<PAGE>
File Nos. 2-10527/
811-96
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
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Post-Effective Amendment No. 87 X
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 X
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KEYSTONE BALANCED FUND (K-1)
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(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:(617) 210-3200
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Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
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Boston, Massachusetts 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)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(i)
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on (date) pursuant to paragraph (a)(i)
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75 days after filing pursuant to paragraph (a)(ii)
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on (date) pursuant to paragraph (a)(ii) of Rule 485.
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The Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A Rule 24f-2 Notice for Registrant's most recent
fiscal year ended June 30, 1997 was filed on August 28, 1997.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Per Offering Registration
Registered Registered Unit* Price** Fee
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Shares of
$1.00 Par 29,517,723 $ 12.99 $383,435,222 $-
Value
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* Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on August 15, 1997.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 29,517,723 shares of the
Fund were redeemed during its fiscal year ended June 30, 1997. Of such shares,
none were used for a reduction pursuant to Rule 24f-2 during the current
year.
<PAGE>
KEYSTONE BALANCED FUND (K-1)
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 87
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 87 to Registrant's Registration Statement No.
2-10527/811-96 consists of the following pages, items of information, and
documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEMS 24(a) and 24(b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURES PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE BALANCED FUND (K-1)
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
1 Cover Page
2 Expense Information
3 Financial Highlights
4 Cover Page
The Fund
Investment Objective and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
Pricing Shares
7 How to Buy Shares
Distribution Plan
Shareholder Services
8 How to Redeem Shares
9 Not applicable
Items in
Part B of
Form N-1A Statement of Additional Information Caption
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10 Cover Page
11 Table of Contents
12 Not applicable
13 The Fund
Investment Restrictions
Special Considerations
Investment Restrictions
Brokerage
Appendix
14 The Trust Agreement
Trustees and Officers
15 Additional Information
16 Investment Adviser
Principal Underwriter
Distribution Plan
Sales Charge
Additional Information
17 Brokerage
18 The Trust Agreement
19 Valuation of Securities
Distribution Plan
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield
Quotations
23 Financial Statements
<PAGE>
KEYSTONE BALANCED FUND (K-1)
PART A
PROSPECTUS
<PAGE>
<PAGE>
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PROSPECTUS September 2, 1997
- --------------------------------------------------------------------------------
KEYSTONE BALANCED FUND (K-1)
200 Berkeley Street, Boston, Massachusetts 02116-5034
Call Toll Free 1-800-343-2898
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Keystone Balanced Fund (K-1) (the "Fund") is a mutual fund whose goal is
current income.
The Fund invests, under normal circumstances, in a combination of equity and
debt securities chosen primarily for their potential for current income and
secondarily, to the extent consistent with the Fund's investment objective, for
their potential for capital appreciation. Under normal circumstances, the Fund
also maintains at least 25% of its total assets in fixed income senior
securities. The Fund may invest in any type of security, but it emphasizes
securities having a liberal current yield consistent with investment quality.
Your purchase payment is fully invested. There is no sales charge when you buy
the Fund's shares. With certain exceptions, the Fund may impose a deferred sales
charge, which declines from 4.00% to 1.00%, if you redeem your shares within
four calendar years of purchase.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act") under which it bears some of the
costs of selling its shares to the public.
This prospectus sets forth concisely the information about the Fund that you
should know before investing. Please read it and retain it for future reference.
Additional information about the Fund is contained in a statement of
additional information dated September 2, 1997, which has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. For a free copy, or for other information about the Fund, write to
the address or call the telephone number listed above.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and shares are not insured or otherwise protected by the
U.S. government, by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency, and involve risk, including the
possible loss of principal.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Expense Information............................. 2 Distribution Plan............................... 10
Financial Highlights............................ 3 How to Buy Shares............................... 12
The Fund........................................ 4 How to Redeem Shares............................ 13
Investment Objective and Policies............... 4 Shareholder Services............................ 15
Investment Restrictions......................... 5 Performance Data................................ 17
Risk Factors.................................... 6 Fund Shares..................................... 17
Pricing Shares.................................. 6 Additional Information.......................... 17
Dividends and Taxes............................. 7 Additional Investment Information............... (i)
Fund Management and Expenses.................... 8
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
EXPENSE INFORMATION
Keystone Balanced Fund (K-1)
The purpose of the fee table is to assist investors in understanding the
costs and expenses that an investor in the Fund will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses;"
"How to Buy Shares;" "Distribution Plan;" and "Shareholder Services."
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Deferred Sales Charge(1)............................................................................ 4.00%
(as a percentage of the lesser of original purchase price or redemption proceeds, as applicable)
Annual Fund Operating Expenses(2)
(as a percentage of average net assets)
Management Fee...................................................................................... 0.44%
12b-1 Fees(3)....................................................................................... 1.00%
Other Expenses...................................................................................... 0.26%
------
Total Fund Operating Expenses....................................................................... 1.70%
------
------
</TABLE>
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Example(4)
You would pay the following expenses on a $1,000 investment, assuming (1)
a 5% annual return and (2) redemption at the end of each period:......... $ 57 $74 $92 $201
You would pay the following expenses on the same investment, assuming no
redemption:.............................................................. $ 17 $54 $92 $201
</TABLE>
Amounts shown in the example should not be considered a representation of past
or future expenses. Actual expenses may be greater or less than those shown.
- ---------------
(1) The deferred sales charge declines from 4.00% to 1.00% of amounts redeemed
within four calendar years after purchase. No deferred sales charge is
imposed thereafter.
(2) Expense ratios are for the Fund's fiscal year ended June 30, 1997. Total
Fund Operating Expenses include indirectly paid expenses.
(3) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by rules adopted by the National
Association of Securities Dealers, Inc. ("NASD"). See "Distribution Plan."
(4) The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
2
<PAGE>
FINANCIAL HIGHLIGHTS
Keystone Balanced Fund (K-1)
(For a share outstanding throughout each year)
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. The Fund's financial statements, related notes, and independent
auditors' report are incorporated by reference into the statement of additional
information. Additional information about the Fund's performance is contained in
its Annual Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning of year...... $ 11.33 $ 10.09 $ 9.26 $ 10.10 $ 9.77 $ 9.16 $ 9.10 $ 9.12 $ 8.37
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income.................. 0.30 0.29 0.31 0.28 0.31 0.32 0.45 0.50 0.46
Net realized and unrealized gain (loss)
on investment and foreign currency
related transactions................. 2.07 1.42 0.96 (0.37) 0.66 0.75 0.18 0.20 0.83
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations....... 2.37 1.71 1.27 (0.09) 0.97 1.07 0.63 0.70 1.29
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income.................. (0.30) (0.24) (0.31) (0.28) (0.31) (0.32) (0.50) (0.50) (0.54)
In excess of net investment income..... 0 (0.03) (0.02) (0.07) (0.09) (0.14) (0.04) (0.04) 0
Tax basis return of capital............ 0 0 0 (0.02) 0 0 0 0 0
Net realized gain on investments....... (0.45) (0.20) (0.02) (0.25) (0.24) 0 (0.03) (0.18) 0
In excess of net realized gain on
investments.......................... 0 0 (0.09) (0.13) 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------ ------- -------
Total distributions.................... (0.75) (0.47) (0.44) (0.75) (0.64) (0.46) (0.57) (0.72) (0.54)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value end of year............ $ 12.95 $ 11.33 $ 10.09 $ 9.26 $ 10.10 $ 9.77 $ 9.16 $ 9.10 $ 9.12
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
Total return (a)....................... 21.95% 17.35% 14.20% (1.16%) 10.39% 11.86% 7.49% 7.99% 16.07%
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses....................... 1.70% 1.72% 1.77% 1.71% 1.93% 1.97% 1.88% 1.99% 1.96%
Total expenses, excluding indirectly
paid expenses...................... 1.69% 1.71% N/A N/A N/A N/A N/A N/A N/A
Net investment income................ 2.50% 2.71% 3.33% 2.81% 3.07% 3.25% 4.56% 4.94% 5.48%
Portfolio turnover rate................ 89% 96% 88% 88% 74% 52% 60% 35% 49%
Average commission rate paid per
share................................ $0.0400 $0.0031 N/A N/A N/A N/A N/A N/A N/A
------- ------- ------- ------- ------- ------- ------- ------- -------
Net assets end of year (millions)...... $ 1,625 $ 1,481 $ 1,345 $ 1,390 $ 1,464 $ 1,184 $ 902 $ 827 $ 712
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
<CAPTION>
Year Ended June 30,
1988
------
<S> <C>
Net asset value beginning of year...... $ 9.74
------
Income from investment operations
Net investment income.................. 0.47
Net realized and unrealized gain (loss)
on investment and foreign currency
related transactions................. (0.82)
------
Total from investment operations....... (0.35)
------
Less distributions from:
Net investment income.................. (0.60)
In excess of net investment income..... 0
Tax basis return of capital............ 0
Net realized gain on investments....... (0.42)
In excess of net realized gain on
investments.......................... 0
------
Total distributions.................... (1.02)
------
Net asset value end of year............ $ 8.37
------
------
Total return (a)....................... (3.37%)
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses....................... 1.91%
Total expenses, excluding indirectly
paid expenses...................... N/A
Net investment income................ 5.34%
Portfolio turnover rate................ 64%
Average commission rate paid per
share................................ N/A
------
Net assets end of year (millions)...... $ 685
------
------
</TABLE>
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(a) Excluding applicable sales charge.
3
<PAGE>
- -------------------------------------------------------
THE FUND
- -------------------------------------------------------
The Fund is an open-end, diversified management investment company, commonly
known as a mutual fund. The Fund was created under Pennsylvania law as a common
law trust and has been offering its shares continuously since September 11,
1935. The Fund is one of over thirty funds advised and managed by Keystone
Investment Management Company ("Keystone"), the Fund's investment adviser.
- -------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- -------------------------------------------------------
The Fund's investment objective is to provide shareholders with current
income.
The Fund's objective is fundamental and may not be changed without the vote of
a majority of the Fund's outstanding shares (as defined in the 1940 Act), which
means the lesser of (1) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (2) more than 50% of the
outstanding shares (a "1940 Act Majority").
Any investment involves risk, and there is no assurance that the Fund will
achieve its investment objective.
Principal Investments
Under normal circumstances, the Fund invests in a combination of equity and
debt securities chosen primarily for their potential for current income and
secondarily, to the extent consistent with the Fund's investment objective, for
their potential for capital appreciation. The Fund normally emphasizes
securities having a liberal current yield consistent with investment quality on
which the interest or dividend payments are considered reasonably secure. Under
normal circumstances, the Fund maintains at least 25% of its total assets in
fixed income senior securities.
The Fund may invest in any type of security, including bonds, debentures and
income obligations as well as common and preferred stocks.
Other Eligible Investments
In addition to its other investment options, the Fund may invest in limited
partnerships, including master limited partnerships, and up to 25% of its assets
in foreign securities.
When market conditions warrant, the Fund may invest up to 100% of its assets
for temporary or defensive purposes in money market instruments. Such
instruments, which must mature within one year of their purchase, consist of
U.S. government securities; instruments, including certificates of deposit,
demand and time deposits and bankers' acceptances, of banks that are members of
the Federal Deposit Insurance Corporation and have at least $1 billion in assets
as of the date of their most recently published financial statements, including
U.S. branches of foreign banks and foreign branches of U.S. banks; and prime
commercial paper, including master demand notes. When the Fund invests for
defensive purposes it seeks to limit the loss of principal and is not pursuing
its investment objective.
The Fund intends to follow policies of the Securities and Exchange Commission
as they are adopted from time to time with respect to illiquid securities,
including, at this time, (1) treating as illiquid, securities that may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the investment on its books
and (2) limiting its holdings of such securities to 15% of net assets.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933
Act"). Generally, Rule 144A establishes a safe harbor from the registration
requirements of the 1933 Act for resales by large institutional investors of
securities not publicly traded in the U.S. The Fund may purchase Rule 144A
securities when such securities present an attractive investment opportunity and
otherwise meet the Fund's selection criteria. The Board of Trustees has adopted
guidelines and procedures pursuant to
4
<PAGE>
which Keystone determines the liquidity of the Fund's Rule 144A securities. The
Board monitors Keystone's implementation of such guidelines and procedures.
At the present time, the Fund cannot accurately predict exactly how the market
for Rule 144A securities will develop. A Rule 144A security that was readily
marketable upon purchase may subsequently become illiquid. In such an event, the
Board of Trustees will consider what action, if any, is appropriate.
The Fund may also invest in below-investment grade securities issued by United
States ("U.S.") and foreign issuers having a rating range of BB to CCC by
Standard & Poor's Ratings Group ("S&P") and/or Ba to Caa by Moody's Investors
Service ("Moody's") or, if unrated, believed to have a comparable rating. The
Fund may also invest in below-investment grade rated zero coupon and
payment-in-kind ("PIK") securities. The Fund currently expects that less than 5%
of its total assets will be invested in below-investment grade securities. For
more information on below-invesment grade securities, see the statement of
additional information.
The Fund may enter into repurchase and reverse repurchase agreements, purchase
and sell securities and currencies on a when issued and delayed delivery basis
and purchase or sell securities on a forward commitment basis, lend portfolio
securities, write covered call and put options and purchase call and put options
to close out existing positions. The Fund may also enter into currency and other
financial futures contracts and related options transactions for hedging
purposes and not for speculation. The Fund may also employ new investment
techniques with respect to options or financial futures contracts and related
options.
The Fund may invest in certain types of derivative instruments, including
mortgage-related securities, such as collateralized mortgage obligations, and
enter into interest rate transactions, such as "swaps," "caps," and "floors."
These vehicles can also be combined to create more complex products called
hybrid derivatives or structured securities.
For further information about the types of investments and investment
techniques available to the Fund and the associated risks, see the "Risk
Factors" and "Additional Investment Information" sections of this prospectus as
well as the statement of additional information.
- -------------------------------------------------------
INVESTMENT RESTRICTIONS
- -------------------------------------------------------
The Fund has adopted the fundamental restrictions summarized below, which may
not be changed without the approval of a 1940 Act Majority of the Fund's
outstanding shares. These restrictions and certain other fundamental and
nonfundamental restrictions are set forth in the statement of additional
information.
Generally, the Fund may not do the following: (1) invest more than 5% of its
total assets in the securities of any one issuer (other than U.S. government
securities) except that up to 25% of its total assets may be invested without
regard to this limit; (2) invest in more than 10% of the outstanding voting
securities of any one issuer (other than U.S. government securities) except that
up to 25% of the Fund's total assets may be invested without regard to this
limit; (3) borrow money, except that the Fund may borrow money from banks for
temporary or emergency purposes in aggregate amounts up to 10% of the value of
the Fund's net assets (computed at cost), or enter into reverse repurchase
agreements provided that bank borrowings and reverse repurchase agreements, in
aggregate, shall not exceed 10% of the value of the Fund's net assets; and (4)
invest more than 25% of its total assets in issuers in any single industry
(other than U.S. government securities).
In addition, the Fund may, notwithstanding any other investment policy or
restriction, invest all of its assets in the securities of a single open-end
5
<PAGE>
management investment company with substantially the same fundamental investment
objective, policies, and restrictions as the Fund. The Fund does not currently
intend to implement this policy and would do so only if the Trustees were to
determine such action to be in the best interest of the Fund and its
shareholders. In the event of such implementation, the Fund will comply with
such requirements as to written notice to shareholders as are then in effect.
- -------------------------------------------------------
RISK FACTORS
- -------------------------------------------------------
Like any investment, your investment in the Fund involves an element of risk.
Before you buy shares of the Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses. You can lose money by
investing in the Fund. Your investment is not guaranteed. A decrease in the
value of the Fund's portfolio securities can result in a decrease in the value
of your investment.
Certain risks related to the Fund are discussed below. In addition to the
risks discussed in this section, specific risks attendant to individual
securities or investment practices are discussed in "Additional Investment
Information" and the statement of additional information.
Nature of the Fund. By itself, the Fund does not constitute a balanced
investment plan. The Fund makes sense for those investors who can afford to ride
out changes in the stock market because it will typically invest a substantial
portion of its assets in common and preferred stocks.
Foreign Risk. Securities of foreign issuers generally entail more risk than
those of domestic issuers for the following reasons: publicly available
information on issuers and securities may be scarce; many foreign countries do
not follow the same accounting, auditing, and financial reporting standards as
are used in the U.S.; market trading volumes may be smaller, resulting in less
liquidity and more price volatility compared to U.S. securities of comparable
quality; there may be less regulation of securities trading and its
participants; the possibility may exist for expropriation, confiscatory
taxation, nationalization, establishment of exchange controls, political or
social instability or negative diplomatic developments; and dividend or interest
withholding may be imposed at the source.
Fluctuations in foreign exchange rates impose an additional level of risk,
possibly affecting the value of the Fund's foreign investments and earnings, as
well as gains and losses realized through trades, and the unrealized
appreciation or depreciation of investments. The Fund may also incur costs when
it shifts assets from one country to another.
Investing in securities of issuers in emerging markets countries involves
exposure to economic systems that are generally less mature and political
systems that are generally less stable than those of developed countries. In
addition, investing in companies in emerging markets countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
companies in emerging markets countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities.
- -------------------------------------------------------
PRICING SHARES
- -------------------------------------------------------
The Fund computes its net asset value as of the close of trading (currently
4:00 p.m. Eastern time) on each day on which the New York Stock Exchange (the
"Exchange") is open. However, the Fund does not compute its net asset value on
days when changes in the value of the Fund's securities do not affect the
current net asset value of its shares. The Exchange is currently closed on
6
<PAGE>
weekends, New Year's Day, Dr. Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. The net asset value per share is arrived at by determining the
value of all of the Fund's assets, subtracting all liabilities and dividing the
result by the number of shares outstanding.
Current values for the Fund's portfolio securities are determined as follows:
(1) Securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the time
of the valuation, provided that a sale has occurred and that this price reflects
current market value according to procedures established by the Board of
Trustees.
(2) Securities traded in the over-the-counter market, other than NMS, are
valued at the mean of the bid and asked prices at the time of valuation.
(3) 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.
(4) Short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value.
(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) The following securities are valued at prices deemed in good faith to be
fair under procedures established by the Board of Trustees: (a) securities,
including restricted securities, for which complete quotations are not readily
available; (b) 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 (c) other assets.
The Fund believes that reliable market quotations are generally not readily
available for purposes of valuing fixed income securities. As a result,
depending on the particular securities owned by the Fund, it is likely that most
of the valuations for such securities will be based upon their fair value
determined under procedures that have been approved by the Board of Trustees.
The Board of Trustees has authorized the use of a pricing service to determine
the fair value of the Fund's fixed income securities and certain other
securities. Securities for which market quotations are readily available are
valued on a consistent basis at the price quoted that, in the opinion of the
Trustees or the person designated by the Trustees to make the determination,
most nearly represents the market value of the particular security.
- -------------------------------------------------------
DIVIDENDS AND TAXES
- -------------------------------------------------------
The Fund has qualified and intends to qualify in the future as a regulated
investment company (a "RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). The Fund qualifies if, among other things, it distributes to its
shareholders at least 90% of its net investment income for its fiscal year. The
Fund also intends to make timely distributions, if necessary, sufficient in
amount to avoid the non-deductible 4% excise tax imposed on a RIC when it fails
to distribute, with respect to each calendar year, at least 98% of its ordinary
income for such calendar year and 98% of its net capital gains for the one-year
period ending on October 31 of such calendar year.
Any taxable dividend declared in October, November, or December to
shareholders of
7
<PAGE>
record in such months, and paid by the following January 31 will be includable
in the taxable income of the shareholder as if paid on December 31 of the year
in which the dividend was declared.
The Fund will make distributions from its net investment income to its
shareholders by the 15th day of February, May, August, and November each year
and net capital gains, if any, at least annually.
If the Fund qualifies as a RIC and if it distributes all of its net investment
income and net capital gains, if any, to shareholders, it will be relieved of
any federal income tax liability.
Distributions are payable in shares of the Fund or, at the shareholder's
option (which must be exercised before the record date for the distribution), in
cash. Fund distributions in the form of additional shares are made at net asset
value without the imposition of a sales charge.
Dividends and distributions are taxable whether they are received in cash or
in shares. Income dividends and net short-term gains distributions are taxable
as ordinary income. Net long-term gains dividends are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares held for less
than six months are sold at a loss, however, such loss will be treated for tax
purposes as a long-term capital loss to the extent of any long-term capital
gains dividends received. Dividends and distributions may also be subject to
state and local taxes.
The Fund advises its shareholders annually as to the federal tax status of all
distributions made during the year.
- -------------------------------------------------------
FUND MANAGEMENT AND EXPENSES
- -------------------------------------------------------
Fund Management
Subject to the general supervision of the Fund's Board of Trustees, Keystone,
located at 200 Berkeley Street, Boston, Massachusetts 02116-5034, provides
investment advice, management and administrative services to the Fund.
Investment Adviser
Keystone has provided investment advisory and management services to
investment companies and private accounts since 1932. Keystone is a wholly-owned
subsidiary of First Union Keystone, Inc. ("First Union Keystone"). Both Keystone
and First Union Keystone are located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
First Union Keystone is a wholly-owned subsidiary of First Union National Bank
("FUNB"). FUNB is a subsidiary of First Union Corporation ("First Union").
First Union is headquartered in Charlotte, North Carolina, and had $143
billion in consolidated assets as of June 30, 1997. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the U.S. The Capital Management Group of FUNB, Keystone
and Evergreen Asset Management Corp., a wholly-owned subsidiary of FUNB, manage
or otherwise oversee the investment of over $66 billion in assets as of June 30,
1997 belonging to a wide range of clients, including the Evergreen Keystone
funds.
Pursuant to its Investment Advisory and Management Agreement with the Fund
(the "Advisory Agreement"), Keystone manages the investment and reinvestment of
the Fund's assets, supervises the operation of the Fund, and provides all
necessary office space, facilities and equipment.
8
<PAGE>
The Advisory Agreement provides that, for its services to the Fund, the Fund
pays Keystone a fee for its services at the annual rate of:
<TABLE>
<CAPTION>
Aggregate Net Asset
Value of the Shares
Management Fee of the Fund
- ----------------------------- ----------------------
<S> <C>
1.5% of Gross Dividend
and Interest Income Plus
0.60% of the first $100,000,000, plus
0.55% of the next $100,000,000, plus
0.50% of the next $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $500,000,000, plus
0.30% of amounts over $1,000,000,000;
</TABLE>
computed as of the close of business each business day and payable monthly.
The Advisory Agreement continues in effect from year to year only so long as
such continuance is specifically approved at least annually by the Fund's Board
of Trustees or by vote of shareholders of the Fund. In either case, the terms of
the Advisory Agreement and continuance thereof must be approved by the vote of a
majority of the Fund's Independent Trustees (Trustees who are not "interested
persons" of the Fund, as defined in the 1940 Act) cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated, without penalty, on 60 days' written notice by the Fund or Keystone,
or by a vote of shareholders of the Fund. The Advisory Agreement will terminate
automatically upon its "assignment" as defined in the 1940 Act.
Principal Underwriter
Evergreen Keystone Distributor, Inc. ("EKD"), a subsidiary of The BISYS Group,
Inc., which is not affiliated with First Union, is the Fund's principal
underwriter (the "Principal Underwriter"). EKD replaced Evergreen Keystone
Investment Services, Inc. (formerly Keystone Investment Distributors Company)
("EKIS") as the Fund's Principal Underwriter. EKIS may no longer act as
Principal Underwriter of the Fund due to regulatory restrictions imposed by the
Glass-Steagall Act upon national banks such as FUNB and their affiliates, that
prohibit such entities from acting as the underwriters or distributors of mutual
fund shares. While EKIS may no longer act as Principal Underwriter of the Fund
as discussed above, EKIS may continue to receive compensation from the Fund or
EKD in respect of underwriting and distribution services performed prior to the
termination of EKIS as Principal Underwriter. In addition, EKIS may also be
compensated by EKD for the provision of certain marketing support services to
EKD at an annual rate of up to 0.75% of the average daily net assets of the
Fund, subject to certain restrictions. EKD is located at 125 West 55th Street,
New York, New York 10019.
Sub-Administrator
BISYS Fund Services ("BISYS"), an affiliate of EKD, distributor for the Fund,
serves as sub-administrator to the Fund. For its services, BISYS is entitled to
receive a fee from Keystone calculated on the aggregate average daily net assets
of the Fund at a rate based on the total assets of all mutual funds administered
by BISYS for which FUNB affiliates also serve as investment adviser. The
sub-administrator fee is calculated in accordance with the following schedule:
<TABLE>
<CAPTION>
Aggregate Average Daily Net
Assets Of Mutual Funds
Administered By BISYS For Which
Any Affiliate Of FUNB Serves As
Sub-Administrator Fee Investment Adviser
- --------------------- ---------------------------------
<S> <C>
0.0100%.. on the first $7 billion
0.0075%.. on the next $3 billion
0.0050%.. on the next $15 billion
0.0040%.. on assets in excess of $25 billion
</TABLE>
The total assets of the mutual funds for which FUNB affiliates also serve as
investment advisers were approximately $30.5 billion as of June 30, 1997.
Portfolio Manager
Walter McCormick has been the Fund's Portfolio Manager since 1984. He is a
Keystone Senior Vice President and a Senior Portfolio Manager and has more than
27 years experience in equity investing.
9
<PAGE>
Fund Expenses
The Fund pays all of its expenses. In addition to the investment management
and distribution fees discussed herein, the principal expenses that the Fund is
expected to pay include, but are not limited to: fees and expenses of its
transfer agent, its custodian, and its independent auditors; fees of its
Independent Trustees; expenses of shareholders' and Trustees' meetings; fees
payable to government agencies, including registration and qualification fees of
the Fund and its shares under federal and state securities laws; expenses of
preparing, printing and mailing Fund prospectuses, notices, reports, and proxy
material; and certain extraordinary expenses. In addition to such expenses, the
Fund pays its brokerage commissions, interest charges, and taxes. For the fiscal
year ended June 30, 1997, the Fund paid expenses, including indirectly paid
expenses, equal to 1.70% of its average net assets.
During the fiscal year ended June 30, 1997, the Fund paid or accrued
management fees of $6,854,615 to Keystone, which represented 0.44% of the Fund's
average daily net assets.
For the fiscal year ended June 30, 1997, the Fund paid or accrued $2,979,483
to Evergreen Keystone Service Company (formerly Keystone Investor Resource
Center, Inc.) ("EKSC"), for services rendered as the Fund's transfer and
dividend disbursing agent, and $101,818 to Keystone for certain administrative
and accounting services. EKSC, a wholly-owned subsidiary of Keystone, is located
at 200 Berkeley Street, Boston, Massachusetts 02116.
Securities Transactions
Under policies established by the Fund's Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best execution.
When selecting broker-dealers to execute portfolio transactions for the Fund,
Keystone may consider the number of shares of the Fund sold by such
broker-dealers. In addition, broker-dealers executing portfolio transactions
may, from time to time, be affiliated with the Fund, Keystone, EKD, or their
affiliates.
The Fund may pay higher commissions to broker-dealers which provide research
services. Keystone may use these services in advising the Fund as well as in
advising its other clients.
Portfolio Turnover
The Fund's portfolio turnover rates for the fiscal years ended June 30, 1997
and 1996 were 89% and 96%, respectively. For further information about brokerage
and distributions, see the statement of additional information.
Code of Ethics
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
- -------------------------------------------------------
DISTRIBUTION PLAN
- -------------------------------------------------------
The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted pursuant to Rule 12b-1 under the 1940 Act. The Fund's Distribution
Plan provides that the Fund may expend up to 0.3125% quarterly (approximately
1.25% annually) of the average daily net asset value of its shares to pay
distribution costs for sales of its shares and to pay shareholder service fees.
The NASD currently limits such annual expenditures to 1.00% of the aggregate
average daily net asset value of its shares, of which 0.75% may be used to pay
such distribution costs and 0.25% may be used to pay shareholder service fees.
The NASD also limits the aggregate amount that the Fund may pay for such
distribution costs to 6.25% of gross share sales since the inception of the
Fund's Distribution Plan, plus interest at the prime rate plus 1% on such
amounts (less any contingent deferred sales charges paid by shareholders to EKD
or its predecessor) remaining unpaid from time to time.
Payments under the Distribution Plan are currently made to EKD and its
predecessor (which
10
<PAGE>
may reallow all or part to others, such as broker-dealers) (1) as commissions
for Fund shares sold and (2) as shareholder service fees in respect of shares
maintained by the recipient and outstanding on the Fund's books for specified
periods and (3) as interest. Amounts paid or accrued to EKD and its predecessor
under (1) and (2) in the aggregate may not exceed the annual limitation referred
to above.
EKD generally reallows to brokers-dealers or others a commission equal to
4.00% of the price paid for each Fund share sold. In addition, EKD generally
reallows to broker-dealers or others a shareholder service fee at a rate of
0.25% per annum of the net asset value of shares maintained by such recipient
and outstanding on the books of the Fund for specified periods.
If the Fund is unable to pay EKD a commission on a new sale because the annual
maximum (0.75% of average daily net assets) has been reached, EKD intends, but
is not obligated, to continue to accept new orders for the purchase of Fund
shares and to pay or accrue commissions and service fees to broker-dealers or
others in excess of the amount it currently receives from the Fund ("Advances").
While the Fund is under no contractual obligation to reimburse EKD or its
predecessor for Advances, EKD and its predecessor intend to seek full payment of
such amounts from the Fund (together with interest at the rate of prime plus 1%)
at such times in the future as, and to the extent that, payment thereof by the
Fund would be within permitted limits. EKIS, the predecessor to EKD, currently
intends to seek payment of interest only on such Advances paid or accrued by
EKIS subsequent to July 7, 1992. If the Fund's Independent Trustees authorize
such payments, the effect will be to extend the period of time during which the
Fund incurs the maximum amount of costs allowed by the Distribution Plan.
As of June 30, 1997, the maximum uncollected amounts for which EKD or EKIS may
seek payment from the Fund under its Distribution Plan was $779,658 (0.05% of
the Fund's net asset value).
The amounts and purposes of expenditures under the Distribution Plan must be
reported to the Independent Trustees quarterly. The Independent Trustees may
require or approve changes in the operation of the Distribution Plan, and may
require that total expenditures by the Fund under the Distribution Plan be kept
within limits lower than the maximum amount permitted by the Distribution Plan
as stated above. Unless limited by the Independent Trustees, such costs could,
for some period of time, be higher than such costs permitted by most other plans
presently adopted by other investment companies.
The Distribution Plan may be terminated at any time by vote of the Independent
Trustees, or by vote of a majority of the outstanding voting shares of the Fund.
If the Distribution Plan is terminated, EKD will ask the Independent Trustees to
take whatever action they deem appropriate under the circumstances with respect
to payment of Advances.
Any change in the Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in the Distribution Plan requires
shareholder approval. Otherwise, the Distribution Plan may be amended by votes
of the majority of both (1) the Fund's Trustees and (2) the Independent Trustees
cast in person at a meeting called for the purpose of voting on such amendment.
While the Distribution Plan is in effect, the Fund is required to commit the
selection and nomination of candidates for Independent Trustees to the
discretion of the Independent Trustees.
Arrangements with Broker-Dealers and Others
Upon written notice to broker-dealers, EKD may, at its own expense,
periodically sponsor programs that offer additional compensation in connection
with sales of Fund shares. Participation in such programs may be available to
all broker-dealers or to selected broker-dealers who have
11
<PAGE>
sold or are expected to sell significant amounts of shares. EKD and EKIS, in
connection with the services they provide, may also provide additional
compensation, including financial assistance, to broker-dealers for preapproved
seminars, conferences and advertising. No such programs or additional
compensation will be offered to the extent they are prohibited by the laws of
any state or any self-regulatory agency, such as the NASD.
EKD may, at its own expense, pay concessions in addition to those described
above to broker-dealers, including, from time to time, First Union Brokerage
Services, Inc., an affiliate of Keystone, that satisfy certain criteria
established from time to time by EKD. These conditions relate to increasing
sales of shares of the Evergreen Keystone funds over specified periods and
certain other factors. Such payments, depending on the broker-dealer's
satisfaction of the required conditions, may be periodic and may be up to 0.25%
of the value of shares sold by such broker-dealer.
EKD also may pay banks and other financial services firms that facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the payments made allowable to broker-dealers for the sale of such
shares as described above.
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling or distributing the
shares of registered open-end investment companies such as the Fund. However,
under the Glass-Steagall Act and such other laws and regulations, a Member Bank
or an affiliate thereof may act as investment adviser, transfer agent or
custodian to a registered open-end investment company and may also act as agent
in connection with the purchase of shares of such an investment company upon the
order of its customer. Keystone and its affiliates, since they are direct or
indirect subsidiaries of FUNB, are subject to and in compliance with the
aforementioned laws and regulations. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from accepting certain payments from
the Fund, or should Congress relax current restrictions on depository
institutions, the Fund's Board of Trustees will consider what action, if any, is
appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
- -------------------------------------------------------
HOW TO BUY SHARES
- -------------------------------------------------------
You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with EKD, banks, other financial intermediaries or directly through
EKD.
In addition, you may purchase Fund shares by mailing to the Fund, c/o
Evergreen Keystone Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121, a completed account application and a check payable to the Fund. You
may also telephone 1-800-343-2898 to obtain the number of an account to which
you can wire or electronically transfer funds before sending in a completed
account application. Subsequent investments in Fund shares in any amount may be
made by check, wiring federal funds or electronic funds transfer ("EFT").
The Fund's shares are sold at the public offering price, which is equal to the
net asset value per share next computed after the Fund receives the purchase
order. The initial purchase must be at least $1,000, except for purchases by
participants in certain retirement plans for which the minimum is waived and
investments under the Systematic Investment Plan where the minimum investment
amount is $25. There is no minimum for subsequent purchases.
Contingent Deferred Sales Charge
With certain exceptions, when shares are redeemed within four calendar years
after their
12
<PAGE>
purchase, the Fund may charge a contingent deferred sales charge ("CDSC") as
follows:
<TABLE>
<S> <C>
During the calendar year of purchase.......... 4.00%
During the first calendar year after the year
of purchase................................. 3.00%
During the second calendar year after the year
of purchase................................. 2.00%
During the third calendar year after the year
of purchase................................. 1.00%
Thereafter.................................... 0.00%
</TABLE>
If imposed, the CDSC is deducted from the redemption proceeds otherwise
payable to you. CDSCs are, to the extent permitted by the NASD, paid to EKD or
its predecessor.
The CDSC is a declining percentage of the lesser of (1) the net asset value of
the shares redeemed or (2) the total cost of such shares. No CDSC is imposed on
amounts derived from (1) increases in the value of the shares redeemed above the
total cost of such shares due to increases in the net asset value per share of
the Fund; (2) certain shares with respect to which the Fund did not pay a
commission on issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions; or (3) shares held in all or
part of more than four consecutive calendar years.
In determining whether a CDSC is payable and if so, the percentage applicable,
it is assumed that shares held the longest are first to be redeemed. No CDSC is
payable on permitted exchanges of shares between funds in the Keystone Classic
Fund Family that have adopted distribution plans pursuant to Rule 12b-1 under
the 1940 Act. For purposes of computing CDSCs, when shares of one fund are
exchanged for shares of another fund, the date of purchase of the shares being
acquired by exchange is assumed to be the date the shares being tendered for
exchange were originally purchased.
Waiver of Deferred Sales Charges
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 a 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 on excess deferral amounts made to a retirement plan
participant.
Shares may also be sold, to the extent permitted by applicable law, at net
asset value without the payment of commissions or the imposition of a CDSC to
(1) certain Directors, Trustees, officers and employees of the Fund, Keystone,
EKD, and certain of their affiliates; (2) registered representatives of firms
with dealer agreements with EKD; and (3) a bank or trust company acting as
trustee for a single account. For more details, see the statement of additional
information.
- -------------------------------------------------------
HOW TO REDEEM SHARES
- -------------------------------------------------------
You may redeem (i.e., sell) your shares in 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 EKSC, or through your financial intermediary. The amount you will
receive is based on the net asset value adjusted for fractions of a cent (less
any applicable CDSC) next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, the Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request
13
<PAGE>
has been telephoned or mailed, it is irrevocable and may not be modified or
canceled.
Redeeming Shares Through Your Financial Intermediary
The Fund must receive instructions from your financial intermediary before
4:00 p.m. (Eastern time) for you to receive that day's net asset value (less any
applicable CDSC). Your financial intermediary is responsible for furnishing all
necessary documentation to the Fund and may charge you for this service. Certain
financial intermediaries may require that you give instructions earlier than
4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone
Send a signed letter of instruction or stock power form to the Fund, c/o EKSC,
the registrar, transfer agent and dividend-disbursing agent for the Fund. Stock
power forms are available from your financial intermediary, EKSC, and many
commercial banks. Additional documentation is required for the sale of shares by
corporations, financial intermediaries, fiduciaries and surviving joint owners.
Signature guarantees are required for all redemption requests for shares with a
value of more than $50,000. Currently, the requirement for a signature guarantee
has been waived on redemptions of $50,000 or less when the account address of
record has been the same for a minimum period of 30 days. The Fund and EKSC
reserve the right to withdraw this waiver at any time. A signature guarantee
must be provided by a bank or trust company (not a Notary Public), a member firm
of a domestic stock exchange or by other financial institutions whose guarantees
are acceptable under the Securities Exchange Act of 1934 and EKSC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from their
accounts by calling the telephone number on the front page of this prospectus
between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day
(i.e., any weekday exclusive of days on which the Exchange or EKSC's offices are
closed). Redemption requests received after 4:00 p.m. (Eastern time) will be
processed using the net asset value determined on the next business day. Such
redemption requests must include the shareholder's account name, as registered
with the Fund, and the account number. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
redemptions. If you cannot reach the Fund by telephone, you should follow the
procedures for redeeming by mail or through a broker-dealer as set forth herein.
The telephone redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
complete the appropriate sections on the application and choose how the
redemption proceeds are to be paid. Redemption proceeds will either (1) be
mailed by check to the shareholder at the address in which the account is
registered or (2) be wired to an account with the same registration as the
shareholder's account in the Fund at a designated commercial bank.
In order to insure that instructions received by EKSC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days. The Fund reserves the right at any time to terminate, suspend, or change
the terms of any redemption method described in this prospectus, except
redemption by mail, and to impose fees.
Except as otherwise noted, neither the Fund, EKSC, nor EKD assumes
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen
14
<PAGE>
Keystone Express Line or by telephone are genuine. Neither the Fund, EKSC, nor
EKD will be liable when following instructions received over the Evergreen
Keystone Express Line or by telephone that EKSC reasonably believes are genuine.
General
The Fund reserves the right at any time, to terminate, suspend, or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) the Fund cannot dispose of its
investments or fairly determine their value; or (4) the Securities and Exchange
Commission so orders.
Small Accounts
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if its value has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No CDSCs are
applied to such redemptions.
- -------------------------------------------------------
SHAREHOLDER SERVICES
- -------------------------------------------------------
Details on all shareholder services may be obtained from EKSC by writing or
calling toll free 1-800-343-2898.
Evergreen Keystone Express Line
The Evergreen Keystone Express Line offers you specific fund account
information, price and yield quotations as well as the ability to effect account
transactions, including investments, exchanges, and redemptions. You may access
the Evergreen Keystone Express Line by dialing toll free 1-800-346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
Exchanges
If you have obtained the appropriate prospectus, you may exchange shares of
the Fund for shares of any other fund in the Keystone Classic Fund Family, on
the basis of their respective net asset values, by calling toll free
1-800-343-2898 or by writing Evergreen Keystone Service Company at P.O. Box
2121, Boston, Massachusetts 02106-2121. (See "How to Redeem Shares" for
additional information with respect to telephone transactions.)
Fund shares purchased by check may be exchanged for shares of any of the funds
in the Keystone Classic Fund Family. In order to exchange Fund shares for shares
of Keystone Precious Metals Holdings, Inc., you must have held Fund shares for a
period of at least six months. If the shares being tendered for exchange have
been held for less than four years and are still subject to a CDSC, such charge
will carry over to the shares being acquired in the exchange transaction. The
Fund reserves the right to terminate this exchange offer or to change its terms,
including the right to charge for any exchange upon notice to shareholders
pursuant to applicable law.
Orders to exchange shares of the Fund for shares of the Evergreen Money Market
Fund ("EMMF") will be executed by redeeming the shares of the Fund and
purchasing at the shareholder's option, either Class A or Class K shares of EMMF
at the net asset value of such Class A or Class K shares determined after the
proceeds from such redemption become available, which may be up to seven days
after such redemption. In all other cases, orders for exchanges received by the
Fund prior to 4:00 p.m. (Eastern time) on any day the funds are open for
business will be executed at the respective net asset values determined as of
the close of business that day. Orders for exchanges received after 4:00 p.m.
(Eastern time) on any business day will be executed at the respective net asset
values determined at the close of the next business day.
15
<PAGE>
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares in a year or three in a calendar quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
Systematic Investment Plan
With a Systematic Investment Plan, you can automatically transfer as little as
$25 from your bank account to the Evergreen Keystone fund of your choice. Your
bank account will be debited for each transfer. You will receive confirmation
with your next account statement.
To establish or terminate a Systematic Investment Plan or to change the amount
or schedule of your automatic investments, you may write to or call EKSC. Please
include your account numbers. Termination may take up to 30 days.
Telephone Investment Plan
You may make investments into an existing account electronically in amounts of
not less than $50 or more than $10,000 per investment. Telephone investment
requests received by 4:00 p.m. (Eastern time) will be credited to a
shareholder's account the day the request is received. Shares purchased under
the Systematic Investment Plan or Telephone Investment Plan may not be redeemed
for ten days from the date of investment.
Systematic Withdrawal Plan
When an account of $10,000 or more is opened or when an existing account
reaches that size, you may participate in the Systematic Withdrawal Plan by
filling out the appropriate part of the application. Under this plan, you may
receive (or designate a third party to receive) payments in a stated amount of
at least $75 and may be as much as 1.00% per month or 3.00% per quarter of the
total net asset value of the Fund shares in your account when the Plan was
opened. Fund shares will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. Any applicable CDSC will be waived with
respect to redemptions occurring under a Systematic Withdrawal Plan during a
calendar year to the extent that such redemptions do not exceed 12% of (1) the
initial value of the account plus (2) the value, at the time of purchase, of any
subsequent investments. Excessive withdrawals may decrease or deplete the value
of your account.
Automatic Reinvestment Plan
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at the net
asset value per share at the close of business on the record date, unless
otherwise requested by a shareholder in writing. If the transfer agent does not
receive a written request for subsequent dividends and/or distributions to be
paid in cash at least three full business days prior to a given record date, the
dividends and/or distributions to be paid to a shareholder will be reinvested.
Two Dimensional Investing
You may elect to have income and capital gains distributions from any Keystone
Classic fund shares you own automatically invested to purchase shares of any
other Keystone Classic fund. You may select this service on your application and
indicate the Keystone Classic fund(s) into which distributions are to be
invested.
Retirement Plans
The Fund has various retirement plans available to you, including Individual
Retirement Accounts
16
<PAGE>
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Savings
Incentive Match Plan for Employees ("SIMPLEs"); Tax Sheltered Annuities; 403(b)
(7) Plans (TSAs), 401(k) Plans; Keogh Plans; Profit-Sharing Plans; and Money
Purchase Pension Plans. For details, including fees and application forms, call
toll free 1-800-247-4075 or write to EKSC.
Other Services
Under certain circumstances, shareholders may, within 30 days after a
redemption, reinstate their accounts at current net asset value.
- -------------------------------------------------------
PERFORMANCE DATA
- -------------------------------------------------------
From time to time, the Fund may advertise "total return" and "current yield."
Both figures are based on historical earnings. Past performance should not be
considered representative of results for any future period of time. Total return
refers to the Fund's average annual compounded rates of return over specified
periods determined by comparing the initial amount invested to the ending
redeemable value of that amount. The resulting equation assumes reinvestment of
all dividends and distributions and deduction of all recurring charges, if any,
applicable to all shareholder accounts. The deduction of the CDSC is reflected
in the applicable years.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may include comparative performance information in advertising or
marketing the Fund's shares, such data from Lipper Analytical Services, Inc.,
Morningstar Inc., Standard & Poor's Ratings Group, and Ibbotson Associates or
other industry publications.
- -------------------------------------------------------
FUND SHARES
- -------------------------------------------------------
The Fund currently issues one class of shares, which participate equally in
dividends and distributions and have equal voting, liquidation and other rights.
When issued and paid for, the shares will be fully paid and nonassessable by the
Fund. Shares may be exchanged as explained under "Shareholder Services," but
will have no other preference, conversion, exchange or preemptive rights.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares are redeemable, transferable, and freely
assignable as collateral. The Fund may establish additional classes or series of
shares.
The Fund does not have annual meetings. The Fund will have special meetings
from time to time as required under its Trust Agreement and under the 1940 Act.
As provided in the Fund's Trust Agreement, shareholders have the right to remove
Trustees by an affirmative vote of two-thirds of the outstanding shares. A
special meeting of the shareholders will be held when holders of 10% of the
outstanding shares request a meeting for the purpose of removing a Trustee. The
Fund is prepared to assist shareholders in communications with one another for
the purpose of convening such a meeting as prescribed by Section 16(c) of the
1940 Act.
- -------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon written notice to those shareholders, the Fund intends, when an
annual report or semi-annual report of the Fund is required to be furnished, to
mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or charge fees for
services provided.
17
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
Obligations of Foreign Branches of United States Banks
The obligations of foreign branches of U.S. banks may be general obligations
of the parent bank in addition to the issuing branch or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations may also be affected by governmental action
in the country of domicile of the branch (generally referred to as sovereign
risk). In addition, evidences of ownership of such securities may be held
outside the U.S. and the Fund may be subject to the risks associated with the
holding of such property overseas. Examples of governmental actions would be the
imposition of currency controls, interest limitations, withholding taxes,
seizure of assets or the declaration of a moratorium. Various provisions of
federal law governing domestic branches do not apply to foreign branches of
domestic banks.
Obligations of United States Branches of Foreign Banks
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
Master Demand Notes
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer, as borrower. Master
demand notes may permit daily fluctuations in the interest rate and daily
changes in the amounts borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount. The borrower may repay up to the full amount of the
note without penalty. Notes purchased by the Fund permit the Fund to demand
payment of principal and accrued interest at any time (on not more than seven
days notice). Notes acquired by the Fund may have maturities of more than one
year, provided that (1) the Fund is entitled to payment of principal and accrued
interest upon not more than seven days notice, and (2) the rate of interest on
such notes is adjusted automatically at periodic intervals which normally will
not exceed 31 days, but may extend up to one year. The notes are deemed to have
a maturity equal to the longer of the period remaining to the next interest rate
adjustment or the demand notice period. Because these types of notes are direct
lending arrangements between the lender and borrower, such instruments are not
normally traded and there is no secondary market for these notes, although they
are redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, Keystone considers, under
standards established by the Board of Trustees, earning power, cash flow and
other liquidity ratios of the borrower and will monitor the ability of the
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, the Fund will invest in them only
if at the time of an investment the issuer meets the criteria established for
commercial paper.
Repurchase Agreements
The Fund may enter into repurchase agreements with member banks of the Federal
Reserve System
(i)
<PAGE>
having at least $1 billion in assets, primary dealers in U.S. government
securities or other financial institutions believed by Keystone to be
creditworthy. Such persons must be registered as U.S. government securities
dealers with appropriate regulatory organizations. Under such agreements, the
bank, primary dealer or other financial institution agrees upon entering into
the contract to repurchase the security at a mutually agreed upon date and
price, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period. Under a repurchase agreement, the seller must maintain the value of the
securities subject to the agreement at not less than the repurchase price, such
value being determined on a daily basis by marking the underlying securities to
their market value. Although the securities subject to the repurchase agreement
might bear maturities exceeding a year, the Fund only intends to enter into
repurchase agreements that provide for settlement within a year and usually
within seven days. Securities subject to repurchase agreements will be held by
the Fund's custodian or in the Federal Reserve book entry system. The Fund does
not bear the risk of a decline in the value of the underlying security unless
the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including (1) possible declines in the value of the underlying
securities during the period while the Fund seeks to enforce its rights thereto;
(2) possible subnormal levels of income and lack of access to income during this
period; and (3) expenses of enforcing its rights. The Board of Trustees has
established procedures to evaluate the creditworthiness of each party with whom
the Fund enters into repurchase agreements by setting guidelines and standards
of review for Keystone and monitoring Keystone's actions with regard to
repurchase agreements.
Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into reverse repurchase agreements to avoid otherwise having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it will establish
a segregated account with the Fund's custodian containing liquid assets such as
U.S. government securities or other high grade debt securities having a value
not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure such value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase may decline below the repurchase price.
"When Issued" Securities
The Fund may also purchase and sell securities and currencies on a when issued
and delayed delivery basis. When issued or delayed delivery transactions arise
when securities or currencies are purchased or sold by the Fund with payment and
delivery taking place in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. When the Fund engages in when issued and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity to obtain a price or yield considered to be advantageous. When
issued and delayed delivery transactions may be expected to occur a month or
more before delivery is due. No payment or delivery is made by the Fund,
however, until it receives payment or delivery from the other party to the
transaction. The Fund will maintain a separate account of liquid assets equal to
the value of such purchase commitments until payment is made. When issued and
delayed delivery agreements are subject to risks from changes in value based
upon
(ii)
<PAGE>
changes in the level of interest rates, currency rates and other market factors,
both before and after delivery. The Fund does not accrue any income on such
securities or currencies prior to their delivery. To the extent the Fund engages
in when issued and delayed delivery transactions, it will do so for the purpose
of acquiring portfolio securities or currencies consistent with its investment
objective and policies and not for the purpose of investment leverage. The Fund
currently does not intend to invest more than 5% of its assets in when issued or
delayed delivery transactions.
Loans of Securities to Broker-Dealers
The Fund may lend securities to brokers or dealers pursuant to agreements
requiring that the loans be continuously secured by cash or securities of the
U.S. government, its agencies or instrumentalities, or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if, as a result, the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on the
securities loaned and simultaneously earns interest on the investment of the
cash loan collateral in U.S. Treasury notes, certificates of deposit, other
high-grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower, such
loans may be called at any time and will be called so that the securities may be
voted by the Fund if, in the opinion of Keystone, a material event affecting the
investment is to occur. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially. Loans may
only be made, however, to borrowers deemed to be of good standing, under
standards approved by the Board of Trustees, when the income to be earned from
the loan justifies the attendant risks.
Derivatives
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes. Each of these uses entails greater risk than if
derivatives were used solely for hedging purposes. The Fund uses futures
contracts and related options as well as forwards for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. Keystone is not an aggressive user of
derivatives with respect to the Fund. However, the Fund may take positions in
those derivatives that are within its investment policies if, in Keystone's
judgement, this represents an effective response to current or anticipated
market conditions. Keystone's use of derivatives is subject to continuous risk
assessment and control from the standpoint of the Fund's investment objectives
and policies.
(iii)
<PAGE>
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards, and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options, futures, forwards and
swaps, is provided later in this section and is provided in the Fund's statement
of additional information.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper" and
"Structured Securities" below. The term "derivative" is also sometimes used to
describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. See "Mortgage
Related Securities," "Collateralized Mortgage Obligations," "Adjustable Rate
Mortgage Securities," "Stripped Mortgage Securities,""Mortgage
Securities -- Special Considerations," and "Other Asset-Backed Securities" and
the Fund's statement of additional information.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Follow-ing is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Fund.
(Bullet) Market Risk -- This is the general risk attendant to all investments
that the value of a particular investment will decline or otherwise
change in a way detrimental to the Fund's interest.
(Bullet) Management Risk -- Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of a
derivative requires an understanding not only of the underlying
instrument, but also of the derivative itself, without the benefit of
observing the performance of the derivative under all possible market
conditions. In particular, the use and complexity of derivatives
require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast
price, interest rate or currency exchange rate movements correctly.
(Bullet) Credit Risk -- This is the risk that a loss may be sustained by the
Fund as a result of the failure of another party to a derivative
(usually referred to as a "counterparty") to comply with the terms of
the derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately negotiated
derivatives, since the clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee
of performance. This guarantee is supported by a daily payment system
(i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there
is no similar clearing agency guarantee. Therefore, the Fund considers
the creditworthiness of each counterparty to a privately negotiated
derivative in evaluating potential credit risk.
(Bullet) Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is
(iv)
<PAGE>
the case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
(Bullet) Leverage Risk -- Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
(Bullet) Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are
complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counterparties or a loss of
value to a Fund. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, the Fund's use of derivatives
may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
Options Transactions
Writing Covered Options. The Fund may write (i.e., sell) covered call and put
options. By writing a call option, the Fund becomes obligated during the term of
the option to deliver the securities underlying the option upon payment of the
exercise price. By writing a put option, the Fund becomes obligated during the
term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security).
The Fund may only write "covered" options. This means that so long as the Fund
is obligated as the writer of a call option it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written options against all of its securities that are available
for writing options, the Fund may be unable to write additional options unless
it sells a portion of its portfolio holdings to obtain new securities against
which it can write options. If this were to occur, higher portfolio turnover and
correspondingly greater brokerage commissions and other transaction costs may
result. The Fund does not expect, however, that this will occur.
The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits and
maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and, by writing a put option, the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
Purchasing Options. The Fund may purchase put or call options, including
purchasing put or call options for the purpose of offsetting previously written
put or call options of the same series.
If the Fund is unable to effect a closing purchase transaction with respect to
covered options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a
(v)
<PAGE>
segregated account until the options expire or are exercised.
An option position may be closed out only in a secondary market for an option
of the same series. Although the Fund generally will write only those options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular option at any
particular time, and, for some options, no secondary market may exist. In such
event, it might not be possible to effect a closing transaction in a particular
option.
Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair the Fund's ability to
use such options to achieve its investment objective.
Options Trading Markets. Options in which the Fund will trade are generally
listed on national securities exchanges. Exchanges on which such options
currently are traded include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any exchange, but traded in the over-the-counter
market. Options traded in the over-the-counter market involve the additional
risk that securities dealers participating in such transactions could fail to
meet their obligations to the Fund. In addition to the limits on its use of
options discussed herein, the Fund is subject to the investment restrictions
described in this prospectus and in the statement of additional information.
The staff of the Securities and Exchange Commission is of the view that the
premiums that the Fund pays for the purchase of unlisted options and the value
of securities used to cover unlisted options written by the Fund are considered
to be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its policies on illiquid securities.
Futures Transactions
The Fund may enter into currency and other financial futures contracts and
write options on such contracts. The Fund intends to enter into such contracts
and related options for hedging purposes. The Fund will enter into securities,
currency or index-based futures contracts in order to hedge against changes in
interest or exchange rates or securities prices. A futures contract on
securities or currencies is an agreement to buy or sell securities or currencies
at a specified price during a designated month. A futures contract on a
securities index does not involve the actual delivery of securities, but merely
requires the payment of a cash settlement based on changes in the securities
index. The Fund does not make payment or deliver securities upon entering into a
futures contract. Instead, it puts down a margin deposit, which is adjusted to
reflect changes in the value of the contract and which continues until the
contract is terminated.
The Fund may sell or purchase futures contracts. When a futures contract is
sold by the Fund, the value of the contract will tend to rise when the value of
the underlying securities or currencies declines and to fall when the value of
such securities or currencies increases. Thus, the Fund sells futures contracts
in order to offset a possible decline in the value of its securities or
currencies. If a futures contract is purchased by the Fund, the value of the
contract will tend to rise when the value of the underlying securities or
currencies increases and to fall when the value of such securities or currencies
declines. The Fund intends to purchase futures contracts in order to establish
what is believed by Keystone to be a favorable price and rate of return for
securities or favorable exchange rate for currencies the Fund intends to
purchase.
The Fund also intends to purchase put and call options on futures contracts
for hedging purposes.
(vi)
<PAGE>
A put option purchased by the Fund would give it the right to assume a position
as the seller of a futures contract. A call option purchased by the Fund would
give it the right to assume a position as the purchaser of a futures contract.
The purchase of an option on a futures contract requires the Fund to pay a
premium. In exchange for the premium, the Fund becomes entitled to exercise the
benefits, if any, provided by the futures contract, but is not required to take
any action under the contract. If the option cannot be exercised profitably
before it expires, the Fund's loss will be limited to the amount of the premium
and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case, it would continue to bear market
risk on the transaction.
Although futures and related options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates, exchange rates or market prices could result in
poorer performance than if it had not entered into these transactions. Even if
Keystone correctly predicts interest or exchange rate movements, a hedge could
be unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities or currencies positions may be caused
by differences between the futures and securities or currencies markets or by
differences between the securities or currencies underlying the Fund's futures
position and the securities or currencies held by or to be purchased for the
Fund. Keystone will attempt to minimize these risks through careful selection
and monitoring of the Fund's futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but intends to
write such options only to close out options purchased by the Fund. The Fund
will not change these policies without supplementing the information in its
prospectus and statement of additional information.
Foreign Currency Transactions
As discussed above, the Fund may invest in securities of foreign issuers. When
the Fund invests in foreign securities, they usually will be denominated in
foreign currencies, and the Fund temporarily may hold funds in foreign
currencies. Thus, the value of Fund shares will be affected by changes in
exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver or receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on Keystone's ability to predict accurately the future
(vii)
<PAGE>
exchange rates between foreign currencies and the U.S. dollar. The value of the
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Fund.
Although the Fund does not currently intend to do so, the Fund may also purchase
and sell options related to foreign currencies. The Fund does not intend to
enter into foreign currency transactions for speculation or leverage.
Interest Rate Transactions (Swaps, Caps, and Floors). If the Fund enters into
interest rate swap, cap or floor transactions, it expects to do so primarily for
hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund does not intend to use these transactions in a speculative
manner.
Interest rate swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a contractually-based principal
("notional") amount from the party selling the interest rate cap or floor. The
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
The swap market has grown substantially in recent years, with a large number
of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to the Fund from
interest rate transactions is limited to the net amount of interest payments
that the Fund is contractually obligated to make.
Indexed Commercial Paper. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. The Fund will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereon in that currency, but the
amount of principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper entails the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables the Fund to hedge (or cross-hedge) against a decline in the U.S. dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return.
Mortgage-Related Securities. The mortgage-related securities in which the Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. Mortgage-related securities bear interest at either a
(viii)
<PAGE>
fixed rate or an adjustable rate determined by reference to an index rate. The
mortgage loan pools may be assembled for sale to investors (such as the Fund) by
governmental or private organizations. Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") are backed by the full faith
and credit of the U.S. government; those issued by Federal National Mortgage
Associated ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") are not
so backed.
Securities representing interests in pools created by private issuers
generally offer a higher rate of interest than securities representing interests
in pools created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded. The Fund may buy mortgage-related securities without credit
enhancement if the securities meet the Fund's investment standards. Although the
market for mortgage-related securities is becoming increasingly liquid, those of
certain private organizations may not be readily marketable.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities. Some
mortgage-related securities, such as securities issued by GNMA, are referred to
as "modified pass-through" securities. The holders of these securities are
entitled to the full and timely payment of principal and interest, net of
certain fees, regardless of whether payments are actually made on the underlying
mortgages. Another form of mortgage-related security is a "pay-through"
security, which is a debt obligation of the issuer secured by a pool of mortgage
loans pledged as collateral that is legally required to be paid by the issuer
regardless of whether payments are actually made on the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). CMOs are the predominant type of
"pay-through" mortgage-related security. CMOs are designed to reduce the risk of
prepayment for investors by issuing multiple classes of securities, each having
different maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated among the several
classes in various ways. The collateral securing the CMOs may consist of a pool
of mortgages, but may also consist of mortgage-backed bonds or pass-through
securities. CMOs may be issued by a U.S. government instrumentality or agency or
by a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by GNMA,
FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency or any other person or entity.
Adjustable Rate Mortgage Securities. Another type of mortgage-related
security, known as adjustable-rate mortgage securities ("ARMS"), bears interest
at a rate determined by reference to a predetermined interest rate or index.
There are two main categories of rates of indices: (1) rates based on the yield
on U.S. Treasury securities and (2) indices derived from a calculated measure
such as a cost of funds index or a moving average of mortgage rates. Some rates
and indices closely
(ix)
<PAGE>
mirror changes in market interest rate levels, while others tend to lag changes
in market rate levels and tend to be somewhat less volatile.
ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.
Stripped Mortgage Securities. Stripped mortgage-related securities ("SMRS")
are mortgage-related securities that are usually structured with two classes of
securities collateralized by a pool of mortgages or a pool of mortgaged- backed
bonds or pass-through securities, with each class receiving different
proportions of the principal and interest payments from the underlying assets. A
common type of SMRS has one class of interest-only securities ("IOs") receiving
all of the interest payments from the underlying assets, while the other class
of securities, principal-only securities ("POs"), receives all of the principal
payments from the underlying assets. IOs and POs are extremely sensitive to
interest rate changes and are more volatile than mortgage-related securities
that are not stripped. IOs tend to decrease in value as interst rates decrease,
while POs generally increase in value as interest rates decrease. If prepayments
of the underlying mortgages are greater than anticipated, the amount of interest
earned on the overall pool will decrease due to the decreasing principal balance
of the assets. Changes in the values of IOs and POs can be substantial and occur
quickly, such as occurred in the first half of 1994 when the value of many POs
dropped precipitously due to an increase in interest rates. For this reason the
Fund does not rely on IOs and POs as a principal means of furthering its
investment objective.
Mortgage-Related Securities -- Special Considerations. The value of
mortgage-related securities is affected by a number of factors. Unlike
traditional debt securities, which have fixed maturity dates, mortgage-related
securities may be paid earlier than expected as a result of prepayment of the
underlying mortgages. If property owners make unscheduled prepayments of their
mortgage loans, these prepayments will result in the early payment of the
applicable mortgage-related securities. In that event the Fund may be unable to
invest the proceeds from the early payment of the mortgage-related securities in
an investment that provides as high a yield as the mortgage-related securities.
Consequently, early payment associated with mortgage-related securities causes
these securities to experience significantly greater price and yield volatility
than experienced by traditional fixed-income securities. The occurrence of
mortgage prepayments is affected by the level of general interest rates, general
economic conditions and other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments tends to increase,
thereby tending to decrease the life of mortgage-related securities. During
periods of rising interest rates, the rate of mortgage prepayments usually
decreases, thereby tending to increase the life of mortgage-related securities.
If the life of a mortgage-related security is inaccurately predicted, the Fund
may not be able to realize the rate of return it expected.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such adverse effect is
especially possible with fixed-rate mortgage securities. If the yield
(x)
<PAGE>
available on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the mortgage-related securities were to be paid earlier
(thus permitting the Fund to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rate of
mortgage prepayments and earlier payment of mortgage-related securities
generally tends to decline during a period of rising interest rates.
Although the value of ARMS may not be affected by rising interest rates as
much as the value of fixed-rate mortgage securities is affected by rising
interest rates, ARMS may still decline in value as a result of rising interest
rates. Although, as described above, the yield on ARMS varies with changes in
the applicable interest rate or index, there is often a lag between increases in
general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.
Variable, Floating, and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a
"floating"interest rate adjusts whenever a specified benchmark rate (such as the
bank prime lending rate) changes.
The Fund may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or "cap." The
amount of such an additional interest payment typically is calculated under a
formula based on a short-term interest rate index multiplied by a designated
factor.
Leveraged inverse floating rate debt instruments are sometimes known as
inverse floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the
(xi)
<PAGE>
index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value.
Structured Securities. Structured securities represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations or foreign government securities.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or Brady Bonds) and the issuance by that entity of one or more
classes of structured securities backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow on the underlying instruments. Because structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. Structured securities of a given class may
be either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured securities typically have higher yields and
present greater risks than unsubordinated structured securities.
Brady Bonds. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection with
debt restructurings under a plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued
only recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments, but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
(xii)
<PAGE>
KEYSTONE CLASSIC
FUND FAMILY
(diamond)
Quality Bond Fund (B-1)
Diversified Bond Fund (B-2)
High Income Bond Fund (B-4)
Balanced Fund (K-1)
Strategic Growth Fund (K-2)
Growth and Income Fund (S-1)
Small Company Growth Fund (S-4)
International Fund Inc.
Precious Metals Holdings
Tax Free Fund
Evergreen Keystone
(logo) FUNDS(SM) (logo)
Evergreen Keystone Distributor, Inc.
125 W. 55th Street
New York, New York 10019
KEYSTONE
(Photo appears here)
BALANCED
FUND (K-1)
Evergreen Keystone
(logo) FUNDS(SM) (logo)
PROSPECTUS
K1-P 10/96 (recycled logo)
45M
<PAGE>
KEYSTONE BALANCED FUND (K-1)
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE BALANCED FUND (K-1)
SEPTEMBER 2, 1997
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Balanced Fund (K-1) (the "Fund") dated September 2, 1997. You may obtain a copy
of the prospectus from the Fund's principal underwriter, Evergreen Keystone
Distributor, Inc., or your broker-dealer.
TABLE OF CONTENTS
Page
The Fund.............................................................. 2
Service Providers.......................................................2
Investment Restrictions................................................ 3
Special Considerations................................................ 4
Distributions and Taxes............................................... 5
Valuation of Securities............................................... 6
Brokerage...............................................................7
Sales Charge.......................................................... 8
Distribution Plan..................................................... 10
Trustees and Officers..................................................11
The Trust Agreement................................................... 15
Investment Adviser.....................................................16
Principal Underwriter................................................. 18
Sub-administrator......................................................18
Expenses...............................................................19
Standardized Total Return
and Yield Quotations................................................ 20
Financial Statements...................................................20
Additional Information................................................ 21
Appendix..............................................................A-1
16547
<PAGE>
2
THE FUND
The Fund is an open-end, diversified management investment company,
commonly known as a mutual fund. The Fund's investment objective is to provide
shareholders with current income. Under normal circumstances, the Fund invests
in a combination of equity and debt securities chosen primarily for their
potential for current income and secondarily, to the extent consistent with the
Fund's investment objective, for their potential for capital appreciation. Under
normal circumstances, the Fund also maintains at least 25% of its total assets
in fixed income senior securities. In its search for income, the Fund may invest
in any type of security, including bonds, debentures, and income obligations, as
well as common and preferred stocks. The Fund normally emphasizes, however,
securities having a liberal current yield consistent with investment quality on
which the interest or dividend payments are considered reasonably secure.
Keystone Investment Management Company ("Keystone") serves as the Fund's
investment adviser.
Certain information about the Fund is contained in its prospectus. This
statement of additional information ("SAI") provides additional information
about the Fund that may be of interest to some investors.
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SERVICE PROVIDERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Service Provider
- ---------------------------------------------------------------------------------------------------
<S> <C>
Investment adviser (referred to Keystone Investment Management Company, 200 Berkeley
in this SAI as "Keystone") Street, Boston, Massachusetts 02116 (Keystone is a wholly-
owned subsidiary of First Union Keystone, Inc. ("First
Union Keystone"), also located at 200 Berkeley Street,
Boston, Massachusetts 02116)
Principal underwriter (referred Evergreen Keystone Distributor, Inc. (formerly Evergreen
to in this SAI as "EKD") Funds Distributor, Inc.), 125 W. 55th Street, New York,
New York 10019
Predecessor to EKD (referred to Evergreen Keystone Investment Services, Inc. (formerly
in this SAI as "EKIS") Keystone Investment Distributors Company), 200 Berkeley
Street, Boston, Massachusetts 02116
Sub-administrator (referred to in BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio
this SAI as "BISYS") 43219
Transfer and dividend disbursing Evergreen Keystone Service Company (formerly Keystone
agent (referred to in this SAI as "EKSC") Investor Resource Center, Inc.), 200 Berkeley Street,
Boston, Massachusetts 02116 (EKSC is a wholly-owned
subsidiary of Keystone)
<PAGE>
3
Independent auditors KPMG Peat Marwick LLP, 99 High Street, Boston,
Massachusetts 02110, Certified Public Accountants
Custodian State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110
</TABLE>
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions set forth
below, which may not be changed without a vote of the majority of the Fund's
outstanding voting shares (as defined in the Investment Company Act of 1940 (the
"1940 Act")). Unless otherwise stated, all references to Fund assets are in
terms of current market value.
The Fund may not do any of the following:
(1) with respect to 75% of its total assets, invest more than 5% of the
value of its total assets, determined at market or other fair value at the time
of purchase, in the securities of any one issuer, or invest in more than 10% of
the outstanding voting securities of any one issuer, all as determined
immediately after such investment; provided that these limitations do not apply
to investments in securities issued or guaranteed by the United States ("U.S.")
government or its agencies or instrumentalities;
(2) invest more than 5% of the value of its total assets in companies
which have been in operation for less than three years;
(3) borrow money, except that the Fund may (a) borrow money from banks
for temporary or emergency purposes in aggregate amounts up to 10% of the value
of the Fund's net assets (computed at cost); or (b) enter into reverse
repurchase agreements (bank borrowings and reverse repurchase agreements, in
aggregate, shall not exceed 10% of the value of the Fund's net assets);
(4) underwrite securities, except that the Fund may purchase securities
from issuers thereof or others and dispose of such securities in a manner
consistent with its other investment policies; in the disposition of restricted
securities the Fund may be deemed to be an underwriter, as defined in the
Securities Act of 1933 (the "1933 Act");
(5) purchase or sell real estate or interests in real estate, except
that it may purchase and sell securities secured by real estate and securities
of companies which invest in real estate, and will not purchase or sell
commodities or commodity contracts, except that the Fund may engage in currency
or other financial futures contracts and related options transactions;
(6) invest for the primary purpose of exercising control over or
management of any issuer;
(7) make margin purchases or short sales of securities;
<PAGE>
4
(8) make loans, except that the Fund may purchase money market
securities, enter into repurchase agreements, buy publicly and privately
distributed debt securities and lend limited amounts of its portfolio securities
to broker-dealers; all such investments must be consistent with the Fund's
investment objectives and policies;
(9) invest more than 25% of its assets in the securities of issuers in
any single industry, other than securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities; and
(10) purchase the securities of any other investment company except in
the open market and at customary brokerage rates and in no event more than 3% of
the voting securities of any investment company.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in the value of
a security or a decrease in Fund assets is not a violation of the limit. With
respect to borrowing, applicable law may require the Fund to reduce the amount
of borrowing.
The Fund has no current intention of attempting to increase its net income
by borrowing and intends to repay any borrowings made in accordance with the
third investment restriction enumerated above before it makes any additional
investments.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
Additional restrictions adopted by the Fund, which may be changed by
the Fund's Board of Trustees, stipulate that the Fund may not purchase or retain
securities of an issuer if, to the knowledge of the Fund, any officer, Trustee,
or Director of the Fund or Keystone Investment Management Company "Keystone"),
each owning beneficially more than 1/2 of 1% of the securities of such issuer,
own, in the aggregate, more than 5% of the securities of such issuer, or such
persons or management personnel of the Fund or Keystone have a substantial
beneficial interest in the securities of such issuer. Portfolio securities of
the Fund may not be purchased from or sold or loaned to Keystone or any
affiliate thereof, or any of their Directors, officers or employees.
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SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------
The Fund may invest in below investment grade securities. The Fund
currently expects, however, that less than 5% of its total assets will be
invested in such securities.
Such aggressive investing involves risks that are greater than the
risks of investing in higher quality debt securities. These risks are discussed
in greater detail below and include risks from (1) interest rate fluctuations;
(2) changes in credit status, including weaker overall credit condition of
issuers and risks of default; (3) industry, market and economic risks; (4)
volatility of price resulting from broad and rapid changes in the value of
underlying securities; and (5) greater price variability and credit risks of
certain high yield securities such as zero coupon bonds and payment-in-kind
("PIK") securities.
These risks provide the opportunity for maximizing return over time,
but may result in greater upward and downward movement of the net asset value
per share of the Fund. As a result, they should be carefully considered by
investors.
<PAGE>
5
While providing opportunities to maximize return over time, investors
should be aware of market, economic, and credit factors influencing below
investment grade, high yield securities: (1) securities rated BB or lower by
Standard & Poor's Ratings Group ("S&P") or Ba or lower by Moody's Investors
Service ("Moody's") are considered predominantly speculative with respect to the
ability of the issuer to meet principal and interest payments; (2) the value of
high yield securities may be more susceptible to real or perceived adverse
economic, company, or industry conditions than is the case for higher quality
securities; (3) adverse market, credit, or economic conditions could make it
difficult at certain times to sell certain high yield securities held by the
Fund; (4) the secondary market for high yield securities may be less liquid than
the secondary market for higher quality securities, which may affect the value
of certain high yield securities held by the Fund at certain times; and (5) zero
coupon and PIK high yield securities may be subject to greater changes in value
due to market conditions, the absence of a cash interest payment, and the
tendency of issuers of such securities to have weaker overall credit conditions
than other below investment grade, high yield securities. These characteristics
of below investment grade, high yield securities make them generally more
appropriate for long-term investment.
Part of the income sought by the Fund may be associated with securities
in the lower rating categories of the recognized rating agencies or with
securities that are unrated. Such high yield securities are generally rated BB
or lower by S&P or Ba or lower by Moody's. The Fund may invest in securities
that are rated as low as CCC by S&P and Caa by Moody's. Appendix A to this
statement of additional information describes these rating categories. The Fund
may also invest in unrated securities that, in the judgment of Keystone, the
Fund's investment adviser, offer comparable yields and risks as securities that
are rated, as well as in below investment quality zero coupon and PIK
securities.
Since the Fund may take an aggressive approach to investing a portion
of its assets, Keystone tries to maximize the return by controlling risk through
diversification, credit analysis, review of sector and industry trends, interest
rate forecasts and economic analysis. Keystone's analysis of securities focuses
on values based on factors such as interest or dividend coverage, asset values,
earnings prospects and the quality of management of the company. In making
investment recommendations, Keystone also considers current income, potential
for capital appreciation, maturity structure, quality guidelines, coupon
structure, average yield, percentage of zeros and PIKs, percentage of
nonaccruing items and yield to maturity. Keystone also considers the ratings of
Moody's and S&P assigned to various securities, but does not rely solely on
ratings assigned by Moody's and S&P because (1) Moody's and S&P assigned ratings
are based largely on historical financial data and may not accurately reflect
the current financial outlook of companies, and (2) there can be large
differences among the current financial conditions of issuers within the same
rating category.
Income and yields on high yield securities, as on all securities, will
fluctuate over time.
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
The Fund will make distributions to its shareholders of dividends from
net investment income quarterly and net realized capital gains, if any, annually
in shares or, at the option of the shareholder, in cash. (Distributions of
ordinary income may be eligible in whole or in part for the corporate 70%
dividends received deduction.) Distributions are taxable whether received in
cash or additional shares. Shareholders who have not opted, prior to the record
date for any distribution, to receive cash will have the number of distributed
shares determined on the basis of the Fund's net asset value per share computed
at the end of the day on the record date after adjustment for the distribution.
Net asset value
<PAGE>
6
is used in computing the number of shares in both gains and income distribution
reinvestments. Account statements and/or checks, as appropriate, will be mailed
to shareholders by the 6th of the appropriate month. Unless the Fund receives
instructions to the contrary from a shareholder before the record date, it will
assume that the shareholder wishes to receive that distribution and future gains
and income distributions in shares. Instructions continue in effect until
changed in writing.
Distributed long-term capital gains are taxable as such to the
shareholder regardless of the period of time Fund shares have been held by the
shareholder. However, if such shares are held less than six months and redeemed
at a loss, the shareholder will recognize a long-term capital loss on such
shares to the extent of the long-term capital gain distribution received in
connection with such shares. If the net asset value of the Fund's shares is
reduced below a shareholder's cost by a capital gains distribution, such
distribution, to the extent of the reduction, would be a return of investment
though taxable as stated above. Since distributions of capital gains depend upon
profits actually realized from the sale of securities by the Fund, they may or
may not occur. The foregoing comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Such dividends and distributions may also be subject to state and
local taxes.
When the Fund makes a distribution, it intends to distribute only its
net capital gains and such income as has been predetermined to the best of the
Fund's ability to be taxable as ordinary income. Shareholders of the Fund will
be advised annually of the federal income tax status of distributions.
- --------------------------------------------------------------------------------
VALUATION OF SECURITIES
- --------------------------------------------------------------------------------
Current value for the Fund's portfolio securities is determined as
follows:
(1) securities traded on an established exchange are valued on the
basis of the last sales price on the exchange where the securities are primarily
traded prior to the time of the valuation;
(2) securities traded in the over-the-counter market, for which
complete quotations are readily available, are valued at the mean of the bid and
asked prices at the time of valuation;
(3) short-term investments maturing in sixty days or less 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;
(4) short-term investments maturing in more than sixty days are valued
at market value;
(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; and
(6) the Fund's Board of Trustees values the following securities at
prices it deems in good faith to be fair: (a) securities, including restricted
securities, for which complete quotations are not readily available; (b) listed
securities if, in the Board's opinion, the last sales price does not reflect a
current market value or if no sale occurred; and (c) other assets. While market
quotations may be readily available for certain long-term corporate bonds and
notes, such investments are stated at fair
<PAGE>
7
value on the basis of valuations furnished by a pricing service, approved by the
Board of Trustees, which determines valuations for normal, institutional-size
trading units of such securities using methods based on market transactions for
comparable securities and various relationships between securities that are
generally recognized by institutional traders.
- -------------------------------------------------------------------------------
BROKERAGE
- --------------------------------------------------------------------------------
SELECTION OF BROKERS
In effecting transactions in portfolio securities for the Fund,
Keystone seeks the best execution of orders at the most favorable prices.
Keystone determines whether a broker has provided the Fund with best execution
and price in the execution of a securities transaction by evaluating, among
other things:
1. overall direct net economic result to the Fund,
2. the efficiency with which the transaction is effected,
3. the broker's ability to effect the transaction where a large
block is involved,
4. the broker's readiness to execute potentially difficult
transactions in the future,
5. the financial strength and stability of the broker,
6. the receipt of research services, such as analyses and reports
concerning issuers, industries, securities, economic factors
and trends and other statistical and factual information
("research services"), and
The Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commissions paid.
Should the Fund or Keystone receive research services from a broker,
the Fund would consider such services to be in addition to, and not in lieu of,
the services Keystone is required to perform under the Advisory Agreement (as
defined below). Keystone believes that the cost, value and specific application
of such information are generally indeterminable and cannot be practically
allocated between the Fund and its other clients who may indirectly benefit from
the availability of such information. Similarly, the Fund may indirectly benefit
from information made available as a result of transactions effected for
Keystone's other clients. Under the Advisory Agreement, Keystone is permitted to
pay higher brokerage commissions for brokerage and research services in
accordance with Section 28(e) of the Securities Exchange Act of 1934. In the
event Keystone follows such a practice, it will do so on a basis that is fair
and equitable to the Fund.
The Fund's Board of Trustees has determined that the Fund may consider
sales of Fund shares as a factor when selecting brokers to execute portfolio
transactions, subject to the requirements of best execution described above.
<PAGE>
8
BROKERAGE COMMISSIONS
Generally, the Fund expects to purchase and sell its securities through
brokerage transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers, unless
more favorable prices are otherwise obtainable.
GENERAL BROKERAGE POLICIES
In order to take advantage of the availability of lower purchase
prices, the Fund may participate, if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities.
Keystone makes investment decisions for the Fund independently from
those of its other clients. It may frequently develop, however, that Keystone
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, Keystone will allocate
the transactions according to a formula that is equitable to each of its
clients. Although, in some cases, this system could have a detrimental effect on
the price or volume of the Fund's securities, the Fund believes that in other
cases its ability to participate in volume transactions will produce better
executions.
The Fund does not purchase portfolio securities from or sell portfolio
securities to Keystone, EKD, or any of their affiliated persons, as defined in
the 1940 Act.
The Board of Trustees will, from time to time, review the Fund's
brokerage policy. In the event of further regulatory developments affecting the
securities exchanges and brokerage practices generally, the Board of Trustees
may change, modify or eliminate any of the foregoing practices.
- --------------------------------------------------------------------------------
SALES CHARGE
- --------------------------------------------------------------------------------
The Fund may charge a contingent deferred sales charge (a "CDSC") when
you redeem certain of its shares within four calendar years of purchase. The
Fund charges a CDSC as reimbursement for certain expenses, such as commissions
or shareholder servicing fees, that it has incurred in connection with the sale
of its shares (see "Distribution Plan"). If imposed, the Fund deducts the CDSC
from the redemption proceeds you would otherwise receive. CDSCs attributable to
your shares are, to the extent permitted by the National Association of
Securities Dealers, Inc. ("NASD"), paid to EKD or its predecessor.
CALCULATING THE CDSC
The CDSC is a declining percentage of the lesser of (1) the net asset
value of the shares you redeemed, or (2) the net asset value at time of purchase
of such shares. The CDSC is calculated according to the following schedule:
<PAGE>
9
REDEMPTION TIMING CDSC
During the calendar year of purchase......................4.00%
During the first calendar year after the
year of purchase........................................3.00%
During the second calendar
year after the year of purchase.........................2.00%
During the third calendar year
after the year of purchase..............................1.00%
Thereafter................................................0.00%
In determining whether a CDSC is payable and, if so, the percentage
charge applicable, the Fund will first redeem shares not subject to a CDSC and
will then redeem shares you have held the longest.
CDSC WAIVERS. The Fund does not impose a CDSC when the amount you are
redeeming represents:
1. an increase in the value of the shares redeemed above the
total cost of such shares due to increases in the net asset
value per share of the Fund;
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 you have held for all or part of more than four
consecutive calendar years;
4. shares that are held in the accounts of a shareholder who has
died or become disabled;
5. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
6. automatic withdrawals from the ERISA plan of a shareholder who
is a least 59 1/2 years old;
7. shares in an account that the Fund has closed because the
account has an aggregate net asset value of less than $1,000;
8. automatic withdrawals under a Systematic Withdrawal Plan of up
to 1% per month of your initial account balance;
9. withdrawals consisting of loan proceeds to a retirement plan
participant;
10. financial hardship withdrawals made by a retirement plan
participant;
11. withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan;
12. shares purchased by 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 shares of the Fund, any other
Keystone Classic Fund and/or any Evergreen Keystone Fund, is
at least $500,000
<PAGE>
10
and any commission paid by the Fund and such other fund at the
time of such purchase is not more than 1% of the amount
invested;
13. shares purchased by certain Directors, Trustees, officers and
employees of the Fund, Keystone and certain of their
affiliates; and
14. shares purchased by registered representatives of firms with
dealer agreements with EKD.
EXCHANGES. The Fund does not charge a CDSC on exchanges of shares
between funds in the Keystone Classic Fund Family that have adopted distribution
plans pursuant to Rule 12b-1 under the 1940 Act. If you do exchange shares of
one such fund for shares of another such fund, the Fund will deem the calendar
year of the exchange, for purposes of any future CDSC, to be the year the shares
tendered for exchange were originally purchased.
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DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear the expenses of distributing their shares if
they comply with various conditions, including the adoption of a distribution
plan containing certain provisions set forth in Rule 12b-1. The Fund bears some
of the costs of selling its shares under a Distribution Plan adopted on June 1,
1983 pursuant to Rule 12b-1 (the "Distribution Plan").
The Fund's Distribution Plan provides that the Fund may expend up to
0.3125% quarterly (approximately 1.25% annually) of the average daily net asset
value of its shares to pay distribution costs for sales of its shares and to pay
shareholder service fees. The NASD limits such annual expenditures to 1.0%, of
which 0.75% may be used to pay such distribution costs and 0.25% may be used to
pay shareholder service fees. The NASD also limits the aggregate amount that the
Fund may pay for such distribution costs to 6.25% of gross share sales since the
inception of the Fund's Distribution Plan plus interest at the prime rate plus
1% on unpaid amounts thereof (less any CDSC by shareholders to EKD).
Payments under the Distribution Plan are currently made to EKD which
may reallow all or part to others, such as broker-dealers) (1) as commissions
for Fund shares sold and (2) as shareholder service fees in respect of shares
maintained by the recipient and outstanding on the Fund's books for specific
periods. Amounts paid or accrued to EKD under (1) and (2) in the aggregate may
not exceed the limitation referred to above. EKD generally reallows to
broker-dealers or others a commission equal to 4% of the price paid for each
Fund share sold as well as a shareholder service fee at a rate of 0.25% per
annum of the net asset value of shares maintained by such recipient and
outstanding on the books of the Fund for specified periods.
If the Fund is unable to pay EKD a commission on a new sale because the
annual maximum (0.75% of average daily net assets) has been reached, EKD
intends, but is not obligated, to continue to accept new orders for the purchase
of Fund shares and to pay commissions and service fees to broker-dealers in
excess of the amount it currently receives from the Fund. While the Fund is
under no contractual obligation to pay EKD for advances made by EKD in excess of
the Distribution Plan limitation, EKD intends to seek full payment of such
amounts from the Fund (together with interest at the prime rate plus 1%) at such
time in the future as, and to the extent that, payment thereof by the
<PAGE>
11
Fund would be within permitted limits. If the Fund's disinterested Trustees (as
defined in the 1940 Act) (the "Independent Trustees") authorize such payments,
the effect will be to extend the period of time during which the Fund incurs the
maximum amount of costs allowed by the Distribution Plan. If the Distribution
Plan is terminated, EKD will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
such amounts.
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limit specified above, and the amounts
and purposes of expenditures under the Distribution Plan must be reported to the
Fund's Independent Trustees quarterly. The Fund's Independent Trustees may
require or approve changes in the implementation or operation of the
Distribution Plan and may require that total expenditures by the Fund under the
Distribution Plan be kept within limits lower than the maximum amount permitted
by the Distribution Plan as stated above. If such costs are not limited by the
Independent Trustees, such costs could, for some period of time, be higher than
such costs permitted by most other plans presently adopted by other investment
companies.
The Distribution Plan may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting
securities of the Fund.
Any change in the Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in the Distribution Plan requires
shareholder approval. Otherwise, the Distribution Plan may be amended by votes
of the majority of both (1) the Fund's Trustees and (2) the Independent Trustees
cast in person at a meeting called for the purpose of voting on such amendment.
While the Distribution Plan is in effect, the Fund is required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plan have
benefited the Fund.
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and officers of the Fund, their principal occupations and
some of their affiliations over the last five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
FREDERICK AMLING: Trustee of the Fund; Trustee or Trustee of all other funds in the
Keystone Families of Funds; Professor, Finance Department,
George Washington University; President, Amling & Company
(investment advice); and former Member, Board of Advisers, Cre
dito Emilano (banking).
LAURENCE B. ASHKIN: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all funds in the Evergreen
Family of Funds other than Evergreen Investment Trust and Evergreen
Variable Trust; real estate developer and construction consultant; and
President of Centrum Equities and Centrum Properties, Inc.
<PAGE>
12
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Principal and Investment Counselor
of Appleton Partners, Inc. (investment advice); Director,
Merrimack Mutual Fire Insurance Company, Cambridge Mutual
Fire Insurance Company, Bay State Insurance Company, Beacon
Diagnostics, Inc. (biotechnology); former Director, Executive Vice
President and Chief Financial Officer, State Street Research &
Management Company (investment advice).
FOSTER BAM: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds other than Evergreen
Investment Trust and Evergreen Variable Trust; Partner in the
law firm of Cummings & Lockwood; Director, Symmetrix, Inc.
(sulphur company) and Pet Practice, Inc. (veterinary services); and
former Director, Chartwell Group Ltd. (manufacturer of office
furnishings and accessories), Waste Disposal Equipment
Acquisition Corporation and Rehabilitation Corporation of
America (rehabilitation hospitals).
*GEORGE S. BISSELL: Chief Executive Officer of the Fund and each of the other funds in
the Keystone Families of Funds; Chairman of the Board and
Trustee of the Fund; Chairman of the Board and Trustee or
Director of all other funds in the Keystone Families of Funds;
Chairman of the Board and Trustee of Anatolia College; Trustee
of
University Hospital (and Chairman of its Investment Committee);
former Director and Chairman of the Board of Hartwell Keystone
Advisers, Inc.; and former Chairman of the Board, Director and
Chief Executive Officer of Keystone Investments, Inc..
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Principal, Padanaram Associates,
Inc.; and former Executive Director, Coalition of Essential Schools,
Brown University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; and former Director, Peoples Bank
(Charlotte, NC).
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee, Treasurer and Chairman of
the Finance Committee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and Wine; Chairman
and President, Oldways Preservation and Exchange Trust (educa
tion); former Chairman of the Board, Director, and Executive Vice
President, The London Harness Company; former Managing Part
ner, Roscommon Capital Corp.; former Chief Executive Officer,
Gifford Gifts of Fine Foods; former Chairman, Gifford, Drescher
<PAGE>
13
& Associates (environmental consulting); and former Director,
Keystone Investments, Inc. and Keystone.
JAMES S. HOWELL: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Chairman and Trustee or Director of
all the funds in the Evergreen Family of Funds; former Chairman
of the Distribution Foundation for the Carolinas; and former Vice
President of Lance Inc. (food manufacturing).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Chairman of the Board and Chief
Executive Officer, Carson Products Company; Director of Phoenix
Total Return Fund and Equifax, Inc.; Trustee of Phoenix Series
Fund, Phoenix Multi-Portfolio Fund, and The Phoenix Big Edge
Series Fund; and former President, Morehouse College.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Chairman and Of Counsel, Keyser,
Crowley & Meub, P.C.; Member, Governor's (VT) Council of Eco
nomic Advisers; Chairman of the Board and Director, Central
Vermont Public Service Corporation and Lahey Hitchcock Clinic;
Director, Vermont Yankee Nuclear Power Corporation, Grand
Trunk Corporation, Grand Trunk Western Railroad, Union
Mutual Fire Insurance Company, New England Guaranty
Insurance Company, Inc., and the Investment Company Institute;
former Director and President, Associated Industries of Vermont;
former Director of Keystone, Central Vermont Railway, Inc., S.K.I.
Ltd., and Arrow Financial Corp.; and former Director and
Chairman of the Board, Proctor Bank and Green Mountain Bank.
GERALD M. MCDONNELL: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all of the funds in the
Evergreen Family of Funds; and Sales Representative with Nucor-Yamoto, Inc.
(steel producer).
THOMAS L. MCVERRY: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all of the funds
in the Evergreen Family of Funds other than Evergreen Variable
Trust; former Vice President and Director of Rexham Corporation;
and former Director of Carolina Cooperative Federal Credit
Union.
*WILLIAM WALT PETTIT: Trustee of the Fund; Trustee or Director of all other funds
in the Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds other than Evergreen Variable Trust; and
Partner in the law firm of Holcomb and Pettit, P.A.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Vice Chair and former Executive Vice
President, DHR International, Inc. (executive recruitment);
<PAGE>
14
former Senior Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry Association
of New Jersey, 411 International, Inc., and J&M Cumming Paper
Co.
RUSSELL A. SALTON, III MD: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds; Medical Director, U.S. Health
Care/Aetna Health Services; and former Managed Health Care
Consultant; former President, Primary Physician Care.
MICHAEL S. SCOFIELD: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Trustee or Director of all the funds
in the Evergreen Family of Funds; and Attorney, Law Offices of
Michael S. Scofield.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Chairman, Environmental Warranty,
Inc. (insurance agency); Executive Consultant, Drake Beam
Morin, Inc. (executive outplacement); Director of Connecticut
Natural Gas Corporation, Hartford Hospital, Old State House
Association, Middlesex Mutual Assurance Company, and Enhance
Financial Services, Inc.; Chairman, Board of Trustees, Hartford
Graduate Center; Trustee, Greater Hartford YMCA; former
Director, Vice Chairman and Chief Investment Officer, The
Travelers Corporation; former Trustee, Kingswood-Oxford School;
and former Managing Director and Consultant, Russell Miller,
Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other funds in the
Keystone Families of Funds; Partner, Farrell, Fritz, Caemmerer,
Cleary, Barnosky & Armentano, P.C.; Adjunct Professor of Law
and former Associate Dean, St. John's University School of Law;
Adjunct Professor of Law, Touro College School of Law; and
former President, Nassau County Bar Association.
JOHN J. PILEGGI: President and Treasurer of The Fund; President and Treasurer of
all other funds in the Evergreen Keystone Family of Funds; Senior
Managing Director, Furman Selz LLC since 1992; Managing Director from
1984 to 1992; Consultant, BISYS Fund Services since 1996; 230 Park Avenue,
Suite 910, New York, NY.
GEORGE O. MARTINEZ: Secretary of the Fund; Secretary of all other funds in the
Evergreen Keystone Family of Funds; Senior Vice President and Director of
Administration and Regulatory Services, BISYS Fund Services since
1995; Vice President/Assistant General Counsel, Alliance Capital Management
from 1988 to 1995; 3435 Stelzer Road, Columbus, Ohio.
</TABLE>
<PAGE>
15
* This Trustee may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.
The Fund does not pay any direct remuneration to any officer or Trustee
who is an "affiliated person" of Keystone or any of its affiliates. See
"Investment Adviser." During the fiscal year ended June 30, 1997, the
unaffiliated Trustees received retainers or fees totaling $61,740 from the Fund.
For the year December 31, 1996, aggregate compensation received by Independent
Trustees on a fund complex wide basis (which includes over 30 mutual funds) was
$411,000. As of July 31, 1997, the Trustees and officers beneficially owned less
than 1.00% of the Fund's then outstanding shares.
Except as set forth above, the address of all of the Fund's Trustees
and the address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116-5034.
Set forth below for each of the Trustees receiving in excess of $60,000
for the fiscal period of July 1, 1996 through June 30, 1997 is the total
compensation paid to such Trustee by the Evergreen Keystone Funds:
Total
Compensation
From Registrant
and Fund Complex
NAME PD. TO TRUSTEES
James S. Howell $93,800
Gerald M. McDonnell $80,000
Thomas L. McVerry $85,000
William Walt Pettit $82,500
Russell A Salton, III M.D. $87,000
Michael S. Scofield $88,200
- --------------------------------------------------------------------------------
THE TRUST AGREEMENT
- --------------------------------------------------------------------------------
TRUST AGREEMENT
The Fund is a Pennsylvania common law trust established under a Trust
Agreement dated July 15, 1935, as restated and amended (the "Trust Agreement").
The Trust Agreement restructured the Fund so that its operation would be
substantially similar to that of most other mutual funds. The Trust Agreement
provides for a Board of Trustees and enables the Fund to enter into an agreement
with an investment manager and/or adviser to provide the Fund with investment
advisory, management, and administrative services. A copy of the Trust Agreement
is on file as an exhibit to the Fund's Registration Statement, of which this SAI
is a part. This summary is qualified in its entirety by reference to the Trust
Agreement.
<PAGE>
16
DESCRIPTION OF SHARES
The Trust Agreement authorizes the issuance of an unlimited number of
shares of beneficial interest and the creation of additional series and/or
classes of series of Fund shares. Each share represents an equal proportionate
interest in the Fund with each other share of that class. Upon liquidation,
shares are entitled to a pro rata share in the net assets of their class of Fund
shares. Shareholders shall have no preemptive or conversion rights. Shares are
transferable. The Fund currently intends to issue only one class of shares.
SHAREHOLDER LIABILITY
Pursuant to court decisions or other theories of law, shareholders of a
Pennsylvania common law trust could possibly be held personally liable for the
obligations of the trust. The possibility of Fund shareholders incurring
financial loss under such circumstances appears to be remote, however, because
the Trust Agreement (1) contains an express disclaimer of shareholder liability
for obligations of the Fund; (2) requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the Trustees; and (3) provides for indemnification out of Fund
property for any shareholder held personally liable for the obligations of the
Fund.
VOTING RIGHTS
Under the terms of the Trust Agreement, the Fund does not hold annual
meetings. At meetings called for the initial election of Trustees or to consider
other matters, shares are entitled to one vote per share. Shares generally vote
together as one class on all matters. No amendment may be made to the Trust
Agreement that adversely affects any class of shares without the approval of a
majority of the shares of that class. There shall be no cumulative voting in the
election of Trustees.
After a meeting as described above, no further meetings of shareholders
for the purpose of electing Trustees will be held, unless required by law, or
until such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely unless otherwise required by law and may appoint successor
Trustees. A Trustee may cease to hold office or may be removed from office (as
the case may be) (1) at any time by a two-thirds vote of the remaining Trustees;
(2) when such Trustee becomes mentally or physically incapacitated; or (3) at a
special meeting of shareholders by a two-thirds vote of the outstanding shares.
Any Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Trust Agreement provides that a Trustee shall be liable only for
his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees, or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Trust Agreement shall protect a Trustee against any liability for
his willful misfeasance, bad faith, gross negligence, or reckless disregard of
his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Fund and may perform such acts as in their
sole judgment and discretion are necessary and
<PAGE>
17
proper for conducting the business and affairs of the Fund or promoting the
interests of the Fund and the shareholders.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Subject to the general supervision of the Fund's Board of Trustees,
Keystone provides investment advice, management and administrative services to
the Fund.
On December 11, 1996, the predecessor corporation to First Union
Keystone, Keystone Investments, Inc. ("Keystone Investments") and indirectly
each subsidiary of Keystone Investments, including Keystone, were acquired (the
"Acquisition") by First Union National Bank ("FUNB"), a wholly-owned subsidiary
of First Union Corporation ("First Union"). Keystone Investments was acquired by
FUNB by merger into a wholly-owned subsidiary of FUNB, which entity then assumed
the First Union Keystone name and succeeded to the business of the predecessor
corporation. Contemporaneously with the Acquisition, the Fund entered into a new
investment advisory agreement with Keystone and into a principal underwriting
agreement with EKD, an indirect wholly-owned subsidiary of BISYS. The new
investment advisory agreement (the "Advisory Agreement") was approved by the
shareholders of the Fund on December 9, 1996, and became effective on December
11, 1996.
First Union Keystone and each of its subsidiaries, including Keystone,
are now indirectly owned by First Union. First Union is headquartered in
Charlotte, North Carolina, and had $143 billion in consolidated assets as of
June 30, 1997. First Union and its subsidiaries provide a broad range of
financial services to individuals and businesses throughout the United States.
The Capital Management Group of FUNB, Keystone and Evergreen Asset Management
Corp., a wholly-owned subsidiary of FUNB, manage or otherwise oversee the
investment of over $66 billion in assets as of June 30, 1997 belonging to a wide
range of clients, including the Evergreen Keystone Family of Funds.
Pursuant to the Advisory Agreement and subject to the supervision of
the Fund's Board of Trustees, Keystone furnishes to the Fund investment
advisory, management and administrative services, office facilities, and
equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. Keystone pays for all of the expenses
incurred in connection with the provision of its services.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by Keystone, including, but not limited
to (1) custodian charges and expenses; (2) bookkeeping and auditors' charges and
expenses; (3) transfer agent charges and expenses; (4) fees and expenses of
Independent Trustees; (5) brokerage commissions, brokers' fees and expenses; (6)
issue and transfer taxes; (7) costs and expenses under the Distribution Plan;
(8) taxes and trust fees payable to governmental agencies; (9) the cost of share
certificates; (10) fees and expenses of the registration and qualification of
the Fund and its shares with the Securities and Exchange Commission ("SEC") or
under state or other securities laws; (11) expenses of preparing, printing and
mailing prospectuses, statements of additional information, notices, reports and
proxy materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees of the Fund on matters relating to the Fund; and
(14) charges and expenses
<PAGE>
18
of filing annual and other reports with the SEC and other authorities, and all
extraordinary charges and expenses of the Fund.
The Fund pays Keystone a fee for its services at the annual rate set
forth below:
Aggregate Net
1.5% of Gross Dividend Asset Value of the
Management Fee and Interest Income plus Shares of the Fund
- ----------------------------------------------------------------------------
0.60% of the first $100,000,000, plus
0.55% of the next $100,000,000, plus
0.50% of the next $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $500,000,000, plus
0.30% of amounts over $1,000,000,000
Keystone's fee is computed as of the close of business each business day and
payable monthly.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Fund or by a vote of a majority of the
Fund's outstanding shares (as defined in the 1940 Act). In either case, the
terms of the Advisory Agreement and continuance thereof must be approved by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated, without penalty, on 60 days' written notice by the Fund's Board of
Trustees or by a vote of a majority of outstanding shares. The Advisory
Agreement will terminate automatically upon its assignment.
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Fund has entered into a Principal Underwriting Agreement (the
"Underwriting Agreement") with EKD. EKD, which is not affiliated with First
Union, replaces EKIS as the Fund's principal underwriter. EKIS may no longer
serve as principal underwriter of the Fund due to regulatory restrictions
imposed by the Glass-Steagall Act upon national banks such as FUNB and their
affiliates, that prohibit such entities from acting as the underwriters of
mutual fund shares. While EKIS may no longer serve as principal underwriter of
the Fund as discussed above, EKIS may continue to receive compensation from the
Fund or EKD in respect of underwriting and distribution services performed prior
to the termination of EKIS as principal underwriter. In addition, EKIS may also
be compensated by EKD for the provision of certain marketing support services to
EKD at an annual rate of up to 0.75% of the average daily net assets of the
Fund, subject to certain restrictions.
EKD, as agent, has agreed to use its best efforts to find purchasers
for the shares. EKD may retain and employ representatives to promote
distribution of the shares and may obtain orders from broker-dealers and others,
acting as principals, for sales of shares to them. The Underwriting Agreement
provides that EKD will bear the expense of preparing, printing, and distributing
advertising
<PAGE>
19
and sales literature and prospectuses used by it. In its capacity as principal
underwriter, EKD or EKIS, its predecessor, may receive payments from the Fund
pursuant to the Fund's Distribution Plan.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (1) by a vote of a
majority of the Independent Trustees, and (2) by vote of a majority of the
Trustees, in each case, cast in person at a meeting called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares. The Underwriting Agreement will terminate automatically upon
its assignment.
From time to time, if, in EKD's judgment, it could benefit the sales of
Fund shares, EKD may provide to selected broker-dealers promotional materials
and selling aids, including, but not limited to, personal computers, related
software, and Fund data files.
- --------------------------------------------------------------------------------
SUB-ADMINISTRATOR
- --------------------------------------------------------------------------------
BISYS provides personnel to serve as officers of the Fund, and provides
certain administrative services to the Fund pursuant to a sub-administrator
agreement. For its services under that agreement, BISYS receives from Keystone a
fee based on the aggregate average daily net assets of the Fund at a rate based
on the total assets of all mutual funds administered by BISYS for which FUNB
affiliates also serve as investment adviser. The sub-administrator fee is
calculated in accordance with the following schedule:
Aggregate Average Daily Net Assets Of Mutual Funds
Sub-Administrator Administered By BISYS For Which Any Affiliate Of
Fee FUNB Serves As Investment Adviser
- ---------------------------------------------------------------
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
The total assets of the mutual funds for which FUNB affiliates also
serve as investment advisers were approximately $30.5 billion as of June 30,
1997.
<PAGE>
20
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY FEE
For each of the Fund's last three fiscal years, the table below lists
the total dollar amounts paid by the Fund to Keystone for investment advisory
services rendered. For more information, see "Investment Adviser."
Percent of Fund's Fee Paid to
Average Net Assets Keystone under
represented by the Advisory
Fiscal Year Ended Keystone's Fee Agreement
June 30, 1997 0.44% $6,854,615
June 30, 1996 0.45% $6,447,849
June 30, 1995 0.47% $6,272,956
DISTRIBUTION PLAN EXPENSES
For the fiscal year ended June 30, 1997, the Fund paid $15,437,631 to
EKD or EKIS under its Distribution Plan. For more information, see "Distribution
Plan."
UNDERWRITING COMMISSIONS
For each of the Fund's last three fiscal years, the table below lists
the aggregate dollar amounts of underwriting commissions (distribution fees,
plus CDSCs) paid to EKD or EKIS with respect to the public distribution of the
Fund's shares. The table also indicates the aggregate dollar amount of
underwriting commissions retained by EKD or EKIS. For more information, see
"Principal Underwriter" and "Sales Charges."
Aggregate Dollar Amount of
Aggregate Dollar Amount of Underwriting Commissions
Fiscal Year Ended Underwriting Commissions Paid Retained
June 30, 1997 $12,902,944 $7,306,569
June 30, 1996 $7,306,569 $3,573,051
June 30, 1995 $779,658 $6,917,053
BROKERAGE COMMISSIONS
Fiscal Year Ended Brokerage Commissions Paid
June 30, 1997 $403,548
<PAGE>
21
June 30, 1996 $494,396
June 30, 1995 $727,705
- --------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- --------------------------------------------------------------------------------
Total return quotations for the Fund as they may appear from time to
time in advertisements are calculated by finding the average annual compounded
rates of return over one, five, and ten year periods on a hypothetical $1,000
investment that would equate the initial amount invested 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 one,
five, or ten year periods.
The cumulative total return of the Fund for the one, five, and ten year
periods ended June 30, 1997 was 18.95% (including CDSCs), 78.31%, and 159.65%,
respectively. The compounded average annual rates of return for the one, five,
and ten year periods ended June 30, 1997 were 18.95% (including CDSCs), 12.26%,
and 10.01%, respectively.
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. The Fund's current yield for
the thirty-day period ended June 30, 1997 was 2.52%.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following financial statements of the Fund are incorporated by
reference herein from the Fund's Annual Report, as filed with the SEC:
Schedule of Investments as of June 30, 1997;
Financial Highlights for each of the years in the ten-year period ended
June 30, 1997;
Statement of Assets and Liabilities as of June 30, 1997;
Statement of Operations for the year ended June 30, 1997;
Statements of Changes in Net Assets for each of the years in the
two-year period ended June 30, 1997;
Notes to Financial Statements; and
Independent Auditors' Report dated August 8, 1997.
<PAGE>
22
A copy of the Fund's Annual Report will be furnished upon request and
without charge. Requests may be made in writing to EKSC, P.O. Box 2121, Boston,
Massachusetts 02106-2121, or by calling EKSC toll free at 1-800-343-2898.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
As of July 31, 1997, no shareholder of record owned 5% or more of the
Fund's outstanding shares.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorize payment to be made in
portfolio securities or other property. The Fund has obligated itself, however,
under the 1940 Act, to redeem for cash all shares presented for redemption by
any one shareholder up to the lesser of $250,000 or 1.00% of the Fund's net
assets in any 90-day period. Securities delivered in payment of redemptions
would be valued at the same value assigned to them in computing the net asset
value per share and would, to the extent permitted by law, be readily
marketable. Shareholders receiving such securities would incur brokerage costs
upon the sale of securities.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, this SAI or in supplemental sales literature issued by the Fund or
EKD, and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and this SAI omit certain information contained
in the registration statement filed with the SEC, which may be obtained from the
SEC's principal office in Washington, D.C. upon payment of the fee prescribed by
the rules and regulations promulgated by the SEC.
<PAGE>
<PAGE>
KEYSTONE BALANCED FUND (K-1)
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24 (a). Financial Statements
The following financial statements are hereby incorporated by reference from
Registrant's Annual Report, as filed with the Securities and Exchange
Commission:
Schedule of Investments June 30, 1997
Financial Highlights For each of the years in the
ten-year period ended June
30, 1997
Statement of Assets and Liabilities June 30, 1997
Statement of Operations Year ended
June 30, 1997
Statements of Changes in Net Assets For each of the years in the
two-year period ended June
30, 1997
Notes to Financial Statements June 30, 1997
Independent Auditors' Report August 8, 1997
All other schedules are omitted as the required information is inapplicable.
<PAGE>
Item 24(b) Exhibits
(1) (A) Restatement of Trust Agreement (1)
(B) Amended Trust Agreement (2)
(2) (A) By-Laws (1)
(B) Amended By-Laws (2)
(3) Not applicable
(4) (A) A specimen of the security issued by the Fund (3)
(B) Trust Agreement, Articles III, V, VI, and VIII (1)
(C) By-Laws, Article 2 (1)
(5) Investment Advisory and Management Agreement between Registrant and
Keystone Investment Management Company ("KIMCO") (the "Investment
Advisory Agreement")(4)
(6) (A) Principal Underwriting Agreement between
Registrant and Evergreen Keystone Distributor, Inc. ("EKD") (the
"Principal Underwriting Agreement") (4)
(B) Form of Dealer Agreement used by EKD (4)
(C) Underwriting Agreements with Kokasai Securities Co., Ltd. and
Nomura Securities Co., Ltd. (1)
(7) (A) Sub-Administrator Agreement (4)
(7) (B) Form of Deferred Compensation Plan (4)
(8) (A) Custodian, Fund Accounting and Recordkeeping Agreement
with State Street Bank and Trust Company ("Custodian Contract")and
Amendments(1)
(B) Amendment to Custodian Contract (2)
(9) Not applicable
(10) Opinion and consent of Counsel as to legality of securities registered
(5)
(11) Consent as to use of Independent Auditors' Report (4)
(12) Not applicable
(13) Not applicable
(14) Copies of forms of model plans used in the establishment of retirement
plans (6)
(15) Distribution Plan (1)
(16) Schedules for computation of total return and current yield
quotations (4)
(17) Financial Data Schedule (4)
(18) Not applicable
(19) Powers of Attorney (4)
______________________________________________________________
(1) Incorporated by reference to Post-Effective Amendment No. 85 to
Registration Statement No. 2-10527/811-96.
(2) Incorporated by reference to Post-Effective Amendment No. 86 to
Registration Statement No. 2-10527/811-96.
(3) Incorporated by reference to Post-Effective Amendment No. 27 to
Registration Statement No. 2-10527/811-96.
(4) Filed herewith.
(5) Filed with Registrant's most recent 24f-2 filing on August 28, 1997 and
incorporated by reference herein.
(6) Incorporated by reference to Post-Effective Amendment No. 66 to the
Registration Statement No. 33-28183/811-1600 of Keystone Balanced Fund (K-1).
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 July 31, 1997
-------------- --------------------------------
Shares of $1.00 78,841
Par Value
Item 27. Indemnification
Provisions for the idemnification of Registrant's Trustees and officers are
contained in Article VIII of the Trust Agreement, a copy of which was filed with
Post-Effective Amendment No. 85 as Exhibit 24(b)(1) and is incorporated by
reference herein.
Provisions for the indemnification of Registrant's Trustees and officers
are contained in Section 9 of the Principal Underwriting Agremeent, a copy of
which is filed herewith.
Provisions for the indemnification of Keystone Investment Management
Company are contained in Section 6 of Registrant's Advisory Agreement, a copy of
which is filed herewith.
Item 28. Business and Other Connections of Investment Advisers
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
<S> <C> <C>
Albert H. Chairman of Senior Vice President
Elfner, III the Board, President First Union Keystone, Inc.
and Chief Executive President and Director:
Officer Keystone Trust Company
Director or Trustee:
Evergreen Keystone Investment Services, Inc
Evergreen Keystone Service Company
Boston Children's Services Associates
Middlesex School
Middlebury College
Formerly:
Senior Vice President:
Keystone Asset Corporation
Chairman of the Board,
Chief Executive Officer,
President and Director:
Keystone Management, Inc.
Keystone Software, Inc.
Keystone Capital Corporation
Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Fiduciary Investment Company, Inc.
Formerly Chairman of the Board and Director:
Keystone Fixed Income Advisers, Inc.
Keystone Institutional Company, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Senior Vice Senior Vice President:
Godfrey President and Chief First Union Keystone, Inc.
Operating Officer Formerly Senior Vice President,
Chief Financial Officer and Treasurer:
Evergreen Keystone Investment Services, Inc.
Formerly:
Treasurer:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Treasurer and Director:
Hartwell Keystone Advisers, Inc.
W. Douglas Munn Senior Vice President, None
Chief Financial Officer
and Treasurer
Rosemary D. Senior Vice Senior Vice President:
Van Antwerp President Evergreen Keystone Service Company
and Secretary Senior Vice President and Secretary:
Evergreen Keystone Investment Services, Inc.
Formerly:
Senior Vice President, General Counsel and Secretary:
Keystone Investments, Inc.
Senior Vice President and General Counsel:
Keystone Institutional Company, Inc.
Senior Vice President, General Counsel and Director:
Fiduciary Investment Company, Inc.
Senior Vice President, General Counsel, Director and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Senior Vice President and Secretary:
Hartwell Keystone Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income Advisers, Inc.
J. Kevin Kenely Vice President Vice President:
Evergreen Keystone Investment Services, Inc.
Formerly:
Controller
Keystone Investments, Inc.
Keystone Investment Management Company
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Vice President:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Keystone Investments, Inc.
John D. Rogol Vice President Vice President:
and Controller First Union Keystone, Inc.
Vice President and
Controller:
Evergreen Keystone Investment Services, Inc.
Treasurer and Vice President:
Evergreen Keystone Service Company
Formerly:
Controller:
Keystone Asset Corporation
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Formerly Vice President and Controller:
Keystone Investments, Inc.
J. Gary Craven Senior Vice None
President
Walter T. McCormick Senior Vice None
President
James F. Angelos Vice President and None
Chief Compliance Officer
Gordon M. Forrester Vice President None
Andrew G. Baldassare Vice President None
David S. Benhaim Vice President None
Donald M. Bisson Vice President None
Liu-Er Chen Vice President None
Francis X. Claro Vice President None
Christopher P. Senior Vice None
Conkey President
J. Gary Craven Senior Vice None
President
Prescott Crocker Senior Vice None
President
Richard M. Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
Thomas L. Holman Senior Vice None
President
Betsy A. Hutchings Senior Vice None
President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Dana E. Erickson Vice President None
George J. Kimball Vice President None
Charles A. Kishpaugh Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Eleanor H. Marsh Vice President None
James D. Medvedeff Vice President None
Yukari Nakano Vice President None
Stanley M. Niksa Vice President None
Jonathan A. Noonan Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Parsons Vice President None
Joyce W. Petkovich Vice President None
Gary E. Pzegeo Vice President None
Harlan R. Sonderling Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Peter Willis Vice President None
Walter Zagrobski Vice President None
Patrick T. Bannigan Vice President None
Thomas W. Trickett Vice President None
Steven E. Chittenden Assistant Vice President None
Colleen L. Mette Assistant Secretary None
Terrence J. Cullen Assistant Secretary None
Dorothy E. Bourassa Assistant Secretary None
</TABLE>
All of the officers are located at Keystone Investment Management Company,
200 Berkeley Street, Boston, Massachusetts 02116.
<PAGE>
Evergreen Keystone Distributor, Inc.(formerly known as Evergreen Funds
Distributor, Inc.) The Director and principal executive officers are:
Director Michael C. Petrycki
Officers Lynn J. Mangum Chairman/CEO
Robert J. McMullan Executive Vice President/Treasurer
J. David Huber President
Kevin J. Dell Vice President/General Counsel/Secretary
Mark J. Rybarczyk Senior Vice President
Dennis Sheehan Senior Vice President
Mark Dillon Senior Vice President
George Martinez Senior Vice President
D'Ray Moore Vice President
Dale Smith Vice President
Michael Burns Vice President
Bruce Treff Assistant Secretary
Annamaria Porcaro Assistant Secretary
Evergreen Keystone Distributor, Inc. acts as Distributor for the
following registered investment companies or separate series thereof:
Evergreen Trust:
Evergreen Fund
Evergreen Aggressive Growth Fund
Evergreen Income and Growth Fund (formerly Evergreen Total Return Fund)
Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
Evergreen Money Market Trust:
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen American Retirement Trust:
Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
Evergreen Municipal Trust:
Evergreen Tax Exempt Money Market Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-California
Evergreen Florida High Income Municipal Bond Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Equity Trust:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
Evergreen Foundation Trust:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Investment Trust:
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund
Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund
Evergreen U.S. Government Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
Evergreen Lexicon Trust:
Evergreen Intermediate Term Government Securities Fund
Evergreen Intermediate Term Bond Fund
Evergreen Tax Free Trust:
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax Free Income Fund
Evergreen Variable Trust:
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Strategic Income Fund
Evergreen VA Aggressive Growth Fund
<PAGE>
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Evergreen Latin America Fund
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Intermediate Term Bond Fund
Keystone Omega Fund
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund:
Florida Tax Free Fund
Massachusetts Tax Free Fund
Pennsylvania Tax Free Fund
New York Tax Free Fund
Keystone State Tax Free Fund- Series II:
California Tax Free Fund
Missouri Tax Free Fund
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Small Company Growth Fund (S-4)
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Keystone Tax Free Fund
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
First Union Keystone, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
State Street Bank & Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Iron Mountain
3431 Sharp Slot Road
Swansea, Massachusetts 02277
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes to
furnish a copy of its latest annual report to shareholders to each
person to whom a copy of Registrant's prospectus is delivered.
(b) For information with respect to each officer and director of
Registrant's principal underwriter, see the following pages.
<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 New York, State of
New York, on the 2nd day of September 1997.
KEYSTONE BALANCED FUND (K-1)
By: /s/ John J. Pileggi
-----------------------------
John J. Pileggi
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 87 to the Registration Statement has been
signed below by the following persons in the capacities indicated on the 2nd day
of September, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Charles F. Chapin /s/ William Walt Petit
- ------------------------ ------------------------- -------------------------
George S. Bissell Charles F. Chapin* William Walt Pettit
Chairman of the Board of Trustees Trustee Trustee
and Chief Executive Officer
/s/ K. Dun Gifford /s/ David M. Richardson
- ------------------------- ------------------------- -------------------------
John J. Pileggi 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 MD
- ------------------------- ------------------------- -------------------------
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/Gerald M. McDonnell /s/ Andrew J. Simons
- ------------------------- ------------------------- -------------------------
Foster Bam Gerald M. McDonell 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/ Terrence J. Cullen
- -----------------------------
Terrence J. Cullen**
Attorney-in-Fact
** Terrence J. Cullen, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons and attached hereto as Exhibit 24(b)(19).
substantial involvement; and (ii) positions held with such organizations.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- --------------- -------
5 Investment Advisory Agreement
6 (A) Principal Underwriting Agreement
(B) Form of Dealer Agreement
7 (A) Sub-Administrator Agreement
(B) Proposed Form of Deferred Compensation Plan
11 Independent Auditors' Consent
17 Financial Data Schedule
19 Powers of Attorney
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 11th day of December, 1996, by and between KEYSTONE
BALANCED FUND (K-1), a Pennsylvania common law trust (the "Fund"), and
KEYSTONE INVESTMENT MANAGEMENT COMPANY, a Delaware corporation (the "Adviser").
WHEREAS, the Fund and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the Fund.
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the Fund
in conformity with the Fund's investment objectives and restrictions as may be
set forth from time to time in the Fund's then current prospectus and statement
of additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Fund, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. The Adviser shall place all orders for the purchase and sale of portfolio
securities for the account of the Fund with broker-dealers selected by the
Adviser. In executing portfolio transactions and selecting broker-dealers, the
Adviser will use its best efforts to seek best execution on behalf of the Fund.
In assessing the best execution available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In evaluating
the best execution available, and in selecting the broker-dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are used in Section 28(e) of the Securities Exchange
Act of 1934 (the "1934 Act") provided to the Fund and/or other accounts over
which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office space
in the offices of the Adviser or in such other place as may be agreed upon by
the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Adviser's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Adviser assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Adviser or with its affiliates, or with any adviser retained by the
Adviser, and of all officers of the Fund as such, and (2) all expenses of the
Adviser incurred in connection with its services hereunder. The Fund assumes and
shall pay all other expenses of the Fund, including, without limitation: (1) all
charges and expenses of any custodian or depository appointed by the Fund for
the safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Trustees of the Fund who are not affiliated with the Adviser or any of its
affiliates, or with any adviser retained by the Adviser; (5) all brokers' fees,
expenses and commissions and issue and transfer taxes chargeable to the Fund in
connection with transactions involving securities and other property to which
the Fund is a party; (6) all costs and expenses of distribution of its shares
incurred pursuant to a Plan of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"); (7) all taxes and trust fees
payable by the Fund to Federal, state or other governmental agencies; (8) all
costs of certificates representing shares of the Fund; (9) all fees and expenses
involved in registering and maintaining registrations of the Fund and of its
shares with the Securities and Exchange Commission (the "Commission") and
registering or qualifying its shares under state or other securities laws,
including, without limitation, the preparation and printing of registration
statements, prospectuses and statements of additional information for filing
with the Commission and other authorities; (10) expenses of preparing, printing
and mailing prospectuses and statements of additional information to
shareholders of the Fund; (11) all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing notices, reports and proxy
materials to shareholders of the Fund; (12) all charges and expenses of legal
counsel for the Fund and for Trustees of the Fund in connection with legal
matters relating to the Fund, including, without limitation, legal services
rendered in connection with the Fund's existence, trust and financial structure
and relations with its shareholders, registrations and qualifications of
securities under Federal, state and other laws, issues of securities, expenses
which the Fund has herein assumed, whether customary or not, and extraordinary
matters, including, without limitation, any litigation involving the Fund, its
Trustees, officers, employees or agents; (13) all charges and expenses of filing
annual and other reports with the Commission and other authorities; and (14) all
extraordinary expenses and charges of the Fund. In the event that the Adviser
provides any of these services or pays any of these expenses, the Fund will
promptly reimburse the Adviser therefor.
The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. As compensation for the Adviser's services to the Fund during the period
of this Agreement, the Fund will pay to the Adviser a fee at the annual rate of:
AGGREGATE NET ASSET VALUE
MANAGEMENT FEE OF THE SHARES OF THE FUND
- ------------------------------------------------------------------------------
1.5% of gross dividend and interest income plus
0.60% of the first $100,000,000, plus
0.55% of the next $100,000,000, plus
0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $500,000,000, plus
0.30% of amounts over $1,000,000,000
- ------------------------------------------------------------------------------
computed as of the close of business on each business day.
A pro rata portion of the Fund's fee shall be payable in arrears at the end
of each day or calendar month as the Adviser may from time to time specify to
the Fund. If and when this Agreement terminates, any compensation payable
hereunder for the period ending with the date of such termination shall be
payable upon such termination. Amounts payable hereunder shall be promptly paid
when due.
5. The Adviser may enter into an agreement to retain, at its own expense, a
firm or firms ("SubAdviser") to provide the Fund all of the services to be
provided by the Adviser hereunder, if such agreement is approved as required by
law. Such agreement may delegate to such SubAdviser all of Adviser's rights,
obligations and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from the Adviser's willful misfeasance,
bad faith, gross negligence or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
Director, partner, employee, or agent of the Adviser, who may be or become an
officer, Trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund (other than services
or business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Fund and not as an officer, Director,
partner, employee, or agent or one under the control or direction of the Adviser
even though paid by it. The Fund agrees to indemnify and hold the Adviser
harmless from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state and foreign securities and blue
sky laws, as amended from time to time) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which the Adviser takes or does or omits to take or do
hereunder provided that the Adviser shall not be indemnified against any
liability to the Fund or to its shareholders (or any expenses incident to such
liability) arising out of a breach of fiduciary duty with respect to the receipt
of compensation for services, willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties, or from
reckless disregard by it of its obligations and duties under this Agreement.
7. The Fund shall cause its books and accounts to be audited at least once
each year by a reputable independent public accountant or organization of public
accountants who shall render a report to the Fund.
8. Subject to and in accordance with the Trust Agreement/Declaration of
Trust of the Fund, the Articles of Incorporation of the Adviser and the
governing documents of any SubAdviser, it is understood that Trustees,
Directors, officers, agents and shareholders of the Fund or any Adviser are or
may be interested in the Adviser (or any successor thereof) as Directors and
officers of the Adviser or its affiliates, as stockholders of Keystone
Investments, Inc. or otherwise; that Directors, officers and agents of the
Adviser and its affiliates or stockholders of Keystone Investments, Inc. are or
may be interested in the Fund or any Adviser as Trustees, Directors, officers,
shareholders or otherwise; that the Adviser (or any such successor) is or may be
interested in the Fund or any SubAdviser as shareholder, or otherwise; and that
the effect of any such adverse interests shall be governed by said Trust
Agreement/Declaration of Trust of the Fund, Articles of Incorporation of the
Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect after December 10, 1998, only so
long as (1) such continuance is specifically approved at least annually by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund, and (2) such renewal has been approved by the
vote of a majority of Trustees of the Fund who are not interested persons, as
that term is defined in the 1940 Act, of the Adviser or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund; and on sixty days' written notice to the Fund,
this Agreement may be terminated at any time without the payment of any penalty
by the Adviser. This Agreement shall automatically terminate upon its assignment
(as that term is defined in the 1940 Act). Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed postage prepaid, to the
other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution by the Fund shall have
been first approved by the vote of the holders of a majority of the outstanding
voting securities of the Fund and by the vote of a majority of Trustees of the
Fund who are not interested persons (as that term is defined in the 1940 Act) of
the Adviser, any predecessor of the Adviser, or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval. A "majority of the
outstanding voting securities of the Fund" shall have, for all purposes of this
Agreement, the meaning provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period other
than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE BALANCED FUND (K-1)
/s/ GEORGE S. BISSELL
By: --------------------------------------
Name: GEORGE S. BISSELL
Title: Chairman of the Board
KEYSTONE INVESTMENT MANAGEMENT COMPANY
/s/ ROSEMARY D. VAN ANTWERP
By: --------------------------------------
Name: ROSEMARY D. VAN ANTWERP
Title: Senior Vice President
PRINCIPAL UNDERWRITING AGREEMENT
FOR SHARES
OF
KEYSTONE CUSTODIAN FUNDS
AGREEMENT made effective this 2nd day of January, 1997 by and between
the investment companies set forth on Exhibit A attached hereto, (the "Funds"),
and Evergreen Keystone Distributor, Inc., a Delaware corporation (the "Principal
Underwriter").
The Funds, individually and/or on behalf of their series, if any,
referred to above in the title of this Agreement, to which series, if any, this
Agreement shall relate, as applicable (the "Funds'"), may act as the distributor
of certain securities of which they are the issuer pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "1940 Act'"). Accordingly, it is hereby
mutually agreed as follows:
1. The Funds hereby appoints the Principal Underwriter a principal
underwriter of the shares of beneficial interest of the Funds ("Shares") as an
independent contractor upon the terms and conditions hereinafter set forth. The
general term "Shares" as used herein has the same meaning as is provided
therefor in Schedule I hereto. Except as the Principal Underwriter and the Funds
may from time to time agree, the Principal Underwriter will act as agent for the
Funds and not as principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the Shares and to promote distribution of the Shares and may
obtain orders from brokers, dealers or other persons for sales of Shares to
them. No such dealer, broker or other person shall have any authority to act as
agent for the Funds; such dealer, broker or other person shall act only as
principal in the sale of Shares.
3. Sales of Shares by the Principal Underwriter shall be at the public
offering price determined in the manner set forth in the Prospectus and/or
Statement of Additional Information of the Funds current at the time of a Fund's
acceptance of the order for Shares. All orders shall be subject to acceptance by
the Funds and the Funds reserve the right in their sole discretion to reject any
order received. The Funds shall not be liable to anyone for failure to accept
any order.
4. On all sales of Shares the Funds shall receive the current net asset
value. The Funds shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of Shares, and shall
pay over to the Principal Underwriter CDSCs (as defined in Section 14 hereof) as
set forth in the Fund's current Prospectus and Statement of Additional
Information, and as required by Section 14 hereof. The Principal Underwriter
shall also receive payments consisting of shareholder service fees ("Service
Fees") at the rate of .25% per annum of the average daily net asset value of the
Class Shares. The Principal Underwriter may allow all or a part of said
Distribution Fees and CDSCs received by it (not paid to others as hereinafter
provided) to such brokers, dealers or other persons as Principal Underwriter may
determine.
5. Payment to the Funds for Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three Business
Days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Funds reserve the right, without
further notice,
forthwith to cancel its acceptance of any such order. The Funds shall pay such
issue taxes as may be required by law in connection with the issue of the
Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the Shares any representations concerning the
Shares except those contained in the then current Prospectus and/or Statement of
Additional Information covering the Shares and in printed information approved
by the Fund as information supplemental to such Prospectus and Statement of
Additional Information. Copies of the then current Prospectus and Statement of
Additional Information and any such printed supplemental information will be
supplied by the Funds to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) (the "Business Conduct Rules") or any successor rule.
8. The Funds appoint the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current Prospectus and/or Statement of
Additional Information of the Funds.
9. The Funds agree to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon:
a. any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
Prospectus or Statement of Additional Information (including amendments
and supplements thereto); or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, Prospectus
or Statement of Additional Information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Funds by the Principal Underwriter for use in each Fund's
registration statement, Prospectus or Statement of Additional
Information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Funds, their officers and Directors and each person, if any, who controls the
Funds within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees
incurred in connection therewith) which the Funds, its officers, Directors or
any such controlling person may incur under the 1933 Act, under any other
statute, at common law or otherwise arising out of the acquisition of any Shares
by any person which
(a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in each Fund's registration
statement, Prospectus or Statement of Additional Information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Funds by the Principal Underwriter.
11. The Funds agree to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky'" laws of any state or for registering Shares under the 1933
Act or the Funds under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Funds shall bear the expense of registering Shares
under the 1933 Act and the Funds under the 1940 Act, qualifying Shares for sale
under the so called "blue sky" laws of any state, the preparation and printing
of Prospectuses, Statements of Additional Information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of Prospectuses and Statements of Additional
Information to holders of Shares, and the direct expenses of the issue of
Shares.
12. The Principal Underwriter shall, at the request of the Funds,
provide to the Board of Trustees or Directors (together herein called the
"Directors") of the Funds in connection with sales of Shares not less than
quarterly a written report of the amounts received from the Funds therefor and
the purpose for which such expenditures by the Funds were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Shares of the Funds or by a majority of the Directors of the Funds and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the 1940 Act, of any such party and who have no direct
or indirect financial interest in the operation of each Fund's Rule 12b-l plan
for Shares or in any agreements related to the plan at least annually in
accordance with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Shares or
in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of each Fund on not more than sixty days written
notice to any other party to the Agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal
Underwriter's Allocable Portion of Distribution Fees (as hereinafter defined)
and Allocable Portion of CDSCs provided for hereunder and/or rights related to
such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of the Shares and also permit the Fund to pay, pursuant to the Principal
Underwriting Agreement dated as of December 11, 1996 between the Fund and
Evergreen Keystone Investment Services, Inc. (formerly Keystone Investment
Distributors Company) ("EKISC") in respect of Class B-1 Shares, the Allocable
Portion of Distribution Fees due EKISC in respect of Shares sold prior to
December 1, 1996 (the ("EKISCUnderwriting Agreement"), it being understood and
agreed that notwithstanding any provision hereinor in Schedule I hereto to the
contrary, to the extent that no amounts are payable to EKISC pursuant to the
EKISC Underwriting Agreement, the Distribution Fees and CDSCs payable in respect
of Shares sold prior to December 1, 1996 shall be payable to the Principal
Underwriter hereunder and shall constitute a component of the Principal
Underwriter's Allocable Portion of Distribution Fees and CDSCs hereunder and
shall remain in effect so long as any payments are required to be made by the
Fund pursuant to the irrevocable payment instructions pursuant to the Master
Sale Agreement between the Principal Underwriter and Mutual Fund Funding 1994-1
dated as of December 6,1996 (the "Master Sale Agreement") (the "Irrevocable
Payment Instruction")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Business Conduct Rules as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Funds in respect of Shares shall mean the portion of the Asset Based
Sales Charge allocable to Distributor Shares (as defined in Schedule I hereto to
this Agreement) in accordance with Schedule I hereto. The Funds agree to cause
its transfer agent (the "Transfer Agent") to maintain the records and arrange
for the payments on behalf of the Funds at the times and in the amounts and to
the accounts required by Schedule I hereto, as the same may be amended from time
to time. It is acknowledged and agreed that by virtue of the operation of
Schedule I hereto the Principal Underwriter's Allocable Portion of Distribution
Fees paid by the Funds in respect of Shares, may, to the extent provided in
Schedule I hereto, take into account Distribution Fees payable by the Funds in
respect of other existing and future classes and/or subclasses of shares of the
Funds which would be treated as "Shares" under Schedule I hereto. The Funds will
limit amounts paid to any subsequent principal underwriters of Shares to the
portion of the Asset Based Sales Charge paid in respect of Shares which is
allocable to Post-distributor Shares (as defined in Schedule I hereto) in
accordance with Schedule I hereto. Each Fund's payments to the Principal
Underwriter in consideration of its services in connection with the sale of
Shares shall be the Distribution Fees attributable to Shares which are
Distributor Shares (as defined in Schedule I hereto) and all other amounts
constituting the Principal Underwriter's Allocable Portion of Distribution Fees
shall be the Distribution Fees related to the sale of other Shares which are
Distributor Shares (as defined in Schedule I hereto).
Each Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the contingent deferred sales charges payable upon redemption thereof as
set forth in the then current Prospectus and/or Statement of Additional
Information of the Funds ("CDSCs") and to pay over to the Principal Underwriter
the Principal Underwriter's Allocable Portion of said CDSCs paid in respect of
Shares which shall mean the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, each Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, each
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Business Conduct Rules, in each case enacted or promulgated
after December 1, 1996, or in connection with a Complete Termination (as
hereinafter defined). For the purposes of this Section 14.5, "Complete
Termination" means a termination of a Fund's Rule 12b-l plan for Shares
involving the cessation of payments of the Distribution Fees, and the cessation
of payments of distribution fees pursuant to every other Rule 12b-1 plan of the
Fund for every existing or future B-Class-of-Shares (as hereinafter defined) and
the Fund's discontinuance of the offering of every existing or future B-Class-of
Shares, which conditions shall be deemed satisfied when they are first complied
with hereafter and so long thereafter as they are complied with prior to the
date upon which all of the Shares which are Distributor Shares pursuant to
Schedule I hereto shall have been redeemed or converted. For purposes of this
Section 14.5, the term B-Class-of-Shares means each of the Shares of the Fund
and each other class of shares of the Fund hereafter issued which would be
treated as Shares under Schedule I hereto or which has substantially similar
economic characteristics to the current Shares taking into account the total
sales charge, CDSC or other similar charges borne directly or indirectly by the
holder of the shares of such class. For purposes of clarity the parties to this
agreement hereby state that they intend that a new installment load class of
shares which may be authorized by amendments to Rule 6(c)-10 under the 1940 Act
will be considered to be a B-Class-of-Shares if it has economic characteristics
substantially similar to the economic characteristics of the existing Shares
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares and will not be considered
to be a B-Class-of-Shares if it has economic characteristics substantially
similar to the economic characteristics of the existing C Class of shares of the
Fund taking into account the total sales charge, CDSC or other similar charges
borne directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign, sell or otherwise transfer
any part of its Allocable Portions and obligations of the Funds related thereto
(but not the Principal Underwriter's obligations to the Funds provided for in
this Agreement, provided, however, the Principal Underwriter may delegate and
subcontract certain functions to other broker-dealers so long as it remains
employed by the Funds) to any person (an "Assignee") and any such assignment
shall be effective as to the Funds upon written notice to the Funds by the
Principal Underwriter. In connection therewith the Funds shall pay all or any
amounts in respect of their Allocable Portions directly to the Assignee thereof
as directed in a writing by the Principal Underwriter in the Irrevocable Payment
Instruction, as the same may be amended from time to time with the consent of
the Funds, and the Funds shall be without liability to any person if it pays
such amounts when and as so directed, except for underpayments of amounts
actually due, without any amount payable as consequential or other damages due
to such underpayment and without interest except to the extent that delay in
payment of Distribution Fees and CDSCs results in an increase in the maximum
Sales Charge allowable under the Business Conduct Rules, which increases daily
at a rate of prime plus one percent per annum.
14.7 Each Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to Shares, except as provided in
the Fund's Prospectus or Statement of Additional Information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
14.8 Notwithstanding anything contained herein in this Agreement to the
contrary, the Funds shall comply with its obligations under the EKISC
Underwriting Agreement and the attached Schedule I, and any replacement
Agreement, provided that such replacement agreement does not increase the
Allocable Portion currently payable to EKISC, to pay to EKISC its Allocable
Portion (as defined in the EKISC Underwriting Agreement) of the Distribution
Fees (as defined in the EKISC Underwriting Agreement) in respect of Shares as
required therein.
15. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
16. Keystone Tax Free Fund is a Massachusetts business trust
established under a Declaration of Trust, as it may be amended from time to
time. The obligations of Keystone Tax Free Fund are not personally binding upon,
nor shall recourse be had against the private property of any of the Trustees,
shareholders, officers, employees or agents of the Fund, but only the property
of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE QUALITY BOND FUND (B-1)
KEYSTONE DIVERSIFIED BOND FUND (B-2)
KEYSTONE HIGH INCOME BOND FUND (B-4)
KEYSTONE BALANCED FUND (K-1)
KEYSTONE STRATEGIC GROWTH FUND (K-2)
KEYSTONE GROWTH AND INCOME FUND (S-1)
KEYSTONE MID-CAP GROWTH FUND (S-3)
KEYSTONE SMALL COMPANY
GROWTH FUND (S-4)
KEYSTONE INTERNATIONAL FUND INC.
KEYSTONE TAX FREE FUND
KEYSTONE PRECIOUS METALS EVERGREEN KEYSTONE
HOLDINGS, INC. DISTRIBUTOR, INC.
By:____________________________ By:_________________________________
Title:George S. Bissell, Title: Robert Miller,
Chairman of the Board & CEO Vice President and CFO
<PAGE>
EXHIBIT A TO PRINCIPAL UNDERWRITING AGREEMENT
DATED JANUARY 2, 1997 BETWEEN
KEYSTONE CUSTODIAN FUNDS AND EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Keystone Tax Free Fund
<PAGE>
EXHIBIT B TO PRINCIPAL UNDERWRITING AGREEMENT
DATED JANAURY 2, 1997 BETWEEN
KEYSTONE CUSTODIAN FUNDS AND EVERGREEN KEYSTONE DISTRIBUTOR, INC.
The Funds, as that term is defined in the Principal
Underwriting Agreement Dated January 2, 1997 between each Fund and EKDI
(the "Agreement") and Evergreen Keystone Distributor, Inc. ("EKDI")
agree that the Collection Rights of EKDI, as such term is defined in
the Agreement, paid by the Fund pursuant to the Agreement will be
utilized by EKDI as follows:
(a) to the extent that the total amount of Collection Rights received
by EKDI with respect to Distributor Shares of each Fund, as that term
is defined in Schedule I to the Agreement, does not exceed 4% of the
aggregate net asset value at the time of sale of the Distributor Shares
of such Fund (except that in the case of Keystone Precious Metals Fund,
the amount shall be 3%) sold on or after December 1, 1996, plus any
interest and other fees, costs and expenses that may be paid in
accordance with the financing of commissions paid to selling brokers
(the "Brokers Commission and Expenses"), the entire amount of the
Collection Rights with respect to such Fund's Distributor Shares may
only be used by the Principal Underwriter for payment of the Brokers
Commission and Expenses relating to such Fund and may not be used for
any other purpose. To the extent that no KID Receivables, as that term
is defined in Exhibit B to the Principal Underwriting Agreement dated
December 11, 1996 between each Fund and Evergreen Keystone Investment
Services, Inc., are payable with respect to a Fund, then the all of the
fees payable pursuant to the Fund's Rule 12b-1 Distribution Plan and
all contingent deferred sales charges collected upon the redemption of
shares of such Fund may only be used by the Principal Underwriter for
payment of the Brokers Commission and Expenses relating to such Fund
and may not be used for any other purpose.
(b) to the extent that: (1) there is no longer any unrecovered Brokers
Commission and Expenses with respect to a Fund as provided in (a),
above; and (2) the Principal Underwriting Agreement dated December 11,
1996 between the Fund and Evergreen Keystone Investment Services, Inc.
has terminated with respect to the Fund, such Fund will pay the
Principal Underwriter a fee in an amount up to the remaining Collection
Rights attributable to such Shares to compensate Evergreen Keystone
Investment Services, Inc., as marketing services agent for the
Principal Underwriter and the Fund (the "Marketing Services Agent").
The foregoing calculations shall be the responsibility of the Transfer
Agent and Administrator and not the resonsibility of the Principal Underwriter.
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
RELATING TO SHARES
OF
KEYSTONE CUSTODIAN FUNDS
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts in respect of Asset Based Sales Charges (as hereinafter
defined) and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter
defined) of each Fund (as hereinafter defined) shall be allocated between
Distributor Shares (as hereinafter defined) and Post-distributor Shares (as
hereinafter defined) of such Fund in accordance with the rules set forth in
clauses (B) and (C). Clause (B) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account (as
hereinafter defined) in maintaining records relating to Distributor Shares and
Post-distributor Shares. Clause (C) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account in
determining what portion of the Asset Based Sales Charge (as hereinafter
defined) payable in respect of each class of Shares of such Fund and what
portion of the CDSC (as hereinafter defined) payable by the holders of Shares of
such Fund is attributable to Distributor Shares and Post-distributor Shares,
respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"AGREEMENT" shall mean the Principal Underwriting Agreement for Shares
of the Funds dated as of January 2, 1997 between the Funds and the Distributor.
"ASSET BASED SALES CHARGE" shall have the meaning set forth in National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) or any successor rule (the "Business Conduct Rules) it being understood that
for purposes of this Schedule I such term does not include the Service Fee.
"BUSINESS DAY" shall mean any day on which the banks and The New York
Stock Exchange are not authorized or required to close in New York City or the
State of North Carolina.
"CAPITAL GAIN DIVIDEND" shall mean, in respect of any Share of any
Fund, a Dividend in respect of such Share which is designated by such Fund as
being a "capital gain dividend" as such term is defined in Section 852 of the
Internal Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred
sales charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"COMMISSION SHARE" shall mean, in respect of any Fund, a Share of such
Fund issued under circumstances where a CDSC would be payable upon the
redemption of such Share if such CDSC is not waived or shall have not otherwise
expired.
"DATE OF ORIGINAL PURCHASE" shall mean, in respect of any Commission
Share of any Fund, the date on which such Commission Share was first issued by
such Fund; provided, that if such Share is a Commission Share and such Fund
issued the Commission Share (or portion thereof) in question in connection with
a Free Exchange for a Commission Share (or portion thereof) of another Fund, the
Date of Original Purchase for the Commission Share (or portion thereof) in
question shall be the date on which the Commission Share (or portion thereof) of
the other Fund was first issued by such other Fund (unless such Commission Share
(or portion thereof) was also issued by such other Fund in a Free Exchange, in
which case this proviso shall apply to that Free Exchange and this application
shall be repeated until one reaches a Commission Share (or portion thereof)
which was issued by a Fund other than in a Free Exchange).
"DISTRIBUTOR" shall mean Evergreen Keystone Distributor, Inc., its
successors and assigns.
"DISTRIBUTOR'S ACCOUNT" shall mean the account designated in the
Irrevocable Payment Instructions of the Distributor.
"DISTRIBUTOR INCEPTION DATE" shall mean, in respect of any Fund and
solely for the purpose of making the calculations contained herein, December 1,
1996 so long as the Principal Underwriting Agreement dated December 11, 1996
between Evergreen Keystone Investment Services, Inc. and the Keystone Custodian
Funds (the "EKISC Agreement") remains in effect with respect to a Fund, and the
inception date of each Fund once the EKISC Agreement has terminated with respect
to a Fund.
"DISTRIBUTOR LAST SALE CUT-OFF DATE" shall mean, in respect of any
Fund, the date identified as the last sale of a Commission Share during the
period the Distributor served as principal underwriter under the Agreement.
"DISTRIBUTOR SHARES" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which is after the Distributor
Inception Date and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"DIVIDEND" shall mean, in respect of any Share of any Fund, any
dividend or other distribution by such Fund in respect of such Share.
"FREE EXCHANGE" shall mean any exchange of a Commission Share (or
portion thereof) of one Fund (the "Redeeming Fund") for a Share (or portion
thereof) of another Fund (the "Issuing Fund"), under any arrangement which
defers the exchanging Shareholder's obligation to pay the CDSC in respect of the
Commission Share (or portion thereof) of the Redeeming Fund so exchanged until
the later redemption of the Share (or portion thereof) of the Issuing Fund
received in such exchange.
"FREE SHARE" shall mean, in respect of any Fund, each Share of such
Fund other than a Commission Share, including, without limitation: (i) Shares
issued in connection with the automatic reinvestment of Capital Gain Dividends
or Other Dividends by such Fund; (ii) Special Free Shares issued by such Fund;
and (iii) Shares (or portion thereof) issued by such Fund in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Free Share (or portion thereof) is
invested in such Shares (or portion thereof) of such Fund.
"FUND" shall mean each of the regulated investment companies or series
or portfolios of regulated investment companies identified in Exhibit J to the
Master Sale Agreement, as the same may be amended from time to time in
accordance with the terms thereof.
"ML OMNIBUS ACCOUNT" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"MONTH OF ORIGINAL PURCHASE" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
PROVIDED, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); PROVIDED,
FURTHER, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be The Month of Original Purchase of the Share in respect of which
such dividend was paid; PROVIDED, FURTHER, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and PROVIDED,
FINALLY, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"OMNIBUS ACCOUNT" shall mean any Shareholder Account the record owner
of which is a registered broker-dealer which has agreed with the Transfer Agent
to provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"OMNIBUS ASSET BASED SALES CHARGE SETTLEMENT DATE" shall mean, in
respect of each Omnibus Account, the Business Day next following the twentieth
day of each calendar month for the calendar month immediately preceding such
date so long as the record owner is able to allocate the Asset Based Sales
Charge accruing in respect of Shares of any Fund as contemplated by this
Schedule I no more frequently than monthly; PROVIDED, that at such time as the
record owner of such Omnibus Account is able to provide information sufficient
to allocate the Asset Based Sales Charge accruing in respect of such Shares of
such Fund owned of record by such Omnibus Account as contemplated by this
Schedule I on a weekly or daily basis, the Omnibus Asset Based Sales Charge
Settlement Date shall be a weekly date as in the case of the Omnibus CDSC
Settlement Date or a daily date as in the case of Asset Based Sales Charges
accruing in respect of Shareholder Accounts other than Omnibus Accounts, as the
case may be.
"OMNIBUS CDSC SETTLEMENT DATE" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
PROVIDED, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"ORIGINAL PURCHASE AMOUNT" shall mean, in respect of any Commission
Share of any Fund, the amount paid (i.e., the Net Asset Value thereof on such
date), on the Date of Original Purchase in respect of such Commission Share, by
such Shareholder Account or Sub-shareholder Account for such Commission Share;
PROVIDED, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"OTHER DIVIDEND" shall mean in respect of any Share, any Dividend paid
in respect of such Share other than a Capital Gain Dividend.
"POST-DISTRIBUTOR SHARES" shall mean, in respect of any Fund, all
Shares of such Fund the Month of Original Purchase of which occurs after the
Distributor Last Sale Cut-off Date for such Fund.
"BUYER" shall mean Mutual Fund Funding, as Buyer under the Master Sale
Agreement, and its successors and assigns in such capacity.
"MASTER SALE AGREEMENT" shall mean that certain Master Sale Agreement
dated as of December 6,1996 between Evergreen Keystone Distributor, Inc., as
Seller, and Mutual Fund Funding, as Buyer.
"SHARE" shall mean in respect of any Fund any share of the classes of
shares specified in Exhibit G to the Master Sale Agreement under the description
"Keystone Custodian Funds", as the same may be amended from time to time by
notice from the Distributor and the Buyer to the Fund and the Transfer Agent;
PROVIDED, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Exhibit G to the Master
Sale Agreement or (ii) the shares of which class may be exchanged for shares of
another Fund of the classes of shares specified in Exhibit G to the Master Sale
Agreement under the description "Keystone Custodian Funds" of any class existing
on or prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on
which can be reinvested in shares of the classes specified on Exhibit G to the
Master Sale Agreement under the automatic dividend reinvestment options; or (iv)
which is otherwise treated as though it were of the same class as the class of
shares specified on Schedule II to the Irrevocable Payment Instruction.
"SHAREHOLDER ACCOUNT" shall have the meaning set forth in clause (B)(l)
hereof.
"SPECIAL FREE SHARE" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"SUB-SHAREHOLDER ACCOUNT" shall have the meaning set forth in clause
(B)(1) hereof.
"SUB-TRANSFER AGENT" shall mean, in respect of each Omnibus Account,
the record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND
AND THE RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer
Agent shall maintain a separate account (a "Shareholder Account") for each
record owner of Shares of each Fund. Each Shareholder Account (other than
Omnibus Accounts) will represent a record owner of Shares of such Fund, the
records of which will be kept in accordance with this Schedule I. In the case of
an Omnibus Account, the Transfer Agent shall require that the record owner of
the Omnibus Account maintain a separate account (a "Sub-shareholder Account")
for each record owner of Shares which are reflected in the Omnibus Account, the
records of which will be kept in accordance with this Schedule I. Each such
Shareholder Account and Sub-shareholder Account shall relate solely to Shares of
such Fund and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an
Omnibus Account), the Transfer Agent shall maintain daily records of each
Commission Share of such Fund which records shall identify each Commission Share
of such Fund reflected in such Shareholder Account by the Month of Original
Purchase of such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect
thereof maintain daily records of such Sub-shareholder Account which records
shall identify each Commission Share of such Fund reflected in such
Sub-shareholder Account by the Month of Original Purchase; PROVIDED, that until
the Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall maintain daily records of Sub-shareholder Accounts
which identify each Commission Share of such Fund reflected in such
Sub-shareholder Account by the Date of Original Purchase. Each such Commission
Share shall be identified as either a Distributor Share or a Post-distributor
Share based upon the Month of Original Purchase of such Commission Share (or in
the case of a Sub-shareholder Account within the ML Omnibus Account, based upon
the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of
each Shareholder Account (other than an Omnibus Account) in respect of any Fund
so as to identify each Free Share (including each Special Free Share) reflected
in such Shareholder Account by the Month of Original Purchase of such Free
Share. In addition, the Transfer Agent shall require that each Shareholder
Account (other than an Omnibus Account) have in effect separate elections
relating to reinvestment of Capital Gain Dividends and relating to reinvestment
of Other Dividends in respect of any Fund. Either such Shareholder Account shall
have elected to reinvest all Capital Gain Dividends or such Shareholder Account
shall have elected to have all Capital Gain Dividends distributed. Similarly,
either such Shareholder Account shall have elected to reinvest all Other
Dividends or such Shareholder Account shall have elected to have all Other
Dividends distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect
of each Omnibus Account maintain daily records for each Sub-shareholder Account
in the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); PROVIDED, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; PROVIDED, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the
Distributor Last Sale Cutoff Date for such Fund shall be
identified as Distributor Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cutoff Date
for such Fund shall be identified as Distributor Shares in a
number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of
business in the last day of the immediately preceding
calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cutoff Date
for such Fund shall be identified as Post-distributor Shares
in a number computed as follows:
(A * (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the
close of business in the last day of the immediately
preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a Class
A Share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cut-off Date for such Fund shall be identified as
Distributor Shares in a number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a class
A share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cutoff Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last to day of the immediately
preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer
Agent shall maintain on a daily basis in respect of each Shareholder Account
(other than Omnibus Accounts) a Cost Accumulation Amount representing the total
of the Original Purchase Amounts paid by such Shareholder Account for all
Commission Shares reflected in such Shareholder Account as of the close of
business on each day. In addition, the Transfer Agent shall maintain on a daily
basis in respect of each Shareholder Account (other than Omnibus Accounts)
sufficient records to enable it to compute, as of the date of any actual or
deemed redemption or Free Exchange of a Commission Share reflected in such
Shareholder Account an amount (such amount an "Appreciation Amount") equal to
the excess, if any, of the Net Asset Value as of the close of business on such
day of the Commission Shares reflected in such Shareholder Account minus the
Cost Accumulation Amount as of the close of business on such day. In the event
that a Commission Share (or portion thereof) reflected in a Shareholder Account
is redeemed or under these rules is deemed to have been redeemed (whether in a
Free Exchange or otherwise), the Appreciation Amount for such Shareholder
Account shall be reduced, to the extent thereof, by the Net Asset Value of the
Commission Share (or portion thereof) redeemed, and if the Net Asset Value of
the Commission Share (or portion thereof) being redeemed equals or exceeds the
Appreciation Amount, the Cost Accumulation Amount will be reduced to the extent
thereof, by such excess. If the Appreciation Amount for such Shareholder Account
immediately prior to any redemption of a Commission Share (or portion thereof)
is equal to or greater than the Net Asset Value of such Commission Share (or
portion thereof) deemed to have been tendered for redemption, no CDSCs will be
payable in respect of such Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect
of each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account); provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other
than an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(6) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account
(other than an Omnibus Account) tenders Shares of one Fund (the "Redeeming
Fund") for redemption where the proceeds of such redemption are to be
automatically reinvested in shares of another Fund (the "Issuing Fund") to
effect an exchange (whether or not pursuant to a Free Exchange) into Shares of
the Issuing Fund: (1) such Shareholder Account will be deemed to have tendered
Shares (or portions thereof) of the Redeeming Fund with each Month of Original
Purchase represented by Shares of the redeeming Fund reflected in such
Shareholder Account immediately prior to such tender in the same proportion that
the number of Shares of the redeeming Fund with such Month of Original Purchase
reflected in such Shareholder immediately prior to such tender bore to the total
number of Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender, and on that basis the tendered Shares of the
Redeeming Fund will be identified as Distributor Shares or Post-distributor
Shares; (2) such Shareholder Account will be deemed to have tendered Commission
Shares (or portions thereof) and Free Shares (or portions thereof) of the
Redeeming Fund of each category (i.e., Distributor Shares or Post-distributor
Shares) in the same proportion that the number of Commission Shares or Free
Shares (as the case may be) of the Redeeming Fund in such category reflected in
such Shareholder Account bore to the total number of Shares of the Redeeming
Fund in such category reflected in such Shareholder Account immediately prior to
such tender, (3) the Shares (or portions thereof) of the Issuing Fund issued in
connection with such exchange will be deemed to have the same Months of Original
Purchase as the Shares (or portions thereof) of the Redeeming Fund so tendered
and will be categorized as Distributor Shares and Post-distributor Shares
accordingly, and (4) the Shares (or portions thereof) of each Category of the
Issuing Fund issued in connection with such exchange will be deemed to be
Commission Shares and Free Shares in the same proportion that the Shares of such
Category of the Redeeming Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(7) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a Class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a Class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; PROVIDED, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG
DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the
amounts of Asset Based Sales Charges and CDSCs payable by each Fund in respect
of Shares between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating
to Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; PROVIDED, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A * (B/C)
where:
A = Total amount of Asset Based Sales Charge accrued in respect
of such Shareholder Account (other than an Omnibus Account) on
such day.
B = Number of Distributor Shares reflected in such Shareholder
Account (other than an Omnibus Account) on the close of
business on such day
C = Total number of Distributor Shares and Post-distributor
Shares reflected in such Shareholder Account (other than an
Omnibus Account) and outstanding as of the close of business
on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Buyer.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; PROVIDED, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A * ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as
of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
D = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month (or portion thereof), times Net Asset
Value per Share as of such time.
E = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of such calendar month (or
portion thereof), times Net Asset Value per Share as
of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed as follows:
A * ((B + C)/2)
((D + E)/2)
18373
18373
21
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
D = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month (or portion thereof), times Net Asset
Value per Share as of such time.
E = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of such calendar month (or
portion thereof), times Net Asset Value per Share as
of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day, or to the extent the parties agree less
frequently, the Transfer Agent shall cause payment to be made of the amount of
the Asset Based Sales Charge and CDSCs accruing on such day in respect of the
Shares of such Fund owned of record by Shareholder Accounts (other than Omnibus
Accounts) by two separate wire transfers, directly from accounts of such Fund as
follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect
of Shareholder Accounts other than Omnibus Accounts and
allocable to Distributor Shares in accordance with the
preceding rules shall be paid to the Distributor's Account,
unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect
of Shareholder Accounts other than Omnibus Accounts and
allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction
received from any future distributor of Shares of a Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and
allocable to Distributor Shares in accordance with the
preceding rules shall he paid to the Distributor's Account,
unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and
allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction
received from any future distributor of Shares of a Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer
Agent for each Fund shall cause payment to be made of the amount of the Asset
Based Sales Charge accruing for the period to which such Omnibus Asset Based
Sales Charge Settlement Date relates in respect of the Shares of such Fund owned
of record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such
Omnibus Account and allocable to Distributor Shares shall be
paid to the Distributor's Collection Account, unless the
Distributor otherwise instructs the Fund in any irrevocable
payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such
Omnibus Account and allocable to Post-Distributor Shares shall
be paid in accordance with direction received from any future
distributor of Shares of a Fund.
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
230 PARK AVENUE
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
To Whom It May Concern:
You currently have a dealer agreement ("Agreement") with Evergreen
Keystone Distributor, Inc. ("Company"). Effective January 1, 1997 the
Agreement is amended and restated in its entirety as set forth below.
The Company, principal underwriter, invites you to participate in the
distribution of shares, including separate classes of shares, ("Shares") of
the Keystone Fund Family, the Keystone America Fund Family, the Evergreen Fund
Family and to the extent applicable their separate investment series
(collectively "Funds" and each individually a "Fund") designated by us which
are currently or hereafter underwritten by the Company, subject to the
following terms:
1. You will offer and sell Shares of the Funds at the public offering price
with respect to the applicable class described in the then current prospectus
and/or statement of additional information ("Prospectus") of the Fund whose
Shares you offer. You will offer Shares only on a forward pricing basis, i.e.
orders for the purchase, repurchase or exchange of Shares accepted by you
prior to the close of the New York Stock Exchange and placed with us the same
day prior to the close of our business day, 5:00 p.m. Eastern Time, shall be
confirmed at the closing price for that business day. You agree to place
orders for Shares only with us and at such closing price. In the event of a
difference between verbal and written price confirmation, the written
confirmations shall be considered final. Prices of a Fund's Shares are
computed by and are subject to withdrawal by each Fund in accordance with its
Prospectus. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others
to place orders on your behalf. This Agreement on your part runs to us and the
respective Fund and is for the benefit and enforceable by each.
2. In the distribution and sale of Shares, you shall not have authority to act
as agent for the Fund, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not
to accept any specific order for the purchase or exchange of Shares.
3. In addition to the distribution services provided by you with respect to a
Fund you may be asked to render administrative, account maintenance and other
services as necessary or desirable for shareholders of such Fund ("Shareholder
Services").
4. Notwithstanding anything else contained in this Agreement or in any other
agreement between us, the Company hereby acknowledges and agrees that any
information received from you concerning your customer in the course of this
arrangement is confidential. Except as requested by the customer or as
required by law and except for the respective Fund, its officers, directors,
employees, agents or service providers, the Company will not provide nor
permit access to such information by any person or entity, including any First
Union Corporation bank or First Union Brokerage Services, Inc.
5. So long as this Agreement remains in effect, we will pay you commissions on
sales of Shares of the Funds and service fees for Shareholder Services, in
accordance with the Schedule of Commissions and Service Fees ("Schedule")
attached hereto and made a part hereof, which Schedule may be modified from
time to time or rescinded by us, in either case without prior notice. You have
no vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on Shares
previously sold by you or by any person who is not a broker or dealer actually
engaged in the investment banking or securities business. You will receive
commissions in accordance with the attached Schedule on all purchase
transactions in shareholder accounts (excluding reinvestment of income
dividends and capital gains distributions) for which you are designated as
Dealer of Record except where we determine that any such purchase was made
with the proceeds of a redemption or repurchase of Shares of the same Fund or
another Fund, whether or not the transaction constitutes the exercise of the
exchange privilege. Commissions will be paid to you twice a month. You will
receive service fees for shareholder accounts for which you are designated
Dealer of Record as provided in the Schedule. You hereby represent that
receipt of such service fees by you will be disclosed to your customers.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your agent shall cease upon the termination of this
Agreement or upon the shareholder's instruction to transfer his or her account
to another Dealer of Record.
6. Payment for all Shares purchased from us shall be made to the Company and
shall be received by the Company within three business days after the
acceptance of your order or such shorter time as may be required by law. If
such payment is not received by us, we reserve the right, without prior
notice, forthwith to cancel the sale, or, at our option, to sell such Shares
back to the respective Fund in which case we may hold you responsible for any
loss, including loss of profit, suffered by us or by such Fund resulting from
your failure to make payment as aforesaid.
7. You agree to purchase Shares of the Funds only from us or from your
customers. If you purchase Shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your
customers, or for your own bonafide investment without a view to resale. If
you purchase Shares from your customers, you agree to pay such customers the
applicable net asset value per Share less any contingent deferred sales charge
("CDSC") that would be applicable under the Prospectus ("repurchase price").
8. You will sell Shares only (a) to your customers at the prices described in
paragraph 2 above; or (b) to us as agent for a Fund at the repurchase
price. In such a sale to us, you may act either as principal for your own
account or as agent for your customer. If you act as principal for your own
account in purchasing Shares for resale to us, you agree to pay your
customer not less nor more than the repurchase price which you receive from
us. If you act as agent for your customer in selling Shares to us, you
agree not to charge your customer more than a fair commission for handling
the transaction. You shall not withhold placing with us orders received
from your customers so as to profit yourself as a result of such
withholding.
10. We will not accept from you any conditional orders for Shares.
11. If any Shares sold to you under the terms of this Agreement are
repurchased by a Fund, or are tendered for redemption, within seven business
days after the date of our confirmation of the original purchase by you, it is
agreed that you shall forfeit your right to any commissions on such sales even
though the shareholder may be charged a CDSC by the Fund.
We will notify you of any such repurchase or redemption within the next
ten business days after the date on which the certificate or written request
for redemption is delivered to us or to the Fund, and you shall forthwith
refund to us the full amount of any commission you received on such sale. We
agree, in the event of any such repurchase or redemption, to refund to the
Fund any commission we retained on such sale and, upon receipt from you of the
commissions paid to you, to pay such commissions forthwith to the Fund.
12. Shares sold to you hereunder shall not be issued until payment has been
received by the Fund concerned. If transfer instructions are not received from
you within 15 days after our acceptance of your order, the Company reserves
the right to instruct the transfer agent for the Fund concerned to register
Shares sold to you in your name and notify you of such. You agree to hold
harmless and indemnify the Company, the Fund and its transfer agent for any
loss or expense resulting from such registration.
13. You agree to comply with any compliance standards that may be furnished to
you by us regarding when each class of Shares of a Fund may appropriately be
sold to particular customers.
14. No person is authorized to make any representations concerning Shares of a
Fund except those contained in the Prospectus and in sales literature issued
by us supplemental to such Prospectus. In purchasing Shares from us you shall
rely solely on the representations contained in the appropriate Prospectus and
in such sales literature. We will furnish additional copies of such
Prospectuses and sales literature and other releases and information issued by
us in reasonable quantities upon request. You agree that you will in all
respects duly conform with all laws and regulations applicable to the sales of
Shares of the Funds and will indemnify and hold harmless the Funds, their
directors and trustees and the Company from any damage or expenses on account
of any wrongful act by you, your representatives, agents or sub-agents in
connection with any orders or solicitation or orders of Shares of the Funds by
you, your representatives, agents or sub-agents.
15. Each party hereto represents that it is (1) a member of the National
Association of Securities Dealers, Inc., and agrees to notify the other should
it cease to be a member of such Association and agrees to the automatic
termination of this Agreement at that time or (2) excluded from the definition
of broker-dealer under the Securities Exchange Act of 1934. It is further
agreed that all rules or regulations of the Association now in effect or
hereafter adopted, including its Business Conduct Rule 2830(d), which are
binding upon underwriters and dealers in the distribution of the securities of
open-end investment companies, shall be deemed to be a part of this Agreement
to the same extent as if set forth in full herein.
16. You will not offer the Funds for sale in any State where they are not
qualified for sale under the blue sky laws and regulations of such State or
where you are not qualified to act as a dealer except for States in which they
are exempt from qualification.
17. This Agreement supersedes and cancels any prior agreement with respect to
the sales of Shares of any of the Funds underwritten by the Company. The
Agreement may be amended by us at any time upon written notice to you.
18. This amendment to the Agreement shall be effective on January 1, 1997 and
all sales hereunder are to be made, and title to Shares of the Funds shall
pass in The Commonwealth of Massachusetts. This Agreement shall be interpreted
in accordance with the laws of The Commonwealth of Massachusetts.
19. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the
addressed specified by you.
20. Either part may terminate this Agreement at any time by written notice to
the other party.
- --------------------------- EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Dealer or Broker Name
- --------------------------- /s/ Robert A. Hering
Address
ROBERT A. HERING, President
<PAGE>
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC. ROBERT A. HERING
230 PARK AVENUE President
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
Dear Financial Professional:
This Schedule of Commissions and Service Fees ("Schedule") supersedes any
previous Schedules, is hereby made part of our dealer agreement ("Agreement")
with you effective January 1, 1997 and will remain in effect until modified or
rescinded by us. Capitalized terms used in this Schedule and not defined
herein have the same meaning as such terms have in the Agreement. All
commission rates and service fee rates set forth in this Schedule may be
modified by us from time to time without prior notice.
I. KEYSTONE FUNDS
KEYSTONE QUALITY BOND FUND (B-1) KEYSTONE MID-CAP GROWTH FUND (S-3)
KEYSTONE DIVERSIFIED BOND FUND (B-2) KEYSTONE SMALL COMPANY GROWTH FUND (S-4)
KEYSTONE HIGH INCOME BOND FUND (B-4) KEYSTONE INTERNATIONAL FUND INC.
KEYSTONE BALANCED FUND (K-1) KEYSTONE PRECIOUS METALS HOLDINGS, INC.
KEYSTONE STRATEGIC GROWTH FUND (K-2) KEYSTONE TAX FREE FUND
KEYSTONE GROWTH AND INCOME FUND (S-1) (COLLECTIVELY "KEYSTONE FUNDS")
1. COMMISSIONS FOR THE KEYSTONE FUNDS (OTHER THAN KEYSTONE PRECIOUS METALS
HOLDINGS, INC.)
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Shares of such Keystone Funds rtds d such er tv amrr
rdKeystone Fundat the rate of 4.0% of the aggregate public offering price of
such Shares as described in the Fund's Prospectus ("Offering Price") when sold
in an eligible sale.
2. COMMISSIONS FOR KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Except as otherwise provided for in our Agreement, we will pay you
commissions on your sale of Shares of Keystone Precious Metals Holdings, Inc.
as the rate of the Offering Price when sold in an eligible sale as follows:
AMOUNT OF PURCHASE COMMISSION AMOUNT OF PURCHASE COMMISSION
Less than $100,000 4% $250,000-$499,999 1%
$100,000-$249,999 2% $500,000 and above 0.5%
3. SERVICE FEES
We will pay you service fees based on the aggregate net asset value of
Shares of the Keystone Funds (other than Keystone Precious Metals Holdings,
Inc.) you have sold on or after June 1, 1983 and of Keystone Precious Metals
Holdings, Inc. you have sold on or after November 19, 1984, which remain
issued and outstanding on the books of such Funds on the fifteenth day of the
third month of each calendar quarter (March 15, June 15, September 15 and
December 15, each hereinafter a "Service Fee Record Date") and which are
registered in the names of customers for whom you are dealer of record
("Eligible Shares"). Such service fees will be calculated quarterly at the
rate of 0.0625% per quarter of the aggregate net asset value of all such
Eligible Shares (approximately 0.25% annually) on the Service Fee Record Date;
provided, however, that in any calendar quarter in which service fees earned
by you on Eligible Shares of all Funds (except Keystone Liquid Trust Class A
Shares) are less than $50.00 in the aggregate, no service fees will be paid to
you nor will such amounts be carried over for payment in a future quarter.
Service fees will be payable within five business days after the Service Fee
Record Date. Service fees will only be paid by us to the extent that such
amounts have been paid to us by the Funds.
4. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
<TABLE>
<CAPTION>
II. KEYSTONE AMERICA FUNDS AND EVERGREEN FUNDS
KEYSTONE AMERICA FUNDS
<S> <C>
KEYSTONE GOVERNMENT SECURITIES FUND KEYSTONE OMEGA FUND
KEYSTONE STATE TAX FREE FUND KEYSTONE SMALL COMPANY GROWTH FUND - II
KEYSTONE STATE TAX FREE FUND - SERIES II KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE STRATEGIC INCOME FUND KEYSTONE BALANCED FUND - II
KEYSTONE TAX FREE INCOME FUND (COLLECTIVELY "KEYSTONE EQUITY AND LONG TERM INCOME FUNDS")
KEYSTONE WORLD BOND FUND KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND OF THE AMERICAS KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE GLOBAL OPPORTUNITIES FUND (COLLECTIVELY "KEYSTONE INTERMEDIATE INCOME FUNDS")
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. KEYSTONE LIQUID TRUST
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
EVERGREEN FUNDS
EVERGREEN U.S. GOVERNMENT FUND EVERGREEN AMERICAN RETIREMENT FUND
EVERGREEN HIGH GRADE TAX FREE FUND EVERGREEN FOUNDATION FUND
EVERGREEN FLORIDA MUNICIPAL BOND FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND
EVERGREEN GEORGIA MUNICIPAL BOND FUND EVERGREEN UTILITY FUND
EVERGREEN NEW JERSEY MUNICIPAL BOND FUND EVERGREEN TOTAL RETURN FUND
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (COLLECTIVELY "EVERGREEN EQUITY AND LONG TERM INCOME FUNDS")
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND EVERGREEN MONEY MARKET FUND
EVERGREEN FUND EVERGREEN TAX EXEMPT MONEY MARKET FUND
EVERGREEN U.S. REAL ESTATE EQUITY FUND EVERGREEN TREASURY MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND EVERGREEN PENNSYLVANIA TAX FREE MONEY MARKET FUND
EVERGREEN AGGRESSIVE GROWTH FUND (COLLECTIVELY "EVERGREEN MONEY MARKET FUNDS")
EVERGREEN INTERNATIONAL EQUITY FUND EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN GLOBAL LEADERS FUND EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN EMERGING MARKETS FUND EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN BALANCED FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
EVERGREEN GROWTH & INCOME FUND (COLLECTIVELY "EVERGREEN INTERMEDIATE INCOME AND
EVERGREEN VALUE FUND MONEY MARKET FUNDS")
</TABLE>
A. CLASS A SHARES
1. COMMISSIONS
Except as otherwise provided in our Agreement, in paragraph 2 below or in
connection with certain types of purchases at net asset value which are
described in the Prospectuses for the Keystone America Funds and the Evergreen
Funds, we will pay you commissions on your sales of Shares of such Funds in
accordance with the following sales charge schedules* on sales where we
receive a commission from the shareholder:
KEYSTONE AMERICA AND EVERGREEN EQUITY AND LONG TERM INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 4.75% 4.25%
$50,000-$99,999 4.50% 4.25%
$100,000-$249,999 3.75% 3.25%
$250,000-$499,999 2.50% 2.00%
$500,000-$999,999 2.00% 1.75%
Over $1,000,000 None See paragraph 2
KEYSTONE AMERICA AND EVERGREEN INTERMEDIATE INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 3.25% 2.75%
$50,000-$99,999 3.00% 2.75%
$100,000-$249,999 2.50% 2.25%
$250,000-$499,999 2.00% 1.75%
$500,000-$999,999 1.50% 1.25%
Over $1,000,000 None See paragraph 2
KEYSTONE LIQUID TRUST AND EVERGREEN MONEY MARKET FUNDS
No sales charge for any amount of purchase.
2. COMMISSIONS FOR CERTAIN TYPES OF PURCHASES
With respect to (a) purchases of Class A Shares in the amount of $1 million
or more and/or (b) purchases of Class A Shares made by a corporate or certain
other qualified retirement plan 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 (a "Qualifying Plan"), (each such
purchase a "NAV Purchase"), we will pay you commissions as follows:
<TABLE>
<CAPTION>
a. Purchases described in 2(a) above
AMOUNT OF COMMISSION AS A PERCENTAGE
PURCHASE OF OFFERING PRICE
<S> <C>
$1,000,000-$2,999,999 1.00% of the first $2,999,999, plus
$3,000,000-$4,999,999 0.50% of the next $2,000,000, plus
$5,000,000 0.25% of amounts equal to or over $5,000,000
b. Purchases described in 2(b) above .50% of amount of purchase (subject to recapture
upon early redemption)
</TABLE>
* These sales charge schedules apply to purchases made at one time or pursuant
to Rights of Accumulation or Letters of Intent. Any purchase which is made
pursuant to Rights of Accumulation or Letter of Intent is subject to the
terms described in the Prospectus(es) for the Fund(s) whose Shares are being
purchased.
3. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of up to the entire sales charge to certain
dealers. Such incentives may, at our discretion, be limited to dealers who
allow their individual selling representatives to participate in such
additional commissions.
4. SERVICE FEES FOR EVERGREEN FUNDS (OTHER THAN EVERGREEN MONEY MARKET FUNDS)
AND KEYSTONE AMERICA FUNDS (OTHER THAN KEYSTONE STATE TAX FREE FUND,
KEYSTONE STATE TAX FREE FUND - SERIES II, KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND AND KEYSTONE LIQUID TRUST)
a. Keystone America Funds Only. Until March 31, 1997, we will pay you
service fees based on the aggregate net asset value of Shares of such Funds
you have sold which remain issued and outstanding on the books of such Funds
on the fifteenth day of the third month of each calendar quarter (March 15,
June 15, September 15 and December 15, each hereinafter a "Service Fee Record
Date") and which are registered in the names of customers for whom you are
dealer of record ("Eligible Shares"). Such service fees will be calculated
quarterly at the rate of 0.0625% per quarter of the aggregate net asset value
of all such Eligible Shares (approximately 0.25% annually) on the Service Fee
Record Date; provided, however, that in any calendar quarter in which total
service fees earned by you on Eligible Shares of all Keystone Funds (except
Keystone Liquid Trust Class A Shares) are less than $50.00 in the aggregate,
no service fees will be paid to you nor will such amounts be carried over for
payment in a future quarter. Service fees will be paid within five days after
the Service Fee Record Date. Service fees will only be paid by us to the
extent that such amounts have been paid to us by the Funds.
b. Evergreen Funds and Keystone America Funds (after March 31, 1997). We
will pay you service fees based on the average daily net asset value of Shares
of such Funds you have sold which are issued and outstanding on the books of
such Funds during each calendar quarter and which are registered in the names
of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0625% per quarter
of the daily average net asset value of all such Eligible Shares
(approximately 0.25% annually) during such quarter; provided, however, that in
any calendar quarter in which total service fees earned by you on Eligible
Shares of all Funds (except Keystone Liquid Trust Class A Shares) are less
than $50.00 in the aggregate, no service fees will be paid to you nor will
such amounts be carried over for payment in a future quarter. Service fees
will be paid by the twentieth day of the month before the end of the
respective quarter. Service fees will only be paid by us to the extent that
such amounts have been paid to us by the Funds.
5. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees based on the aggregate
net asset value of Shares of such Funds you have sold which remain issued and
outstanding on the books of the Funds on the fifteenth day of the third month
of each calendar quarter (March 15, June 15, September 15 and December 15,
each hereinafter a "Service Fee Record Date") and which are registered in the
names of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0375% per quarter
of the aggregate net asset value of all such Eligible Shares (approximately
0.15% annually) on the Service Fee Record Date; provided, however, that in any
calendar quarter in which total service fees earned by you on Eligible Shares
of all Funds (except Keystone Liquid Trust Class A Shares) are less than
$50.00 in the aggregate, no service fees will be paid to you nor will such
amounts be carried over for payment in a future quarter. Service fees will be
paid within five days after the Service Fee Record Date. Service fees will
only be paid by us to the extent that such amounts have been paid to us by the
Funds.
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that the quarterly rate will be 0.0375%
(approximately 0.15% annually).
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(b) above on Shares sold on or after July 1, 1997.
6. SERVICE FEES FOR KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(a) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
7. SERVICE FEES FOR KEYSTONE LIQUID TRUST
We will pay you service fees based on the aggregate net asset value of all
Shares of such Fund you have sold which remain issued and outstanding on the
books on the Fund on the fifteenth day of the third month of each calendar
quarter (March 15, June 15, September 15 and December 15, each hereinafter a
"Service Fee Record Date") and which are registered in the names of customers
for whom you are dealer of record ("Eligible Shares"). Such service fees will
be calculated at the rates set forth below and based on the aggregate net
asset value of all such Eligible Shares on the Service Fee Record Date;
provided, however, that no such service fees will be paid to you for any
quarter if the aggregate net asset value of such Eligible Shares on the last
business day of the quarter is less than $2 million; and provided further,
however, that service fees will only be paid to us to the extent that such
amounts have been paid to us by the Fund. Service fees will be paid within 5
days after the Service Fee Record Date. The quarterly rates at which such
service fees are payable and the net asset value to which such rates will be
applied are set forth below:
ANNUAL QUARTERLY AGGREGATE NET ASSET
RATE PAYMENT RATE VALUE OF SHARES
0.00000% 0.00000% of the first $1,999,999, plus
0.15000% 0.03750% of the next $8,000,000, plus
0.20000% 0.05000% of the next $15,000,000, plus
0.25000% 0.06250% of the next $25,000,000, plus
0.30000% 0.07500% of amounts over $50,000,000
8. SERVICE FEES FOR EVERGREEN MONEY MARKET FUNDS
We will pay you service fees calculated as provided in section II (A)(4)(b)
except that the quarterly rate will be 0.075% (approximately 0.30% annually.)
<PAGE>
B. CLASS B SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Class B Shares of the Keystone America Funds and the
Evergreen Funds at the rate of 4.00% of the aggregate Offering Price of such
Shares, when sold in an eligible sale.
2. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions, to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
3. SERVICE FEES FOR EVERGREEN FUNDS AND KEYSTONE AMERICA FUNDS (OTHER THAN
KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE FUND - SERIES II)
a. Keystone America Funds - Until March 31, 1997, we will pay you service
fees calculated as provided in section II (A)(4)(a) above.
b. Evergreen Funds and Keystone America Funds (after March 31. 1997). We
will pay you service fees calculated as provided in section II (A)(4)(b)
above.
4. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(a) above.
b. After March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(b) above.
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(c) above.
C. CLASS C SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as provided in our Agreement, we will pay you initial commissions on
your sales of Class C Shares of the Keystone America and the Evergreen Funds
at the rate of 0.75% of the aggregate Offering Price of such Shares sold in
each eligible sale.
We will also pay you commissions based on the average daily net asset value
of Shares of such Funds you have sold which have been on the books of the
Funds for a minimum of 14 months from the date of purchase (plus any
reinvested distributions attributable to such Shares), which have been issued
and outstanding on the books of such Funds during the calendar quarter and
which are registered in the names of customers for whom you are dealer of
record ("Eligible Shares"). Such commissions will be calculated quarterly at
the rate of 0.1875% per quarter of the average daily net asset value of all
such Eligible Shares (approximately 0.75% annually) during such quarter. Such
commissions will be paid by the twentieth day of the month before the end of
the respective quarter. Such commissions will continue to be paid to you
quarterly so long as aggregate payments do not exceed applicable NASD
limitations and other governing regulations.
2. SERVICE FEES
We will pay you a full year's service fee in advance on your sales of Class
C Shares of such Funds at the rate of 0.25% of the aggregate net asset value
of such Shares.
We will pay you service fees based on the average daily net asset value of
Shares of such Funds you have sold which have been on the books of the Funds
for a minimum of 14 months from the date of purchase (plus any reinvested
distributions attributable to such Shares), which have been issued and
outstanding during the respective quarter and which are registered in the
names of customers for whom you are the dealer of record ("Eligible Shares").
Such service fees will be calculated quarterly at the rate of 0.0625% per
quarter of the average daily net asset value of all such Eligible Shares
(approximately 0.25% annually); provided, however, that in any calendar
quarter in which total service fees earned by you on Eligible Shares of Funds
(except Keystone Liquid Trust Class A Shares) are less than $50.00 in the
aggregate, no service fees will be paid to you nor will such amounts be
carried over for payment in a future quarter. Service fees will be paid by the
twentieth day of the month before the end of the respective quarter. Service
fees other than those paid in advance will only be paid by us to the extent
that such amounts have been paid to us by the Funds.
SUB-ADMINISTRATOR AGREEMENT
This Sub-Administrator Agreement is made as of this 1st day of January,
1997 between Evergreen Keystone Investment Services, a Delaware Corporation
(herein called "EKIS"), and BISYS Fund Services Limited Partnership DBA as BISYS
Fund Services, an Ohio Limited Partnership (herein called "BISYS").
WHEREAS, EKIS has been appointed as investment adviser or administrator to
certain open-end management investment companies, or to one or more separate
investment series thereof, listed on Schedule A, as the same may be amended from
time to time to reflect additions or deletions of such companies or series,
which are registered under the Investment Company Act of 1940 (the "Funds");
WHEREAS, in its capacity as investment adviser or administrator to the
Funds, EKIS has the obligation to provide, or engage others to provide, certain
administrative services to the Funds; and
WHEREAS, EKIS desires to retain BISYS as Sub-Administrator to the Funds for
the purpose of providing the Funds with personnel to act as officers of the
Funds and to provide certain administrative services in addition to those
provided by EKIS ("Sub-Administrative Services"), and BISYS is willing to render
such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties hereto agree as follows:
1. Appointment of Sub-Administrator. EKIS hereby appoints BISYS as
Sub-Administrator for the Funds on the terms and conditions set forth in this
Agreement and BISYS hereby accepts such appointment and agrees to perform the
services and duties set forth in Section 2 of this Agreement in consideration of
the compensation provided for in Section 4 hereof.
2. Services and Duties. As Sub-Administrator, and subject to the
supervision and control of EKIS and the Trustees or Directors of the Funds,
BISYS will hereafter provide facilities, equipment and personnel to carry out
the following Sub-Administrative services to assist in the operation of the
business and affairs of the Funds:
(a) provide individuals reasonably acceptable to the Funds for nomination,
appointment or election as officers of the Funds and who will be responsible for
the management of certain of each Fund's affairs as determined from time to time
by the Trustees or Directors of the Funds;
(b) review filings with the Securities and Exchange Commission and state
securities authorities that have been prepared on behalf of the Funds by the
administrator and take such actions as may be reasonably requested by the
administrator to effect such filings;
(c) verify, authorize and transmit to the custodian, transfer agent and
dividend disbursing agent of each Fund all necessary instructions for the
disbursement of cash, issuance of shares, tender and receipt of portfolio
securities, payment of expenses and payment of dividends; and
(d) advise the Trustees or Directors of the Funds on matters concerning the
Funds and their affairs.
BISYS may, in addition, agree in writing to perform additional
Sub-Administrative Services for the Funds. Sub-Administrative Services shall not
include investment advisory services or any duties, functions, or services to be
performed for the Funds by their distributor, custodian or transfer agent
pursuant to their agreements with the Funds.
3. Expenses. BISYS shall be responsible for expenses incurred in providing
office space, equipment and personnel as may be necessary or convenient to
provide the Sub-Administrative Services to the Funds. EKIS and/or the Funds
shall be responsible for all other expenses incurred by BISYS on behalf of the
Funds pursuant to this Agreement at the direction of EKIS, including without
limitation postage and courier expenses, printing expenses, registration fees,
filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees or Directors who are not BISYS employees, and
trade association dues.
4. Compensation. For the Sub-Administrative Services provided, EKIS hereby
agrees to pay and BISYS hereby agrees to accept as full compensation for its
services rendered hereunder a sub- administrative fee, calculated daily and
payable monthly at an annual rate based on the aggregate average daily net
assets of the Funds, or separate series thereof, set forth on Schedule A and
determined in accordance with the table below.
Aggregate Daily Net Assets of Funds For
Which KIMCO, Evergreen Asset Management
Sub-Administrative Corp., First Union National Bank of North
Fee as a % of Carolina or any Affiliates Thereof Serve as
Average Annual Investment Adviser or Administrator And For
Daily Net Assets Which BISYS Serves as Sub-Administrator
.0100% on the first $7 billion
.0075% on the next $3 billion
.0050% on the next $15 billion
.0040% on assets in excess of $25 billion
5. Indemnification and Limitation of Liability of BISYS. The duties of
BISYS shall be limited to those expressly set forth herein or later agreed to in
writing by BISYS, and no implied duties are assumed by or may be asserted
against BISYS hereunder. BISYS shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Section, the term "BISYS" shall include partners,
officers, employees and other agents of BISYS as well as BISYS itself).
So long as BISYS acts in good faith and with due diligence and without
negligence, EKIS shall indemnify BISYS and hold it harmless from any and all
actions, suits and claims, and from any and all losses, damages, costs, charges,
reasonable counsel fees and disbursements, payments, expenses and liabilities
(including reasonable investigation expenses) arising directly or indirectly out
of BISYS' actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
survive the termination of this Agreement for a period of three years.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case EKIS maybe asked to indemnify or hold BISYS
harmless, EKIS shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that BISYS
will use all reasonable care to identify and notify EKIS promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against EKIS.
EKIS shall be entitled to participate at its own expense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity provision. If EKIS elects to assume the defense of any such
claim, the defense shall be conducted by counsel chosen by EKIS and satisfactory
to BISYS, whose approval shall not be unreasonably withheld. In the event that
EKIS elects to assume the defense of any suit and retain counsel, BISYS shall
bear the fees and expenses of any additional counsel retained by it. If EKIS
does not elect to assume the defense of a suit, it will reimburse BISYS for the
reasonable fees and expenses of any counsel retained by BISYS.
BISYS may apply to EKIS at any time for instructions and may consult
counsel for EKIS or its own counsel and with accountants and other experts with
respect to any matter arising in connection with BISYS' duties, and BISYS shall
not be liable or accountable for any action taken or omitted by it in good faith
in accordance with such instruction or with the opinion of such counsel,
accountants or other experts.
Any person, even though also an officer, director, partner, employee or
agent of BISYS, who may be or become an officer, trustee, employee or agent of
the Funds, shall be deemed, when rendering services to a Fund or acting on any
business of a Fund (other than services or business in connection with the
duties of BISYS hereunder) to be rendering such services to or acting solely for
the Fund and not as an officer, director, partner, employee or agent or one
under the control or direction of BISYS even though paid by BISYS.
6. Duration and Termination.
(a) The initial term of this Agreement (the "Initial Term") shall commence
on the date this Agreement is executed by both parties, shall continue until
April 30, 1998, and shall continue in effect for a Fund from year to year
thereafter, provided it is approved, at least annually, by a vote of a majority
of Directors/Trustees of the Funds, including a majority of the disinterested
Directors/Trustees. In the event of' any breach of this Agreement by either
party, the non-breaching party shall notify the breaching party in writing of
such breach and upon receipt of such notice, the breaching party shall have 45
days to remedy the breach except in the case of a breach resulting from fraud or
other acts which materially and adversely affects the operations or financial
position of the Funds. In the event any material breach is not remedied within
such time period, the nonbreaching party may immediately terminate this
Agreement.
Notwithstanding the foregoing, after such termination for so long as BISYS,
with the written consent of EKIS, in fact continues to perform any one or more
of the services contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due BISYS and unpaid by EKIS upon such termination shall be
immediately due and payable upon and notwithstanding such termination. BISYS
shall be entitled to collect from EKIS, in addition to the compensation
described herein, all costs reasonably incurred in connection with BISYS's
activities in effecting such termination, including without limitation, the
delivery to the Funds and/or their designees of each Fund's property, records,
instruments and documents, or any copies thereof. To the extent that BISYS may
retain in its possession copies of any Fund documents or records subsequent to
such termination which copies had not been requested by or on behalf of a Fund
in connection with the termination process described above, BISYS will provide
such Fund with reasonable access to such copies; provided, however, that, in
exchange therefor, EKIS shall reimburse BISYS for all costs reasonably incurred
in connection therewith.
(b) Subject to (c) below, this Agreement may be terminated at any time,
without payment of any penalty, on sixty (60) day's prior written notice by
KIMCO, or by BISYS and, with respect to one or more of the Funds a vote of a
majority of such Fund's or Funds' Directors/Trustees.
(c) If, during the first six months this Agreement is in effect it is
terminated for a Fund or Funds in accordance with (b) above, for any reason
other than a material breach of this Agreement, the merger of a Fund or Funds
for which KIMCO, Evergreen Asset Management Corp., First Union National Bank of
North Carolina or any affiliates thereof act as investment adviser, or any other
event that leads to the termination of the existence of a Fund or Funds, and
BISYS is replaced as sub-administrator, then EKIS shall make a one-time cash
payment to BISYS equal to the unpaid balance due BISYS for the first six-months
this Agreement in effect, assuming for purposes of calculation of the payment
that the asset level of each Fund on the date BISYS is replaced will remain
constant for the balance of such term. Once this Agreement has been in effect
for more than six months from the commencement date, this paragraph (c) shall be
null, void and of no further effect.
7. Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. Notices. Notices of any kind to be given to EKIS hereunder by BISYS
shall be in writing and shall be duly given if delivered to EKIS at the
following address: Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577, ATT: Legal Department. Notices of any kind to be given
to BISYS hereunder by EKIS or the Funds shall be in writing and shall be duly
given if delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219
Attention: George O. Martinez, Senior Vice President.
9. Limitation of Liability. BISYS is hereby expressly put on notice of the
limitations of liability as set forth in the Declarations of Trust of the Funds
that are Massachusetts business trusts or series thereof and agrees that the
obligations pursuant to this Agreement of a particular Fund be limited solely to
the assets of that particular Fund, and BISYS shall not seek satisfaction of any
such obligation from the assets of any other Fund, the shareholders of any Fund,
the Trustees, officers, employees or agents of any Fund, or any of them.
10. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court or
regulatory agency decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. Subject to the provisions of Section 5
hereof, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by New
York law; provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
EVERGREEN KEYSTONE INVESTMENT SERVICES
By__________________________________________
Its:________________________________________
Attest:_________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
By___________________________________________
BISYS FUND SERVICES, INC., its General Partner
Attest:________________________
<PAGE>
SCHEDULE A
Evergreen Trust on behalf of:
Evergreen Fund
The Evergreen Aggressive Growth Fund
The Evergreen Total Return Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
Evergreen Money Market Trust on behalf of:
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
The Evergreen American Retirement Trust on behalf of:
Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
The Evergreen Municipal Trust on behalf of:
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Tax Exempt Money Market Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Institutional Tax-Exempt Money Market Fund
Evergreen Equity Trust on behalf of:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
Evergreen Foundation Trust on behalf of:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Investment Trust on behalf of:
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund
Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
Evergreen U.S. Government Fund
Evergreen Variable Trust on behalf of:
Evergreen VA Foundation Fund
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Global Leaders Fund
Evergreen VA Strategic Income Fund
Evergreen VA Aggressive Growth Fund
Evergreen Tax Free Trust on behalf of:
Evergreen New Jersey Tax-Free Income Fund
Evergreen Pennsylvania Tax-Exempt Money Market Fund
Evergreen Lexicon Fund on behalf of:
Evergreen Fixed Income Fund
Evergreen Short-Intermediate U.S. Government Securities Fund
Keystone America Hartwell Emerging Growth Fund ("Emerging Growth")
Keystone Balanced Fund II ("Balanced Fund")
Keystone Capital Preservation and Income Fund ("Capital Preservation and
Income")
Keystone Emerging Markets Fund ("Emerging Markets")
Keystone Fund For Total Return ("Total Return")
Keystone Fund of the Americas ("Fund of the Americas")
Keystone Global Opportunities Fund ("Global Opportunities")
Keystone Global Resources and Development Fund ("Global Resources")
Keystone Government Securities Fund ("Government Securities")
Keystone Intermediate Term Bond Fund ("Intermediate Term")
Keystone Liquid Trust ("Liquid Trust")
Keystone Omega Fund ("Omega")
Keystone Small Company Growth Fund II ("Small Company Growth")
Keystone State Tax Free Fund ("State Tax Free")
- Florida Tax Free Fund ("Florida Tax Free")
- Massachusetts Tax Free Fund ("Massachusetts Tax Free")
- Pennsylvania Tax Free Fund ("Pennsylvania Tax Free")
- New York Insured Tax Free Fund ("New York Insured")
Keystone State Tax Free Fund-Series II ("State Tax Free II")
- California Insured Tax Free Fund ("California Insured")
- Missouri Tax Free Fund ("Missouri Tax Free")
Keystone Strategic Income Fund ("Strategic Income")
Keystone Tax Free Income Fund ("Tax Free Income")
Keystone Quality Bond Fund (B-1) ("B-1")
Keystone Diversified Bond Fund (B-2) ("B-2")
Keystone High Income Bond Fund (B-4) ("B-4")
Keystone Balanced Fund (K-1) ("K-1")
Keystone Strategic Growth Fund (K-2) ("K-2")
Keystone Growth and Income Fund (S-1) ("S-1")
Keystone Mid-Cap Growth Fund (S-3) ("S-3")
Keystone Small Company Growth Fund (S-4) ("S-4")
Keystone Institutional Adjustable Rate Fund ("Adjustable Rate")
Keystone Institutional Trust ("Institutional")
Keystone International Fund Inc. ("International")
Keystone Precious Metals Holdings, Inc. ("Precious Metals")
Keystone Tax Free Fund ("Tax Free")
EXHIBIT B
THE EVERGREEN FUNDS
DEFERRED COMPENSATION PLAN
AGREEMENT, made on this ___ day of __________ __, 1995, by and between
the registered open-end investment companies listed in Attachment A hereto (each
a "Fund" and together, the "Funds"), and
(the "Trustee").
WHEREAS, the Trustee is serving as a director/trustee of the Funds
for which he is entitled to receive trustees' fees; and
WHEREAS, the Funds and the Trustee desire to permit the Trustee to
defer receipt of trustees' fees payable by the Funds;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the Funds and the Trustee hereby agree
as follows:
1. DEFINITION OF TERMS AND CONDITIONS
1.1 Definitions. Unless a different meaning is plainly implied by the
context, the following terms as used in this Agreement shall have the meanings
specified below:
(a) "Beneficiary" shall mean such person or persons designated
pursuant to Section 4.3 hereof to receive benefits after the death of the
Trustee.
(b) "Board of Trustees" shall mean the Board of Trustees or
the Board of Directors of a Fund.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute.
(d) "Compensation" shall mean the amount of trustees' fees
paid by a Fund to the Trustee during a Deferral Year prior to reduction for
Compensation Deferrals made under this Agreement.
(e) "Compensation Deferral" shall mean the amount or amounts
of the Trustee's Compensation deferred under the provisions of Section 3 of this
Agreement.
B-1
<PAGE>
(f) "Deferral Account" shall mean the account maintained to
reflect the Trustee's Compensation Deferrals made pursuant to Section 3 hereof
and any other credits or debits thereto.
(g) "Deferral Year" shall mean each calendar year during which
the Trustee makes, or is entitled to make, Compensation Deferrals under Section
3 hereof.
(h) "Valuation Date" shall mean the last business day of each
calendar year and any other day upon which a Fund makes a valuation of the
Deferred Account.
1.2 Plurals and Gender. Where appearing in this Agreement the singular
shall include the plural and the masculine shall include the feminine, and vice
versa, unless the context clearly indicates a different meaning.
1.3 Trustees and Directors. Where appearing in this Agreement,
"Trustee" shall also refer to "Director" and "Board of Trustees" shall
also refer to "Board of Directors."
1.4 Headings. The headings and sub-headings in this Agreement are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
1.5 Separate Agreement for Each Fund. This Agreement is drafted,
and shall be construed, as a separate agreement between the Trustee and
each of the Funds.
2. PERIOD DURING WHICH COMPENSATION DEFERRALS ARE PERMITTED
2.1 Commencement of Compensation Deferrals. The Trustee may elect, on a
form provided by, and submitted to, the Secretary of a Fund, to commence
Compensation Deferrals under Section 3 hereof for the period beginning on the
later of (i) the date this Agreement is executed or (ii) the date such form is
submitted to the Secretary of the Fund.
2.2 Termination of Deferrals. The Trustee shall not be eligible
to make Compensation Deferrals after the earlier of the following
dates:
(a) The date on which he ceases to serve as a Trustee of
the Fund; or
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(b) The effective date of the termination of this
Agreement.
3. COMPENSATION DEFERRALS
3.1 Compensation Deferral Elections.
(a) Except as provided below, a deferral election on the form
described in Section 2.1 hereof, must be filed with the Secretary of a Fund
prior to the first day of the Deferral Year to which it applies. The form shall
set forth the amount of such Compensation Deferral (in whole percentage
amounts). Such election shall continue in effect for all subsequent Deferral
Years unless it is canceled or modified as provided below. Notwithstanding the
foregoing, (i) any person who is elected to the Board during a fiscal year of a
Fund may elect before becoming a Trustee or within 30 days after becoming a
Trustee to defer any unpaid portion of the retainer of such fiscal year and the
fees for any future meetings during such fiscal year by filing an election form
with the Secretary of the Fund, and (ii) Trustees may elect to defer any unpaid
portion of the retainer for the fiscal year in which Deferred Compensation
Agreements are first authorized by the Board and any unpaid fees for any future
meetings during such fiscal year by submitting an election form to the Secretary
of a Fund within 30 days of such authorization.
(b) Compensation Deferrals shall be withheld from each payment
of Compensation by a Fund to the Trustee based upon the percentage amount
elected by the Trustee under Section 3.1 (a) hereof.
(c) The Trustee may cancel or modify the amount of his
Compensation Deferrals on a prospective basis by submitting to the Secretary of
a Fund a revised Compensation Deferral election form. Subject to the provisions
of Section 4.2 hereof, such change will be effective as of the first day of the
Deferral Year following the date such revision is submitted to the Secretary of
the Fund.
3.2 Valuation of Deferral Account.
(a) A Fund shall establish a bookkeeping Deferral Account to
which will be credited an amount equal to the Trustee's Compensation Deferrals
under this Agreement. Compensation Deferrals shall be allocated to the Deferral
Account on the day such Compensation Deferrals are withheld from the Trustee's
Compensation and shall be deemed invested pursuant to Section 3.3, below, as of
the same day. The Deferral Account shall be debited to reflect any distributions
from
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such Account. Such debits shall be allocated to the Deferral Account
as of the date such distributions are made.
(b) As of each Valuation Date, income, gain and loss
equivalents (determined as if the Deferral Account is invested in the manner set
forth under Section 3.3, below) attributable to the period following the next
preceding Valuation Date shall be credited to and/or deducted from the Trustee's
Deferral Account.
3.3 Investment of Deferral Account Balance.
(a) (1) The Trustee may select from various options made
available by the Funds the investment media in which all or part of his Deferral
Account shall be deemed to be invested. The investment media available to the
Trustee as of the date of this Agreement are listed in Attachment B hereto.
(2) The Trustee shall make an investment designation
on a form provided by the Secretary of the Funds (Attachment C) which shall
remain effective until another valid designation has been made by the Trustee as
herein provided. The Trustee may amend his investment designation daily by
giving instructions to the Secretary of the Funds.
(3) Any changes to the investment media to be made
available to the Trustee, and any limitation on the maximum or minimum
percentages of the Trustee's Deferral Account that may be invested in any
particular medium, shall be communicated from time-to-time to the Trustee by the
Secretary of the Funds.
(b) Except as provided below, the Trustee's Deferral
Account shall be deemed to be invested in accordance with his investment
designations, provided such designations conform to the provisions of this
Section. If:
(1) the Trustee does not furnish the Secretary of
the Funds with complete, written investment instructions, or
(2) the written investment instructions from the
Trustee are unclear,
then the Trustee's election to make Compensation Deferrals hereunder shall be
held in abeyance and have no force and effect, and he shall be deemed to have
selected the Evergreen Money Market Fund until such time as the Trustee shall
provide the Secretary of the Funds with complete
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investment instructions. In the event that any fund under which any portion of
the Trustee's Deferral Account is deemed to be invested ceases to exist, such
portion of the Deferral Account thereafter shall be held in the successor to
such Fund, subject to subsequent deemed investment elections.
The use of the returns on the investment media to determine
the amount of the earnings credited to a Trustee's Deferral Account is subject
to regulatory approval. Until such approval is received, the Compensation
Deferrals of a Trustee under this Agreement shall be continuously credited with
earnings in an amount determined by multiplying the balance credited to the
Deferral Account by an interest rate equal to the yield on 90-day U.S. Treasury
Bills.
The Secretary of the Funds shall provide an annual statement
to the Trustee showing such information as is appropriate, including the
aggregate amount in the Deferral Account, as of a reasonably current date.
4. DISTRIBUTIONS FROM DEFERRAL ACCOUNT
4.1 In General. Distributions from the Trustee's Deferral Account may
be paid in a lump sum or in installments as elected by the Trustee commencing on
or as soon as practicable after a date specified by the Trustee, which may not
be sooner than the earlier of the first business day of January following (a) a
date five years following the deferral election, or (b) the year in which the
Trustee ceases to be a member of the Board of Trustees of the Funds.
Notwithstanding the foregoing, in the event of the liquidation, dissolution or
winding up of a Fund or the distribution of all or substantially all of a Fund's
assets and property relating to one or more series of its shares to the
shareholders of such series (for this purpose a sale, conveyance or transfer of
a Fund's assets to a trust, partnership, association or corporation in exchange
for cash, shares or other securities with the transfer being made subject to, or
with the assumption by the transferee of, the liabilities of the Fund shall not
be deemed a termination of the Fund or such a distribution), all unpaid amounts
in the Deferral Account as of the effective date thereof shall be paid in a lump
sum on such effective date. In addition, upon application by a Trustee and
determination by the Chairman of the Board of Trustees of the Funds that the
Trustee has suffered a severe and unanticipated financial hardship, the
Secretary shall distribute to the Trustee, in a single lump sum, an amount equal
to the lesser of the amount needed by the Trustee to meet the hardship plus
applicable income taxes payable
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upon such distribution, or the balance of the Trustee's Deferral Account.
4.2 Death Prior to Complete Distribution of Deferral Account. Upon the
death of the Trustee (whether prior to or after the commencement of the
distribution of the amounts credited to his Deferral Account), the balance of
such Account shall be distributed to his Beneficiary in a lump sum as soon as
practicable after the Trustee's death.
4.3 Designation of Beneficiary. For purposes of Section 4.3 hereof, the
Trustee's Beneficiary shall be the person or persons so designated by the
Trustee in a written instrument submitted to the Secretary of the Funds. In the
event the Trustee fails to properly designate a Beneficiary, his Beneficiary
shall be the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Trustee: the
Trustee's (1) surviving spouse, or (2) estate.
5. AMENDMENT AND TERMINATION
5.1 The Board of Trustees may at any time in its sole discretion amend
or terminate this Plan; provided, however, that no such amendment or termination
shall adversely affect the right of Trustees to receive amounts previously
credited to their Deferral Accounts.
6. MISCELLANEOUS
6.1 Rights of Creditors.
(a) This Agreement is an unfunded and non-qualified deferred
compensation arrangement. Neither the Trustee nor other persons shall have any
interest in any specific asset or assets of a Fund by reason of any Deferral
Account hereunder, nor any rights to receive distribution of his Deferral
Account except as and to the extent expressly provided hereunder. A Fund shall
not be required to purchase, hold or dispose of any investments pursuant to this
Agreement; however, if in order to cover its obligations hereunder the Fund
elects to purchase any investments the same shall continue for all purposes to
be a part of the general assets and property of the Fund, subject to the claims
of its general creditors and no person other than the Fund shall by virtue of
the provisions of this Agreement have any interest in such assets other than an
interest as a general creditor.
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(b) The rights of the Trustee and the Beneficiaries to the
amounts held in the Deferral Account are unsecured and shall be subject to the
creditors of the Funds. With respect to the payment of amounts held under the
Deferral Account, the Trustee and his Beneficiaries have the status of unsecured
creditors of the Funds. This Agreement is executed on behalf of the Fund by an
officer of a Fund as such and not individually. Any obligation of a Fund
hereunder shall be an unsecured obligation of the Fund and not of any other
person.
6.2 Agents. The Funds may employ agents and provide for such clerical,
legal, actuarial, accounting, advisory or other services as they deem necessary
to perform their duties under this Agreement. The Funds shall bear the cost of
such services and all other expenses they incur in connection with the
administration of this Agreement.
6.3 Incapacity. If a Fund shall receive evidence satisfactory to it
that the Trustee or any Beneficiary entitled to receive any benefit under this
Agreement is, at the time when such benefit becomes payable, a minor, or is
physically or mentally incompetent to give a valid release therefor, and that
another person or an institution is then maintaining or has custody of the
Trustee or Beneficiary and that no guardian, committee or other representative
of the estate of the Trustee or Beneficiary shall have been duly appointed, the
Fund may make payment of such benefit otherwise payable to the Trustee or
Beneficiary to such other person or institution, including a custodian under a
Uniform Gifts to Minors Act, or corresponding legislation (who shall be a
guardian of the minor or a trust company), and the release of such other person
or institution shall be a valid and complete discharge for the payment of such
benefit.
6.4 Cooperation of Parties. All parties to this Agreement and any
person claiming any interest hereunder agree to perform any and all acts and
execute any and all documents and papers which are necessary or desirable for
carrying out this Agreement or any of its provisions.
6.5 Governing Law. This Agreement is made and entered into in the State
of North Carolina and all matters concerning its validity, construction and
administration shall be governed by the laws of the State of North Carolina.
6.6 No Guarantee of Trusteeship. Nothing contained in this Agreement
shall be construed as a guaranty or right of any Trustee to be continued as a
Trustee of one or more of the Evergreen Funds (or of a right of a Trustee to any
specific level of Compensation) or as a
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<PAGE>
limitation of the right of any of the Evergreen Funds, by shareholder
action or otherwise, to remove any of its trustees.
6.7 Counsel. The Funds may consult with legal counsel with respect to
the meaning or construction of this Agreement, their obligations or duties
hereunder or with respect to any action or proceeding or any question of law,
and they shall be fully protected with respect to any action taken or omitted by
them in good faith pursuant to the advice of legal counsel.
6.8 Spendthrift Provision. The Trustees' and Beneficiaries' interests
in the Deferral Account shall not be subject to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charges and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be void; nor shall any portion of any such right hereunder be in any
manner payable to any assignee, receiver or trustee, or be liable for such
person's debts, contracts, liabilities, engagements or torts, or be subject to
any legal process to levy upon or attach.
6.9 Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
or by nationally recognized overnight delivery service, addressed to the Trustee
at the home address set forth in the Funds' records and to a Fund at its
principal place of business, provided that all notices to a Fund shall be
directed to the attention of the Secretary of the Fund or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
6.10 Entire Agreement. This Agreement contains the entire understanding
between the Funds and the Trustee with respect to the payment of non-qualified
elective deferred compensation by the Funds to the Trustee.
6.11 Interpretation of Agreement. Interpretation of, and determinations
related to, this Agreement made by the Funds in good faith, including any
determinations of the amounts of the Deferral Account, shall be conclusive and
binding upon all parties; and a Fund shall not incur any liability to the
Trustee for any such interpretation or determination so made or for any other
action taken by it in connection with this Agreement in good faith.
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<PAGE>
6.12 Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the Funds and their successors and assigns and to
the Trustees and his heirs, executors, administrators and personal
representatives.
6.13 Severability. In the event any one or more provisions of this
Agreement are held to be invalid or unenforceable, such illegality or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof and such other provisions shall remain in full force and
effect unaffected by such invalidity or unenforceability.
6.14 Execution of Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
EVERGREEN TRUST
EVERGREEN EQUITY TRUST
EVERGREEN INVESTMENT TRUST
EVERGREEN TOTAL RETURN FUND
EVERGREEN GROWTH AND INCOME FUND
THE EVERGREEN AMERICAN RETIREMENT
TRUST
EVERGREEN FOUNDATION TRUST
EVERGREEN MUNICIPAL TRUST
EVERGREEN MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND, INC.
THE EVERGREEN LEXICON FUND
EVERGREEN TAX-FREE TRUST
EVERGREEN VARIABLE TRUST
By:
Witness John J. Pileggi
President
Witness Trustee
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<PAGE>
ATTACHMENT A
EVERGREEN TRUSTS & FUNDS
1. EVERGREEN TRUST
a. Evergreen Fund
b. Evergreen Aggressive Growth Fund
2. EVERGREEN EQUITY TRUST
a. Evergreen Global Real Estate Equity Fund
b. Evergreen U.S. Real Estate Equity Fund
c. Evergreen Global Leaders Fund
3. EVERGREEN INVESTMENT TRUST
a. Evergreen International Equity Fund
b. Evergreen Emerging Markets Growth Fund
c. Evergreen Balanced Fund
d. Evergreen Value Fund
e. Evergreen Utility Fund
f. Evergreen U.S. Government Fund
g. Evergreen Fixed Income Fund
h. Evergreen Managed Bond Fund (Y Shares only)
i. Evergreen High Grade Tax Free Fund
j. Evergreen Florida Municipal Bond Fund
k. Evergreen Georgia Municipal Bond Fund
l. Evergreen North Carolina Municipal Bond Fund
m. Evergreen South Carolina Municipal Bond Fund
n. Evergreen Virginia Municipal Bond Fund
o. Evergreen Treasury Money Market
4. EVERGREEN TOTAL RETURN FUND
5. EVERGREEN GROWTH AND INCOME FUND
6. THE EVERGREEN AMERICAN RETIREMENT TRUST
a. Evergreen American Retirement Fund
b. Evergreen Small Cap Equity Income Fund
7. EVERGREEN FOUNDATION TRUST
a. Evergreen Foundation Fund
b. Evergreen Tax Strategic Foundation Fund
8. EVERGREEN MUNICIPAL TRUST
a. Evergreen Short-Intermediate Municipal Fund
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<PAGE>
b. Evergreen Short-Intermediate Municipal Fund - California
c. Evergreen Florida High Income Municipal Fund
d. Evergreen Tax Exempt Money Market Fund
9. EVERGREEN MONEY MARKET FUND
10. EVERGREEN LIMITED MARKET FUND, INC.
11. THE EVERGREEN LEXICON FUND
a. Evergreen Fixed Income Fund
b. Evergreen Intermediate-Term Government Securities Fund
12. EVERGREEN TAX-FREE TRUST
a. Evergreen New Jersey Tax-Free Income Fund
b. Evergreen Pennsylvania Tax-Free Money Market Fund
13. EVERGREEN VARIABLE TRUST
a. Evergreen VA Fund
b. Evergreen VA Foundation Fund
c. Evergreen VA Growth and Income Fund
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ATTACHMENT B
EVERGREEN TRUSTS & FUNDS
Available Fund Options
Evergreen International Equity Fund
Evergreen Aggressive Growth Fund
Evergreen Fund
Evergreen Foundation Fund
Evergreen Growth & Income
Evergreen Value
Evergreen Fixed Income
Evergreen Money Market Fund
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ATTACHMENT C
DEFERRED COMPENSATION AGREEMENT
DEFERRAL ELECTION FORM
TO: The Secretary of The Evergreen Funds
FROM:
DATE:
With respect to the Deferred Compensation Agreement (the
"Agreement") dated as of November ___, 1995 by and between the undersigned and
The Evergreen Funds, I hereby make the following elections:
Deferral of Compensation
Starting with Compensation to be paid to me with respect to
services provided by me to The Evergreen Funds after the date this election form
is provided to The Evergreen Funds, and for all periods thereafter (unless
subsequently amended by way of a new election form), I hereby elect that ___
percent (___%) of my Compensation (as defined under the Agreement) be deferred
and that the Funds establish a bookkeeping account credited with amounts equal
to the amount so deferred (the "Deferral Account"). The Deferral Account shall
be further credited with income equivalents as provided under the Agreement.
Each Compensation Deferral (as defined in the Agreement) shall be deemed
invested pursuant to Section 3.3 of the Agreement as of the same day it would
have been paid to me.
I wish the Compensation Deferral to be invested in the Funds and
percentages noted in Annex A to this Form.
I understand that the amounts held in the Deferral Account shall
remain the general assets of The Evergreen Funds and that, with respect to the
payment of such amounts, I am merely a general creditor of The Evergreen Funds.
I may not sell, encumber, pledge, assign or otherwise alienate the amounts held
under the Deferral Account.
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<PAGE>
Distributions from Deferral Account
I hereby elect that distributions from my Deferral Account be
paid:
_____ in a lump sum or
_____ in quarterly installments for ____ years (specify a number
of years not to exceed ten); commencing on the first business day of January
following:
_____ the year in which I cease to be a member of the
Board of Trustees of the Funds, or
_____ a calendar year but not a year earlier than 2000.
I hereby agree that the terms of the Agreement are incorporated
herein and are made a part hereof. Dated as of the day and year first above
written.
WITNESS: TRUSTEE:
RECEIVED:
THE EVERGREEN FUNDS
By:
Name:
Title:
Date:
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<PAGE>
ANNEX A
I desire that my deferred Compensation be invested as follows:
Evergreen International Equity Fund _____%
Evergreen Aggressive Growth Fund _____%
Evergreen Fund _____%
Evergreen Foundation Fund _____%
Evergreen Growth & Income Fund _____%
Evergreen Value _____%
Evergreen Fixed Income _____%
Evergreen Money Market Fund _____%
----------------------
100% of Deferred
Compensation Amount
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<PAGE>
ATTACHMENT D
THE EVERGREEN FUNDS
DEFERRED COMPENSATION PLAN
DESIGNATION OF BENEFICIARY
You may designate one or more beneficiaries to receive any amount
remaining in your Deferral Account at your death. If your Designated Beneficiary
survives you, but dies before receiving the full amount of the Deferral Account
to which he or she is entitled, the remainder will be paid to the Designated
Beneficiary's estate, unless you specifically elect otherwise in your
Designation of Beneficiary form.
You may indicate the names not only of one or more primary
Designated Beneficiaries but also the names of secondary beneficiaries who would
receive amounts in your Deferral Account in the event the primary beneficiary or
beneficiaries are not alive at your death. In the case of each Designated
Beneficiary, give his or her name, address, relationship to you, and the
percentage of your Deferral Account he or she is to receive. You may change your
Designated Beneficiaries at any time, without their consent, by filing a new
Designation of Beneficiary form with the Secretary of the Funds.
* * * * * * * * * * * * *
As a participant in the Evergreen Funds' Deferred Compensation
Plan (the "Plan"), I hereby designate the person or persons listed below to
receive any amount remaining in my Deferral Account in the event of my death.
This designation of beneficiary shall become effective upon its delivery to the
Secretary of the Funds prior to my death, and revokes any designation(s) of
beneficiary previously made by me. I reserve the right to revoke this
designation of beneficiary at any time without notice to any beneficiary.
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<PAGE>
I hereby name the following as primary Designated Beneficiaries
under the Plan:
Name Relationship Percentage Address
Name Relationship Percentage Address
Name Relationship Percentage Address
Name Relationship Percentage Address
In the event that one or more of my primary Designated
Beneficiaries predeceases me, his or her share shall be allocated among the
surviving primary Designated Beneficiaries. I name the following as secondary
Designated Beneficiaries under the Plan, in the event that no primary Designated
Beneficiary survives me:
Name Relationship Percentage Address
Name Relationship Percentage Address
Name Relationship Percentage Address
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<PAGE>
Name Relationship Percentage Address
In the event that no primary Designated Beneficiary survives me
and one or more of the secondary Designated Beneficiaries predeceases me, his or
her share shall be allocated among the surviving secondary Designated
Beneficiaries.
(Witness) (Signature of Trustee)
Date: Date:
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Balanced Fund (K-1)
We consent to the use of our report dated August 8, 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
Boston, Massachusetts
September 2, 1997
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Laurence B. Ashkin
Laurence B. Ashkin
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Charles A. Austin, III
Charles A. Austin, III
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ George S. Bissell
George S. Bissell
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ James S. Howell
James S. Howell
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ F. Ray Keyser, Jr.
F. Ray Keyser, Jr.
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Gerald M. McDonnell
Gerald M. McDonnell
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Thomas L. McVerry
Thomas L. McVerry
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ William Walt Petit
William Walt Petit
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Russell A. Salton, III MD
Russell A. Salton, III MD
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Michael S. Scofield
Michael S. Scofield
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June 18,
1997.
/s/ Andrew J. Simons
Andrew J. Simons
Director/Trustee
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE BALANCED FUND (K-1) CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 1,111,874,894
<INVESTMENTS-AT-VALUE> 1,627,329,047
<RECEIVABLES> 15,079,929
<ASSETS-OTHER> 1,105,949
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,643,514,925
<PAYABLE-FOR-SECURITIES> 14,732,214
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,387,368
<TOTAL-LIABILITIES> 18,119,582
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,013,621,008
<SHARES-COMMON-STOCK> 125,534,120
<SHARES-COMMON-PRIOR> 130,687,209
<ACCUMULATED-NII-CURRENT> 3,239,562
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 92,401,815
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 516,132,958
<NET-ASSETS> 1,625,395,343
<DIVIDEND-INCOME> 24,547,062
<INTEREST-INCOME> 40,204,287
<OTHER-INCOME> 0
<EXPENSES-NET> (26,073,372)
<NET-INVESTMENT-INCOME> 38,677,977
<REALIZED-GAINS-CURRENT> 120,987,282
<APPREC-INCREASE-CURRENT> 146,568,036
<NET-CHANGE-FROM-OPS> 306,233,295
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (38,660,044)
<DISTRIBUTIONS-OF-GAINS> (57,571,132)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,959,452
<NUMBER-OF-SHARES-REDEEMED> (29,517,723)
<SHARES-REINVESTED> 7,405,182
<NET-CHANGE-IN-ASSETS> 144,218,307
<ACCUMULATED-NII-PRIOR> 138,085
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (6,854,615)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (26,073,372)
<AVERAGE-NET-ASSETS> 1,545,839,715
<PER-SHARE-NAV-BEGIN> 11.33
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 2.07
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> (0.45)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.95
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
