AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION APRIL 30, 1997.
File Nos. 2-28183
and 811-1600
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 28 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32 [X]
KEYSTONE OMEGA FUND
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(617) 210-3200
Dorothy E. Bourassa, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
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 last fiscal
year was filed February 27, 1997.
<PAGE>
KEYSTONE OMEGA FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 28
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 28 to Registration
Statement No. 2-28183/811-1600 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 SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE OMEGA FUND
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
Performance Data
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
Alternative Sales Options
Contingent Deferred Sales Charge and
Waiver of Sales Charges
Shareholder Services
8 How to Redeem Shares
9 Not applicable
10 Cover Page
11 Table of Contents
12 Not applicable
13 The Fund
Investment Objective and Policies
Investment Restrictions
Brokerage
Appendix
<PAGE>
KEYSTONE OMEGA FUND
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
14 Trustees and Officers
15 Additional Information
16 Investment Adviser
Sub-administrator
Principal Underwriter
Distribution Plans and Agreements
Service Providers
Expenses
Additional Information
17 Brokerage
18 Declaration of Trust
19 Sales Charges
Valuation of Securities
Distribution Plans and Agreements
Additional Information
20 Distributions and Taxes
21 Principal Underwriter
Expenses
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE OMEGA FUND
PART A
PROSPECTUSES
<PAGE>
KEYSTONE OMEGA FUND
PROSPECTUS APRIL 30, 1997
CLASS A
CLASS B
CLASS C
Keystone Omega Fund (the "Fund") is a mutual fund that seeks maximum capital
growth by investing in a varied portfolio consisting primarily of common stocks
and securities convertible into common stocks.
This prospectus provides information regarding the Class A, B and C shares
offered by the Fund. Information on share classes and their fees and sales
charge structures may be found in the "Expense Information," "How to Buy
Shares," "Alternative Sales Options," "Contingent Deferred Sales Charge and
Waiver of Sales Charges," "Distribution Plans and Agreements" and "Fund Shares"
sections of this prospectus.
This prospectus concisely states 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 April 30, 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 provided on this page.
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, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
KEYSTONE OMEGA FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Expense Information 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Investment Restrictions 7
Risk Factors 8
Pricing Shares 9
Dividends and Taxes 9
Fund Management and Expenses 10
Distribution Plans and Agreements 12
How to Buy Shares 16
Alternative Sales Options 16
Contingent Deferred Sales Charge and Waiver of
Sales Charges 20
How to Redeem Shares 20
Shareholder Services 22
Performance Data 24
Fund Shares 25
Additional Information 25
Additional Investment Information (i)
Exhibit A A-1
</TABLE>
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 OMEGA FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in Class A, B and C shares* of 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"; "Alternative Sales Options"; "Contingent
Deferred Sales Charge and Waiver of Sales Charges"; "Distribution Plans and
Agreements"; and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT-END BACK-END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES LOAD OPTION LOAD OPTION(1) OPTION(2)
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases................. 4.75%(3) None None
(as a percentage of offering price)
Deferred Sales Charge..................................... 0.00%(4) 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of original purchase declining to 1.00% in year and 0.00%
price or redemption proceeds, as applicable) the sixth year and thereafter
0.00% thereafter
</TABLE>
<TABLE>
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES(5)
(as a percentage of average net assets)
Management Fees........................................... 0.75% 0.75 % 0.75%
12b-1 Fees................................................ 0.25% 1.00 %(6) 1.00%(6)
Other Expenses............................................ 0.33% 0.45 % 0.46%
Total Fund Operating Expenses............................. 1.33% 2.20 % 2.21%
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLES(7) YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
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:
Class A..................................................................... $60 $88 $117 $200
Class B..................................................................... $72 $99 $138 $220
Class C..................................................................... $32 $69 $118 $254
You would pay the following expenses on the same investment, assuming no
redemption at the end of each period:
Class A..................................................................... $60 $88 $117 $200
Class B..................................................................... $22 $69 $118 $220
Class C..................................................................... $22 $69 $118 $254
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.
</TABLE>
(1) Class B shares convert tax free to Class A shares after seven years. See
"Class B Shares" for more information.
(2) Class C shares are available only through broker-dealers who have entered
into special distribution agreements with Evergreen Keystone Distributor,
Inc., the Fund's principal underwriter. See "How to Buy Shares."
(3) The sales charge applied to purchases of Class A shares declines as the
amount invested increases. See "Alternative Sales Options."
(4) Purchases of Class A shares in the amount of $1,000,000 or more are not
subject to a sales charge at the time of purchase, but may be subject to a
contingent deferred sales charge. See the "Alternative Sales Options" and
"Contingent Deferred Sales Charge and Waiver of Sales Charges" sections of
this prospectus for an explanation of the charge.
(5) Expense ratios shown above are for the Fund's fiscal year ended December
31, 1996. Total Fund Operating Expenses for the fiscal year ended
December 31, 1996 include indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios for Class A, B and C shares would have
been 1.32%, 2.18% and 2.20%, respectively.
(6) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges otherwise permitted by the National
Association of Securities Dealers, Inc. (the "NASD").
(7) 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%.
* The Fund also offers Class Y shares which bear no distribution or shareholder
servicing expenses. Class Y shares are only available to certain investors.
See "Fund Shares."
2
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE OMEGA FUND
CLASS A SHARES
(For a share outstanding throughout each year)
The following table contains important financial information relating to
the Fund. The financial highlights for the years ended December 31, 1989 through
December 31, 1996 have been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. The financial highlights for each of the years in the
two-year period ended December 31, 1988 were audited by other 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 DECEMBER 31,
1996 1995 1994 1993 1992(B) 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
YEAR....................... $19.56 $15.54 $17.11 $15.84 $17.68 $13.37 $16.03 $13.66 $12.08 $13.44
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)..................... (0.06) 0.00 0.04 (0.07) 0.00 (0.04) 0.11 0.17 0.30(d) 0.02
Net realized and unrealized
gain (loss) on investment
transactions............... 2.15 5.58 (1.00) 3.07 0.39 6.92 (0.39) 4.30 1.40 1.11
Total from investment
operations............... 2.09 5.58 (0.96) 3.00 0.39 6.88 (0.28) 4.47 1.70 1.13
LESS DISTRIBUTIONS FROM
Net investment income........ 0.00 0.00 0.00 0.00 0.00 (0.02) (0.25) (0.20) (0.12) (0.24)
In excess of net investment
income..................... 0.00 0.00 0.00 0.00 0.00 (0.05) (0.04) 0.00 0.00 0.00
Net realized gain on
investment transactions.... (2.13) (1.56) (0.61) (1.73) (2.23) (2.50) (2.09) (1.90) 0.00 (2.25)
Total distributions........ (2.13) (1.56) (0.61) (1.73) (2.23) (2.57) (2.38) (2.10) (0.12) (2.49)
NET ASSET VALUE END OF
YEAR....................... $19.52 $19.56 $15.54 $17.11 $15.84 $17.68 $13.37 $16.03 $13.66 $12.08
TOTAL RETURN (a)............. 11.31% 36.94% (5.66%) 19.33% 4.00% 54.49% (2.38%) 33.05% 14.05% 8.27%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses............. 1.33%(c) 1.38%(c) 1.41% 1.51% 1.52% 1.57% 1.73% 1.84% 1.78% 1.99%
Net investment income
(loss)................... (0.29%) 0.00% 0.27% (0.48%) (0.01%) (0.31%) 0.70% 1.03% 2.22% 0.13%
Portfolio turnover rate...... 173% 159% 137% 162% 176% 115% 108% 77% 84% 106%
Average commission rate
paid....................... $0.0621 N/A N/A N/A N/A N/A N/A N/A N/A N/A
NET ASSETS END OF YEAR
(THOUSANDS)................ $154,825 $135,079 $99,569 $90,404 $73,144 $58,671 $38,531 $39,682 $33,951 $30,246
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculated on average shares outstanding.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 1.32% and 1.37% for the years ended December 31, 1996 and 1995,
respectively.
(d) Includes $0.17 per share relating to a special non-recurring distribution
from Inco Limited.
3
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE OMEGA FUND
CLASS B SHARES
(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>
AUGUST 2, 1993
(DATE OF
INITIAL
PUBLIC
OFFERING) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR............................ $19.10 $15.34 $17.06 $17.29
INCOME FROM INVESTMENT OPERATIONS
Net investment loss.......................................... (0.17) (0.09) (0.06) (0.05)
Net realized and unrealized gain (loss) on investment
transactions............................................... 2.03 5.41 (1.05) 1.55
Total from investment operations........................... 1.86 5.32 (1.11) 1.50
LESS DISTRIBUTIONS FROM
Net realized gain on investment transactions................. (2.13) (1.56) (0.61) (1.73)
Total distributions........................................ (2.13) (1.56) (0.61) (1.73)
NET ASSET VALUE END OF YEAR.................................. $18.83 $19.10 $15.34 $17.06
TOTAL RETURN (b)............................................. 10.31% 35.70% (6.57%) 9.02%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses............................................. 2.20%(c) 2.29%(c) 2.30% 2.57%(a)
Net investment loss........................................ (1.15%) (0.94%) (0.58%) (1.73%)(a)
Portfolio turnover rate...................................... 173% 159% 137% 162%(a)
Average commission rate paid................................. $0.0621 N/A N/A N/A
NET ASSETS END OF YEAR (THOUSANDS)........................... $89,921 $71,636 $32,266 $7,423
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 2.18% and 2.27% for the years ended December 31, 1996 and 1995,
respectively.
4
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE OMEGA FUND
CLASS C SHARES
(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>
AUGUST 2, 1993
(DATE OF
INITIAL
PUBLIC
OFFERING) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR.......................... $19.13 $15.37 $17.09 $17.29
INCOME FROM INVESTMENT OPERATIONS
Net investment loss........................................ (0.18) (0.13) (0.07) (0.06)
Net realized and unrealized gain (loss) on investment
transactions............................................. 2.04 5.45 (1.04) 1.59
Total from investment operations......................... 1.86 5.32 (1.11) 1.53
LESS DISTRIBUTIONS FROM
Net realized gain on investment transactions............... (2.13) (1.56) (0.61) (1.73)
Total distributions...................................... (2.13) (1.56) (0.61) (1.73)
NET ASSET VALUE END OF YEAR................................ $18.86 $19.13 $15.37 $17.09
TOTAL RETURN (b)........................................... 10.29% 35.62% (6.56%) 9.20%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses........................................... 2.21%(c) 2.30%(c) 2.30% 2.48%(a)
Net investment loss...................................... (1.17%) (0.91%) (0.63%) (1.64%)(a)
Portfolio turnover rate.................................... 173% 159% 137% 162%(a)
Average commission rate paid............................... $0.0621 N/A N/A N/A
NET ASSETS END OF YEAR (THOUSANDS)......................... $17,628 $13,963 $9,900 $3,620
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 2.20% and 2.29% for the years ended December 31, 1996 and 1995,
respectively.
5
<PAGE>
THE FUND
The Fund is an open-end, diversified management investment company, commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust
and was incorporated on February 8, 1968. The Fund is one of more than thirty
funds advised and managed by Keystone Investment Management Company
("Keystone"), the Fund's investment adviser.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund seeks maximum capital growth by investing in a varied portfolio
consisting primarily of common stocks and securities convertible into common
stocks.
The Fund's investment objective is non-fundamental and may be changed without
the vote of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund's outstanding shares.
Any investment involves risk, and there is no assurance that the Fund will
achieve its investment objective.
PRINCIPAL INVESTMENTS
The Fund pursues its investment objective by employing the techniques of the
fully-managed investment concept, meaning that Keystone will continuously review
both individual securities and relevant general conditions. Whenever, in the
opinion of Keystone, a security no longer seems to have the required
characteristics, an anticipated level of performance has been achieved, or other
securities present relatively greater opportunities for realizing the Fund's
objective, appropriate changes will be made in the Fund's portfolio.
The Fund's equity position will be changed as Keystone changes its evaluation of
trends in general securities price levels. Portfolio turnover rate will not be
considered a limiting factor in the execution of investment decisions.
Although the Fund invests predominantly in equity securities of United States
("U.S.") corporations, in pursuing its objective, the Fund may also invest up to
25% of its assets in foreign securities issued by issuers located in developed
countries as well as emerging market countries, including certain formerly
communist countries. For this purpose, countries with emerging markets are
generally those where the per capita income is in the low to middle ranges, as
determined by the International Bank for Reconstruction and Development.
OTHER ELIGIBLE INVESTMENTS
When Keystone deems it advisable, the Fund may, for temporary defensive
purposes, invest without limit in investment grade bonds or debentures rated by
Moody's Investors Service ("Moody's") as BAA or better or by Standard & Poor's
Ratings Group ("S&P") as BBB or better or those having at least similar quality
in Keystone's judgment. Bonds that are rated BAA by Moody's are considered to be
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Debt rated BBB by S&P is regarded as having an adequate
capacity to pay interest and repay principal. While it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Under
circumstances where the Fund is investing for defensive purposes, it will not be
pursuing its investment objective.
The Fund also may invest in non-convertible preferred stocks of companies
considered
6
<PAGE>
creditworthy and able to sustain dividend payments and in short-term money
market instruments maturing in one year or less. Such money market instruments
may be U.S. government securities; certificates of deposit in banks considered
creditworthy; or commercial paper of companies, the bonds or debentures of which
are investment grade. While these securities are not without risk of price
fluctuation or default, they are generally less volatile than common stock.
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 such securities on its
books and (2) limiting its holdings of such securities to 15% of net assets.
The Fund may enter into repurchase and reverse repurchase agreements, invest
in master demand notes, lend portfolio securities, purchase and sell securities
and currencies on a when issued and delayed delivery basis and purchase or sell
securities on a forward commitment basis, write covered call and put options and
purchase call and put options to close out existing positions and may employ new
investment techniques with respect to such options. The Fund may also enter into
currency and other financial futures contracts and related options transactions
for hedging purposes and not for speculation, and may employ new investment
techniques with respect to such futures contracts and related options.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(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 intends to
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 which the
liquidity of the Fund's Rule 144A securities is determined by Keystone and the
Board of Trustees 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.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see the "Risk
Factors" and "Additional Investment Information" sections of this prospectus and
the statement of additional information.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions summarized below,
which 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"). These restrictions and certain other fundamental and
nonfundamental restrictions are set forth in the statement of additional
information. Unless otherwise stated, all references to the Fund's assets are in
terms of current market value.
Generally, the Fund may not: (1) invest more than 10% of its total assets in
the securities of any one issuer (except U.S. government securities); (2)
borrow, unless, immediately after any such borrowing, such borrowing and all
other such borrowings and other liabilities do not exceed one-third of the value
of the Fund's total assets; and
7
<PAGE>
(3) concentrate its investments in any particular industry.
As a diversified investment company, the Fund has undertaken not to purchase a
security if, as a result, more than 10% of the outstanding voting securities of
any single issuer would be held by the Fund or more than 5% of its total assets
would be invested in securities of any one issuer.
RISK FACTORS
GENERAL
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.
By itself, the Fund does not constitute a balanced investment program. The
Fund is best suited for investors who can afford to maintain their investment
over a relatively long period of time, and who are seeking a fund which is
relatively aggressive and has the potential for significant returns. The Fund
involves a high degree of risk and is not an appropriate investment for
conservative investors who are seeking preservation of capital and/or income.
You should take into account your own investment objectives as well as your
other investments when considering an investment in the Fund.
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.
FUND RISKS
Investing in common stocks, particularly those having growth characteristics,
frequently involves greater risks (and possibly greater rewards) than investing
in other types of securities. Common stock prices tend to be more volatile and
companies having growth characteristics may sometimes be unproven.
A need for cash due to large liquidations from the Fund when prices of common
stocks are declining could result in losses to the Fund.
Investing in the Fund involves the risk common to investing in any security,
that is the value of the securities held by the Fund will fluctuate in response
to changes in economic conditions or public expectations about those securities.
The net asset value of the Funds' shares will change accordingly.
FOREIGN RISK
Investing in securities of foreign issuers generally involves more risk than
investing in a portfolio consisting solely of securities of domestic issuers for
the following reasons: publicly available information on issuers and securities
may be scarce; many foreign countries do not follow the same accounting,
auditing, and financial reporting standards as are used in the U.S.; market
trading volumes may be smaller, resulting in less liquidity and more price
volatility compared to U.S. securities of comparable quality; there may be less
regulation of securities trading and its participants; the possibility may exist
for expropriation, confiscatory taxation, nationalization, establishment of
exchange controls, political or social instability or negative diplomatic
developments; and dividend or interest withholding may be imposed at the source.
Investing in securities of issuers in emerging market 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 market countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and
8
<PAGE>
foreign investments and private property. The typically small size of the
markets for securities issued by companies in emerging market 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.
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.
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 that 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 portfolio securities do not affect
the current net asset value of its shares. The Exchange currently is closed on
weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is arrived at by determining the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of its
shares outstanding.
For purposes of calculating the net asset value of a Fund share on any given
day, securities traded on national securities exchanges or reported on the
National Association of Securities Dealers' Automated Quotation System
("NASDAQ") National Market are valued at the last sale price. If there were no
transactions on that day, securities will be valued at the mean of the closing
bid and asked prices or at such other value as shall be determined in good
faith, by or under the direction of the Fund's Board of Trustees, to be the fair
market value of such securities. Commercial paper is generally valued at cost,
which approximates market.
Other securities, including unlisted securities, are valued at the last
reported bid price if such prices are available. Prices for such securities are
considered to be unavailable if, for example, the securities are restricted
securities, or if there exists a "thin market" in the securities. In such
situations, the value is determined in good faith by or under the direction of
the Fund's Board of Trustees.
DIVIDENDS AND TAXES
The Fund has qualified and intends to continue to qualify 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 nondeductible 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 October 31 of such calendar year.
Any taxable dividend declared in October, November or December to shareholders
of record in such a month and paid by the following January 31 will be
includable in the taxable income of the shareholder as if paid on December 31 of
the year in which the dividend was declared.
If the Fund qualifies as a RIC and if it distributes substantially all of its
net investment income and net capital gains, if any, to shareholders, it will be
relieved of any federal income tax liability.
The Fund will make distributions from its net investment income and net
capital gains, if any, at least annually.
Because Class A shares bear most of the costs of distribution of such shares
through payment of a front-end sales charge, while Class B and
9
<PAGE>
Class C shares bear such expenses through higher annual distribution fees,
expenses attributable to Class B and Class C shares will generally be higher
than those of Class A shares, and income distributions paid by the Fund with
respect to Class A shares will generally be greater than those paid with respect
to Class B and Class C shares.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares of the Fund upon which the distribution is based or, at the
shareholder's election (which must be made 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 distributions 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 distributions received.
The Fund advises its shareholders annually as to the federal tax status of all
distributions made during the year.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the general supervision of the Fund's Board of Trustees, Keystone
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
of North Carolina ("FUNB"). FUNB is a subsidiary of First Union Corporation
("First Union"), the sixth largest bank holding company in the U.S. based on
total assets as of December 31, 1996.
First Union is headquartered in Charlotte, North Carolina, and had $140
billion in consolidated assets as of December 31, 1996. 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 ("CMG"),
Keystone and Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly-owned subsidiary of FUNB, manage or otherwise oversee the investment of
over $60 billion in assets as of December 31, 1996, belonging to a wide range of
clients, including the Evergreen Family of 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.
The Fund pays Keystone a fee for its services at the annual rates set forth
below:
<TABLE>
<CAPTION>
AGGREGATE NET ASSET
MANAGEMENT VALUE OF THE SHARES
FEE OF THE FUND
<S> <C>
0.75% of the frst $ 250,000,000, plus
0.675% of the next $ 250,000,000, plus
0.60% of the next $ 500,000,000, plus
0.50% of amounts over $1,000,000,000.
</TABLE>
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 so long as such continuance is
specifically approved at least annually by
10
<PAGE>
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 may be terminated 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 not 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 or distributors of mutual
fund shares. While EKIS may not 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 is located at 125 W. 55th Street, New
York, New York 10019.
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of EKD, distributor for the
Evergreen Keystone Funds, 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
SUB- OF MUTUAL FUNDS ADMINISTERED BY
ADMINISTRATOR BISYS FOR WHICH ANY AFFILIATE OF
FEE FUNB SERVES AS 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 $29.2 billion as of February 28, 1997.
PORTFOLIO MANAGER
Maureen E. Cullinane has been the Fund's Portfolio Manager since 1989. Ms.
Cullinane is a Keystone Senior Vice President and Senior Portfolio Manager and
has more than 20 years of investment experience. Beginning June 1, 1997, Warren
J. Isabelle will be the Fund's Portfolio Manager. He is the Chief Investment
Officer of Equities of Keystone. Prior to joining Keystone in February, 1997,
Mr. Isabelle managed the Pioneer Capital Growth Fund and the Pioneer Small
Company Fund. He also served as Head of the Pioneer Special Equities Group. He
has 14 years of investment experience.
FUND EXPENSES
The Fund pays all of its expenses. In addition to the investment management
and distribution plan fees discussed herein, the principal expenses that the
Fund is expected to pay include, but are not limited to: fees and expenses of
its Independent Trustees; transfer, dividend disbursing, and shareholder
servicing agent expenses; custodian expenses; fees of its independent auditors
and legal counsel to the Fund and its Independent
11
<PAGE>
Trustees; fees payable to government agencies, including registration and
qualification fees of the Fund and its shares under federal and state securities
laws; and certain extraordinary expenses. In addition, each class will pay all
of the expenses attributable to it. Such expenses are currently limited to
Distribution Plan expenses. The Fund also pays its brokerage commissions,
interest charges, and taxes.
For the fiscal period January 1, 1996 through December 10, 1996 the Fund paid
or accrued to Keystone Management, Inc., the Fund's former investment manager,
investment management and advisory services fees of $1,726,076 (0.85% of the
Fund's average daily net asset value on an annualized basis). Of such amount,
$1,467,165 was paid to Keystone for its services to the Fund. For the fiscal
period December 11, 1996 through December 31, 1996 Keystone received $105,066
directly from the Fund pursuant to the Advisory Agreement, which represented
0.75% of the Fund's average daily net asset value.
To the extent the Fund's advisory fee represents 0.75% of the Fund's average
daily net assets, the fee is higher than that paid by most mutual funds, but is
not necessarily higher than that paid by funds with objectives similar to that
of the Fund.
For the fiscal year ended December 31, 1996, the Fund paid or accrued $691,038
to Evergreen Keystone Service Company (formerly Keystone Investor Resource
Center, Inc.) ("EKSC") for services rendered as the Fund's transfer agent and
dividend disbursing agent, and $30,154 to Keystone Investments, Inc. for certain
accounting and printing expenses. EKSC, located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034, is a wholly-owned subsidiary of Keystone.
For the fiscal year ended December 31, 1996, including indirectly paid
expenses, the Fund's Class A, Class B and Class C shares paid 1.33%, 2.20% and
2.21%, respectively, of average net assets in expenses.
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 the
broker-dealer. 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 that 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 December 31,
1996 and 1995 were 173% and 159%, respectively. High portfolio turnover may
involve correspondingly greater brokerage commissions and other transaction
costs, which would be borne directly by the Fund, as well as additional gains
and/or losses to shareholders. For further information on the tax consequences
of such realized gains and/or losses, see the "Dividends and Taxes" section of
this prospectus. For additional 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 PLANS AND AGREEMENTS
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures by the Fund,
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, in connection with the distribution of
12
<PAGE>
Class A shares. Payments under the Class A Distribution Plan are currently made
to EKD (which may reallow all or part to others, such as broker-dealers), as
service fees at an annual rate of up to 0.25% of the average daily net asset
value of Class A shares maintained by the recipient and outstanding on the books
of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans with respect to its Class B shares
(the "Class B Distribution Plans") that provide for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class B
shares to pay expenses of the distribution of Class B shares. Payments under the
Class B Distribution Plans are currently made to EKD (which may reallow all or
part to others, such as broker-dealers) and to EKIS, the predecessor to the
Principal Underwriter, (1) as commissions for Class B shares sold, (2) as
shareholder service fees, and (3) as interest. Amounts paid or accrued to EKD or
EKIS in the aggregate may not exceed the annual limitation referred to above.
EKD generally reallows to broker-dealers or others a commission equal to 4.00%
of the price paid for each Class B share sold. The broker-dealers or other party
will also receive service fees at an annual rate of 0.25% of the value of Class
B shares maintained by the recipient and outstanding on the books of the Fund
for specified periods. See "Distribution Plans Generally" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to Class C shares (the
"Class C Distribution Plan") that provides for expenditures by the Fund at an
annual rate of up to 1.00% of the average daily net asset value of Class C
shares to pay expenses of the distribution of Class C shares. Payments under the
Class C Distribution Plan are currently made to EKD (which may reallow all or
part to others, such as broker-dealers) and to EKIS, the predecessor to the
Principal Underwriter, (1) as commissions for Class C shares sold, (2) as
shareholder service fees, and (3) as interest. Amounts paid or accrued to EKD or
EKIS in the aggregate may not exceed the annual limitation referred to above.
EKD generally reallows to broker-dealers or others a commission in the amount
of 0.75% of the price paid for each Class C share sold, plus the first year's
service fee in advance in the amount of 0.25% of the price paid for each Class C
share sold, and, beginning approximately fifteen months after purchase, a
commission at an annual rate of 0.75% (subject to NASD rules -- see
"Distribution Plans Generally") plus service fees which are paid at the annual
rate of 0.25%, respectively, of the value of Class C shares maintained by the
recipient and outstanding on the books of the Fund for specified periods. See
"Distribution Plans Generally" below.
DISTRIBUTION PLANS GENERALLY
As discussed above, the Fund bears some of the costs of selling its shares
under Distribution Plans adopted with respect to its Class A, Class B and Class
C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD limits the amount that the Fund may pay annually in distribution
costs for the sale of its shares and shareholder service fees. The NASD limits
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 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 12b-1 Distribution Plan, plus interest at the
prime rate plus 1% on such amounts (less any contingent deferred sales charges
("CDSCs") paid by shareholders to EKD) remaining unpaid from time to time.
In connection with financing its distribution costs, including commission
advances to broker-dealers and others, EKIS, the predecessor to the
13
<PAGE>
Principal Underwriter, sold to a financial institution substantially all of its
12b-1 fee collection rights and CDSC collection rights in respect of Class B
shares sold during the period beginning approximately June 1, 1995 through
November 30, 1996. The Fund has agreed not to reduce the rate of payment of
12b-1 fees in respect of such Class B shares, unless it terminates such shares'
Distribution Plan completely. If it terminates such Distribution Plan, the Fund
may be subject to adverse distribution consequences.
The financing of payments made by EKD to compensate broker-dealers or other
persons for distributing shares of the Fund will be provided by FUNB or its
affiliates.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. If a Distribution Plan is terminated, EKD and EKIS will
ask the Independent Trustees to take whatever action they deem appropriate under
the circumstances with respect to payment of Advances (as defined below).
Unreimbursed distribution costs at December 31, 1996 were: $2,194,528 for
Class B shares purchased prior to June 1, 1995 (2.44% of net class assets of
such Class B shares); $2,322,188 for Class B shares purchased on or after June
1, 1995 (2.58% of net class assets of such Class B shares); and $1,155,669 for
Class C shares (6.56% of net class assets).
Broker-dealers or others may receive different levels of compensation
depending on which class of shares they sell. Payments pursuant to a
Distribution Plan are included in the operating expenses of the class.
DISTRIBUTION AGREEMENTS
The Fund has entered into principal underwriting agreements with EKD (each a
"Distribution Agreement") with respect to each class. Pursuant to its
Distribution Agreements, the Fund will compensate EKD for its services as
distributor at an annual rate that may not exceed 0.25% of the Fund's average
daily net assets attributable to Class A shares, 0.75% of the Fund's average
daily net assets attributable to the Class B shares, subject to certain
restrictions, and 0.75% of the Fund's average daily net assets attributable to
the Class C shares.
The Fund may also make payments under its Distribution Plans, in amounts of up
to 0.25% of its average daily net assets on an annual basis, attributable to
Class A, B and C shares, respectively, to compensate organizations, which may
include, among others, EKD and Keystone or their respective affiliates, for
services rendered to shareholders and/or the maintenance of shareholder
accounts.
The Fund may not pay any distribution or servicing fees during any fiscal
period in excess of NASD limits. Since EKD's compensation under the Distribution
Agreements is not directly tied to the expenses incurred by EKD, the amount of
compensation received by it under the Distribution Agreements during any year
may, subject to certain conditions, be more than its actual expenses and may
result in a profit to EKD. Distribution expenses incurred by EKD in one fiscal
year that exceed the level of compensation paid to EKD for that year may be paid
from distribution fees received from the Fund in subsequent fiscal years.
EKD intends, but is not obligated, to continue to pay or accrue distribution
charges incurred in connection with the Class B Distribution Plans that exceed
current annual payments permitted to be received by EKD from the Fund
("Advances"). EKD intends to seek full reimbursement of such Advances from the
Fund (together with annual interest thereon at the prime rate plus 1%) at such
time in the future as, and to the extent that, payment thereof by the Fund would
be within the permitted limits. If the Fund's Independent Trustees authorize
such payments, the effect would be to extend the period of time during which the
Fund incurs the maximum amount of costs allowed by a Distribution Plan.
14
<PAGE>
In states where EKD is not registered as a broker-dealer, shares of the Fund
will only be sold through other broker-dealers or other financial institutions
that are so registered.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
EKD may, from time to time, provide promotional incentives, including
reallowance of up to the entire sales charge, to certain broker-dealers whose
representatives have sold or are expected to sell significant amounts of Fund
shares. In addition, broker-dealers may, from time to time, receive additional
cash payments. EKD may also provide written information to those broker-dealers
with whom it has dealer agreements that relates to sales incentive campaigns
conducted by such broker-dealers for their representatives. EKD and EKIS, in
connection with the services they provide, may also provide additional
compensation, including financial assistance, in connection with pre-approved
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. Broker-dealers to whom
substantially the entire sales charge on Class A shares is reallowed may be
deemed to be underwriters as that term is defined under the 1933 Act.
EKD may, at its own expense, pay concessions in addition to those described
above to broker-dealers including, from time to time, to 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 may, depending on the broker-dealer's
satisfaction of the required conditions, be periodic and may be up to 1.00% of
the value of shares sold by such broker-dealer.
EKD may also pay a transaction fee (up to the level of payments allowed to
broker-dealers for the sale of shares, as described above) to banks and other
financial services firms that facilitate transactions in shares of the Fund for
their clients.
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 broker-dealers pursuant to state laws.
EFFECTS OF BANKING LAWS
The Glass-Steagall Act currently limits the ability of depository institutions
(such as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from accepting payments under the
arrangement described above, or should Congress relax current restrictions on
depository institutions, the Board of Trustees will consider what action, if
any, is appropriate.
The Glass-Steagall Act and other banking laws and regulations also 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 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
15
<PAGE>
expressed herein, and banks and financial institutions may be required to
register as broker-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 shares of the Fund 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 and then send in a completed
account application. Subsequent investments in any amount may be made by check,
wiring federal funds, direct deposit or an electronic funds transfer ("EFT").
Orders for the purchase of shares of the Fund will be confirmed at the public
offering price, which is equal to the net asset value per share next determined
after receipt of the order in proper form by EKD (generally as of the close of
the Exchange on that day) plus, in the case of Class A shares, the applicable
sales charge. Orders received by broker-dealers or other firms prior to the
close of the Exchange and received by EKD prior to the close of its business day
will be confirmed at the offering price effective as of the close of the
Exchange on that day. Broker-dealers and other financial services firms are
obligated to transmit orders promptly.
Orders for shares received other than as stated above will receive the public
offering price, which is equal to the net asset value per share next determined
(generally, the next business day's offering price) plus, in the case of Class A
shares, the applicable sales charge.
The Fund reserves the right to determine the net asset value more frequently
than once a day if deemed desirable.
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. Share certificates
are not issued.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus, including the right to suspend sales, and to reject purchase
orders.
Shareholder inquiries should be directed to EKSC by calling toll free
1-800-343-2898 or writing to EKSC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
This prospectus provides information regarding the Class A, B, and C shares
offered by the Fund:
CLASS A SHARES -- FRONT-END LOAD OPTION
With certain exceptions, Class A shares are sold with a sales charge at the
time of purchase. Class A shares are not subject to a CDSC when they are
redeemed except as follows: Class A shares purchased in an amount equal to or
exceeding $1 million, other than purchases by a Chilean Investor (as defined
below), without a front-end sales charge, will be subject to a CDSC during the
month of purchase and the 12-month period following the month of purchase.
CLASS B SHARES -- BACK-END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are, with certain exceptions, subject to a CDSC if redeemed during the month of
purchase and the 72-month period following the month of purchase. Class B shares
that have been outstanding for seven years after the month of purchase, will
automatically convert to Class A shares without the imposition of a front-end
sales charge.
16
<PAGE>
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a CDSC if they are redeemed during the month of purchase and the
12-month period following the month of purchase. Class C shares are available
only through broker-dealers who have entered into special distribution
agreements with EKD.
Each class of shares, pursuant to its Distribution Plan, pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to that
class. In addition to the 0.25% service fee, each Class B and Class C
Distribution Plan provides for the payment of an annual distribution fee of up
to 0.75% of the average daily net assets attributable to the respective classes.
As a result, income distributions paid by the Fund with respect to Class B and
Class C shares will generally be less than those paid with respect to Class A
shares.
Investors who would rather pay the entire cost of distribution at the time of
investment, instead of spreading such cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares (in which case,
100% of the purchase price is invested immediately), depending on the amount of
the purchase and the intended length of investment.
The Fund will not normally accept any purchase of Class B shares in the amount
of $250,000 or more and will not normally accept any purchase of Class C shares
in the amount of $500,000 or more.
CLASS A SHARES
Class A shares are currently offered at the public offering price, which is
equal to net asset value plus an initial sales charge as follows:
<TABLE>
<CAPTION>
AS A % OF CONCESSION TO
AS A % NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OF OFFERING PRICE INVESTED* OFFERING PRICE
<S> <C> <C> <C>
Less than $50,000................................................... 4.75% 4.99% 4.25%
$50,000 but less than $100,000...................................... 4.50% 4.71% 4.25%
$100,000 but less than $250,000..................................... 3.75% 3.90% 3.25%
$250,000 but less than $500,000..................................... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000................................... 2.00% 2.04% 1.75%
</TABLE>
*Rounded to the nearest one-hundredth percent.
17
<PAGE>
Purchases of the Fund's Class A shares made after January 1, 1997, (i) in the
amount of $1 million or more; (ii) 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"), or a TSA plan sponsored by a public
educational entity having 5,000 or more eligible employees (an "Educational TSA
Plan"); or (iii) by (a) institutional investors, which may include bank trust
departments and registered investment advisers; (b) investment advisers,
consultants or financial planners who place trades for their own accounts or the
accounts of their clients and who charge such clients a management, consulting,
advisory or other fee; (c) clients of investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; and (e) employees of FUNB and its
affiliates, EKD and any broker-dealer with whom EKD has entered into an
agreement to sell shares of the Fund, and members of the immediate families of
such employees, will each be at net asset value without the imposition of a
front-end sales charge. Certain broker-dealers or other financial institutions
may impose a fee on transactions in shares of the Fund.
With respect to purchases of the Fund's Class A shares in the amount of $1
million or more, EKD will pay broker-dealers or others concessions at the
following rates: 1.00% of the investment amount up to $2,999,999; plus 0.50% of
the investment amount between $3,000,000 and $4,999,999; plus 0.25% of the
investment amount over $4,999,999. Upon redemption within one year of purchases
by a Chilean insurance company, mutual fund or retirement plan (a "Chilean
Investor") in the amount of $1,000,000 or more of any shares upon which was
based the payment in full of a concession at the time of purchase, a pro-rata
portion of such concession shall be returned to EKD.
With respect to purchases of the Fund's Class A shares made by Qualifying
Plans and Educational TSA Plans, EKD will pay broker-dealers and others
concessions at the rate of 0.50% of the net asset value of the shares purchased.
These payments are subject to reclaim in the event the shares are redeemed
within twelve months after purchase.
Purchases of the Fund's Class A shares in the amount of $1 million or more,
other than purchases by a Chilean Investor, are subject to a CDSC of 1.00% upon
redemption during the month of purchase and the 12-month period following the
month of purchase.
The sales charge is paid to EKD, which in turn normally reallows a portion to
your broker-dealer. In addition, your broker-dealer currently will be paid
periodic service fees at an annual rate of up to 0.25% of the value of Class A
shares maintained by such recipient and outstanding on the books of the Fund for
specified periods.
Upon written notice to broker-dealers with whom it has dealer agreements, EKD
may reallow up to the full applicable sales charge.
Initial sales charges may be eliminated for persons purchasing Class A shares
that are offered in connection with certain fee based programs, such as wrap
accounts sponsored or managed by broker-dealers, investment advisers, or others
who have entered into special agreements with EKD. Initial sales charges may be
reduced or eliminated for persons or organizations purchasing Class A shares of
the Fund alone or in combination with Class A shares of other Evergreen Keystone
Funds. See Exhibit A to this prospectus.
Upon prior notification to EKD, Class A shares may be purchased at net asset
value by clients of
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<PAGE>
registered representatives within 30 days after a change in the registered
representative's employment when the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by Keystone or its affiliates; and the shareholder either
(1) paid a front-end sales charge, or (2) was at some time subject to, but did
not actually pay, a CDSC with respect to the redemption proceeds.
Upon prior notification to EKD, Class A shares may be purchased at net asset
value by clients of registered representatives within 30 days after the
redemption of shares of any registered open-end investment company not
distributed or managed by Keystone or its affiliates when the amount invested
represents redemption proceeds from such unrelated registered open-end
investment company, and the shareholder either (1) paid a front-end sales
charge, or (2) was at some time subject to, but did not actually pay, a CDSC
with respect to the redemption proceeds. This special net asset value purchase
is currently being offered on a calendar month-by-month basis and may be
modified or terminated in the future.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge. The Fund, with certain exceptions, imposes a CDSC on Class B shares
redeemed as follows:
<TABLE>
<CAPTION>
CDSC
REDEMPTION TIMING IMPOSED
<S> <C>
Month of purchase and the first twelve-month
period following the month of purchase...... 5.00%
Second twelve-month period following the month
of purchase................................. 4.00%
Third twelve-month period following the month
of purchase................................. 3.00%
Fourth twelve-month period following the month
of purchase................................. 3.00%
Fifth twelve-month period following the month
of purchase................................. 2.00%
Sixth twelve-month period following the month
of purchase................................. 1.00%
</TABLE>
No CDSC is imposed on amounts redeemed thereafter.
When imposed, the CDSC is deducted from the redemption proceeds otherwise
payable to you. The CDSC is retained by EKD or its predecessor. Amounts received
by EKD or its predecessor under the Class B Distribution Plans are reduced by
CDSCs retained by EKD or its predecessor. See "Contingent Deferred Sales Charge
and Waiver of Sales Charges."
Class B shares that have been outstanding for seven years after the month of
purchase will automatically convert to Class A shares (which are subject to a
lower Distribution Plan charge) without the imposition of a front-end sales
charge. (Conversion of Class B shares represented by stock certificates will
require the return of the stock certificates to EKSC.) The Class B shares so
converted will no longer be subject to the higher distribution expenses and
other expenses, if any, borne by Class B shares. Because the net asset value per
share of Class A shares may be higher or lower than that of the Class B shares
at the time of conversion, although the dollar value will be the same, a
shareholder may receive more or fewer Class A shares than the number of Class B
shares converted. Under current law, it is the Fund's opinion that such a
conversion will not constitute a taxable event under federal income tax law. In
the event that this ceases to be the case, the Board of Trustees will consider
what action, if any, is appropriate and in the best interest of such Class B
shareholders.
CLASS C SHARES
Class C shares are offered only through broker-dealers who have special
distribution agreements with EKD. Class C shares are offered at net asset value,
without an initial sales charge. With certain exceptions, the Fund imposes a
CDSC of 1.00% on shares redeemed during the month of purchase and the 12-month
period following the month of purchase. No CDSC is imposed on amounts redeemed
thereafter. If imposed, the CDSC is
19
<PAGE>
deducted from the redemption proceeds otherwise payable to you. The CDSC is
retained by EKD or its predecessor. See "Contingent Deferred Sales Charge and
Waiver of Sales Charges."
CONTINGENT DEFERRED SALES CHARGE
AND WAIVER OF SALES CHARGES
Any CDSC imposed upon the redemption of Class A, Class B, or Class C shares is
a percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net asset value at the time of purchase of such shares.
No CDSC is imposed when you redeem amounts derived from (1) increases in the
value of shares redeemed above the net cost of such shares; (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; (3) certain Class A shares held for more than 12 months after the
month of purchase; (4) Class B shares held for more than 72 months after the
month of purchase; or (5) Class C shares held for more than one year after the
month of purchase. Upon request for redemption, shares not subject to the CDSC
will be redeemed first. Thereafter, shares held the longest will be the first to
be redeemed.
With respect to Class C shares purchased by a Qualifying Plan, no CDSC will be
imposed on any redemptions made specifically by an individual participant in the
Qualifying Plan. This waiver is not available in the event a Qualifying Plan (as
a whole) redeems substantially all of its assets.
In addition, 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 or excess deferral amounts made to a
retirement plan participant.
The Fund may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a CDSC to certain Directors, Trustees,
officers and employees of the Fund, Keystone, EKD and certain of their
affiliates, and to members of the immediate families of such persons; to
registered representatives of firms with dealer agreements with EKD; and to a
bank or trust company acting as a trustee for a single account. See the
statement of additional information.
HOW TO REDEEM SHARES
You may redeem (i.e., sell) Fund shares for cash at their net redemption value
by writing to the Fund, c/o Evergreen Keystone Service Company, Box 2121,
Boston, Massachusetts 02106-2121, and presenting a properly endorsed share
certificate (if certificates have been issued) to the Fund. Your signature(s) on
the written order and certificates must be guaranteed as described below. In
order to redeem by telephone or to engage in telephone transactions generally,
you must complete the authorization in your account application. Proceeds for
shares redeemed on telephone order will be deposited by wire or EFT only to the
bank account designated in your account application.
You may also redeem your shares through your broker-dealer. EKD, acting as
agent for the Fund, stands ready to repurchase Fund shares upon orders from
broker-dealers and will calculate the net asset value on the same terms as those
orders for the purchase of shares received from broker-dealers and described
under "How to Buy Shares." If EKD has received proper documentation, it will
20
<PAGE>
pay the redemption proceeds, less any applicable CDSC, to the broker-dealer
placing the order within seven days thereafter. EKD charges no fee for this
service. Your broker-dealer, however, may charge a service fee.
The redemption value equals the net asset value per share adjusted for
fractions of a cent and may be more or less than your cost depending upon
changes in the value of the Fund's portfolio securities between purchase and
redemption. A CDSC may be imposed by the Fund at the time of redemption of
certain shares as explained in "How to Buy Shares." If imposed, the CDSC is
deducted from the redemption proceeds otherwise payable to you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check, which may take up to 15 days. Any
delay may be avoided by purchasing shares either with a certified check, by
Federal Reserve or bank wire of funds, by direct deposit or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable CDSC (as described above),
will be made within seven days thereafter except as discussed herein.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND EKSC'S POLICIES. The Fund or EKSC may waive this
requirement or may require additional documents in certain cases. 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.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute the
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.
TELEPHONE REDEMPTIONS
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. As mentioned above, to engage
in telephone transactions generally, you must complete the appropriate sections
of the Fund's application.
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. 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.
21
<PAGE>
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 above.
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.
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.
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 over the Evergreen Keystone Express Line, or by telephone.
EKSC will employ reasonable procedures to confirm that instructions received
over the Evergreen 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 to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained by writing to EKSC or
calling toll free 1-800-343-2898. As of May 5, 1997, the following shareholder
services will be available.
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 do 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 certain other Evergreen Keystone funds and Keystone
Liquid Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Evergreen
Keystone funds and Class A shares of KLT;
Class B shares may be exchanged for the same type of Class B shares of other
Evergreen Keystone funds and the same type of Class B shares of KLT; and
Class C shares may be exchanged for Class C shares of other Evergreen
Keystone funds and Class C shares of KLT.
The exchange of Class B shares and Class C shares will not be subject to a
CDSC. However, if the shares being tendered for exchange are
(1) Class A shares acquired without a front-end sales charge,
(2) Class B shares that have been held for less than 72 months after the month
of purchase, or
(3) Class C shares that have been held for less than one year after the month
of purchase,
and are still subject to a CDSC, such charge will carry over to the shares being
acquired in the exchange transaction.
You may exchange some or all of your shares of the same class for another
Evergreen Keystone fund through your broker-dealer, by calling or writing to
EKSC or by using the Evergreen Keystone Express Line. As noted above, if the
22
<PAGE>
shares being tendered for exchange 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 a certain class of shares of the Fund for the corresponding
class of shares of KLT will be executed by redeeming the shares of the Fund and
purchasing the corresponding class of shares of KLT at the net asset value of
such shares next 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 Fund is 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.
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.
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 of the funds 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. 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 $100 or more than $10,000 per investment. Telephone investment
requests received by 4:00 p.m. (Eastern time) will be credited to a
shareholder's account the day the request is received. Shares purchased under
the Systematic Investment Plan or Telephone Investment Plan may not be redeemed
for ten days from the date of investment.
RETIREMENT PLANS
The Fund has various retirement plans available to you, including Individual
Retirement Accounts (IRAs); Rollover IRAs; Simplified Employee Pension Plans
(SEPs); SIMPIEs; 403(b)(7) Plans (TSAs); 401(k) Plans; Keogh Plans;
Profit-Sharing Plans; Pension and Target Benefit Plans and Money Purchase Plans.
For details, including fees and application forms, call EKSC toll free
1-800-247-4075 or write to EKSC at P.O. Box 2121, Boston, Massachusetts
02106-2121.
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
23
<PAGE>
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. Moreover, because of the effect
of the applicable sales charge, a Class A investor should not make continuous
purchases of the Fund's shares while participating in a Systematic Withdrawal
Plan.
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.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Evergreen Keystone fund. This results in more shares
being purchased when the selected fund's net asset value is relatively low and
fewer shares being purchased when the fund's net asset value is relatively high
and may result in a lower average cost per share than a less systematic
investment approach.
Prior to participating in dollar cost averaging, you must establish an account
in an Evergreen Keystone fund or a money market fund managed or advised by
Evergreen Asset or Keystone. You should designate on the application (1) the
dollar amount of each monthly or quarterly investment you wish to make and (2)
the fund in which the investment is to be made. Thereafter, on the first day of
the designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases, and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent. See Exhibit A -- "Reduced Sales Charges" at
the back of the prospectus.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any
class of Evergreen Keystone fund shares you may own automatically invested
to purchase the same class of shares of any other Evergreen Keystone
fund. You may select this service on your application and indicate the
Evergreen Keystone fund(s) into which distributions are to be invested. The
value of shares purchased will be ineligible for Rights of Accumulation and
Letters of Intent. See Exhibit A -- "Reduced Sales Charges" at the back of
the prospectus.
OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
PERFORMANCE DATA
From time to time the Fund may advertise "total return" and "current yield".
ALL DATA IS BASED ON HISTORICAL RESULTS. PAST PERFORMANCE SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF RESULTS FOR ANY FUTURE PERIOD OF TIME. Total
24
<PAGE>
return and current yield are computed separately for each class of shares of the
Fund.
Total return refers to average annual compounded rates of return over
specified periods determined by comparing the initial amount invested in a
particular class to the ending redeemable value of that amount. The resulting
equation assumes reinvestment of all dividends and distributions and deduction
of the sales charge and all recurring charges, if any, applicable to all
shareholder accounts.
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 also include comparative performance information and general
mutual fund industry information for each class of shares when advertising or
marketing the Fund's shares, such as data from Lipper Analytical Services, Inc.,
Morningstar, Inc., Standard & Poor's Ratings Group, Ibbotson Associates or other
industry publications.
FUND SHARES
The Fund currently issues Class A, B, C and Y shares, which participate in
dividends and distributions and have equal voting, liquidation and other rights
except that (1) expenses related to the distribution of each class of shares or
other expenses that the Board of Trustees may designate as class expenses, from
time to time, are borne solely by each class; (2) each class of shares has
exclusive voting rights with respect to its Distribution Plan, if any; (3) each
class has different exchange privileges; and (4) each class has a different
designation. When issued and paid for, the shares will be fully paid and
nonassessable by the Fund. Class Y shares bear no distribution or shareholder
servicing expenses. Class Y shares are only available to (i) persons who at or
prior to December 31, 1994, owned shares in a mutual fund managed by Evergreen
Asset, (ii) certain institutional investors and (iii) investment advisory
clients of CMG, Evergreen Asset or their affiliates. Shares may be exchanged as
explained under "Shareholder Services," but will have no other preference,
conversion, exchange or preemptive rights. Shares are redeemable, transferable
and freely assignable as collateral. The Fund is authorized to issue additional
series or classes of shares.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares of the Fund vote together except when
required by law to vote separately by series or class. The Fund does not have
annual meetings. The Fund will have special meetings, from time to time, as
required under its Declaration of Trust and under the 1940 Act. As provided in
the Fund's Declaration of Trust, 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.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
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 notice to those shareholders, the Fund intends, when an annual
report or a semi-annual report of the Fund is required to be furnished, to mail
one copy of such report to that address.
25
<PAGE>
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 change fees for
services provided.
26
<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. 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. 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 acquired 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 will be 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 may 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; i.e., the Fund purchases a
security subject to its obligation to resell and the seller's obligation to
repurchase that security at an agreed upon price and date, such date usually
being not more than seven days from the date of purchase. The resale price is
based on the purchase price plus an agreed upon market rate of interest that is
(i)
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unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement imposes an obligation on the seller to pay the agreed upon price,
which obligation is in effect secured by the value of the underlying security.
The value of the underlying security is at least equal to the amount of the
agreed upon resale price and marked to market daily. The Fund may enter into
such agreements only with respect to U.S. government securities. Whether a
repurchase agreement is the purchase and sale of a security or a collateralized
loan has not been definitively established. This might become an issue in the
event of the bankruptcy of the other party to the transaction. It does not
presently appear possible to eliminate all risks involved in repurchase
agreements. These risks include the possibility of a decline in the market value
of the underlying securities, as well as delay and costs to the Fund in
connection with bankruptcy proceedings. Therefore, it is the policy of the Fund
to enter into repurchase agreements only with large, well-capitalized banks that
are members of the Federal Reserve System and with primary dealers in U.S.
government securities (as designated by the Federal Reserve Board) whose
creditworthiness has been reviewed and found satisfactory by Keystone.
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
that the Fund is obligated to repurchase may decline below the repurchase price.
Borrowing and reverse repurchase agreements magnify the potential for gain or
loss on the portfolio securities of the Fund and, therefore, increase the
possibility of fluctuation in the Fund's net asset value. In the event the buyer
of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Fund's obligation to
repurchase the securities and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such determination.
The staff of the Securities and Exchange Commission has taken the position that
a fully secured or collateralized reverse repurchase agreement is not subject to
the percentage limitation on borrowings imposed under Section 18 of the 1940
Act.
FOREIGN SECURITIES
The Fund may invest up to 25% of its assets in securities principally traded
in securities markets outside the United States. While investment in foreign
securities is intended to reduce risk by providing further diversification, such
investments involve sovereign risk in addition to the credit and market risks
normally associated with domestic securities. Foreign investments may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the United States. Investments in foreign securities may also be
subject to other risks different from those affecting U.S. investments,
including local political or economic developments, expropriation or
nationalization of assets, imposition of
(ii)
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withholding taxes on dividend or interest payments and currency blockage (which
would prevent cash from being brought back to the United States). These risks
are carefully considered by Keystone prior to the purchase of these securities.
"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. However, no payment or delivery is made by the Fund
until it receives payment or delivery from the other party to the transaction. A
separate account of liquid assets equal to the value of such purchase
commitments will be maintained until payment is made. When issued and delayed
delivery agreements are subject to risks from changes in value based upon
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 consistent with
its investment objective and policies and not for the purpose of investment
leverage.
SHORT SALES
The Fund may make short sales of securities "against the box." A short sale
involves the borrowing of a security, which must eventually be returned to the
lender. A short sale is "against the box" if, at all times when the short
position is open, the Fund owns the securities sold short or owns an equal
amount of securities convertible into, or exchangeable without further
consideration for, securities identical to the securities sold short. Short
sales against the box are used to defer recognition of gains or losses or in
order to receive a portion of the interest earned by the executing broker from
the proceeds of such sale. The proceeds of a short sale are held by the broker
until the settlement date when the Fund delivers the security or convertible
security to close out its short position. Although prior to such delivery the
Fund will have to pay an amount equal to any dividends paid on the securities
sold short, the Fund will receive the dividends from the securities convertible
into the securities sold short plus a portion of the interest earned from the
proceeds of the short sale. The Fund will not make short sales of securities
subject to outstanding call options written by it. The Fund will segregate the
securities sold short or appropriate convertible securities in a special account
with the Fund's custodian in connection with its short sales "against the box."
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. These securities, which include
bonds, debentures, corporate notes, preferred stocks and other securities, are
securities that the holder can convert into common stock. Convertible securities
rank senior to common stock in a corporation's capital structure and, therefore,
entail less risk than a corporation's common stock. The value of a convertible
security is a function of its investment value (its market worth without a
conversion privilege) and its conversion value (its market worth if exchanged).
If a convertible security's investment value is greater than its conversion
value, its price primarily will reflect its investment value and will tend to
vary inversely with interest rates (the issuer's creditworthiness and other
factors also may affect its value). If a convertible security's conversion value
is greater than its investment value, its price will tend to be higher than
(iii)
<PAGE>
its conversion value and it will tend to fluctuate directly with the price of
the underlying equity security.
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, although the Fund generally uses derivatives
primarily as direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. The Fund uses futures contracts and
related options for hedging purposes. Derivatives are a valuable tool which,
when used properly, can provide significant benefit to Fund shareholders.
Keystone 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 objective and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the Fund's statement of additional
information. The Fund does not presently engage in the use of swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Fund.
(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
(iv)
<PAGE>
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 the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put
options. No more than 25% of its net assets will be subject to covered 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 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 eligible 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 liquid assets having a value equal to or greater than the exercise
price of the option with its custodian in a segregated account.
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. 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 call and put options.
The Fund would normally purchase call options to hedge against an increase in
the market value of its securities. The Fund will not engage in such
transactions for speculation. The purchase of a call option would entitle the
Fund, in return for the premium paid, to purchase specified securities at a
specified price upon exercise of the option during the option period. The Fund
would ordinarily realize a gain if, during the option period, the value of such
securities exceeds the sum of the exercise price, the premium paid and
transaction
(v)
<PAGE>
costs. Otherwise, the Fund would realize a loss on the purchase of the call
option.
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 until the options expire or are exercised.
The Fund would normally purchase put options to hedge against a decline in the
market value of securities in its portfolio (protective puts) or securities of
the type in which it is permitted to invest. The purchase of a put option would
entitle the Fund, in exchange for the premium paid, to sell specified securities
at a specified price during the option period. The purchase of protective puts
is designed to offset or hedge against a decline in the market value of the
Fund's securities. Gains and losses on the purchase of protective put options
would tend to be offset by countervailing changes in the value of underlying
portfolio securities. Put options may also be purchased by the Fund for the
purpose of affirmatively benefitting from a decline in the price of securities
that the Fund does not own. The Fund would ordinarily realize a gain if, during
the option period, the value of the underlying securities declined below the
exercise price sufficiently to cover the premium and transaction costs.
Otherwise, the Fund would realize a loss on the purchase of the put option.
The Fund may purchase put and call options on securities indices for the same
purposes as the purchase of options on securities. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash payments and does not involve the actual purchase or
sale of securities. In addition, securities index options are designed to
reflect price fluctuations in a group of securities or segment of the securities
market rather than price fluctuations in a single security.
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 which the Fund will trade are generally listed
on national securities exchanges. Exchanges on which such options currently are
traded are the Chicago Board Options Exchange and the New York, American,
Pacific and Philadelphia Stock Exchanges.
FUTURES TRANSACTIONS
The Fund may enter into futures contracts for the purchase or sale of
securities or currency or futures contracts based on stock indices and write
options on such contracts. The Fund intends to enter into such contracts and
related options for hedging purposes. The Fund may enter into other types of
futures contracts that may become available and relate to the securities held by
the Fund. The Fund will enter into futures contracts in order to hedge against
changes in securities prices. A futures contract is an agreement to buy or sell
securities or currencies at a specified price during a designated month. 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 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 would sell futures
contracts in order to offset a possible decline in the value of its securities
or currencies. If a futures contract were purchased by the Fund, the value of
the contract
(vi)
<PAGE>
would tend to rise when the value of the underlying securities increased and to
fall when the value of such securities declined. The Fund intends to purchase
futures contracts in order to fix 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 may also purchase put and call options on securities and currency
futures contracts for hedging purposes. A put option purchased by the Fund would
give it the right to assume a position as the seller of a futures contract. A
call option purchased by the Fund would give it the right to assume a position
as the purchaser of a futures contract. The purchase of an option on a futures
contract requires the Fund to pay a premium. In exchange for the premium, the
Fund becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may write (sell) put and call options on futures contracts for
hedging purposes. The writing of a put option on a futures contract generates a
premium, which may partially offset an increase in the price of securities that
the Fund intends to purchase. However, the Fund becomes obligated to purchase a
futures contract, which may have a value lower than the exercise price.
Conversely, the writing of a call option on a futures contract generates a
premium which may partially offset a decline in the value of the Fund's assets.
By writing a call option, the Fund becomes obligated, in exchange for the
premium, to sell a futures contract, which may have a value higher than the
exercise price.
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 options transactions are intended to enable the Fund to
manage market risk, unanticipated changes in market prices could result in
poorer performance than if it had not entered into these transactions. Even if
Keystone correctly predicts market price 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 positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities 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. The Fund
may not purchase or sell futures contracts or options on futures, except for
closing purchase or sale transactions, if immediately thereafter the sum of
margin deposits on the Fund's outstanding futures and options positions and
premiums paid for outstanding options on futures would exceed 5% of the market
value of the Fund's total assets. These transactions involve brokerage costs,
require margin deposits and, in the case of contracts and options obligating the
Fund to purchase securities, require the Fund to segregate assets to cover such
contracts and options. In addition, the Fund's activities in futures contracts
may be limited by
(vii)
<PAGE>
the requirements of the Internal Revenue Code for qualification as a regulated
investment company.
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
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. The
Fund may also purchase and sell options related to foreign currencies in
connection with hedging strategies.
ZERO COUPON BONDS
A zero coupon (interest) "stripped" bond represents ownership in serially
maturing interest or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. These bonds mature on the payment
dates of the interest on principal which they represent. Each zero coupon bond
entitles the holder to receive a single payment at maturity. There are no
periodic interest payments on a zero coupon bond. Zero coupon bonds are offered
at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights and
privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individually against the issuer and are not required to act in concert with
other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon bonds or
coupon zero coupon bond (either initially or in the secondary market) is treated
as if the buyer had purchased a corporate obligation issued on the purchase date
with an original issue discount equal to the excess of the amount payable at
maturity over the purchase price. The purchaser is required to take into income
each year as ordinary income an allocable portion of such discounts determined
on a "constant yield" method. Any such income increases the holder's tax basis
for the zero coupon bond, and any gain or loss on a sale of the zero coupon
bonds relative to the holder's basis, as so adjusted, is a capital gain or loss.
If the holder owns coupon bonds and coupon zero bonds representing separate
interests in the coupon (interest) payments and the principal payments from the
same underlying issue of securities, a special basis
(viii)
<PAGE>
allocation rule (requiring the aggregate basis to be allocated among the items
sold and retained based on their relative fair market value at the time of sale)
may apply to determine the gain or loss on a sale of any such zero coupon bonds.
If and when the Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material effect on dividends. The Fund
has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and the interest on
these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions and its current income ultimately may be reduced as a
result.
LOANS OF SECURITIES
The Fund may lend its securities to brokers and dealers or other institutional
borrowers for use in connection with their short sales, arbitrages or other
securities transactions. Such loan transactions afford the Fund an opportunity
to continue to earn income on the securities loaned and at the same time to earn
income on the collateral held by it to secure the loan. Loans of portfolio
securities will be made (if at all) in strict conformity with applicable federal
and state rules and regulations. There may be delays in recovery of loaned
securities or even a loss of rights in collateral should the borrower fail
financially. Therefore, loans will be made only to firms deemed by Keystone to
be of good standing and will not be made unless, in the judgment of Keystone,
the consideration to be earned from such loans justifies the risk.
The Fund understands that it is the current view of the staff of the
Securities and Exchange Commission that it is permitted to engage in loan
transactions only if it meets the following conditions: (1) the Fund must
receive 100% collateral in the form of cash or cash equivalents, e.g., U.S.
Treasury bills or notes, from the borrower; (2) the borrower must increase the
collateral whenever the market value of the securities (determined on a daily
basis) exceeds the value of the collateral; (3) the Fund must be able to
terminate the loan, after notice, at any time; (4) the Fund must receive
reasonable interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest or other distributions on the
securities loaned and any increase in the securities' market values; (5) the
Fund may pay only reasonable custodian fees in connection with the loan; and (6)
voting rights on the securities loaned may pass to the borrower; however, if a
material event affecting the securities occurs, the Fund must be able to
terminate the loan and vote proxies or enter into an alternative arrangement
with the borrower to enable the Fund to vote proxies. Excluding Items (1) and
(2), these procedures may be amended from time to time, as regulatory policies
may permit, by the Fund's Board of Trustees without shareholder approval. Such
loans may not exceed 25% of the Fund's total assets.
(ix)
<PAGE>
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Evergreen Keystone funds. Only Class A shares subject to
an initial or deferred sales charge are eligible for inclusion in reduced sales
charge programs.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term
"Purchaser" includes the following persons: an individual; an individual, his or
her spouse and children under the age of 21; a trustee or other fiduciary of a
single trust estate or single fiduciary account established for their benefit;
an organization exempt from federal income tax under Section 501(c)(3) or (13)
of the Internal Revenue Code; a pension, profit-sharing or other employee
benefit plan whether or not qualified under Section 401 of the Internal Revenue
Code; or other organized groups of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount. In order to qualify for a lower sales charge,
all orders from an organized group will have to be placed through a single
investment dealer or other firm and identified as originating from a qualifying
purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge Schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Evergreen Keystone funds and Keystone
Liquid Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge Schedule. EKSC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by EKSC, each investment made will be
entitled to the sales
A-1
<PAGE>
charge applicable to the level of investment indicated on the application. The
Letter of Intent may be back-dated up to ninety days so that any investments
made in any of the Eligible Funds during the preceding ninety-day period, valued
at the Purchaser's cost, can be applied toward fulfillment of the Letter of
Intent. However, there will be no refund of sales charges already paid during
the ninety-day period. No retroactive adjustment will be made if purchases
exceed the amount specified in the Letter of Intent. Income and capital gains
distributions taken in additional shares will not apply toward completion of the
Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary) 5% of the dollar amount specified on the application will be held
in escrow by EKSC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to EKD any difference
between the sales charge on the amount specified and on the amount actually
attained. If the Purchaser does not within 20 days after written request by EKD
or his dealer pay such difference in sales charge, EKSC will redeem an
appropriate number of the escrowed shares in order to realize such difference.
Shares remaining after any such redemption will be released by EKSC. Any
redemptions made by the Purchaser during the thirteen-month period will be
subtracted from the amount of the purchases for purposes of determining whether
the Letter of Intent has been completed. In the event of a total redemption of
the account prior to completion of the Letter of Intent, the additional sales
charge due will be deducted from the proceeds of the redemption and the balance
will be forwarded to the Purchaser.
By signing the application, the Purchaser irrevocably constitutes and appoints
EKSC his attorney to surrender for redemption any or all escrowed shares with
full power of substitution.
The Purchaser or his dealer must inform EKD or EKSC that a Letter of Intent is
in effect each time a purchase is made.
A-2
<PAGE>
KEYSTONE AMERICA
FUND FAMILY
(diamond appears here)
Balanced Fund II
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Global Resources and Development Fund
Small Company Growth Fund II
KEYSTONE
OMEGA FUND
(Evergreen Keystone Funds Logo) (Evergreen Keystone Funds Logo)
Evergreen Keystone Distributor, Inc.
125 W. 55th Street
New York, New York 10019
(Recycle logo)
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE OMEGA FUND
PROSPECTUS APRIL 30, 1997
CLASS Y
Keystone Omega Fund (the "Fund") is a mutual fund that seeks maximum capital
growth by investing in a varied portfolio consisting primarily of common stocks
and securities convertible into common stocks.
This prospectus provides information regarding the Class Y shares offered by
the Fund. Information on share classes may be found in the "Fund Shares" section
of this prospectus.
This prospectus concisely states 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 April 30, 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 provided on this page.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
KEYSTONE OMEGA FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Expense Information 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Investment Restrictions 7
Risk Factors 8
Pricing Shares 9
Dividends and Taxes 9
Fund Management and Expenses 10
How to Buy Shares 13
How to Redeem Shares 14
Shareholder Services 16
Performance Data 18
Fund Shares 18
Additional Information 19
Additional Investment Information (i)
</TABLE>
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 OMEGA FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in Class Y shares of 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"; and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS Y SHARES
NO LOAD
SHAREHOLDER TRANSACTION EXPENSES OPTION(1)
<S> <C>
Maximum Sales Charge Imposed on Purchases.............................................................. None
(as a percentage of offering price)
Deferred Sales Charge.................................................................................. None
(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 Fees........................................................................................ 0.75%
12b-1 Fees............................................................................................. None
Other Expenses......................................................................................... 0.43%
Total Fund Operating Expenses.......................................................................... 1.18%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLES(3) 1 YEAR 3 YEARS
<S> <C> <C>
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:
Class Y..................................................................................... $ 12 $37
You would pay the following expenses on the same investment, assuming no redemption at the end
of each period:
Class Y..................................................................................... $ 12 $37
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.
</TABLE>
(1) Class Y shares are only available to certain investors through
broker-dealers who have entered into special distribution agreements with
Evergreen Keystone Distributor, Inc., the Fund's principal underwriter.
See "How to Buy Shares."
(2) Expense ratio shown above is estimated for the Fund's fiscal year ending
December 31, 1997. The Fund also offers Class A, B and C shares which have
different expenses and sales charges.
(3) 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 OMEGA FUND
CLASS A SHARES
(For a Share outstanding throughout each year)
The following table contains important financial information relating to
the Fund. The financial highlights for the years ended December 31, 1989 through
December 31, 1996 have been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. The financial highlights for each of the years in the
two-year period ended December 31, 1988 were audited by other 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 have been
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 DECEMBER 31,
1996 1995 1994 1993 1992(b) 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
YEAR....................... $ 19.56 $ 15.54 $ 17.11 $ 15.84 $ 17.68 $ 13.37 $ 16.03 $ 13.66 $ 12.08 $ 13.44
INCOME FROM INVESTMENT
OPERATIONS
Net investment income
(loss)..................... (0.06) 0.00 0.04 (0.07) 0.00 (0.04) 0.11 0.17 0.30(d) 0.02
Net realized and unrealized
gain (loss) on investment
transactions............... 2.15 5.58 (1.00) 3.07 0.39 6.92 (0.39) 4.30 1.40 1.11
Total from investment
operations............... 2.09 5.58 (0.96) 3.00 0.39 6.88 (0.28) 4.47 1.70 1.13
LESS DISTRIBUTIONS FROM
Net investment income........ 0.00 0.00 0.00 0.00 0.00 (0.02) (0.25) (0.20) (0.12) (0.24)
In excess of net investment
income..................... 0.00 0.00 0.00 0.00 0.00 (0.05) (0.04) 0.00 0.00 0.00
Net realized gain on
investment transactions.... (2.13) (1.56) (0.61) (1.73) (2.23) (2.50) (2.09) (1.90) 0.00 (2.25)
Total distributions........ (2.13) (1.56) (0.61) (1.73) (2.23) (2.57) (2.38) (2.10) (0.12) (2.49)
NET ASSET VALUE END OF
YEAR....................... $ 19.52 $ 19.56 $ 15.54 $ 17.11 $ 15.84 $ 17.68 $ 13.37 $ 16.03 $ 13.66 $ 12.08
TOTAL RETURN (a)............. 11.31% 36.94% (5.66%) 19.33% 4.00% 54.49% (2.38%) 33.05% 14.05% 8.27%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses............. 1.33%(c) 1.38%(c) 1.41% 1.51% 1.52% 1.57% 1.73% 1.84% 1.78% 1.99%
Net investment income
(loss)................... (0.29%) 0.00% 0.27% (0.48%) (0.01%) (0.31%) 0.70% 1.03% 2.22% 0.13%
Portfolio turnover rate...... 173% 159% 137% 162% 176% 115% 108% 77% 84% 106%
Average commission rate
paid....................... $ 0.0621 N/A N/A N/A N/A N/A N/A N/A N/A N/A
NET ASSETS END OF YEAR
(THOUSANDS)................ $154,825 $135,079 $99,569 $90,404 $73,144 $58,671 $38,531 $39,682 $33,951 $30,246
</TABLE>
(a) Excluding applicable sales charges.
(b) Calculated on average shares outstanding.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 1.32% and 1.37% for the years ended December 31, 1996 and 1995,
respectively.
(d) Includes $0.17 per share relating to a special non-recurring distribution
from Inco Limited.
3
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE OMEGA FUND
CLASS B SHARES
(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 have been 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>
AUGUST 2, 1993
(DATE OF INITIAL
YEAR ENDED DECEMBER 31, PUBLIC OFFERING) TO
1996 1995 1994 DECEMBER 31, 1993
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR............................ $ 19.10 $ 15.34 $ 17.06 $ 17.29
INCOME FROM INVESTMENT OPERATIONS
Net investment loss.......................................... (0.17) (0.09) (0.06) (0.05)
Net realized and unrealized gain (loss) on investment
transactions............................................... 2.03 5.41 (1.05) 1.55
Total from investment operations........................... 1.86 5.32 (1.11) 1.50
LESS DISTRIBUTIONS FROM
Net realized gain on investment transactions................. (2.13) (1.56) (0.61) (1.73)
Total distributions........................................ (2.13) (1.56) (0.61) (1.73)
NET ASSET VALUE END OF YEAR.................................. $ 18.83 $ 19.10 $ 15.34 $ 17.06
TOTAL RETURN (b)............................................. 10.31% 35.70% (6.57%) 9.02%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses............................................. 2.20%(c) 2.29%(c) 2.30% 2.57%(a)
Net investment loss........................................ (1.15%) (0.94%) (0.58%) (1.73%)(a)
Portfolio turnover rate...................................... 173% 159% 137% 162%(a)
Average commission rate paid................................. $0.0621 N/A N/A N/A
NET ASSETS END OF YEAR (THOUSANDS)........................... $89,921 $71,636 $32,266 $ 7,423
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 2.18% and 2.27% for the years ended December 31, 1996 and 1995,
respectively.
4
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE OMEGA FUND
CLASS C SHARES
(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 have been 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>
AUGUST 2, 1993
(DATE OF INITIAL
YEAR ENDED DECEMBER 31, PUBLIC OFFERING) TO
1996 1995 1994 DECEMBER 31, 1993
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR.......................... $ 19.13 $ 15.37 $17.09 $ 17.29
INCOME FROM INVESTMENT OPERATIONS
Net investment loss........................................ (0.18) (0.13) (0.07) (0.06)
Net realized and unrealized gain (loss) on investment
transactions............................................. 2.04 5.45 (1.04) 1.59
Total from investment operations......................... 1.86 5.32 (1.11) 1.53
LESS DISTRIBUTIONS FROM
Net realized gain on investment transactions............... (2.13) (1.56) (0.61) (1.73)
Total distributions...................................... (2.13) (1.56) (0.61) (1.73)
NET ASSET VALUE END OF YEAR................................ $ 18.86 $ 19.13 $15.37 $ 17.09
TOTAL RETURN (b)........................................... 10.29% 35.62% (6.56%) 9.20%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses........................................... 2.21%(c) 2.30%(c) 2.30% 2.48%(a)
Net investment loss...................................... (1.17%) (0.91%) (0.63%) (1.64%)(a)
Portfolio turnover rate.................................... 173% 159% 137% 162%(a)
Average commission rate paid............................... $0.0621 N/A N/A N/A
NET ASSETS END OF YEAR (THOUSANDS)......................... $17,628 $13,963 $9,900 $ 3,620
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The ratio of total expenses to average net assets includes indirectly paid
expenses. Excluding indirectly paid expenses, the expense ratio would have
been 2.20% and 2.29% for the years ended December 31, 1996 and 1995,
respectively.
5
<PAGE>
THE FUND
The Fund is an open-end, diversifed management investment company, commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust
and was incorporated on February 8, 1968. The Fund is one of more than thirty
funds advised and managed by Keystone Investment Management Company
("Keystone"), the Fund's investment adviser.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund seeks maximum capital growth by investing in a varied portfolio
consisting primarily of common stocks and securities convertible into common
stocks.
The Fund's investment objective is non-fundamental and may be changed without
the vote of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Fund's outstanding shares.
Any investment involves risk, and there is no assurance that the Fund will
achieve its investment objective.
PRINCIPAL INVESTMENTS
The Fund pursues its investment objective by employing the techniques of the
fully-managed investment concept, meaning that Keystone will continuously review
both individual securities and relevant general conditions. Whenever, in the
opinion of Keystone, a security no longer seems to have the required
characteristics, an anticipated level of performance has been achieved, or other
securities present relatively greater opportunities for realizing the Fund's
objective, appropriate changes will be made in the Fund's portfolio. The Fund's
equity position will be changed as Keystone changes its evaluation of trends in
general securities price levels. Portfolio turnover rate will not be considered
a limiting factor in the execution of investment decisions.
Although the Fund invests predominantly in equity securities of United States
("U.S.") corporations, in pursuing its objective, the Fund may also invest up to
25% of its assets in foreign securities issued by issuers located in developed
countries as well as emerging market countries, including certain formerly
communist countries. For this purpose, countries with emerging markets are
generally those where the per capita income is in the low to middle ranges, as
determined by the International Bank for Reconstruction and Development.
OTHER ELIGIBLE INVESTMENTS
When Keystone deems it advisable, the Fund may, for temporary defensive
purposes, invest without limit in investment grade bonds or debentures rated by
Moody's Investors Service ("Moody's") as BAA or better or by Standard & Poor's
Ratings Group ("S&P") as BBB or better or those having at least similar quality
in Keystone's judgment. Bonds that are rated BAA by Moody's are considered to be
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Debt rated BBB by S&P is regarded as having an adequate
capacity to pay interest and repay principal. While it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Under
circumstances where the Fund is investing for defensive purposes, it will not be
pursuing its investment objective.
The Fund also may invest in non-convertible preferred stocks of companies
considered
6
<PAGE>
creditworthy and able to sustain dividend payments and in short-term money
market instruments maturing in one year or less. Such money market instruments
may be U.S. government securities; certifcates of deposit in banks considered
creditworthy; or commercial paper of companies, the bonds or debentures of which
are investment grade. While these securities are not without risk of price
fluctuation or default, they are generally less volatile than common stock.
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 such securities 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, as amended
(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 intends to
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 which the
liquidity of the Fund's Rule 144A securities is determined by Keystone and the
Board of Trustees 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 enter into repurchase and reverse repurchase agreements, invest
in master demand notes, lend portfolio securities, purchase and sell securities
and currencies on a when-issued and delayed-delivery basis and purchase or sell
securities on a forward commitment basis, write covered call and put options and
purchase call and put options to close out existing positions and may employ new
investment techniques with respect to such options. The Fund may also enter into
currency and other fnancial futures contracts and related options transactions
for hedging purposes and not for speculation. The Fund may employ new investment
techniques with respect to such futures contracts and related options.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see the "Risk
Factors" and "Additional Investment Information" sections of this prospectus and
the statement of additional information.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions summarized
below, which may not be changed without the vote of a 1940 Act majority of the
Fund's outstanding shares 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"). These restrictions and certain other fundamental and nonfundamental
restrictions are set forth in detail in the statement of additional information.
Unless otherwise stated, all references to the Fund's assets are in terms of
current market value.
Generally, the Fund may not: (1) invest more than 10% of its total assets in
the securities of any one issuer (except U.S. government securities); and (2)
borrow, unless, immediately after any such borrowing, such borrowing and all
other such borrowings and other liabilities do not exceed one-third of the value
of the Fund's total
7
<PAGE>
assets and (3) concentrate its investments in any particular industry.
As a diversifed investment company, the Fund has undertaken not to purchase a
security if, as a result, more than 10% of the outstanding voting securities of
any single issuer would be held by the Fund or more than 5% of its total assets
would be invested in securities of any one issuer.
RISK FACTORS
GENERAL
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.
By itself, the Fund does not constitute a balanced investment program. The
Fund is best suited for investors who can afford to maintain their investment
over a relatively long period of time, and who are seeking a fund which is
relatively aggressive and has the potential for signifcant returns. The Fund
involves a high degree of risk and is not an appropriate investment for
conservative investors who are seeking preservation of capital and/or income.
You should take into account your own investment objectives as well as your
other investments when considering an investment in the Fund.
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.
FUND RISKS
Investing in common stocks, particularly those having growth characteristics,
frequently involves greater risks (and possibly greater rewards) than investing
in other types of securities. Common stock prices tend to be more volatile and
companies having growth characteristics may sometimes be unproven.
A need for cash due to large liquidations from the Fund when prices of common
stocks are declining could result in losses to the Fund.
Investing in the Fund involves the risk common to investing in any security,
that is the value of the securities held by the Fund will fluctuate in response
to changes in economic conditions or public expectations about those securities.
The net asset value of the Funds' shares will change accordingly.
FOREIGN RISK
Investing in securities of foreign issuers generally involves more risk than
investing in a portfolio consisting solely of securities of domestic issuers for
the following reasons: publicly available information on issuers and securities
may be scarce; many foreign countries do not follow the same accounting,
auditing, and fnancial 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, confscatory 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.
Investing in securities of issuers in emerging market 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 market countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and
8
<PAGE>
foreign investments and private property. The typically small size of the
markets for securities issued by companies in emerging market 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.
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.
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 that 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 portfolio securities do not affect
the current net asset value of its shares. The Exchange is currently closed on
weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is arrived at by determining the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of its
shares outstanding.
For purposes of calculating the net asset value of a Fund share on any given
day, securities traded on national securities exchanges or reported on the
National Association of Securities Dealers' Automated Quotation System
("NASDAQ") National Market are valued at the last sale price. If there were no
transactions on that day, securities will be valued at the mean of the closing
bid and asked prices or at such other value as shall be determined in good
faith, by or under the direction of the Fund's Board of Trustees, to be the fair
market value of such securities. Commercial paper is generally valued at cost,
which approximates market.
Other securities, including unlisted securities, are valued at the last
reported bid price if such prices are available. Prices for such securities are
considered to be unavailable if, for example, the securities are restricted
securities, or if there exists a "thin market" in the securities. In such
situations, the value is determined in good faith by or under the direction of
the Fund's Board of Trustees.
DIVIDENDS AND TAXES
The Fund has qualifed and intends to continue to qualify as a regulated
investment company (a "RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). The Fund qualifes if, among other things, it distributes to its
shareholders at least 90% of its net investment income for its fscal year. The
Fund also intends to make timely distributions, if necessary, suffcient in
amount to avoid the nondeductible 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 October 31 of such calendar year.
Any taxable dividend declared in October, November or December to shareholders
of record in such a month and paid by the following January 31, will be
includable in the taxable income of the shareholder as if paid on December 31 of
the year in which the dividend was declared.
If the Fund qualifes as a RIC and if it distributes substantially all of its
net investment income and net capital gains, if any, to shareholders, it will be
relieved of any federal income tax liability.
The Fund will make distributions from its net investment income and net
capital gains, if any, at least annually.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares of
9
<PAGE>
the Fund upon which the distribution is based or, at the shareholder's election
(which must be made before the record date for the distribution), in cash. Fund
distributions in the form of additional Class Y shares are made at net asset
value.
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 distributions 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 distributions received.
The Fund advises its shareholders annually as to the federal tax status of all
distributions made during the year.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the general supervision of the Fund's Board of Trustees, Keystone
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
of North Carolina ("FUNB"). FUNB is a subsidiary of First Union Corporation
("First Union"), the sixth largest bank holding company in the U.S. based on
total assets as of December 31, 1996.
First Union is headquartered in Charlotte, North Carolina, and had $140
billion in consolidated assets as of December 31, 1996. First Union and its
subsidiaries provide a broad range of fnancial services to individuals and
businesses throughout the U.S. The Capital Management Group of FUNB ("CMG"),
Keystone and Evergreen Asset Management Corp. ("Evergreen Asset"), a
wholly-owned subsidiary of FUNB, manage or otherwise oversee the investment of
over $60 billion in assets as of December 31, 1996 belonging to a wide range of
clients, including the Evergreen Family of 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 offce space, facilities and equipment.
The Fund currently pays Keystone a fee for its services at the annual rates
set forth below:
<TABLE>
<CAPTION>
AGGREGATE NET ASSET
MANAGEMENT VALUE OF THE SHARES
FEE OF THE FUND
<S> <C>
0.75% of the frst $ 250,000,000, plus
0.675% of the next $ 250,000,000, plus
0.60% of the next $ 500,000,000, plus
0.50% of amounts over $1,000,000,000.
</TABLE>
Keystone's fee is computed as of the close of business on 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 so long as such continuance is
specifcally 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 defned 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
10
<PAGE>
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 affliated 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 not 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 affliates, that
prohibit such entities from acting as the underwriters or distributors of mutual
fund shares. While EKIS may not 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 is located at 125 W. 55th Street, New
York, New York 10019.
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of EKD, distributor for the
Evergreen Keystone Funds, 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
SUB- MUTUAL FUNDS ADMINISTERED BY BISYS FOR
ADMINISTRATOR WHICH ANY AFFILIATE OF FUNB SERVES AS
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 $29.2 billion as of February 28, 1997.
PORTFOLIO MANAGER
Maureen E. Cullinane has been the Fund's Portfolio Manager since 1989. Ms.
Cullinane is a Keystone Senior Vice President and Senior Portfolio Manager and
has more than 20 years of investment experience. Beginning June 1, 1997, Warren
J. Isabelle will be the Fund's Portfolio Manager. He is the Chief Investment
Officer of Equities of Keystone. Prior to joining Keystone in February, 1997,
Mr. Isabelle managed the Pioneer Capital Growth Fund and the Pioneer Small
Company Fund. He also served as Head of the Pioneer Special Equities Group. He
has 14 years of investment experience.
FUND EXPENSES
The Fund pays all of its expenses. In addition to the investment management
fees discussed herein, the principal expenses that the Fund is expected to pay
include, but are not limited to: fees and expenses of its Independent Trustees;
transfer, dividend disbursing and shareholder servicing agent expenses;
custodian expenses; fees of its independent auditors and legal counsel to the
Fund and its Independent Trustees; fees payable to government agencies,
including registration and qualifcation fees of the Fund and its shares under
federal and state securities laws; and certain extraordinary expenses. In
addition, each class will pay all of the expenses attributable to it. Such
expenses are currently limited to Distribution Plan expenses for the Class A, B
and C shares. The Fund also pays its brokerage commissions, interest charges and
taxes.
11
<PAGE>
For the fiscal period January 1, 1996 through December 10, 1996 the Fund paid
or accrued to Keystone Management, Inc., the Fund's former investment manager,
investment management and advisory services fees of $1,726,076 (0.85% of the
Fund's average daily net asset value on an annualized basis.) Of such amount,
$1,467,165 was paid to Keystone for its services to the Fund. For the fiscal
period December 11, 1996 through December 31, 1996, Keystone received $105,066
directly from the Fund pursuant to the Advisory Agreement, which represented
0.75% of the Fund's average daily net asset value.
To the extent the Fund's advisory fee represents 0.75% of the Fund's average
daily net assets, the fee is higher than that paid by most mutual funds, but is
not necessarily higher than that paid by funds with objectives similar to that
of the Fund.
For the fscal year ended December 31, 1996, the Fund paid or accrued $691,038
to Evergreen Keystone Service Company (formerly Keystone Investor Resource
Center, Inc.) ("EKSC") for services rendered as the Fund's transfer agent and
dividend disbursing agent, and $30,154 to Keystone Investments for certain
accounting and printing expenses. EKSC, located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034, is a wholly-owned subsidiary of Keystone.
For the fiscal year ended December 31, 1996, the Fund's Class A, Class B and
Class C shares paid 1.33%, 2.20% and 2.21%, respectively, of average net assets
in expenses. No Class Y shares were sold during 1996, therefore the Class Y
shares did not incur expenses.
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 the
broker-dealer. In addition, broker-dealers executing portfolio transactions may,
from time to time, be affliated with the Fund, Keystone, EKD or their affliates.
The Fund may pay higher commissions to broker-dealers that 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 fscal years ended December 31,
1996 and 1995 were 173% and 159%, respectively. High portfolio turnover may
involve correspondingly greater brokerage commissions and other transaction
costs, which would be borne directly by the Fund, as well as additional gains
and/or losses to shareholders. For further information on the tax consequences
of such realized gains and/or losses, see the "Dividends and Taxes" section of
this prospectus.
For additional 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.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
EKD may, from time to time, provide promotional incentives to certain
broker-dealers whose representatives have sold or are expected to sell
signifcant amounts of Fund shares. In addition, broker-dealers may, from time to
time, receive additional cash payments. EKD may also provide written information
to those broker- dealers with whom it has dealer agreements that relates to
sales incentive campaigns conducted by such broker-dealers for their
representatives. EKD and EKIS, in connection with the services they provide, may
also provide additional compensation, including financial assistance, in
connection with pre-approved seminars, conferences and advertising. No such
programs or additional compensation
12
<PAGE>
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 affliate 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 specifed periods and
certain other factors. Such payments may, depending on the dealer's satisfaction
of the required conditions, be periodic and may be up to 1.00% of the value of
shares sold by such broker-dealer.
EKD may also pay a transaction fee (up to the level of payments allowed to
broker-dealers for the sale of shares, as described above) to banks and other
financial services firms that facilitate transactions in shares of the Fund for
their clients.
State securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and fnancial institutions may be required
to register as broker-dealers pursuant to state law.
EFFECTS OF BANKING LAWS
The Glass-Steagall Act currently limits the ability of depository institutions
(such as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from accepting payments under the
arrangement described above, or should Congress relax current restrictions on
depository institutions, the Board of Trustees will consider what action, if
any, is appropriate.
The Glass-Steagall Act and other banking laws and regulations also presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affliates 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 affliate 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 affliates, 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 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 broker-dealers pursuant to state
law.
HOW TO BUY SHARES
Class Y shares are offered at net asset value, without a front-end or back-end
sales load. Class Y shares are not offered to the general public and are
available only to (1) persons who at or prior to December 31, 1994 owned shares
in a mutual fund advised by Evergreen Asset of Purchase, New York, (2) certain
institutional investors and (3) investment advisory clients of CMG, Evergreen
Asset or their affliates.
You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with the Principal Underwriter, banks, other financial intermediaries
or directly through EKD. In addition, you may purchase shares of the Fund 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
13
<PAGE>
an account to which you can wire or electronically transfer funds and then send
in a completed account application. Subsequent investments in any amount may be
made by check, wiring federal funds, direct deposit or an electronic funds
transfer ("EFT").
Orders for the purchase of Class Y shares of the Fund will be confrmed at the
public offering price which is equal to the net asset value per share next
determined after receipt of the order in proper form by EKD (generally as of the
close of the Exchange on that day). Orders received by broker-dealers or other
frms prior to the close of the Exchange and received by EKD prior to the close
of its business day will be confrmed at the offering price effective as of the
close of the Exchange on that day. Broker-dealers and other fnancial services
frms are obligated to transmit orders promptly.
Orders for Class Y shares received other than as stated above will receive the
public offering price, which is equal to the net asset value per share next
determined (generally, the next business day's offering price).
The Fund reserves the right to determine the net asset value more frequently
than once a day if deemed desirable.
The initial purchase amount 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. Share certificates
are not issued.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus, including the right to suspend sales, and to reject purchase
orders.
Shareholder inquiries should be directed to EKSC by calling toll free
1-800-343-2898 or writing to EKSC or to the frm from which you received this
prospectus.
HOW TO REDEEM SHARES
You may redeem (i.e., sell) Class Y shares of the Fund for cash at their net
redemption value by writing to the Fund, c/o Evergreen Keystone Service Company,
Box 2121, Boston, Massachusetts 02106-2121, and presenting a properly endorsed
share certifcate (if certifcates have been issued) to the Fund. Your
signature(s) on the written order and certifcates must be guaranteed as
described below. In order to redeem by telephone or to engage in telephone
transactions generally, you must complete the authorization in your account
application. Proceeds for shares redeemed on telephone order will be deposited
by wire or EFT only to the bank account designated in your account application.
You may also redeem your shares through your broker-dealer. EKD, acting as
agent for the Fund, stands ready to repurchase Fund shares upon orders from
broker-dealers and will calculate the net asset value on the same terms as those
orders for the purchase of shares received from broker-dealers and described
under "How to Buy Shares." If EKD has received proper documentation, it will pay
the redemption proceeds to the broker-dealer placing the order within seven days
thereafter. EKD charges no fee for this service. Your broker-dealer, however,
may charge a service fee.
The redemption value equals the net asset value per share adjusted for
fractions of a cent and may be more or less than your cost depending upon
changes in the value of the Fund's portfolio securities between purchase and
redemption.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check, which may take up to 15 days. Any
delay may be avoided by purchasing shares either with a certifed check, by
Federal Reserve or bank wire of funds, by direct deposit or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may
14
<PAGE>
be delayed, the redemption value will be determined and the redemption processed
in the ordinary course of business upon receipt of proper documentation. In such
a case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption will be made within seven days thereafter except
as discussed herein.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND EKSC'S POLICIES. The Fund or EKSC may waive this
requirement or may require additional documents in certain cases. 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.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute the
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.
TELEPHONE REDEMPTIONS
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. As mentioned above, to engage
in telephone transactions generally, you must complete the appropriate sections
of the Fund's application.
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
specifc to your account. At the conclusion of the transaction, you will be given
a transaction number confrming your request. Written confrmation 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.
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 above.
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 notifed in writing and allowed 60 days to
increase the value of your account to the minimum investment level.
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.
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 over the Evergreen Keystone Express Line, or by telephone.
EKSC will employ reasonable procedures to confrm that instructions received over
the Evergreen Keystone Express Line or by telephone are genuine. Neither the
Fund, EKSC, nor EKD will be liable when following instructions received over the
Evergreen
15
<PAGE>
Keystone Express Line or by telephone that EKSC reasonably believes to be
genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained by writing to EKSC or
calling toll free 1-800-343-2898. As of May 5, 1997, the following shareholder
services will be available.
EVERGREEN KEYSTONE EXPRESS LINE
The Evergreen Keystone Express Line offers you specifc fund account
information, price, and yield quotations as well as the ability to do 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 some or all
of your Class Y shares of the Fund for Class Y shares of certain other Evergreen
Keystone funds at net asset value through your broker-dealer, by calling or
writing to EKSC or by using the Evergreen Keystone Express Line.
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 of each fund's Class Y shares 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.
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.
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 fve exchanges of shares of the funds 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. 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 confrmation
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 $100 or more than $10,000 per investment. Telephone investment
requests received by 4:00 p.m. (Eastern time) will be credited to a
shareholder's account the day the request is received. Shares purchased under
the Systematic Investment Plan or Telephone Investment Plan may not be redeemed
for ten days from the date of investment.
16
<PAGE>
RETIREMENT PLANS
The Fund has various retirement plans available to you, including Individual
Retirement Accounts (IRAs); Rollover IRAs; Simplifed Employee Pension Plans
(SEPs); SIMPIEs; 403(b)(7) Plans (TSAs); 401(k) Plans; Keogh Plans;
Proft-Sharing Plans; Pension and Target Benefit Plans and Money Purchase Plans.
For details, including fees and application forms, call EKSC toll free
1-800-247-4075 or write to EKSC at P.O. Box 2121, Boston, Massachusetts
02106-2121.
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.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fxed dollar amount each month
or each quarter in any Evergreen Keystone fund. This results in more shares
being purchased when the selected fund's net asset value is relatively low and
fewer shares being purchased when the fund's net asset value is relatively high
and may result in a lower average cost per share than a less systematic
investment approach.
Prior to participating in dollar cost averaging, you must establish an account
in an Evergreen Keystone fund or a money market fund managed or advised by
Keystone or Evergreen Asset. You should designate on the application (1) the
dollar amount of each monthly or quarterly investment you wish to make and (2)
the fund in which the investment is to be made. Thereafter, on the frst day of
the designated month, an amount equal to the specifed monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any Class Y
Evergreen Keystone fund shares you may own automatically invested to purchase
the same class of shares of certain other Evergreen Keystone funds. You may
select this service on your application and indicate the Evergreen Keystone
fund(s) into which distributions are to be invested.
OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
17
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PERFORMANCE DATA
From time to time the Fund may advertise "total return" and "current yield".
ALL DATA IS BASED ON HISTORICAL RESULTS. PAST PERFORMANCE SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF RESULTS FOR ANY FUTURE PERIOD OF TIME. Total return
and current yield are computed separately for each class of shares of the Fund.
Total return refers to average annual compounded rates of return over specifed
periods determined by comparing the initial amount invested in a particular
class to the ending redeemable value of that amount. The resulting equation
assumes reinvestment of all dividends and distributions and deduction of the
maximum sales charge or applicable contingent deferred sales charge and all
recurring charges, if any, applicable to all shareholder accounts.
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 also include comparative performance information and general
mutual fund industry information for each class of shares when advertising or
marketing the Fund's shares, such as data from Lipper Analytical Services, Inc.,
Morningstar, Inc., Standard & Poor's Ratings Group, Ibbotson Associates or other
industry publications.
FUND SHARES
The Fund currently issues Class A, B, C and Y shares, which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(1) expenses related to the distribution of Class A, B and C shares, or other
expenses that the Board of Trustees may designate as class expenses, from time
to time, are borne solely by each class; (2) each class of shares having a
Distribution Plan has exclusive voting rights with respect to its Distribution
Plan; (3) each class has different exchange privileges; and (4) each class
generally has a different designation. When issued and paid for, the shares will
be fully paid and non-assessable by the Fund.
Class A shares bear most of the costs of distribution of such shares through
payment of a front-end sales load while Class B and Class C shares bear such
expenses through a higher annual distribution fee. As a result, expenses
attributable to Class B shares and Class C shares will generally be higher, and
income distributions paid by the Fund with respect to Class A shares will
generally be greater than those paid with respect to Class B and Class C shares.
Class Y shares are not subject to a front-end sales load or a contingent
deferred sales charge and pay no distribution or shareholder servicing expenses.
Therefore, income distributions paid by the Fund on Class Y shares will be
greater than those paid with respect to Class A, B and C shares.
Class Y shares may be exchanged as explained under "Shareholder Services,"but
will have no other preference, conversion, exchange or preemptive rights. Shares
are redeemable, transferable and freely assignable as collateral. The Fund is
authorized to issue additional series or classes of shares.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares of the Fund vote together except when
required by law to vote separately by series or class. The Fund does not have
annual meetings. The Fund will have special meetings, from time to time, as
required under its Declaration of Trust and under the 1940 Act. As provided in
the Fund's Declaration of Trust, shareholders have the right to remove Trustees
by an affrmative 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
18
<PAGE>
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.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnifcation from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
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 notice to those shareholders, the Fund intends, when an annual
report or a 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 change fees for
services provided.
19
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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. 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. 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 acquired 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 will be 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 may 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; i.e., the Fund purchases a
security subject to its obligation to resell and the seller's obligation to
repurchase that security at an agreed upon price and date, such date usually
being not more than seven days from the date of purchase. The
(i)
<PAGE>
resale price is based on the purchase price plus an agreed upon market rate of
interest that is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement imposes an obligation on the seller to pay the
agreed upon price, which obligation is in effect secured by the value of the
underlying security. The value of the underlying security is at least equal to
the amount of the agreed upon resale price and marked to market daily. The Fund
may enter into such agreements only with respect to U.S. government securities.
Whether a repurchase agreement is the purchase and sale of a security or a
collateralized loan has not been definitively established. This might become an
issue in the event of the bankruptcy of the other party to the transaction. It
does not presently appear possible to eliminate all risks involved in repurchase
agreements. These risks include the possibility of a decline in the market value
of the underlying securities, as well as delay and costs to the Fund in
connection with bankruptcy proceedings. Therefore, it is the policy of the Fund
to enter into repurchase agreements only with large, well-capitalized banks that
are members of the Federal Reserve System and with primary dealers in U.S.
government securities (as designated by the Federal Reserve Board) whose
creditworthiness has been reviewed and found satisfactory by Keystone.
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
that the Fund is obligated to repurchase may decline below the repurchase price.
FOREIGN SECURITIES
The Fund may invest up to 25% of its assets in securities principally traded
in securities markets outside the United States. While investment in foreign
securities is intended to reduce risk by providing further diversification, such
investments involve sovereign risk in addition to the credit and market risks
normally associated with domestic securities. Foreign investments may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the United States. Investments in foreign securities may also be
subject to other risks different from those affecting U.S. investments,
including local political or economic developments, expropriation or
nationalization of assets, imposition of withholding taxes on dividend or
interest payments and currency blockage (which would prevent cash from being
brought back to the United States). These risks are carefully considered by
Keystone prior to the purchase of these securities.
"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
(ii)
<PAGE>
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. However, no payment or delivery
is made by the Fund until it receives payment or delivery from the other party
to the transaction. A separate account of liquid assets equal to the value of
such purchase commitments will be maintained until payment is made.
When issued and delayed delivery agreements are subject to risks from changes
in value based upon 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 consistent with its investment objective and policies and not for the
purpose of investment leverage.
SHORT SALES
The Fund may make short sales of securities "against the box." A short sale
involves the borrowing of a security, which must eventually be returned to the
lender. A short sale is "against the box" if, at all times when the short
position is open, the Fund owns the securities sold short or owns an equal
amount of securities convertible into, or exchangeable without further
consideration for, securities identical to the securities sold short. Short
sales against the box are used to defer recognition of gains or losses or in
order to receive a portion of the interest earned by the executing broker from
the proceeds of such sale. The proceeds of a short sale are held by the broker
until the settlement date when the Fund delivers the security or convertible
security to close out its short position. Although prior to such delivery the
Fund will have to pay an amount equal to any dividends paid on the securities
sold short, the Fund will receive the dividends from the securities convertible
into the securities sold short plus a portion of the interest earned from the
proceeds of the short sale. The Fund will not make short sales of securities
subject to outstanding call options written by it. The Fund will segregate the
securities sold short or appropriate convertible securities in a special account
with the Fund's custodian in connection with its short sales "against the box."
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. These securities, which include
bonds, debentures, corporate notes, preferred stocks and other securities, are
securities that the holder can convert into common stock. Convertible securities
rank senior to common stock in a corporation's capital structure and, therefore,
entail less risk than a corporation's common stock. The value of a convertible
security is a function of its investment value (its market worth without a
conversion privilege) and its conversion value (its market worth if exchanged).
If a convertible security's investment value is greater than its conversion
value, its price primarily will reflect its investment value and will tend to
vary inversely with interest rates (the issuer's creditworthiness and other
factors also may affect its value). If a convertible security's conversion value
is greater than its investment value, its price will tend to be higher than its
conversion value and it will tend to fluctuate directly with the price of the
underlying equity security.
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
(iii)
<PAGE>
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, although the Fund generally uses derivatives
primarily as direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. The Fund uses futures contracts and
related options for hedging purposes. Derivatives are a valuable tool which,
when used properly, can provide significant benefit to Fund shareholders.
Keystone 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 objective and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the Fund's statement of additional
information. The Fund does not presently engage in the use of swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Fund.
(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
(iv)
<PAGE>
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 the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put
options. No more than 25% of its net assets will be subject to covered 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 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 eligible 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 liquid assets having a value equal to or greater than the exercise
price of the option with its custodian in a segregated account.
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. 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 call and put options.
The Fund would normally purchase call options to hedge against an increase in
the market value of its securities. The Fund will not engage in such
transactions for speculation. The purchase of a call option would entitle the
Fund, in return for the premium paid, to purchase specified securities at a
specified price upon exercise of the option during the option period. The Fund
would ordinarily realize a gain if, during the option period, the value of such
securities exceeds the sum of the exercise price, the premium paid and
transaction costs. Otherwise, the Fund would realize a loss on the purchase of
the call option.
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 until the options expire or are exercised.
The Fund would normally purchase put options to hedge against a decline in the
market value of
(v)
<PAGE>
securities in its portfolio (protective puts) or securities of the type in which
it is permitted to invest. The purchase of a put option would entitle the Fund,
in exchange for the premium paid, to sell specified securities at a specified
price during the option period. The purchase of protective puts is designed to
offset or hedge against a decline in the market value of the Fund's securities.
Gains and losses on the purchase of protective put options would tend to be
offset by countervailing changes in the value of underlying portfolio
securities. Put options may also be purchased by the Fund for the purpose of
affirmatively benefitting from a decline in the price of securities that the
Fund does not own. The Fund would ordinarily realize a gain if, during the
option period, the value of the underlying securities declined below the
exercise price sufficiently to cover the premium and transaction costs.
Otherwise, the Fund would realize a loss on the purchase of the put option.
The Fund may purchase put and call options on securities indices for the same
purposes as the purchase of options on securities. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash payments and does not involve the actual purchase or
sale of securities. In addition, securities index options are designed to
reflect price fluctuations in a group of securities or segment of the securities
market rather than price fluctuations in a single security.
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 which the Fund will trade are generally listed
on national securities exchanges. Exchanges on which such options currently are
traded are the Chicago Board Options Exchange and the New York, American,
Pacific and Philadelphia Stock Exchanges.
FUTURES TRANSACTIONS
The Fund may enter into futures contracts for the purchase or sale of
securities or currency or futures contracts based on stock indices and write
options on such contracts. The Fund intends to enter into such contracts and
related options for hedging purposes. The Fund may enter into other types of
futures contracts that may become available and relate to the securities held by
the Fund. The Fund will enter into futures contracts in order to hedge against
changes in securities prices. A futures contract is an agreement to buy or sell
securities or currencies at a specified price during a designated month. 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 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 would sell futures
contracts in order to offset a possible decline in the value of its securities
or currencies. If a futures contract were purchased by the Fund, the value of
the contract would tend to rise when the value of the underlying securities
increased and to fall when the value of such securities declined. The Fund
intends to purchase futures contracts in order to fix 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 may also purchase put and call options on securities and currency
futures contracts for hedging purposes. A put option purchased by the Fund would
give it the right to
(vi)
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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 write (sell) put and call options on futures contracts for
hedging purposes. The writing of a put option on a futures contract generates a
premium, which may partially offset an increase in the price of securities that
the Fund intends to purchase. However, the Fund becomes obligated to purchase a
futures contract, which may have a value lower than the exercise price.
Conversely, the writing of a call option on a futures contract generates a
premium which may partially offset a decline in the value of the Fund's assets.
By writing a call option, the Fund becomes obligated, in exchange for the
premium, to sell a futures contract, which may have a value higher than the
exercise price.
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 options transactions are intended to enable the Fund to
manage market risk, unanticipated changes in market prices could result in
poorer performance than if it had not entered into these transactions. Even if
Keystone correctly predicts market price 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 positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities 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. The Fund
may not purchase or sell futures contracts or options on futures, except for
closing purchase or sale transactions, if immediately thereafter the sum of
margin deposits on the Fund's outstanding futures and options positions and
premiums paid for outstanding options on futures would exceed 5% of the market
value of the Fund's total assets. These transactions involve brokerage costs,
require margin deposits and, in the case of contracts and options obligating the
Fund to purchase securities, require the Fund to segregate assets to cover such
contracts and options. In addition, the Fund's activities in futures contracts
may be limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company.
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.
(vii)
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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
exchange rates between foreign currencies and the U.S. dollar. The value of the
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the U.S. dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Fund. The
Fund may also purchase and sell options related to foreign currencies in
connection with hedging strategies.
ZERO COUPON BONDS
A zero coupon (interest) "stripped" bond represents ownership in serially
maturing interest or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. These bonds mature on the payment
dates of the interest on principal which they represent. Each zero coupon bond
entitles the holder to receive a single payment at maturity. There are no
periodic interest payments on a zero coupon bond. Zero coupon bonds are offered
at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights and
privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individually against the issuer and are not required to act in concert with
other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon bonds or
coupon zero coupon bond (either initially or in the secondary market) is treated
as if the buyer had purchased a corporate obligation issued on the purchase date
with an original issue discount equal to the excess of the amount payable at
maturity over the purchase price. The purchaser is required to take into income
each year as ordinary income an allocable portion of such discounts determined
on a "constant yield" method. Any such income increases the holder's tax basis
for the zero coupon bond, and any gain or loss on a sale of the zero coupon
bonds relative to the holder's basis, as so adjusted, is a capital gain or loss.
If the holder owns coupon bonds and coupon zero bonds representing separate
interests in the coupon (interest) payments and the principal payments from the
same underlying issue of securities, a special basis allocation rule (requiring
the aggregate basis to be allocated among the items sold and retained based on
their relative fair market value at the time of sale) may apply to determine the
gain or loss on a sale of any such zero coupon bonds.
If and when the Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material effect on dividends. The Fund
has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to
(viii)
<PAGE>
maturity, and the interest on these securities is reported as income to the Fund
and distributed to its shareholders. These distributions must be made from the
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. The Fund will not be able to purchase additional income producing
securities with cash used to make such distributions and its current income
ultimately may be reduced as a result.
LOANS OF SECURITIES
The Fund may lend its securities to brokers and dealers or other institutional
borrowers for use in connection with their short sales, arbitrages or other
securities transactions. Such loan transactions afford the Fund an opportunity
to continue to earn income on the securities loaned and at the same time to earn
income on the collateral held by it to secure the loan. Loans of portfolio
securities will be made (if at all) in strict conformity with applicable federal
and state rules and regulations. There may be delays in recovery of loaned
securities or even a loss of rights in collateral should the borrower fail
financially. Therefore, loans will be made only to firms deemed by Keystone to
be of good standing and will not be made unless, in the judgment of Keystone,
the consideration to be earned from such loans justifies the risk.
The Fund understands that it is the current view of the staff of the
Securities and Exchange Commission that it is permitted to engage in loan
transactions only if it meets the following conditions: (1) the Fund must
receive 100% collateral in the form of cash or cash equivalents, e.g., U.S.
Treasury bills or notes, from the borrower; (2) the borrower must increase the
collateral whenever the market value of the securities (determined on a daily
basis) exceeds the value of the collateral; (3) the Fund must be able to
terminate the loan, after notice, at any time; (4) the Fund must receive
reasonable interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest or other distributions on the
securities loaned and any increase in the securities' market values; (5) the
Fund may pay only reasonable custodian fees in connection with the loan; and (6)
voting rights on the securities loaned may pass to the borrower; however, if a
material event affecting the securities occurs, the Fund must be able to
terminate the loan and vote proxies or enter into an alternative arrangement
with the borrower to enable the Fund to vote proxies. Excluding Items (1) and
(2), these procedures may be amended from time to time, as regulatory policies
may permit, by the Fund's Board of Trustees without shareholder approval. Such
loans may not exceed 25% of the Fund's total assets.
(ix)
<PAGE>
KEYSTONE AMERICA
FUND FAMILY
(diamond appears here)
Balanced Fund II
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Global Resources and Development Fund
Small Company Growth Fund II
KEYSTONE
OMEGA FUND
(Evergreen Keystone Funds logo) (Evergreen Keystone Funds Logo)
Evergreen Keystone Distributor, Inc.
125 W. 55th Street
New York, New York 10019
(recycle logo)
10M
530236
PROSPECTUS AND
APPLICATION
Class Y Shares
<PAGE>
KEYSTONE OMEGA FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE OMEGA FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1997
This statement of additional information pertains to all classes of
shares of Keystone Omega Fund (the "Fund"). It is not a prospectus, but relates
to, and should be read in conjunction with, either the prospectus offering Class
A, B and C shares dated April 30, 1997 or the separate prospectus offering Class
Y shares dated April 30, 1997, as supplemented from time to time. You may obtain
copies of each prospectus from the Fund's principal underwriter, Evergreen
Keystone Distributor, Inc., or your broker-dealer.
TABLE OF CONTENTS
The Fund..........................................2
Service Providers.................................2
Investment Restrictions...........................3
Distribution and Taxes............................5
Valuation of Securities...........................5
Brokerage.........................................6
Sales Charges.....................................8
Distribution Plans...............................11
Trustees and Officers............................14
Investment Adviser...............................18
Principal Underwriter............................19
Sub-administrator................................20
Declaration of Trust.............................21
Expenses.........................................23
Standardized Total Return
and Yield Quotations..........................24
Financial Statements.............................25
Additional Information...........................25
Appendix........................................A-1
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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 maximum
capital growth by investing in a varied portfolio consisting primarily of common
stocks and securities convertible into common stocks.
Certain information about the Fund is contained in its prospectuses.
This statement of additional information ("SAI") provides additional information
about the Fund that may be of interest to some investors.
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
Marketing services agent and Evergreen Keystone Investment Services, Inc. (formerly
predecessor to EKD (referred to Keystone Investment Distributors Company), 200 Berkeley
in this SAI as "EKIS") Street, Boston, Massachusetts 02116
Sub-administrator (referred to in BISYS Fund Services, 3435 Stelzer Road,
this SAI as "BISYS") Columbus, Ohio 43219
Transfer and dividend disbursing Evergreen Keystone Service Company (formerly Keystone
agent (referred to in this SAI as Investor Resource Center, Inc.), 200 Berkeley Street,
"EKSC") Boston, Massachusetts 02116 (EKSC is a wholly-owned
subsidiary of Keystone)
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>
<PAGE>
3
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions set forth below are fundamental and may not
be changed without the vote of a majority of the Fund's outstanding voting
shares (as defined in the Investment Company Act of 1940, as amended (the "1940
Act")). Unless otherwise stated, all references to the Fund's assets are in
terms of current market value.
The Fund may not do the following:
(1) purchase securities on margin, provided that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases and
sales of securities;
(2) make short sales of securities or maintain a short position,
unless, at all times when a short position is open, it owns an equal amount of
such securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short and unless not more than 15% of the Fund's net assets
(taken at market or fair value as determined by the Fund's Board of Trustees) is
held as collateral for such sales at any one time (a reason for making such a
sale would be to defer realization of gain or loss for federal income tax
purposes);
(3) make loans, except by the purchase of a portion of an issue of
bonds, notes, debentures or other obligations publicly distributed or of a type
customarily purchased by financial institutions, or by entering into loan
transactions with respect to portfolio securities not in excess of 25% of the
Fund's total assets (taken at current value) immediately after such transaction;
the Fund will not lend any of its assets to any investment adviser or principal
underwriter for the Fund or to any officer, trustee or employee of either of
them or of the Fund;
(4) borrow, unless, immediately after any such borrowing, such
borrowing and all other such borrowings and other liabilities do not exceed
one-third of the value of the Fund's total assets (including all such
borrowings), taken at market or other fair value;
(5) invest more than 10% of the Fund's total assets (taken at market or
fair value as determined by the Fund's Board of Trustees) in the securities of
any one issuer (except United States ("U.S.") government securities);
(6) purchase securities of any company with a record of less than three
years' continuous operation (including that of predecessors) if such purchase
would cause the Fund's investments in such companies taken at cost to exceed 5%
of the Fund's total assets taken at market value;
(7) purchase or sell real estate or interests in real estate;
(8) purchase or sell commodities or commodity contracts, except that
the Fund may engage in transactions in commodity futures contracts and options
on commodity futures contracts, other than physical commodity futures contracts;
(9) purchase or acquire the securities of any other investment company;
except that it may make such a purchase or acquisition in the open market
involving no commission or profit to a
19999
<PAGE>
4
sponsor or dealer (other than the customary broker's commission); provided that,
immediately after such purchase or acquisition, the Fund and any company or
companies controlled by the Fund do not own in the aggregate:
(a) more than 3% of the total outstanding voting stock of the
acquired company;
(b) securities issued by the acquired company having an aggregate
value in excess of 5% Of the value of the total assets of the
Fund; or
(c) securities issued by the acquired company and all other
investment companies having an aggregate value in excess of
10% of the value of the total assets of the Fund; and provided
that, immediately after such purchase or acquisition, the
Fund, other investment companies having the same investment
adviser, and companies controlled by the Fund and/or such
investment companies do not own more than 10% of the total
outstanding voting stock of any closed-end investment company
so purchased or acquired;
(10) purchase or retain the securities of any issuer if those officers
and trustees of the Fund or its investment adviser owning individually more than
one-half of 1% of the securities of such issuer together own more than 5% of the
securities of such issuer;
(11) act as a securities underwriter, or act as a distributor of
securities of which it is the issuer, except that the Fund may issue, sell and
distribute securities of which it is the issuer, including additional shares of
its capital stock, and may act as its own distributor of such securities to the
extent that such action is not in contravention of such rules and regulations as
the Securities and Exchange Commission (the "Commission") may prescribe in
respect thereof, and except that the Fund might be deemed an underwriter within
the meaning of Section 2(11) of the Securities Act of 1933 ("1933 Act") in
making sales of restricted securities; or
(12) concentrate its investments in any particular industry.
A borrowing limitation in excess of 5% is generally associated with a
leveraged fund. The Fund anticipates borrowing only for temporary purposes. To
the extent the Fund's total borrowings exceed 5%, no additional investments will
be made until such borrowings are reduced to 5%.
As a diversified investment company, the Fund has undertaken not to
purchase a security if, as a result, more than 10% of the outstanding voting
securities of any single issuer would be held by the Fund or more than 5% of its
total assets would be invested in the securities of any one issuer.
A purchase by the Fund of securities of other investment companies
would result in a layering of expenses such that the Fund's shareholders would
indirectly bear a proportionate share of the expenses of those investment
companies, including operating costs, investment advisory fees and
administrative fees. The Fund does not anticipate purchasing the securities of
other investment companies.
Whenever an investment policy or restriction states a maximum
percentage of the Fund's assets that may be invested in any security or other
asset, it is intended that such minimum or maximum percentage limitation be
determined immediately after and as a result of the acquisition of such security
or other asset. Accordingly, any later increase or decrease resulting from
changes in values, net assets or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment policies
and restrictions.
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<PAGE>
5
If a percentage limit is satisfied at the time of investment, a later
increase or decrease resulting from a change in asset value is not a violation
of the limit.
DISTRIBUTIONS AND TAXES
The Fund will make distributions to its shareholders of dividends from
net investment income and net realized capital gains, if any, at least annually
in shares or, at the option of the shareholder, in cash. 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 ex-dividend date after
adjustment for the distribution. Net asset value 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 within
seven days after the Fund pays the distribution. 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 how long the shareholder has held Fund shares. If such
shares are held less than six months and redeemed at a loss, however, 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 values for the Fund's portfolio securities are determined as
follows:
(1) common stock, preferred stock and other equity securities listed on
the New York Stock Exchange (the "Exchange") are valued on the basis of the sale
price as of 4:00 pm Eastern time on the Exchange. In the absence of any sales,
such securities are valued at the last bid price;
(2) common stock, preferred stock and other equity securities listed on
other U.S. or foreign exchanges will be valued as described in (1) above using
quotations on the exchange on which the security is most extensively traded;
19999
<PAGE>
6
(3) common stock, preferred stock and other equity securities unlisted
and quoted on the National Market System ("NMS") are valued at the last sale
price, provided a sale has occurred. In the absence of any sales, such
securities are valued at the high or "inside" bid, which is the bid supplied by
the National Association of Securities Dealers Automated Quotation system
("NASDAQ") for securities traded in the over-the-counter market;
(4) common stock, preferred stock and other equity securities quoted on
the NASDAQ system but not listed on NMS are valued at the high or "inside" bid;
(5) common stock, preferred stock and other equity securities not
listed and not quoted on the NASDAQ system and for which over-the-counter market
quotations are readily available are valued at the mean between the current bid
and asked prices for such securities;
(6) non-U.S. common stock, preferred stock and other equity securities
not listed or listed and subject to restrictions on sale are valued at prices
supplied by a dealer selected by Keystone;
(7) bonds, debentures and other debt securities, whether or not listed
on any national securities exchange, are valued at a price supplied by a pricing
service or a bond dealer selected by Keystone;
(8) short-term investments maturing in sixty days or less are valued at
amortized cost if their original term to maturity from the date of purchase was
sixty days or less, or by amortizing their value on the sixty-first day prior to
maturity if their term to maturity from the date of purchase exceeds sixty days,
unless the Trustees determine that such valuation does not represent fair market
value;
(9) options, futures contracts and options on futures listed or traded
on a national exchange are valued at the last sale price on such exchange prior
to the time of determining net asset value, or, if no sale is reported, are
valued at the mean between the most recent bid and asked prices;
(10) forward currency contracts are valued at their last sale as
reported by a pricing service and, in the absence of a report, at a value
determined on the basis of the underlying currency at prevailing exchange rates;
(11) securities subject to restrictions on resale are valued at fair
value at least monthly by a pricing service under the direction of the Fund's
Board of Trustees; and
(12) all other assets are valued at fair market value as determined by
or under the direction of the Fund's Board of Trustees.
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:
19999
<PAGE>
7
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; and
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").
The Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commissions paid.
Should the Fund or Keystone receive research 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 research services are generally indeterminable and cannot be practically
allocated between the Fund and its other clients who may indirectly benefit from
the availability of such services. 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 when selecting brokers to execute portfolio transactions,
subject to the requirements of best execution described above.
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 it effects transactions 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
19999
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8
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. Because of the possibility 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 CHARGES
The Fund offers four classes of shares that differ primarily with
respect to sales charges and distribution fees. As described below, depending
upon the class of shares that you purchase, the Fund will impose a sales charge
when you purchase Fund shares, a contingent deferred sales charge (a "CDSC")
when you redeem Fund shares or no sales charges at all. 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 Plans"). If imposed, the Fund deducts CDSCs 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. (the "NASD"), paid to EKD or its predecessor. See the appropriate
prospectus for additional information on a particular class.
CLASS DISTINCTIONS
CLASS A SHARES
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%, payable at the time of purchase. (The
prospectus for Class A, B and C shares contains a complete table of applicable
sales charges and a discussion of sales charge reductions or waivers that may
apply to purchases.) If you purchase Class A shares in the amount of $1 million
or more, without an initial sales charge, the Fund will charge a CDSC of 1.00%
if you redeem during the month of your purchase and the 12-month period
following the month of your purchase. See "Calculation of Contingent Deferred
Sales Charge" below.
<PAGE>
9
CLASS B SHARES
The Fund offers Class B shares at net asset value (without an initial
sales charge). With respect to Class B shares, the Fund charges a CDSC on shares
redeemed as follows:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase.................5.00%
Second twelve-month
period following the month of purchase.................4.00%
Third twelve-month
period following the month of purchase.................3.00%
Fourth twelve-month
period following the month of purchase.................3.00%
Fifth twelve-month
period following the month of purchase.................2.00%
Sixth twelve-month
period following the month of purchase.................1.00%
Thereafter..................................................0.00%
Class B shares purchased that have been outstanding for seven years
after the month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificate to EKSC.) See "Calculation of Contingent Deferred Sales Charge"
below.
CLASS C SHARES
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with EKD. The Fund offers Class C
shares at net asset value (without an initial sales charge). With certain
exceptions, however, the Fund will charge a CDSC of 1.00%, if you redeem shares
during the month of your purchase and the 12-month period following the month of
your purchase. See "Calculation of Contingent Deferred Sales Charge" below.
CLASS Y SHARES
No CDSC is imposed on the redemption of Class Y shares.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any CDSC imposed upon the redemption of Class A, Class B or Class C
shares is a percentage of the lesser of (1) the net asset value of the shares
redeemed or (2) the net asset value at time of purchase of such shares. Upon
request for redemption, the Fund will redeem shares not subject to a CDSC first.
Thereafter, the Fund will redeem first shares held the longest.
SHARES THAT ARE NOT SUBJECT TO A SALES CHARGE OR CDSC
EXCHANGES
The Fund does not charge a CDSC when you exchange your shares for the
shares of the same class of another Evergreen Keystone Fund. (See "Additional
Information" for descriptions of the Evergreen Keystone Funds.) However, if you
are exchanging shares that are still subject to a CDSC,
19999
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10
the CDSC will carry over to the shares you acquire through the exchange.
Moreover, the Fund will compute any future CDSC based upon the date you
originally purchased the shares you tendered for exchange.
WAIVER OF SALES CHARGES
The Fund may sell its shares at net asset value without an initial
sales charge to:
1. purchasers buying shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax sheltered
annuity or TSA plan sponsored by an organization having 100 or more
eligible employees (a "Qualifying Plan") or a TSA plan sponsored by a
public educational entity having 5,000 or more eligible employees (an
"Educational TSA Plan");
3. institutional investors, which may include bank trust departments and
registered investment advisers;
4. investment advisers, consultants or financial planners who place trades
for their own accounts or the accounts of their clients and who charge
such clients a management, consulting, advisory or other fee;
5. clients of investment advisers or financial planners who place trades
for their own accounts if the accounts are linked to the master account
of such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased;
6. institutional clients of broker-dealers, including retirement and
deferred compensation plans and the trusts used to fund these plans,
that place trades through an omnibus account maintained with the Fund
by the broker-dealer;
7. employees of First Union National Bank of North Carolina ("FUNB") and
its affiliates, EKD and any broker-dealer with whom EKD has entered
into an agreement to sell shares of the Fund, and members of the
immediate families of such employees;
8. certain Directors, Trustees, officers employees of the Fund, Keystone,
EKD or their affiliates and to the immediate families of such persons;
or
9. a bank or trust company in a single account in the name of such bank or
trust company as trustee if the initial investment in shares of the
Fund or any fund in the Evergreen Keystone Funds purchased pursuant to
this waiver is at least $500,000 and any commission paid at the time of
such purchase is not more than 1% of the amount invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers written assurance that he or she is buying the
shares for investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. In addition, the Fund will not
charge a CDSC on redemptions by such purchasers.
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<PAGE>
11
WAIVER OF CDSCS
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the value of the shares you redeem above the net cost of
such shares;
2. certain shares for which the Fund did not pay a commission on issuance,
including shares acquired through reinvestment of dividend income and
capital gains distributions;
3. shares that are in the accounts of a shareholder who has died or become
disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit plan
qualified under the Employee Retirement Income Security Act of 1974
("ERISA");
5. automatic withdrawals from the ERISA plan of a shareholder who is a
least 59 1/2 years old;
6. shares in an account that we have closed because the account has an
aggregate net asset value of less than $1,000;
7. automatic withdrawals under a Systematic Withdrawal Plan of up to 1.00%
per month of your initial account balance;
8. withdrawals consisting of loan proceeds to a retirement plan
participant;
9. financial hardship withdrawals made by a retirement plan participant;
10. withdrawals consisting of returns of excess contributions or excess
deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan that
purchased Class C shares (this waiver is not available in the event a
Qualifying Plan, as a whole, redeems substantially all of its assets).
DISTRIBUTION PLANS
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule (a "Distribution Plan").
The Fund's Class A, B and C Distribution Plans have been approved by
the Fund's Board of Trustees, including a majority of the Trustees who are not
interested persons of the Fund, as defined in the 1940 Act, and who have no
direct or indirect financial interest in the Distribution Plans or any agreement
related thereto (the "Independent Trustees"). The Fund's Class Y shares have not
adopted a Distribution Plan and incur no Distribution Plan expenses.
The NASD limits the amount that the Fund may pay annually in
distribution costs for sales of its shares and shareholder service fees 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
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distribution costs to 6.25% of gross share sales since the inception of the
Distribution Plan, plus interest at the prime rate plus 1% on such amounts (less
any CDSCs paid by shareholders to EKD) remaining unpaid from time to time.
CLASS A DISTRIBUTION PLAN
The Class A Distribution Plan provides that the Fund may expend daily
amounts at an annual rate, which is currently limited to 0.25% of the Fund's
average daily net asset value attributable to Class A shares, to finance any
activity that is primarily intended to result in the sale of Class A shares,
including, without limitation, expenditures consisting of payments to EKD to
enable EKD to pay or to have paid to others who sell Class A shares a service or
other fee, at such intervals as EKD may determine, in respect of Class A shares
maintained by any such recipient and outstanding on the books of the Fund for
specified periods.
Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as broker-dealers, service fees at an annual
rate of up to 0.25% of the average net asset value of Class A shares maintained
by such others and outstanding on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS
The Class B Distribution Plans provide that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class B shares to finance any activity that is primarily
intended to result in the sale of Class B shares, including, without limitation,
expenditures consisting of payments to EKD and/or its predecessor. Payments are
made to EKD (1) to enable EKD to pay to others (broker-dealers) commissions in
respect of Class B shares sold since inception of a Distribution Plan; and (2)
to enable EKD to pay or to have paid to others a service fee, at such intervals
as EKD may determine, in respect of Class B shares maintained by any such
recipient and outstanding on the books of the Fund for specified periods; and
(3) as interest.
EKD generally reallows to broker-dealers or others a commission equal
to 4.00% of the price paid for each Class B share sold. The broker-dealer or
other party may also receive service fees at an annual rate of 0.25% of the
average daily net asset value of such Class B shares maintained by the recipient
and outstanding on the books of the Fund for specified periods.
EKD intends, but is not obligated, to continue to pay or accrue
distribution charges incurred in connection with the Class B Distribution Plans
that exceed current annual payments permitted to be received by EKD from the
Fund ("Advances"). EKD intends to seek full reimbursements of such Advances from
the Fund (together with annual interest thereon at the prime rate plus 1%) at
such time in the future as, and to the extent that, payment thereof by the Fund
would be within the permitted limits. If the Fund's Independent Trustees
authorize such reimbursements of Advances, the effect would be to extend the
period of time during which the Fund incurs the maximum amount of costs allowed
by the Class B Distribution Plans.
In connection with financing its distribution costs, including
commission advances to broker-dealers and others, EKIS, the predecessor to EKD,
sold to a financial institution substantially all of its 12b-1 fee collection
rights and CDSC collection rights in respect of Class B shares sold during the
period beginning approximately June 1, 1995 through November 30, 1996. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to adverse
distribution consequences.
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The financing of payments made by EKD to compensate broker-dealers or
other persons for distributing shares of the Fund will be provided by FUNB or
its affiliates.
CLASS C DISTRIBUTION PLAN
The Class C Distribution Plan provides that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class C shares to finance any activity that is primarily
intended to result in the sale of Class C shares, including, without limitation,
expenditures consisting of payments to EKD and/or its predecessor. Payments are
made to EKD (1) to enable EKD to pay to others (broker-dealers) commissions in
respect of Class C shares sold since inception of the Distribution Plan; and (2)
to enable EKD to pay or to have paid to others a service fee, at such intervals
as EKD may determine, in respect of Class C shares maintained by any such
recipient and outstanding on the books of the Fund for specified periods; and
(3) as interest.
The Principal Underwriter generally reallows to broker-dealers or
others a commission in the amount of 0.75% of the price paid for each Class C
share sold plus the first year's service fee in advance in the amount of 0.25%
of the price paid for each Class C share sold. Beginning approximately 15 months
after purchase, broker-dealers or others receive a commission at an annual rate
of 0.75% (subject to NASD rules) plus service fees at the annual rate of 0.25%
of the average daily net asset value of each Class C share maintained by the
recipients and outstanding on the books of the Fund for specified periods.
DISTRIBUTION PLANS - GENERAL
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the
Independent Trustees quarterly. The Independent Trustees may require or approve
changes in the implementation or operation of a Distribution Plan, and may also
require that total expenditures by the Fund under a Distribution Plan be kept
within limits lower than the maximum amount permitted by such Distribution Plan
as stated above.
Each of the Distribution Plans may be terminated at any time by a vote
of the Independent Trustees, or by vote of a majority of the outstanding voting
shares of the respective class of Fund shares. If the Class B Distribution Plans
are terminated, EKD and EKIS will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
such Advances.
Any change in a Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in a Distribution Plan requires
shareholder approval. Otherwise, a 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 each amendment.
While a Distribution Plan is in effect, the Fund will be 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 Plans have
benefitted the Fund.
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TRUSTEES AND OFFICERS
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all
other funds in the Keystone Families of Funds;
Professor, Finance Depart ment, George Washington
University; President, Amling & Company (investment
advice); and former Member, Board of Advisers,
Credito 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 the funds in the
Evergreen Family of Funds other than Evergreen
Investment Trust; real estate developer and
construction consultant; and President of Centrum
Equities and Centrum Properties, Inc.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all
other funds in the Keystone Families of Funds;
Investment Counselor to Appleton Partners, Inc.; and
former Managing Director, Seaward Management
Corporation (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; 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: Chairman of the Board, Chief Executive Officer and
Trustee of the Fund; Chairman of the Board, Chief
Executive Officer 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; 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.
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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 (education); former Chairman of the
Board, Director, and Executive Vice President, The
London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; former
Chairman, Gifford, Drescher & 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 Economic
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 the funds in the
Evergreen Family of Funds; and Sales Representative
with Nucor-Yamoto, Inc. (steel producer).
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16
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 the funds in the
Evergreen Family of Funds; 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; 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); 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.
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JOHN J. PILEGGI: President and Treasurer of the Fund; President and
Treasurer of all other funds in the Keystone
Families of Funds; President and Treasurer of all
the funds in the Evergreen Family of Funds; Senior
Managing Director, Furman Selz LLC since 1992;
Managing Director from 1984 to 1992; Consultant to
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 Keystone Families of Funds; Secretary of all
the funds in the Evergreen 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 1988-1995; 3435 Stelzer
Road, Columbus, Ohio.
* 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 December 31, 1996, the
unaffiliated Trustees received from the Fund $6,870 in retainers and fees. For
the year ended December 31, 1996, aggregate compensation received by Independent
Trustees on a fund complex wide basis (which includes over 30 mutual funds) was
$411,000. On March 31, 1997, the Trustees and officers of the Fund beneficially
owned less than 1.00% of the Fund's then outstanding shares.
Except as set forth above, the address of the Fund's Trustees and
officers is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Set forth below for each of the Independent Trustees receiving in
excess of $60,000 for the fiscal period March 1, 1996 through February 28, 1997
is the aggregate compensation paid to such Independent Trustees by the Evergreen
Keystone Funds:
Total
Aggregate Compensation
Compensation From Registrant
from and Fund Complex
NAME REGISTRANT PD. TO TRUSTEE
James S. Howell $0 $66,000
Russell A Salton, III M.D. $0 $61,000
Michael S. Scofield $0 $61,000
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INVESTMENT ADVISER
INVESTMENT ADVISER
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.
Keystone, organized in 1932, is a wholly-owned subsidiary of First Union
Keystone, Inc., 200 Berkeley Street, Boston, Massachusetts 02116-5034.
On December 11, 1996, the predecessor corporation to First Union
Keystone, Inc. (" First Union Keystone"), and indirectly each subsidiary of
First Union Keystone, including Keystone, were acquired (the "Acquisition") by
FUNB, a wholly-owned subsidiary of First Union. The predecessor corporation to
First Union Keystone was acquired by FUNB by merger into a wholly-owned
subsidiary of FUNB, which entity then succeeded to the business of the
predecessor corporation. Contemporaneous with the Acquisition, the Fund entered
into a new investment advisory agreement with Keystone and into a principal
underwriting agreement with EKD, an indirectly 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. As a result of the above transactions, Keystone Management, Inc.
("Keystone Management"), which prior to the Acquisition acted as investment
manager to the Fund, no longer acts as such to the Fund. Keystone currently
provides the Fund with all the services that may previously have been provided
by Keystone Management. The fee rate paid by the Fund for the services provided
by Keystone and its affiliates has not changed as a result of the Acquisition.
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 $140 billion in consolidated assets as of
December 31, 1996. 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 $60 billion in assets as of December 31, 1996, belonging to a
wide range of clients, including the Evergreen 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 Plans;
(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
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counsel for the Fund and for the Independent Trustees of the Fund on matters
relating to the Fund; (14) charges and expenses of filing annual and other
reports with the SEC and other authorities; and (15) all extraordinary charges
and expenses of the Fund.
The Fund pays Keystone a fee for its services at the annual rate of:
Aggregate Net Asset
Management Value of the Shares
FEE OF THE FUND
0.75% of the first $ 250,000,000, plus
0.675% of the next $ 250,000,000, plus
0.60% of the next $ 500,000,000, plus
0.50% of amounts over $ 1,000,000,000
Keystone's fee is computed as of the close of business each business
day and payable monthly.
Under the Advisory Agreement, any liability of Keystone in connection
with rendering services thereunder is limited to situations involving its
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties.
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" as that term is
defined in the 1940 Act.
PRINCIPAL UNDERWRITER
The Fund has entered into Principal Underwriting Agreements (each an
"Underwriting Agreement") with EKD with respect to each class. 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
Agreements provide that EKD will bear the expense of preparing, printing, and
distributing
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advertising 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 Plans.
All subscriptions and sales of shares by EKD are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Fund's Declaration of Trust, By-Laws, current prospectuses and this SAI. All
orders are subject to acceptance by the Fund, and the Fund reserves the right,
in its sole discretion, to reject any order received. Under the Underwriting
Agreements, the Fund is not liable to anyone for failure to accept any order.
The Fund has agreed under the Underwriting Agreements to pay all
expenses in connection with the registration of its shares with the SEC and
auditing and filing fees in connection with the registration of its shares under
the various state "blue-sky" laws.
EKD has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EKD has also agreed
that it will indemnify and hold harmless the Fund, and each person who has been,
is or may be a Trustee or officer of the Fund, against expenses reasonably
incurred by any of them in connection with any claim, action, suit or proceeding
to which any of them may be a party that arises out of or is alleged to arise
out of any misrepresentation or omission to state a material fact on the part of
EKD or any other person for whose acts EKD is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the Fund.
Each Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (1) by a majority of the
Independent Trustees and (2) by vote of a majority of Trustees, in each case,
cast in person at a meeting called for that purpose.
Each Underwriting 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 subject to such agreement. Each Underwriting Agreement
will terminate automatically upon its "assignment," as that term is defined in
the 1940 Act.
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 and 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:
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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 $29.2 billion as of February 28,
1997.
DECLARATION OF TRUST
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated September 21, 1994 (the "Declaration of Trust"). The
Fund is similar in most respects to a business corporation. The principal
distinction between the Fund and a corporation relates to the shareholder
liability described below. A copy of the Declaration of Trust was filed as an
exhibit to the Fund's Registration Statement. This summary is qualified in its
entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of the Fund
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 of the
Fund based on the relative net assets of each class. Shareholders have no
preemptive or conversion rights. Shares are redeemable and transferable. The
Fund is authorized to issue additional classes or series of shares. The Fund
currently issues Class A, B, C and Y shares, and may issue additional classes or
series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. If the Fund were held to be a partnership, the possibility of the
shareholders incurring financial loss for that reason appears remote because the
Declaration of Trust (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 Fund's Board of Trustees; and (3) provides for indemnification
out of Fund property for any shareholder held personally liable for the
obligations of the Fund.
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VOTING RIGHTS
No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the shares of
that class. Shares have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees to be elected at a meeting and, in such event, the
holders of the remaining 50% or fewer of the shares voting will not be able to
elect any Trustees.
After the initial meeting to elect Trustees, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and 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 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 be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when any
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 Declaration of Trust 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 Declaration of Trust 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 proper for conducting the
business and affairs of the Fund or promoting the interests of the Fund and the
shareholders.
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23
EXPENSES
INVESTMENT ADVISORY FEES
For each of the Fund's last three fiscal years, the table below lists
the total dollar amounts paid by (1) the Fund to Keystone Management, Inc.
("Keystone Management"), the Fund's former investment manager, for investment
management and administrative services rendered and (2) by Keystone Management
to Keystone for investment advisory services rendered. For more information, see
"Investment Adviser."
Percent of Fund's
Fee Paid to Keystone Average Net Assets Fee Paid to
Management under represented by Keystone under
Fiscal Year Ended the Management Keystone the Advisory
December 31, Agreement Management's Fee Agreement
- ------------------ ---------------------- -------------------- ---------------
1996 $1,831,142 0.75% $1,471,185
1995 $1,280,436 0.75% $1,088,371
1994 $924,625 0.75% $785,931
DISTRIBUTION PLAN EXPENSES
Listed below are the amounts paid by each class of shares under its
respective Distribution Plan to EKD and/or its predecessor for the fiscal year
ended December 31, 1996. For more information, see "Distribution Plans."
Class B Shares Sold Class B Shares Sold on
Class A Shares Prior to June 1, 1995 or after June 1, 1995 Class C Shares
- ----------------- ---------------------- ---------------------- --------------
$186,596 $319,442 $495,535 $168,748
UNDERWRITING COMMISSIONS
For each of the Fund's last three fiscal years, the table below lists
the aggregate dollar amounts of underwriting commissions (front-end sales
charges, plus distribution fees, plus CDSCs) paid 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."
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24
Aggregate Dollar Amount of
Fiscal Year Ended Aggregate Dollar Amount of Underwriting Commissions
December 31, Underwriting Commissions Retained by EKD or EKIS
- ------------------- ---------------------------- ----------------------------
1996 $983,621 $ 759,394
1995 $548,386 $1,167,486
1994 $275,537 $1,734,614
BROKERAGE COMMISSIONS
Fiscal Year Ended
December 31, Brokerage Commissions Paid
- ------------------------- --------------------------------------
1996 $829,479
1995 $735,203
1994 $592,800
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over the one, five and ten year periods, or
the time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment which would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The Class A cumulative total return figures for the one, five and ten
year periods ended December 31, 1996 were 6.02%, 69.99% and 321.17%,
respectively (including CDSCs). The Class A one year, five year and ten year
average annual total returns were 6.02%, 11.19% and 15.46%, respectively
(including CDSCs).
The Class B cumulative total return figure for the one year period
ended December 31, 1996 was 5.38% (including CDSCs). The Class B average annual
total returns for the one year period ended December 31, 1996 and for the period
from August 2, 1993 (date of initial public offering) through December 31, 1996
were 5.38% and 12.49% (including CDSCs), respectively.
The Class C cumulative total return figure for the one year period
ended December 31, 1996 was 10.29% (including CDSCs). The Class C average annual
total returns for the one year period ended December 31, 1996 and for the period
from August 2, 1993 (date of initial public offering) through December 31, 1996
were 10.29% and 13.19% (including CDSCs), respectively.
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The offering of Class Y shares commenced on January 1, 1997. As a
result, information on Class Y shares is not applicable.
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 December 31, 1996;
Financial Highlights for each of the years in the ten-year period ended
December 31, 1996 for Class A shares;
Financial Highlights for each of the years in the three-year period
ended December 31, 1996 and the period from August 2, 1993 through
December 31, 1993 for Class B and Class C shares;
Statement of Assets and Liabilities as of December 31, 1996;
Statement of Operations for the year ended December 31, 1996;
Statements of Changes in Net Assets for each of the years in the
two-year period ended December 31, 1996;
Notes to Financial Statements; and
Independent Auditors' Report dated January 31, 1997.
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
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorized 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% 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.
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26
GENERAL
Except as otherwise stated in its prospectuses or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectuses without shareholder approval, including the right to impose or
change fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectuses, this statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The Fund's prospectuses and this statement of additional information
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.
On March 31, 1997, Merrill Lynch Pierce Fenner & Smith, For Sole
Benefit of its Customers Attn: Fund Administration, 4800 Deer Lake Drive, E 3rd
Fl, Jacksonville, Florida 32246-6484, owned 9.51% and 27.49% respectively, of
the Fund's outstanding Class B and C shares. Management does not believe that
any other person beneficially owned 5% or more of the Fund's Class A, B and C
shares.
The Fund is one of 16 different investment companies in the Keystone
America Fund Family, which offers a range of choices to serve shareholder needs.
In addition to the Fund, the Keystone America Family consists of the following
funds having the various investment objectives described below:
KEYSTONE BALANCED FUND II - Seeks current income and capital appreciation
consistent with the preservation of capital.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - Seeks high current income,
consistent with low volatility of principal, by investing in adjustable rate
securities issued by the U.S. government, its agencies or instrumentalities.
KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying common stocks, preferred stocks,
convertible bonds, other fixed-income securities and foreign securities (up to
50%).
KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada), and Latin America (Mexico and countries in South and Central
America).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND - (Formerly Keystone Strategic
Development Fund) Seeks long-term capital growth from foreign and domestic
securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
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27
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE SMALL COMPANY GROWTH FUND II - Seeks long-term growth of capital by
investing primarily in equity securities with small market capitalizations.
KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of four separate series
of shares investing in different portfolio securities which seeks the highest
possible current income, exempt from federal income taxes and applicable state
taxes.
KEYSTONE STATE TAX FREE FUND - SERIES II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
KEYSTONE TAX FREE INCOME FUND - seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
<PAGE>
A-1
APPENDIX
COMMON AND PREFERRED STOCK RATINGS
A. S&P'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Because the investment process involves assessment of various factors,
such as product and industry position, corporate resources and financial policy,
with results that make some common stocks more highly esteemed than others,
Standard & Poor's Ratings Group ("S&P") believes that earnings and dividend
performance is the end result of the interplay of these factors and that, over
the long run, the record of this performance has a considerable bearing on
relative quality. S&P rankings, however, do not reflect all of the factors,
tangible or intangible, that bear on stock quality.
Growth and stability of earnings and dividends are deemed key elements
in establishing S&P earnings and dividend rankings for common stocks, which
capsulize the nature of this record in a single symbol.
S&P has established a computerized scoring system based on per-share
earnings and dividend records of the most recent ten years, a period deemed long
enough to measure a company's performance under varying economic conditions. S&P
measures growth, stability within the trend line and cyclicality. The ranking
system also makes allowances for company size, since large companies have
certain inherent advantages over small ones. From these scores for earnings and
dividends are determined.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample which
is reviewed and sometimes modified with the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
S&P believes its rankings are not a forecast of future market price
performance, but are basically an appraisal of past performance of earnings and
dividends, and relative current standing.
B. MOODY'S COMMON STOCK RANKINGS
Moody's Investors Service ("Moody's") presents a concise statement of
the important characteristics of a company and an evaluation of the grade
(quality) of its common stock. Data presented includes: (a) capsule stock
information which reveals short and long term growth and yield afforded by the
indicated dividend, based on a recent price; (b) a long term price chart which
shows patterns of monthly stock price movements and monthly trading volumes; (c)
a breakdown of a company's capital account which aids in determining the degree
of conservatism or financial leverage in a company's balance sheet; (d) interim
earnings for the current year to date, plus three previous years; (e) dividend
information; (f) company background; (g) recent corporate developments; (h)
prospects for a company in the immediate future and the next few years; and (I)
a ten year comparative statistical analysis.
This information provides investors with information on what a company
does, how it has
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performed in the past, how it is performing currently and what its future
performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or
indication of quality. The grade is based on an analysis of each company's
financial strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position. Evaluation is represented by the following grades:
(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade
C. MOODY'S PREFERRED STOCK RATINGS
Preferred stock ratings and their definitions are as follows:
1. AAA: An issue which is rated "AAA" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
2. AA: An issue which is rated "AA" is considered a high-grade
preferred stock. This rating indicates that there is a reasonable assurance that
earnings and asset protection will remain relatively well maintained in the
foreseeable future.
3. A: An issue which is rated "A" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater then in the
"AAA" and "AA" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
4. BAA: An issue which is rated "BAA" is considered to be a
medium-grade preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be questionable
over any great length of time.
5. BA: An issue which is rated "BA" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
6. B: An issue which is rated "B" generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
7. CAA: An issue which is rated "CAA" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
8. CA: An issue which is rated "CA" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payments.
9. C: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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A-3
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the United States,
with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers or lessees. Ratings of
foreign obligors do not take into account currency exchange and related
uncertainties. The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "A" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC AND C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are
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outweighed by large uncertainties or major risk exposures to adverse conditions.
MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. AAA - Bonds which are rated AAA are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. AA - Bonds which are rated AA are judged to be of high quality by
all standards. Together with the AAA group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in AAA
securities.
3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. BAA - Bonds which are rated BAA are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. BA - Bonds which are rated BA are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
ZERO COUPON BONDS
A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. Coupon zero coupon bonds of any
series mature periodically from the date of issue of such series through the
maturity date of the securities related to such series. Principal zero coupon
bonds mature on the date specified therein, which is the final maturity date of
the related securities. Each zero coupon bond entitles the holder to
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receive a single payment at maturity. There are no periodic interest payments on
a zero coupon bond. Zero coupon bonds are offered at discounts from their face
amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or coupon zero coupon bonds (either initially or in the secondary market)
is treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market values at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds items.
PAYMENT-IN-KIND SECURITIES
Payment-in-kind ("PIK") securities pay interest in either cash or
additional securities, at the issuer's option, for a specified period. The
issuer's option to pay in additional securities typically ranges from one to six
years, compared to an average maturity for all PIK securities of eleven years.
Call protection and sinking fund features are comparable to those offered on
traditional debt issues.
PIKs, like zero coupon bonds, are designated to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer - as with zero coupon securities -
is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accreted interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount, because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper and obligations issued or guaranteed
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by the United States ("U.S.") government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase
A-1, A-2 or higher by S & P, PRIME-1 or PRIME-2 by Moody's, or, if not rated,
will be issued by companies which have an outstanding debt issue rated at the
time of purchase AAA, AA or A by Moody's, or AAA, AA or A by S&P, or will be
determined by Keystone to be of comparable quality.
A. S&P RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating PRIME-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated PRIME-1 (or related supporting institutions) are
deemed to have a superior capacity for repayment of short term promissory
obligations. Repayment capacity of PRIME-1 issuers is normally evidenced by the
following characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance
on debt and ample asset
protection;
4) broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and
5) well established access to a range of financial markets and
assured sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
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CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for
the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of U.S. banks, including their branches abroad, and of U.S.
branches of foreign banks, which are members of the Federal Reserve System or
the Federal Deposit Insurance Corporation, and have at least $1 billion in
deposits as of the date of their most recently published financial statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by non U.S. branches of foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
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UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States government include
a variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and securities issued by the Government
National Mortgage Association ("GNMA"). Treasury bills have maturities of one
year or less. Treasury notes have maturities of one to ten years and Treasury
bonds generally have maturities of greater than ten years at the date of
issuance. GNMA securities include GNMA mortgage pass-through certificates. Such
securities are supported by the full faith and credit of the U.S. government
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines under standards established by the Board of Trustees that the credit
risk with respect to the instrumentality does not make its securities unsuitable
investments. U.S. government securities do not include international agencies or
instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation.
FOREIGN SECURITIES
The Fund may invest in securities principally traded in securities
markets outside the United States. While investment in foreign securities is
intended to reduce risk by providing further diversification, such investments
involve sovereign risk in addition to the credit and market risks normally
associated with domestic securities. Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of U.S. companies,
and foreign brokerage commissions and custodian fees are generally higher than
in the United States. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
imposition of withholding taxes on dividend or interest payments and currency
blockage (which would prevent cash from being brought back to the United
States). These risks are carefully considered by Keystone prior to the purchase
of these securities.
OPTIONS TRANSACTIONS
OPTION WRITING AND RELATED RISKS
The Fund may write covered call and put options with respect to up to
25% of its net assets. A call option gives the purchaser of the option the right
to buy, and the writer the obligation to sell, the
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underlying security at the exercise price during the option period. Conversely,
a put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying security at the exercise price during the
option period.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker/dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time that the writer effects a closing purchase
transaction by purchasing an option of the same series as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. For options traded on national securities exchanges
("Exchanges") to secure the obligation to deliver the underlying security in the
case of a call option, the writer of the option is required to deposit in escrow
the underlying security or other assets in accordance with the rules of the
Options Clearing Corporation ("OCC"), an institution created to interpose itself
between buyers and sellers of options. Technically, the OCC assumes the order
side of every purchase and sale transaction on an Exchange and by doing so,
gives its guarantee to the transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of a premium, so long as the price of the underlying security remains above the
exercise price, but assumes an obligation to purchase the underlying security
from the buyer of the put option at the exercise price, even though the price of
the security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. In addition, the premium paid for the put effectively increases the
cost of the underlying security, thus reducing the yield otherwise available
from such securities.
Because the Fund can write only covered options, it may at times 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. This may
result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
To the extent that a secondary market is available, the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, in a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction.
WRITING COVERED OPTIONS
The Fund writes only covered options. Call and put options written by
the Fund will normally have expiration dates of not more than nine months from
the date written. The exercise price of the options may be below, equal to, or
above the current market values of the underlying securities at the times the
options are written.
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Unless the option has been exercised, the Fund may close out an option
it has written by effecting a closing purchase transaction, whereby it purchases
an option covering the same underlying security and having the same exercise
price and expiration date (of the same series) as the one it has written. If the
Fund desires to sell a particular security on which it has written a call
option, it will effect a closing purchase transaction prior to or concurrently
with the sale of the security. If the Fund is able to enter into a closing
purchase transaction, the Fund will realize a profit (or loss) from such
transaction if the cost of such transaction is less (or more) than the premium
received from the writing of the option.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund will generally 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. If the Fund as a covered call option writer is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
securities until the option expires or it delivers the underlying securities
upon exercise.
Because the Fund intends to qualify as a regulated investment company
under the Internal Revenue Code, the extent to which the Fund may write covered
call options and enter into so-called "straddle" transactions involving put and
call options may be limited.
Many options are traded on registered securities exchanges. Options
traded on such exchanges are issued by the OCC, a clearing corporation which
assumes responsibility for the completion of options transactions.
PURCHASING PUT AND CALL OPTIONS
The Fund can close out a put option it has purchased by effecting a
closing sale transaction; for example, the Fund may close out a put option it
has purchased by selling a put option. If, however, a secondary market does not
exist at a time the Fund wishes to effect a closing sale transaction, the Fund
will have to exercise the option to realize any profit.
The Fund may also purchase call options for the purpose of offsetting
previously written call options of the same series.
The Fund's ability to purchase put and call options may be limited by
the Internal Revenue Code's requirements for qualification as a regulated
investment company.
OPTIONS TRADING MARKETS
Options which the Fund will trade are generally listed on 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.
The staff of the Securities and Exchange Commission ("SEC") currently
is of the view that the premiums which 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
fundamental investment restriction prohibiting it from investing more than 10%
of its total assets (taken at current value) in any combination of illiquid
assets and securities. The Fund intends to request that the SEC reconsider its
current view. It is the intention of the Fund to comply with the staff's current
position and the outcome of such reconsideration.
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SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS
ON TREASURY BONDS AND NOTES. Because trading interest in U.S. Treasury
bonds and notes tends to center on the most recently auctioned issues, new
series of options with expirations to replace expiring options on particular
issues will not be introduced indefinitely. Instead, the expirations introduced
at the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each series of bonds
or notes will thus be phased out as new options are listed on the more recent
issues, and a full range of expiration dates will not ordinarily be available
for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable U.S. Treasury bill changes
from week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
U.S. Treasury bills with a principal amount corresponding to the option contract
size, the Fund may be hedged from a risk standpoint. In addition, the Fund will
maintain in a segregated account with its custodian liquid assets maturing no
later than those which would be deliverable in the event of an assignment of an
exercise notice to ensure that it can meet its open option obligations.
ON GNMA CERTIFICATES. Options on GNMA certificates are not currently traded on
any Exchange. However, the Fund may purchase and write such options should they
commence trading on any Exchange.
Since the remaining principal balance of GNMA certificates declines
each month as a result of mortgage payments, the Fund, as a writer of a covered
GNMA call holding GNMA certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA certificates no longer have a sufficient remaining principal balance for
this purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA certificates from the same pool (if
obtainable) or replacement GNMA certificates in the cash market in order to
remain covered.
A GNMA certificate held by the Fund to cover an option position in any
but the nearest expiration month may cease to present cover for the option in
the event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time. Should this occur,
the Fund will no longer be covered, and the Fund will either enter into a
closing purchase transaction or replace the GNMA certificate with a certificate
which represents cover. When the Fund closes its position or replaces the GNMA
certificate, it may realize an unanticipated loss and incur transaction costs.
RISKS PERTAINING TO THE SECONDARY MARKET. An option position may be
closed out only in a secondary market for an option of the same series. Although
the Fund will generally purchase or 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 closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize any
profit and might incur transaction costs in connection therewith. If the Fund as
a covered call option writer is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market include the
following: (i) insufficient trading
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interest in certain options; (ii) restrictions imposed on transactions; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations on an Exchange or by a broker; (v)
inadequacy of the facilities of an Exchange, the OCC or a broker to handle
current trading volume; or (vi) a decision by one or more Exchanges or brokers
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market in that class or series of options
would cease to exist, although outstanding options issued as a result of trades
would generally continue to be exercisable in accordance with their terms.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into futures contracts as a hedge against
changes in prevailing levels of interest or currency exchange rates to seek
relative stability of principal and to establish more definitely the effective
return on securities held or intended to be acquired by the Fund or as a hedge
against changes in the prices of securities or currencies held by the Fund or to
be acquired by the Fund. The Fund's hedging may include sales of futures as an
offset against the effect of expected increases in interest or currency exchange
rates or securities prices and purchases of futures as an offset against the
effect of expected declines in interest or currency exchange rates.
For example, when the Fund anticipates a significant market or market
sector advance, it will purchase a stock index futures contract as a hedge
against not participating in such advance at a time when the Fund is not fully
invested. The purchase of a futures contract serves as a temporary substitute
for the purchase of individual securities which may then be purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, the Fund
would sell stock index futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by doing so, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.
The Fund intends to engage in options transactions which are related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity
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specified in the contract at a specified future time for a specified price. The
futures contract creates an obligation by the buyer to accept delivery from the
seller of the commodity specified at the specified future time for the specified
price. In contrast, a spot transaction creates an immediate obligation for the
seller to deliver and the buyer to accept delivery of and pay for an identified
commodity. In general, futures contracts involve transactions in fungible goods
such as wheat, coffee and soybeans. However, in the last decade an increasing
number of futures contracts have been developed which specify currencies,
financial instruments or financially based indexes as the underlying commodity.
The Fund has represented to the Commodity Futures Trading Commission ("CFTC")
that the Fund will not enter into any futures contract or related option if, as
a result, the sum of initial margin deposits on futures contracts and options
and premiums paid for options the Fund purchased, after taking in account
unrealized profits and losses on such contracts, would exceed 5% of the Fund's
total assets.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are: The Board of
Trade of the City of Chicago; the Chicago Mercantile Exchange; the International
Monetary Market (a division of the Chicago Mercantile Exchange); the New York
Futures Exchange; and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant (Broker) effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the CFTC and National Futures
Association ("NFA").
INDEX BASED FUTURES CONTRACTS
STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the common stocks included in
the index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently stock index futures contracts can be purchased or sold on the
S&P Index of 500 Stocks, the S&P Index of 100 Stocks, the New York Stock
Exchange Composite Index, the Value Line Index and the Major Market Index. It is
expected that futures contracts trading in additional stock indices will be
authorized. The standard contract size is $500 times the value of the index.
The Fund does not believe that differences between existing stock
indices will create any differences in the price movements of the stock index
futures contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
OTHER INDEX BASED FUTURES CONTRACTS
It is expected that bond index and other financially based index
futures contracts will be developed in the future. It is anticipated that such
index based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Fund will sell interest rate index and
other index based futures contracts to hedge against
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changes which are expected to affect the Fund's portfolio.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded, and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable its initial margin and any variation margin to be held in a
segregated account by its custodian on behalf of the Broker.
There can be no assurance, however, 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.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on currency or other financial
futures contracts is analogous to the purchase of protective puts on individual
stocks, where an absolute level of protection is sought below which no
additional economic loss would be incurred by the Fund. Put options may be
purchased to hedge a portfolio of stocks or debt instruments or a position in
the futures contract upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of a call option on a currency and other financial futures
contract represents a means of obtaining temporary exposure to market
appreciation at limited risk. It is analogous to the purchase of a call option
on an individual stock, which can be used as a substitute for a position in the
stock itself. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the underlying
financial instrument or index itself, purchase of a call option may be less
risky than the ownership of the interest rate or index based futures contract or
the
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underlying securities. Call options on financial futures contracts may be
purchased to hedge against an interest rate increase or a market advance when
the Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING CURRENCY AND OTHER FINANCIAL FUTURES
CONTRACTS OR RELATED OPTIONS
The Fund may employ new investment techniques involving currency and
other financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
The Fund will not enter into a futures contract if, as a result
thereof, more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin deposits on
such futures contracts and premiums on options on futures contracts.
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by the Fund,
an amount of cash and cash equivalents equal to the market value of the futures
contracts will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long term and 40% short term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The 1986 Tax Act added a
provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge" increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Fund may be required to
defer the closing out of a contract beyond the time when it would otherwise be
advantageous to do so.
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RISKS OF FUTURES CONTRACTS
Currency and other financial futures contracts prices are volatile and
are influenced, among other things, by changes in stock prices, market
conditions, prevailing interest rates and anticipation of future stock prices,
market movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. In addition
futures contract transactions involve the remote risk that a party will be
unable to fulfill its obligation and that the amount of the obligation will be
beyond the ability of the clearing broker to satisfy. A decision of whether,
when and how to hedge involves the exercise of skill and judgment, and even a
well conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
will establish a segregated account in connection with its futures contracts
which will hold cash or cash equivalents equal in value to the current value of
the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular option or at any particular time. The Fund will not purchase options
on any futures contract unless and until it
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believes that the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the risks in
connection with the futures contracts. Compared to the use of futures contracts,
the purchase of options on such futures involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the use of an
option on a futures contract would result in a loss to the Fund, even though the
use of a futures contract would not, such as when there is no movement in the
level of the futures contract.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in foreign securities. 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 Fund's
share value will be affected by changes in exchange rates.
FORWARD CURRENCY CONTRACTS
As one way of managing exchange rate risk, the Fund may engage in
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). Under the contract, 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 also may 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 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.
CURRENCY FUTURES CONTRACTS
Currency futures contracts are bilateral agreements under which two
parties agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the United States is regulated under the Commodity Exchange Act by
the CFTC and NFA. Currently the only national futures exchange on which currency
futures are traded is the International Monetary Market of the Chicago
Mercantile Exchange. Foreign currency futures trading is conducted in the same
manner and subject to the same regulations as trading in interest rate and index
based futures. The Fund intends to only engage in currency futures contracts for
hedging purposes, and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Fund's Board
of Trustees. The hedging strategies which will be used by the Fund in connection
with foreign currency futures contracts are similar to those described above for
forward foreign currency exchange contracts.
Currently, currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark, Swiss and French Francs,
C$100,000 for the Canadian Dollar,
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A-18
Y12,500,000 for the Yen, and 1,000,000 for the Peso. In contrast to Forward
Currency Exchange Contracts which can be traded at any time, only four value
dates per year are available, the third Wednesday of March, June, September and
December.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a
variety of currencies in both the United States and Europe. On the Philadelphia
Stock Exchange, for example, contracts for half the size of the corresponding
futures contracts on the Chicago Board Options Exchange are traded with up to
nine months maturity in marks, sterling, yen, Swiss francs and Canadian dollars.
Options can be exercised at any time during the contract life and require a
deposit subject to normal margin requirements. Since a futures contract must be
exercised, the Fund must continually make up the margin balance. As a result, a
wrong price move could result in the Fund losing more than the original
investment as it cannot walk away from the futures contract as it can an option
contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in
connection with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES
The purchase of protective put options on a foreign currency is
analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of foreign stocks or foreign debt instruments or a position in the foreign
currency upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FOREIGN CURRENCIES
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments, the
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Fund would purchase a call option on a
foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Fund is not fully invested.
The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.
20190
<PAGE>
A-19
CURRENCY TRADING RISKS
Currency exchange trading may involve significant risks. The four major
types of risk the Fund faces are exchange rate risk, interest rate risk, credit
risk and country risk.
EXCHANGE RATE RISK
Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the Fund
buys or sells a foreign currency, an exposure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Fund enters into a foreign exchange contract, it faces a
risk, however small, that the counterparty will not perform under the contract.
As a result there is a credit risk, although no extension of "credit" is
intended. To limit credit risk, the Fund intends to evaluate the
creditworthiness of each other party.
Credit risk exists because the Fund's counterparty may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a Fund relies on
each contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts which are advantageous to the company but disclaim those contracts
which are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone differences
between the U.S. and foreign nations. If the Fund sells sterling it generally
must pay pounds to a counterparty earlier in the day than it will be credited
with dollars in New York. In the intervening hours, the buyer can go into
bankruptcy or can be declared insolvent. Thus, the dollars may never be credited
to the Fund.
20190
<PAGE>
A-20
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents or limits on inflows of investment funds from abroad. Governments take
such measures for example to improve control over the domestic banking system or
to influence the pattern of receipts and payments between residents and
foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payment interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an important
exchange market impact. Most disruptive are changes in rules which interfere
with the normal payments mechanism. If government regulations change and a
counterparty is either forbidden to perform or is required to do something
extra, then the Fund might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Fund.
Other changes in official regulations influence international
investment transactions. If one of the factors affecting the buying or selling
of a currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain) or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the
Fund may be dealing with a foreign trader whose home country is facing a
payments problem. Even though the foreign trader intends to perform on its
foreign exchange contracts, the contracts are tied to other external liabilities
the country has incurred. As a result performance may be delayed, and can result
in unanticipated cost to the Fund. This aspect of country risk is a major
element in the Fund's credit judgment as to with whom it will deal and in what
amounts.
20190
<PAGE>
A-21
EXHIBIT A
GLOSSARY OF TERMS
CLASS OF OPTIONS. Options covering the same underlying security.
CLEARING CORPORATION. The Options Clearing Corporation, Trans Canada
Options, Inc., The European Options Clearing Corporation B.V., or the London
Options Clearing House.
CLOSING PURCHASE TRANSACTION. A transaction in which an investor who is
obligated as a writer of an option or seller of a futures contract terminates
his obligation by purchasing on an Exchange an option of the same series as the
option previously written or futures contract identical to the futures contract
previously sold, as the case may be. (Such a purchase does not result in the
ownership of an option or futures contract.)
CLOSING SALE TRANSACTION. A transaction in which an investor
who is the holder or buyer of an outstanding option or futures contract
liquidates his position as a holder or seller by selling an option of the same
series as the option previously purchased or futures contract identical to the
futures contract previously purchased. (Such sale does not result in the
investor assuming the obligations of a writer or seller).
COVERED CALL OPTION WRITER. A writer of a call option who, so long as
he remains obligated as a writer, owns the shares of the underlying security or
holds on a share for share basis a call on the same security where the exercise
price of the call held is equal to or less than the exercise price of the call
written, or, if greater than the exercise price of the call written, the
difference is maintained by the writer in cash, U.S. Treasury bills, or other
high grade, short term obligations in a segregated account with the writer's
broker or custodian.
COVERED PUT OPTION WRITER. A writer of a put option who, so long as he
remains obligated as a writer, has deposited Treasury bills with a value equal
to or greater than the exercise price with a securities depository and has
pledged them to the Options Clearing Corporation for the account of the
brokerdealer carrying the writer's position or holds on a share for share basis
a put on the same security as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written, or,
if less than the exercise price of the put written, the difference is maintained
by the writer in cash, U.S. Treasury bills, or other high grade, short term
obligations in a segregated account with the writer's broker or custodian.
SECURITIES EXCHANGE. A securities exchange on which call and put
options are traded. The U.S. Exchanges are as follows: The Chicago Board Options
Exchange; American Stock Exchange; New York Stock Exchange; Philadelphia Stock
Exchange; and Pacific Stock Exchange. The foreign securities exchanges in Canada
are the Toronto Stock Exchange and the Montreal Stock Exchange, in the
Netherlands, the European Options Exchange, and in the United Kingdom, the Stock
Exchange (London).
Those issuers whose common stocks have been approved by the Exchanges
as underlying securities for option transactions are published in various
financial publications.
COMMODITIES EXCHANGE. A commodities exchange on which futures contracts
are traded which
20190
<PAGE>
A-22
is regulated by exchange rules that have been approved by the Commodity Futures
Trading Commission. The U.S. exchanges are as follows: The Chicago Board of
Trade of the City of Chicago; Chicago Mercantile Exchange, International
Monetary Market; (a division of the Chicago Mercantile Exchange); the Kansas
City Board of Trade; and the New York Futures Exchange.
EXERCISE PRICE. The price per unit at which the holder of a call option
may purchase the underlying security upon exercise or the holder of a put option
may sell the underlying security upon exercise.
EXPIRATION DATE. The latest date when an option may be exercised or a
futures contract must be completed according to its terms.
HEDGING. An action taken by an investor to neutralize an investment
risk by taking an investment position which will move in the opposite direction
as the risk being hedged so that a loss (or gain) on one will tend to be offset
by a gain (or loss) on the other.
OPTION. Unless the context otherwise requires, the term "option" means
either a call or put option issued by a Clearing Corporation, as defined above.
A call option gives a holder the right to buy from such Clearing Corporation the
number of shares of the underlying security covered by the option at the stated
exercise price by the filing of an exercise notice prior to the expiration time
of the option. A put option gives a holder the right to sell to a Clearing
Corporation the number of shares of the underlying security covered by the put
at the stated exercise price by the filing of an exercise notice prior to the
expiration time of the option. The Fund will sell ("write") and purchase puts
only on U.S. Exchanges.
OPTION PERIOD. The time during which an option may be exercised,
generally from the date the option is written through its expiration date.
PREMIUM. The price of an option agreed upon between the buyer and
writer or their agents in a transaction on the floor of a Securities Exchange.
SERIES OF OPTIONS. Options covering the same underlying security and
having the same exercise price and expiration date.
STOCK INDEX. A stock index assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included.
UNDERLYING SECURITY. The security subject to being purchased upon the
exercise of a call option or subject to being sold upon the exercise of a put
option.
<PAGE>
KEYSTONE OMEGA FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24 (a). Financial Statements
The following financial statements of the Fund are incorporated by
reference from the Registrant's Annual Report previously filed
with the Securities and Exchange Commission:
Annual Financial Statements
---------------------------
Schedule of Investments as of December 31, 1996;
Financial Highlights for each of the years in the ten-year period ended
December 31, 1996 for Class A shares;
Financial Highlights for each of the years in the three-year period ended
December 31, 1996 and the period from August 2, 1993 through December 31,
1993 for Class B and Class C shares;
Statement of Assets and Liabilities as of December 31, 1996;
Statement of Operations for the year ended December 31, 1996;
Statements of Changes in Net Assets for each of the years in the two-year
period ended December 31, 1996;
Notes to Financial Statements; and
Independent Auditors' Report dated January 31, 1997.
All other schedules are omitted as the required information is inapplicable.
<PAGE>
Item 24(b) Exhibits
(1) Registrant's Declaration of Trust, as amended(1)
(2) By-Laws(1)
(3) Not applicable
(4) (a) Declaration of Trust, as amended Articles III, V, VI and VIII(1)
(b) By-Laws, Article 2(1)
(5) Investment Advisory and Management Agreement between Registrant
and Keystone Investment Management Company ("KIMCO")
(the "Advisory Agreement")(3)
(6) (a) Form of Principal Underwriting Agreement between Registrant and
Evergreen Keystone Distributor, Inc. ("EKD") (the "Principal
Underwriter") for Class Y shares(3)
(b) Principal Underwriting Agreement between Registrant and
EKD for Class A and C shares(3)
(c) Principal Underwriting Agreement with EKD for Class B-2
Shares(3)
(d) Form of Dealer Agreement used by EKD(3)
(7) Proposed Form of Deferred Compensation Plan(3)
(8) (a) Form of Custodian, Fund Accounting and Recordkeeping Agreement
between Registrant and State Street Bank and Trust Company(1)
(b) Form of Election to become a party to the Master Transfer and
Recordkeeping Agreement with Evergreen Keystone Service
Company (formerly Keystone Investor Resource Center, Inc.)(2)
(9) (a) Form of Marketing Services Agreement between EKD and KIMCO(3)
(b) Form of Sub-administrator Agreement between KIMCO and BISYS
Fund Services (the "Sub-administrator Agreement")(3)
(c) Form of Principal Underwriting Agreement with EKIS for Class
A and C shares, Registrant's former principal underwriter(3)
(d) Principal Underwriting Agreement with EKIS for Class B-1 shares(3)
(e) Principal Underwriting Agreement with EKIS for Class B-2 shares(3)
(10) Opinion and Consent of Counsel(6)
(11) Consent of the Independent Auditors(3)
(12) Not applicable
(13) Not applicable
(14) Forms of model plans used in the establishment of retirement
plans, in connection with which Registrant offers its
securities(5)
(15) Forms of Registrant's Class A, Class B and Class
C Distribution Plans(2)
(16) Schedules for the Computation of Total Return(3)
(17) Financial Data Schedules(3)
(18) Registrant's Multiple Class Plan, as amended(4)
(19) Powers of Attorney(3)
(1) Filed with Post-Effective Amendment No. 24 to Registration Statement
No. 2-28183/811-1600 and incorporated by reference herein.
(2) Filed with Post-Effective Amendment No. 26 to the Registration Statement
and incorporated by reference herein.
(3) Filed herewith.
(4) Filed with Post-Effective Amendment No. 27 to the Registration Statement
and incorporated by reference herein.
(5) Filed with Post-Effective Amendment No. 66 to Registration Statement
No. 2-10527/811-96 and incorporated by reference herein.
(6) Filed with Registrant's most recent 24f-2 filing on February 27, 1997 and
incorporated by reference herein.
<PAGE>
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 March 31, 1997
- -------------- --------------------------------
Class A 13,449
Class B 9,057
Class C 1,733
Class Y 1
Item 27. Indemnification
Provisions for the indemnification of Registrant's Trustees and
officers are contained in Article VIII of Registrant's form of Declaration of
Trust, a copy of which was filed with Post-Effective Amendment No. 24 as
Exhibit 24(b)(1) and is incorporated by reference herein.
Provisions for the indemnification of Evergreen Keystone Distributor,
Inc. Registrant's principal underwriter, are contained in Section 9 of the
Principal Underwriting Agreements between Registrant and EKD, copies of which
are filed herewith.
Provisions for the indemnification of Keystone Investment Management
Company ("KIMCO"), Registrant's investment adviser, are contained in Section 6
of the Investment Advisory and Management Agreement between Registrant and
KIMCO, a copy of which is filed herewith.
Item 28. Businesses and Other Connections of Investment Adviser
The following table lists the names of the various officers and
directors of KIMCO, Registrant's investment adviser, and their
respective positions. For each named individual, the table lists, for
at least the past two fiscal years, (i) any other organizations
(excluding investment advisory clients) with which the officer and/or
director has had or has substantial involvement; and (ii) positions
held with such organizations.
<PAGE>
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, First Union Keystone, Inc.
Chief Executive Keystone Asset Corporation
Officer President and Director:
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:
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 First Union Keystone, Inc.
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.
Rosemary D. Senior Vice Senior Vice President:
Van Antwerp President, Evergreen Keystone Service Company
General Counsel Senior Vice President and Secretary:
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:
First Union Keystone, Inc.
Vice President and
Controller:
Evergreen Keystone Investment Services, Inc.
Treasurer and Vice President:
Evergreen Keystone Service Company
Controller:
Keystone Asset Corporation
Formerly:
Controller:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Formerly Vice President and Controller:
Keystone Investments, Inc.
John Addeo Vice President None
Andrew Baldassarre Vice President None
Robert K. Baumbach Vice President None
David Benhaim Vice President None
Donald Bisson Vice President None
Liu-Er Chen Vice President None
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
J. Gary Craven Senior Vice None
President
Prescott Crocker Senior Vice None
President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
Thomas Holman Senior Vice None
President
Betsy Hutchings Senior Vice None
President
Walter T. Senior Vice None
McCormick President
George F. Wilkins Senior Vice None
President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Dana E. Erikson Vice President None
Sami J. Karam Vice President None
George J. Kimball Vice President None
Warren J. Isabelle Chief Investment None
Officer
Craig Lewis 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
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
Daniel A. Rabasco Vice President None
Harlen R. Sonderling Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Peter Willis Vice President None
Richard A. Wisentaner Vice President None
Walter Zagrobski Vice President None
</TABLE>
All of the officers are located at Keystone Investment Management Company,
200 Berkeley Street, Boston, Massachusetts 02116.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
Evergreen Keystone Distributor, Inc.
The Director and principal executive officers are:
Director Michael C. Petrycki
Officers Robert A. Hering President
Michael C. Petrycki Vice President
Lawrence Wagner VP, Chief Financial Officer
Steven D. Blecher VP, Treasurer, Secretary
Elizabeth Q. Solazzo 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 Equity Trust:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Total Return Fund
The Evergreen American Retirement Trust:
The Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
The Evergreen Foundation Trust:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
The Evergreen Municipal Trust:
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Florida High Income Municipal Bond Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Money Market Trust
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market 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(formerly Evergreen Fixed Income)
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
The Evergreen Lexicon Fund:
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
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 Balanced Fund II
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Fund of the Americas
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
Keystone Intermediate Term Bond Fund
Keystone International Fund Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund
Keystone New York Tax Free Fund
Keystone Pennsylvania Tax Free Fund
Keystone Massachusetts Tax Free Fund
Keystone Florida Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Missouri Tax Free Fund
Keystone California Tax Free Fund
Keystone Strategic Income Fund
Keystone Tax Free Fund
Keystone Tax Free Income 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.
<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 Boston, and The Commonwealth
of Massachusetts, on the 30th day of April, 1997.
KEYSTONE OMEGA FUND
By: /s/ George S. Bissell
-----------------------------
George S. Bissell
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 30th day of April, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ George S. Bissell /s/ Charles F. Chapin
- ------------------------ ------------------------- -------------------------
George S. Bissell Charles F. Chapin* William Walt Pettit
Chairman of the Board of Trustees Trustee Trustee
and Chief Executive Officer
/s/ John J. Pileggi /s/ K. Dun Gifford /s/ David M. Richardson
- ------------------------- ------------------------- -------------------------
John J. Pileggi K. Dun Gifford* David M. Richardson*
President and Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ Frederick Amling
- ------------------------- ------------------------- -------------------------
Frederick Amling* James S. Howell Russell A. Salton, III MD
Trustee Trustee Trustee
/s/ Leroy Keith, Jr.
- ------------------------- ------------------------- -------------------------
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/ Andrew J. Simons
- ------------------------- ------------------------- -------------------------
Foster Bam Gerald M. McDonell Andrew J. Simons*
Trustee Trustee Trustee
/s/ Edwin D. Campbell
- ------------------------- -------------------------
Edwin D. Campbell* Thomas L. McVerry
Trustee Trustee
</TABLE>
*By:/s/ Rosemary D. Van Antwerp
- -----------------------------
Rosemary D. Van Antwerp
Attorney-in-Fact
** Rosemary D. Van Antwerp, by signing her 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).
<PAGE>
INDEX TO EXHIBITS
Page Number
In Sequential
Exhibit Number Exhibit Numbering System
- -------------- ------- ----------------
1 Declaration of Trust, as amended(3)
2 By-Laws(3)
3 Not applicable
4 (a) Declaration of Trust, as amended, Articles III, V, VI and
VIII(3)
(b) By-Laws, Article 2(3)
5 Advisory Agreement(7)
6 (a) Form of Principal Underwriting Agreement with EKD for
Class Y Shares(7)
(b) Principal Underwriting Agreement with EKD for
Class A and C Shares(7)
(c) Principal Underwriting Agreement with EKD for
Class B-2 shares(7)
(d) Form of Dealer Agreement(7)
7 Proposed Form of Deferred Compensation Plan(7)
8 (a) Form of Custodian, Fund Accounting and
Recordkeeping Agreement(3)
(b) Form of Election to become a party to
the Master Transfer and Recordkeeping
Agreement(5)
9 (a) Form of Marketing Services Agreement(7)
(b) Form of Sub-administrator Agreement(7)
(c) Form of Principal Underwriting Agreement with EKIS for
Class A and C shares(7)
(d) Principal Underwriting Agreement with EKIS for Class B-1
shares(7)
(e) Principal Underwriting Agreement with EKIS for Class B-2
shares(7)
10 Opinion and Consent of Counsel(4)
11 Independent Auditors' Consent(7)
12 Not applicable
13 Not applicable
14 Forms of Model Retirement Plans(1)
15 Forms of Class A, B and C Distribution Plans(5)
16 Performance Data Schedules(7)
17 Financial Data Schedules(7)
18 Multiple Class Plan, as amended(6)
19 Powers of Attorney(7)
- ----------------------------------
1 Incorporated herein by reference to Post-Effective Amendment
No. 66 to Registration Statement for Keystone Balanced Fund (K-1)
(File No. 2-10527/811-96).
2 Incorporated herein by reference to Post-Effective Amendment
No. 25 to the Registration Statement.
3 Incorporated herein by reference to Post-Effective Amendment
No. 24 to the Registration Statement.
4 Incorporated herein by reference to Rule 24f-2 Notice filed
February 27, 1997 to the Registration Statement.
5 Incorporated by reference to Post-Effective Amendment No. 26 to the
Registration Statement.
6 Incorporated by reference to Post-Effective Amendment No. 27 to the
Registration Statement.
7 Filed herewith.
<PAGE>
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 11th day of December, 1996, by and between KEYSTONE
OMEGA FUND, a Massachusetts business 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
- --------------------------------------------------------------------------------
0.75% of the first $250,000,000, plus
0.675% of the next $250,000,000, plus
0.60% of the next $500,000,000, plus
0.50% 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 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 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.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
KEYSTONE OMEGA FUND
By:
--------------------------------------
Name: GEORGE S. BISSELL
Title: Chairman of the Board
KEYSTONE INVESTMENT MANAGEMENT
COMPANY
By:
--------------------------------------
Name: ROSEMARY D. VAN ANTWERP
Title: Senior Vice President
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS Y SHARES OF
KEYSTONE OMEGA FUND
AGREEMENT made this 1st day of January, 1997 by and between Keystone
Omega Fund, a Massachusetts business trust ("Fund"), and Evergreen Keystone
Distributor, Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class Y shares of beneficial interest of the Fund ("Shares")
as an independent contractor upon the terms and conditions hereinafter set
forth. Except as the Fund may from time to time agree, Principal Underwriter
will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such brokers,
dealers or other persons shall have any authority to act as agent for the Fund;
such brokers, dealers or other persons shall act only as principal in the sale
of Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right, in its sole discretion, to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within three (3) 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 three-day period, the Fund reserves the
right, without further notice, forthwith to cancel its acceptance of any such
order. The Fund shall pay such issue taxes as may be required by law in
connection with the issuance of the Shares.
19375
<PAGE>
6. 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 Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
8. The Fund appoints 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 Fund.
9. The Fund agrees 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 Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no
19375
2
<PAGE>
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
Fund, its officers, Trustees and each person, if any, who controls the Fund
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 Fund, its officers, Trustees 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 the 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 Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by 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 Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund 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
19375
3
<PAGE>
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 shareholders of the Fund, and the direct
expenses of the issuance of Shares.
12. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire on June
30, 1998. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of any 12b-1 Trustees referred to in any 12b-1 Plan of the Fund
("Rule 12b-1 Trustees") 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 any Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty (60) 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).
13. 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.
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 OMEGA FUND
By:
George S. Bissell
Chairman
EVERGREEN KEYSTONE DISTRIBUTOR,
INC.
By:
Name:
Title:
19375
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT effective this 1st day of January, 1997 by and between each
of the parties listed on Exhibit A attached hereto and made a part hereof, each
for itself and not jointly (each a "Fund"), and Evergreen Keystone Distributor,
Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest of the Fund
("Shares") as an independent contractor upon the terms and conditions
hereinafter set forth. Except as the Fund may from time to time agree, Principal
Underwriter will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such broker,
dealer or other person shall have any authority to act as agent for the Fund;
such broker, dealer or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value, and Principal Underwriter shall be entitled to receive commission
payments for sales of the Class A and C Shares (as set forth on Exhibit B
attached hereto and made a part hereof) sold on or after December 11, 1996 and
as set forth in the then current prospectus and/or statement of additional
information of the Fund and to receive the sales charges, including contingent
deferred sales charges, as set forth in the then current prospectus and/or
statement of additional information of the Fund for Shares sold on or after
December 11, 1996. In accordance with the assignment made between Evergreen
Keystone Investment Services, Inc. ("EKIS") and Principal Underwriter dated
December 11, 1996, Principal Underwriter is to be entitled to receive commission
payments for sales of the Class A and C Shares sold on or after December 1, 1996
but before December 11, 1996 by EKIS as set forth in the then current prospectus
and/or statement of additional information of the Fund and to receive the sales
charges, including contingent deferred sales charges, as set forth in the then
current prospectus and/or statement of additional information
18918
<PAGE>
2
of the Fund for Shares sold on or after December 1, 1996 but before December 11,
1996. For purposes of this Principal Underwriting Agreement, all Shares sold
after December 1, 1996 and for which the Principal Underwriter may receive
commissions and contingent deferred sales charges shall be deemed
"Post-Acquisition Shares." The determination of which shares of the Fund are
Post-Acquisition Shares shall be made in accordance with Schedule I attached to
the Principal Underwriting Agreement between each Fund which is a party to this
Agreement and EKIS dated December 11, 1996 and shall be the same as the
"Post-distributor Shares" defined therein, calculated as though the Distributor
Last Sale Cut-Off Date, as such term is defined in Schedule I, was November 30,
1996. Principal Underwriter may reallow all or a part of such commissions and
the sales charges to such brokers, dealers or other persons as Principal
Underwriter may determine.
5. The payment provisions of this Agreement shall be applicable to the
extent necessary to enable the Fund to comply with the obligation of the Fund to
pay Principal Underwriter in accordance with this Agreement in respect of Class
C Shares and shall remain in effect so long as any payments are required to be
made by the Fund pursuant to the irrevocable payment instruction under the
Master Sale Agreement between Principal Underwriter and Mutual Fund Funding
1994-1 dated as of December 6, 1996 (the "Master Sale Agreement").
6. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within three (3) 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 ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
7. 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 will be supplied by the Fund to Principal Underwriter in
reasonable quantities upon request.
8. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
9. The Fund appoints 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 Fund.
10. The Fund agrees 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
18918
<PAGE>
3
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, pros
pectus 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 Fund by the Principal Underwriter for use in the 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.
11. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
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 Fund, its officers, Trustees 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 the 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 Fund by the Principal Underwriter.
12. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by 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
18918
<PAGE>
4
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act").
Principal Underwriter shall bear the expense of preparing, printing and
distributing advertising, sales literature, prospectuses and statements of
additional information. The Fund shall bear the expense of registering Shares
under the 1933 Act and the Fund 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 shareholders of the Fund and the direct expenses of the issue of
Shares.
13. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plans, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plans and the purposes for which such
expenditures were made.
14. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire on June
30, 1998. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plans of the Fund
("Rule 12b-1 Trustees") 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 any Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty (60) 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).
15. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the 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.
18918
<PAGE>
5
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 BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND
DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND
FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH
FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA 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 WORLD BOND FUND
each for itself and not jointly
By: /s/
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By: /s/
18918
6
<PAGE>
<PAGE>
EXHIBIT A
TO
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN
KEYSTONE AMERICA FUND FAMILY
AND
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
DATED JANUARY 1, 1997
KEYSTONE BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA 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 WORLD BOND FUND
<PAGE>
EXHIBIT B
TO
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN
KEYSTONE AMERICA FUND FAMILY
AND
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
DATED JANUARY 1, 1997
SCHEDULE OF COMMISSIONS
Class A Shares Up to 0.25% annually of the average
daily net asset value of Class A shares
of a Fund
Class C Shares Up to 1.00% annually of the average
daily net asset value of Class C shares
of a Fund, consisting of commissions at
the annual rate of 0.75% of the average
daily net asset value of a Fund and
service fees of 0.25% of the average
daily net asset value of a Fund
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE OMEGA FUND
AGREEMENT made effective this 1st day of January 1997 by and between
Keystone Omega Fund, a Massachusetts business trust, ("Fund"), and Evergreen
Keystone Distributor, Inc., a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund'"), may act as the distributor of certain
securities of which it is 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 Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
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 Fund may from time to time agree, the Principal Underwriter will act as
agent for the Fund and not as principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-2 Shares and to promote distribution of the B-2 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-2 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-2 Shares.
3. Sales of B-2 Shares by 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 Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received.
The Fund shall not be liable to anyone for failure to accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
Evergreen Keystone Investment Services Company ("EKISC") by other classes of
Shares of the Fund to the extent required in order to comply with Section 14
hereof, 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 B-2 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 Fund for B-2 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
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1
<PAGE>
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
Fund reserves the right, without further notice, forthwith to cancel its
acceptance of any such order. The Fund shall pay such issue taxes as may be
required by law in connection with the issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-2 Shares any representations concerning the
B-2 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 Fund 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 (which succeeds the
Rules of Fair Practice of the NASD defined in the Purchase and Sale Agreement,
dated as of May 31, 1995 (the "Citibank Purchase Agreement"), between Evergreen
Keystone Investment Services Company (formerly Keystone Investment Distributors
Company), Citibank, N.A. and Citicorp North America, Inc., as agent).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current Prospectus and/or Statement of
Additional Information of the Fund.
9. The Fund agrees 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 Fund by the Principal Underwriter for use in the 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
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2
<PAGE>
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
Fund, its officers and Trustees and each person, if any, who controls the Fund
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 Fund, 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 the 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 Fund by the Principal Underwriter.
11. The Fund agrees 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 B-2 Shares for sale under the
so-called "blue sky'" laws of any state or for registering B-2 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, and except as provided below,
prospectuses, and statements of additional information. The Fund shall bear the
expense of registering B-2 Shares under the 1933 Act and the Fund under the 1940
Act, qualifying B-2 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 B-2 Shares,
and the direct expenses of the issue of B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund,
provide to the Board of Trustees or Directors (together herein called the
"Directors") of the Fund in connection with sales of B-2 Shares not less than
quarterly a written report of the amounts received from the Fund therefor and
the purpose for which such expenditures by the Fund 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
Class B-2 of the Fund or by a majority of the Directors of the Fund 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 the Fund's Rule 12b-l plan
for Class B-2 Shares or in any agreements related to the plan at least annually
in accordance with the 1940 Act and the rules and regulations thereunder.
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3
<PAGE>
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 Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 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 B-2 Shares and also permit the Fund to pay, pursuant to the Principal
Underwriting Agreement dated as of January 1, 1997, between the Fund and EKISC
in respect of Class B-2 Shares, the Allocable Portion of Distribution Fees due
EKISC in respect of B-2 Shares and, pursuant to the Principal Underwriting
Agreement dated as of January 1, 1997 between the Fund and EKISC in respect of
Class B-1 Shares, the Allocable Portion of Distribution Fees due EKISC in
respect of B-1 Shares (together the "EKISC Underwriting Agreements"), 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 Citibank
Purchase Agreement and 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 Instructions")).
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 Fund 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 Fund agrees to cause
its transfer agent (the "Transfer Agent") to maintain the records and arrange
for the payments on behalf of the Fund 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 Fund in respect of Shares, may, to the extent provided in
Schedule I hereto, take into account Distribution Fees payable by the Fund in
respect of other existing and future classes and/or subclasses of shares of the
Fund which would be treated as "Shares" under Schedule I hereto. The Fund 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. The Fund's payments to the Principal
Underwriter in consideration of its services in connection with the sale of B-2
Shares shall be the Distribution Fees attributable to B-2 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).
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<PAGE>
The 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 Fund ("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, the 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, the
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 the Fund's Rule 12b-l plan for B-2 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 B-2 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 B-1 Class of Shares
of the Fund, the B-2 Class of 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 B-1 or
B-2 Classes of 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. The parties agree that the existing C Class of Shares of the Fund does
not have substantially similar economic characteristics to the B-1 or B-2
Classes of Shares taking into account the total sales charge, CDSC or other
similar charges borne directly or indirectly by the holder of such shares. 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
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<PAGE>
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 B-1 or B-2 Classes of 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 Fund related thereto
(but not the Principal Underwriter's obligations to the Fund 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 Fund) to any person (an "Assignee") and any such assignment
shall be effective as to the Fund upon written notice to the Fund by the
Principal Underwriter. In connection therewith the Fund shall pay all or any
amounts in respect of its 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 Fund, and the Fund 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 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-2 Shares, except as provided
in the Fund's current 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 B-2
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 Fund shall comply with its obligations under the EKISC
Underwriting Agreements 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 Class B-2
Shares as required therein and to comply with its obligations under the
Irrevocable Payment Instructions (as defined in the Citibank Purchase Agreement,
as defined 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. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\OMEGA.KAF
6
<PAGE>
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 OMEGA FUND EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By:__________________________________ By:_________________________________
Title: Title:
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<PAGE>
EXHIBIT A TO PRINCIPAL UNDERWRITING AGREEMENT
DATED January 1, 1997 BETWEEN
KEYSTONE OMEGA FUND AND EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Keystone Omega Fund (the "Fund") and Evergreen Keystone
Distributor, Inc. ("EKDI") agree that the Collection Rights of EKDI, as
such term is defined in the Principal Underwriting Agreement dated as
of January 1, 1997 between the Fund and EKDI (the "Agreement"), paid by
the Fund pursuant to the Agreement with respect to Distributor Shares,
as that term is defined in Schedule I to the Agreement, sold on or
after December 1, 1996 will be utilized by EKDI as follows:
(a) to the extent that the total amount of Collection Rights recieved
by EKDI with respect to Distributor Shares of all Funds, as that term
is defined in Schedule I, does not exceed 4.25% (except that in the
case of Keystone Capital Preservation Fund, the amount shall be 3%) of
the aggregate net asset value at the time of sale of the Distributor
Shares 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 regarding such
Distributor Shares of such Funds (the "Brokers Commission and
Expenses"), the entire amount of the Collection Rights with respect to
such Distributor Shares may only be used by the Principal Underwriter
for payment of the Brokers Commission and Expenses and may not be used
for any other purpose.
(b) to the extent that there is no longer any unrecovered Brokers
Commission and Expenses with respect to the Distributor Shares sold on
or after December 1, 1996 (including shares purchased in connection
with the reinvestment of dividends on such Distributor Shares as
determined in accordance with Sechedule I ) as provided in (a), above,
the 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 (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.
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SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
RELATING TO CLASS B-2 SHARES
OF
KEYSTONE OMEGA FUND
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.
Notwithstanding anything herein to the contrary, no amounts relating
to the EKISC Allocable Portion (as defined in the EKISC Underwriting Agreements)
shall be allocated hereunder and no Shares attributable to EKISC pursuant to the
EKISC Underwriting Agreements shall constitute Distributor Shares or
Post-distributor Shares or otherwise be allocated to any person or entity except
as contemplated by the EKISC Underwriting Agreements and the Irrevocable Payment
Instructions.
(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 Class
B-2 Shares of the Instant Fund dated as of January 1, 1997 between the Instant
Fund 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.
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<PAGE>
"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.
"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 occurs on or 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.
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<PAGE>
"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.
"INSTANT FUND" shall mean Keystone Omega Fund.
"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
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<PAGE>
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.
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"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 Distributors, 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 designation
"Keystone America 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 designation "Keystone America 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.
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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.
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(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:
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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
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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
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<PAGE>
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.
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\OMEGA.KAF
18
<PAGE>
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
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\OMEGA.KAF
19
<PAGE>
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:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\OMEGA.KAF
20
<PAGE>
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)
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
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\OMEGA.KAF
21
<PAGE>
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 the Instant
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 the Instant
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 the Instant Fund.
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\OMEGA.KAF
22
- ---------------------
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.
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
B-2
<PAGE>
(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
B-3
<PAGE>
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
B-4
<PAGE>
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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<PAGE>
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.
B-6
<PAGE>
(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
B-7
<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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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
B-9
<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
B-10
<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
B-11
<PAGE>
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
B-12
<PAGE>
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.
B-13
<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:
B-14
<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
B-15
<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.
B-16
<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
B-17
<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:
B-18
FORM OF MARKETING SERVICES AGREEMENT
AGREEMENT made this __th day of December 1996 by and between Evergreen
Keystone Distributor, Inc., a Delaware corporation (the "Principal
Underwriter"), and Evergreen Keystone Investment Services, Inc. ("Marketing
Services Agent").
WHEREAS, the Keystone ________ Fund (the "Fund"), has adopted one or
more Plans of Distribution (each a "Plan", or collectively the "Plans") with
respect to certain Classes of shares of the Fund and to the extent applicable
certain Classes of shares of its separate investment series (the "Shares"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act") which Plans authorize the Fund to enter into agreements regarding
the distribution of such Shares set forth on Exhibit A; and
WHEREAS, the Fund has entered into a principal underwriting agreement
with the Principal Underwriter pursuant to which the Principal Underwriter has
agreed to facilitate the distribution of the Shares; and
WHEREAS, the Fund has authorized the Principal Underwriter under the
terms of the principal underwriting agreement to enter into a marketing services
agreement with the Marketing Services Agent pursuant to which the Principal
Underwriter has agreed to facilitate the distribution of the Shares;
NOW, THEREFORE, in consideration of the agreements hereinafter
contained, it is agreed as follows:
1. Services as Marketing Services Agent.
1.1. The Marketing Services Agent shall assist the Principal
Underwriter in promoting Shares of the Fund and will undertake such advertising
and marketing services as it believes reasonable in connection therewith. In the
event that the Fund establishes additional investment series with respect to
which it has retained the Principal Underwriter to act as principal underwriter
for one or more Classes hereunder, the Principal Underwriter shall promptly
notify the Marketing Services Agent in writing. If the Marketing Services Agent
is willing to render such services it shall notify the Principal Underwriter in
writing whereupon the applicable Class or Classes of shares of such investment
series shall become "Shares" hereunder.
1.2. All activities by the Marketing Services Agent and its agents and
employees as the Marketing Services Agent shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and regulations
made or adopted pursuant to the 1940 Act by the Securities and Exchange
Commission (the "Commission") or any securities association registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act").
1.3. In assisting the Principal Underwriter in promoting shares of the
Fund and undertaking any advertising and marketing services on behalf of the
Fund, the Marketing Services Agent shall use its best efforts in all respects
duly to conform with the requirements of all Federal and state laws
1
<PAGE>
relating to the sale of such securities. Neither the Marketing Services Agent,
Principal Underwriter, any selected dealer or any other person is authorized by
the Fund to give any information or to make any representations, other than
those contained in the Fund's registration statement (the "Registration
Statement") or related prospectus and statement of additional information
("Prospectus" and "Statement of Additional Information") and any sales
literature specifically approved by the Fund.
2. Duties of the Principal Underwriter.
2.1. The Principal Underwriter shall furnish from time to time, for use
in connection with the sale of Shares such information with respect to the
Shares as the Marketing Services Agent may reasonably request; and the Principal
Underwriter warrants that any such information shall be true and correct.
3. Representations of the Principal Underwriter.
3.1. The Principal Underwriter represents to the Marketing Services
Agent that it is a broker-dealer registered with the ^ Commission, is a member
of the National Association of Securities Dealers, Inc. ("NASD") and that the
Fund is registered under the 1940 Act and that the Shares have been registered
under the Securities Act of 1933, as amended (the "Securities Act").
3.2 That the principal underwriting agreement between the Fund and the
Principal Underwriter has been duly approved and continues in full force and
effect.
4. Indemnification.
4.1. The Marketing Services Agent agrees to indemnify and hold harmless
the Principal Underwriter and each of its directors, officers, employees, agents
and each person, if any, who controls the Principal Underwriter within the
meaning of the Securities Act ^ against any losses, claims, damages or
liabilities to which the Principal Underwriter ^ may become subject, insofar as
such losses, claims, damages, ^ liabilities, or expense (or actions in respect
thereof) (i) arise out of or are based upon the actions of the Marketing
Services Agent or (ii) result from a breach of a material provision of this
Agreement by the Marketing Services Agent. The Marketing Services Agent will
reimburse any legal or other expenses reasonably incurred by the Principal
Underwriter or any such ^ controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Marketing Services Agent will not be liable for indemnification
hereunder to the extent that any such loss, claim, damage or liability arises
out of or is based upon the gross negligence or willful misconduct of the
Principal Underwriter, its respective directors, officers, employees, agents or
any controlling person herein defined in performing their obligations under this
Agreement.
(b) The Principal Underwriter agrees to indemnify and hold harmless the
Marketing Services Agent, and each of its directors, officers, employees, agents
and each person, if any, who controls the Marketing Services Agent within the
meaning of the 1933 Act against any losses, claims, damages or liabilities to
which the Marketing Services Agent, or any such director, officer, employee,
agent or
2
<PAGE>
controlling person may become subject, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) (i) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or sales literature of the Fund
prepared or approved in writing by the Principal Underwriter or arise out of, or
are based upon, the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) result from a breach by it of a material provision of
this Agreement. The Principal Underwriter will reimburse any legal or other
expenses reasonably incurred by the Marketing Services Agent, or any such
director, officer, employee, agent, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Principal Underwriter will not be liable for
indemnification hereunder to the extent that any such loss, claim, damage or
liability arises out of, or is based upon, the gross negligence or willful
misconduct of the Marketing Services Agent, or its respective directors,
officers, employees, agents or any controlling person herein defined in the
performance of their obligations under this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of an action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under this Section 4. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 4 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
5. Amendments to Registration Statement and Other Material Events.
5.1. The Principal Underwriter agrees to advise the Marketing Services
Agent as soon as reasonably practical by a notice in writing delivered to the
Marketing Services Agent: (a) of any request or action taken by the Commission
which is material to the Marketing Services Agent's obligations or rights
hereunder or (b) any material fact of which the Principal Underwriter becomes
aware which affects the Marketing Services Agent's obligations or rights
hereunder.
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
6. Compensation of Marketing Services Agent.
6.1. (a) As promptly as possible after the first Business Day (as
defined in the Prospectus) of each month this Agreement is in effect, the
Principal Underwriter shall compensate the Marketing Services Agent for its
services rendered during the previous month (but not prior to the commencement
date of this Agreement); by making payment to the Marketing Services Agent in
the
3
<PAGE>
amounts set forth on Exhibit A annexed hereto with respect to each Class of
Shares of the Fund or, if applicable, each of its separate investment series to
which this Agreement relates. In connection therewith the Principal Underwriter
hereby agrees that it is obligated under this Agreement to comply with Paragraph
7 of the principal underwriting agreement. The compensation by the Principal
Underwriter of the Marketing Services Agent is authorized pursuant to the Plan
or Plans adopted by the Fund pursuant to Rule 12b-l under the 1940 Act.
(b) Under this Agreement, the Marketing Services Agent shall: (i) incur
the expense of obtaining such support services, telephone facilities and
shareholder services as may reasonably be required in connection with its duties
hereunder; (ii) formulate and implement marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (iii) prepare, print and
distribute sales literature; (iv) prepare, print and distribute Prospectuses of
the Series and reports for recipients other than existing shareholders of the
Series; and (v) provide to the Fund such information, analyses and opinions with
respect to marketing and promotional activities as the Fund may, from time to
time, reasonably request.
(c) The Marketing Services Agent shall prepare and deliver reports to
the Principal Underwriter on a regular, at least monthly, basis, showing the
distribution expenditures incurred by the Principal Underwriter in connection
with its services rendered pursuant to this Agreement and the Plan and the
purposes therefor, as well as any supplemental reports to the Fund's Board, from
time to time, as the Principal Underwriter may reasonably request.
7. Confidentiality, Non-Exclusive Agency.
7.1. The Marketing Services Agent agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the
Principal Underwriter all records and other information relative to the or, if
applicable, each of its separate investment series, and its prior, present or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and in connection with
the financing described in Paragraph 7 (f) to obtain approval in writing by the
Principal Underwriter, which approval shall not be unreasonably withheld and may
not be withheld where the Marketing Services Agent may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities.
7.2. Nothing contained in this Agreement shall prevent the Marketing
Services Agent, or any affiliated person of the Marketing Services Agent, from
performing services similar to those to be performed hereunder for any other
person, firm, or corporation or for its or their own accounts or for the
accounts of others.
8. Term.
8.1. This Agreement shall continue until December __, 1998 and
thereafter for successive annual periods, provided such continuance is
specifically approved with respect to the Fund or, if applicable, each of its
separate investment series at least annually by vote cast in person at a meeting
4
<PAGE>
called for the purpose of voting on such approval by (i) a vote of the majority
of the members of the Fund's Board and (ii) a vote of a majority of the members
who are not " interested persons" of the Fund, as that term is defined in the ^
1940 Act or who do not have any direct or indirect financial interest in the
Fund's Distribution Plan or any related agreements, voting separately. This
Agreement is terminable at any time, with respect to the Fund or, if applicable,
each of its separate investment series, without penalty, (a) on not less than 60
days' written notice by vote of a majority of the Independent Trustees, or by
vote of the holders of a majority of the outstanding voting securities of the
Fund or, if applicable, each of its separate investment series, or (b) upon not
less than 60 days' written notice by the Marketing Services Agent. This
Agreement may remain in effect with respect to a separate investment series even
if it has been terminated in accordance with this paragraph with respect to one
or more other separate investment series of the Fund. This Agreement will also
terminate automatically in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities",
"interested persons", and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
9. Miscellaneous.
9.1. This Agreement shall be governed by the laws of the State
of New York.
9.2. 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 constructions or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the __th day of December,
1996.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: _____________________________ By:____________________________
Title: Title:
5
<PAGE>
EXHIBIT A
To Marketing Services Agreement between Evergreen Funds Distributor, Inc.
and KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
SERIES AND CLASSES COVERED BY THIS AGREEMENT:
[KEYSTONE][EVERGREEN] _________ FUND
CLASS B[-2] SHARES
Marketing Services Fees
The Principal Underwriter agrees to pay the Marketing Servicing Agent a fee
at the rate of up to .75 of 1% of average daily net assets of the shares of each
Class set forth above, provided however that the payment of such fee shall: (i)
be subject and subordinate to the obligation of the Fund to make payments to the
Principal Underwriter pursuant to the provisions of the Distribution Agreement
dated ___________, 1996 between the Fund and its Principal Underwriter,
Evergreen Keystone Funds Distributor Inc.; (ii) be subject and subordinate to
the obligation of the Fund to make payments to any entity with respect to shares
sold prior to December 1, 1996; and (ii) not result in an aggregate fee being
paid to the Marketing Service Agent and Principal Underwriter that would exceed
.75 of 1% of the Fund's average daily net assets on an annual basis or otherwise
exceed the limit imposed on asset based and deferred sales charges under
subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to
the Distribution Agreement between the parties dated December __, 1996 to be
executed by their officers designated below as of the __th day of December,
1996.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: _____________________________ By:____________________________
Title: Title:
SUB-ADMINISTRATOR AGREEMENT
This Sub-Administrator Agreement is made as of this 1st day of
January, 1997 between Keystone Investment Management Company, a Delaware
corporation (herein called "KIMCO"), and BISYS Fund Services Limited Partnership
DBA as BISYS Fund Services, an Ohio Limited Partnership corporation (herein
called "BISYS").
WHEREAS, KIMCO has been appointed as investment adviser 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 to the Funds,
KIMCO has the obligation to provide, or engage others to provide, certain
administrative services to the Funds; and
WHEREAS, KIMCO 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 KIMCO ("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. KIMCO 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 KIMCO 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
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
1
<PAGE>
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. KIMCO 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 KIMCO, 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, KIMCO 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
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
2
<PAGE>
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, KIMCO 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 KIMCO may be asked to indemnify or hold BISYS
harmless, KIMCO 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 KIMCO promptly concerning
any situation which presents or appears likely to present the probability of
such a claim for indemnification against KIMCO.
KIMCO 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 KIMCO elects to assume the defense of any such
claim, the defense shall be conducted by counsel chosen by KIMCO and
satisfactory to BISYS, whose approval shall not be unreasonably withheld. In the
event that KIMCO 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 KIMCO 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 KIMCO at any time for instructions and may consult
counsel for KIMCO 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.
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
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<PAGE>
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. Notwithstanding the foregoing, this Agreement shall only
become effective if (i) Keystone Investments, the parent of KIMCO, has
previously been acquired by First Union National Bank of North Carolina, and
(ii) the Funds have appointed Evergreen Funds Distributor, Inc. as their
Principal Underwriter. 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 KIMCO, 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 KIMCO upon such termination shall
be immediately due and payable upon and notwithstanding such termination. BISYS
shall be entitled to collect from KIMCO, 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, KIMCO 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 KIMCO 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
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
4
<PAGE>
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 KIMCO hereunder by BISYS shall be
in writing and shall be duly given if delivered to KIMCO at the following
address: Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116 ATT: General Counsel. Notices of any kind to be given to
BISYS hereunder by EAMC 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.
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
5
<PAGE>
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.
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By______________________________________
Its:______________________________________
Attest:________________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
By_____________________________________________
BISYS FUND SERVICES, INC., its General Partner
Attest:________________________
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
6
<PAGE>
SCHEDULE A
SUB-ADMINISTRATOR AGREEMENT
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")
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
7
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT made this 11th day of December, 1996 by and between each of
the parties listed on Exhibit A attached hereto and made a part hereof, each for
itself and not jointly (each a "Fund"), and Evergreen Keystone Investment
Services, Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest of the Fund
sold prior to December 11, 1996 ("Shares") as an independent contractor upon the
terms and conditions hereinafter set forth. Except as the Fund may from time to
time agree, Principal Underwriter will act as agent for the Fund and not as
principal.
2. Having assigned all rights to commission payments for Shares sold on
or after December 1, 1996 but before December 11, 1996 to Evergreen Keystone
Distributor, Inc., Principal Underwriter will not be entitled to commissions on
such Shares. Principal Underwriter shall be entitled to receive commission
payments for sales of the Class A and C shares (as set forth on Exhibit B
attached hereto and made a part hereof) with respect to all Class A and C shares
sold prior to December 1, 1996 and outstanding as of the opening of business on
such date ("Pre-Acquisition Shares") and to receive contingent deferred sales
charges on such Pre-Acquisition Shares as set forth in the then current
prospectus and/or statement of additional information of the Fund. For purposes
of this Principal Underwriting Agreement, Pre-Acquisition Shares shall be such
shares which are defined in Schedule I attached hereto as Distributor Shares
calculated as though the Distributor Last Sale Cut-Off Date, as such term is
defined in Schedule I, was November 30, 1996. Principal Underwriter may reallow
all or a part of such commissions to such brokers, dealers or other persons as
Principal Underwriter may determine.
3. Principal Underwriter shall not make 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.
4. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
5. The Fund agrees 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, pros
pectus 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 Fund by the Principal Underwriter for use in the 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.
6. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
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 Fund, 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 the 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 Fund by the Principal Underwriter.
7. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plan, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plan and the purpose for which such expenditures
were made.
8. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plans of the Fund
("Rule 12b-1 Trustees") 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 any Rule 12b-1 Trustees or by a vote of
a majority of the Fund's outstanding Shares on not more than sixty (60) 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).
9. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts.
10. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the 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.
<PAGE>
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 BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA 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 WORLD BOND FUND
each for itself and not jointly
By: /s/ George S. Bissell
-------------------------
George S. Bissell
Chairman
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
By: /s/ Rosemary D. Van Antwerp
---------------------------
Rosemary D. Van Antwerp
Senior Vice President
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE OMEGA FUND
AGREEMENT made this 11th date of December, 1996 by and between Keystone
Omega Fund, a Massachusetts business trust, ("Fund"), and Evergreen Keystone
Investment Services, Inc., a Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund"), may act as the distributor of certain
securities of which it is 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 Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
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 Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
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<PAGE>
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-1 Shares and to promote distribution of the B-1 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-1 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-1 Shares.
3. Sales of B-1 Shares by 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 Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-1 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, 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 B-1 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received
18149
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<PAGE>
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 Fund for B-1 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 Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-1 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-1 Shares any representations concerning the
B-1 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 Fund to the Principal Underwriter in
reasonable quantities upon request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the "Purchase
Agreement"), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
18149
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<PAGE>
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees 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 Fund by the Principal Underwriter for use in the 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
Fund, its officers and Trustees and each person, if any, who controls the Fund
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 Fund, 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 the Fund's
registration statement, prospectus or statement of additional
information (including amendments and supplements thereto), or
any omission or alleged omission to state a
18149
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<PAGE>
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 Fund by the Principal Underwriter.
11. The Fund agrees 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 B-1 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-1 Shares under the
1933 Act or the Fund 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 Fund shall bear the expense of registering B-1
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-1 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 B-1 Shares, and the direct
expenses of the issue of B-1 Shares.
12. The Principal Underwriter shall, at the request of the Fund,
provide to the Board of Trustees or Directors (together herein called the
"Directors") of the Fund in connection with sales of B-1 Shares not less than
quarterly a written report of the amounts received from the Fund therefor and
the purpose for which such expenditures by the Fund were made.
18149
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<PAGE>
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
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (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 Class B-1 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 Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 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 (as hereinafter defined)
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 Shares while the Fund is required to do
18149
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<PAGE>
so pursuant the Principal Underwriting Agreement, of even date herewith, in
respect of Class B-2 Shares, and shall remain in effect so long as any payments
are required to be made by the Fund pursuant to the irrevocable payment
instruction (as defined in the Purchase 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 Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to 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 Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund 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
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid
18149
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<PAGE>
in respect of Shares which is allocable to Post-distributor Shares (as defined
in Schedule I hereto) in accordance with Schedule I hereto. The Fund's payments
to the Principal Underwriter in consideration of its services in connection with
the sale of B-1 Shares shall be the Distribution Fees attributable to B-1 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).
The 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 Fund ("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 be equal to 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.
18149
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<PAGE>
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the 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, the
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 Rules of Fair Practice, in each case enacted or promulgated
after June 1, 1995, or in connection with a Complete Termination (as hereinafter
defined). For the purposes of this Section 14.5, "Complete Termination" means a
termination of the Fund's Rule 12b-1 plan for B-2 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 earlier
of (i) the date upon which all of the B-2 Shares which are Distributor Shares
pursuant to Schedule I hereto shall have been redeemed or converted or (ii) June
1, 2005. For purposes of this Section 14.5, the term B-Class-of-Shares means
each of the B-1 Class of Shares of the Fund, the B-2 Class of 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 B-1 or B-2 Classes of 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. The parties agree that the
existing C Class of Shares of the Fund does not have substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. 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 B-1 or B-2 Classes of Shares taking into account the total sale 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.
18149
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<PAGE>
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its 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 Fund, and the Fund 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 Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-1 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 B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
18149
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<PAGE>
15. Pursuant to that certain Bill of Sale and Assumption of
Liabilities, dated July 21, 1995 (the "Bill of Sale") between the Fund and
Keystone America Omega Fund, Inc. (the "Corporation") and the Agreement and Plan
of Reorganization dated July 21, 1995 (the "Plan of Reorganization" between the
Fund and the Corporation: (1) the Fund purchased all of the Corporation's assets
of every kind and nature whatsoever held on the date thereof in exchange for
Shares of the Fund (the "Exchange Shares") and the assumption by the Fund of all
of the liabilities (fixed and contingent) and obligations (contractual or
otherwise) accrued or arising through the date thereof (including without
limitation all obligations of the Corporation under the Principal Underwriting
Agreement for Class B-2 Shares of Keystone America Omega Fund, Inc. dated as of
June 1, 1995 (the "Corporation's Underwriting Agreement") between the
Corporation and the Principal Underwriter to pay to the Principal Underwriter
the Distribution Fees (as defined therein) in respect of all Distributor Shares
(as defined therein) and (2) each of the outstanding shares (or fraction
thereof) of the Corporation were exchanged for an identical Exchange Share (or
fraction thereof) so that (a) each holder of Shares of the Corporation received
the same number of Exchange Shares (or fraction thereof) of the same class as
the number of shares (or fraction thereof) of each class of the Corporation
surrendered, and (b) the net asset value of each of the Exchange Shares received
was identical to the net asset value of shares of the same class of shares of
the Corporation surrendered. For all purposes of this Agreement (including,
without limitation, Sections 4, 14.1, 14.2 and 14.3 hereof) all references to
Shares shall be deemed to also refer to the Exchange Shares which constitute
Class B-1 shares and Class B-2 shares of the Fund, and the Fund shall pay to the
Distributor all fees in respect of such Exchange Shares (including, without
limitation, all Distribution Fees) as if such Exchange Shares were sold by the
Principal Underwriter under this Agreement. The obligations of the Fund in
respect of the Exchange
18149
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<PAGE>
Shares which constitute Class B-2 shares are for all purposes of this Agreement
identical to those of the Corporation in respect of the Class B-2 shares of the
Corporation outstanding immediately prior to the Closing Date (as defined in the
Plan of Reorganization) in all respects, including without limitation, in
respect of (i) the dates and terms of the contingent deferred sales charges,
(ii) the date of conversion of such shares, and (iii) the rate and schedule of
payment of Asset Based Sales Charges. Each of the Exchange Shares (or fraction
thereof) which constitutes a Class B-1 share and a Class B-2 share shall be
deemed to have the "Date of Original Purchase," the "Distributor Inception
Date," the "Distributor Last Sale Cut-Off Date," "Month of Original Purchase,"
and "Original Purchase Amount" (as such terms are defined in Schedule I hereof)
as shares (or faction thereof) of the same class of the Corporation outstanding
immediately prior to the Closing Date (as defined in the Plan of Reorganization)
which were surrendered by the holders thereof for such Exchange Share (or
fraction thereof). In addition, the net asset value in respect of each of the
Class B-1 and Class B-2 shares (or faction thereof) which constitutes as
Exchange Share immediately after the issuance of such Exchange Share which was
issued to a holder in exchange for a share (or a fraction thereof) of the same
class of the Corporation which was a "Commission Share," "Free Share,"
"Post-distribution Share," or a "Special Free Share" (as such terms are defined
in Schedule I to the Corporation's Underwriting Agreement) shall be deemed to be
an Exchange Share (or fraction thereof) which is a "Commission Share," "Free
Share," "Post-distribution Share" or a "Special Free Share," (as such terms are
defined in Schedule I hereof) as the case may be.
18149
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<PAGE>
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the 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.
18149
-14-
<PAGE>
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 OMEGA FUND
By:_____________________________
Title:
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:_____________________________
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE OMEGA FUND
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 Class B-1 Shares of the Instant Fund dated as of December 11, 1996 and the
sucessor Agreement dated December 11, 1996 between the Instant Fund and the
Distributor.
17959
<PAGE>
"ASSET BASED SALES CHARGE" shall have the meaning set forth in
Section 26(b)(8)(C) of the Rules of Fair Practice it being understood that for
purposes of this Exhibit 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.
"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 prior to December 11, 1996 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 Keystone Investment Distributors
Company, its successors and assigns.
"DISTRIBUTOR'S ACCOUNT" shall mean the account of the
Distributor, account no. 9903-584-2, ABA No. 011 0000 28, entitled "General
Account" maintained with State Street Bank & Trust Company or such other account
as the Distributor may designate in a notice to the Transfer Agent.
17959
2
<PAGE>
"DISTRIBUTOR INCEPTION DATE" shall mean, in respect of any
Fund, the date identified as the date Shares of such Fund are first sold by the
Distributor.
"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 occurs on or after
the Inception Date for such Fund 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 issued prior to December 11, 1996 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 Schedule
II to the Irrevocable Payment Instruction, as the same may be amended from time
to time in accordance with the terms thereof.
"INSTANT FUND" shall mean Keystone Omega Fund.
"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,
17959
3
<PAGE>
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
17959
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<PAGE>
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.
"PROGRAM AGENT" shall mean Citicorp North America, Inc., as
Program Agent under the Purchase Agreement, and its successors and assigns in
such capacity.
"PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement dated as of May 31, 1995, among Keystone Investment Distributors
Company,
17959
5
<PAGE>
as Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"SHARE" shall mean in respect of any Fund any share of the
classes of shares specified in Schedule II to the Irrevocable Payment
Instruction opposite the name of such Fund, as the same may be amended from time
to time by notice from the Distributor and the Program Agent 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 Schedule II to
the Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction 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 Schedule II to the
Irrevocable Payment Instruction 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)(1) 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:
17959
6
<PAGE>
(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.
17959
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<PAGE>
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 Cut-off 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 Cut-off Date
for such Fund shall be identified as Distributor Shares in a
number computed as follows:
A X (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).
17959
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<PAGE>
(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 Cut-off Date
for such Fund shall be identified as Post-distributor Shares
in a number computed as follows:
(A X (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 X (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.
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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 Cut-off Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A X (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 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
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<PAGE>
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) NASD CAP. On the date the distribution fees paid in
respect of any class of Shares equals the maximum amount thereon under the Rules
of Fair Practice, in respect of such class, all outstanding Shares of such class
of such Fund shall be converted into Class A shares of such Fund and will be
deemed to have been redeemed for their Net Asset Value for purposes of this
Schedule I.
(6) 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.
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<PAGE>
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.
(7) 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.
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<PAGE>
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.
(8) 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
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<PAGE>
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 X (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 Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
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<PAGE>
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 X ((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
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<PAGE>
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 s follows:
A X ((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 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 outstanding as of the close of business on the
last day of such calendar month, 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 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
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<PAGE>
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 the Instant
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 be 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 the Instant 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
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<PAGE>
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
the Instant Fund.
18
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE OMEGA FUND
AGREEMENT made this 11th day of December, 1996 by and between Keystone
Omega Fund, a Massachusetts business trust, ("Fund"), and Evergreen Keystone
Investment Services, Inc., a Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund"), may act as the distributor of certain
securities of which it is 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 Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
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 Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
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<PAGE>
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-2 Shares and to promote distribution of the B-2 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-2 Shares
to them. No such broker, dealer or other person shall have any authority to act
as agent for the Fund; such broker, dealer or other person shall act only as
principal in the sale of B-2 Shares.
3. Sales of B-2 Shares by 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 Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund, and the Fund reserves the right in its sole discretion
to reject any order received. The Fund shall not be liable to anyone for failure
to accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter contingent deferred sales charges ("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 B-2 Shares. The Principal Underwriter may allow all or a part
of said Distribution Fees and
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<PAGE>
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 Fund for B-2 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 Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-2 Shares any representations concerning the
B-2 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 Fund to the Principal Underwriter in
reasonable quantities upon request.
7. The Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc. (formerly the
"Rules of Fair Practice") (as defined in the Purchase and Sale Agreement, dated
as of May 31, 1995 (the "Purchase Agreement"), between the Principal
Underwriter, Citibank, N.A. and Citicorp North America, Inc., as agent (the
"Business Conduct Rules")).
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<PAGE>
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees 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 Fund by the Principal Underwriter for use in the 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
Fund, its officers and Trustees and each person, if any, who controls the Fund
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 Fund, its officers, Trustees 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 the 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 Fund by the Principal Underwriter.
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<PAGE>
11. The Fund agrees 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 B-2 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-2 Shares under the
1933 Act or the Fund 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 Fund shall bear the expense of registering B-2
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-2 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 B-2 Shares, and the direct
expenses of the issue of B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund,
provide to the Board of Trustees or Directors (together herein called the
"Directors") of the Fund in connection with sales of B-2 Shares not less than
quarterly a written report of the amounts received from the Fund therefor and
the purposes for which such expenditures by the Fund 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
Class B-2 of the Fund or by a majority of the Directors of the Fund 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
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<PAGE>
the operation of the Fund's Rule 12b-1 plan for Class B-2 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 Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 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 its Allocable Portion of CDSCs
(as hereinafter defined) 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 Shares while the Fund is required to do so pursuant to the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase 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
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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 Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto) in accordance with Schedule I hereto. The Fund agrees to cause its
transfer agent to maintain the records and arrange for the payments on behalf of
the Fund 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
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund 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. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-2 Shares shall be
the Distribution Fees attributable to B-2 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).
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<PAGE>
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the CDSCs payable upon redemption thereof as set forth in the then
current prospectus and/or statement of additional information of the Fund
("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 be equal to 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, the 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).
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<PAGE>
14.5 Notwithstanding anything in this Agreement to the contrary, the
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
payment of such Distribution Fees. The 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 May 31, 1995,
or in connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 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 earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) May 31, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of 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 B-1 or B-2 Classes of 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. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly
18147
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<PAGE>
by the holder of such shares. 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 B-1 or B-2
Classes of Shares taking into account the total sale 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 any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee"), and any such assignment shall be effective as to the
Fund upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its 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 Fund, and the Fund 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.
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<PAGE>
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-2 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 B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. Pursuant to that certain Bill of Sale and Assumption of
Liabilities, dated July 21, 1995 (the "Bill of Sale") between the Fund and
Keystone America Omega Fund, Inc. (the "Corporation") and the Agreement and Plan
of Reorganization dated July 21, 1995 (the "Plan of Reorganization" between the
Fund and the Corporation: (1) the Fund purchased all of the Corporation's assets
of every kind and nature whatsoever held on the date thereof in exchange for
Shares of the Fund (the "Exchange Shares") and the assumption by the Fund of all
of the liabilities (fixed and contingent) and obligations (contractual or
otherwise) accrued or arising through the date thereof (including without
limitation all obligations of the Corporation under the Principal Underwriting
Agreement for Class B-2 Shares of Keystone America Omega Fund, Inc. dated as of
June 1, 1995 (the "Corporation's Underwriting Agreement") between the
Corporation and the Principal Underwriter to pay to the Principal Underwriter
the Distribution Fees (as defined therein) in respect of all Distributor Shares
(as defined therein) and (2) each of the outstanding shares (or fraction
thereof) of the Corporation were exchanged for an identical Exchange Share (or
fraction thereof) so that (a) each holder of Shares of the Corporation received
the same number of Exchange Shares (or fraction thereof) of the same class as
the number of shares (or fraction thereof) of each
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<PAGE>
class of the Corporation surrendered, and (b) the net asset value of each of the
Exchange Shares received was identical to the net asset value of shares of the
same class of shares of the Corporation surrendered. For all purposes of this
Agreement (including, without limitation, Sections 4, 14.1, 14.2 and 14.3
hereof) all references to Shares shall be deemed to also refer to the Exchange
Shares which constitute Class B-1 shares and Class B-2 shares of the Fund, and
the Fund shall pay to the Distributor all fees in respect of such Exchange
Shares (including, without limitation, all Distribution Fees) as if such
Exchange Shares were sold by the Principal Underwriter under this Agreement. The
obligations of the Fund in respect of the Exchange Shares which constitute Class
B-2 shares are for all purposes of this Agreement identical to those of the
Corporation in respect of the Class B-2 shares of the Corporation outstanding
immediately prior to the Closing Date (as defined in the Plan of Reorganization)
in all respects, including without limitation, in respect of (i) the dates and
terms of the contingent deferred sales charges, (ii) the date of conversion of
such shares, and (iii) the rate and schedule of payment of Asset Based Sales
Charges. Each of the Exchange Shares (or fraction thereof) which constitutes a
Class B-1 share and a Class B-2 share shall be deemed to have the "Date of
Original Purchase," the "Distributor Inception Date," the "Distributor Last Sale
Cut-Off Date," "Month of Original Purchase," and "Original Purchase Amount" (as
such terms are defined in Schedule I hereof) as shares (or faction thereof) of
the same class of the Corporation outstanding immediately prior to the Closing
Date (as defined in the Plan of Reorganization) which were surrendered by the
holders thereof for such Exchange Share (or fraction thereof). In addition, the
net asset value in respect of each of the Class B-1 and Class B-2 shares (or
faction thereof) which constitutes as Exchange Share immediately after the
issuance of such Exchange Share which was issued to a holder in exchange for a
share (or a fraction thereof) of the same class of the Corporation which was a
"Commission Share," "Free Share," "Post-distribution Share," or a "Special Free
Share" (as such terms are defined in Schedule I to the
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<PAGE>
Corporation's Underwriting Agreement) shall be deemed to be an Exchange Share
(or fraction thereof) which is a "Commission Share," "Free Share,"
"Post-distribution Share" or a "Special Free Share," (as such terms are defined
in Schedule I hereof) as the case may be.
16. 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.
17. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the 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.
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<PAGE>
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 OMEGA FUND
By:________________________________
Title:
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:________________________________
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE OMEGA FUND
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 Class B-2 Shares of the Instant Fund dated as of May 31, 1995 and the
successor Agreement dated December 11, 1996 between the Instant Fund and the
Distributor.
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"Asset Based Sales Charge" shall have the meaning set forth in
Section 26(b)(8)(C) of the Rules of Fair Practice it being understood that for
purposes of this Exhibit 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.
"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 prior to Deceember 11, 1996 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 Keystone Investment Distributors
Company, its successors and assigns.
"Distributor's Account" shall mean the account of the
Distributor, account no. 9903-584-2, ABA No. 011 0000 28, entitled "General
Account" maintained with State Street Bank & Trust Company or such other account
as the Distributor may designate in a notice to the Transfer Agent.
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<PAGE>
"Distributor Inception Date" shall mean, in respect of any
Fund, the date identified as the date Shares of such Fund are first sold by the
Distributor.
"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 occurs on or after
the Inception Date for such Fund 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 issued prior to December 11, 1996 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 Schedule
II to the Irrevocable Payment Instruction, as the same may be amended from time
to time in accordance with the terms thereof.
"Instant Fund" shall mean Keystone Omega Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the
Omnibus Account maintained by Merrill Lynch, Pierce, Fenner & Smith as
subtransfer agent.
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<PAGE>
"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.
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<PAGE>
"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).
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<PAGE>
"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.
"Program Agent" shall mean Citicorp North America, Inc., as
Program Agent under the Purchase Agreement, and its successors and assigns in
such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale
Agreement dated as of May 31, 1995, among Keystone Investment Distributors
Company, as Seller, Citibank, N.A., as Purchaser, and Citicorp North America,
Inc., as Program Agent.
"Share" shall mean in respect of any Fund any share of the
classes of shares specified in Schedule II to the Irrevocable Payment
Instruction opposite the name of such Fund, as the same may be amended from time
to time by notice from the Distributor and the Program Agent 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 Schedule II to
the Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction 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 Schedule II to the
Irrevocable Payment Instruction 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)(1) 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.
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<PAGE>
"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
Subshareholder 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 Subshareholder 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
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<PAGE>
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 Subtransfer 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 Cut-off 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 Cut-off Date
for such Fund shall be identified as Distributor Shares in a
number computed as follows:
17961
<PAGE>
A X (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 Cut-off Date
for such Fund shall be identified as Post-distributor Shares
in a number computed as follows:
(A X (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
17961
<PAGE>
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 X (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 Cut-off Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A X (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
17961
<PAGE>
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 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
Subshareholder 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 Subshareholder 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
17961
<PAGE>
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) NASD Cap. On the date the distribution fees paid in
respect of any class of Shares equals the maximum amount thereon under the Rules
of Fair Practice, in respect of such class, all outstanding Shares of such class
of such Fund shall be converted into Class A shares of such Fund and will be
deemed to have been redeemed for their Net Asset Value for purposes of this
Schedule I.
(6) 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 Subtransfer 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.
(7) Identification of Exchanged Shares. When a Shareholder
17961
<PAGE>
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
Subshareholder 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 Subtransfer 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.
(8) Identification of Converted Shares. The Transfer Agent
records
17961
<PAGE>
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
Subshareholder 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.
17961
<PAGE>
(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 X (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
Postdistributor 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 Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
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 Subshareholder
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 Subshareholder Account (as though it were a Shareholder Account other than
an Omnibus Account), based on the records maintained by the record owner, to
allocate
17961
<PAGE>
the Asset Based Sales Charge so allocated to any Sub-shareholder Account among
the Distributor Shares and Post-distributor Shares reflected in each such
Subshareholder 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 X ((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
Postdistributor Shares shall be computed s follows:
A X ((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 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 outstanding as of the close of business on the
last day of such calendar month, 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 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
17961
<PAGE>
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 the Instant
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 be 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 the Instant 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
the Instant Fund.
17961
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Omega Fund
We consent to the use of our report dated January 31, 1997 incorporated
by reference herin and to the references to our firm under the captions
"FINANCIAL HIGHLIGHTS" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
April 29, 1997
<TABLE>
<CAPTION>
KAOFI CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Dec-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD 6.02% 6.02% 36.97% 11.06%
no load -0.71% 11.31% 11.31% 43.80% 12.87%
Beg dates 29-Nov-96 29-Dec-95 29-Dec-95 31-Dec-93 31-Dec-93
Beg Value (LOAD) 144,062 128,507 128,507 99,470 99,470
Beg Value (no load) 137,219 122,403 122,403 94,745 94,745
End Value 136,242 136,242 136,242 136,242 136,242
TIME 3
</TABLE>
<TABLE>
<CAPTION>
KAOFI CLASS A FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Dec-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
4.75% LOAD 69.99% 11.19% 321.17% 15.46%
no load 78.46% 12.28% 342.18% 16.03%
Beg dates 31-Dec-91 31-Dec-91 31-Dec-86 31-Dec-86
Beg Value (LOAD) 80,149 80,149 32,348 32,348
Beg Value (no load) 76,342 76,342 30,812 30,812
End Value 136,242 136,242 136,242 136,242
TIME 5 10
</TABLE>
<TABLE>
<CAPTION>
KAOFI-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Dec-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 6.37% 6.37% 36.85% 11.02%
W/O CDSC -0.79% 10.31% 10.31% 39.85% 11.83%
Beg dates 29-Nov-96 29-Dec-95 29-Dec-95 31-Dec-93 31-Dec-93
Beg Value (no load) 15,367 13,821 13,821 10,902 10,902
End Value (W/O CDSC) 15246 15,246 15,246 15,246 15,246
End Value (with cdsc) 14,701 14,701 14,919 14,919
beg nav 18.98 19.10 19.10 17.06 17.06
end nav 18.83 18.83 18.83 18.83 18.83
shares originally purchased 809.65 723.61 723.61 639.01 639.01
5% cdsc thru date=> 31-Jul-94
TIME 4% cdsc thru date=> 31-Jul-95 3
</TABLE>
<TABLE>
<CAPTION>
KAOFI-B FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Dec-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 49.46% 12.49% NA NA
W/O CDSC 52.46% 13.15% NA NA
Beg dates 02-Aug-93 02-Aug-93 02-Aug-93 02-Aug-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 15,246 15,246 15,246 15,246
End Value (with cdsc) 14,946 14945.7108889 15,246 15245.7108889
beg nav 17.29 17.29 17.29 17.29
end nav 18.83 18.83 18.83 18.83
shares originally purchased 578.37 578.37 578.37 578.37
TIME 3.4138888889 3.4138888889
</TABLE>
<TABLE>
<CAPTION>
KAOFI-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Dec-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 10.29% 10.29% 39.77% 11.81%
W/O CDSC -0.79% 10.29% 10.29% 39.77% 11.81%
Beg dates 29-Nov-96 29-Dec-95 29-Dec-95 31-Dec-93 31-Dec-93
Beg Value (no load) 15,384 13,839 13,839 10,920 10,920
End Value (W/O CDSC) 15,263 15,263 15,263 15,263 15,263
End Value (with cdsc) 15,263 15,263 15,263 15,263
beg nav 19.01 19.13 19.13 17.09 17.09
end nav 18.86 18.86 18.86 18.86 18.86
shares originally purchased 809.28 723.41 723.41 638.96 638.96
TIME 3
</TABLE>
<TABLE>
<CAPTION>
KAOFI-C FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Dec-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
with cdsc 52.63% 13.19% NA NA
W/O CDSC 52.63% 13.19% NA NA
<S> <C> <C> <C> <C>
Beg dates 02-Aug-93 02-Aug-93 02-Aug-93 02-Aug-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 15,263 15,263 15,263 15,263
End Value (with cdsc) 15,263 15263.0600363 15,263 15263.0600363
beg nav 17.29 17.29 17.29 17.29
end nav 18.86 18.86 18.86 18.86
shares originally purchased 578.37 578.37 578.37 578.37
TIME 3.4138888889 3.4138888889
</TABLE>
<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 OMEGA FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 225,357,258
<INVESTMENTS-AT-VALUE> 252,159,162
<RECEIVABLES> 1,901,766
<ASSETS-OTHER> 46,607
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 254,107,535
<PAYABLE-FOR-SECURITIES> 547,715
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 157,595
<TOTAL-LIABILITIES> 705,310
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118,909,325
<SHARES-COMMON-STOCK> 8,286,847
<SHARES-COMMON-PRIOR> 6,907,644
<ACCUMULATED-NII-CURRENT> 306,868
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,882,714
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24,644,932
<NET-ASSETS> 152,743,839
<DIVIDEND-INCOME> 517,242
<INTEREST-INCOME> 241,774
<OTHER-INCOME> 0
<EXPENSES-NET> (994,472)
<NET-INVESTMENT-INCOME> (235,456)
<REALIZED-GAINS-CURRENT> 15,981,982
<APPREC-INCREASE-CURRENT> (3,950,388)
<NET-CHANGE-FROM-OPS> 11,796,138
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (12,256,195)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,147,730
<NUMBER-OF-SHARES-REDEEMED> (1,376,015)
<SHARES-REINVESTED> 607,488
<NET-CHANGE-IN-ASSETS> 17,653,250
<ACCUMULATED-NII-PRIOR> 542,324
<ACCUMULATED-GAINS-PRIOR> 5,156,927
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (522,761)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1,006,504)
<AVERAGE-NET-ASSETS> 141,174,757
<PER-SHARE-NAV-BEGIN> 19.56
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 0.70
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.78)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.43
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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> 102
<NAME> KEYSTONE OMEGA FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 225,357,258
<INVESTMENTS-AT-VALUE> 252,159,162
<RECEIVABLES> 1,901,766
<ASSETS-OTHER> 46,607
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 254,107,535
<PAYABLE-FOR-SECURITIES> 547,715
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 157,595
<TOTAL-LIABILITIES> 705,310
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,551,713
<SHARES-COMMON-STOCK> 4,624,132
<SHARES-COMMON-PRIOR> 3,751,051
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (895,938)
<ACCUMULATED-NET-GAINS> 1,174,364
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,820,685
<NET-ASSETS> 82,650,824
<DIVIDEND-INCOME> 286,047
<INTEREST-INCOME> 135,821
<OTHER-INCOME> 0
<EXPENSES-NET> (891,425)
<NET-INVESTMENT-INCOME> (469,557)
<REALIZED-GAINS-CURRENT> 8,967,887
<APPREC-INCREASE-CURRENT> (6,310,808)
<NET-CHANGE-FROM-OPS> 2,187,522
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (7,395,517)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 985,123
<NUMBER-OF-SHARES-REDEEMED> (496,921)
<SHARES-REINVESTED> 384,879
<NET-CHANGE-IN-ASSETS> 11,024,305
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (426,381)
<OVERDIST-NET-GAINS-PRIOR> (398,006)
<GROSS-ADVISORY-FEES> (291,650)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (898,130)
<AVERAGE-NET-ASSETS> 78,670,771
<PER-SHARE-NAV-BEGIN> 19.10
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 0.63
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.78)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.87
<EXPENSE-RATIO> 2.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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> 103
<NAME> KEYSTONE OMEGA FUND CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 225,357,258
<INVESTMENTS-AT-VALUE> 252,159,162
<RECEIVABLES> 1,901,766
<ASSETS-OTHER> 46,607
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 254,107,535
<PAYABLE-FOR-SECURITIES> 547,715
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 157,595
<TOTAL-LIABILITIES> 705,310
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,709,152
<SHARES-COMMON-STOCK> 1,005,821
<SHARES-COMMON-PRIOR> 730,073
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (213,600)
<ACCUMULATED-NET-GAINS> 175,723
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 336,287
<NET-ASSETS> 18,007,562
<DIVIDEND-INCOME> 59,545
<INTEREST-INCOME> 28,219
<OTHER-INCOME> 0
<EXPENSES-NET> (185,421)
<NET-INVESTMENT-INCOME> (97,657)
<REALIZED-GAINS-CURRENT> 1,859,039
<APPREC-INCREASE-CURRENT> (1,319,161)
<NET-CHANGE-FROM-OPS> 442,221
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,549,997)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 294,931
<NUMBER-OF-SHARES-REDEEMED> (97,981)
<SHARES-REINVESTED> 78,798
<NET-CHANGE-IN-ASSETS> 4,046,280
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (115,943)
<OVERDIST-NET-GAINS-PRIOR> (133,320)
<GROSS-ADVISORY-FEES> (60,529)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (186,812)
<AVERAGE-NET-ASSETS> 16,321,148
<PER-SHARE-NAV-BEGIN> 19.13
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 0.60
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.78)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.90
<EXPENSE-RATIO> 2.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Exhibit 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. 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 in 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.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ F. Ray Keyser, Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, 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-1 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 Custodian
Funds, Inc. 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 in
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.
/s/Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
