by it
under the Distribution Agreements during any year may be more or less than its
actual expenses and may result in a profit to EDI. Distribution expenses
incurred by EDI in one fiscal year that exceed the level of compensation paid to
EDI for that year may be paid from distribution fees received from the Fund in
subsequent fiscal years.
- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Class A Shares--Front-End Sales Charge Alternative. You may purchase Class
A shares of the Fund at net asset value plus an initial sales charge on
purchases under $1,000,000. You may purchase $1,000,000 or more of Class A
shares without a front-end sales charge; however, a contingent deferred sales
charge ("CDSC") equal to the lesser of 1% of the purchase price or the
redemption value will be imposed on shares redeemed during the month of purchase
and the 12-month period following the month of purchase. The schedule of charges
for Class A shares is as follows: Initial Sales Charge
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C> <C>
Less than $ 50,000 4.99% 4.75% 4.25%
$ 50,000 - $ 99,999 4.71% 4.50% 4.25%
$ 100,000 - $ 249,999 3.90% 3.75% 3.25%
$ 250,000 - $ 499,999 2.56% 2.50% 2.00%
$ 500,000 - $ 999,999 2.04% 2.00% 1.75%
Over $ 1,000,000 None None 1.00% of the amount invested up to
$2,999,999; .50% of the amount invested
over $2,999,999, up to $4,999,999; and
.25% of the excess over $4,999,999
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and registered
investment advisers; (b) investment advisers, consultants or financial planners
who place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; (c) clients
of investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; (d) institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with the Fund by
the broker-dealer; (e) shareholders of record on October 12, 1990 in any series
of Evergreen Investment Trust in existence on that date, and the members of
their immediate families; (f) current and retired employees of FUNB and its
affiliates, EDI and any broker-dealer with whom EDI has entered into an
agreement to sell shares of the Fund, and members of the immediate families of
such employees; (g) and upon the initial purchase of an Evergreen fund by
investors reinvesting the proceeds from a redemption within the preceding thirty
days of shares of other mutual funds, provided such shares were initially
purchased with a front-end sales charge or subject to a CDSC. Certain broker-
dealers or other financial institutions may impose a fee on transactions in
shares of the Fund.
Class A shares may also be purchased at net asset value by a corporation or
certain other qualified retirement plans or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees, or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Fund. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to 0.25% of the average
daily net asset value on an annual basis of Class A shares held by their
clients. Certain purchases of Class A shares may qualify for reduced sales
charges in accordance with the Fund's Concurrent Purchases, Rights of
Accumulation, Letter of Intent, certain Retirement Plans and Reinstatement
Privilege. Consult the Application for additional information concerning these
reduced sales charges.
Class B Shares--Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC (expressed as a percentage of the lesser of the current net
asset value or original cost) will vary according to the number of years from
the month of purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
- ------------------------------------------------------------------------------------------------------------------ -------
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase............................... 5.00%
Second twelve-month period following the month of purchase........................................................ 4.00%
Third twelve-month period following the month of purchase......................................................... 3.00%
Fourth twelve-month period following the month of purchase........................................................ 3.00%
Fifth twelve-month period following the month of purchase......................................................... 2.00%
Sixth twelve-month period following the month of purchase......................................................... 1.00%
No CDSC is imposed on amounts redeemed thereafter.
</TABLE>
If you redeem shares purchased after January 1, 1995, but before January 9,
1998, you will pay a CDSC according to the CDSC schedule in effect at the time
you bought your shares.
The CDSC is deducted from the amount of the redemption and is paid to EDI.
In the event the Fund acquires the assets of other mutual funds, the CDSC may be
paid by EDI to the distributors of the acquired funds. Class B shares are
subject to higher distribution and/or shareholder service fees than Class A
shares for a period of seven years after the month of purchase (after which it
is expected that they will convert to Class A shares without imposition of a
front-end sales charge). The higher fees mean a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower net asset value
than Class A shares. The Fund will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the calendar
month in which the shareholder's purchase order was accepted, Class B shares
will automatically convert to Class A shares and will no longer be subject to
the higher distribution and/or services fee imposed on Class B shares. If you
bought shares before January 1, 1995, your shares will automatically convert to
Class A shares on or about January 16, 1998. If you purchased your shares after
January 1, 1995, your shares will convert to Class A shares seventy-two months
from the date you purchased your shares. Such conversion will be on the basis of
the relative net asset values of the two Classes, without the imposition of any
sales load, fee or other charge. The purpose of the conversion feature is to
reduce the distribution and/or services fee paid by holders of Class B shares
that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares. Class C
Shares--Level-Load Alternative. Class C shares are only offered through
broker-dealers who have special distribution agreements with EDI. You may
purchase Class C shares at net asset value without any initial sales charge and,
therefore, the full amount of your investment will be used to purchase Fund
shares. However, you will pay a 1.00% CDSC, if you redeem shares during the
month of purchase and the 12-month period following the month of purchase. No
CDSC is imposed on amounts redeemed thereafter. Class C shares incur higher
distribution and/or shareholder service fees than Class A shares but, unlike
Class B shares, do not convert to any other class of shares of the Fund. The
higher fees mean a higher expense ratio, so Class C shares pay correspondingly
lower dividends and may have a lower net asset value than Class A shares. The
Fund will not normally accept any purchase of Class C shares in the amount of
$500,000 or more. No CDSC will be imposed on Class C shares purchased by
institutional investors, and through employee benefit and savings plans eligible
for the exemption from front-end sales charges described under "Class A Shares
- -- Front-End Sales Charge Alternative," above. Broker-dealers and other
financial intermediaries whose clients have purchased Class C shares may receive
a trailing commission equal to 0.75% of the average daily net asset value of
such shares on an annual basis held by their clients more than one year from the
date of purchase. The payment of trailing commissions will commence immediately
with respect to shares eligible for exemption from the CDSC normally applicable
to Class C shares. Contingent Deferred Sales Charge. Shares obtained from
dividend or distribution reinvestment are not subject to a CDSC. Any CDSC
imposed upon the redemption of Class A, Class B or Class C shares is a
percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net asset value at the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event of:
(1) death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of
accounts having an aggregate net asset value of less than $1,000; (5) automatic
withdrawals under the Systematic Withdrawal Plan of up to 1.00% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; or (8) withdrawals consisting of returns
of excess contributions or excess deferral amounts made to a retirement plan
participant.
The Fund may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or CDSC to certain Directors, Trustees,
officers and employees of the Fund, Keystone, FUNB, Evergreen Asset Management
Corp. ("Evergreen Asset"), EDI and certain of their affiliates, and to members
of the immediate families of such persons, to registered representatives of
firms with dealer agreements with EDI, and to a bank or trust company acting as
a trustee for a single account.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year after the month of purchase. Consult your financial intermediary
for further information. The compensation received by broker-dealers and agents
may differ depending on whether they sell Class A, Class B or Class C shares.
There is no size limit on purchases of Class A shares.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your shares in the Fund to the Fund for cash
at their net redemption value on any day the Exchange is open, either directly
by writing to the Fund, c/o ESC, or through your financial intermediary. The
amount you will receive is the net asset value adjusted for fractions of a cent
(less any applicable CDSC) next calculated after the Fund receives your request
in proper form.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for
shares of the same class of any other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
No CDSC will be imposed in the event shares are exchanged for shares of the
same class of other Evergreen funds. If you redeem shares, the CDSC applicable
to the shares of the Evergreen fund originally purchased for cash is applied.
Also, Class B shares will continue to age following an exchange for the purpose
of conversion to Class A shares and for the purpose of determining the amount of
the applicable CDSC.
PERFORMANCE INFORMATION
The Funds may quote their "total return" or "yield" for specified periods
in advertisements, reports, or other communications to shareholders. Total
return and yield are computed separately for each Class of shares. Performance
data for one or more Classes may be included in any advertisement or sales
literature using performance data of a Fund.
PURCHASE AND REDEMPTION OF SHARES
Certain employer-sponsored retirement or savings plans, including eligible
401(k) plans, may purchase Class A shares at net asset value provided that such
plans meet certain required minimum number of eligible employees or required
amount of assets. The CDSC applicable to Class B shares also is waived on
redemptions of shares by such plans. Additional information concerning the
waiver of sales charges is set forth in the Statement of Additional Information.
ANNUAL UPDATE TO FINANCIAL SECTIONS OF CERTAIN PROSPECTUSES
KEYSTONE GROWTH AND INCOME FUND (S-1)
The "Financial Highlights" section is replaced entirely by the following:
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report, which is incorporated by reference into the statement of additional
information. Additional information about the Fund's performance is contained in
the Annual Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year..................................... $25.05 $22.98 $23.21 $25.42 $23.17
-------- -------- -------- -------- --------
Income from investment operations
Net investment income............................................... 0.15 0.12 0.25 0.16 0.11
Net gain (loss) on investments and foreign currency related
transactions...................................................... 7.97 3.69 2.66 (0.35) 3.11
-------- -------- -------- -------- --------
Total from investment operations.................................. 8.12 3.81 2.91 (0.19) 3.22
-------- -------- -------- -------- --------
Less distributions
From net investment income.......................................... (0.15) (0.54) (0.25) (0.23) (0.11)
In excess of net investment income.................................. (0.05) (0.22) (0.11) (0.05) (0.17)
From net realized gain on investments............................... (3.18) (0.98) (2.78) (1.74) (0.69)
-------- -------- -------- -------- --------
Total distributions............................................... (3.38) (1.74) (3.14) (2.02) (0.97)
-------- -------- -------- -------- --------
Net asset value end of year........................................... $ 29.79 $ 25.05 $ 22.98 $ 23.21 $ 25.42
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (A)...................................................... 34.76% 17.31% 13.87% (0.72%) 14.31%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses...................................................... 1.57% 1.85% 1.75% 2.07% 2.28%
Total expenses, excluding indirectly paid expenses.................. 1.56% 1.84% N/A N/A N/A
Net investment income............................................... 0.55% 0.52% 1.09% 0.67% 0.47%
Portfolio turnover rate............................................... 109% 139% 115% 73% 96%
Average commission rate paid per share................................ $ 0.0598 $ 0.0635 N/A N/A N/A
Net assets end of year (thousands).................................... $312,935 $224,819 $199,456 $208,532 $234,688
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of year..................................... $25.12 $22.97 $24.82 $18.93 $27.23
-------- -------- -------- -------- --------
Income from investment operations
Net investment income............................................... 0.15 0.19 0.22 0.32 0.46
Net gain (loss) on investments and foreign currency related
transactions...................................................... (0.11) 4.72 (1.29) 6.16 (6.77)
-------- -------- -------- -------- --------
Total from investment operations.................................. 0.04 4.91 (1.07) 6.48 (6.31)
-------- -------- -------- -------- --------
Less distributions
From net investment income.......................................... (0.15) (0.26) (0.65) (0.59) (0.46)
In excess of net investment income.................................. (0.17) (0.25) (0.09) 0 0
From net realized gain on investments............................... (1.67) (2.25) (0.04) 0 (1.53)
-------- -------- -------- -------- --------
Total distributions............................................... (1.99) (2.76) (0.78) (0.59) (1.99)
-------- -------- -------- -------- --------
Net asset value end of year........................................... $23.17 $25.12 $22.97 $24.82 $18.93
-------- -------- -------- -------- --------
TOTAL RETURN (A)...................................................... 0.38% 24.82% (4.56%) 34.99% (24.55%)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Total expenses...................................................... 2.08% 2.33% 2.35% 2.05% 1.77%
Total expenses, excluding indirectly paid expense................... N/A N/A N/A N/A N/A
Net investment income............................................... 0.61% 0.93% 1.36% 2.16% 2.28%
Portfolio turnover rate............................................... 95% 64% 47% 44% 82%
Average commission rate paid per share................................ N/A N/A N/A N/A N/A
Net assets end of year (thousands).................................... $204,004 $176,985 $154,124 $187,696 $195,375
</TABLE>
- -------------
(a) Excluding applicable sales charges.
The "Fund Management and Expenses; Sub-administrator" section is deleted.
The last sentence of the first paragraph and the second paragraph of the
"Fund Management and Expenses; Fund Expenses" section are deleted.
The Fund's portfolio turnover rates for the fiscal years ended August 31,
1996 and 1997, were 139% and 109%, respectively.
In order to exchange shares of any Fund for shares of Keystone Precious
Metals Holdings, shareholder must have held such shares of such Fund for a
period of at least six months.
KEYSTONE DIVERSIFIED BOND FUND (B-2)
The "Financial Highlights" section is replaced entirely by the following:
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report, which is incorporated by reference into the statement of additional
information. Additional information about the Fund's performance is contained in
the Annual Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR... $14.65 $15.09 $15.28 $17.06 $16.44 $15.37 $15.51 $17.74
-------- -------- -------- -------- ---------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 0.91 0.95 1.06 1.06 1.28 1.33 1.33 1.53
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions...... 0.84 (0.35) 0.11 (1.62) 0.70 1.14 0.17 (1.94)
-------- -------- -------- -------- ---------- -------- -------- --------
Total from investment operations.... 1.75 0.60 1.17 (0.56) 1.98 2.47 1.50 (0.41)
-------- -------- -------- -------- ---------- -------- -------- --------
LESS DISTRIBUTIONS FROM:
Net investment income............... (0.93) (0.96) (1.06) (1.22) (1.28) (1.33) (1.63) (1.61)
In excess of net investment
income............................. (0.05) 0 (0.22) 0 (0.08) (0.07) (0.01) (0.21)
Tax basis return of capital......... 0 (0.08) (0.08) 0 0 0 0 0
Net realized gain on investments.... 0 0 0 0 0 0 0 0
-------- -------- -------- -------- ---------- -------- -------- --------
Total distributions................. (0.98) (1.04) (1.36) (1.22) (1.36) (1.40) (1.64) (1.82)
-------- -------- -------- -------- ---------- -------- -------- --------
NET ASSET VALUE END OF YEAR......... $15.42 $14.65 $15.09 $15.28 $17.06 $16.44 $15.37 $15.51
-------- -------- -------- -------- ---------- -------- -------- --------
-------- -------- -------- -------- ---------- -------- -------- --------
TOTAL RETURN (A).................... 12.25% 4.03% 8.13% (3.53%) 12.73% 16.88% 10.58% (2.44%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................... 1.88% 1.84% 1.81% 1.75% 1.89% 1.99% 1.94% 1.89%
Total expenses, excluding
indirectly paid expenses......... 1.87% 1.83% -- -- -- -- -- --
Net investment income.............. 6.07% 6.42% 7.05% 6.48% 7.73% 8.29% 8.74% 9.26%
PORTFOLIO TURNOVER RATE............. 138% 246% 178% 200% 133% 117% 101% 43%
NET ASSETS END OF YEAR
(THOUSANDS)........................ $457,701 $559,792 $734,837 $814,245 $1,004,393 $902,339 $814,528 $860,615
<CAPTION>
1989 1988
---------- --------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR... $17.99 $18.91
---------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 1.71 1.78
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions...... (0.13) (0.81)
---------- --------
Total from investment operations.... 1.58 0.97
---------- --------
LESS DISTRIBUTIONS FROM:
Net investment income............... (1.83) (1.85)
In excess of net investment
income............................. 0 0
Tax basis return of capital......... 0 0
Net realized gain on investments.... 0 (0.04)
---------- --------
Total distributions................. (1.83) (1.89)
---------- --------
NET ASSET VALUE END OF YEAR......... $17.74 $17.99
---------- --------
---------- --------
TOTAL RETURN (A).................... 9.23% 5.61%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses..................... 1.84% 1.68%
Total expenses, excluding
indirectly paid expenses......... -- --
Net investment income.............. 9.52% 9.82%
PORTFOLIO TURNOVER RATE............. 47% 46%
NET ASSETS END OF YEAR
(THOUSANDS)........................ $1,000,305 $838,892
</TABLE>
- -------------
(a) Excluding applicable sales charges.
The Fund may invest up to 50% of its assets in securities that are
principally traded in securities markets located outside the United States.
The Asset Composition table located under the caption "Risk Factors" of the
prospectus is replaced entirely with the following:
<TABLE>
<CAPTION>
*UNRATED SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE PERCENTAGE OF
RATING OF FUND'S ASSETS FUND'S ASSETS
- ------------------------------------------ ---------------- -------------------
<S> <C> <C>
AAA 23.49% 0.00%
AA 13.63% 0.00%
A 13.83% 0.00%
BBB 6.46% 0.00%
BBB split 0.20% 0.00%
BB 7.32% 0.17%
BB split 8.21% 0.00%
B 12.59% 0.00%
B split 0.40% 0.00%
CCC 0.00% 0.00%
D 0.00% 0.00%
Unrated* 0.17%
U.S. governments, cash, equities and
others 13.70%
-------
TOTAL 100.00%
-------
</TABLE>
The "Fund Management and Expenses; Sub-Administrator" section is deleted.
The last sentence of the first paragraph and the second paragraph of the
"Fund Management and Expenses; Fund Expenses" section are deleted.
The Fund's portfolio turnover rates for the fiscal years ended August 31,
1996 and 1997 were 246% and 138%, respectively.
The sixth paragraph of the "Distribution Plan" section is deleted
December 22, 1997
<PAGE>
SUPPLEMENT TO THE STATEMENTS
OF ADDITIONAL INFORMATION OF
Evergreen Aggressive Growth Fund, Evergreen American Retirement Fund, Evergreen
Emerging Markets Growth Fund, Evergreen Florida High Income Municipal Bond Fund,
Evergreen Foundation Fund, Evergreen Fund, Evergreen Georgia Municipal Bond
Fund, Evergreen Global Leaders Fund, Evergreen Growth and Income Fund, Evergreen
High Grade Tax Free Fund, Evergreen Income and Growth Fund, Evergreen
Intermediate Term Government Securities Fund, Evergreen International Equity
Fund, Evergreen Institutional Money Market Fund, Evergreen Institutional Tax
Exempt Money Market Fund, Evergreen Institutional Treasury Money Market Fund,
Evergreen Micro Cap Fund, Evergreen Money Market Fund, Evergreen North Carolina
Municipal Bond Fund, Evergreen Short-Intermediate Bond Fund, Evergreen
Short-Intermediate Municipal Fund, Evergreen Small Cap Equity Income Fund,
Evergreen South Carolina Municipal Bond Fund, Evergreen Tax Strategic Foundation
Fund, Evergreen U.S. Government Fund, Evergreen Utility Fund, Evergreen Value
Fund, Evergreen Virginia Municipal Bond Fund, Evergreen Capital Preservation and
Income Fund, Evergreen Fund for Total Return, Evergreen Natural Resources Fund,
Evergreen Omega Fund, Evergreen Strategic Income Fund, Evergreen California Tax
Free Fund, Evergreen Massachusetts Tax Free Fund, Evergreen Missouri Tax Free
Fund, Evergreen New York Tax Free Fund, Evergreen Pennsylvania Tax Free Fund,
Keystone Balanced Fund (K-1), Keystone Diversified Bond Fund (B-2), Keystone
High Income Bond Fund (B-4), Keystone Quality Bond Fund (B-1), Keystone Small
Company Growth Fund (S-4), Keystone Strategic Growth Fund (K- 2), Keystone
Growth and Income Fund (S-1), Evergreen Select Adjustable Rate Fund, Evergreen
Select Small Cap Growth Fund, Keystone International Fund, Keystone Precious
Metals Holdings, and Keystone Tax Free Fund (each a "Fund" and, collectively,
the "Funds")
The Statements of Additional Information of each of the Funds are hereby
supplemented as follows:
STANDARDIZED FUNDAMENTAL INVESTMENT RESTRICTIONS
Each of the above Funds, except Keystone Balanced Fund (K-1), Keystone
Quality Bond Fund (B-1), Keystone Diversified Bond Fund (B-2), Keystone Small
Company Growth Fund (S-4), and Keystone Tax Free Fund, has adopted the following
standardized fundamental investment restrictions. These restrictions may be
changed only by a vote of Fund shareholders.
1. Diversification of Investments
The Fund may not make any investment inconsistent with the Fund's
classification as a diversified [non-diversified] investment company
under the Investment Company Act of 1940.
2. Concentration of a Fund's Assets in a Particular Industry. ([All Funds
other than those listed below.)
The Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than
securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities [or in the case of Money Market Funds domestic
bank money instruments]).
For Evergreen Utility Fund
The Fund will concentrate its investments in the utilities industry.
For Keystone Precious Metals Holdings
The Fund will concentrate its investments in industries related to the
mining, processing or dealing in gold or other precious metals and
minerals.
3. Issuance of Senior Securities
Except as permitted under the Investment Company Act of 1940, the Fund
may not issue senior securities.
4. Borrowing
The Fund may not borrow money, except to the extent permitted by
applicable law.
5. Underwriting
The Fund may not underwrite securities of other issuers, except insofar
as the Fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.
6. Investment in Real Estate
The Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, the Fund may invest in (a)
securities directly or indirectly secured by real estate, or (b)
securities issued by companies that invest in real estate.
7. Commodities
The Fund may not purchase or sell commodities or contracts on
commodities except to the extent that the Fund may engage in financial
futures contracts and related options and currency contracts and
related options and may otherwise do so in accordance with applicable
law and without registering as a commodity pool operator under the
Commodity Exchange Act.
8. Lending
The Fund may not make loans to other persons, except that the Fund may
lend its portfolio securities in accordance with applicable law. The
acquisition of investment instruments shall not be deemed to be the
making of a loan.
9. Investment in Federally Tax Exempt Securities
The following Funds have also adopted a standardized fundamental investment
restriction in regard to investments in federally tax-exempt securities:
<TABLE>
<CAPTION>
<S> <C>
Evergreen Tax Strategic Foundation Fund Evergreen High Grade Tax Free Fund
Evergreen Georgia Municipal Bond Fund Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund Evergreen Virginia Municipal Bond Fund
Evergreen New York Tax Free Fund Evergreen Massachusetts Tax Free Fund
Evergreen California Tax Free Fund Evergreen Pennsylvania Tax Free Fund
Evergreen Institutional Tax Exempt Money Market Fund Evergreen Missouri Tax Free Fund
Evergreen Short-Intermediate Municipal Fund
</TABLE>
The Fund will, during periods of normal market conditions, invest its
assets in accordance with applicable guidelines issued by the Securities and
Exchange Commission or its staff concerning investment in tax-exempt securities
for Funds with the words tax exempt, tax free or municipal in their names.
ELIMINATION OF CERTAIN NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The nonfundamental investment restrictions described below have been
eliminated by each Fund listed under such restriction:
1. PROHIBITION ON INVESTMENT IN UNSEASONED ISSUERS
Evergreen Fund, Growth and Income Fund, Income and Growth Fund,
American Retirement Fund, Money Market Fund, Short-Intermediate
Municipal Fund, Growth and Income Fund (S-1), Omega Fund, Precious
Metals Holding, Strategic Growth Fund (K- 2), High Income Bond Fund
(B-4), Capital Preservation and Income Fund, Select Adjustable Rate
Fund, Strategic Income Fund, Fund for Total Return, International Fund
2. PROHIBITION ON INVESTMENT IN COMPANIES FOR THE PURPOSE OF EXERCISING
CONTROL OR MANAGEMENT
Evergreen Fund, Growth and Income Fund, Income and Growth Fund, Value
Fund, Intermediate Term Government Securities Fund, Foundation Fund,
American Retirement Fund, Emerging Markets Growth Fund, International
Equity Fund, Global Leaders Fund, Money Market Fund, Florida High
Income Municipal Bond Fund, Short-Intermediate Municipal Fund, Growth
and Income Fund (S-1), Precious Metals Holdings, Strategic Growth Fund
(K-2), High Income Bond Fund (B-4), Fund for Total Return,
International Fund
3. PROHIBITION ON INVESTMENT IN COMPANIES IN WHICH TRUSTEES OR OFFICERS OF
THE FUNDS ALSO HOLD SHARES ABOVE CERTAIN PERCENTAGE LEVELS
Evergreen Fund, MicroCap Fund, Growth and Income Fund, Income and
Growth Fund, Intermediate Term Government Securities Fund, Foundation
Fund, American Retirement Fund, Money Market Fund, Short-Intermediate
Municipal Fund, Precious Metals Holdings, Inc.
4. PROHIBITION ON INVESTMENT OF MORE THAN 5% OF A FUND'S NET ASSETS IN
WARRANTS, WITH NO MORE THAN 2% OF NET ASSETS BEING INVESTED IN WARRANTS
THAT ARE LISTED NEW YORK NOR AMERICAN STOCK EXCHANGES
Evergreen Fund, MicroCap Fund, Growth and Income Fund, Income and
Growth Fund, Foundation Fund, American Retirement Fund,
Short-Intermediate Municipal Fund
5. PROHIBITION ON INVESTMENT IN OIL, GAS OR OTHER MINERAL EXPLORATION OR
DEVELOPMENT PROGRAMS
Evergreen Fund, MicroCap Fund, Aggressive Growth Fund, Growth and
Income Fund, Small Cap Equity Fund, Income and Growth Fund, Value Fund,
Intermediate Term Government Securities Fund, Foundation Fund, American
Retirement Fund, Money Market Fund, Florida High Income Municipal Bond
Fund, Short-Intermediate Municipal Fund, High Grade Tax Free Fund,
Precious Metals Holdings, Inc.
6. PROHIBITION ON JOINT TRADING ACCOUNTS
Evergreen Fund, MicroCap Fund, Growth and Income Fund, Income and
Growth Fund, Foundation Fund, American Retirement Fund, Florida High
Income Municipal Bond Fund
7. PROHIBITION ON INVESTMENT IN OTHER INVESTMENT COMPANIES. [Note: The
Funds may invest in such companies to the extent permitted by the
Investment Company Act of 1940 and the rules thereunder.]
Growth and Income Fund, Utility Fund, Small Cap Equity Income Fund,
Income and Growth Fund, Value Fund, Short-Intermediate Bond Fund,
Intermediate Term Government Securities Fund, Foundation Fund, Tax
Strategic Foundation Fund, American Retirement Fund, High Grade Tax
Free Fund, Growth and Income Fund (S-1), Omega Fund, Precious Metals
Holdings, Strategic Growth Fund (K-2), High Income Bond Fund (B-4),
Select Adjustable Rate Fund, Strategic Income Fund, Fund for Total
Return, Global Opportunities Fund, International Fund, Massachusetts
Tax Free Fund, New York Tax Free Fund, Pennsylvania Tax Free Fund,
California Tax Free Fund and Missouri Tax Free Fund.
RECLASSIFICATION OF ALL OTHER FUNDAMENTAL INVESTMENT RESTRICTIONS
All investment restrictions other than those described above as having been
standardized or eliminated have been reclassified from fundamental to
nonfundamental and, as, such, may be changed by the Funds' Boards of Trustees at
any time without a shareholder vote.
TRUSTEES
The Trustees and executive officers of each Trust, 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.
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 William Walt Pettit,
P.A. since 1990.
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.
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).
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.
DAVID M. RICHARDSON (55) Trustee. Executive Vice President, DMR
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
YMCA; former Director; Executive Vice President, and Vice Chairman of
The Travelers Corporation.
EXECUTIVE OFFICERS
WILLIAM J. TOMKO (40), 3435 Stelzer Road, Columbus, OH - President
and Treasurer. Senior Vice President and Operations Executive, BISYS
Fund Services.
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.
The officers of the Trusts are 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 Distributor, Inc.
("EDI"), 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 November 30, 1997.
DISTRIBUTION PLANS
The following is added to the disclosure under the caption "Distribution
Plan"
Class A and B shares are made available to employer-sponsored retirement or
savings plans ("Plans") without a sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on
the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets invested in broker/dealer
funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Services Agreement between Merrill Lynch
and the Fund's principal underwriter or distributor and in Funds advised or
managed by MLAM (collectively, the "Applicable Investments"); or
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or alliance
arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more
in assets, excluding money market funds, invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by the Merrill
Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares convert to Class A shares once the Plan has reached $5 million
invested in Applicable Investments. The Plan will receive a Plan level share
conversion.
The following is added to the Statement of Additional Information of each
of Keystone Balanced Fund (K-1), Keystone Diversified Bond Fund (B-2), Keystone
High Income Bond Fund (B-4), Keystone International Fund, Keystone Precious
Metals Holdings, Keystone Quality Bond Fund (B-1), Keystone Small Company Growth
Fund (S-4), Keystone Strategic Growth Fund (K-2), Keystone Growth and Income
Fund (S-1) and Keystone Tax Free Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid monthly on Class A, Class B
and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B shares and Class C shares are
designed to permit an investor to purchase such shares through broker-dealers
without the assessment of a front-end sales charge, and, in the case of Class C
shares, without the assessment of a contingent deferred sales charge after the
first year following the month of purchase, while at the same time permitting
the Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares and
the Class C shares are the same as those of the front-end sales charge and
distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund
with respect to each of its Class A, Class B and Class C shares (each a "Plan"
and collectively, the "Plans"), the Treasurer of each Fund reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the disinterested Trustees
are committed to the discretion of such disinterested Trustees then in office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for successive
twelve-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that Class and, in
either case, by a majority of the Independent Trustees of the Trust who have no
direct or indirect financial interest in the operation of the Plan or any
agreement related thereto.
The Plans permit the payment of fees to brokers and others for distribution
and shareholder-related administrative services and to broker-dealers,
depository institutions, financial intermediaries and administrators for
administrative services as to Class A, Class B and Class C shares. The Plans are
designed to (i) stimulate brokers to provide distribution and administrative
support services to each Fund and holders of Class A, Class B and Class C shares
and (ii) stimulate administrators to render administrative support services to
the Fund and holders of Class A, Class B and Class C shares. The administrative
services are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to
providing office space, equipment, telephone facilities, and various personnel
including clerical, supervisory, and computer, as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Class A, Class B and
Class C shares; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Fund
reasonably requests for its Class A, Class B and Class C shares.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Any Plan, Shareholder Services
Plan or Distribution Agreement may be terminated (i) by a Fund without penalty
at any time by a majority vote of the holders of the outstanding voting
securities of the Fund, voting separately by Class or by a majority vote of the
disinterested Trustees, or (ii) by the Distributor. To terminate any
Distribution Agreement, any party must give the other parties 60 days' written
notice; to terminate a Plan only, the Fund need give no notice to the
Distributor. Any Distribution Agreement will terminate automatically in the
event of its assignment.
HOW THE FUNDS OFFER SHARES TO THE PUBLIC
You may buy shares of a Fund through the Funds' distributor, broker-dealers
that have entered into special agreements with the Funds' distributor or certain
other financial institutions. Each Fund offers four classes of shares that
differ primarily with respect to sales charges and distribution fees. Depending
upon the class of shares, you will pay an initial sales charge when you buy a
Fund's shares, a contingent deferred sales charge (a "CDSC") when you redeem a
Fund's shares or no sales charges at all.
Purchase Alternatives
CLASS A SHARES
With certain exceptions, when you purchase Class A shares you will pay a
maximum sales charge of 4.75%. (The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Funds will charge a CDSC
of 1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase. See "Calculation of Contingent Deferred
Sales Charge" below.
CLASS B SHARES
The Funds offer Class B shares at net asset value (without a front-end
load). With certain exceptions, however, the Funds will charge a CDSC of 1.00%
on shares you redeem within 72 months after the month of your purchase. The
Funds will charge CDSCs at the following rate:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase..........................5.00%
Second twelve-month period following the month of purchase...............4.00%
Third twelve-month period following the month of purchase................3.00%
Fourth twelve-month period following the month of purchase...............3.00%
Fifth twelve-month period following the month of purchase................2.00%
Sixth twelve-month period following the month of purchase................1.00%
Thereafter...............................................................0.00%
Class B shares that have been outstanding for seven years after the month
of purchase will automatically convert to Class A shares without imposition of a
front-end sales charge or exchange fee. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificate to ESC.
CLASS C SHARES
Class C shares are available only through broker-dealers who have entered
into special distribution agreements with the Underwriter. The Funds offer Class
C shares at net asset value (without an initial sales charge). With certain
exceptions, however, the Funds will charge a CDSC of 1.00% on shares you redeem
within 12-months after the month of your purchase. See "Contingent Deferred
Sales Charge" below.
CLASS Y SHARES
No CDSC is imposed on the redemption of Class Y shares. Class Y shares are
not offered to the general public and are available only to (1) persons who at
or prior to December 31, 1994 owned shares in a mutual fund advised by Evergreen
Asset Management Corp. ("Evergreen Asset"), (2) certain institutional investors
and (3) investment advisory clients of the Capital Management Group of First
Union National Bank ("FUNB"), Evergreen Asset, Keystone Investment Management
Company, or their affiliates. Class Y shares are offered at net asset value
without a front-end or back-end sales charge and do not bear any Rule 12b-1
distribution expenses.
Contingent Deferred Sales Charge
The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plan"). If imposed, the Funds
deduct the CDSC from the redemption proceeds you would otherwise receive. The
CDSC is a percentage of the lesser of (1) the net asset value of the shares at
the time of redemption or (2) the shareholder's original net cost for such
shares. Upon request for redemption, to keep the CDSC a shareholder must pay as
low as possible, a Fund will first seek to redeem shares not subject to the CDSC
and/or shares held the longest, in that order. The CDSC on any redemption is, to
the extent permitted by the National Association of Securities Dealers, Inc.
("NASD"), paid to the Principal Underwriter or its predecessor.
SALES CHARGE WAIVERS OR REDUCTIONS
Reducing Class a Front-end Loads
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in Evergreen funds and take advantage of
lower sales charges.
COMBINED PURCHASES
You can reduce your sales charge by combining purchases of Class A shares
of multiple Evergreen funds. For example, if you invested $75,000 in each of two
different Evergreen funds, you would pay a sales charge based on a $150,000
purchase (i.e., 3.75% of the offering price, rather than 4.75%).
RIGHTS OF ACCUMULATION
You can reduce your sales charge by adding the value of Class A shares of
Evergreen funds you already own to the amount of your next Class A investment.
For example, if you hold Class A shares valued at $99,999 and purchase an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75%, rather than 4.75%.
LETTER OF INTENT
You can, by completing the "Letter of Intent" section of the application,
purchase Class A shares over a 13-month period and receive the same sales charge
as if you had invested all the money at once. All purchases of Class A shares of
an Evergreen fund during the period will qualify as Letter of Intent purchases.
Shares That Are Not Subject to a Sales Charge or CDSC
WAIVER OF SALES CHARGES
The Funds may sell their shares at net asset value without an initial sales
charge to:
1. purchases of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisers;
4. investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to
master accounts of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer;
7. employees of FUNB, its affiliates, Evergreen Distributor,
Inc., any broker-dealer with whom Evergreen Distributor, Inc.,
has entered into an agreement to sell shares of the Funds, and
members of the immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen funds, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust company as trustee if the initial
investment in or any Evergreen fund made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1.00% of the amount
invested.
With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.
WAIVER OF CDSCS
The Funds do not impose a CDSC when the shares you are redeeming represent:
1. an increase in the share value above the net cost of such
shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the account of a shareholder who has died
or become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 1/2 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under an Systematic Income Plan of up
to 1.00% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of any
other Evergreen fund, as described under the section entitled "Exchanges" in a
Fund's prospectus. Before you make an exchange, you should read the prospectus
of the Evergreen fund into which you want to exchange. The Trust's Board of
Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
HOW THE FUNDS VALUE SHARES
How and When a Fund Calculates its Net Asset Value per Share ("NAV")
Each Fund computes its NAV once daily on Monday through Friday, as
described in the Prospectus. A Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of each Fund is calculated by dividing the value of a Fund's net
assets attributable to that class by all of the shares issued for that class.
How a Fund Values the Securities it Owns
Current values for a Fund's portfolio securities are determined as follows:
(1) Securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or on the NMS prior to
the time of the valuation, provided that a sale has occurred.
(2) Securities traded in the over-the-counter market, other than on
NMS, are valued at the mean of the bid and asked prices at the time of
valuation.
(3) Short-term investments maturing in more than sixty days for which
market quotations are readily available, are valued at current market value.
(4) Short-term investments maturing in sixty days or less (including
all master demand notes) are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market.
(5) Short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market.
(6) Securities, including restricted securities, for which complete
quotations are not readily available; listed securities or those on NMS if, in
the Fund's opinion, the last sales price does not reflect a current market value
or if no sale occurred; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of Trustees.
SHAREHOLDER SERVICES
As described in the prospectus, a shareholder may elect to receive his or
her dividends and capital gains distributions in cash instead of shares.
However, ESC will automatically convert a shareholder's distribution option so
that the shareholder reinvests all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. The Funds will hold the returned distribution or redemption proceeds in
a non interest-bearing account in the shareholder's name until the shareholder
updates his or her address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
ANNUAL UPDATE TO FINANCIAL SECTIONS OF THE STATEMENT OF ADDITIONAL
INFORMATION FOR KEYSTONE DIVERSIFIED BOND FUND (B-2) AND KEYSTONE GROWTH AND
INCOME FUND (S-1)
Expenses
The table below shows the amounts paid by each Fund for expenses incurred
for each of the last three fiscal years.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Aggregate Dollar
Aggregate Amount of
Dollar Underwriting
Distribution Amount of Commissions
Management Advisory Brokerage Plan Underwriting Retained by
Fees (1) Fees (2) Commissions Expenses Commissions Distributor
========== ===================== =================== ==================== ================== ================== ================
1997 Fund
Expenses
===================== =================== ==================== ================== ================== ================
B-2 $855,600 (3) $2,835,152 -0- $5,106,010 $4,248,691 $3,514,609
S-1 $445,564 (3) $1,794,364 $656,022 $1,535,556 $1,017,961 $363,862
1996 Fund
Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
B-2 $3,481,728 $2,959,469 -0- $6,610,025 $5,596,658 $4,615,371
S-1 $1,492,757 $1,268,843 $684,496 $1,738,556 $1,415,505 $334,606
1995 Fund
Expenses
B-2 $3,982,976 $3,385,529 -0- $7,545,356 $6,676,954 $5,231,567
S-1 $1,318,897 $1,121,062 $621,829 $1,267,118 $1,083,702 $629,377
========== ===================== =================== ==================== ================== ================== ===============
</TABLE>
(1) Paid to Keystone Management, Inc. each Fund's investment manager prior to
December 11, 1996.
(2) Paid to Keystone Investment Management Company by Keystone Management,
Inc., pursuant to an Investment Advisory Agreement between them.
(3) Paid to Keystone Management, Inc. for the period September 1, 1996 through
December 11, 1996. After December 11, 1996, management fees were paid
directly to Keystone Investment Management Company.
Total Return
Total return quotations for a class of shares of a Fund as they may appear
from time to time in advertisements are calculated by finding the average annual
compounded rates of return over one, five and ten year periods, or the time
periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The average annual total returns for each Fund for the periods below ended
August 31, 1997 (including applicable sales charges) are as follows:
Fund One Year Five Years Ten Years
- ---- -------- ----------- ----------
B-2 9.25% 6.55% 7.16%
S-1 31.76% 15.36% 9.54%
============= ==================== =================== ===================
Current Yield
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of a Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. The Fund does not presently
intend to advertise current yield.
Trustee Compensation
Listed below is the compensation paid to Trustees for the fiscal year ended
August 31, 1997:
Trustee From B-2 From S-1 From Fund Complex
- ------- -------- -------- -----------------
L.B. Ashkin $2,161 $614 $65,100
F. Bam $1,761 $534 $52,675
R.J. Jeffries $0 $0 $13,100
J.S. Howell $2,311 $644 $102,500
G.M. McDonnell $2,311 $644 $89,200
T.L. McVerry $2,211 $624 $93,700
W.W. Pettit $2,211 $624 $91,825
R.A. Salton $2,061 $594 $94,500
M.S. Scofield $2,161 $614 $95,700
F. Amling $3,386 $859 $43,200
C.A. Austin $3,386 $859 $43,200
G.S. Bissell $2,161 $614 $28,500
E.D. Campbell $3,186 $819 $40,800
C.F. Chapin $3,186 $819 $40,800
K.D. Gifford $3,086 $799 $39,600
L. Keith $3,236 $829 $41,400
F.R. Keyser $3,336 $849 $56,950
D.M. Richardson $3,386 $859 $43,200
R.J. Shima $3,236 $829 $55,750
A.J. Simons $3,236 $829 $41,400
Financial Statements
The audited financial statements of the Funds and the reports thereon are
hereby incorporated by reference to each Fund's Annual Report, a copy of which
may be obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
January 9, 1997
<PAGE>
KEYSTONE TAX FREE FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). FINANCIAL STATEMENTS
The following financial statements are incorporated by reference to the
Registrant's Annual Report, as filed with the Securities and Exchange
Commission.
Schedule of Investments December 31, 1996
Financial Highlights For each of the years in
the ten-year period
ended December 31, 1996
Statement of Assets and Liabilities December 31, 1996
Statement of Operations Year ended December 31, 1996
Statement of Changes in Net Assets For each of the years in
the two-year period ended
December 31, 1996
Notes to Financial Statements
Independent Auditors' Report January 31, 1997
Item 24(b). Exhibits
(1) Amended and Restated Declaration of Trust dated July 27, 1993 (the
"Declaration of Trust")(1)
(2) By-laws(2)
(3) Not applicable.
(4)(a) Registrant's Amended and Restated Declaration of Trust, Article III, V
and VI(1)
(b) By-laws, Article 2(2)
(5) Investment Advisory Agreement between Registrant and Keystone
Investment Management Company(4)
(6)(a) Form of Principal Underwriting Agreement with Evergreen Keystone
Distributor, Inc. (the "Principal Underwrting Agreement")(4)
(b) Form of Dealer Agreement(4)
(7) Proposed Form of Deferred Compensation Plan(4)
(8) Custodian, Fund Accounting and Recordkeeping Agreement, as amended(1)
(9)(a) Form of Marketing Services Agreement between Evergreen Keystone
Distributor, Inc. and Keystone Investment Management Company(4)
(b) Form of Sub-Administrator Agreement between Keystone Investment
Management Company and BISYS Fund Services, Inc.(4)
(c) Principal Underwriting Agreement with Evergreeen Keystone Investment
Services, Inc., Registrant's former principal underwriter (the
"Continuation Agreement")(4)
(10) Opinion and consent of counsel as to the legality of securities being
registered was filed with the Registrant's Rule 24f-2 Notice on
February 28, 1997 and is incorporated by reference herein.
(11) Consent as to use of the opinion of Registrant's Independent
Auditors(3)
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Distribution Plan adopted pursuant to Rule 12b-1(1)
(16) Schedules for computation of total return, current yield and tax
equivalent yield(4)
(17) A financial data schedule(4)
(18) Not applicable.
(19) Powers of Attorney(4)
- -----------------------------
(1) Filed with Post-Effective Amendment No. 27 to Registration Statement
No. 2-58699/811-2740 and incorporated by reference herein.
(2) Filed with Post-Effective Amendment No. 2 to the Registration Statement
and incorporated by reference
herein.
(3) Filed herewith.
(4) Filed with Post-Effective Amendment No. 29 to Registration Statement
No. 2-58699/811-2740 and incorporated by reference herein.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of December 31, 1997
-------------- ------------------------------
Shares of $1.00 29,556
Par Value
Item 27. Indemnification
Provisions for the indemnification of Registrant's Trustees and officers
are contained in Article VIII of the Declaration of Trust, a copy of which was
filed with Post-Effective Amendment No. 26 and is incorporated by reference
herein.
Provisions for the indemnification of Evergreen Keystone Distributor, Inc.,
Registrant's principal underwriter, are contained in Item 9 of the Principal
Underwriting Agreement, a copy of the form of which is filed herewith and
incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Management
Company, investment adviser to the Fund, is contained in Section 7 of the
Investment Advisory Agreement between the Registrant and Keystone Investment
Management Company, a copy of which is filed herewith and is incorporated by
reference herein.
Item 28. Business and other Connections of Investment Adviser
The information required by this item with respect to Keystone Investment
Management Company is incorporated by reference to the Form ADV (File No.
801-8327) of Keystone Investment Management Company.
All of the officers are located at Keystone Investment Management Company,
200 Berkeley Street, Boston, Massachusetts 02116.
Item 29. Principal Underwriter
The Directors and principal executive officers of Evergreen Distributor,
Inc. are:
Lynn C. Mangum Director, Chairman and Chief Executive
Officer
Robert J. McMullan Director, Executive Vice President and
Treasurer
J. David Huber President
Kevin J. Dell Vice President, General Counsel and Secretary
All of the above persons are located at the following address: Evergreen
Distributor, Inc., 125 West 55th Street, New York, New York 10019.
Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
Keystone "fund complex" as such term is defined in Item 22(a) of Schedule 14A
under the Securities Exchange Act of 1934.
Item 30. Location of Accounts and Records
First Union National Bank
1 First Union Center
301 S. College Street
Charlotte, North Carolina 28288
Keystone Investment Management Company
200 Berkeley Street
Boston, Massachusetts 02116
Evergreen Investment Services, Inc.
200 Berkeley Street
Boston, Massachusetts 02116
Evergreen Service Company
200 Berkeley Street
Boston, Massachusetts 02116
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Iron Mountain
3431 Sharp Slot Road
Swansea, Massachusetts 02720
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes to furnish
each person to whom a copy of the Registrant's prospectus is delivered with a
copy of the Registrant's latest annual report to shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized in the City of Columbus, and the
State of Ohio, on the 9th day of January 1998.
KEYSTONE TAX FREE FUND
/s/ William J. Tomko
---------------------------
William J. Tomko
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 9th day of Janaury, 1998.
SIGNATURES TITLE
- ---------- -----
<TABLE>
<S> <C> <C>
/s/ George S. Bissell /s/ Charles F. Chapin /s/ William Walt Pettit
- ------------------------ ------------------------- -------------------------
George S. Bissell Charles F. Chapin* William Walt Pettit
Chairman of the Board of Trustees Trustee Trustee
and Chief Executive Officer
/s/ William J. Tomko /s/ K. Dun Gifford /s/ David M. Richardson
- ------------------------- ------------------------- -------------------------
William J. Tomko K. Dun Gifford* David M. Richardson*
President amd Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ Frederick Amling /s/ James S. Howell /s/ Russell A. Salton, III
- ------------------------- ------------------------- -------------------------
Frederick Amling* James S. Howell Russell A. Salton, III MD
Trustee Trustee Trustee
/s/ Laurence B. Ashkin /s/ Leroy Keith, Jr. /s/ Michael S. Scofield
- ------------------------- ------------------------- -------------------------
Laurence B. Ashkin Leroy Keith, Jr.* Michael S. Scofield
Trustee Trustee Trustee
/s/ Charles A. Austin, III /s/ F. Ray Keyser, Jr. /s/ Richard J. Shima
- ------------------------- ------------------------- -------------------------
Charles A. Austin, III* F. Ray Keyser, Jr.* Richard J. Shima*
Trustee Trustee Trustee
/s/ Foster Bam /s/ Gerald M. McDonnell /s/ Andrew J. Simons
- ------------------------- ------------------------- -------------------------
Foster Bam Gerald M. McDonnell Andrew J. Simons*
Trustee Trustee Trustee
/s/ Edwin D. Campbell /s/ Thomas L. McVerry
- ------------------------- -------------------------
Edwin D. Campbell* Thomas L. McVerry
Trustee Trustee
</TABLE>
*By:/s/ Martin J. Wolin
- -----------------------------
Martin J. Wolin**
Attorney-in-Fact
** Martin J. Wolin, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons filed as part of the Registration
Statement to Registrant's previous filings on Form N-1A.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
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11 Consent of KPMG Peat Marwick LLP
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Tax Free Fund
We consent to the use of our report dated January 31, 1997 incorporated by
reference herein and to the reference to our firm under the caption "Financial
Highlights" in the prospectus.
/S/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
January 9, 1998
