1933 Act File No. 2-94560
1940 Act File No. 811-4154
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. 52 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 52 X
EVERGREEN INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street
Boston, MA 02116
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
Dorothy E. Bourrassa, Esq.
First Union Corporation
200 Berkeley Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/X/ Immediately upon filing pursuant to paragraph (b)
/ / on September 1, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
The Registrant has filed a Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for the fiscal
period ended May 31, 1997 for its Evergreen High Grade Tax Free Fund was filed
on July 30, 1997. Registrant's Rule 24f-2 Notice for the fiscal period ended
June 30, 1997 for its Evergreen Short-Intermediate Term Bond Fund was filed on
August 29, 1997.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price** Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of
Beneficial
Interest,
$0.0001 Par 859,268 $11.33 $9,735,506 $0
Value
- -------------------------------------------------------------------------------------------------
</TABLE>
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on August 26, 1997.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 1,719,240 shares of the
Evergreen High Grade Tax Free Fund were redeemed during its fiscal period ended
May 31, 1997. Of such shares, 859,972 were used for a reduction pursuant to Rule
24f-2 during the current fiscal period. The remaining 859,268 shares are being
used for a reduction in this filing.
<PAGE>
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of EVERGREEN INVESTMENT TRUST, is
comprised of two of the Trust's portfolios: Evergreen High Grade Tax Free Fund
and Evergreen Short-Intermediate Bond Fund.
CROSS REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No. Location in Prospectus(es)
Part A
Item 1. Cover Page Cover Page
Item 2. Synopsis and Fee Table Overview of the Fund(s);
Expense Information
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Cover Page; Description of
the Funds; Other
Information
Item 5. Management of the Fund Management of the Fund(s);
Other Information
Item 6. Capital Stock and Other Securities Other Information
Item 7. Purchase of Securities Being Offered Purchase and Redemption of
Shares
Item 8. Redemption or Repurchase Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings Not Applicable
Location in Statement of
Part B Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Objectives and
Policies;Investment
Restrictions; Non-
Fundamental Operating
Policies
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Management
Holders of Securities
Item 16. Investment Advisory and Other Services Investment Advisers;
Purchase of Shares
Item 17. Brokerage Allocation Allocation of Brokerage
Item 18. Capital Stock and Other Securities Purchase of Shares;
General Information About
the Funds
Item 19. Purchase, Redemption and Pricing of Distribution Plans;
Securities Being Offered Purchase of Shares;
Net Asset Value
Item 20. Tax Status Additional Tax Information
Item 21. Underwriters Distribution Plans;
Purchase of Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
*******************************************************************************
<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
PART A
PROSPECTUS
<PAGE>
PROSPECTUS September 3, 1997
EVERGREEN(SM) KEYSTONE NATIONAL TAX FREE FUNDS (Pine Tree Logo)
EVERGREEN HIGH GRADE TAX FREE FUND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
CLASS A SHARES
CLASS B SHARES
KEYSTONE TAX FREE INCOME FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Keystone National Tax Free Funds (the "Funds") are
designed to provide investors with income exempt from federal income taxes. This
Prospectus provides information regarding the Class A and Class B shares offered
by the EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND and the Class A, Class B and Class C Shares offered by KEYSTONE
TAX FREE INCOME FUND. Each Fund is, or is a series of, an open-end, diversified,
management investment company. This Prospectus sets forth concise information
about the Funds that a prospective investor should know before investing. The
address of the Funds is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Funds dated
September 3, 1997, as supplemented from time to time has been filed with the
Securities and Exchange Commission and is incorporated by reference herein. The
Statement of Additional Information provides information regarding certain
matters discussed in this Prospectus and other matters which may be of interest
to investors, and may be obtained without charge by calling the Funds at
(800) 343-2898. There can be no assurance that the investment objective of any
Fund will be achieved. Investors are advised to read this Prospectus carefully.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OR AN OBLIGATION 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 INVOLVES RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 9
Investment Practices and Restrictions 10
MANAGEMENT OF THE FUNDS
Investment Advisers 13
Sub-Adviser 14
Portfolio Managers 14
Administrator 15
Sub-Administrator 15
Distribution Plans 15
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 16
How to Redeem Shares 19
Exchange Privilege 20
Shareholder Services 21
Effect of Banking Laws 22
OTHER INFORMATION
Dividends, Distributions and Taxes 23
General Information 24
OVERVIEW OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The investment adviser to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND is
Evergreen Asset Management Corp. ("Evergreen Asset") which, with its
predecessors, has served as an investment adviser to the Evergreen mutual funds
since 1971. Keystone Investment Management Company ("Keystone") is investment
adviser to KEYSTONE TAX FREE INCOME FUND. Evergreen Asset and Keystone are
wholly-owned subsidiaries of First Union National Bank ("FUNB"), which in turn
is a subsidiary of First Union Corporation ("First Union"), the sixth largest
bank holding company in the United States. The Capital Management Group ("CMG")
of FUNB serves as investment adviser to EVERGREEN HIGH GRADE TAX FREE FUND.
EVERGREEN HIGH GRADE TAX FREE FUND seeks to provide a high level of
federally tax free income that is consistent with preservation of capital.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of
current income, exempt from federal income tax other than the federal
alternative minimum tax, as is consistent with preserving capital and providing
liquidity. The Fund invests substantially all of its assets in short and
intermediate-term municipal securities with a dollar weighted average portfolio
maturity of two to five years.
KEYSTONE TAX FREE INCOME FUND seeks the highest possible current income,
exempt from Federal income taxes, while preserving capital. The Fund pursues
this objective by investing primarily in municipal bonds.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in Class A and Class B shares and, when
applicable, in Class C shares of a Fund. For further information see "Purchase
and Redemption of Shares" and "General Information -- Other Classes of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares
<S> <C> <C>
Maximum Sales Charge Imposed on 4.75% for High Grade and Tax Free Income None
Purchases (as a % of offering 3.25% for Short-Intermediate
price)
Contingent Deferred Sales Charge None 5% during the first year,
(as a % of original purchase price declining to 1% in the
or redemption proceeds, whichever sixth year and 0%
is lower) thereafter
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class C Shares
<S> <C>
Maximum Sales Charge Imposed on None
Purchases (as a % of offering
price)
Contingent Deferred Sales Charge 1% during the first year
(as a % of original purchase price and 0% thereafter
or redemption proceeds, whichever
is lower)
</TABLE>
The following tables show for each Fund the estimated annual operating
expenses (as a percentage of average net assets) attributable to each Class of
shares, together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment in each Class for the periods specified assuming
(i) a 5% annual return and (ii) redemption at the end of each period and,
additionally for Class B and Class C shares, no redemption at the end of each
period.
In the following examples (i) the expenses for Class A shares assume
deduction of the maximum sales charge at the time of purchase, (ii) the expenses
for Class B shares and Class C shares assume deduction at the time of redemption
(if applicable) of the maximum contingent deferred sales charge applicable for
that time period, and (iii) the expenses for Class B shares reflect the
conversion to Class A shares seven years after purchase (years eight through
ten, therefore, reflect Class A expenses).
EVERGREEN HIGH GRADE TAX FREE FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Assuming
ANNUAL OPERATING Redemption no
EXPENSES** at End of Period Redemption
Class A Class B Class A Class B Class B
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% After 1 Year $ 58 $ 68 $ 18
12b-1 Fees* 0.25% 0.75% After 3 Years $ 79 $ 86 $ 56
Shareholder Service Fees -- 0.25% After 5 Years $ 102 $ 116 $ 96
Other Expenses 0.28% 0.28% After 10 Years $ 167 $ 180 $180
Total 1.03% 1.78%
</TABLE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Assuming
ANNUAL OPERATING Redemption no
EXPENSES** at End of Period Redemption
Class A Class B Class A Class B Class B
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% After 1 Year $ 41 $ 68 $ 18
12b-1 Fees* 0.10% 1.00% After 3 Years $ 58 $ 84 $ 54
Other Expenses 0.24% 0.23% After 5 Years $ 78 $ 114 $ 94
Total 0.84% 1.73% After 10 Years $ 133 $ 169 $169
</TABLE>
KEYSTONE TAX FREE INCOME FUND
<TABLE>
<CAPTION>
EXAMPLES
ANNUAL OPERATING Assuming Redemption Assuming no
EXPENSES at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.61% 0.61% 0.61% After 1 Year $ 59 $ 70 $ 30 $ 20 $ 20
12b-1 Fees* 0.24% 1.00% 1.00% After 3 Years $ 83 $ 91 $ 61 $ 61 $ 61
Other Expenses 0.34% 0.34% 0.34% After 5 Years $ 110 $ 125 $ 105 $ 105 $ 105
Total 1.19% 1.95% 1.95% After 10 Years $ 185 $ 198 $ 227 $ 198 $ 227
</TABLE>
*Class A shares can pay up to 0.75% of average net assets as a 12b-1 fee. For
the forseeable future, the Class A shares 12b-1 fees will be limited to 0.25% of
average net assets for EVERGREEN HIGH GRADE TAX FREE FUND and KEYSTONE TAX FREE
INCOME FUND, and 0.10% of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND. For Class
B
3
<PAGE>
shares and Class C shares, a portion of the 12b-1 Fees equivalent to 0.25% of
average net assets will be shareholder servicing-related. Distribution-related
12b-1 Fees will be limited to 0.75% of average net assets as permitted under the
rules of the National Association of Securities Dealers, Inc.
**Expenses for EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN SHORT
INTERMEDIATE MUNICIPAL FUND reflect a fee waiver of 0.20% and 0.20%,
respectively, of average net assets for the period ended May 31, 1997.
Evergreen Asset has agreed to reimburse EVERGREEN SHORT-INTERMEDIATE MUNICIPAL
FUND to the extent that its aggregate operating expenses (including the
investment adviser's fee, but excluding taxes, interest, brokerage commissions,
Rule 12b-1 distribution fees and shareholder servicing fees and extraordinary
expenses) exceed 1.0% of the average net assets.
From time to time each Fund's investment adviser may, at its discretion, reduce
or waive its fees or reimburse these Funds for certain of their other expenses
in order to reduce their expense ratios. Each Fund's investment adviser may
cease these voluntary waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in each Class of
shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are based on the experience of each Fund for
its most recent fiscal period. In the case of Funds that did not offer all of
the above-referenced Classes of shares during such periods, the amounts set
forth in the tables are based on the expenses incurred by the Classes which were
offered. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN. For a more complete description of the various
costs and expenses borne by the Funds see "Management of the Funds." As a result
of asset-based sales charges, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted under the
rules of the National Association of Securities Dealers, Inc.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the table for KEYSTONE TAX FREE INCOME FUND has been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors; for EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN HIGH GRADE TAX FREE FUND has
been audited by Price Waterhouse LLP, the Funds' independent auditors.
Information for EVERGREEN HIGH GRADE TAX FREE FUND for the fiscal years or
periods prior to May 31, 1997 has been audited by other auditors. A report of
KPMG Peat Marwick LLP or Price Waterhouse LLP, as the case may be, on the
audited information with respect to each Fund is incorporated by reference into
the Funds' Statement of Additional Information. The following information for
each Fund should be read in conjunction with the financial statements and
related notes which are incorporated by reference into the Funds' Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN HIGH GRADE TAX FREE FUND
<TABLE>
<CAPTION>
CLASS A SHARES FEBRUARY 21, CLASS B SHARES
1992
(COMMENCEMENT NINE
NINE EIGHT OF CLASS MONTHS
MONTHS MONTHS OPERATIONS) ENDED
ENDED YEAR ENDED ENDED YEAR ENDED THROUGH MAY 31, YEAR ENDED
MAY 31, AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31, 1997 AUGUST 31,
1997 (A) 1996 1995 (D) 1994 1993 1992 (A) 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING
OF PERIOD................ $10.72 $10.69 $9.79 $11.16 $10.42 $10.00 $10.72 $10.69
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... 0.37 0.52 0.34 0.52 0.54 0.51 0.31 0.44
Net realized and
unrealized gain (loss) on
investments.............. 0.17 0.03 0.90 (1.37) 0.81 0.42 0.17 0.03
Total from investment
operations............. 0.54 0.55 1.24 (0.85) 1.35 0.93 0.48 0.47
LESS DISTRIBUTIONS FROM:
Net investment income..... (0.37) (0.52) (0.34) (0.52) (0.54) (0.51) (0.31) (0.44)
Net realized gains on
investments.............. 0 0 0 0 (0.07) 0 0 0
Total distributions...... (0.37) (0.52) (0.34) (0.52) (0.61) (0.51) (0.31) (0.44)
NET ASSET VALUE END OF
PERIOD................... $10.89 $10.72 $10.69 $9.79 $11.16 $10.42 $10.89 $10.72
Total return (c).......... 5.13% 5.21% 12.83% (7.71%) 13.25% 9.48% 4.55% 4.42%
Ratios/supplemental data:
Ratios to average net
assets:
Total expenses........... 1.03%(b) 0.89% 1.06%(b) 1.01% 0.85% 0.49%(b) 1.78%(b) 1.64%
Total expenses excluding
indirectly paid
expenses............... 1.03%(b) -- -- -- -- -- 1.78%(b) --
Total expenses excluding
waivers and
reimbursements......... 1.11%(b) 1.09% 1.09%(b) 1.02% 1.07% 1.11%(b) 1.86%(b) 1.84%
Net investment income.... 4.60%(b) 4.78% 4.93%(b) 5.04% 4.99% 5.79%(b) 3.85%(b) 4.03%
Portfolio turnover rate... 114% 65% 27% 53% 14% 7% 114% 65%
NET ASSETS END OF PERIOD
(THOUSANDS).............. $45,814 $50,569 $58,751 $57,676 $101,352 $90,738 $31,874 $32,221
<CAPTION>
CLASS B SHARES JANUARY 1
1993
(COMMENCEMENT
EIGHT OF CLASS
MONTHS OPERATIONS)
ENDED YEAR ENDED THROUGH
AUGUST 31, DECEMBER 31, DECEMBER 31,
1995 (D) 1994 1993
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING
OF PERIOD................ $9.79 $11.16 $10.42
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... 0.29 0.46 0.47
Net realized and
unrealized gain (loss) on
investments.............. 0.90 (1.37) 0.81
Total from investment
operations............. 1.19 (0.91) 1.28
LESS DISTRIBUTIONS FROM:
Net investment income..... (0.29) (0.46) (0.47)
Net realized gains on
investments.............. 0 0 (0.07)
Total distributions...... (0.29) (0.46) (0.54)
NET ASSET VALUE END OF
PERIOD................... $10.69 $9.79 $11.16
Total return (c).......... 12.27% (8.24%) 12.52%
Ratios/supplemental data:
Ratios to average net
assets:
Total expenses........... 1.81%(b) 1.58% 1.35%(b)
Total expenses excluding
indirectly paid
expenses............... -- -- --
Total expenses excluding
waivers and
reimbursements......... 1.84%(b) 1.59% 1.57%(b)
Net investment income.... 4.18%(b) 4.47% 4.44%(b)
Portfolio turnover rate... 27% 53% 14%
NET ASSETS END OF PERIOD
(THOUSANDS).............. $34,206 $32,435 $41,030
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) The Fund changed its fiscal year end from December 31 to August 31.
5
<PAGE>
EVERGREEN SHORT INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
CLASS A SHARES JANUARY 5, 1995 CLASS B SHARES
(COMMENCEMENT
NINE MONTHS OF CLASS OPERATIONS) NINE MONTHS
ENDED YEAR ENDED THROUGH ENDED
MAY 31, 1997 (A) AUGUST 31, 1996 AUGUST 31, 1995 MAY 31, 1997 (A)
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD... $10.08 $10.17 $9.97 $10.08
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.30 0.43 0.30 0.23
Net realized and unrealized gain
(loss) on investments................ 0.01 (0.09) 0.20 0.02
Total from investment operations..... 0.31 0.34 0.50 0.25
Less distributions from net investment
income............................... (0.30) (0.43) (0.30) (0.23)
Net asset value end of period......... $10.09 $10.08 $10.17 $10.10
Total return (c)...................... 3.08% 3.37% 5.09% 2.49%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses....................... 0.84%(b) 0.80% 0.70%(b) 1.73%(b)
Total expenses excluding indirectly
paid expenses...................... 0.83%(b) -- -- 1.73%(b)
Total expenses excluding waivers and
reimbursements..................... 0.96%(b) 1.11% 1.14%(b) 1.86%(b)
Net investment income................ 3.94%(b) 4.05% 4.32%(b) 3.04%(b)
Portfolio turnover rate............... 34% 29% 80% 34%
NET ASSETS END OF PERIOD
(THOUSANDS).......................... $6,072 $27,722 $6,820 $6,742
<CAPTION>
CLASS B SHARES JANUARY 5, 1995
(COMMENCEMENT
OF CLASS OPERATIONS)
YEAR ENDED THROUGH
AUGUST 31, 1996 AUGUST 31, 1995
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD... $10.17 $9.97
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. 0.34 0.24
Net realized and unrealized gain
(loss) on investments................ (0.09) 0.20
Total from investment operations..... 0.25 0.44
Less distributions from net investment
income............................... (0.34) (0.24)
Net asset value end of period......... $10.08 $10.17
Total return (c)...................... 2.44% 4.50%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses....................... 1.67% 1.58%(b)
Total expenses excluding indirectly
paid expenses...................... -- --
Total expenses excluding waivers and
reimbursements..................... 2.07% 2.26%(b)
Net investment income................ 3.28% 3.50%(b)
Portfolio turnover rate............... 29% 80%
NET ASSETS END OF PERIOD
(THOUSANDS).......................... $7,413 $6,050
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
6
<PAGE>
KEYSTONE TAX FREE INCOME FUND
<TABLE>
<CAPTION>
SIX CLASS A SHARES
MONTHS
ENDED
MAY 31, YEAR ENDED NOVEMBER 30,
1997 (A) 1996 (F) 1995 (F) 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD........................ $9.90 $10.05 $8.93 $10.25 $10.17 $10.13 $9.94 $10.24 $9.96
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.24 0.51 0.51 0.51 0.57 0.63 0.61 0.59 0.62
Net realized and unrealized
gain (loss) on investments and
futures contracts............. (0.11) (0.14) 1.13 (1.28) 0.36 0.30 0.31 (0.06) 0.34
Total from investment
operations.................. 0.13 0.37 1.64 (0.77) 0.93 0.93 0.92 0.53 0.96
LESS DISTRIBUTIONS FROM:
Net investment income.......... (0.24) (0.52) (0.51) (0.52) (0.57) (0.62) (0.61) (0.60) (0.63)
In excess of net investment
income........................ (0.01) 0(e) (0.01) 0 (0.04) 0 0 (0.03) 0
Net realized gain on
investments................... 0 0 0 0 (0.24) (0.27) (0.12) (0.20) (0.05)
Tax basis return of capital.... 0 0 0 (0.03) 0 0 0 0 0
Total distributions........... (0.25) (0.52) (0.52) (0.55) (0.85) (0.89) (0.73) (0.83) (0.68)
NET ASSET VALUE END OF
PERIOD........................ $9.78 $9.90 $10.05 $8.93 $10.25 $10.17 $10.13 $9.94 $10.24
Total return (c)............... 1.34% 3.83% 18.71% (7.81%) 9.37% 9.35% 9.59% 5.55% 9.97%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses................ 1.19%(b) 1.13% 1.19% 1.13% 1.21% 1.25% 1.58% 1.66% 1.62%
Total expenses excluding
indirectly paid expenses.... 1.18%(b) 1.12% 1.18% -- -- -- -- -- --
Net investment income......... 4.85%(b) 5.21% 5.35% 5.27% 5.40% 6.02% 5.95% 6.03% 6.15%
Portfolio turnover rate........ 54% 128% 30% 98% 47% 32% 37% 42% 49%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $72,629 $82,425 $94,183 $95,691 $124,102 $120,660 $133,524 $146,335 $162,013
<CAPTION>
CLASS A SHARES
FEBRUARY 13, 1987
(COMMENCEMENT OF
OPERATIONS)
TO
NOVEMBER 30,
1988 1987
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD........................ $9.64 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.63 0.33
Net realized and unrealized
gain (loss) on investments and
futures contracts............. 0.37 (0.32)
Total from investment
operations.................. 1.00 0.01
LESS DISTRIBUTIONS FROM:
Net investment income.......... (0.68) (0.37)
In excess of net investment
income........................ 0 0
Net realized gain on
investments................... 0 0
Tax basis return of capital.... 0 0
Total distributions........... (0.68) (0.37)
NET ASSET VALUE END OF
PERIOD........................ $9.96 $9.64
Total return (c)............... 10.60% 0.17%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses................ 1.57% 1.00%(d)
Total expenses excluding
indirectly paid expenses.... -- --
Net investment income......... 6.13% 6.85%(d)
Portfolio turnover rate........ 109% 67%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $179,191 $16,090
</TABLE>
(a) The Fund changed its fiscal year end from November 30 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(e) Reflects distributions in excess of net investment income which were under
$0.01 per share.
(f) Calculation based on average shares outstanding.
7
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES FEBRUARY 1, CLASS C SHARES
1993
(DATE OF
SIX INITIAL SIX YEAR
MONTHS PUBLIC MONTHS ENDED
ENDED OFFERING) TO ENDED NOVEMBER
MAY 31, YEAR ENDED NOVEMBER 30, NOVEMBER 30, MAY 31, 30,
1997 (A) 1996 (E) 1995 (E) 1994 1993 1997 (A) 1996 (E)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period........................... $9.81 $9.97 $8.88 $10.25 $10.27 $9.81 $9.97
Income from investment operations:
Net investment income............. 0.19 0.44 0.44 0.45 0.37 0.18 0.41
Net realized and unrealized gain
(loss) on investments and futures
contracts........................ (0.10) (0.16) 1.11 (1.29) 0.30 (0.09) (0.13)
Total from investment
operations..................... 0.09 0.28 1.55 (0.84) 0.67 0.09 0.28
Less distributions from:
Net investment income............. (0.20) (0.44) (0.45) (0.50) (0.37) (0.20) (0.44)
In excess of net investment
income........................... (0.01) 0(d) (0.01) 0 (0.08) (0.01) 0(d)
Net realized gain on
investments...................... 0 0 0 0 (0.24) 0 0
Tax basis return of capital....... 0 0 0 (0.03) 0 0 0
Total distributions.............. (0.21) (0.44) (0.46) (0.53) (0.69) (0.21) (0.44)
NET ASSET VALUE END OF PERIOD..... $9.69 $9.81 $9.97 $8.88 $10.25 $9.69 $9.81
Total return (c).................. 0.97% 2.99% 17.84% (8.43%) 6.59% 0.97% 2.99%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses................... 1.95%(b) 1.90% 1.96% 1.88% 1.96%(b) 1.95%(b) 1.90%
Total expenses excluding
indirectly paid expenses....... 1.94%(b) 1.89% 1.94% -- -- 1.94%(b) 1.89%
Net investment income............ 4.09%(b) 4.44% 4.59% 4.60% 4.42%(b) 4.09%(b) 4.44%
Portfolio turnover rate........... 54% 128% 30% 98% 47% 54% 128%
Net assets end of period
(thousands)...................... $28,822 $33,063 $33,449 $28,860 $14,091 $11,879 $13,769
<CAPTION>
CLASS C SHARES FEBRUARY 1
1993
(DATE OF
INITIAL
PUBLIC
OFFERING) TO
YEAR ENDED NOVEMBER 30,
NOVEMBER 30, 1995 (E) 1994 199
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period........................... $8.88 $10.26 $10.27
Income from investment operations:
Net investment income............. 0.44 0.43 0.37
Net realized and unrealized gain
(loss) on investments and futures
contracts........................ 1.11 (1.27) 0.31
Total from investment
operations..................... 1.55 (0.84) 0.68
Less distributions from:
Net investment income............. (0.45) (0.51) (0.37)
In excess of net investment
income........................... (0.01) 0 (0.08)
Net realized gain on
investments...................... 0 0 (0.24)
Tax basis return of capital....... 0 (0.03) 0
Total distributions.............. (0.46) (0.54) (0.69)
NET ASSET VALUE END OF PERIOD..... $9.97 $8.88 $10.26
Total return (c).................. 17.84% (8.52%) 6.70%
Ratios/supplemental data:
Ratios to average net assets:
Total expenses................... 1.96% 1.89% 1.94%(b)
Total expenses excluding
indirectly paid expenses....... 1.94% -- --
Net investment income............ 4.59% 4.52% 4.41%(b)
Portfolio turnover rate........... 30% 98% 47%
Net assets end of period
(thousands)...................... $20,386 $23,230 $27,261
</TABLE>
(a) The Fund changed its fiscal year end from November 30 to May 31 during the
current period.
(b) Annualized.
(c) Excluding applicable sales charges.
(d) Reflects distributions in excess of net investment income which were under
$0.01 per share.
(e) Calculation based on average shares outstanding.
8
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions".
EVERGREEN HIGH GRADE TAX FREE FUND
EVERGREEN HIGH GRADE TAX FREE FUND seeks a high level of federally
tax free income that is consistent with preservation of capital. At least 65% of
the value of the total assets of EVERGREEN HIGH GRADE TAX FREE FUND will be
invested in high grade bonds. High grade bonds mean: bonds insured by a
municipal bond insurance company which is rated AAA by Standard & Poor's Ratings
Group ("S&P") and/or Aaa by Moody's Investors Service, Inc. ("Moody's"); bonds
rated A or better by S&P or Moody's; or, if unrated, of comparable quality as
determined by the Fund's investment adviser. The insurance guarantees the timely
payment of principal and interest, but not the value of the municipal bonds or
the shares of the Fund. See the section "Investment Practices and
Restrictions" -- "Municipal Bond Insurance" for further information.
EVERGREEN HIGH GRADE TAX FREE FUND may also purchase instruments
having variable rates of interest. One example is variable amount master demand
notes. These notes represent a borrowing arrangement between a commercial paper
issuer (borrower) and an institutional lender, such as the Fund, and are payable
upon demand. The underlying amount of the loan may vary during the course of the
contract, as may the interest on the outstanding amount, depending on a stated
short-term interest rate index.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
The investment objective of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
is to achieve as high a level of current income, exempt from federal income tax
other than the federal alternative minimum tax ("AMT") for individuals and
corporations, as is consistent with preserving capital and providing liquidity.
Under normal circumstances, it is anticipated that the Fund will invest its
assets so that at least 80% of its annual interest income is exempt from federal
income tax other than the AMT. The Fund will seek to achieve its objective by
investing substantially all of its assets in a diversified portfolio of short
and intermediate-term debt obligations issued by states, territories and
possessions of the United States ("U.S.") and by the District of Columbia, and
their political subdivisions and duly constituted authorities, the interest from
which is exempt from federal income tax other than the AMT. Such securities are
generally known as Municipal Securities (see "Investment Practices and
Restrictions" -- "Municipal Securities" below). As a matter of policy, the
Trustees will not change the Fund's investment objective without shareholder
approval.
Under current tax law, a distinction is drawn between Municipal
Securities issued to finance certain "private activities" and other Municipal
Securities. Such private activity bonds include bonds issued to finance such
projects as airports, housing projects, resource recovery programs, solid waste
disposal facilities, student loan programs, and water and sewage projects.
Interest income from such "private activity bonds" ("AMT-Subject Bonds") becomes
an item of "tax preference" which is subject to the AMT when received by a
person in a tax year during which he is subject to that tax. Because interest
income on AMT-Subject Bonds is taxable to certain investors, it is expected,
although there can be no guarantee, that such Municipal Securities generally
will provide somewhat higher yields than other Municipal Securities of
comparable quality and maturity. The Fund may invest up to 50% of its total
assets in AMT-Subject Bonds.
The Fund intends to maintain a dollar-weighted average portfolio maturity
of two to five years. The Fund may consider an obligation's maturity to be
shorter than its stated maturity if the Fund has the right to sell the
obligation at a price approximating par value before its stated maturity date.
This is a liquidity put and is exercisable to the issuer or some third party.
KEYSTONE TAX FREE INCOME FUND
KEYSTONE TAX FREE INCOME FUND seeks the highest possible current income
exempt from federal income taxes, while preserving capital. Since the Fund
considers preservation of capital as well as the level of tax exempt income as
its primary objective, the Fund may realize less income than a fund willing to
expose shareholders' capital to greater risk.
Under ordinary circumstances, at least 80% of the Fund's assets will be
invested in federally tax-exempt obligations, including municipal bonds and
notes and tax-exempt commercial paper obligations, that are obligations issued
by or on behalf of states, territories and possessions of the U.S., the District
of Columbia and their political subdivisions, agencies and instrumentalities,
the interest from which is, in the opinion of counsel to the issuers of such
bonds, exempt from federal income taxes. Thus it is possible that up to 20% of
the Fund's assets could be invested in securities subject to the AMT and/or in
taxable obligations.
While the Fund may invest in securities of any maturity, it is currently
expected that the Fund will not invest in securities with maturities of more
than 30 years or less than 5 years (other than certain money market securities).
INVESTMENT PRACTICES AND RESTRICTIONS
Except where noted, each Fund may engage in the investment practices
described below. Each Fund is also subject to certain investment restrictions
more fully described in the Statement of Additional Information.
General. EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND will invest in Municipal Securities so long as they are
determined to be of high or upper medium quality. Municipal Securities meeting
this criteria include bonds rated A or higher by S&P, Moody's or another
nationally recognized statistical rating organization ("SRO"); notes rated SP-1
or SP-2 by S&P or MIG-1 or MIG-2 by Moody's or rated VMIG-1 or VMIG-2 by Moody's
in the case of variable rate demand notes or having comparable ratings from
another SRO; and commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2
by Moody's or having comparable ratings from another SRO. EVERGREEN HIGH GRADE
TAX FREE FUND may also invest in general obligation bonds which are rated BBB by
S&P, Baa by Moody's or bear a similar rating from another SRO. Medium grade
bonds are more susceptible to adverse economic conditions or changing
circumstances than higher grade bonds. However, like the higher rated bonds,
these securities are considered to be investment grade. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may also invest in bonds rated BBB or higher
by S&P, Baa or higher by Moody's or another SRO. KEYSTONE TAX FREE INCOME FUND
may invest in bonds rated BBB or higher by S&P, Baa or higher by Moody's, BBB or
higher by Fitch Investor Services, L.P. or, if not rated or rated under a
different system, are of comparable quality to obligations so rated as
determined by Keystone. KEYSTONE TAX FREE INCOME FUND may also invest in
commercial paper rated A-1 by S&P or Prime-1 by Moody's, or, if not rated by
such services, is issued by a company that at the date of investment has an
outstanding issue rated A or better by S&P or Moody's. For a description of such
ratings see the Statement of Additional Information. The Funds may also purchase
Municipal Securities which are unrated at the time of purchase, if such
securities are determined by the Funds' investment advisers to be of comparable
quality. Certain Municipal Securities (primarily variable rate demand notes) may
be entitled to the benefit of standby letters of credit or similar commitments
issued by banks and, in such instances, the Funds' investment advisers will take
into account the obligation of the bank in assessing the quality of such
security.
The ability of the Funds to meet their investment objectives is
necessarily subject to the ability of municipal issuers to meet their payment
obligations. In addition, the portfolios of the Funds will be affected by
general changes in interest rates which will result in increases or decreases in
the value of the obligations held by the Funds. Investors should recognize that,
in periods of declining interest rates, the yield of the Funds will tend to be
somewhat higher than prevailing market rates, and in periods of rising interest
rates, the yield of the Funds will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the Funds from the
continuous sale of its shares will likely be invested in portfolio instruments
producing lower yields than the balance of each Fund's portfolio, thereby
reducing the current yield of the Funds. In periods of rising interest rates,
the opposite can be expected to occur.
Municipal Securities. As noted above, the Funds will invest substantially all of
their assets in Municipal Securities. These include municipal bonds, short-term
municipal notes and tax-exempt commercial paper. "Municipal Securities" are debt
obligations issued to obtain funds for various public purposes that are exempt
from federal income tax in the opinion of issuer's counsel. The two principal
classifications of Municipal Securities are "general obligation" and "revenue"
bonds. General obligation bonds are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific source such as from the user of the
facility being financed. The term "Municipal Securities" also includes "moral
obligation" issues which are normally issued by special purpose authorities.
Industrial development bonds ("IDBs") and private activity bonds ("PABs") are in
most cases revenue bonds and are not payable from the unrestricted revenues of
the issuer. The credit quality of IDBs and PABs is usually directly related to
the credit standing of the corporate user of the facilities being financed.
Participation interests are interests in Municipal Securities, including IDBs
and PABs, and floating and variable rate obligations that are owned by banks.
These interests carry a demand feature permitting the holder to tender them back
to the bank, which demand feature is backed by an irrevocable letter of credit
or guarantee of the bank. A put bond is a municipal bond which gives the holder
the unconditional right to sell the bond back to the issuer at a specified price
and exercise date, which is typically well in advance of the bond's maturity
date. "Short-term municipal notes" and "tax-exempt commercial paper" include tax
anticipation notes, bond anticipation notes, revenue anticipation notes and
other forms of short-term loans. Such notes are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements and other revenues.
Municipal Bond Insurance. The EVERGREEN HIGH GRADE TAX FREE FUND will require
municipal bond insurance when purchasing Municipal Securities which would not
otherwise meet the Fund's quality standards. The EVERGREEN HIGH GRADE TAX FREE
FUND may also require insurance when, in the opinion of the Fund's investment
adviser, such insurance would benefit the Fund (for example, through improvement
of portfolio quality or increased liquidity of certain securities). The purpose
of municipal bond insurance is to guarantee the timely payment of principal at
maturity and interest.
Securities in the EVERGREEN HIGH GRADE TAX FREE FUND'S portfolio may be
insured in one of two ways: (1) by a policy applicable to a specific security,
obtained by the issuer of the security or by a third party ("Issuer-Obtained
Insurance") or (2) under master insurance policies issued by municipal bond
insurers, purchased by the Fund (the "Policies"). If a security's coverage is
Issuer-Obtained, then that security does not need to be covered in the Policies.
The Fund may purchase Policies from Municipal Bond Investors Assurance Corp.,
AMBAC Indemnity Corporation, and Financial Guaranty Insurance Company, or any
other municipal bond insurer which is rated Aaa by Moody's or AAA by S&P. A more
detailed description of these insurers may be found in the Statement of
Additional Information. Annual premiums for these Policies are paid by the Fund
and are estimated to range from 0.10% to 0.25% of the value of the municipal
securities covered under the Policies, with an average annual premium rate of
approximately 0.175%. While the insurance feature reduces financial risk, the
cost thereof and the restrictions on investments imposed by the guidelines in
the Policies reduce the yield to shareholders.
Floating Rate and Variable Rate Obligations. Municipal Securities also include
certain variable rate and floating rate municipal obligations with or without
demand features. These variable rate securities do not have fixed interest
rates; rather, those rates fluctuate based upon changes in specified market
rates, such as the prime rate, or are adjusted at predesignated periodic
intervals. Certain of these obligations may carry a demand feature that gives
the Funds the right to demand prepayment of the principal amount of the security
prior to its maturity date. The demand obligation may or may not be backed by
letters of credit or other guarantees of banks or other financial institutions.
Such guarantees may enhance the quality of the security. The Funds will limit
the value of their investments in any floating or variable rate securities which
are not readily marketable to 10% or less of their net assets.
When-Issued or Delayed Delivery Securities. The Funds may purchase securities on
a when-issued or delayed delivery basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). A Fund generally would not pay for
such securities or start earning interest on them until they are received.
However, when a Fund purchases securities on a when-issued or delayed delivery
basis, it assumes the risks of ownership at the time of purchase, not at the
time of receipt. Failure of the issuer to deliver a security purchased by a Fund
on a when-issued or delayed delivery basis may result in the Fund incurring a
loss or missing an opportunity to make an alternative investment. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND does not expect that commitments to purchase
when-issued securities will normally exceed 25% of its total assets and
EVERGREEN HIGH GRADE TAX FREE FUND does not expect that such commitments will
exceed 20% of its total assets. The Funds do not intend to purchase when-issued
or delayed delivery securities for speculative purposes but only in furtherance
of their investment objective. KEYSTONE TAX FREE INCOME FUND may also sell
securities and may purchase and sell currencies on a when-issued and delayed
delivery basis.
Stand-by Commitments. The Funds may also acquire "stand-by commitments" with
respect to Municipal Securities held in their portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at a Fund's option, specified Municipal
Securities at a specified price. Failure of the dealer to purchase such
Municipal Securities may result in a Fund incurring a loss or missing an
opportunity to make an alternative investment. Each Fund expects that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if necessary and advisable, a Fund may pay for
stand-by commitments either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
total amount paid in either manner for outstanding stand-by commitments held in
each Fund's portfolio will not exceed 10% of the value of the Fund's total
assets calculated immediately after each stand-by commitment is acquired. The
Funds will maintain cash or liquid high grade debt obligations in a segregated
account with its custodian in an amount equal to such commitments. The Funds
will enter into stand-by commitments only with banks and broker-dealers that, in
the judgment of the Funds' investment advisers, present minimal credit risks.
Taxable Investments. The Funds may temporarily invest up to 20% of their total
assets in taxable securities and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND may
temporarily invest its assets so that no more than 20% of its annual income will
be derived from taxable securities, under any one or more of the following
circumstances: (a) pending investment of proceeds of sale of Fund shares or of
portfolio securities, (b) pending settlement of purchases of portfolio
securities, and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. In addition, each such Fund may temporarily invest more than 20% of
its total assets in taxable securities for defensive purposes. Each Fund may
invest for defensive purposes during periods when each Fund's assets available
for investment exceed the available Municipal Securities that meet each Fund's
quality and other investment criteria. Taxable securities in which the EVERGREEN
HIGH GRADE TAX FREE FUND and EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND may
invest on a short-term basis include obligations of the U.S. government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time deposits maturing in not more
than seven days; other debt securities rated within the two highest ratings
assigned by any major rating service; commercial paper rated in the highest
grade by Moody's, S&P or any SRO; and certificates of deposit issued by U.S.
branches of U.S. banks with assets of $1 billion or more.
Taxable securities in which KEYSTONE TAX FREE INCOME FUND may invest on a
short-term basis include commercial paper, including master demand notes, that
at the date of investment is rated A-1 by S&P, Prime-1 by Moody's, or, if not
rated by such services, is issued by a company that at the date of investment
has an outstanding issue rated A or better by S&P or Moody's; obligations,
including certificates of deposit and bankers' acceptances, of banks or savings
and loan associations having at least $1 billion in assets that are members of
the Federal Deposit Insurance Corporation, including U.S. branches of foreign
banks and foreign branches of U.S. banks; corporate obligations maturing in 13
months or less that at the date of investment are rated A or better by S&P or
Moody's; obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities; and qualified "private activity" industrial development
bonds, the income from which, while exempt from federal income tax under Section
103 of the Internal Revenue Code of 1986, as amended (the "Code"), is includable
in the calculation of the AMT.
Repurchase Agreements. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, the Funds custodian ("State Street" or the "Custodian"), or
"primary dealers" (as designated by the Federal Reserve Bank of New York) in
U.S. government securities. A repurchase agreement is an arrangement pursuant to
which a buyer purchases a security and simultaneously agrees to resell it to the
vendor at a price that results in an agreed-upon market rate of return which is
effective for the period of time (which is normally one to seven days, but may
be longer) the buyer's money is invested in the security. The arrangement
results in a fixed rate of return that is not subject to market fluctuations
during a Fund's holding period. Each Fund requires continued maintenance of
collateral with its Custodian in an amount equal to, or in excess of, the market
value of the securities, including accrued interest, which are the subject of a
repurchase agreement. In the event a vendor defaults on its repurchase
obligation, the Fund might suffer a loss to the extent that the proceeds from
the sale of the collateral were less than the repurchase price. If the vendor
becomes the subject of bankruptcy proceedings, a Fund might be delayed in
selling the collateral. Each Fund's investment adviser will review and
continually monitor the creditworthiness of each institution with which a Fund
enters into a repurchase agreement to evaluate these risks. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may not enter into repurchase agreements if,
as a result, more than 15% of the Fund's net assets would be invested in
repurchase agreements maturing in more than seven days. KEYSTONE TAX FREE INCOME
FUND may not so invest more than 10% of its total assets and EVERGREEN HIGH
GRADE TAX FREE FUND may not so invest more than 10% of its net assets.
Illiquid and Restricted Securities. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
may invest up to 15% of its net assets in illiquid securities and other
securities which are not readily marketable. In the case of the Fund, securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933 which
have been determined to be liquid will not be considered by the Fund's
investment adviser to be illiquid or not readily marketable and, therefore, are
not subject to the aforementioned 15% limit. EVERGREEN HIGH GRADE TAX FREE FUND
may invest up to 10% of its net assets in illiquid securities and up to 10% of
its net assets in securities subject to restrictions on resale under the federal
securities laws. KEYSTONE TAX FREE INCOME FUND may invest up to 15% of its net
assets in illiquid securities and up to 10% of its net assets in securities with
legal or contractual restrictions on resale or in securities for which market
quotations are not readily available. The liquidity of securities purchased by a
Fund which are eligible for resale pursuant to Rule 144A will be monitored by
each Fund's investment adviser on an ongoing basis, subject to the oversight of
the Trustees as defined below. In the event that such a security is deemed to be
no longer liquid, a Fund's holdings will be reviewed to determine what action,
if any, is required to ensure that the retention of such security does not
result in a Fund having more than 15% of its net assets invested in illiquid or
not readily marketable securities. The inability of a Fund to dispose of
illiquid or not readily marketable investments readily or at a reasonable price
could impair a Fund's ability to raise cash for redemptions or other purposes.
Other Investment Policies. The Funds may borrow funds and agree to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed upon date and price (a "reverse
repurchase agreement") for temporary or emergency purposes. In the case of
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, borrowings may be in amounts up to
10% of the value of the Fund's net assets at the time of such borrowing.
EVERGREEN HIGH GRADE TAX FREE FUND and KEYSTONE TAX FREE INCOME FUND may borrow
in amounts up to one-third of their net assets. At the time a Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial account
cash, U.S. government securities or liquid high grade debt obligations having a
value equal to the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure that such equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by a Fund may decline below the repurchase price of those
securities. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND will not enter into
reverse repurchase agreements exceeding 5% of the value of its total assets and
will not purchase any securities whenever any borrowings (including reverse
repurchase agreements) are outstanding.
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other financial organizations. Each
Fund's investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities by a Fund, if and when made, may not exceed 30% of the total
assets of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, or 15% of the total
assets of EVERGREEN HIGH GRADE TAX FREE FUND and KEYSTONE TAX FREE INCOME FUND,
and will be collateralized by cash, letters of credit or U.S. government
securities that are maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities, including accrued
interest. While such securities are on loan, the borrower will pay a Fund any
income accruing thereon, and the Fund may invest the cash collateral, thereby
increasing its return. A Fund will have the right to call any such loan and
obtain the securities loaned at any time on five days' notice. Any gain or loss
in the market price of the loaned securities which occurs during the term of the
loan would affect a Fund and its investors. A Fund may pay reasonable fees in
connection with such loans.
KEYSTONE TAX FREE INCOME FUND may also write covered call and put options
and purchase call and put options, including purchasing call or put options to
close out existing positions, and may employ new investment techniques with
respect to such options. The Fund may also engage in 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. In addition, the Fund may
invest in municipal obligations denominated in foreign currencies that are
exempt from federal income tax and may use subsequently developed investment
techniques that are related to any of its investment policies. The Fund may also
invest in certain other types of "derivative instruments," including structured
securities only if it is consistent with its investment objective.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust under
which each Fund has been established ("Trustees"). Evergreen Asset has been
retained by EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND as investment adviser.
Evergreen Asset, with its predecessors, has served as investment adviser to
certain of the Evergreen Keystone funds since 1971. Evergreen Asset is a
wholly-owned subsidiary of FUNB. The address of Evergreen Asset is 2500
Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First
Union. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment
officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the
owners of Evergreen Asset's predecessor and the former general partners of
Lieber & Company, which, as described below, provides certain subadvisory
services to Evergreen Asset in connection with its duties as investment adviser
to the Funds. CMG of FUNB ("CMG") serves as investment adviser to EVERGREEN HIGH
GRADE TAX FREE FUND.
Keystone has been retained by KEYSTONE TAX FREE INCOME FUND to serve as
investment adviser. Keystone has provided investment advisory and management
services to investment companies, including certain of the Evergreen Keystone
funds, and private accounts since it was organized in 1932. Keystone is a
subsidiary of First Union.
First Union is headquartered in Charlotte, North Carolina, and had $143
billion in consolidated assets as of June 30, 1997. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the U.S. The investment advisory affiliates of FUNB manage
or otherwise oversee the investment of over $61.9 billion in assets belonging to
a wide range of clients, including all of the Evergreen Keystone funds. First
Union Brokerage Services, Inc. ("FUBS"), a wholly-owned subsidiary of FUNB, is a
registered broker-dealer that is principally engaged in providing retail
brokerage services consistent with its federal banking authorizations. First
Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a
registered broker-dealer principally engaged in providing, consistent with its
federal banking authorizations, private placement, securities dealing, and
underwriting services.
Evergreen Asset manages investments and supervises the daily business
affairs of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND subject to the authority
of the Trustees. Under its investment advisory agreement with EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, Evergreen Asset is entitled to receive an
annual fee equal to 0.50% of the Fund's average daily net assets. CMG manages
investments and supervises the daily business affairs of EVERGREEN HIGH GRADE
TAX FREE FUND and, as compensation therefor, is entitled to receive an annual
fee equal to 0.50% of average daily net assets of the Fund.
Keystone acts as investment adviser to KEYSTONE TAX FREE INCOME FUND
and manages the Fund's investments and supervises the Fund's daily business
affairs, subject to the authority of the Trustees. As payment for its services,
Keystone is entitled to receive from the Fund a fee at the annual rate of 2.0%
of gross dividend and interest income of the Fund plus 0.50% of the first
$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.45% of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35%
of the next $100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of
amounts over $500,000,000. The total expense ratios of EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, EVERGREEN HIGH GRADE TAX FREE FUND and
KEYSTONE TAX FREE INCOME FUND for the fiscal period ended May 31, 1997, are set
forth in the section entitled "Financial Highlights".
SUB-ADVISER
Evergreen Asset has entered into a sub-advisory agreement with Lieber &
Company which provides that Lieber & Company's research department and staff
will furnish Evergreen Asset with information, investment recommendations,
advice and assistance, and will be generally available for consultation on the
portfolio of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND. Lieber & Company will
be reimbursed by Evergreen Asset in connection with the rendering of services on
the basis of the direct and indirect costs of performing such services. There is
no additional charge to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND for the
services provided by Lieber & Company. The address of Lieber & Company is 2500
Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect,
wholly-owned, subsidiary of First Union.
PORTFOLIO MANAGERS
The portfolio manager of EVERGREEN HIGH GRADE TAX FREE FUND is James T.
Colby, III. Mr. Colby is a Vice President of CMG and has been associated with
Evergreen Asset and its predecessor since 1992. He has served as portfolio
manager of the Fund since 1995 and was portfolio manager of Evergreen National
Tax Free Fund, whose assets were acquired by the Fund on July 7, 1995, since
that fund's inception in 1992. The portfolio manager for EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND is Steven C. Shachat. Mr. Shachat has been
associated with Evergreen Asset and its predecessor since 1988 and has served as
portfolio manager of the Fund since its inception. Betsy A. Hutchings is the
portfolio manager of KEYSTONE TAX FREE INCOME FUND. She is a Senior Vice
President of Keystone and group leader of Keystone's Municipal Bond Team. Ms.
Hutchings joined Keystone in 1988, and has more than 15 years of investment
experience.
ADMINISTRATOR
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as
administrator to EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, subject to the supervision and control of the
Trustees of the Trust under which each Fund has been established. EKIS provides
facilities, equipment and personnel to EVERGREEN HIGH GRADE TAX FREE FUND and
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and is entitled to receive a fee
based on the aggregate average daily net assets of the mutual funds for which
CMG, Evergreen Asset, Keystone or their affiliates serve as investment adviser,
calculated in accordance with the following schedule:
Administration Fee
------------------
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
EKIS also provides facilities, equipment and personnel to KEYSTONE TAX
FREE INCOME FUND on behalf of the Fund's investment adviser.
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), the Funds' distributor, serves as sub-administrator
to the Funds and is entitled to receive a fee calculated on the aggregate
average daily net assets of all the mutual funds for which FUNB affiliates serve
as investment adviser. The sub-administrator fee is calculated in accordance
with the following schedule:
Sub-Administration Fee
----------------------
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
The total assets of the mutual funds for which FUNB affiliates also serve
as investment advisers were approximately $30.5 billion as of June 30, 1997.
DISTRIBUTION PLANS
Distribution Plans. Each Fund's Class A, Class B and, where applicable, Class C
shares pay for the expenses associated with the distribution of its shares
according to a distribution plan that it has adopted pursuant to Rule 12b-1
under the 1940 Act (each a "Plan" or collectively the "Plans"). Under the Plans,
each Fund may incur distribution-related and shareholder servicing-related
expenses which are based upon a maximum annual rate as a percent of each Fund's
average daily net assets attributable to the Class, as follows:
Class A shares 0.75%, currently limited to 0.25% for EVERGREEN HIGH
GRADE TAX FREE FUND and KEYSTONE TAX FREE
INCOME FUND and to 0.10% for EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include each Fund's investment adviser or their affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Funds may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above.
EVERGREEN HIGH GRADE TAX FREE FUND has, in addition to the Plans adopted
with respect to its Class B shares, adopted a shareholder service plan ("Service
Plan") relating to the Class B shares which permit the Fund to incur a fee of up
to 0.25% of the aggregate average daily net assets attributable to the Class B
shares for ongoing personal services and/or the maintenance of shareholder
accounts. Such service fee payments to financial intermediaries for such
purposes, whether pursuant to a Plan or Service Plan, will not exceed 0.25% of
the aggregate average daily net assets attributable to each Class of shares of
each Fund.
The Plans are in compliance with the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee to
6.25% of cumulative gross sales of shares of that class, plus interest on the
unpaid amount at the prime rate plus 1% per annum.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You may purchase shares of each Fund through broker-dealers, banks or
other financial intermediaries or directly through EKD. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Keystone
Service Company ("EKSC"), 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. The minimum initial investment is $1,000, which may be waived in
certain situations. Subsequent investments in any amount may be made by check,
by wiring Federal funds, by direct deposit or by an electronic funds transfer
("EFT").
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the Application for more information. Only Class A, Class B and
Class C shares are offered through this Prospectus (see "General Information" --
"Other Classes of Shares").
Class A Shares-Front-End Sales Charge Alternative. You may purchase Class A
shares of each Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 or more of Class A shares without
a front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12-month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
Initial Sales Charge
EVERGREEN HIGH GRADE TAX FREE FUND
KEYSTONE TAX FREE INCOME FUND
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 4.99% 4.75% 4.25%
$ 50,000 - $ 99,000 4.71% 4.50% 4.25%
$ 100,000 - $ 249,999 3.90% 3.75% 3.25%
$ 250,000 - $ 499,999 2.56% 2.50% 2.00%
$ 500,000 - $ 999,999 2.04% 2.00% 1.75%
$1,000,000 - $2,999,999 None None 1.00%
$3,000,000 - $4,999,999 None None .50%
Over $5,000,000 None None .25%
</TABLE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 3.36% 3.25% 2.75%
$ 50,000 - $ 99,000 3.09% 3.00% 2.75%
$ 100,000 - $ 249,999 2.56% 2.50% 2.25%
$ 250,000 - $ 499,999 2.04% 2.00% 1.75%
$ 500,000 - $ 999,999 1.52% 1.50% 1.25%
$1,000,000 - $2,999,999 None None 1.00%
$3,000,000 - $4,999,999 None None .50%
Over $5,000,000 None None .25%
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and registered
investment advisers; (b) investment advisers, consultants or financial planners
who place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; (c) clients
of investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; (d) institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; (e) shareholders of record on October 12, 1990 in any series
of Evergreen Investment Trust in existence on that date, and the members of
their immediate families; (f) current and retired employees of FUNB and its
affiliates, EKD and any broker-dealer with whom EKD has entered into an
agreement to sell shares of the Funds, and members of the immediate families of
such employees; (g) and upon the initial purchase of an Evergreen Keystone fund
by investors reinvesting the proceeds from a redemption within the preceding
thirty days of shares of other mutual funds, provided such shares were initially
purchased with a front-end sales charge or subject to a CDSC. Certain
broker-dealers or other financial institutions may impose a fee on transactions
in shares of the Funds.
Class A shares may also be purchased at net asset value by a corporation
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 or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence 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.
When Class A shares are sold, EKD will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EKD may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Funds. Certain
purchases of Class A shares may qualify for reduced sales charges in accordance
with a Fund's Concurrent Purchases, Rights of Accumulation, Letter of Intent,
certain Retirement Plans and Reinstatement Privilege. Consult the Application
for additional information concerning these reduced sales charges.
Class B Shares -- Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC will vary according to the number of years from the month of
purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase............................... 5.00%
Second twelve-month period following the month of purchase........................................................ 4.00%
Third twelve-month period following the month of purchase......................................................... 3.00%
Fourth twelve-month period following the month of purchase........................................................ 3.00%
Fifth twelve-month period following the month of purchase......................................................... 2.00%
Sixth twelve-month period following the month of purchase......................................................... 1.00%
No CDSC is imposed on amounts redeemed thereafter.
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to EKD
or its predecessor. Class B shares are subject to higher distribution and/or
shareholder service fees than Class A shares for a period of seven years after
the month of purchase (after which it is expected that they will convert to
Class A shares without imposition of a front-end sales charge). The higher fees
mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares. The Funds
will not normally accept any purchase of Class B shares in the amount of
$250,000 or more.
At the end of the period ending seven years after the end of the calendar
month in which the shareholder's purchase order was accepted, Class B shares
will automatically convert to Class A shares and will no longer be subject to
the higher distribution services fee imposed on Class B shares. Such conversion
will be on the basis of the relative net asset values of the two Classes,
without the imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to reduce the distribution services fee paid by
holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
Class C Shares (KEYSTONE TAX FREE INCOME FUND). 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
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" below.
Contingent Deferred Sales Charge. Shares obtained from dividend or distribution
reinvestment are not subject to a CDSC. Any CDSC imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net asset value at the time of
purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event of
(1) death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of
accounts having an aggregate net asset value of less than $1,000; (5) automatic
withdrawals under the Systematic Withdrawal Plan of up to 1.00% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; or (8) withdrawals consisting of returns
of excess contributions or excess deferral amounts made to a retirement plan
participant.
The Funds may also sell Class A, Class B or, if applicable, Class C
shares at net asset value without any initial sales charge or a CDSC to certain
Directors, Trustees, officers and employees of the Funds, FUNB, 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.
How the Funds Value their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees believe would accurately reflect fair value.
Non-dollar denominated securities will be valued as of the close of the Exchange
at the closing price of such securities in their principal trading markets.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares, if available through your broker-dealer, since there
are no initial sales charges and, although there is no conversion feature, the
CDSC only applies to redemptions made during the first year. Consult your
financial intermediary for further information. The compensation received by
dealers and agents may differ depending on whether they sell Class A, Class B or
Class C shares. There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EKD
and EKIS may from time to time pay to broker-dealers additional cash or other
incentives that are conditioned upon the sale of a specified minimum dollar
amount of shares of a Fund and/or other Evergreen Keystone funds. Such
incentives will take the form of payment for attendance at seminars, lunches,
dinners, sporting events or theater performances, or payment for travel, lodging
and entertainment incurred in connection with travel by persons associated with
a broker-dealer and their immediate family members to urban or resort locations
within or outside the United States. Such a dealer may elect to receive cash
incentives of equivalent amount in lieu of such payments. EKD may also limit the
availability of such incentives to certain specified dealers. EKD from time to
time sponsors promotions involving FUBS, an affiliate of each Fund's investment
adviser, and select broker-dealers, pursuant to which incentives are paid,
including gift certificates and payments in amounts up to 1% of the dollar
amount of shares of a Fund sold. Awards may also be made based on the opening of
a minimum number of accounts. Such promotions are not being made available to
all broker-dealers. Certain broker-dealers may also receive payments from EKD or
a Fund's investment adviser over and above the usual trail commissions or
shareholder servicing payments applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen Keystone funds.
The Funds will not accept third party checks other than those payable directly
to a shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net redemption value on any
day the Exchange is open, either by writing to each Fund, c/o EKSC, or through
your financial intermediary. The amount you will receive is based on the net
asset value adjusted for fractions of a cent (less any applicable CDSC for Class
B or Class C shares) next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, a Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service. Certain financial intermediaries
may require that you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC, the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and EKSC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and EKSC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
EKSC's offices are closed). The Exchange is closed on New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate sections on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (i) be mailed by check to the shareholder at the address in
which the account is registered or (ii) be wired to an account with the same
registration as the shareholder's account in a Fund at a designated commercial
bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. Each 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, the Funds, EKSC and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen Keystone Express Line or by telephone are genuine.
The Trusts, EKSC and EKD will not be liable when following instructions received
over the Evergreen Keystone Express Line or by telephone that EKSC reasonably
believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone Express Line offers you
specific fund account information and 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.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their 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 Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for thirty days. Shareholders will receive sixty
days' written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of a Fund's total net assets, during
any ninety day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Keystone funds through your financial
intermediary by calling or writing to EKSC or by using the Evergreen Keystone
Express Line as described above. Once an exchange request has been telephoned or
mailed, it is irrevocable and may not be modified or canceled. Exchanges will be
made on the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen Keystone fund is subject to the
minimum investment and suitability requirements of each fund.
Each of the Evergreen Keystone funds has different investment objectives
and policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by a Fund upon sixty days' notice to shareholders and is only available in
states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event Class B or Class C shares are
exchanged for Class B or Class C shares, respectively, of other Evergreen
Keystone funds. If you redeem shares, the CDSC applicable to the Class B or
Class C shares of the Evergreen or Keystone fund originally purchased for cash
is applied. Also, Class B shares will continue to age following an exchange for
the purpose of conversion to Class A shares and for the purpose of determining
the amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after 4:00
p.m. (Eastern time) will be processed using the net asset value determined at
the close of the next business day. During periods of drastic economic or market
changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach EKSC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
each Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by a Fund or EKSC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares"; however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, EKSC
or the toll-free number on the front page of this Prospectus. Some services are
described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan you may invest as
little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may invest not less than $100 or more than
$10,000 per investment into an existing account. 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 Funds
Systematic Investment Plan or Telephone Investment Plan may not be redeemed for
ten days from the date of investment.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this plan, you may receive (or designate a third party to receive) payments in a
stated amount of at least $75, or a maximum of 1.0% per month or 3.0% per
quarter of the total net asset value of your account when the Plan was
established. 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 (i) the
initial value of the account plus (ii) 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 a Fund's shares while
participating in a Systematic Withdrawal Plan.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and the
other Evergreen Keystone funds available to their participants. Investments made
by such employee benefit plans may be exempt from front-end sales charges if
they meet the criteria set forth under "Class A Shares-Front End Sales Charge
Alternative". Evergreen Asset, Keystone or CMG may provide compensation to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen Keystone funds available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
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. You should designate on the Application
(i) the dollar amount of each monthly or quarterly investment you wish to make
and (ii) 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.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen Keystone fund shares you 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.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Savings
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity; 403(b)(7)
Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; and Money Purchase
Pension Plans. For details, including fees and application forms, call toll free
1-800-247-4075 or write to EKSC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. 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 their customer. Evergreen
Asset and Keystone since they are subsidiaries of FUNB, and CMG are subject to
and in compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in CMG, Evergreen Asset or Kekystone being
prevented from continuing to perform the services required under the investment
advisory contract or from acting as agent in connection with the purchase of
shares of a Fund by its customers. If CMG, Evergreen Asset or Keystone were
prevented from continuing to provide the services called for under the
investment advisory agreement, it is expected that the Trustees would identify,
and call upon each Fund's shareholders to approve, a new investment adviser. If
this were to occur, it is not anticipated that the shareholders of any Fund
would suffer any adverse financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends are declared daily and paid monthly. Distributions of
any net realized gains of a Fund will be made at least annually. Shareholders
will begin to earn dividends on the first business day after shares are
purchased unless shares were not paid for, in which case dividends are not
earned until the next business day after payment is received. Each Fund has
qualified and intends to continue to qualify to be treated as a regulated
investment company under the Code. While so qualified, so long as each Fund
distributes all of its investment company taxable income and any net realized
gains to shareholders, it is expected that the Funds will not be required to pay
any federal income taxes. A 4% nondeductible excise tax will be imposed on a
Fund if it does not meet certain distribution requirements by the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
The Funds will designate and pay exempt-interest dividends derived from
interest earned on qualifying tax-exempt obligations. Such exempt-interest
dividends may be excluded by shareholders of a Fund from their gross income for
federal income tax purposes, however (1) all or a portion of such
exempt-interest dividends may be a specific preference item for purposes of the
federal individual and corporate alternative minimum taxes to the extent that
they are derived from certain types of private activity bonds issued after
August 7, 1986, and (2) all exempt-interest dividends will be a component of the
"adjusted current earnings" for purposes of the federal corporate alternative
minimum tax.
Dividends paid from taxable income, if any, and distributions of any net
realized short-term capital gains (whether from tax exempt or taxable
obligations) are taxable as ordinary income and long-term capital gain
distributions are taxable as long-term capital gains, even though received in
additional shares of the Fund, and regardless of the investor's holding period
relating to the shares with respect to which such gains are distributed. Market
discount recognized on taxable and tax-exempt bonds is taxable as ordinary
income, not as excludable income. Under current law, the highest federal income
tax rate applicable to net long-term gains realized by individuals is 20% for
most assets held more than 18 months. The rate applicable to corporations is
35%.
Since each Fund's gross income is ordinarily expected to be tax exempt
interest income, it is not expected that the 70% dividends-received deduction
for corporations will be applicable. Specific questions should be addressed to
the investor's own tax adviser.
Each Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Application, or on a
separate form supplied by State Street, that the investor's social security or
taxpayer identification number is correct and that the investor is not currently
subject to backup withholding or is exempt from backup withholding.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Funds. These statements will set
forth the amount of income exempt from federal and, if applicable, state
taxation, and the amount, if any, subject to federal and state taxation.
Moreover, to the extent necessary, these statements will indicate the amount of
exempt-interest dividends which are a specific preference item for purposes of
the federal individual and corporate alternative minimum taxes. The exemption of
interest income for federal income tax purposes does not necessarily result in
exemption under the income or other tax law of any state or local taxing
authority. Investors should consult their own tax advisers about the status of
distributions from the Funds in their states and localities. Each Fund notifies
shareholders annually as to the interest exempt from federal taxes earned by the
Fund.
A shareholder who acquires Class A shares of a Fund and sells or
otherwise disposes of such shares within 90 days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of the Fund.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with the Fund.
Organization. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND is a separate
investment series of The Evergreen Municipal Trust, a Massachusetts business
trust organized in 1988. EVERGREEN HIGH GRADE TAX FREE FUND is a separate
investment series of Evergreen Investment Trust (formerly First Union Funds), a
Massachusetts business trust organized in 1984. KEYSTONE TAX FREE INCOME FUND is
a Massachusetts business trust organized in 1986. The Funds do not intend to
hold annual shareholder meetings; shareholder meetings will be held only when
required by applicable law. Shareholders have available certain procedures for
the removal of Trustees.
A shareholder in each Class of a Fund will be entitled to his or her
share of all dividends and distributions from a Fund's assets, based upon the
relative value of such shares to those of other Classes of the Fund, and, upon
redeeming shares, will receive the then current net asset value of the Class of
shares of the Fund represented by the redeemed shares less any applicable CDSC.
Each Trust named above is empowered to establish, without shareholder approval,
additional investment series, which may have different investment objectives,
and additional Classes of shares for any existing or future series. If an
additional series or Class were established in a Fund, each share of the series
or Class would normally be entitled to one vote for all purposes. Generally,
shares of each series and Class would vote together as a single Class on
matters, such as the election of Trustees, that affect each series and Class in
substantially the same manner. Class A, Class B, Class C and Class Y shares have
identical voting, dividend, liquidation and other rights, except that each Class
bears, to the extent applicable, its own distribution, shareholder service and
transfer agency expenses as well as any other expenses applicable only to a
specific Class. Each Class of shares votes separately with respect to Rule 12b-1
distribution plans and other matters for which separate Class voting is
appropriate under applicable law. Shares are entitled to dividends as determined
by the Trustees and, in liquidation of a Fund, are entitled to receive the net
assets of the Fund.
Custodian. State Street, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as each Fund's custodian.
Registrar, Transfer Agent and Dividend-Disbursing Agent. EKSC, P.O. Box 2121,
Boston, Massachusetts 02106-2121, acts as registrar, transfer agent and
dividend-disbursing agent for each of the Funds.
Principal Underwriter. EKD, an affiliate of BISYS, 125 W. 55th Street, New York,
New York 10019, is the principal underwriter of the Funds. BISYS also acts as
sub-administrator to the Funds including providing personnel to serve as
officers of the Funds.
Other Classes of Shares. EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND currently offer three classes of shares, Class
A, Class B and Class Y, and may in the future offer additional classes. KEYSTONE
TAX FREE INCOME FUND currently offers Class A, Class B and Class C Shares. Class
Y shares are not offered by this Prospectus and are only available to (i)
persons who at or prior to December 31, 1994, owned shares in a mutual fund
advised by Evergreen Asset, (ii) certain institutional investors and (iii)
investment advisory clients of FUNB affiliates. The dividends payable with
respect to Class A and Class B shares will be less than those payable with
respect to Class Y shares due to the distribution and distribution related
expenses borne by Class A and Class B shares and the fact that such expenses are
not borne by Class Y shares.
Performance Information. A Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. A Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the income reported in a
Fund's financial statements. To calculate yield, a Fund takes the interest
income it earned from its portfolio of investments (as defined by the SEC
formula) for a 30-day period (net of expenses), divides it by the average number
of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
A Fund may also quote tax-equivalent yields, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's tax-free
yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt
yield by the result of one minus a stated federal tax rate. If only a portion of
a Fund's income was tax-exempt, only that portion is adjusted in the calculation
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all a
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in a Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc., Morningstar and other industry publications. The Fund may also
advertise in items of sales literature an "actual distribution rate" which is
computed by dividing the total ordinary income distributed (which may include
the excess of short-term capital gains over losses) to shareholders for the
latest twelve month period by the maximum public offering price per share on the
last day of the period. Investors should be aware that past performance may not
be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen Keystone mutual funds, products, and services, which may
include: retirement investing; brokerage products and services; the effects of
periodic investment plans and dollar cost averaging; saving for college; and
charitable giving. In addition, the information provided to investors may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques. EKD may also reprint, and use as advertising and sales
literature, articles from EVERGREEN KEYSTONE EVENTS, a quarterly magazine
provided to Evergreen Keystone fund shareholders.
Liability Under Massachusetts Law. Under Massachusetts law, trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declarations of Trust under which
each Fund operates provide that no Trustee or shareholder will be personally
liable for the obligations of the Trust and that every written contract made by
the Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which have been incorporated by reference herein, do not contain
all the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act. Copies of the Registration Statements may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the offices of the SEC in Washington, D.C.
INVESTMENT ADVISER
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
Capital Management Group of First Union National Bank, 201 South College
Street, Charlotte, North Carolina 28288
EVERGREEN HIGH GRADE TAX FREE FUND
Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116
KEYSTONE TAX FREE INCOME FUND
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston,
Massachusetts 02205-9827
TRANSFER AGENT
Evergreen Keystone Service Company, Box 2121, Boston, Massachusetts 02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
INDEPENDENT AUDITORS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN HIGH GRADE TAX FREE FUND
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
KEYSTONE TAX FREE INCOME FUND
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 125 W. 55th Street,
New York, New York 10019
<PAGE>
PROSPECTUS September 3, 1997
EVERGREEN(SM) KEYSTONE NATIONAL TAX FREE FUNDS
EVERGREEN HIGH GRADE TAX FREE FUND
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
CLASS Y SHARES
The Evergreen Keystone National Tax Free Funds (the "Funds") are designed
to provide investors with income exempt from federal income taxes. This
Prospectus provides information regarding the Class Y shares offered by the
Funds. Each Fund is, or is a series of, an open-end, diversified, management
investment company. This Prospectus sets forth concise information about the
Funds that a prospective investor should know before investing. The address of
the Funds is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Funds dated September 3,
1997, as supplemented from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference herein. The Statement of
Additional Information provides information regarding certain matters discussed
in this Prospectus and other matters which may be of interest to investors, and
may be obtained without charge by calling the Funds at (800) 343-2898. There can
be no assurance that the investment objective of any Fund will be achieved.
Investors are advised to read this Prospectus carefully.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OR AN OBLIGATION 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 INVOLVES RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
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.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 7
Investment Practices and Restrictions 8
MANAGEMENT OF THE FUNDS
Investment Advisers 11
Sub-Adviser 12
Portfolio Managers 12
Administrator 12
Sub-Administrator 12
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 13
How to Redeem Shares 13
Exchange Privilege 15
Shareholder Services 15
Effect of Banking Laws 16
OTHER INFORMATION
Dividends, Distributions and Taxes 17
General Information 18
OVERVIEW OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The investment adviser to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND is
Evergreen Asset Management Corp. ("Evergreen Asset") which, with its
predecessors, has served as an investment adviser to the Evergreen mutual funds
since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union National
Bank ("FUNB"), which in turn is a subsidiary of First Union Corporation ("First
Union"), the sixth largest bank holding company in the United States. The
Capital Management Group ("CMG") of FUNB serves as investment adviser to
EVERGREEN HIGH GRADE TAX FREE FUND.
EVERGREEN HIGH GRADE TAX FREE FUND seeks to provide a high level of
federally tax-free income that is consistent with preservation of capital.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of
current income, exempt from Federal income tax other than the Federal
alternative minimum tax, as is consistent with preserving capital and providing
liquidity. The Fund invests substantially all of its assets in short and
intermediate-term municipal securities with a dollar weighted average portfolio
maturity of two to five years.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in the Class Y Shares of a Fund. For further
information see "Purchase and Redemption of Shares".
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
The following table shows for each Fund the annual operating expenses (as
a percentage of average net assets) attributable to Class Y Shares, together
with examples of the cumulative effect of such expenses on a hypothetical $1,000
investment for the periods specified assuming (i) a 5% annual return and (ii)
redemption at the end of each period.
EVERGREEN HIGH GRADE TAX FREE FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C> <C> <C>
Management Fees .50% After 1 Year $ 8
12b-1 Fees -- After 3 Years $ 25
Other Expenses .28% After 5 Years $ 43
Total .78% After 10 Years $ 97
</TABLE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C> <C> <C>
Management Fees .50% After 1 Year $ 8
12b-1 Fees -- After 3 Years $ 24
Other Expenses .24% After 5 Years $ 41
Total .74% After 10 Years $ 92
</TABLE>
3
<PAGE>
* The annual operating expenses and examples reflect fee waivers and expense
reimbursements for the most recent fiscal period. Actual expenses for Class Y
Shares excluding fee waivers and expense reimbursements but including
indirectly paid expenses for the fiscal period ended May 31, 1997, were as
follows:
<TABLE>
<S> <C>
EVERGREEN HIGH GRADE TAX FREE FUND.............................................. 0.86%
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND..................................... 0.86%
</TABLE>
Evergreen Asset has agreed to reimburse EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND to the extent that its aggregate operating expenses (including
the investment adviser's fee, but excluding taxes, interest, brokerage
commissions, Rule 12b-1 distribution fees and shareholder servicing fees and
extraordinary expenses) exceed 1.0% of the average net assets.
From time to time, each Fund's investment adviser may, at its discretion,
reduce or waive its fees or reimburse the Funds for certain of their expenses in
order to reduce their expense ratios. Each Fund's investment adviser may cease
these waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in Class Y shares
will bear directly or indirectly. The amounts set forth both in the tables and
in the examples are estimated amounts based on the experience of each Fund for
the most recent fiscal period. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND
ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of the various costs and expenses borne by the Funds see "Management
of the Funds".
4
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the nine months ended May 31, 1997 for EVERGREEN
HIGH GRADE TAX FREE FUND has been audited by Price Waterhouse LLP, the Fund's
independent auditors. Information for EVERGREEN HIGH GRADE TAX FREE FUND for the
fiscal years or periods prior to May 31, 1997, has been audited by other
auditors. Information for EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND has been
audited by Price Waterhouse LLP, the Fund's independent auditors. A report of
Price Waterhouse LLP on the audited information with respect to each Fund is
incorporated by reference into the Funds' Statement of Additional Information.
The following information for each Fund should be read in conjunction with the
financial statements and related notes which are incorporated by reference into
the Funds' Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN HIGH GRADE TAX FREE FUND
<TABLE>
<CAPTION>
EIGHT FEBRUARY 28, 1994
NINE MONTHS YEAR MONTHS (COMMENCEMENT
ENDED ENDED ENDED OF CLASS OPERATIONS)
MAY 31, AUGUST 31, AUGUST 31, THROUGH
1997 (A) 1996 1995 (C) DECEMBER 31, 1994
<S> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of period............................. $10.72 $10.69 $9.79 $10.93
Income from investment operations:
Net investment income........................................... 0.39 0.55 0.36 0.46
Net realized and unrealized gain (loss) on investments.......... 0.17 0.03 0.90 (1.14)
Total from investment operations.............................. 0.56 0.58 1.26 (0.68)
Less distributions from net investment income................... (0.39) (0.55) (0.36) (0.46)
Net asset value end of period................................... $10.89 $10.72 $10.69 $9.79
TOTAL RETURN.................................................... 5.32% 5.47% 13.02% (6.29%)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................................................ 0.78%(b) 0.64% 0.81%(b) 0.76%(b)
Total expenses excluding indirectly paid expenses............. 0.78%(b) -- -- --
Total expenses excluding waivers and reimbursements........... 0.86%(b) 0.84% 0.84%(b) 0.77%(b)
Net investment income......................................... 4.85%(b) 5.03% 5.18%(b) 5.46%(b)
Portfolio turnover rate......................................... 114% 65% 27% 53%
Net assets end of period (thousands)............................ $ 24,441 $ 25,112 $ 25,079 $4,318
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) The Fund changed its fiscal year end from December 31 to August 31.
5
<PAGE>
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED AUGUST 31,
MAY 31, 1997 (A) 1996 1995 1994 1993 1992 (C)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value beginning of
period.......................... $10.07 $10.17 $10.21 $10.58 $10.33 $10.00
Income from investment operations:
Net investment income............. 0.30 0.43 0.46 0.47 0.49 0.51
Net realized and unrealized gain
(loss) on investments........... 0.03 (0.10) (0.04) (0.32) 0.25 0.33
Total from investment
operations...................... 0.33 0.33 0.42 0.15 0.74 0.84
Less distributions from:
Net investment income............. (0.30) (0.43) (0.46) (0.47) (0.49) (0.51)
In excess of net investment
income.......................... 0 0 0 (0.03) 0 0
Net realized gain on
investments..................... 0 0 0 (0.02) 0 0
Total distributions............... (0.30) (0.43) (0.46) (0.52) (0.49) (0.51)
Net asset value end of period..... $10.10 $10.07 $10.17 $10.21 $10.58 $10.33
TOTAL RETURN...................... 3.36% 3.30% 4.20% 1.40% 7.40% 8.56%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.................. 0.74%(b) 0.70% 0.74% 0.58% 0.40% 0.17%
Total expenses excluding
indirectly paid expenses...... 0.73%(b) -- -- -- -- --
Total expenses excluding waivers
and reimbursements............ 0.86%(b) 0.90% 0.86% 0.83% 0.81% 0.86%
Net investment income........... 4.04%(b) 4.27% 4.52% 4.54% 4.73% 4.85%
Portfolio turnover rate........... 34% 29% 80% 32% 37% 57%
Net assets end of period
(thousands)..................... $ 32,293 $34,893 $40,581 $53,417 $66,607 $ 54,470
<CAPTION>
JULY 17, 1991
(COMMENCEMENT
OF CLASS OPERATIONS)
THROUGH
AUGUST 31, 1991 (C)
<S> <C>
PER SHARE DATA:
Net asset value beginning of
period.......................... $10.00
Income from investment operations:
Net investment income............. 0.06
Net realized and unrealized gain
(loss) on investments........... 0
Total from investment
operations...................... 0.06
Less distributions from:
Net investment income............. (0.06)
In excess of net investment
income.......................... 0
Net realized gain on
investments..................... 0
Total distributions............... (0.06)
Net asset value end of period..... $10.00
TOTAL RETURN...................... 0.62%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.................. 0.00%(b)
Total expenses excluding
indirectly paid expenses...... --
Total expenses excluding waivers
and reimbursements............ 1.40%(b)
Net investment income........... 4.93%(b)
Portfolio turnover rate........... --
Net assets end of period
(thousands)..................... $4,025
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to May 31 during the
current period.
(b) Annualized.
(c) On November 18, 1991, the Fund was changed to a diversified municipal bond
fund with a fluctuating net asset value per share from a non-diversified
money market fund with a stable net asset value per share. The shares
outstanding and the related per share data as of August 31, 1991 are
restated to reflect both a 1 for 2 reverse share split on October 30, 1991
and a 1 for 5 reverse share split on August 19, 1992. Total return
calculated after November 18, 1991 reflects the fluctuation in net asset
value per share.
6
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions".
EVERGREEN HIGH GRADE TAX FREE FUND
The EVERGREEN HIGH GRADE TAX FREE FUND seeks a high level of Federally
tax free income that is consistent with preservation of capital. At least 65% of
the value of the total assets of EVERGREEN HIGH GRADE TAX FREE FUND will be
invested in high grade bonds. High grade bonds mean: bonds insured by a
municipal bond insurance company which is rated AAA by Standard & Poor's Ratings
Group ("S&P") and/or Aaa by Moody's Investors Service, Inc. ("Moody's"); bonds
rated A or better by S&P or Moody's; or, if unrated, of comparable quality as
determined by the Fund's investment adviser. The insurance guarantees the timely
payment of principal and interest, but not the value of the municipal bonds or
the shares of the Fund. See the section "Investment Practices and
Restrictions" -- "Municipal Bond Insurance" for further information.
The EVERGREEN HIGH GRADE TAX FREE FUND may also purchase instruments
having variable rates of interest. One example is variable amount master demand
notes. These notes represent a borrowing arrangement between a commercial paper
issuer (borrower) and an institutional lender, such as the Fund, and are payable
upon demand. The underlying amount of the loan may vary during the course of the
contract, as may the interest on the outstanding amount, depending on a stated
short-term interest rate index.
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
The investment objective of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
is to achieve as high a level of current income, exempt from Federal income tax
other than the Federal alternative minimum tax ("AMT") for individuals and
corporations, as is consistent with preserving capital and providing liquidity.
Under normal circumstances, it is anticipated that the Fund will invest its
assets so that at least 80% of its annual interest income is exempt from Federal
income tax other than the AMT. The Fund will seek to achieve its objective by
investing substantially all of its assets in a diversified portfolio of short
and intermediate-term debt obligations issued by states, territories and
possessions of the United States ("U.S.") and by the District of Columbia, and
their political subdivisions and duly constituted authorities, the interest from
which is exempt from Federal income tax other than the AMT. Such securities are
generally known as Municipal Securities (see "Investment Practices and
Restrictions" -- "Municipal Securities" below). As a matter of policy, the
Trustees will not change the Fund's investment objective without shareholder
approval.
Under current tax law, a distinction is drawn between Municipal
Securities issued to finance certain "private activities" and other Municipal
Securities. Such private activity bonds include bonds issued to finance such
projects as airports, housing projects, resource recovery programs, solid waste
disposal facilities, student loan programs, and water and sewage projects.
Interest income from such "private activity bonds" ("AMT-Subject Bonds") becomes
an item of "tax preference" which is subject to the AMT when received by a
person in a tax year during which he is subject to that tax. Because interest
income on AMT-Subject Bonds is taxable to certain investors, it is expected,
although there can be no guarantee, that such Municipal Securities generally
will provide somewhat higher yields than other Municipal Securities of
comparable quality and maturity. The Fund may invest up to 50% of its total
assets in AMT-Subject Bonds.
The Fund intends to maintain a dollar-weighted average portfolio maturity
of two to five years. The Fund may consider an obligation's maturity to be
shorter than its stated maturity if the Fund has the right to sell the
obligation at a price approximating par value before its stated maturity date.
This is a liquidity put and is exercisable to the issuer or some third party.
7
<PAGE>
INVESTMENT PRACTICES AND RESTRICTIONS
Except where noted, each Fund may engage in the investment practices
described below. Each Fund is also subject to certain investment restrictions
more fully described in the Statement of Additional Information.
General. EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND will invest in Municipal Securities so long as they are
determined to be of high or upper medium quality. Municipal Securities meeting
this criteria include bonds rated A or higher by S&P, Moody's or another
nationally recognized statistical rating organization ("SRO"); notes rated SP -1
or SP-2 by S&P or MIG-1 or MIG-2 by Moody's or rated VMIG-1 or VMIG-2 by Moody's
in the case of variable rate demand notes or having comparable ratings from
another SRO; and commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2
by Moody's or having comparable ratings from another SRO. EVERGREEN HIGH GRADE
TAX FREE FUND may also invest in general obligation bonds which are rated BBB by
S&P, Baa by Moody's or bear a similar rating from another SRO. Medium grade
bonds are more susceptible to adverse economic conditions or changing
circumstances than higher grade bonds. However, like the higher rated bonds,
these securities are considered to be investment grade. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may also invest in bonds rated BBB or higher
by S&P, Baa or higher by Moody's or another SRO. For a description of such
ratings see the Statement of Additional Information. The Funds may also purchase
Municipal Securities which are unrated at the time of purchase, if such
securities are determined by the Funds' investment advisers to be of comparable
quality. Certain Municipal Securities (primarily variable rate demand notes) may
be entitled to the benefit of standby letters of credit or similar commitments
issued by banks and, in such instances, the Funds' investment advisers will take
into account the obligation of the bank in assessing the quality of such
security.
The ability of the Funds to meet their investment objectives is
necessarily subject to the ability of municipal issuers to meet their payment
obligations. In addition, the portfolios of the Funds will be affected by
general changes in interest rates which will result in increases or decreases in
the value of the obligations held by the Funds. Investors should recognize that,
in periods of declining interest rates, the yield of the Funds will tend to be
somewhat higher than prevailing market rates, and in periods of rising interest
rates, the yield of the Funds will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money to the Funds from the
continuous sale of its shares will likely be invested in portfolio instruments
producing lower yields than the balance of each Fund's portfolio, thereby
reducing the current yield of the Funds. In periods of rising interest rates,
the opposite can be expected to occur.
Municipal Securities . As noted above, the Funds will invest substantially all
of their assets in Municipal Securities. These include municipal bonds,
short-term municipal notes and tax exempt commercial paper. "Municipal
Securities" are debt obligations issued to obtain funds for various public
purposes that are exempt from Federal income tax in the opinion of issuer's
counsel. The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific source such as from the user
of the facility being financed. The term "Municipal Securities" also includes
"moral obligation" issues which are normally issued by special purpose
authorities. Industrial development bonds ("IDBs") and private activity bonds
("PABs") are in most cases revenue bonds and are not payable from the
unrestricted revenues of the issuer. The credit quality of IDBs and PABs is
usually directly related to the credit standing of the corporate user of the
facilities being financed. Participation interests are interests in Municipal
Securities, including IDBs and PABs, and floating and variable rate obligations
that are owned by banks. These interests carry a demand feature permitting the
holder to tender them back to the bank, which demand feature is backed by an
irrevocable letter of credit or guarantee of the bank. A put bond is a municipal
bond which gives the holder the unconditional right to sell the bond back to the
issuer at a specified price and exercise date, which is typically well in
advance of the bond's maturity date. "Short-term municipal notes" and "tax
exempt commercial paper" include tax anticipation notes, bond anticipation
notes, revenue anticipation notes and other forms of short-term loans. Such
notes are issued with a short-term maturity in anticipation of the receipt of
tax funds, the proceeds of bond placements and other revenues.
Municipal Bond Insurance. The EVERGREEN HIGH GRADE TAX FREE FUND will require
municipal bond insurance when purchasing Municipal Securities which would not
otherwise meet the Fund's quality standards. The EVERGREEN HIGH GRADE TAX FREE
FUND may also require insurance when, in the opinion of the Fund's investment
8
<PAGE>
adviser, such insurance would benefit the Fund (for example, through improvement
of portfolio quality or increased liquidity of certain securities). The purpose
of municipal bond insurance is to guarantee the timely payment of principal at
maturity and interest.
Securities in the EVERGREEN HIGH GRADE TAX FREE FUND'S portfolio may be
insured in one of two ways: (1) by a policy applicable to a specific security,
obtained by the issuer of the security or by a third party ( "Issuer-Obtained
Insurance") or (2) under master insurance policies issued by municipal bond
insurers, purchased by the Fund (the "Policies"). If a security's coverage is
Issuer-Obtained, then that security does not need to be covered in the Policies.
The Fund may purchase Policies from Municipal Bond Investors Assurance Corp.,
AMBAC Indemnity Corporation, and Financial Guaranty Insurance Company, or any
other municipal bond insurer which is rated Aaa by Moody's or AAA by S&P. A more
detailed description of these insurers may be found in the Statement of
Additional Information. Annual premiums for these Policies are paid by the Fund
and are estimated to range from 0.10% to 0.25% of the value of the municipal
securities covered under the Policies, with an average annual premium rate of
approximately 0.175%. While the insurance feature reduces financial risk, the
cost thereof and the restrictions on investments imposed by the guidelines in
the Policies reduce the yield to shareholders.
Floating Rate and Variable Rate Obligations. Municipal Securities also include
certain variable rate and floating rate municipal obligations with or without
demand features. These variable rate securities do not have fixed interest
rates; rather, those rates fluctuate based upon changes in specified market
rates, such as the prime rate, or are adjusted at predesignated periodic
intervals. Certain of these obligations may carry a demand feature that gives
the Funds the right to demand prepayment of the principal amount of the security
prior to its maturity date. The demand obligation may or may not be backed by
letters of credit or other guarantees of banks or other financial institutions.
Such guarantees may enhance the quality of the security. The Funds will limit
the value of their investments in any floating or variable rate securities which
are not readily marketable to 10% or less of their net assets.
When-Issued or Delayed Delivery Securities. The Funds may purchase securities on
a when-issued or delayed delivery basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). A Fund generally would not pay for
such securities or start earning interest on them until they are received.
However, when a Fund purchases securities on a when-issued or delayed delivery
basis, it assumes the risks of ownership at the time of purchase, not at the
time of receipt. Failure of the issuer to deliver a security purchased by a Fund
on a when-issued or delayed delivery basis may result in the Fund incurring a
loss or missing an opportunity to make an alternative investment. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND does not expect that commitments to purchase
when-issued securities will normally exceed 25% of its total assets and
EVERGREEN HIGH GRADE TAX FREE FUND does not expect that such commitments will
exceed 20% of its total assets. The Funds do not intend to purchase when-issued
or delayed delivery securities for speculative purposes but only in furtherance
of their investment objective.
Stand-by Commitments. The Funds may also acquire "stand-by commitments" with
respect to Municipal Securities held in their portfolio. Under a stand-by
commitment, a dealer agrees to purchase, at a Fund's option, specified Municipal
Securities at a specified price. Failure of the dealer to purchase such
Municipal Securities may result in a Fund incurring a loss or missing an
opportunity to make an alternative investment. Each Fund expects that stand-by
commitments generally will be available without the payment of direct or
indirect consideration. However, if necessary and advisable, a Fund may pay for
stand-by commitments either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
total amount paid in either manner for outstanding stand-by commitments held in
each Fund's portfolio will not exceed 10% of the value of the Fund's total
assets calculated immediately after each stand-by commitment is acquired. The
Funds will maintain cash or liquid high grade debt obligations in a segregated
account with its custodian in an amount equal to such commitments. The Funds
will enter into stand-by commitments only with banks and broker-dealers that, in
the judgment of the Funds' investment advisers, present minimal credit risks.
Taxable Investments. EVERGREEN HIGH GRADE TAX FREE FUND may temporarily invest
up to 20% of its total assets in taxable securities and EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may temporarily invest its assets so that not
more than 20% of its annual interest income will be derived from taxable
securities, under any one or more of the following circumstances: (a) pending
investment of proceeds of sale of Fund shares or of portfolio securities,
(b) pending settlement of purchases of portfolio securities, and (c) to maintain
liquidity for the purpose of meeting anticipated redemptions. In addition, each
such Fund may temporarily invest more than 20% of its total assets in taxable
securities for defensive purposes. Each Fund may invest for defensive purposes
during periods when each Fund's assets available for investment exceed the
available Municipal Securities that meet each Fund's quality and other
investment criteria. Taxable securities in which the Funds may invest on a
short-term basis include obligations of the U.S. government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by any
major rating service; commercial paper rated in the highest grade by Moody's,
S&P or any SRO; and certificates of deposit issued by U.S. branches of U.S.
banks with assets of $1 billion or more.
Repurchase Agreements. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, the Funds custodian ("State Street" or the "Custodian"), or
"primary dealers" (as designated by the Federal Reserve Bank of New York) in
U.S. government securities. A repurchase agreement is an arrangement pursuant to
which a buyer purchases a security and simultaneously agrees to resell it to the
vendor at a price that results in an agreed-upon market rate of return which is
effective for the period of time (which is normally one to seven days, but may
be longer) the buyer's money is invested in the security. The arrangement
results in a fixed rate of return that is not subject to market fluctuations
during a Fund's holding period. Each Fund requires continued maintenance of
collateral with its Custodian in an amount equal to, or in excess of, the market
value of the securities, including accrued interest, which are the subject of a
repurchase agreement. In the event a vendor defaults on its repurchase
obligation, the Fund might suffer a loss to the extent that the proceeds from
the sale of the collateral were less than the repurchase price. If the vendor
becomes the subject of bankruptcy proceedings, a Fund might be delayed in
selling the collateral. Each Fund's investment adviser will review and
continually monitor the creditworthiness of each institution with which a Fund
enters into a repurchase agreement to evaluate these risks. EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND may not enter into repurchase agreements if,
as a result, more than 15% of the Fund's net assets would be invested in
repurchase agreements maturing in more than seven days and EVERGREEN HIGH GRADE
TAX FREE FUND may not so invest more than 10% of its net assets.
Illiquid and Restricted Securities. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
may invest up to 15% of its net assets in illiquid securities and other
securities which are not readily marketable. In the case of the Fund, securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933,
which have been determined to be liquid, will not be considered by the Fund's
investment adviser to be illiquid or not readily marketable and, therefore, are
not subject to the aforementioned 15% limit. EVERGREEN HIGH GRADE TAX FREE FUND
may invest up to 10% of its net assets in illiquid securities and up to 10% of
its net assets in securities subject to restrictions on resale under the Federal
securities laws. The liquidity of securities purchased by a Fund which are
eligible for resale pursuant to Rule 144A will be monitored by a Fund's
investment adviser on an ongoing basis, subject to the oversight of the Trustees
as defined below. In the event that such a security is deemed to be no longer
liquid, a Fund's holdings will be reviewed to determine what action, if any, is
required to ensure that the retention of such security does not result in a Fund
having more than 15% of its net assets invested in illiquid or not readily
marketable securities. The inability of a Fund to dispose of illiquid or not
readily marketable investments readily or at a reasonable price could impair the
Fund's ability to raise cash for redemptions or other purposes.
Other Investment Policies. The Funds may borrow funds and agree to sell
portfolio securities to financial institutions such as banks and broker-dealers
and to repurchase them at a mutually agreed upon date and price (a "reverse
repurchase agreement") for temporary or emergency purposes. In the case of
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, borrowings may be in amounts up to
10% of the value of the Fund's net assets at the time of such borrowing.
EVERGREEN HIGH GRADE TAX FREE FUND may borrow in amounts up to one-third of its
net assets. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account cash, U.S. government securities or
liquid high grade debt obligations having a value equal to the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such equivalent value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by a Fund may decline
below the repurchase price of those securities. EVERGREEN SHORT-INTERMEDIATE
MUNICIPAL FUND will not enter into reverse repurchase agreements exceeding 5% of
the value of its total assets and will not purchase any securities whenever any
borrowings (including reverse repurchase agreements) are outstanding.
In order to generate income and to offset expenses, the Funds may lend
portfolio securities to brokers, dealers and other financial organizations. Each
Fund's investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities by a Fund, if and when made, may not exceed 30% of the total
assets of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND, or 15% of the total
assets of EVERGREEN HIGH GRADE TAX FREE FUND, and will be collateralized by
cash, letters of credit or U.S. government securities that are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities, including accrued interest. While such securities are on
loan, the borrower will pay a Fund any income accruing thereon, and the Fund may
invest the cash collateral, thereby increasing its return. A Fund will have the
right to call any such loan and obtain the securities loaned at any time on five
days' notice. Any gain or loss in the market price of the loaned securities
which occurs during the term of the loan would affect a Fund and its investors.
A Fund may pay reasonable fees in connection with such loans.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust
under which each Fund has been established ("Trustees"). Evergreen Asset has
been retained by EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND as investment
adviser. Evergreen Asset, with its predecessors, has served as investment
adviser to certain of the Evergreen Keystone funds since 1971. Evergreen Asset
is a wholly-owned subsidiary of FUNB. The address of Evergreen Asset is 2500
Westchester Avenue, Purchase, New York 10577. FUNB is a subsidiary of First
Union, the sixth largest bank holding company in the United States. Stephen A.
Lieber and Nola Maddox Falcone serve as the chief investment officers of
Evergreen Asset and, along with Theodore J. Israel, Jr., were the owners of
Evergreen Asset's predecessor and the former general partners of Lieber &
Company, which, as described below, provides certain subadvisory services to
Evergreen Asset in connection with its duties as investment adviser to the
Funds. CMG of FUNB serves as investment adviser to EVERGREEN HIGH GRADE TAX FREE
FUND.
First Union is headquartered in Charlotte, North Carolina, and had $143
billion in consolidated assets as of June 30, 1997. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States. The investment advisory affiliates of
FUNB manage or otherwise oversee the investment of over $61.9 billion in assets
belonging to a wide range of clients, including all of the Evergreen Keystone
funds. First Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB,
is a registered broker-dealer that is principally engaged in providing retail
brokerage services consistent with its federal banking authorizations. First
Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a
registered broker-dealer principally engaged in providing, consistent with its
federal banking authorizations, private placement, securities dealing, and
underwriting services.
Evergreen Asset manages investments and supervises the daily business
affairs of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND subject to the authority
of the Trustees. Under its investment advisory agreement with EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, Evergreen Asset is entitled to receive an
annual fee equal to 0.50% of the Fund's average daily net assets. CMG manages
investments and supervises the daily business affairs of EVERGREEN HIGH GRADE
TAX FREE FUND and, as compensation therefor, is entitled to receive an annual
fee equal to 0.50% of average daily net assets of the Fund. The total expense
ratios of EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and EVERGREEN HIGH GRADE
TAX FREE FUND for the fiscal period ended May 31, 1997, are set forth in the
section entitled "Financial Highlights".
SUB-ADVISER
Evergreen Asset has entered into a sub-advisory agreement with Lieber & Company
which provide that Lieber & Company's research department and staff will furnish
Evergreen Asset with information, investment recommendations, advice and
assistance, and will be generally available for consultation on the portfolio of
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND. Lieber & Company will be reimbursed
by Evergreen Asset in connection with the rendering of services on the basis of
the direct and indirect costs of performing such services. There is no
additional charge to EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND for the
services provided by Lieber & Company. The address of Lieber & Company is 2500
Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect,
wholly-owned, subsidiary of First Union.
PORTFOLIO MANAGERS
The portfolio manager of EVERGREEN HIGH GRADE TAX FREE FUND is James T.
Colby, III. Mr. Colby is a Vice President of CMG and has been associated with
Evergreen Asset and its predecessor since 1992. He has served as portfolio
manager of the Fund since 1995 and was portfolio manager of Evergreen National
Tax Free Fund, whose assets were acquired by the Fund on July 7, 1995, since
that fund's inception in 1992. The portfolio manager for EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND is Steven C. Shachat. Mr. Shachat has been
associated with Evergreen Asset and its predecessor since 1988 and has served as
portfolio manager of the Fund since its inception.
ADMINISTRATOR
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as
administrator to EVERGREEN HIGH GRADE TAX FREE FUND and EVERGREEN
SHORT-INTERMEDIATE MUNICIPAL FUND, subject to the supervision and control of the
Trustees of the Trust under which each Fund has been established. EKIS provides
facilities, equipment and personnel to EVERGREEN HIGH GRADE TAX FREE FUND and
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND and is entitled to receive a fee
based on the aggregate average daily net assets of the mutual funds for which
FUNB affiliates serve as investment adviser, calculated in accordance with the
following schedule:
Administration Fee
------------------
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), the Funds' distributor, serves as sub-administrator
to the Funds and is entitled to receive a fee from EKIS calculated on the
aggregate average daily net assets of all the mutual funds for which EKIS serves
as administrator and FUNB affiliates serve as investment adviser. The
sub-administrator fee is calculated in accordance with the following schedule:
Sub-Administration Fee
----------------------
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
The total assets of the mutual funds for which FUNB affiliates also serve
as investment advisers were approximately $30.5 billion as of June 30, 1997.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Eligible investors may purchase Fund shares at net asset value by mail or
wire as described below. The Funds impose no sales charges on Class Y shares.
Class Y shares are the only class of shares offered by this Prospectus and are
only available to (i) persons who at or prior to December 31, 1994 owned shares
in a mutual fund advised by Evergreen Asset, (ii) certain institutional
investors and (iii) investment advisory clients of FUNB affiliates.
You may purchase shares of each Fund through broker-dealers, banks or
other financial intermediaries or directly through EKD. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Keystone
Service Company ("EKSC"), 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. The minimum initial investment is $1,000, which may be waived in
certain situations. Subsequent investments in any amount may be made by check,
by wiring Federal funds, by direct deposit or by an electronic funds transfer
("EFT").
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the Application for more information.
How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees of each Trust under which each Fund operates
believe would accurately reflect fair value. Non-dollar denominated securities
will be valued as of the close of the Exchange at the closing price of such
securities in their principal trading markets.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen Keystone funds.
The Funds will not accept third party checks other than those payable directly
to a shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net redemption value on any
day the Exchange is open, either by writing to each Fund, c/o EKSC, or through
your financial intermediary. The amount you will receive is based on the net
asset value adjusted for fractions of a cent (less any applicable CDSC for Class
B or Class C shares) next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, a Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service. Certain financial intermediaries
may require that you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC, the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and EKSC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and EKSC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
EKSC's offices are closed). The Exchange is closed on New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate sections on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (i) be mailed by check to the shareholder at the address in
which the account is registered or (ii) be wired to an account with the same
registration as the shareholder's account in a Fund at a designated commercial
bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. Each 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, the Funds, EKSC and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen Keystone Express Line or by telephone are genuine.
The Trusts, EKSC and EKD will not be liable when following instructions received
over the Evergreen Keystone Express Line or by telephone that EKSC reasonably
believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone Express Line offers you
specific fund account information and 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.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their 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 Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for thirty days. Shareholders will receive sixty
days' written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of a Fund's total net assets, during
any ninety day period for any one shareholder.
EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Keystone funds by telephone or mail as
described below. Once an exchange request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled. Exchanges will be made on the
basis of the relative net asset values of the shares exchanged next determined
after an exchange request is received. An exchange, which represents an initial
investment in another Evergreen Keystone fund, is subject to the minimum
investment and suitability requirements of each fund.
Each of the Evergreen Keystone funds has different investment objectives
and policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange is
treated for Federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Each Fund imposes a
fee of $5 per exchange on shareholders who exchange in excess of four times per
calendar year. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after 4:00
p.m. (Eastern time) will be processed using the net asset value determined at
the close of the next business day. During periods of drastic economic or market
changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach EKSC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
each Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by a Fund or EKSC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares"; however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary,
Evergreen Keystone Distributor, Inc. ("EKD"), the distributor of the Funds, or
the toll-free number on the front page of this Prospectus. Some services are
described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan you may invest as
little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may invest not less than $100 or more than
$10,000 per investment into an existing account. 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 Funds
Systematic Investment Plan or Telephone Investment Plan may not be redeemed for
ten days from the date of investment.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this plan, you may receive (or designate a third party to receive) payments in a
stated amount of at least $75 or a maximum of 1.0% per month or 3.0% per quarter
of the total net asset value of your account when the Plan was established. 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. 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 a
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. You should designate on the Application
(i) the dollar amount of each monthly or quarterly investment you wish to make
and (ii) 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.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Class Y Evergreen Keystone fund shares you 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.
Tax Deferred Retirement Plans. The Funds have various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Savings Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity; 403(b)(7) Plans (TSAs); 401(k)
Plans; Keogh Plans; Profit-Sharing Plans; and Money Purchase Pension Plans. For
details, including fees and application forms, call toll free 1-800-247-4075 or
write to EKSC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. 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 their customer. Evergreen
Asset, since it is a subsidiary of FUNB, and CMG are subject to and in
compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in CMG or Evergreen Asset being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of a
Fund by its customers. If CMG or Evergreen Asset were prevented from continuing
to provide the services called for under the investment advisory agreement, it
is expected that the Trustees would identify, and call upon each Fund's
shareholders to approve, a new investment adviser. If this were to occur, it is
not anticipated that the shareholders of any Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends are declared daily and paid monthly. Distributions of
any net realized gains of a Fund will be made at least annually. Shareholders
will begin to earn dividends on the first business day after shares are
purchased unless shares were not paid for, in which case dividends are not
earned until the next business day after payment is received. Each Fund has
qualified and intends to continue to qualify to be treated as a regulated
investment company under the Internal Revenue Code (the "Code"). While so
qualified, so long as each Fund distributes all of its investment company
taxable income and any net realized gains to shareholders, it is expected that
the Funds will not be required to pay any Federal income taxes. A 4%
nondeductible excise tax will be imposed on a Fund if it does not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements.
The Funds will designate and pay exempt-interest dividends derived from
interest earned on qualifying tax-exempt obligations. Such exempt-interest
dividends may be excluded by shareholders of a Fund from their gross income for
Federal income tax purposes, however (1) all or a portion of such
exempt-interest dividends may be a specific preference item for purposes of the
Federal individual and corporate alternative minimum taxes to the extent that
they are derived from certain types of private activity bonds issued after
August 7, 1986, and (2) all exempt-interest dividends will be a component of the
"adjusted current earnings" for purposes of the Federal corporate alternative
minimum tax.
Dividends paid from taxable income, if any, and distributions of any net
realized short-term capital gains (whether from tax exempt or taxable
obligations) are taxable as ordinary income and long-term capital gain
distributions are taxable as long-term capital gains, even though received in
additional shares of the Fund, and regardless of the investors holding period
relating to the shares with respect to which such gains are distributed. Market
discount recognized on taxable and tax-exempt bonds is taxable as ordinary
income, not as excludable income. Under current law, the highest Federal income
tax rate applicable to net long-term gains realized by individuals is 20% for
most assets held more than 18 months. The rate applicable to corporations is
35%.
Since each Fund's gross income is ordinarily expected to be tax exempt
interest income, it is not expected that the 70% dividends-received deduction
for corporations will be applicable. Specific questions should be addressed to
the investor's own tax adviser.
Each Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the Share Purchase
Application, or on a separate form supplied by State Street, that the investor's
social security or taxpayer identification number is correct and that the
investor is not currently subject to backup withholding or is exempt from backup
withholding.
Statements describing the tax status of shareholders' dividends and
distributions will be mailed annually by the Funds. These statements will set
forth the amount of income exempt from Federal and, if applicable, state
taxation (including California), and the amount, if any, subject to Federal and
state taxation. Moreover, to the extent necessary, these statements will
indicate the amount of exempt-interest dividends which are a specific preference
item for purposes of the Federal individual and corporate alternative minimum
taxes. The exemption of interest income for Federal income tax purposes does not
necessarily result in exemption under the income or other tax law of any state
or local taxing authority. Investors should consult their own tax advisers about
the status of distributions from the Funds in their states and localities. Each
Fund notifies shareholders annually as to the interest exempt from Federal taxes
earned by the Fund.
A shareholder who acquires Class A shares of a Fund and sells or
otherwise disposes of such shares within ninety days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of the Fund.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Rules of Conduct of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with the Fund.
Organization. EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND is a separate
investment series of The Evergreen Municipal Trust, a Massachusetts business
trust organized in 1988. EVERGREEN HIGH GRADE TAX FREE FUND is a separate
investment series of Evergreen Investment Trust (formerly First Union Funds) a
Massachusetts business trust organized in 1984. The Funds do not intend to hold
annual shareholder meetings; shareholder meetings will be held only when
required by applicable law. Shareholders have available certain procedures for
the removal of Trustees.
A shareholder in each Class of a Fund will be entitled to his or her
share of all dividends and distributions from a Fund's assets, based upon the
relative value of such shares to those of other Classes of the Fund, and, upon
redeeming shares, will receive the then current net asset value of the Class of
shares of the Fund represented by the redeemed shares less any applicable
contingent deferred sales charge. Each Trust named above is empowered to
establish, without shareholder approval, additional investment series, which may
have different investment objectives, and additional Classes of shares for any
existing or future series. If an additional series or Class were established in
a Fund, each share of the series or Class would normally be entitled to one vote
for all purposes. Generally, shares of each series and Class would vote together
as a single Class on matters, such as the election of Trustees, that affect each
series and Class in substantially the same manner. Class A, Class B and Class Y
shares have identical voting, dividend, liquidation and other rights, except
that each Class bears, to the extent applicable, its own distribution,
shareholder service and transfer agency expenses as well as any other expenses
applicable only to a specific Class. Each Class of shares votes separately with
respect to Rule 12b-1 distribution plans and other matters for which separate
Class voting is appropriate under applicable law. Shares are entitled to
dividends as determined by the Trustees and, in liquidation of a Fund, are
entitled to receive the net assets of the Fund.
Custodian. State Street, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as
each Fund's custodian.
Registrar, Transfer Agent and Dividend-Disbursing Agent. EKSC, P.O. Box 2121,
Boston, Massachusetts 02106-2121 serves as each Fund's transfer and
dividend-disbursing agent.
Principal Underwriter. EKD, an affiliate of BISYS, 125 W. 55th Street, New York,
New York 10019, is the principal underwriter of the Funds. BISYS also acts as
sub-administrator to the Funds, including providing personnel to serve as
officers of the Funds.
Other Classes of Shares. Each Fund currently offers three classes of shares,
Class A, Class B and Class Y, and may in the future offer additional classes.
Class Y shares are the only class of shares offered by this Prospectus and are
only available to (i) persons who at or prior to December 31, 1994, owned shares
in a mutual fund advised by Evergreen Asset, (ii) certain institutional
investors and (iii) investment advisory clients of FUNB affiliates. The
dividends payable with respect to Class A and Class B shares will be less than
those payable with respect to Class Y shares due to the distribution and
distribution related expenses borne by Class A and Class B shares and the fact
that such expenses are not borne by Class Y shares.
Performance Information. A Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its investments as
a percentage of the Fund's share price. A Fund's yield is calculated according
to accounting methods that are standardized by the SEC for all stock and bond
funds. Because yield accounting methods differ from the method used for other
accounting purposes, a Fund's yield may not equal its distribution rate, the
income paid to your account or the income reported in a Fund's financial
statements. To calculate yield, a Fund takes the interest income it earned from
its portfolio of investments (as defined by the SEC formula) for a 30-day period
(net of expenses), divides it by the average number of shares entitled to
receive dividends, and expresses the result as an annualized percentage rate
based on a Fund's share price at the end of the 30-day period. This yield does
not reflect gains or losses from selling securities.
A Fund may also quote tax-equivalent yields, which show the taxable
yields an investor would have to earn before taxes to equal the Fund's tax-free
yields. A tax-equivalent yield is calculated by dividing a Fund's tax-exempt
yield by the result of one minus a stated Federal tax rate. If only a portion of
a Fund's income was tax-exempt, only that portion is adjusted in the
calculation.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all a
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in a Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc., Morningstar and other industry publications. The Fund may also
advertise in items of sales literature an "actual distribution rate" which is
computed by dividing the total ordinary income distributed (which may include
the excess of short-term capital gains over losses) to shareholders for the
latest twelve month period by the maximum public offering price per share on the
last day of the period. Investors should be aware that past performance may not
be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen mutual funds, products, and services, which may include:
retirement investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the information provided to investors may quote financial
or business publications and periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques. EKD may also reprint, and use as advertising and sales
literature, articles from EVERGREEN KEYSTONE EVENTS, a quarterly magazine
provided to Evergreen Keystone shareholders.
Liability Under Massachusetts Law. Under Massachusetts law, trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declarations of Trust under which
each Fund operates provide that no Trustee or shareholder will be personally
liable for the obligations of the Trust and that every written contract made by
the Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which have been incorporated by reference herein, do not contain
all the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Act. Copies of the Registration Statements may be
obtained at a reasonable charge from the SEC or may be examined, without charge,
at the offices of the SEC in Washington, D.C.
INVESTMENT ADVISER
Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
Capital Management Group of First Union National Bank, 201
South College Street, Charlotte, North Carolina 28288
EVERGREEN HIGH GRADE TAX FREE FUND
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston,
Massachusetts 02205-9827
TRANSFER AGENT
Evergreen Keystone Service Company, P.O. Box 2121, Boston,
Massachusetts 02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
INDEPENDENT AUDITORS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND,
EVERGREEN HIGH GRADE TAX FREE FUND
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 125 W. 55th Street, New York,
New York 10019
<PAGE>
EVERGREEN HIGH GRADE TAX FREE FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1997
THE EVERGREEN KEYSTONE NATIONAL TAX FREE FUNDS
200 Berkeley Street, Boston, Massachusetts 02116
800-343-2898
Evergreen High Grade Tax Free Fund ("High Grade")
Evergreen Short-Intermediate Municipal Fund ("Short-Intermediate")
Keystone Tax Free Income Fund ("Tax Free Income")
This Statement of Additional Information pertains to all classes of shares
of the Funds listed above. It is not a prospectus and should be read in
conjunction with the Prospectus dated September 3, 1997, as supplemented from
time to time for the Fund in which you are making or contemplating an
investment. The Evergreen Keystone National Tax Free Funds are offered through
two separate prospectuses: one offering Class A shares and Class B shares of
High Grade and Short-Intermediate and Class A shares, Class B shares and Class C
shares of Tax Free Income, and a separate prospectus offering Class Y shares of
High Grade and Short-Intermediate. Copies of each Prospectus may be obtained
without charge by calling the number listed above.
TABLE OF CONTENTS
Investment Objectives and Policies.........................................2
Investment Restrictions...................................................11
Non-fundamental Operating Policies........................................16
Management................................................................17
Investment Advisers.......................................................21
Distribution Plans........................................................24
Allocation of Brokerage ..................................................26
Additional Tax Information................................................27
Net Asset Value...........................................................29
Purchase of Shares........................................................30
General Information about the Funds ......................................38
Performance Information...................................................40
General...................................................................43
Financial Statements......................................................44
Appendix "A".............................................................A-1
21328
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds - Investment Objectives
and Policies" in each Fund's Prospectus)
The investment objective of each Fund and a description of the
securities in which each Fund may invest is set forth under "Description of the
Funds - Investment Objectives and Policies" in the relevant Prospectus. The
investment objective of Tax Free Income Fund is fundamental and cannot be
changed without the approval of shareholders. The following expands the
discussion in the Prospectus regarding certain investments of each Fund.
Additional Information Regarding Investments that each Fund May Make
Participation Interests (All Funds)
Participation interests may take the form of participations, beneficial
interests in a trust, partnership interests, or any other form of indirect
ownership that allows a Fund to treat the income from the investments as exempt
from federal and state tax. The financial institutions from which a Fund
purchases participation interests frequently provide or secure from another
financial institution irrevocable letters of credit or guarantees and give a
Fund the right to demand payment of the principal amounts of the participation
interests plus accrued interest on short notice (usually within seven days).
Variable Rate Municipal Securities (All Funds)
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable rate municipal securities than for fixed
income obligations.
Many municipal securities with variable interest rates purchased by a Fund
are subject to repayment of principal (usually within seven days) on the Fund's
demand. The terms of these variable rates demand instruments require payment of
principal obligations by the issuer of the participation interests or a
guarantor of either issuer. All variable rate municipal securities will meet the
quality standards for a Fund. Each Fund's investment adviser has been instructed
by the Board of Trustees (the "Trustees") to monitor the pricing, quality, and
liquidity of the variable rate municipal securities, including participation
interests held by a Fund, on the basis of published financial information and
reports of the rating agencies and other analytical services.
Municipal Leases (All Funds)
When determining whether municipal leases purchased by a Fund will be
classified as a liquid or illiquid security, the Trustees have directed each
Fund's investment adviser to consider certain factors, such as: the frequency of
trades and quotes for the security; the volatility of quotations and trade
prices for the security, the number of dealers willing to purchase or sell the
security and the number of potential purchasers; dealer undertakings to make a
market in the security; the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer); the rating of the security
and the financial condition and prospects of the issuer of the security; whether
the lease can be terminated by the lessee; the potential recovery, if any, from
a sale of the leased property upon termination of the lease; the lessee's
general credit strength (e.g., its debt, administrative, economic and financial
characteristics and prospects); the likelihood that the lessee will discontinue
appropriating funding for the leased property because the property is no longer
deemed essential to its operations (e.g., the potential for an "event of
nonappropriation"); any credit enhancement or legal recourse provided upon an
event of nonappropriation or other termination of the lease; and such other
factors as may be relevant to the Fund's ability to dispose of the security.
When-Issued and Delayed Delivery Transactions (All Funds)
These transactions are made to secure what is considered to be an
advantageous price or yield for a Fund. No fees or other expenses, other than
normal transaction costs, are incurred. However, liquid assets of a Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
and are maintained until the transaction has been settled. Short-Intermediate
does not expect its commitments to purchase when-issued securities will normally
exceed 25% of their total assets and High Grade does not expect that such
commitments will exceed 20% of its total assets.
Futures and Options Transactions (Tax Free Income)
The Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts and options on financial futures
contracts. Additionally, the Fund may buy and sell call and put options on
portfolio securities.
Purchasing Put Options on Financial Futures Contracts (Tax Free Income)
Tax Free Income may purchase listed put and call options on financial
futures contracts for U.S. government securities. Unlike entering directly into
a futures contract, which requires the purchaser to buy a financial instrument
on a set date at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide on or before a
future date whether to assume a short position at the specified price.
The Fund may purchase put options on futures to protect portfolio securities
against decreases in value resulting from an anticipated increase in market
interest rates. Generally, if the hedged portfolio securities decrease in value
during the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the hedge is
successful, the proceeds received by a Fund upon the sale of the second option
will be large enough to offset both the premium paid by the Fund for the
original option plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the option
(for a price less than the strike price of the option) and exercise the option.
The Fund would then deliver the futures contract in return for payment of the
strike price. If the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and the premium paid
for the contract will be lost.
Writing Call Options on Financial Futures Contracts (Tax Free Income)
In addition to purchasing put options on futures, Tax Free Income may write
listed call options on futures contracts for U.S. government securities to hedge
its portfolio against an increase in market interest rates. When the Fund writes
a call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the fixed
strike price at any time during the life of the option, if the option is
exercised. As market interest rates rise, causing the prices of futures to go
down, the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call option
position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call, so
that the Fund keeps the premium received for the option. This premium can offset
the drop in value of the Fund's fixed income portfolio which is occurring as
interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be less
than the premium received by the Fund for the initial option. The net premium
income of a Fund will then offset the decrease in value of the hedged
securities.
Writing Put Options on Financial Futures Contracts (Tax Free Income)
Tax Free Income may write listed put options on financial futures
contracts for U.S. government securities to hedge its portfolio against a
decrease in market interest rates. When the Fund writes a put option on a
futures contract, it receives a premium for undertaking the obligation to assume
a long futures position (buying a futures contract) at a fixed price at any time
during the life of the option. As market interest rates decrease, the market
price of the underlying futures contract normally increases.
As the market value of the underlying futures contract increases, the
buyer of the put option has less reason to exercise the put because the buyer
can sell the same futures contract at a higher price in the market. The premium
received by the Fund can then be used to offset the higher prices of portfolio
securities to be purchased in the future due to the decrease in the market
interest rates.
Prior to the expiration of the put option or its exercise by the buyer,
the Fund may close out the option by buying an identical option. If the hedge is
successful, the cost of buying the second option will be less than the premium
received by the Fund for the initial option.
Purchasing Call Options on Financial Futures Contracts (Tax Free Income)
An additional way in which Tax Free Income may hedge against decreases in
market interest rates is to buy a listed call option on a financial futures
contract for U.S. government securities. When the Fund purchases a call option
on a futures contract, it is purchasing the right (not the obligation) to assume
a long futures position (buy a futures contract) at a fixed price at any time
during the life of the option. As market interest rates fall, the value of the
underlying futures contract will normally increase, resulting in an increase in
value of the Fund's option position. When the market price of the underlying
futures contract increases above the strike price plus premium paid, the Fund
could exercise its option and buy the futures contract below market price.
Prior to the exercise or expiration of the call option the Fund could
sell an identical call option and close out its position. If the premium
received upon selling the offsetting call is greater than the premium originally
paid, the Fund has completed a successful hedge.
Limitation on Open Futures Positions (Tax Free Income)
Tax Free Income will not maintain open positions in futures contracts
it has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the unrealized
gain or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options positions within
this limitation.
"Margin" in Futures Transactions (Tax Free Income)
Unlike the purchase or sale of a security, Tax Free Income does not pay
or receive money upon the purchase or sale of a futures contract. Rather, the
Fund is required to deposit an amount of "initial margin" in cash or U.S.
Treasury bills with its custodian (or the broker, if legally permitted). The
nature of initial margin in futures transactions is different from that of
margin in securities transactions in that futures contract initial margin does
not involve the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The Fund may
not purchase or sell futures contracts or related options if immediately
thereafter the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for related options would exceed 5% of the
market value of the Fund's total assets.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
Purchasing and Writing Put and Call Options on Portfolio Securities
(Tax Free Income)
The Fund may purchase put and call options on portfolio securities to
protect against price movements in particular securities. A put option gives the
Fund, in return for a premium, the right to sell the underlying security to the
writer (seller) at a specified price during the term of the option. A call
option gives the Fund, in return for a premium, the right to buy the underlying
security from the seller.
The Fund may generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the writers or buyers of
the options since options on the portfolio securities held by the Fund are to be
traded on an exchange. The Fund purchases and writes options only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan associations) deemed creditworthy by the Fund's investment
adviser.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options are
third party contracts with standardized strike prices and expiration dates and
are purchased from a clearing corporation. Exchange traded options have a
continuous liquid market while over-the-counter options may not.
Repurchase Agreements (All Funds)
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government securities or
other securities to a Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price within one year from the date of
acquisition. A Fund or its custodian will take possession of the securities
subject to repurchase agreements. To the extent that the original seller does
not repurchase the securities from a Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. Each Fund believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. A Fund may only enter into repurchase agreements with banks
and other recognized financial institutions, such as broker/dealers, which are
found by the Fund's investment adviser to be creditworthy pursuant to guidelines
established by the Trustees.
Reverse Repurchase Agreements (All Funds)
A Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash. In a reverse repurchase agreement, a Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Lending of Portfolio Securities (All Funds)
The collateral received when a Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Restricted Securities (All Funds)
With the exceptions noted below, a Fund may invest in restricted
securities. Restricted securities are any securities in which a Fund may
otherwise invest pursuant to its investment objectives and policies but which
are subject to restrictions on resale under federal securities laws.
Short-Intermediate will not invest more than 15% and for High Grade and Tax Free
Income, 10%, of the value of their net assets in restricted securities; however,
certain restricted securities which the Trustees deem to be liquid will be
excluded from this limitation.
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule 144A. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security
and the number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
Municipal Bond Insurance (High Grade)
The Fund may purchase two types of municipal bond insurance policies
("Policies") issued by municipal bond insurers. One type of Policy covers
certain municipal securities only during the period in which they are in the
Fund's portfolio. In the event that a municipal security covered by such a
Policy is sold by the Fund, the insurer of the relevant Policy will be liable
only for those payments of interest and principal which are then due and owing
at the time of sale.
The other type of Policy covers municipal securities not only while they
remain in the Fund's portfolio but also until their final maturity, even if they
are sold out of the Fund's portfolio, so that the coverage may benefit all
subsequent holders of those municipal securities. The Fund will obtain insurance
which covers municipal securities until final maturity even after they are sold
out of the Fund's portfolio only if, in the judgment of the investment adviser,
the Fund would receive net proceeds from the sale of those securities, after
deducting the cost of such permanent insurance and related fees, significantly
in excess of the proceeds it would receive if such municipal securities were
sold without insurance. Payments received from municipal bond insurers may not
be tax-exempt income to shareholders of the Fund.
Depending upon the characteristics of the municipal security held by
the Fund, the annual premiums for the Policies are estimated to range from 0.10%
to 0.25% of the value of the municipal securities covered under the Policies,
with an average annual premium rate of approximately 0.175%.
The Fund may purchase Policies from Municipal Bond Investors Assurance
Corp. ("MBIA"), AMBAC Indemnity Corporation ("AMBAC"), Financial Guaranty
Insurance Company ("FGIC"), each as described under "Municipal Bond Insurers",
or any other municipal bond insurer which is rated at least Aaa by Moody's
Investors Service, Inc. ("Moody's") or AAA by Standard & Poor's Ratings Group
("S&P"). Each Policy guarantees the payment of principal and interest on those
municipal securities it insures. The Policies will have the same general
characteristics and features. A municipal security will be eligible for coverage
if it meets certain requirements set forth in a Policy. In the event interest or
principal on an insured municipal security is not paid when due, the insurer
covering the security will be obligated under its Policy to make such payment
not later than 30 days after it has been notified by the Fund that such
non-payment has occurred.
MBIA, AMBAC, and FGIC will not have the right to withdraw coverage on
securities insured by their Policies so long as such securities remain in the
Fund's portfolio, nor may MBIA, AMBAC, or FGIC cancel their Policies for any
reason except failure to pay premiums when due. MBIA, AMBAC, and FGIC will
reserve the right at any time upon 90 days' written notice to the Fund to refuse
to insure any additional municipal securities purchased by the Fund after the
effective date of such notice. The Fund's investment adviser will reserve the
right to terminate any of the Policies if it determines that the benefits to the
Fund of having its portfolio insured under such Policy are not justified by the
expense involved.
Additionally, the Fund's investment adviser reserves the right to enter
into contracts with insurance carriers other than MBIA, AMBAC, or FGIC, if such
carriers are rated Aaa by Moody's or AAA by S&P.
Under the Policies, municipal bond insurers unconditionally guarantee to
the Fund the timely payment of principal and interest on the insured municipal
securities when and as such payments shall become due but shall not be paid by
the issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption (other than acceleration
by reason of mandatory sinking fund payments), default or otherwise, the
payments guaranteed will be made in such amounts and at such times as payments
of principal would have been due had there not been such acceleration. The
municipal bond insurers will be responsible for such payments less any amounts
received by the Fund from any trustee for the municipal bond holders or from any
other source. The Policies do not guarantee payment on an accelerated basis, the
payment of any redemption premium, the value for the shares of the Fund, or
payments of any tender purchase price upon the tender of the municipal
securities. The Policies also do not insure against nonpayment of principal of
or interest on the securities resulting from the insolvency, negligence or any
other act or omission of the trustee or other paying agent for the securities.
However, with respect to small issue industrial development municipal bonds and
pollution control revenue municipal bonds covered by the Policies, the municipal
bond insurers guarantee the full and complete payments required to be made by or
on behalf of an issuer of such municipal securities if there occurs any change
in the tax-exempt status of interest on such municipal securities, including
principal, interest or premium payments, if any, as and when required to be made
by or on behalf of the issuer pursuant to the terms of such municipal
securities. A when-issued municipal security will be covered under the Policies
upon the settlement date of the original issue of such when-issued municipal
securities. In determining whether to insure municipal securities held by the
Fund, each municipal bond insurer has applied its own standard, which
corresponds generally to the standards it has established for determining the
insurability of new issues of municipal securities. This insurance is intended
to reduce financial risk, but the cost thereof and compliance with investment
restrictions imposed under the Policies and these guidelines will reduce the
yield to shareholders of the Fund.
If a Policy terminates as to municipal securities sold by the Fund on
the date of sale, in which event municipal bond insurers will be liable only for
those payments of principal and interest that are then due and owing, the
provision for insurance will not enhance the marketability of securities held by
the Fund, whether or not the securities are in default or subject to significant
risk of default, unless the option to obtain permanent insurance is exercised.
On the other hand, since issuer-obtained insurance will remain in effect as long
as the insured municipal securities are outstanding, such insurance may enhance
the marketability of municipal securities covered thereby, but the exact effect,
if any, on marketability cannot be estimated. The Fund generally intends to
retain any securities that are in default or subject to significant risk of
default and to place a value on the insurance, which ordinary will be the
difference between the market value of the defaulted security and the market
value of similar securities of minimum high grade (i.e., rated A by Moody's or
S&P) that are not in default. To the extent that the Fund holds defaulted
securities, it may be limited in its ability to manage its investment and to
purchase other municipal securities. Except as described above with respect to
securities that are in default or subject to significant risk of default, the
Fund will not place any value on the insurance in valuing the municipal
securities that it holds.
Municipal Bond Insurers
Municipal bond insurance may be provided by one or more of the
following insurers or any other municipal bond insurer which is rated at least
Aaa by Moody's or AAA by S&P.
Municipal Bond Investors Assurance Corp.
Municipal Bond Investors Assurance Corp. is a wholly-owned subsidiary
of MBIA, Inc., a Connecticut insurance company, which is owned by AEtna Life and
Casualty, Credit Local DeFrance CAECL, S.A., The Fund American Companies, and
the public. The investors of MBIA, Inc. are not obligated to pay the obligations
of MBIA. MBIA, domiciled in New York, is regulated by the New York State
Insurance Department and licensed to do business in various states. The address
of MBIA is 113 King Street, Armonk, New York, 10504, and its telephone number is
(914) 273-4345. S&P has rated the claims-paying ability of MBIA AAA.
AMBAC Indemnity Corporation
AMBAC Indemnity Corporation is a Wisconsin-domiciled stock insurance
company, regulated by the Insurance Department of Wisconsin, and licensed to do
business in various states. AMBAC is a wholly-owned subsidiary of AMBAC, Inc., a
financial holding company which is owned by the public. Copies of certain
statutorily required filings of AMBAC can be obtained from AMBAC. The address of
AMBAC's administrative offices is One State Street Plaza, 17th Floor, New York,
New York, 10004, and its telephone number is (212) 668-0340. S&P has rated the
claims-paying ability of AMBAC AAA.
Financial Guaranty Insurance Company
Financial Guaranty Insurance Company is a wholly-owned subsidiary of
FGIC Corporation, a Delaware holding company. FGIC Corporation is wholly-owned
by General Electric Capital Corporation. The investors of FGIC Corporation are
not obligated to pay the debts of or the claims against Financial Guaranty.
Financial Guaranty is subject to regulation by the state of New York Insurance
Department and is licensed to do business in various states. The address of
Financial Guaranty is 115 Broadway, New York, New York, 10006, and its telephone
number is (212) 312-3000. S&P has rated the claims-paying ability of Financial
Guaranty AAA.
Municipal Bonds (All Funds)
The two principal classifications of municipal bonds are "general
obligation" bonds and "revenue bonds". General obligation bonds are secured by
the issuer's pledge of its full faith, credit and unlimited taxing power for the
payment of principal and interest. Revenue or special tax bonds are payable only
from the revenues derived from a particular facility or class of facilities or
projects or, in a few cases, from the proceeds of a special excise or other tax,
but are not supported by the issuer's power to levy general taxes. There are, of
course, variations in the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors. The
yields of municipal bonds depend on, among other things, general money market
conditions, general conditions of the municipal bond market, size of a
particular offering, the maturity of the obligations and rating of the issue.
Since the Funds may invest in industrial development bonds, the Funds
may not be appropriate investment for entities which are "substantial users" of
facilities financed by industrial development bonds or for investors who are
"related persons". Generally, an individual will not be a "related person" under
the Internal Revenue Code of 1986 (the "Code") unless such investor or his
immediate family (spouse, brothers, sisters and lineal descendants) own directly
or indirectly in the aggregate more than 50 percent of the value of the equity
of a corporation or partnership which is a "substantial user" of a facility
financed from proceeds of "industrial development bonds". A "substantial user"
of such facilities is defined generally as a "non-exempt person who regularly
uses a part of a facility" financed from the proceeds of industrial development
bonds.
As set forth in the Prospectus, the Code establishes new unified volume
caps for most "private purpose" municipal bonds (such as industrial development
bonds and obligations to finance low-interest mortgages on owner-occupied
housing and student loans). The unified volume cap is not expected to affect
adversely the availability of municipal bonds for investment by the Funds;
however, it is possible that proposals will be introduced before Congress to
further restrict or eliminate the federal income tax exemption for interest on
Municipal Obligations. Any such proposals, if enacted, could adversely affect
the availability of municipal bonds for investment by the Funds and the value of
each Fund's portfolio might be affected. In that event, each Fund might
reevaluate its investment policies and restrictions and consider recommending to
its shareholders changes in both.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by the Fund's
investment adviser without shareholder approval, subject to review and approval
by the Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1. Concentration of Assets in Any One Issuer
Neither Short-Intermediate nor Tax Free Income Fund may invest more
than 5% of its total assets, at the time of the investment in question, in the
securities of any one issuer other than the U.S. government and its agencies or
instrumentalities, except that up to 25% of the value of each Fund's total
assets may be invested without regard to such 5% limitation. For this purpose
each political subdivision, agency, or instrumentality and each multi-state
agency of which a state is a member, and each public authority which issues
industrial development bonds on behalf of a private entity, will be regarded as
a separate issuer for determining the diversification of each Fund's portfolio.
With respect to 75% of the value of its total assets, High Grade will
not purchase securities of any one issuer (other than cash, cash items or
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities) if as a result more than 5% of the value of its total assets
would be invested in the securities of that issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United States, or
their political subdivisions, agencies, authorities, instrumentalities, or
similar entities, will be considered a separate issuer if its assets and
revenues are separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Industrial development bonds, backed only by the assets and revenues of a
nongovernmental issuer, are considered to be issued solely by that issuer. If,
in the case of an industrial development bond or governmental-issued security, a
governmental or other entity guarantees the security, such guarantee would be
considered a separate security issued by the guarantor as well as the other
issuer, subject to limited exclusions allowed by the Investment Company Act of
1940.
2. Ten Percent Limitation on Securities of Any One Issuer
Short-Intermediate may not purchase more than 10% of any class of
voting securities of any one issuer other than the U.S. government and its
agencies or instrumentalities.
3. Investment for Purposes of Control or Management
Short-Intermediate may not invest in companies for the purpose of
exercising control or management.
4. Purchase of Securities on Margin
High Grade, Short-Intermediate or Tax Free Income Fund may not purchase
securities on margin, except that each Fund may obtain such short-term credits
as may be necessary for the clearance of transactions. A deposit or payment by a
Fund of initial or variation margin in connection with financial futures
contracts or related options transactions is not considered the purchase of a
security on margin.
5. Unseasoned Issuers
High Grade* will not invest more than 5% of its total assets in
industrial development bonds and other municipal securities where the principal
and interest are the responsibility of companies (or guarantors, where
applicable) with less than three years of continuous operations, including the
operation of any predecessor.
Short-Intermediate may not invest more than 5% of its total assets in
taxable securities of unseasoned issuers that have been in continuous operation
for less than three years, including operating periods of their predecessors,
except that no such limitation shall apply to the extent that (i) the Fund may
invest in obligations issued or guaranteed by the U.S. government and its
agencies or instrumentalities, and (ii) the Fund may invest in municipal
securities.
Tax Free Income may not invest more than 5% of its total assets in
securities of any company having a record, together with its predecessors, of
less that three years of continuous operation.
6. Underwriting
High Grade, Short-Intermediate or Tax Free Income may not engage in the
business of underwriting the securities of other issuers, provided that the
purchase of municipal securities or other permitted investments, directly from
the issuer thereof (or from an underwriter for an issuer) and the later
disposition of such securities in accordance with a Fund's investment program
shall not be deemed to be an underwriting.
7. Interests in Oil, Gas or Other Mineral Exploration or Development
Programs
Short-Intermediate may not purchase, sell or invest in interests in
oil, gas or other mineral exploration or development programs.
High Grade will not purchase interests in or sell oil, gas or other
mineral exploration or development programs or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
8. Concentration in Any One Industry
Short-Intermediate may not invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry; provided, that this limitation shall not apply to obligations
issued or guaranteed by the U.S. government or its agencies or instrumentalities
and to municipal
21328
12
<PAGE>
securities.
High Grade will not purchase securities if, as a result of such
purchase, 25% or more of the value of its total assets would be invested in any
one industry, or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects. However,
the Fund may invest as temporary investments more than 25% of the value of its
total assets in cash or cash items, securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or instruments secured by these
money market instruments, such as repurchase agreements.
Tax Free Income may not purchase any security (other than U.S.
government securities) of any issuer if as a result more than 25% of its total
assets would be invested in a single industry, including industrial development
bonds from the same facility or similar types of facilities; governmental
issuers of municipal bonds are not regarded as members of an industry and the
Fund may invest more than 25% of its assets in industrial bonds.
9. Warrants
Short-Intermediate may not invest more than 5% of its total net assets
in warrants, and, of this amount, no more than 2% of each Fund's total net
assets may be invested in warrants that are listed on neither the New York nor
the American Stock Exchange.
10. Ownership by Trustees/Officers
High Grade* and Short-Intermediate may not purchase or retain the
securities of any issuer if (i) one or more officers or Trustees of a Fund or
its investment adviser individually owns or would own, directly or beneficially,
more than 1/2 of 1% of the securities of such issuer, and (ii) in the aggregate,
such persons own or would own, directly or beneficially, more than 5% of such
securities.
11. Short Sales
High Grade and Tax Free Income will not make short sales of securities
or maintain a short position, unless at all times when a short position is open
a Fund owns an equal amount of such securities or of securities which, without
payment of any further consideration are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the securities sold
short. The use of short sales will allow the Funds to retain certain bonds in
their portfolios longer than it would without such sales. To the extent that a
Fund receives the current income produced by such bonds for a longer period than
it might otherwise, a Fund's investment objective is furthered.
Short-Intermediate will not sell any securities short or maintain a
short position.
12. Lending of Funds and Securities
Short-Intermediate may not lend its funds to other persons, provided
that each Fund may purchase issues of debt securities, acquire privately
negotiated loans made to municipal borrowers and enter into repurchase
agreements.
Short-Intermediate may not lend its portfolio securities, unless the
borrower is
21328
13
<PAGE>
a broker, dealer or financial institution that pledges and maintains collateral
with the Fund consisting of cash or securities issued or guaranteed by the U.S.
government having a value at all times not less than 100% of the current market
value of the loaned securities, including accrued interest, provided that the
aggregate amount of such loans shall not exceed 30% of the Fund's total assets.
High Grade will not lend any of its assets except that it may purchase
or hold money market instruments, including repurchase agreements and variable
amount demand master notes in accordance with its investment objective, policies
and limitations and it may lend portfolio securities valued at not more than 15%
of its total assets to broker-dealers.
Tax Free Income may not make loans, except that the Fund may purchase
or hold debt securities consistent with its investment objective, lend portfolio
securities valued at not more thatn 15% of its total assets to broker-dealers
and enter repurchase agreements.
13. Commodities
Short-Intermediate may not purchase, sell or invest in commodities,
commodity contracts or financial futures contracts.
Tax Free Income may not purchase or sell commodities or commodity
contracts except that it may engage in currency or other financial futures
contracts and related options transactions.
14. Real Estate
High Grade will not buy or sell real estate, although it may invest in
securities of companies whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
Tax Free Income may not purchase or sell real estate, except that it
may purchase and sell securities secured by real estate and securities of
companies which invest in real estate.
Short-Intermediate may not purchase, sell or invest in real estate or
interests in real estate, except that each Fund may purchase municipal
securities and other debt securities secured by real estate or interests
therein.
15. Borrowing, Senior Securities, Reverse Repurchase Agreements
Short-Intermediate may not borrow money, issue senior securities or
enter into reverse repurchase agreements, except for temporary or emergency
purposes, and not for leveraging, and then in amounts not in excess of 10% of
the value of the Fund's net assets at the time of such borrowing; or mortgage,
pledge or hypothecate any assets except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts borrowed or 10%
of the value of the Fund's total assets at the time of such borrowing, provided
that the Fund will not purchase any securities at any time when borrowings,
including reverse repurchase agreements, are outstanding. The Fund will not
enter into reverse repurchase agreements exceeding 5% of the value of its total
assets.
High Grade will not issue senior securities, except the Fund may borrow
money directly or through reverse repurchase agreement as a temporary measure
for
21328
14
<PAGE>
extraordinary or emergency purposes in an amount up to one-third of the value of
its net assets, including the amount borrowed, in order to meet redemption
requests without immediately selling portfolio instruments; and except to the
extent the Fund will enter into futures contracts. Any such borrowings need not
be collateralized. The Fund will not purchase any securities while borrowings in
excess of 5% of its total assets are outstanding. The Fund will not borrow money
or engage in reverse repurchase agreements for investment leverage purposes.
High Grade will not mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. In those cases, High Grade may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets at the time of borrowing. Margin deposits for the
purchase and sale of financial futures contracts and related options and
segregation or collateral arrangements made in connection with options
activities and the purchase of securities on a when-issued basis are not deemed
to be a pledge.
Tax Free Income will not issue senior securities; the purchase or sale
of securities on a "when-issued" basis or collateral arrangement with respect to
the writing of options on securities, are not deemed to be a pledge of assets.
Tax Free Income will not borrow money or enter into reverse repurchase
agreements, except that the Fund may enter into reverse repurchase agreements or
borrow money from banks for temporary or emergency purposes in aggregated
amounts up to one-third of the value of the Fund's net assets; provided that
while borrowings from banks (not including reverse repurchase agreements) exceed
5% of the Fund's net assets, any such borrowings will be repaid before
additional investments are made.
Tax Free Income will not pledge more than 15% of its net asets to
secure indebtedness; the purchase or sale of securities on a "when issued"
basis, or collateral arrangement with respect to the writing of options on
securities, are not deemed to be a pledge of assets.
16. Options
Short-Intermediate may not write, purchase or sell put or call options,
or combinations thereof, except that the Fund may purchase securities with
rights to put securities to the seller in accordance with its investment
program.
17. Investing in Securities of Other Investment Companies
High Grade will purchase securities of investment companies only in
open-market transactions involving customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation or acquisition of assets. It should be noted that investment
companies incur certain expenses such as management fees and therefore any
investment by the Fund in shares of another investment company would be subject
to such duplicate expenses.
Short-Intermediate* may not purchase the securities of other investment
companies, except to the extent such purchases are not prohibited by applicable
law.
Tax Free Income may not purchase securities of other investment
companies, except as part of a merger, consolidation, purchase of assets or
similar transaction.
18. Restricted Securities
High Grade will not invest more than 10% of its total assets in
securities subject to restrictions on resale under the Federal securities laws.
21328
15
<PAGE>
Tax Free Income will not invest more than 10% of its total assets in
securities with legal or contractual restrictions on resale or in securities for
which market quotations are not readily available, or in repurchase agreements
maturing in more than seven days.
19. Investment in Municipal Securities
Short-Intermediate may not invest more than 20% of its total assets in
securities other than municipal securities, (as described under "Description of
the Funds Investment Objectives and Policies" in the Fund's Prospectus), unless
extraordinary circumstances dictate a more defensive posture.
NON-FUNDAMENTAL OPERATING POLICIES
Certain Funds have adopted additional non-fundamental operating
policies. Operating policies may be changed by the Board of Trustees without a
shareholder vote.
1. Securities Issued by Government Units; Industrial Development Bonds
Short-Intermediate has determined not to invest more than 25% of its
total assets (i) in securities issued by governmental units located in any one
state, territory or possession of the United States (but this limitation does
not apply to project notes backed by the full faith and credit of the U.S.
government) or (ii) industrial development bonds not backed by bank letters of
credit.
Tax Free Income does not presently intend to invest more than 25% of
its total assets in (1) municipal bonds of a single state and its subdivisions,
agencies and instrumentalities; of a single territory or possession of the U.S.
and its subdivisions, agencies or instrumentalities; or of the District of
Columbia and any subdivision, agency or instrumentality thereof; or (2)
municipal bonds, the payment of which depends on revenues derived from a single
facility or similar types of facilities. Since certain municipal bonds may be
related in such a way that an economic, business or political development or
change affecting one such security could likewise affect the other securities, a
change in this policy could result in increased investment risk, but no change
is presently contemplated. The Fund may invest more than 25% of its total assets
in industrial development bonds.
High Grade does not intend to invest more than 25% of the value of its
assets in any issuer in a single state.
2. Illiquid Securities
Short-Intermediate may not invest more than 15% and High Grade not more
than 10% of their net assets in illiquid securities and other securities which
are not readily marketable, including repurchase agreements which have a
maturity of longer than seven days, but excluding certain securities and
municipal leases determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or
21328
16
<PAGE>
savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items".
MANAGEMENT
The Evergreen Keystone funds consist of seventy-three mutual funds.
Each mutual fund is, or is a series of, a registered, open-end management
company.
Trustees and executive officers of each mutual fund, their ages, and
their principal occupations during the last five years are shown below. Except
as set forth below, the address of each of the Trustees is 200 Berkeley Street,
Boston, Massachusetts 02116.
FREDERICK AMLING (69). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); and former Member,
Board of Advisers, Credito Emilano (banking).
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL. Trustee of the
Trusts; Trustee or Director of all Evergreen Keystone funds other than Evergreen
Investment Trust and Evergreen Variable Trust; real estate developer and
construction consultant; and President of Centrum Equities and Centrum
Properties, Inc.
CHARLES A. AUSTIN III (61). Trustee of Tax Free Income; Trustee or Director of
23 other Evergreen Keystone funds; Investment Counselor to Appleton Partners,
Inc.; and former Managing Director, Seaward Management Corporation (investment
advice).
FOSTER BAM (70), Greenwich Plaza, Greenwich, CT. Trustee of the Trusts; Trustee
or Director of all other Evergreen Keystone funds other than Evergreen
Investment Trust and Evergreen Variable Trust; Partner in the law firm of
Cummings & Lockwood; Director, Symmetrix, Inc. (sulphur company) and Pet
Practice, Inc. (veterinary services); and former Director, Chartwell Group Ltd.
(manufacturer of office furnishings and accessories), Waste Disposal Equipment
Acquisition Corporation and Rehabilitation Corporation of America
(rehabilitation hospitals).
*GEORGE S. BISSELL(67). Chairman of the Board and Chief Executive Officer and
Trustee of Tax Free Income and 23 other Evergreen Keystone funds; Chairman of
the Board and Trustee of Anatolia College; Trustee of University Hospital (and
Chairman of its Investment Committee); former Director and Chairman of the Board
of Hartwell Keystone Advisers, Inc.; and former Chairman of the Board, Director
and Chief Executive Officer of Keystone Investments, Inc.
EDWIN D. CAMPBELL (69). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; Principal, Padanaram Associates, Inc.; and
former Executive Director, Coalition of Essential Schools, Brown University.
CHARLES F. CHAPIN (67). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; and former Director, Peoples Bank (Charlotte,
NC).
K. DUN GIFFORD (57). Trustee of Tax Free Income; Trustee or Director of 23 other
Evergreen Keystone 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 Offi cer, Gifford Gifts of Fine Foods;
former Chairman, Gifford, Drescher & Associates (environmental consulting); and
former Director, Keystone Investments, Inc. and Keystone Investment Management
Company.
JAMES S. HOWELL (72), 4124 Crossgate Road, Charlotte, NC. Trustee; Chairman of
11 Evergreen Keystone funds and Trustee or Director of all Evergreen Keystone
funds; former Chairman of the Distribution Foundation for the Carolinas; and
former Vice President of Lance Inc. (food manufacturing).
LEROY KEITH, JR. (57), 4124 Crossgate Road, Charlotte, NC. Trustee of Tax Free
Income; Trustee or Director of 23 other Evergreen Keystone 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. (69). Trustee of Tax Free Income; Trustee or Director and
Member of the Board of Advisers of all other Evergreen Keystone 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 (57), 821 Regency Drive, Charlotte, NC. Trustee; Trustee or
Director of all other Evergreen Keystone funds with the exception of Evergreen
Variable Trust; and Sales Representative with Nucor-Yamoto, Inc. (steel
producer) since 1988.
THOMAS L. MCVERRY (58), 4419 Parkview Drive, Charlotte, NC. Trustee; Trustee or
Director of all other Evergreen Keystone funds with the exception of Evergreen
Variable Trust; former Vice President and Director of Rexham Corporation; and
former Director of Carolina Cooperative Federal Credit Union.
*WILLIAM WALT PETTIT (41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC. Trustee; Trustee or Director of all other Evergreen Keystone
funds with the exception of Evergreen Variable Trust; and Partner in the law
firm of Holcomb and Pettit, P.A.
DAVID M. RICHARDSON (55). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; Vice Chair and former Executive Vice President,
DHR Interna tional, 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 M.D. (49), 205 Regency Executive Park, Charlotte, NC.
Trustee; Trustee or Director of all other Evergreen Keystone funds; Medical
Director, U.S. Health Care/Aetna Health Services; and former Managed Health Care
Consultant; former President, Primary Physician Care.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street, Suite 980, Charlotte, NC.
Trustee; Trustee or Director of all other Evergreen Keystone funds; and
Attorney, Law Offices of Michael S. Scofield.
RICHARD J. SHIMA (57). Trustee of Tax Free Income; Trustee or Director or Member
of the
21369
17
<PAGE>
Board Advisers of all other Evergreen Keystone 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 (57). Trustee of Tax Free Income; Trustee or Director of 23
other Evergreen Keystone funds; Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; Adjunct Professor of Law and former Associate Dean,
St. John's Univer sity School of Law; Adjunct Professor of Law, Touro College
School of Law; and former President, Nassau County Bar Association.
ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, FL. Trustee
Emeritus of 11 Evergreen Keystone funds and Corporate Consultant since 1967.
JOHN J. PILEGGI (37) President and Treasurer of the Trusts; President and
Treasurer of all other Evergreen Keystone 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 (37) Secretary of the Trusts; Secretary of all other
Evergreen Keystone funds; Senior Vice President and Director of Administration
and Regulatory Services, BISYS Fund Services; Vice President/Assistant General
Counsel, Alliance Capital Management from 1988 to 1995; 3435 Stelzer Road,
Columbus, Ohio.
* This Trustee may be considered an "interested person" of the Funds within the
meaning of the 1940 Act.
For the fiscal year ended May 31, 1997, Trustees of the Funds received
$32,166, $159,659 and $9,830 in retainers and fees from Evergreen Municipal
Trust, Evergreen Investment Trust and Tax Free Income. For the year ending May
31, 1997, fees paid to Independent Trustees on a fund complex wide basis were
approximately $964,000.
The officers of the Trusts are all officers and/or employees of The
BISYS Group, Inc. ("BISYS"), except for Mr. Pileggi, who is a consultant to
BISYS. BISYS is an affiliate of Evergreen Keystone Distributor, Inc. ("EKD"),
the distributor of each Class of shares of each Fund.
No officer or Trustee of the Trusts owned more than 1.0% of Class A,
Class B or Class C or Class Y shares of any Fund as of August 31, 1997.
Set forth below for each of the Trustees receiving in excess of $60,000
for the fiscal period of June 1, 1996 through May 31, 1997 is the aggregate
compensation paid to such Trustee by the Evergreen Keystone funds:
21369
18
<PAGE>
Total Compensation
From Fund Complex
NAME PAID TO TRUSTEE
James S. Howell $76,875
Gerald M. McDonnell 65,550
Thomas L. McVerry 71,375
William Walt Pettit 69,375
Russell A Salton, III M.D. 71,325
Michael S. Scofield 71,325
Set forth below is information with respect to each person, who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of August 31, 1997.
<TABLE>
<CAPTION>
Name of No. of % of
Name and Address Fund/Class Shares Class
- ---------------- ---------- ------ ----------
<S> <C> <C>
First Union National Bank High Grade/Y 504,862 23.59%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0002
Foster & Foster High Grade/Y 405,595 16.95%
PO Box 1669
Greenwich, CT 06836-1669
FUBS & Co. FEBO Short-Intermediate/A 104,560 16.93%
Haywood D. Cochrane Ljr.
21 Castlewood Court
Nashville, TN 37215-4617
FUBS & Co. FEBO Short-Intermediate/A 93,702 12.37%
Stephen Nash and
Linda N. Nash
10006 Stonemill Road
Richmond, VA 23233-2800
FUBS & Co. FEBO Short-Intermediate/A 76,391 12.37%
Manuel Garcia and
Adeline Garcia
4933 New Providence
Tampa, FL 33269-4814
FUBS & Co. FEBO Short-Intermediate/A 39.115 6.33%
Anthony M. Truscello Sr and
Carolyn A. Truscello
878 Taylor Dr.
Folcroft, PA 19032-1523
21369
19
<PAGE>
FUBS & Co. FEBO Short-Intermediate/A 37,789 6.12%
First Union Nat'l Bank-PA FBO
Anthony Dambro Loan Acct.
Attn: Augusto Bonnani PA 1322
123 Broad St.
Philadelphia, PA 19109-1029
FUBS & Co. FEBO Short-Intermediate/B 50,343 7.97%
Carl R. Nodine and
Linda F. Nodine
PO Box 210086
Nashville, TN 37221-0086
FUBS & Co. FEBO Short-Intermediate/B 38,129 6.03%
Mark E. Smith
Melissa A. Smith Jt Ten
397 Yadkin Valley Road
Advance, NC 27006-8702
FUBS & Co FEBO Short-Intermediate/B 32,757 5.18%
Shirley L. Roberts
2770 S. Garden Dr.
210 Bldg. 21
Lake Worth, FL 33461-6280
First Union National Bank/EB/INT Short-Intermediate/Y 779,296 17.16%
Cash Accuont
Attn Trust Opoerations Fund Group
401 S. Tryon St., 3rd Fl, CMG 1151
Charlotte,NC 28202-1191
Merrill Lynch, Pierce, Tax Free Income/A 1,590,918 22.38%
Fenner, Smith
For Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Merrill Lynch, Pierce, Tax Free Income/B 553,766 19.80%
Fenner, Smith
For Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Alletta Laird Downs TTEE Tax Free Income/B 205,973 7.36%
Alletta Laird Downs Trust
U/A DTD 3-29-89
P.O. Box 3666
21369
20
<PAGE>
Wilmington, DE 19807-0666
Merrill Lynch, Pierce, Tax Free Income/C 459,477 45.17%
Fenner, Smith
For Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
</TABLE>
INVESTMENT ADVISERS
(See also "Management of the Funds" in each Fund's Prospectus)
The investment adviser of High Grade is the Capital Management Group
("CMG") of First Union National Bank ("FUNB" or the "Adviser"). The investment
adviser of Short-Intermediate is Evergreen Asset Management Corp., a New York
corporation, with offices at 2500 Westchester Avenue, Purchase, New York
("Evergreen Asset" or the "Adviser") and which Evergreen Asset is owned by FUNB
which, in turn, is a subsidiary of First Union Corporation ("First Union"), a
bank holding company headquartered in Charlotte, North Carolina. The sub-adviser
to Short-Intermediate is Lieber and Company ("Lieber"), located at 2500
Westchester Avenue, Purchase, New York, which provides certain services to
Evergreen Asset and is owned by First Union. The investment adviser of High
Grade is FUNB which provides investment advisory services through its Capital
Management Group. The Directors of Evergreen Asset are Richard K. Wagoner and
Barbara I. Colvin. The executive officers of Evergreen Asset are Stephen A.
Lieber, Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President
and Co-Chief Executive Officer and Theodore J. Israel, Jr., Executive Vice
President.
The investment adviser of Tax Free Income is Keystone Investment
Management Company ("Keystone" or the "Adviser"), a Delaware corporation,
located at 200 Berkeley Street, Boston, Massachusetts. Keystone is an indirectly
owned subsidiary of FUNB.
The Directors of Keystone are Donald McMullen; William M. Ennis, II;
Barbara I. Colvin; Albert H. Elfner, III, Chairman, CEO and President; Edward F.
Godfrey, Senior Vice President and Chief Operating Officer; and W. Douglas Munn,
Senior Vice President, Chief Financial Officer and Treasurer.
On September 6, 1996, First Union and FUNB entered into an Agreement
and Plan of Acquisition and Merger (the "Merger") with Keystone Investments,
Inc. ("Keystone Investments"), the corporate parent of Keystone, which provided,
among other things, for the merger of Keystone Investments with and into a
wholly-owned subsidiary of FUNB. The Merger was consummated on December 11,
1996. Keystone continues to provide investment advisory services to the Keystone
Family of Funds. Contemporaneously with the Merger, Tax Free Income entered into
a new investment advisory agreement with Keystone and into a principal
underwriting agreement with EKD.
Under its Investment Advisory Agreement with each Fund, each Adviser
has agreed to furnish reports, statistical and research services and
recommendations with respect to each Fund's portfolio of investments. In
addition, each Adviser provides office facilities to the Funds and performs a
variety of administrative services. Each Fund pays the cost of all of its other
expenses and liabilities, including expenses and liabilities incurred in
connection with maintaining their registration under the Securities Act of 1933,
as amended, and the 1940 Act, printing prospectuses (for existing shareholders)
as they are updated, state qualifications, share certificates, mailings,
brokerage, custodian and stock transfer charges, printing, legal and auditing
21369
21
<PAGE>
expenses, expenses of shareholder meetings and reports to shareholders.
Notwithstanding the foregoing, each Adviser will pay the costs of printing and
distributing prospectuses used for prospective shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
three most recent fiscal periods reflected in its registration statement are set
forth below. For Tax Free Income, total dollar amounts paid by the Fund to
Keystone Management, Inc., the Fund' former investment manager, for investment
management and administrative services rendered, are inclusive of the amounts
paid by Keystone Management to Keystone for investment advisory services:
HIGH GRADE Period Ended Year Ended Period Ended
05/31/97 8/31/96 8/31/95
Advisory Fee $399,929 $575,456 $338,767
Waiver (64,199) (228,548) (20,456)
--------- --------- ---------
Net Advisory Fee $335,730 $346,908 $318,311
========= ========= =========
SHORT-INTERMEDIATE Period Ended Year Ended Year Ended
5/31/97 8/31/96 8/31/95
Advisory Fee $248,564 $287,149 $263,947
Waiver (60,003) (109,619) (63,612)
--------- --------- --------
Net Advisory Fee $188,561 $177,530 $200,335
========= ======== ========
Expense
Reimbursement 0 ( 30,962) $(28,521)
--------- --------- --------
TAX FREE INCOME Period Ended Year Ended Year Ended
5/31/97 11/30/96 8/31/95
Advisory Fee 367,154 $844,486 $919,802
717,813 781,832
Waiver 0 0 0
-------- -------- --------
Net Advisory Fee $367,154 $844,486 $919,802
======== ======== ========
With respect to Short-Intermediate, Evergreen Asset has agreed to
reimburse the Fund to the extent that the Fund's aggregate operating expenses
(including the Adver's fee but excluding interest, taxes, brokerage commissions
and extraordinary expenses, and, for Class A and Class B shares Rule 12b-1
distribution fees and shareholder servicing fees payable) exceed 1% of its
average net assets for any fiscal year.
21369
22
<PAGE>
The Investment Advisory Agreements are terminable, without the payment
of any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of each
Trust's Trustees or by the respective Adviser. The Investment Advisory
Agreements will automatically terminate in the event of their assignment. Each
Investment Advisory Agreement provides in substance that the Adviser shall not
be liable for any action or failure to act in accordance with its duties
thereunder in the absence of willful misfeasance, bad faith or gross negligence
on the part of the Adviser or of reckless disregard of its obligations
thereunder. The Investment Advisory Agreements with respect to each Fund
continue in effect for two years from their effective dates and, thereafter,
from year to year provided that their continuance is approved annually by a vote
of a majority of the Trustees of each Trust including a majority of those
Trustees who are not parties thereto or "interested persons" (as defined in the
1940 Act) of any such party, cast in person at a meeting duly called for the
purpose of voting on such approval or a majority of the outstanding voting
shares of each Fund.
Certain other clients of each Adviser may have investment objectives and
policies similar to those of the Funds. Each Adviser (including the sub-adviser)
may, from time to time, make recommendations which result in the purchase or
sale of a particular security by its other clients simultaneously with a Fund.
If transactions on behalf of more than one client during the same period
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity. It is the
policy of each Adviser to allocate advisory recommendations and the placing of
orders in a manner which is deemed equitable by the Adviser to the accounts
involved, including the Funds. When two or more of the clients of the Adviser
(including one or more of the Funds) are purchasing or selling the same security
on a given day from the same broker-dealer, such transactions may be averaged as
to price.
Although the investment objectives of the Funds are not the same, and their
investment decisions are made independently of each other, they rely upon some
of the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to
permit purchase and sales transactions to be effected between each Fund and the
other registered investment companies for which Evergreen Asset, Keystone, FUNB
or its affiliates acts as investment adviser or between the Fund and any
advisory clients of Evergreen Asset, Keystone, FUNB or its affiliates. Each Fund
may from time to time engage in such transactions but only in accordance with
these procedures and if they are equitable to each participant and consistent
with each participant's investment objectives.
At present, Evergreen Keystone Investment Services ("EKIS") serves as
administrator to High Grade and Short-Intermediate subject to the supervision
and control of the Trustees of each Trust. As administrator, EKIS provides
facilities, equipment and personnel to the Funds and is entitled to receive a
fee based on the
21328
23
<PAGE>
average daily net assets of all mutual funds for which CMG, Keystone or Evergeen
Asset serve as investment adviser, calculated in accordance with the following
schedule:.050% on the first $7 billion; .035% on the next $3 billion; .030% on
the next $5 billion; .020% on the next $10 billion; .015% on the next $5
billion; and .010% on assets in excess of $30 billion.
BISYS Fund Services, an affiliate of EKD, serves as sub-administrator
to High Grad and Short-Intermediate and is entitled to receive a fee from EKIS
calculated on the average daily net assets of each Fund at a rate based on the
total assets of the mutual funds administered by EKIS for which FUNB, Evergreen
Asset, Keystone or affiliates of First Union also serve as investment adviser.
BISYS Fund Services also serves as sub-administrator to Tax Free Income and is
entitled to receive a fee from Keystone based on the total assets of the mutual
funds for which FUNB affiliates serve as investment adviser. Fees are calculated
in accordance with the following schedule: .0100% of the first $7 billion;
.0075% on the next $3 billion; .0050% on the next $15 billion; and .0040% on
assets in excess of $25 billion. The total assets of mutual funds for which
FUNB, Evergreen Asset, Keystone, or affiliates of First Union serve as
investment adviser as of June 30, 1997 were approximately $30.5 billion.
For the fiscal period ended May 31, 1997, the fiscal year ended August
31, 1996, and fiscal period ended August 31, 1995 High Grade paid to EKIS or its
predecessor, Evergreen Asset, $33,901, $59,073 and $50,406, respectively, in
administrative service costs.
For the fiscal period ended May 31, 1997, and the fiscal years ended
August 31, 1996 and 1995, respectively, Short-Intermediate paid no fees to EKIS
or its predecessor, Evergreen Asset, for administrative services.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A, Class B and, where applicable, Class C shares and
are charged as class expenses, as accrued. The distribution fees attributable to
the Class B shares are designed to permit an investor to purchase such shares
through broker-dealers without the assessment of a front-end sales charge, while
at the same time permitting the Distributor to compensate broker-dealers in
connection with the sale of such shares. In this regard the purpose and function
of the combined contingent deferred sales charge and distribution services fee
on the Class B shares are the same as those of the front-end sales charge and
distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and, where applicable, Class C
shares (each a "Plan" and collectively, the "Plans"), the Treasurer of each Fund
reports the amounts expended under the Plan and the purposes for which such
expenditures were made to the Trustees of each Trust for their review on a
quarterly basis. Also, each Plan provides that the selection and nomination of
Trustees who are not "interested persons" of each Trust (as defined in the 1940
Act) are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
The Plans permit the payment of fees to brokers and others for
distribution and
21328
24
<PAGE>
shareholder-related administrative services and to broker-dealers, depository
institutions, financial intermediaries and administrators for administrative
services as to Class A, Class B and Class C shares. The Plans are designed to
(i) stimulate brokers to provide distribution and administrative support
services to each Fund and holders of Class A, Class B and Class C shares and
(ii) stimulate administrators to render administrative support services to the
Fund and holders of Class A, Class B and Class C shares. The administrative
services are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to
providing office space, equipment, telephone facilities, and various personnel
including clerical, supervisory, and computer, as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Class A, Class B and
Class C shares; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Fund
reasonably requests for its Class A, Class B and Class C shares.
In addition to the Plans, High Grade has adopted a Shareholder Services
Plan whereby shareholder servicing agents may receive fees from the Fund for
providing services which include, but are not limited to, distributing
prospectuses and other information, providing shareholder assistance, and
communicating or facilitating purchases and redemptions of Class B shares of the
Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to EKD with respect to that Class or Classes, and (ii) the Fund would not
be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by EKD from distribution
services fees in respect of shares of such Class or Classes through deferred
sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of a Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. With respect to High Grade,
amendments to the Shareholder Services Plan require a majority vote of the
disinterested Trustees but do not require a shareholders vote. Any Plan,
Shareholder Services Plan or Distribution Agreement may be terminated (a) by a
Fund without penalty at any time by a majority vote of the holders of the
outstanding voting securities of the Fund, voting separately by Class or by a
majority vote of the Trustees who are not "interested persons" as defined in the
1940 Act, or (b) by EKD. To terminate any Distribution Agreement, any party must
give the other parties 60 days' written notice; to terminate a Plan only, the
Fund need give no notice to EKD. Any Distribution Agreement will terminate
automatically in the event of its assignment.
FEES PAID PURSUANT TO DISTRIBUTION PLANS. The Funds incurred the following
distribution services fees:
21328
25
<PAGE>
High Grade. For the fiscal period ended May 31, 1997 and the fiscal year ended
August 31, 1996, $92,644 and $97,996, respectively, on behalf of Class A shares;
and $240,510 and $167,706, respectively, on behalf of Class B shares.
Short-Intermediate. For the fiscal period ended May 31, 1997 and the fiscal year
ended August 31, 1996, $19,181 and $4,106, respectively, on behalf of Class A
shares; and $52,576 and $20,584, respectively, on behalf of Class B shares.
Tax Free Income. For the fiscal period ended May 31, 1997 and the fiscal year
ended November 30, 1996, $90,496 and $205,872, respectively, on behalf of Class
A shares; $154,261 and $333,417, respectively, on behalf of Class B shares and
$62,367 and $169,992 on behalf of Class C shares.
FEE PAID PURSUANT TO SHAREHOLDER SERVICES PLAN. High Grade incurred the
following shareholder services fees: For the fiscal period ended May 31, 1997
and the fiscal year ended August 31, 1996, $60,421 and $55,902, respectively, on
behalf of Class B shares.
Short-Intermediate. For the fiscal period ended May 31, 1997, the fiscal year
ended August 31, 1996 and the fiscal period ended August 31, 1995, $13,161,
$17,458 and $6,623, respectively, on behalf of Class B shares.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of the
Adviser, all of whom, in the case of Evergreen Asset, are associated with
Lieber. In general, the same individuals perform the same functions for the
other funds managed by the Adviser. A Fund will not effect any brokerage
transactions with any broker or dealer affiliated directly or indirectly with
the Adviser unless such transactions are fair and reasonable, under the
circumstances, to the Fund's shareholders. Circumstances that may indicate that
such transactions are fair or reasonable include the frequency of such
transactions, the selection process and the commissions payable in connection
with such transactions.
It is anticipated that most of the Funds purchase and sale transactions
will be with the issuer or an underwriter or with major dealers in such
securities acting as principals. Such transactions are normally on a net basis
and generally do not involve payment of brokerage commissions. However, the cost
of securities purchased from an underwriter usually includes a commission paid
by the issuer to the underwriter. Purchases or sales from dealers will normally
reflect the spread between bid and ask prices.
In selecting firms to effect securities transactions, the primary
consideration of each Fund shall be prompt execution at the most favorable
price. A Fund will also consider such factors as the price of the securities and
the size and difficulty of execution of the order. If these objectives may be
met with more than one firm, the Fund will also consider the availability of
statistical and investment data and economic facts and opinions helpful to the
Fund. To the extent that receipt of these services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The transactions in which the Funds engage do not involve the payment
of brokerage commissions and are executed with dealers other than Lieber.
21328
26
<PAGE>
ADDITIONAL TAX INFORMATION
(See also "Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a regulated investment company, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities or foreign currencies and other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities; (b) derive less than 30% of its gross income from the sale
or other disposition of securities, options, futures or forward contracts (other
than those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the RIC's principal
business of investing in securities (or options and futures with respect
thereto) held for less than three months (this provision is repealed starting in
1998); and (c) diversify its holdings so that, at the end of each quarter of its
taxable year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash, U.S. government securities and other securities limited in
respect of any one issuer, to an amount not greater than 5% of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. government securities and securities of other
regulated investment companies). By so qualifying, a Fund is not subject to
Federal income tax if it timely distributes its investment company taxable
income and any net realized capital gains. A 4% nondeductible excise tax will be
imposed on a Fund to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each Fund anticipates meeting
such distribution requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any).
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the dividends-received deduction.
Distributions of investment company taxable income and any net
short-term capital gains will be taxable as ordinary income as described above
to shareholders (who are not exempt from tax), whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in each share so
received equal to the net asset value of a share of a Fund on the reinvestment
date.
Distributions by each Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In
21328
27
<PAGE>
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive what is in effect a return of
capital upon the distribution which will nevertheless be taxable to shareholders
subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gains or losses
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Long-term capital gains on assets held
for more than 18 months are taxable as a maximum rate of 28%; such gains on
assets held for more than 18 months are taxable as a maximum rate of 20%.
Generally, any loss realized on a sale or exchange will be disallowed to the
extent shares disposed of are replaced within a period of sixty-one days
beginning thirty days before and ending thirty days after the shares are
disposed of. Any loss realized by a shareholder on the sale of shares of the
Fund held by the shareholder for six months or less will be disallowed to the
extent of any exempt interest dividends received by the shareholder with respect
to such shares, and will be treated for tax purposes as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her Federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% Federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to Federal, state and local tax consequences of investing in shares of
a Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
Special Tax Considerations
In order to qualify to pay exempt interest dividend for a year, a Fund
must have exempt bonds with a value equal to more than half of the Fund's total
asset value at the close of each quarter of the year. To the extent that the
Fund distributes exempt interest dividends to a shareholder, interest on
indebtedness incurred or continued by
21328
28
<PAGE>
such shareholder to purchase or carry shares of the Fund is not deductible.
Furthermore, entities or persons who are "substantial users" (or related
persons) of facilities financed by "private activity" bonds (some of which were
formerly referred to as "industrial development" bonds) should consult their tax
advisers before purchasing shares of the Fund. "Substantial user" is defined
generally as including a "non-exempt person" who regularly uses in its trade or
business a part of a facility financed from the proceeds of industrial
development bonds.
The percentage of the total dividends paid by a Fund with respect to
any taxable year that qualifies as exempt interest dividends will be the same
for all shareholders of the Fund receiving dividends with respect to such year.
If a shareholder receives an exempt interest dividend with respect to any share
and such share has been held for six months or less, any loss on the sale or
exchange of such share will be disallowed to the extent of the exempt interest
dividend amount.
NET ASSET VALUE
The following information supplements that set forth in each Fund's
Prospectus under the subheading "How to Buy Shares - How the Funds Value Their
Shares" in the Section entitled "Purchase and Redemption of Shares".
The public offering price of shares of a Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge
Alternative. " On each Fund business day on which a purchase or redemption order
is received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any weekday,
exclusive of national holidays on which the Exchange is closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic or
foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked price and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
Under certain circumstances, however, the per share net asset values of
the Class B and Class C shares may be lower than the per share net asset value
of the Class A shares (and, in turn, that of Class A shares may be lower than
Class Y shares) as a result of the greater daily expense accruals, relative to
Class A and Class Y shares, of Class B shares and Class C shares relating to
distribution services fees (and, with respect to High Grade, Shareholder Service
Plan fee) and the fact that Class Y shares bear no additional distribution or
shareholder service related fees. While it is expected that, in the event each
Class of shares of a Fund realizes net investment income or does not realize a
net operating loss for a period, the per share net asset values of the classes
will tend to converge immediately after the payment of dividends, which
dividends will differ by approximately the amount of the expense accrual
differential among the Classes, there is no assurance that this will be the
case. In
21328
29
<PAGE>
the event one or more Classes of a Fund experiences a net operating loss for any
fiscal period, the net asset value per share of such Class or Classes will
remain lower than that of Classes that incurred lower expenses for the period.
PURCHASE OF SHARES
The following information supplements that set forth in each Prospectus
under the heading "Purchase and Redemption of Shares - How To Buy Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), or with a contingent
deferred sales charge (the deferred sales charge alternative"), as described
below. Class Y shares which, as described below, are not offered to the general
public, are offered without any front-end or contingent sales charges. Shares of
each Fund are offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with EKD ("selected dealers"), (ii)
depository institutions and other financial intermediaries or their affiliates,
that have entered into selected agent agreements with EKD ("selected agents"),
or (iii) EKD. The minimum for initial investments is $1,000; there is no minimum
for subsequent investments. The subscriber may use the Application available
from EKD for his or her initial investment. Sales personnel of selected dealers
and agents distributing a Fund's shares may receive differing compensation for
selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
through selected dealers or agents or directly through EKD. A Fund reserves the
right to suspend the sale of its shares to the public in response to conditions
in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to the net asset value next
determined (plus for Class A shares, the applicable sales charges), as described
below. Orders received by EKD prior to the close of regular trading on the
Exchange on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the Exchange on that
day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to EKD prior to its close of business
that same day (normally 5:00 p.m. Eastern time). The selected dealer or agent is
responsible for transmitting such orders by 5:00 p.m. Eastern time. If the
selected dealer or agent fails to do so, the investor's right to that day's
closing price must be settled between the investor and the selected dealer or
agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of shares of a Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Application. Payment for shares
purchased by telephone can be made only by Electronic Funds Transfer from a bank
account maintained by the shareholder at a bank that is a member of the National
Automated Clearing House
21328
30
<PAGE>
Association ("ACH"). If a shareholder's telephone purchase request is received
before 4:00 p.m.Eastern time on a Fund business day, the order to purchase
shares is automatically placed the same Fund business day for non-money market
funds, and two days following the day the order is received for money market
funds, and the applicable public offering price will be the public offering
price determined as of the close of business on such business day. Full and
fractional shares are credited to a subscriber's account in the amount of his or
her subscription. As a convenience to the subscriber, and to avoid unnecessary
expense to a Fund, stock certificates representing shares of a Fund are not
issued for any class of shares of any Fund. This facilitates later redemption
and relieves the shareholder of the responsibility for and inconvenience of lost
or stolen certificates.
Alternative Purchase Arrangements
High Grade and Short-Intermediate issue three classes of shares: (i)
Class A shares, which are sold to investors choosing the front-end sales charge
alternative; (ii) Class B shares, which are sold to investors choosing the
deferred sales charge alternative; and (iii) Class Y shares, which are offered
only to (a) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (b) certain investment advisory clients
of the Advisers and their affiliates, and (c) institutional investors. Tax Free
Income offers Class A, Class B and Class C shares. The three classes of shares
each represent an interest in the same portfolio of investments of the Fund,
have the same rights and are identical in all respects, except that (I) only
Class A, Class B and Class C shares are subject to a Rule 12b-1 distribution
fee, (II) Class B shares of High Grade are subject to a Shareholder Service Plan
fee, (III) Class A shares bear the expense of the front-end sales charge and
Class B, Class C and, when applicable, Class A shares bear the expense of the
deferred sales charge, (IV) Class B and Class C shares bear the expense of a
higher Rule 12b-1 distribution services fee and Shareholder Service Plan fee
than Class A shares (V) with the exception of Class Y shares, each Class of each
Fund has exclusive voting rights with respect to provisions of the Rule 12b-1
Plan pursuant to which its distribution services (and, to the extent applicable,
Shareholder Service Plan) fee is paid which relates to a specific Class and
other matters for which separate Class voting is appropriate under applicable
law, provided that, if the Fund submits to a simultaneous vote of Class A, Class
B and, where applicable, Class C shareholders an amendment to the Rule 12b-1
Plan that would materially increase the amount to be paid thereunder with
respect to the Class A shares, the shareholders will vote separately by Class,
and (VI) only the Class B shares are subject to a conversion feature. Each Class
has different exchange privileges and certain different shareholder service
options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent applicable, Shareholder Service Plan) fee and contingent deferred sales
charges on Class B shares prior to conversion would be less than the front-end
sales charge and accumulated distribution services fee on Class A shares
purchased at the same time, and to what extent such differential would be offset
by the higher return of Class A shares. Class B shares will normally not be
suitable for the investor who qualifies to purchase Class A shares at the lowest
applicable sales charge. For this reason, EKD will reject any order (except
orders for Class B shares from certain retirement plans) for more than $250,000
for Class B shares.
21328
31
<PAGE>
Class A shares are subject to a lower distribution services fee and no
Shareholder Service Plan fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares. However, because front-end sales
charges are deducted at the time of purchase, investors purchasing Class A
shares would not have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced front-end sales
charges who expect to maintain their investment for an extended period of time
might consider purchasing Class A shares because the accumulated continuing
distribution (and, to the extent applicable, Shareholder Service Plan) charges
on Class B shares may exceed the front-end sales charge on Class A shares during
the life of the investment. Again, however, such investors must weigh this
consideration against the fact that, because of such front-end sales charges,
not all their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B or Class C shares in order to have all their
funds invested initially, although remaining subject to higher continuing
distribution services (and, to the extent applicable, Shareholder Service Plan
)fees and being subject to a contingent deferred sales charge for a seven-year
period. For example, based on current fees and expenses, an investor subject to
the 4.75% front-end sales charge imposed on Class A shares of the Funds would
have to hold his or her investment approximately seven years for the Class B and
Class C distribution services (and, to the extent applicable, Shareholder
Service Plan) fees to exceed the front-end sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an investor
intending to maintain his or her investment for a longer period might consider
purchasing Class A shares. This example does not take into account the time
value of money, which further reduces the impact of the Class B and Class C
distribution services (and, to the extent applicable, Shareholder Service Plan)
fees on the investment, fluctuations in net asset value or the effect of
different performance assumptions.
With respect to each Fund, the Trustees have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. On an ongoing basis, the Trustees, pursuant to their
fiduciary duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.
Front-end Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any sales charges.
The Fund receives the entire net asset value of its Class A shares sold to
investors. The Distributor's commission is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission "reallowed"
to selected dealers and agents. EKD will reallow discounts to selected dealers
and agents in the amounts indicated in the table in the Prospectus. In this
regard, EKD may elect to reallow the entire sales charge to selected dealers and
agents for all sales with respect to which orders are placed with EKD.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,000 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of
21328
32
<PAGE>
each Fund at the end of each Fund's latest fiscal year.
Net Per Share Offering
Asset Sales Price
Value Charge Date Per Share
High Grade $10.89 $.54 5/31/97 $11.43
Short-
Intermediate $10.09 $.34 5/31/97 $10.43
Tax Free Income $ 9.78 $.49 5/31/97 $10.27
With respect to High Grade, the following commissions were paid and
amounts retained by EKD or its predecessor for the period ending May 31, 1997,
the fiscal year ended August 31, 1996 and from July 7, 1995 through August 31,
1995:
Period From Fiscal Year Period From
9/1/96-5/31/97 Ended 8/31/96 7/7/95-8/31/95
Commissions Received $46,714 $73,014 $5,767
Commissions Retained $6,389 9,050 712
With respect to Short-Intermediate for the period ending May 31, 1997,
the fiscal year ended August 31, 1996 and the period from January 3, 1995
(commencement of offering of Class A shares) through August 31, 1995, and
commissions were paid to and amounts retained by EKD or its predecessor are
noted below:
Period From Fiscal Year Period From
9/1/96-5/31/97 Ended 8/31/96 1/5/95-8/31/95
Commissions Received $26,752 $33,816 $ 37,130
Commissions Retained 3,820 8,464 4,445
With respect to Tax Free Income for the period ending May 31, 1997 and
the fiscal years ended November 30, 1996 and 1995 commissions were paid to and
amounts retained by EKD or its predecessor are noted below:
Period From Fiscal Year Fiscal Year
12/1/96-5/31/97 Ended 11/30/96 Ended 11/30/95
Commissions Received $9,477 $469,269 $254,934
Commissions Retained 890 254,934 143,281
Investors choosing the front-end sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more Evergreen
Keystone fund other than money market funds into a single "purchase", if the
resulting "purchase" totals at least $100,000. The term "purchase" refers to:
(i) a single purchase by an individual, or to concurrent purchases, which in the
aggregate are at least equal to
21328
33
<PAGE>
the prescribed amounts, by an individual, his or her spouse and their children
under the age of 21 years purchasing shares for his, her or their own
account(s); (ii) a single purchase by a trustee or other fiduciary purchasing
shares for a single trust, estate or single fiduciary account although more than
one beneficiary is involved; or (iii) a single purchase for the employee benefit
plans of a single employer. The term "purchase" also includes purchases by any
"company", as the term is defined in the 1940 Act, but does not include
purchases by any such company which has not been in existence for at least six
months or which has no purpose other than the purchase of shares of a Fund or
shares of other registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit card holders of
a company, policy holders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected dealer or agent, of
any Evergreen Keystone fund.
Prospectuses for the Evergreen Keystone funds may be obtained without
charge by contacting EKD or the Advisers at the telephone number shown on the
front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the previous
day) of (a) all Class A and Class B shares of the Fund held by
the investor and (b) all such shares of any other Evergreen
mutual fund held by the investor; and
(iii) the net asset value of all shares described in paragraph (ii)
owned by another shareholder eligible to combine his or her
purchase with that of the investor into a single "purchase"
(see above).
For example, if an investor owned Class A, Class B or Class C shares of
an Evergreen Keystone fund worth $200,000 at their then current net asset value
and subsequently purchased Class A shares worth an additional $100,000, the
sales charge for the $100,000 purchase, in the case of Short-Intermediate, would
be at the 2.00% rate applicable to a single $300,000 purchase rather than the
2.50% rate, or in the case of High Grade, at the 2.50% rate applicable to a
single $300,000 purchase rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on a purchase through a selected dealer or agent,
the investor or selected dealer or agent must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Letter of Intent. Class A investors may also obtain the reduced sales
charges shown in the Prospectus by means of a written Letter of Intent, which
expresses the investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B and Class C shares)
of the Fund or any other Evergreen mutual fund. Each purchase of shares under a
Letter of Intent will be made at the public offering price or prices applicable
at the time of such purchase to a single transaction of the dollar amount
indicated in the Letter of Intent. At the
21328
34
<PAGE>
investor's option, a Letter of Intent may include purchases of Class A or B
shares of the Fund or any other Evergreen Keystone fund made not more than 90
days prior to the date that the investor signs a Letter of Intent; however, the
13-month period during which the Letter of Intent is in effect will begin on the
date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the Evergreen Keystone funds under a single Letter
of Intent. For example, if at the time an investor signs a Letter of Intent to
invest at least $100,000 in Class A shares of the Fund, the investor and the
investor's spouse each purchase shares of the Fund worth $20,000 (for a total of
$40,000), it will only be necessary to invest a total of $60,000 during the
following 13 months in shares of the Fund or any other Evergreen Keystone fund,
to qualify for the 3.75% sales charge applicable to purchases in High Grade and
Tax Free Income or 2.50% applicable to purchases in Short-Intermediate on the
total amount being invested (the sales charge applicable to an investment of
$100,000).
The Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the Letter
of Intent and qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of the 13-month
period. The difference in sales charge will be used to purchase additional
shares of the Fund subject to the rate of sales charge applicable to the actual
amount of the aggregate purchases.
Investors wishing to enter into a Letter of Intent in conjunction with
their initial investment in Class A shares of a Fund should complete the
appropriate portion of the Application while current Class A shareholders
desiring to do so can obtain a form of Letter of Intent by contacting a Fund at
the address or telephone number shown on the cover of this Statement of
Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified benefit and savings plans may make shares of the
Evergreen mutual funds available to their participants. Investments made by such
employee benefit plans may be exempt from any applicable front-end sales charges
if they meet the criteria set forth in the Prospectus under "Class A
Shares-Front End Sales Charge Alternative". The Advisers may provide
compensation to organizations providing administrative and record keeping
services to plans which make shares of the Evergreen Keystone mutual funds
available to their participants.
Reinstatement Privilege. A Class A shareholder who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction;
21328
35
<PAGE>
therefore, any gain or loss so realized will be recognized for Federal tax
purposes except that no loss will be recognized to the extent that the proceeds
are reinvested in shares of the Fund. The reinstatement privilege may be used by
the shareholder only once, irrespective of the number of shares redeemed or
repurchased, except that the privilege may be used without limit in connection
with transactions whose sole purpose is to transfer a shareholder's interest in
the Fund to his or her individual retirement account or other qualified
retirement plan account. Investors may exercise the reinstatement privilege by
written request sent to the Fund at the address shown on the cover of this
Statement of Additional Information.
Sales at Net Asset Value. In addition to the categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset
value, i.e., without any sales charge, to: (i) certain investment advisory
clients of the Advisers or their affiliates; (ii) officers and present or former
Trustees of the Trusts; present or former trustees of other investment companies
managed by the Advisers; officers, directors and present or retired full-time
employees of the Adviser, the Distributor, and their affiliates; officers,
directors and present and full-time employees of selected dealers or agents; or
the spouse, sibling, direct ancestor or direct descendant (collectively
"relatives") of any such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or relative; or the
estate of any such person or relative, if such shares are purchased for
investment purposes (such shares may not be resold except to the Fund); (iii)
certain employee benefit plans for employees of the Advisers, EKD, and their
affiliates; (iv) persons participating in a fee-based program, sponsored and
maintained by a registered broker-dealer and approved by EKD, pursuant to which
such persons pay an asset-based fee to such broker-dealer, or its affiliate or
agent, for service in the nature of investment advisory or administrative
services. These provisions are intended to provide additional job-related
incentives to persons who serve the Funds or work for companies associated with
the Funds and selected dealers and agents of the Funds. Since these persons are
in a position to have a basic understanding of the nature of an investment
company as well as a general familiarity with the Fund, sales to these persons,
as compared to sales in the normal channels of distribution, require
substantially less sales effort. Similarly, these provisions extend the
privilege of purchasing shares at net asset value to certain classes of
institutional investors who, because of their investment sophistication, can be
expected to require significantly less than normal sales effort on the part of
the Funds and the Distributor.
Deferred Sales Charge Alternative--Class B and Class C Shares
Investors choosing the deferred sales charge alternative purchase Class
B shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without a front-end
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within seven years after the month of purchase will be subject to a contingent
deferred sales charge at the rates set forth in the Prospectus charged as a
percentage of the dollar amount subject thereto. The charge will be assessed on
an amount equal to the lesser of the cost of the shares being redeemed or their
net asset value at the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase price. In
addition, no contingent deferred sales charge will be assessed on shares derived
from reinvestment of dividends or capital gains distributions. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B
21328
36
<PAGE>
shares until the time of redemption of such shares.
In determining the contingent deferred sales charge applicable to a
redemption, it will be assumed that the redemption is first of any Class A
shares in the shareholder's Fund account, second of Class B shares held for over
seven years or Class B shares acquired pursuant to reinvestment of dividends or
distributions and third of Class B shares held longest during the seven-year
period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a
contingent deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or (ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
Proceeds from the contingent deferred sales charge are paid to EKD or
its predecessor and are used by EKD to defray the expenses of EKD related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the contingent
deferred sales charge and the distribution services fee (and, with respect to
High Grade, the Shareholder Service Plan fee) enables the Fund to sell the Class
B shares without a sales charge being deducted at the time of purchase. The
higher distribution services fee (and, with respect to High Grade, the
Shareholder Service Plan fee) incurred by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares.
Conversion Feature. At the end of the period ending seven years after
the end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee and the applicable
shareholder service fee imposed on Class B shares. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the
21328
37
<PAGE>
sub-account) convert to Class A, an equal pro-rata portion of the Class B shares
in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee (and, with respect to High
Grade, Shareholder Service Plan fee) with respect to Class B shares does not
result in the dividends or distributions payable with respect to other Classes
of a Fund's shares being deemed "preferential dividends" under the Code, and
(ii) the conversion of Class B shares to Class A shares does not constitute a
taxable event under Federal income tax law. The conversion of Class B shares to
Class A shares may be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further conversions of Class
B shares would occur, and shares might continue to be subject to the higher
distribution services fee (and, with respect to High Grade, the Shareholder
Service Plan fee) for an indefinite period which may extend beyond the period
ending seven years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level-load sales charge alternative purchase
Class C shares at the public offering price equal to the net asset value per
share of the Class C shares on the date of purchase without the imposition of a
front-end sales charge. However, you will pay a 1.0% contingent deferred sales
charge if you redeem shares during the first year after the month of purchase.
No charge is imposed in connection with redemptions made more than one year
after the month of purchase. Class C shares are sold without a front-end sales
charge so that the Fund will receive the full amount of the investor's purchase
payment and after the first year without a contingent deferred sales charge so
that the investor will receive as proceeds upon redemption the entire net asset
value of his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C of shares without either a front-end or
contingent deferred sales charge. However, unlike Class B shares, Class C shares
do not convert to any other Class shares of the Fund. Class C shares incur
higher distribution services fees than Class A shares, and will thus have a
higher expense ratio and pay correspondingly lower dividends than Class A
shares.
Class Y Shares
Class Y shares are not offered to the general public and are available
only to (i) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "Other Information - General Information" in each Fund's Prospectus)
Capitalization and Organization
The Evergreen Short-Intermediate Municipal Fund is a separate series of
The Evergreen Municipal Trust, a Massachusetts business trust. Evergreen High
Grade Tax Free Fund is a separate series of Evergreen Investment Trust, a
Massachusetts business trust. Keystone Tax Free Income Fund is a Massachsuetts
business trust. The above-named Trusts are individually referred to in this
Statement of Additional Information as the
21328
38
<PAGE>
"Trust" and collectively as the "Trusts". Each Trust is governed by a board of
trustees. Unless otherwise stated, references to the "Board of Trustees" or
"Trustees" in this Statement of Additional Information refer to the Trustees of
all the Trusts.
Each Fund, other than Tax Free Income, may issue an unlimited number of
shares of beneficial interest with a $0.0001 par value. Tax Free Income may
issue an unlimited number of shares of beneficial interest with no par value.
All shares of these Funds have equal rights and privileges. Each share is
entitled to one vote, to participate equally in dividends and distributions
declared by the Funds and on liquidation to their proportionate share of the
assets remaining after satisfaction of outstanding liabilities. Shares of these
Funds are fully paid, nonassessable and fully transferable when issued and have
no pre-emptive, conversion or exchange rights. Fractional shares have
proportionally the same rights, including voting rights, as are provided for a
full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his or her earlier death,
incapacity, resignation or removal. Shareholders can remove a Trustee upon a
vote of two-thirds of the outstanding shares of beneficial interest of the
Trust. Vacancies will be filled by a majority of the remaining Trustees, subject
to the 1940 Act. As a result, normally no annual or regular meetings of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.
Shares have noncumulative 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 if they choose to do so and in such event the holders of
the remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more Trusts. Any issuance of shares of another series or class would be governed
by the 1940 Act and the law of the Commonwealth of Massachusetts. If shares of
another series of a Trust were issued in connection with the creation of
additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees, that affected all portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in that same investment portfolio. Except for
the different distribution related and other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act, will be available to shareholders of each Fund. The rights of the holders
of shares of a series of a Fund may not be modified except by the vote of a
majority of the outstanding shares of such series.
21328
39
<PAGE>
An order has been received from the SEC permitting the issuance and
sale of multiple classes of shares representing interests in each Fund. In the
event a Fund were to issue additional Classes of shares other than those
described herein, no further relief from the SEC would be required.
Distributor
Evergreen Keystone Distributor, Inc. ("EKD" or the "Distributor"), 125
W. 55th Street, New York, New York 10019, serves as each Fund's principal
underwriter, and as such may solicit orders from the public to purchase shares
of any Fund. The Distributor is not obligated to sell any specific amount of
shares and will purchase shares for resale only against orders for shares. Under
the Agreement between each Fund and the Distributor, each Fund has agreed to
indemnify the Distributor, in the absence of its willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations thereunder, against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended.
Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the
Funds.
Independent Auditors
Price Waterhouse LLP has been selected to be the independent auditors
of Short-Intermediate and High Grade.
KPMG Peat Marwick LLP has been selected to be the independent auditors
of Tax Free Income.
PERFORMANCE INFORMATION
Total Return
From time to time a Fund may advertise its "total return". Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the SEC, the
average annual compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charge applicable to purchases of
Fund shares is assumed to have been paid. The Fund will include performance data
for Class A, Class B, Class C and Class Y shares in any advertisement or
information including performance data of the Fund.
The average annual compounded total return for each Class of shares
offered by the Funds for the most recently completed one year, three year, five
year and ten year periods, where applicable, and the period since each Fund's
inception is set forth in the table below.
21328
40
<PAGE>
1 Year 3 Years 5 Years 10 Years
Ended Ended Ended Ended From Inception**
05/31/97 05/31/97 05/31/97 05/31/97 to 05/31/97
HIGH GRADE
Class A 1.90% 5.11% 5.75% N/A 6.00%
Class B 1.19% 5.16% N/A N/A 5.13%
Class Y 7.25% 7.10% N/A N/A 5.11%
SHORT-
INTERMEDIATE
Class A 0.92% N/A N/A N/A 3.40%
Class B 1.51% N/A N/A N/A 2.76%
Class Y 4.62% 3.95% 4.44% N/A 4.88%
TAX FREE INCOME
Class A 1.80% 4.39% 4.64% 6.23% N/A
Class B 1.03% 4.39% N/A N/A 3.84%
Class C 5.03% 5.26% N/A N/A 4.22%
** INCEPTION DATE
High Grade Class A February 21, 1992
Class B January 11, 1993
Class Y February 28, 1994
Short-Intermediate
Class A and B January 3, 1995
Class Y July 17, 1991
Tax Free Income Class A February 13, 1987
Class B February 1, 1993
Class C February 1, 1993
A Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is
useful in reviewing a Fund's performance but such information may not provide a
basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions.
YIELD CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the SEC yield formula) for
a given 30-day or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income) in order to arrive at an annual
percentage rate. The formula for calculating yield is as follows:
21328
41
<PAGE>
6
YIELD = 2[(a-b+1) -1]
cd
Where a = Interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The maximum offering price per share on the last day of
the period
Income is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds. Gains and losses
generally are excluded from the calculation. Income calculated for purposes of
determining a Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Tax Equivalent Yield
The Funds invest principally in obligations the interest from which is
exempt from Federal income tax other than the Alternative Minimum Tax. However,
from time to time the Funds may make investment which generate taxable income. A
Fund's tax-equivalent yield is the rate an investor would have to earn from a
fully taxable investment in order to equal the Fund's yield after taxes.
Tax-equivalent yields are calculated by dividing a Fund's yield by the result of
one minus a stated Federal or combined Federal and state tax rate. (If only a
portion of the Fund's yield is tax-exempt, only that portion is adjusted in the
calculation.) Of course, no assurance can be given that a Fund will achieve any
specific tax-exempt yield. If only a portion of the Fund's yield is tax-exempt,
only that portion is adjusted in the calculation. Of course, no assurance can be
given that the Fund will achieve any specific tax-exempt yield.
The following formula is used to calculate Tax Equivalent Yield without
taking into account state tax:
FUND'S YIELD
1 - Fed Tax Rate
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares
21328
42
<PAGE>
will likely be invested in instruments producing lower yields than the balance
of the Fund's investments, thereby reducing the current yield of the Fund. In
periods of rising interest rates, the opposite can be expected to occur.
The tax exempt yields (calculated using a 31% federal tax rate) of each
Fund for the thirty-day period ended May 31, 1997 for each Class of shares
offered by the Funds is set forth in the table below:
Yield Tax Equivalent Yield
High Grade
Class A 4.19% 6.07%
Class B 3.63% 5.26%
Class Y 4.66% 6.75%
Short-Intermediate
Class A 3.74% 5.42%
Class B 2.94% 4.26%
Class Y 3.93% 5.70%
Tax Free Income
Class A 4.58% 6.64%
Class B 4.05% 5.87%
Class C 4.05% 5.87%
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
GENERAL
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Lehman
Brothers General Obligations Municipal Bond Index or any other commonly quoted
index of common stock or municipal bond prices. The Standard & Poor's 500
Composite Stock Price Index and the Dow Jones Industrial Average are unmanaged
indices of selected common stock prices. The Lehman Brothers General Obligations
Municipal Bond Index is an unmanaged index of state general obligation debt
issues which are rated A or better and represent a variety of coupon ranges. A
Fund's performance may also be compared to those of other mutual funds having
similar objectives. This comparative performance would be expressed as a ranking
prepared by Lipper Analytical Services, Inc. or similar independent services
monitoring mutual fund performance. A Fund's performance will be calculated by
assuming, to the extent applicable, reinvestment of all capital gains
distributions and income dividends aid. Any such comparisons may be useful to
investors who wish to compare a Fund's past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's broker
or to each Adviser at the address or telephone number shown on the front cover
of this Statement of Additional Information. This Statement of Additional
Information does not contain
21328
43
<PAGE>
all the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the offices of the SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements of Tax Free Income, appearing in its most
current fiscal year Annual Report to Shareholders and the report thereon of KPMG
Peat Marwick LLP, independent auditors, appearing therein are incorporated by
reference into this Statement of Additional Information. The financial
statements of High Grade and Short-Intermediate, appearing in their most current
Annual Report to Shareholders and the report thereon of Price Waterhouse LLP,
independent auditors, appearing therein are incorporated by reference into this
Statement of Additional Information. The Annual Report to Shareholders for the
Funds, which contain the referenced statements, are available upon request and
without charge.
21328
44
<PAGE>
APPENDIX "A"
DESCRIPTION OF BOND, MUNICIPAL NOTE AND COMMERCIAL PAPER RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's corporate or
municipal bond rating is a current assessment of the credit worthiness of an
obligor with respect to a specific obligation. This assessment of credit
worthiness may take into consideration obligers such as guarantors, insurers or
lessees. The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform any audit in connection
with the ratings and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. 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.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay interest and
repay any principal.
AA - Debt rated AA also qualifies as high quality debt obligations.
Capacity to pay interest and repay principal is very strong and in the majority
of instances they differ from AAA issues only in small degree.
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.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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 is higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
21328
A-1
<PAGE>
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 outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods; it will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate and municipal issues. The ratings
measure the credit worthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA,
21328
A-2
<PAGE>
AA, A, BBB, commonly known as "Investment Grade" ratings) are generally regarded
as eligible for bank investment. In addition, the Legal Investment Laws of
various states may impose certain rating or other standards for obligations
eligible for investment by savings banks, trust companies, insurance companies
and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follows:
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.
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 fluctuations 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.
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.
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. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. NOTE:
Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
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 good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
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.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - bonds which are rated C are the lowest rated class of bonds and
issue so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
21328
A-3
<PAGE>
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk
factors; AA -- high credit quality, with strong protection factors and modest
risk, which may vary very slightly form time to time because of economic
conditions; A--average credit quality with adequate protection factors, but with
greater and more variable risk factors in periods of economic stress. The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.
Fitch Investors Service, Inc.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those rating
categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
o Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.) Note
rating symbols are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and
municipal short-term obligations will be designated Moody's Investment Grade
(MIG). This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
are uppermost in importance in short-term borrowing, while various factors of
major importance in bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
o MIG 2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security
elements are
21328
A-4
<PAGE>
accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is specific
risk.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries
the smallest degree of investment risk. The modifiers 1, 2, and 3 are used to
denote relative strength within this highest classification.
Standard & Poor's Ratings Group: "A" is the highest commercial paper
rating category utilized by Standard & Poor's Ratings Group which uses the
numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
Duff & Phelps, Inc.: Duff 1 is the highest commercial paper rating
category utilized by Duff & Phelps which uses + or - to denote relative strength
within this classification. Duff 2 represents good certainty of timely payment,
with minimal risk factors. Duff 3 represents satisfactory protection factors,
with risk factors larger and subject to more variation.
Fitch Investors Service, Inc.: F-1+ -- denotes exceptionally strong
credit quality given to issues regarded as having strongest degree of assurance
for timely payment; F-1+ -- very strong credit quality, with only slightly less
degree of assurance for timely payment than F-1 -- very strong, with only
slightly less degree of assurance for timely payment than F-1+; F-2 -- good
credit quality, carrying a satisfactory degree of assurance for timely payment.
21328
A-5
<PAGE>
EVERGREEN SHORT-INTERMEDIATE TERM BOND FUND
PART A
PROSPECTUS
<PAGE>
PROSPECTUS September 3, 1997
EVERGREEN(SM) KEYSTONE SHORT AND (Logo of
INTERMEDIATE TERM BOND FUNDS Pine Tree)
EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Keystone Short and Intermediate Term Bond Funds (the
"Funds") are designed to provide investors with a selection of investment
alternatives which seek to provide a high level of current income. This
Prospectus provides information regarding the Class A, Class B and Class C
shares offered by the Funds. Each Fund is, or is a series of, an open-end,
diversified, management investment company. This Prospectus sets forth concise
information about the Funds that a prospective investor should know before
investing. The address of the Funds is 200 Berkeley Street, Boston,
Massachusetts 02116.
A Statement of Additional Information for the Funds dated
September 3, 1997, as supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated by reference herein. The
Statement of Additional Information provides information regarding certain
matters discussed in this Prospectus and other matters which may be of interest
to investors, and may be obtained without charge by calling the Funds at
(800) 343-2898. There can be no assurance that the investment objective of any
Fund will be achieved. Investors are advised to read this Prospectus carefully.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY, AND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 14
Investment Practices and Restrictions 17
MANAGEMENT OF THE FUNDS
Investment Advisers 22
Portfolio Managers 23
Administrator 23
Sub-Administrator 24
Distribution Plans 24
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 25
How to Redeem Shares 28
Exchange Privilege 29
Shareholder Services 30
Effect of Banking Laws 31
OTHER INFORMATION
Dividends, Distributions and Taxes 31
General Information 32
OVERVIEW OF THE FUNDS
The following is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The Capital Management Group ("CMG") of First Union National Bank
("FUNB") serves as investment adviser to EVERGREEN SHORT-INTERMEDIATE BOND FUND,
EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND. FUNB is a subsidiary of First Union Corporation ("First
Union"), the sixth largest bank holding company in the United States.
Keystone Investment Management Company ("Keystone") is investment adviser
to KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE TERM
BOND FUND. Keystone is a subsidiary of FUNB.
EVERGREEN SHORT-INTERMEDIATE BOND FUND seeks to provide a high level of
current income by investing in a broad range of investment grade debt
securities, with capital growth as a secondary objective.
EVERGREEN INTERMEDIATE-TERM BOND FUND seeks to maximize current yield
consistent with the preservation of capital.
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND seeks to preserve
principal value and maintain a high degree of liquidity while providing current
income.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND seeks a high level of
current income consistent with low volatility of principal.
KEYSTONE INTERMEDIATE TERM BOND FUND seeks current income by investing
primarily in investment quality debt securities.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in each Class A, Class B and Class C Shares of a
Fund. For further information see "Purchase and Redemption of Shares" and
"General Information -- Other Classes of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as 3.25% None None
a % of offering price)
Maximum Contingent Deferred Sales Charge (as a None(1) 5.00%(2) 1.00%
% of original purchase price or redemption
proceeds, whichever is lower)
</TABLE>
The tables and examples below are designed to help you understand the
various costs and expenses that you will bear, directly or indirectly, when you
invest in the fund. Shareholder transaction expenses are fees paid directly from
your account when you buy or sell shares of the fund. Annual Fund Operating
Expenses are paid out of the fund's assets and include management, distribution
and other fees. The tables below show the fund's estimated annual Fund operating
expenses as a percentage of the fund's net assets for the fiscal period ended
June 30, 1997. The fund's example shows what you would pay if you invested
$1,000 over periods indicated. The examples assume that you reinvest all of your
dividends and that the fund's average annual return was 5.00%. THE EXAMPLES ARE
FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR ANNUAL RETURN. THE FUND'S ACTUAL EXPENSES AND RETURNS
WILL VARY. For a more complete description of the various costs and expenses
borne by the fund see "Management of the Funds."
EVERGREEN SHORT-INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .50% .50% .50% After 1 Year $ 40 $ 66 $ 26 $ 16 $ 16
12b-1 Fees3 .10% 1.00% 1.00% After 3 Years $ 55 $ 81 $ 51 $ 51 $ 51
Other Expenses .12% .12% .12% After 5 Years $ 71 $108 $ 88 $ 88 $ 88
Total .72% 1.62% 1.62% After 10 Years $119 $156 $192 $156 $192
</TABLE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 41 $ 68 $ 28 $ 18 $ 18
12b-1 Fees3 .05% 1.00% 1.00% After 3 Years $ 59 $ 87 $ 57 $ 57 $ 57
Other Expenses .20% .21% .20% After 5 Years $ 78 $118 $ 97 $ 98 $ 97
Total .85% 1.81% 1.80% After 10 Years $134 $175 $212 $175 $212
</TABLE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 41 $ 68 $ 28 $ 18 $ 18
12b-1 Fees3 .05% 1.00% 1.00% After 3 Years $ 59 $ 87 $ 57 $ 57 $ 57
Other Expenses .21% .21% .21% After 5 Years $ 79 $118 $ 98 $ 98 $ 98
Total .86% 1.81% 1.81% After 10 Years $135 $175 $213 $175 $213
</TABLE>
3
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .48% .48% .48% After 1 Year $ 42 $ 67 $ 27 $ 17 $ 17
12b-1 Fees3 .25% 1.00% 1.00% After 3 Years $ 61 $ 83 $ 53 $ 53 $ 53
Other Expenses .19% .19% .19% After 5 Years $ 82 $111 $ 91 $ 91 $ 91
Total 0.92% 1.67% 1.67% After 10 Years $142 $168 $198 $168 $198
</TABLE>
KEYSTONE INTERMEDIATE TERM BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .64% .64% .64% After 1 Year $ 44 $ 69 $ 29 $ 19 $ 19
12b-1 Fees3 .23% 1.00% 1.00% After 3 Years $ 67 $ 89 $ 59 $ 59 $ 59
Other Expenses .25% .23% .23% After 5 Years $ 92 $121 $101 $101 $101
Total 1.12% 1.87% 1.87% After 10 Years $164 $190 $219 $190 $219
</TABLE>
(1) Investments or $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5.00% to 1.00% of
amounts redeemed within six years after the month of purchase. No sales
charge is imposed on redemption made thereafter. See "Shareholder
Information" for more information.
(3) Long-term shareholders may pay more than the economic equivalent front-end
sales charges permitted by the National Association of Securities Dealers,
Inc. See "Shareholder Information" for more information. Class A Shares can
pay up to 0.75% of average assets as a 12b-1 fee for EVERGREEN
SHORT-INTERMEDIATE BOND FUND, KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
and KEYSTONE INTERMEDIATE TERM BOND FUND and 0.50% of average assets for
EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND. For the foreseeable future, the Class A shares
12b-1 fees will be limited to 0.10% of average net assets for EVERGREEN
SHORT-INTERMEDIATE BOND FUND and 0.25% of average net assets for EVERGREEN
INTERMEDIATE-TERM BOND FUND, EVERGREEN INTERMEDIATE-TERM GOVERNMENT FUND,
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE TERM
BOND FUND. For the fiscal periods ended June 30, 1997, Class A 12b-1 fees
were limited to 0.05% of average net assets for EVERGREEN INTERMEDIATE-TERM
BOND FUND, EVERGREEN INTERMEDIATE-TERM GOVERNMENT FUND and 0.10% for
EVERGREEN SHORT-INTERMEDIATE BOND FUND.
*The annual operating expenses and examples reflect fee waivers and expense
reimbursements. Actual expenses for Class A, Class B and Class C for the most
recent fiscal period ended were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
EVERGREEN SHORT-INTERMEDIATE BOND FUND Not Applicable
EVERGREEN INTERMEDIATE-TERM BOND FUND 1.04% 1.81% 1.80%
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND .94% 1.89% 1.90%
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND 1.47% 2.23% 2.23%
KEYSTONE INTERMEDIATE TERM BOND FUND 1.58% 2.35% 2.35%
</TABLE>
From time to time, each Fund's investment adviser may, at its discretion,
reduce or waive its fees or reimburse the Funds for certain of their expenses in
order to reduce their expense ratios. Each Fund's investment adviser may cease
these waivers and reimbursements at any time.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for EVERGREEN SHORT-INTERMEDIATE BOND FUND, KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE TERM BOND FUND
has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors. For
EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND, the information in the tables for the fiscal year ended June
30, 1997 and the ten month period ended June 30,1996, has been audited by KPMG
Peat Marwick LLP. Information for the fiscal periods prior to June 30, 1996 has
been audited by other auditors. A report of KPMG Peat Marwick LLP on the audited
information with respect to each Fund is incorporated by reference into the
Fund's Statement of Additional Information. The following information for each
Fund should be read in conjunction with the financial statements and related
notes which are incorporated by reference into the Fund's Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN SHORT-INTERMEDIATE BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
NINE
SIX MONTHS MONTHS YEAR
ENDED YEAR ENDED ENDED ENDED
YEAR ENDED JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1996 1995(C) 1994 1993 1992 1991 1990(D) 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING
OF PERIOD.............. $9.82 $10.02 $9.52 $10.42 $10.41 $10.54 $9.99 $9.72 $9.50
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... 0.63 0.63 0.32 0.65 0.65 0.71 0.73 0.55 0.79
Net realized and
unrealized gain (loss)
on investments......... 0.02 (0.19) 0.50 (0.91) 0.19 (0.06) 0.60 0.24 0.20
Total from investment
operations............. 0.65 0.44 0.82 (0.26) 0.84 0.65 1.33 0.79 0.99
LESS DISTRIBUTIONS FROM:
Net investment income.... (0.64) (0.64) (0.32) (0.64) (0.65) (0.67) (0.70) (0.52) (0.77)
Net realized gains....... 0 0 0 0 (0.18) (0.11) (0.07) 0 0
In excess of net
investment income...... 0 0 0 0 0 0 (0.01) 0 0
Total distributions...... (0.64) (.64) (.32) (.64) (.83) (.78) (.78) (.52) (.77)
NET ASSET VALUE END OF
PERIOD................. $9.83 $9.82 $10.02 $9.52 $10.42 $10.41 $10.54 $9.99 $9.72
Total return(b).......... 6.77% 4.45% 8.77% (2.57%) 8.29% 6.39% 13.74% 8.31% 10.51%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET
ASSETS:
Total expenses......... 0.72% 0.79% 0.77%(a) 0.75% 0.93% 0.90% 0.80% 1.01%(a) 1.00%
Total expenses
excluding indirectly
paid expenses 0.72% -- -- -- -- -- -- -- --
Total expenses
excluding waivers and
reimbursements -- -- -- -- -- -- 0.89% 1.82%(a) 1.50%
Net investment
income............... 6.37% 6.35% 6.58%(a) 6.46% 6.15% 6.79% 7.30% 7.53%(a) 7.57%
Portfolio turnover
rate................... 45% 76% 34% 48% 73% 66% 53% 27% 32%
Net assets end of period
(thousands)............ $17,703 $18,630 $18,898 $19,127 $22,865 $21,488 $17,680 $11,765 $6,496
<CAPTION>
JANUARY 28,
1989
(COMMENCE-
MENT OF
CLASS
OPERATIONS)
THROUGH
MARCH 31,
1989
<S> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING
OF PERIOD.............. $9.70
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... 0.10
Net realized and
unrealized gain (loss)
on investments......... (0.14)
Total from investment
operations............. (0.04)
LESS DISTRIBUTIONS FROM:
Net investment income.... (0.16)
Net realized gains....... 0
In excess of net
investment income...... 0
Total distributions...... (.16)
NET ASSET VALUE END OF
PERIOD................. $9.50
Total return(b).......... (0.31%)
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET
ASSETS:
Total expenses......... 1.78%(a)
Total expenses
excluding indirectly
paid expenses --
Total expenses
excluding waivers and
reimbursements --
Net investment
income............... 6.10%(a)
Portfolio turnover
rate................... 18%
Net assets end of period
(thousands)............ $11,580
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
(d) The Fund changed its fiscal year end from March 31 to December 31.
5
<PAGE>
EVERGREEN SHORT-INTERMEDIATE BOND FUND -- CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
JANUARY 25,
1993
(COMMENCE-
MENT OF
CLASS
SIX MONTHS OPERATIONS) SIX MONTHS
YEAR ENDED ENDED YEAR ENDED THROUGH YEAR ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1996 1995(C) 1994 1993 1997 1996 1995(C)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD....................... $ 9.84 $10.04 $9.54 $10.44 $10.57 $9.84 $10.05 $9.55
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.54 0.55 0.28 0.58 0.58 0.54 0.55 0.26
Net realized and unrealized
gain (loss) on investments... 0.01 (0.19) 0.50 (0.92) 0.05 0.01 (0.20) 0.50
Total from investment
operations................... 0.55 0.36 0.78 (0.34) 0.63 0.55 0.35 0.76
LESS DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income.......... (0.54) (0.56) (0.28) (0.56) (0.58) (0.54) (0.56) (0.26)
Net realized gains on
investments.................. 0 0 0 0 (0.18) 0 -- --
Total distributions............ (0.54) (0.56) (0.28) (0.56) (0.76) (0.54) (0.56) (0.26)
NET ASSET VALUE END OF
PERIOD....................... $9.85 $9.84 $10.04 $9.54 $10.44 $9.85 $9.84 $10.05
Total return (b)............... 5.78% 3.62% 8.31% (3.33%) 6.08% 5.77% 3.51% 8.23%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Total expenses............... 1.62% 1.69% 1.67%(a) 1.50% 1.57%(a) 1.62% 1.69% 1.67%(a)
Total expenses excluding
indirectly paid expenses... 1.62% -- -- -- -- 1.62% -- --
Net investment income........ 5.48% 5.45% 5.68%(a) 5.75% 5.42%(a) 5.47% 5.46% 5.69%(a)
Portfolio turnover rate........ 45% 76% 34% 48% 73% 45% 76% 34%
NET ASSETS END OF PERIOD
(THOUSANDS).................. $22,237 $21,006 $17,366 $17,625 $8,876 $1,029 $1,155 $527
<CAPTION>
SEPTEMBER 6,
1994
(COMMENCE-
MENT OF
CLASS
OPERATIONS)
THROUGH
DECEMBER 31,
1994
<S> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD....................... $9.85
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.18
Net realized and unrealized
gain (loss) on investments... (0.30)
Total from investment
operations................... (0.12)
LESS DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income.......... (0.18)
Net realized gains on
investments.................. --
Total distributions............ (0.18)
NET ASSET VALUE END OF
PERIOD....................... $9.55
Total return (b)............... (1.27%)
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Total expenses............... 1.65%(a)
Total expenses excluding
indirectly paid expenses... --
Net investment income........ 5.87%(a)
Portfolio turnover rate........ 48%
NET ASSETS END OF PERIOD
(THOUSANDS).................. $512
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
6
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
CLASS A SHARES
MAY 2, CLASS B SHARES CLASS C SHARES
1995 JANUARY 30, APRIL 29,
(COMMENCE- 1996 1996
MENT OF (COMMENCE- (COMMENCE-
TEN CLASS MENT OF CLASS MENT OF CLASS
YEAR MONTHS OPERATIONS) YEAR OPERATIONS) YEAR OPERATIONS)
ENDED ENDED THROUGH ENDED THROUGH ENDED THROUGH
JUNE 30, JUNE 30, AUGUST 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996(C) 1995 1997 1996(C) 1997 1996(C)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD........ $10.10 $10.30 $9.98 $10.10 $10.68 $10.10 $10.15
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.60 0.48 0.18 0.50 0.20 0.51 0.08
Net realized and unrealized gain (loss) on
investments.............................. 0.08 (0.20) 0.33 0.08 (0.58) 0.07 (0.05)
Total from investment operations........... 0.68 0.28 0.51 0.58 (0.38) 0.58 0.03
LESS DISTRIBUTIONS FROM:
Net investment income...................... (0.59) (0.48) (0.19) (0.49) (0.20) (0.49) (0.08)
Net realized gains on investments.......... 0 0 0 0 0 0 0
Tax basis return of capital................ (0.02) 0 0 (0.02) 0 (0.02) 0
Total distributions........................ (0.61) (0.48) (0.19) (0.51) (0.20) (0.51) (0.08)
NET ASSET VALUE END OF PERIOD.............. $10.17 $10.10 $10.30 $10.17 $10.10 $10.17 $10.10
Total return (b)........................... 6.88% 2.72% 5.17% 5.91% (3.52%) 5.91% 0.33%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Total expenses........................... 0.85% 0.82%(a) 0.80%(a) 1.81% 1.80%(a) 1.80% 1.80%(a)
Total expenses excluding indirectly paid
expenses............................... 0.85% -- -- 1.81% -- 1.80% --
Total expenses excluding waivers and
reimbursements......................... 1.04% 1.10%(a) 1.38%(a) 1.81% 1.89%(a) 1.80% 1.88%(a)
Net investment income.................... 5.92% 6.30%(a) 5.53%(a) 5.00% 5.18%(a) 4.97% 5.30%(a)
Portfolio turnover rate.................... 86% 52% 73% 86% 52% 86% 52%
NET ASSETS END OF PERIOD (THOUSANDS)....... $3,038 $2,943 $160 $1,013 $402 $29 $25
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from August 31 to June 30.
7
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
MAY 2, 1995 FEBRUARY 9, APRIL 10
(COMMENCE- 1996 1996
MENT OF (COMMENCE- (COMMENCE-
CLASS MENT OF CLASS MENT OF CLASS
YEAR TEN MONTHS OPERATIONS) YEAR OPERATIONS) YEAR OPERATIONS)
ENDED ENDED THROUGH ENDED THROUGH ENDED THROUGH
JUNE 30, JUNE 30, AUGUST 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996(C) 1995 1997 1996(C) 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD.... $9.99 $10.15 $9.95 $9.99 $10.38 $9.99 $10.01
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.55 0.46 0.19 0.45 0.18 0.40 0.11
Net realized and unrealized gain (loss)
on investments....................... 0.03 (0.16) 0.20 0.04 (0.39) 0.09 (0.02)
Total from investment operations....... 0.58 0.30 0.39 0.49 (0.21) 0.49 0.09
LESS DISTRIBUTIONS FROM:
Net investment income.................. (0.55) (0.46) (0.19) (0.46) (0.18) (0.46) (0.11)
Total distributions.................... (0.55) (0.46) (0.19) (0.46) (0.18) (0.46) (0.11)
NET ASSET VALUE END OF PERIOD.......... $10.02 $9.99 $10.15 $10.02 $9.99 $10.02 $9.99
Total return (b)....................... 6.00% 3.00% 3.90% 5.03% (1.99%) 5.03% 0.89%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................... 0.86% 0.81%(a) 0.80%(a) 1.81% 1.80%(a) 1.81% 1.80%(a)
Total expenses excluding indirectly
paid expenses...................... 0.86% -- -- 1.81% -- 1.81% --
Total expenses excluding waivers and
reimbursements..................... 0.94% 1.06%(a) 1.34%(a) 1.89% 1.91%(a) 1.90% 1.91%(a)
Net investment income................ 5.47% 5.49%(a) 5.42%(a) 4.53% 4.62%(a) 4.53% 4.47%(a)
Portfolio turnover rate................ 68% 28% 45% 68% 28% 68% 28%
NET ASSETS END OF PERIOD (THOUSANDS)... $571 $497 $9 $742 $359 $12 $32
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from August 31 to June 30.
8
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
DECEMBER 30, 1994
(COMMENCEMENT OF
NINE MONTHS YEAR ENDED CLASS OPERATIONS)
ENDED SEPTEMBER 30, THROUGH
JUNE 30, 1997 (D) 1996 (C) SEPTEMBER 30, 1995
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.74 $ 9.68 $ 9.51
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.46 0.61 0.46
Net realized and unrealized gain on investments..................... 0.03 0.01 0.14
Total from investment operations.................................... 0.49 0.62 0.60
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.42) (0.53) (0.42)
In excess of net investment income.................................. (0.01) 0 (0.01)
Tax basis return of capital......................................... 0 (0.03) 0
Total distributions................................................. (0.43) (0.56) (0.43)
NET ASSET VALUE END OF PERIOD....................................... $ 9.80 $ 9.74 $ 9.68
Total return (b).................................................... 5.12% 6.56% 6.36%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 0.92%(a) 0.91% 0.86%(a)
Total expenses excluding indirectly paid expenses................. 0.90%(a) 0.90% 0.82%(a)
Total expenses excluding waivers and reimbursements............... 1.47%(a) 1.33% 1.27%(a)
Net investment income............................................. 6.24%(a) 6.31% 6.37%(a)
Portfolio turnover rate............................................. 52% 74% 67%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $15,751 $22,684 $ 19,293
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
9
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
JULY 1, 1991
(COMMENCEMENT OF
NINE MONTHS CLASS OPERATIONS)
ENDED YEAR ENDED SEPTEMBER 30, THROUGH
JUNE 30, 1997 (D) 1996 (C) 1995 1994 1993 1992 SEPTEMBER 30, 1991
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD....................... $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.39 0.55 0.52 0.47 0.45 0.58 0.18
Net realized and unrealized
gain (loss) on investments... 0.04 0.01 0.03 (0.41) (0.05) (0.21) 0.06
Total from investment
operations................... 0.43 0.56 0.55 0.06 0.40 0.37 0.24
LESS DISTRIBUTIONS FROM:
Net investment income.......... (0.36) (0.46) (0.48) (0.34) (0.37) (0.55) (0.18)
In excess of net investment
income....................... (0.01) 0 (0.01) (0.01) 0 0 0
Tax basis return of capital.... 0 (0.03) 0 0 0 0 0
Total distributions............ (0.37) (0.49) (0.49) (0.35) (0.37) (0.55) (0.18)
NET ASSET VALUE END OF
PERIOD....................... $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06
Total return (b)............... 4.53% 5.90% 5.81% 0.58% 4.16% 3.71% 2.43%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............... 1.67%(a) 1.63% 1.53% 1.50% 1.50% 1.36% 1.19%(a)
Total expenses excluding
indirectly paid expenses... 1.65%(a) 1.62% 1.50% -- -- -- --
Total expenses excluding
waivers and
reimbursements............. 2.23%(a) 2.09% 2.09% 1.93% 1.94% 2.03% 3.19%(a)
Net investment income........ 5.52%(a) 5.63% 5.46% 4.05% 4.44% 5.50% 6.42%(a)
Portfolio turnover rate........ 52% 74% 67% 34% 60% 41% 2%
NET ASSETS END OF PERIOD
(THOUSANDS).................. $32,694 $ 44,096 $62,998 $95,761 $144,725 $186,742 $ 25,769
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
10
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND -- CLASS C SHARES
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(COMMENCEMENT OF
NINE MONTHS YEAR ENDED CLASS OPERATIONS)
ENDED SEPTEMBER 30, THROUGH
JUNE 30, 1997 (D) 1996 (C) 1995 1994 SEPTEMBER 30, 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD..................... $ 9.74 $ 9.67 $ 9.60 $ 9.90 $ 9.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.40 0.54 0.52 0.40 0.23
Net realized and unrealized gain (loss) on
investments........................................... 0.03 0.02 0.04 (0.35) 0.09
Total from investment operations........................ 0.43 0.56 0.56 0.05 0.32
LESS DISTRIBUTIONS FROM:
Net investment income................................... (0.36) (0.46) (0.48) (0.34) (0.24)
In excess of net investment income...................... (0.01) 0 (0.01) (0.01) 0
Tax basis return of capital............................. 0 (0.03) 0 0 0
Total distributions..................................... (0.37) (0.49) (0.49) (0.35) (0.24)
NET ASSET VALUE END OF PERIOD........................... $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90
Total return (b)........................................ 4.53% 5.91% 5.93% 0.48% 3.28%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses........................................ 1.67%(a) 1.64% 1.53% 1.50% 1.50%(a)
Total expenses excluding indirectly paid expenses..... 1.65%(a) 1.62% 1.50% -- --
Total expenses excluding waivers and reimbursements... 2.23%(a) 2.09% 2.08% 1.94% 1.67%(a)
Net investment income................................. 5.53%(a) 5.60% 5.51% 4.08% 2.91%(a)
Portfolio turnover rate................................. 52% 74% 67% 34% 60%
NET ASSETS END OF PERIOD (THOUSANDS).................... $ 4,105 $4,152 $2,755 $2,874 $2,077
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
11
<PAGE>
KEYSTONE INTERMEDIATE TERM BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY 31,
JUNE 30, 1997 (E) 1996 1995 1994 (C) 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD............................... $ 8.73 $ 8.88 $ 8.84 $ 9.46 $ 9.23
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................. 0.54 0.59 0.63 0.57 0.70
Net realized and unrealized gain (loss) on investments, closed
futures contracts and foreign currency related transactions..... 0.18 (0.16) 0.02 (0.59 ) 0.18
Total from investment operations.................................. 0.72 0.43 0.65 (0.02 ) 0.88
LESS DISTRIBUTIONS FROM:
Net investment income............................................. (0.52) (0.58) (0.57) (0.57 ) (0.65)
In excess of net investment income................................ 0 0 (0.04) (0.02 ) 0
Tax basis return of capital....................................... 0 0 0 (0.01 ) 0
Total distributions............................................... (0.52) (0.58) (0.61) (0.60 ) (0.65)
NET ASSET VALUE END OF PERIOD..................................... $ 8.93 $ 8.73 $ 8.88 $ 8.84 $ 9.46
Total return (b).................................................. 8.40% 4.95% 7.76% (0.29%) 9.88%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................. 1.12%(a) 1.10% 1.00% 1.00% 1.52%
Total expenses excluding indirectly paid expenses............... 1.10%(a) 1.08% -- -- --
Total expenses excluding waivers and reimbursements............. 1.58%(a) 1.54% 1.48% 1.80% 1.99%
Net investment income........................................... 6.43%(a) 6.57% 7.13% 6.81% 7.48%
Portfolio turnover rate........................................... 179% 231% 149% 280% 160%
NET ASSETS END OF PERIOD (THOUSANDS).............................. $10,341 $12,958 $14,558 $16,036 $18,032
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 13, 1987
(COMMENCEMENT
OF OPERATIONS)
YEAR ENDED JULY 31, THROUGH
1992 1991 1990 1989 1988 JULY 31, 1987
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD.................... $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................. 0.71 0.72 0.67 0.69 0.72 0.17
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions......................................... 0.60 0.05 (0.45) 0.10 (0.45) (0.42)
Total from investment operations....................... 1.31 0.77 0.22 0.79 0.27 (0.25)
LESS DISTRIBUTIONS FROM:
Net investment income.................................. (0.71) (0.72) (0.70) (0.73) (0.83) (0.14)
In excess of net investment income..................... (0.01) (0.01) (0.03) 0 0 0
Tax basis return of capital............................ 0 0 0 0 0 0
Total distributions.................................... (0.72) (0.73) (0.73) (0.73) (0.83) (0.14)
NET ASSET VALUE END OF PERIOD.......................... $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61
Total return (b)....................................... 15.65% 9.42% 2.71% 9.13% 2.95% (2.50%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................................... 1.88% 2.00% 2.00% 1.92% 1.30% 1.00%(d)
Total expenses excluding indirectly paid expenses.... -- -- -- -- -- --
Total expenses excluding waivers and
reimbursements..................................... 1.88% 2.06% 2.33% 2.19% 2.65% 12.47%(d)
Net investment income................................ 7.85% 8.42% 7.90% 7.88% 7.48% 6.86%(d)
Portfolio turnover rate................................ 90% 76% 107% 148% 208% 14%
NET ASSETS END OF PERIOD (THOUSANDS)................... $19,288 $20,227 $23,694 $30,337 $38,615 $ 1,679
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to July 31, 1987.
(e) The Fund changed its fiscal year end from July 31 to June 30.
12
<PAGE>
KEYSTONE INTERMEDIATE TERM BOND FUND -- CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
CLASS B SHARES
FEBRUARY 1, 1993
(DATE OF INITIAL
ELEVEN MONTHS PUBLIC OFFERING)
ENDED YEAR ENDED JULY 31, THROUGH
JUNE 30, 1997 (D) 1996 1995 1994 (C) JULY 31, 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD...................... $ 8.74 $ 8.89 $ 8.85 $ 9.47 $ 9.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................... 0.47 0.52 0.56 0.49 0.29
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions........................................... 0.20 (0.16) 0.02 (0.58) 0.12
Total from investment operations......................... 0.67 0.36 0.58 (0.09) 0.41
LESS DISTRIBUTIONS FROM:
Net investment income.................................... (0.46) (0.51) (0.51) (0.49) (0.29)
In excess of net investment income....................... 0 0 (0.03) (0.03) 0
Tax basis return of capital.............................. 0 0 0 (0.01) 0
Total distributions...................................... (0.46) (0.51) (0.54) (0.53) (0.29)
NET ASSET VALUE END OF PERIOD............................ $ 8.95 $ 8.74 $ 8.89 $ 8.85 $ 9.47
Total return (b)......................................... 7.81% 4.10% 6.87% (1.05%) 4.42%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses......................................... 1.87%(a) 1.85% 1.75% 1.75% 1.76%(a)
Total expenses excluding indirectly paid expenses...... 1.85%(a) 1.83% -- -- --
Total expenses excluding waivers and reimbursements.... 2.35%(a) 2.32% 2.21% 2.36% 2.71%(a)
Net investment income.................................. 5.68%(a) 5.82% 6.38% 5.48% 5.67%(a)
Portfolio turnover rate.................................. 179% 231% 149% 280% 160%
NET ASSETS END OF PERIOD (THOUSANDS)..................... $11,368 $16,034 $17,985 $ 17,819 $8,159
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
<TABLE>
<CAPTION>
CLASS C SHARES
FEBRUARY 1, 1993
(DATE OF INITIAL
ELEVEN MONTHS PUBLIC OFFERING)
ENDED YEAR ENDED JULY 31, THROUGH
JUNE 30, 1997 (D) 1996 1995 1994 (C) JULY 31, 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD....................... $ 8.74 $ 8.89 $ 8.85 $ 9.46 $ 9.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.46 0.52 0.55 0.49 0.29
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................ 0.20 (0.16) 0.03 (0.57) 0.11
Total from investment operations.......................... 0.66 0.36 0.58 (0.08) 0.40
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.46) (0.51) (0.51) (0.49) (0.29)
In excess of net investment income........................ 0 0 (0.03) (0.03) 0
Tax basis return of capital............................... 0 0 0 (0.01) 0
Total distributions....................................... (0.46) (0.51) (0.54) (0.53) (0.29)
NET ASSET VALUE END OF PERIOD............................. $ 8.94 $ 8.74 $ 8.89 $ 8.85 $ 9.46
Total return (b).......................................... 7.70% 4.10% 6.87% (0.95%) 4.31%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................... 1.87%(a) 1.85% 1.75% 1.75% 1.77%(a)
Total expenses excluding indirectly paid expenses....... 1.85%(a) 1.83% -- -- --
Total expenses excluding waivers and reimbursements..... 2.35%(a) 2.31% 2.23% 2.37% 2.61%(a)
Net investment income................................... 5.68%(a) 5.82% 6.37% 5.44% 5.61%(a)
Portfolio turnover rate................................... 179% 231% 149% 280% 160%
NET ASSETS END OF PERIOD (THOUSANDS)...................... $ 7,259 $9,084 $10,185 $ 13,086 $7,522
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
13
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Fund are stated below.
Each Fund's investment objective cannot be changed without shareholder approval.
While there is no assurance that each Fund's objective will be achieved, the
Funds will endeavor to do so by following the investment policies detailed
below. Unless otherwise indicated, the investment policies of a Fund may be
changed by the Boards of Trustees (the "Trustees") of Evergreen Investment
Trust, The Evergreen Lexicon Fund, KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
and KEYSTONE INTERMEDIATE TERM BOND FUND (each a "Trust" or, collectively, the
"Trusts"), as the case may be, without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective. In addition to the investment policies detailed below, each
Fund may employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions".
EVERGREEN SHORT-INTERMEDIATE BOND FUND
The objective of EVERGREEN SHORT-INTERMEDIATE BOND FUND is to attain a
high level of current income, with capital growth as a secondary objective. The
Fund invests in a broad range of investment grade debt securities. The Fund is
suitable for conservative investors who want attractive income and permits them
to participate in a broad portfolio of fixed income securities rather than
purchasing a single issue. While the Fund may invest in securities rated BBB by
Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service
("Moody's"), the investment adviser currently intends to limit the Fund's
investments to securities rated A or higher by Moody's or S&P, or which, if
unrated, are considered to be of comparable quality by the Fund's investment
adviser. A description of the rating categories is contained in an Appendix to
the Statement of Additional Information.
Debt securities may include fixed, adjustable rate, zero coupon, or
stripped securities, debentures, notes, U.S. government securities, and debt
securities convertible into, or exchangeable for, preferred or common stock.
Debt securities may also include mortgage-backed and asset-backed securities
(see "Investment Practices and Restrictions", below). The duration of the
securities will not exceed 10 years. The Fund intends to maintain a dollar-
weighted average maturity of 5 years or less.
In normal market conditions the Fund may invest up to 20% of its assets
in money market instruments consisting of: (1) high grade commercial paper,
including master demand notes; (2) obligations of banks or savings and loan
associations having at least $1 billion in deposits, including certificates of
deposit and bankers' acceptances; (3) A-rated or better corporate obligations;
(4) obligations issued or guaranteed by the U.S. government or by any agency or
instrumentality of the U.S. government; and (5) repurchase agreements
collateralized by any security listed above.
The types of U.S. government securities in which the Fund may invest
include: direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and notes, bonds, and discount notes of U.S. government
agencies or instrumentalities, such as the Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation ("FHLMC"); Federal National Mortgage Association ("FNMA");
Government National Mortgage Association ("GNMA"); Student Loan Marketing
Association; Tennessee Valley Authority; Export-Import Bank of the United
States; Commodity Credit Corporation; Federal Financing Bank; and National
Credit Union Administration (collectively, "U.S. government securities"). Some
U.S. government agency obligations are backed by the full faith and credit of
the U.S. Treasury. Others in which the Fund may invest are supported by: the
issuer's right to borrow an amount limited to a specific line of credit from the
U.S. Treasury; discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality; or the credit of the agency
or instrumentality.
The Fund may also invest up to 20% of its assets in foreign securities or
U.S. securities traded in foreign markets in order to provide further
diversification. The Fund may also invest in preferred stock; units which are
debt securities with stock or warrants attached; and obligations denominated in
foreign currencies. In making these
14
<PAGE>
decisions, the Fund's investment adviser will consider such factors as the
condition and growth potential of various economies and securities markets,
currency and taxation considerations and other pertinent financial, social,
national and political factors. (See "Investment Practices and
Restrictions" -- "Foreign Investments").
EVERGREEN INTERMEDIATE-TERM BOND FUND
The investment objective of the EVERGREEN INTERMEDIATE-TERM BOND FUND is
to maximize current yield consistent with the preservation of capital.
The Fund invests in U.S. Treasury obligations; obligations issued or
guaranteed as to principal and interest by agencies and instrumentalities of the
U.S. government; receipts evidencing separately traded principal and interest
components of U.S. government obligations; corporate bonds and debentures rated,
at the time of purchase, A or better by S&P or Moody's or, if unrated determined
to be of comparable quality by the investment adviser; mortgage-backed
securities and asset-backed securities rated, at the time of purchase, at least
AA by S&P or Aa by Moody's, commercial paper rated A-1 or better by Moody's or
P-1 or better by S&P or, if unrated, determined to be of comparable quality at
the time of investment as determined by the investment adviser; short-term bank
obligations including certificates of deposit; time deposits and bankers'
acceptances of U.S. commercial banks or savings and loan institutions with
assets of at least $1 billion as of the end of their most recent fiscal year;
U.S. dollar denominated securities of the government of Canada and its
provincial and local governments; U.S. dollar denominated securities issued or
guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities; U.S. dollar denominated obligations of supranational
entities; and repurchase agreements involving any of the foregoing securities;
and U.S. dollar denominated securities of other foreign issuers. A description
of the rating categories is contained in the Statement of Additional
Information.
The Fund will maintain an average weighted maturity of approximately five
to fifteen years, although under normal conditions the investment adviser
expects the Fund to maintain an average weighted maturity of five to ten years.
The investment adviser may vary the average maturity substantially in
anticipation of a change in the interest rate environment.
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
The investment objective of EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND is to preserve principal value and maintain a high degree of
liquidity while providing current income.
The Fund invests exclusively in U.S. Treasury obligations, obligations
issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government, receipts evidencing separately traded
principal and interest components of U.S. government obligations, obligations of
supranational entities and repurchase agreements involving any of such
obligations. No more than 35% of the Fund's assets may be invested in receipts,
obligations of supranational entities and repurchase agreements involving such
securities.
The Fund will maintain an average weighted remaining maturity of
approximately three to ten years, although under normal conditions the
investment adviser expects to maintain an average maturity of three to six
years. No remaining maturity will exceed ten years. The investment adviser may
vary the average maturity substantially in anticipation of a change in the
interest rate environment.
The U.S. government obligations that the Fund may acquire include
securities representing an interest in a pool of mortgage loans that are issued
or guaranteed by a U.S. government agency. The primary issuers of these
mortgage-backed securities are GNMA, FNMA and FHLMC. The only agency which may
actually guarantee principal or interest is the GNMA. Mortgage-backed securities
are in most cases "pass through" instruments through which the holder receives a
share of all interest and principal payments from the mortgages underlying the
certificates. The mortgages backing these securities include conventional
thirty-year fixed rate mortgages. However, due to scheduled and unscheduled
principal payments on the underlying loans, these securities have a shorter
average maturity and, therefore, less principal volatility than comparable
bonds. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Fund will reinvest the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
For purposes of complying with the Fund's investment policy of acquiring
securities with remaining maturity of ten years or less, the investment adviser
will use the expected life of a mortgage-backed security.
15
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
The investment objective of KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
is to seek a high level of current income consistent with low volatility of
principal.
Under ordinary circumstances, the Fund invests at least 65% of its assets
in loan pool securities ("Loan Pool(s)") or in mortgage securities or other
securities collateralized by, or representing an interest in, a pool of
mortgages (collectively, "Mortgage Securities") that have interest rates that
reset at periodic intervals and are issued or guaranteed by the U.S. government,
its agencies or instrumentalities.
The Fund does not attempt to maintain a constant price per share.
However, the Fund does follow a strategy that seeks to minimize changes in its
net asset value per share by investing primarily in adjustable-rate securities,
whose interest rates are periodically reset when market rates change. The
average dollar weighted reset period of adjustable-rate securities held by the
Fund will not exceed one year. The Fund seeks to provide a relatively stable net
asset value while providing high current income relative to high quality,
short-term investment alternatives.
Keystone believes that, by investing primarily in Mortgage Securities and
Loan Pools with adjustable rates of interest that are issued or guaranteed by
the U.S. government, its agencies or instrumentalities, the Fund will achieve a
less volatile net asset value per share than is characteristic of mutual funds
that invest primarily in U.S. government securities paying a fixed-rate of
interest.
Unlike fixed rate mortgages and loans, adjustable-rate mortgage
securities ("ARMS") and adjustable-rate Loan Pools ("AR Loan Pools") allow the
Fund to participate in increases in interest rates through periodic adjustments
in the coupons of the underlying mortgages or loans, resulting in both higher
current yields and lower price fluctuations in the Fund's net asset value per
share. The Fund is also affected by decreases in interest rates through periodic
decreases in the coupons of the underlying mortgages or loans resulting in lower
income to the Fund. This downward adjustment results in lower price fluctuations
in the net asset value per share in a decreasing interest rate environment. As
the interest rates on the mortgages or loans underlying the Fund's investments
are reset periodically, coupons of portfolio securities will gradually align
themselves to reflect changes in market rates and should cause the net asset
value per share of the Fund to fluctuate less dramatically than it would if the
Fund invested in more traditional long-term, fixed-rate mortgages.
The portion of the Fund that is not invested in ARMS and AR Loan Pools is
intended to add incremental yield from changes in market rates without
materially increasing the volatility of the net asset value per share. As a
result, the overall impact on the Fund of this portion of the Fund's portfolio
is expected to be neutral in terms or price risk.
The Fund may invest in GNMA, FNMA and FHLMC fixed-rate Mortgage
Securities. The expected price behavior of fixed-rate GNMA, FNMA and FHLMC
Mortgage Securities is like that of other fixed rate debt securities in that
their principal value rises as market interest rates fall and declines as market
interest rates rise. (See "Investment Practices and Restrictions -- Risks of
Asset-Backed Securities").
The Fund may also invest in fixed-rate and adjustable-rate collateralized
mortgage obligations ("CMO's"), including CMOs with rates that move inversely to
market rates that are issued by and guaranteed as to principal and interest by
the U.S. government, its agencies or instrumentalities. The principal
governmental issuer of CMOs is FNMA. In addition, FHLMC issues a significant
number of CMOs. The Fund will not invest in CMOs that are issued by private
issuers. CMOs are debt obligations collateralized by Mortgage Securities in
which the payment of the principal and interest is supported by the credit of,
or guaranteed by, the U.S. government or an agency or instrumentality of the
U.S. government. The secondary market for such CMOs is actively traded.
KEYSTONE INTERMEDIATE TERM BOND FUND
The Fund seeks current income by investing primarily in a broad range of
investment quality debt securities. As a secondary objective, the Fund seeks to
protect capital. Where appropriate the Fund will take advantage of opportunities
to realize capital appreciation.
The Fund seeks current income by normally investing at least 80% of its
assets in debt securities including U.S. Treasury bills, notes and bonds;
mortgage-backed securities issued by the U.S. government, its agencies or
16
<PAGE>
instrumentalities; mortgage-backed securities issued by private issuers;
corporate debt securities; and commercial paper.
Under ordinary circumstances, the Fund expects to invest at least 65% of
its assets in bonds and debentures. In addition, the Fund will only invest its
assets in securities that, at the time of investment, are rated within the four
highest grades by S&P (AAA, AA, A and BBB), by Moody's (Aaa, Aa, A and Baa) or
by Fitch Investors Service, L.P. ("Fitch") (AAA, AA, A and BBB), or, if not
rated or rated under a different system, are of comparable quality to
obligations so rated, as determined by Keystone. Any split-rated bond in which
the Fund invests will be rated at least the minimum rating by both Moody's and
S&P. The Fund's investments are expected to have a minimum average rating of A
by Moody's, S&P or Fitch.
The Fund currently expects that the dollar weighted average maturity of
its investments will range from 3 to 7 years. However, the Fund may invest in
securities with remaining maturities of ten years or less.
The Fund's debt securities may include fixed and adjustable-rate or
stripped bonds, debentures, notes, equipment trust certificates and debt
securities convertible into, or exchangeable for, preferred or common stock. The
Fund may also invest in units, which are debt securities with stock or warrants
to buy stock attached, and preferred stock. The Fund will not invest in
securities judged to be speculative or of poor quality, but may invest in
investment grade securities as described above.
Bonds which are rated BBB or BAA 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. 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. Such bonds lack outstanding investment characteristics and may have
speculative characteristics. Keystone will dispose of any bond whose rating is
reduced below BAA by Moody's, BBB by S&P or BBB by Fitch.
When the Fund buys securities, it will consider the ratings of Moody's
S&P and Fitch assigned to various debt securities as well as many other factors,
including the preservation of capital, the potential for realizing capital
appreciation, maturity and yield to maturity. The Fund will adjust its
investments in particular securities or in types of debt securities in response
to its appraisal of changing economic conditions and trends. The Fund may sell
one security and purchase another security of comparable quality and maturity to
take advantage of what it believes to be short-term differentials in market
values or yield disparities.
INVESTMENT PRACTICES AND RESTRICTIONS
Risk Factors. Bond prices move inversely to interest rates, i.e. as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
obligations in which each Fund may invest may be variable or floating rate
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. government securities if, in the opinion of each Fund's
investment adviser, market conditions warrant a temporary defensive investment
strategy.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND may invest up to 35% of its
assets under ordinary circumstances and, when in Keystone's opinion market
conditions warrant, up to 100% of its assets for temporary defensive purposes in
the following instruments: obligations of the U.S. government, its agencies or
instrumentalities, including the Federal Home Loan Banks, FNMA, GNMA, Bank for
Cooperatives (including Central Bank for Cooperatives), Federal Land Banks,
Federal Intermediate Credit Banks, Tennessee Valley Authority, Export-Import
Bank of the United States, Commodity Credit Corporation, Federal Financing Bank,
The Student Loan Marketing Association, FHLMC, Small Business Administration or
the National Credit Union Administration.
17
<PAGE>
KEYSTONE INTERMEDIATE TERM BOND FUND may invest up to 20% of its total
assets under ordinary circumstances and, when in Keystone's opinion market
conditions warrant, up to 100% of its assets for temporary defensive purposes in
the following types of money market instruments: (1) commercial paper, including
master demand notes, that at the date of investment is rated A-1, the highest
grade by S&P, Prime-1, the highest grade by Moody's or, if not rated by such
services, is issued by a company which at the date of investment has an
outstanding issue rated A or better by S&P or Moody's; (2) obligations,
including certificates of deposit and banker's acceptances, of banks or savings
and loan associations having at least $1 billion in assets that are members of
the Federal Deposit Insurance Corporation including U.S. branches of foreign
banks and foreign branches of U.S. banks; (3) corporate obligations which at the
date of investment are rated A or better by S&P or Moody's and (4) obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Downgrades. If any security invested in by any of the Funds loses its rating or
has its rating reduced after the Fund has purchased it, the Fund is not required
to sell or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase
agreements are agreements by which a Fund purchases a security (usually U.S.
government securities) for cash and obtains a simultaneous commitment from the
seller (usually a bank or broker/dealer) to repurchase the security at an
agreed-upon price and specified future date. The repurchase price reflects an
agreed-upon interest rate for the time period of the agreement. The Fund's risk
is the inability of the seller to pay the agreed-upon price on the delivery
date. However, this risk is tempered by the ability of the Fund to sell the
security in the open market in the case of a default. In such a case, a Fund may
incur costs in disposing of the security which would increase Fund expenses. The
Fund's investment adviser will monitor the creditworthiness of the firms with
which the Funds enter into repurchase agreements.
EVERGREEN SHORT-INTERMEDIATE BOND FUND, KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND and KEYSTONE INTERMEDIATE TERM BOND FUND may also enter into reverse
repurchase agreements. Under a reverse repurchase agreement, a Fund would sell
securities and agree to repurchase them at a mutually agreed upon date and
price. The Funds intend 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 a Fund enters into a reverse repurchase
agreement, it will establish a segregated account with the Fund's custodian
containing liquid assets 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 a Fund is obligated to repurchase may
decline below the repurchase price.
When-Issued And Delayed Delivery Transactions. EVERGREEN SHORT-INTERMEDIATE BOND
FUND, EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND may purchase securities and KEYSTONE INTERMEDIATE
TERM BOND FUND may purchase securities and currencies on a when-issued or
delayed delivery basis. KEYSTONE CAPITAL PRESERVATION AND INCOME FUND may
purchase and sell securities or rights to interest payments on a when-issued or
delayed delivery basis. These transactions are arrangements in which a Fund
purchases securities or currencies with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause a
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, a Fund may pay more or less than the market value of the securities
on the settlement date. The Funds may dispose of a commitment prior to
settlement if the investment adviser deems it appropriate to do so. In addition,
the Funds may enter into transactions to sell their purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Funds may realize
short-term profits or losses upon the sale of such commitments. KEYSTONE
INTERMEDIATE TERM BOND FUND may also purchase or sell securities on a forward
commitment basis.
Lending Of Portfolio Securities. In order to generate additional income, a Fund
may lend up to 15% of its portfolio securities on a short-term or long-term
basis to broker/dealers, banks, or other institutional borrowers of securities.
The Funds will only enter into loan arrangements with creditworthy borrowers and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100% of the value of the securities loaned. There is the risk that
when lending portfolio securities, the securities may not be available to a Fund
on a timely basis and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price. In addition, in the event that a
18
<PAGE>
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
Options And Futures. EVERGREEN SHORT-INTERMEDIATE BOND FUND and KEYSTONE
INTERMEDIATE TERM BOND FUND may engage in options and futures transactions.
Options and futures transactions are intended to enable a Fund to manage market,
interest rate or exchange rate risk, and the Funds do not use these transactions
for speculation or leverage.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may attempt to hedge all or a
portion of its portfolio through the purchase of both put and call options on
its portfolio securities and listed put options on financial futures contracts
for portfolio securities. The Fund may also write covered call options on its
portfolio securities to attempt to increase current income. The Fund will
maintain its positions in securities, option rights, and segregated cash subject
to puts and calls until the options are exercised, closed, or have expired. An
option position may be closed out only on an exchange which provides a secondary
market for an option of the same series. The Fund may purchase listed put
options on financial futures contracts. These options will be used only to
protect portfolio securities against decreases in value resulting from market
factors such as an anticipated increase in interest rates.
EVERGREEN SHORT-INTERMEDIATE BOND FUND and KEYSTONE INTERMEDIATE TERM
BOND FUND may write (i.e., sell) covered call and put options. By writing a call
option, a 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, a 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. EVERGREEN SHORT-INTERMEDIATE BOND FUND also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Funds may only write "covered" options. This means that so long as a Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. A Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Funds receive a premium from writing a
call or put option which they retain whether or not the option is exercised. By
writing a call option, the Funds might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Funds might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
KEYSTONE INTERMEDIATE TERM BOND FUND may purchase call and put options to
close out existing positions.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may also enter into currency and
other financial futures contracts and write options on such contracts. The Fund
intends to enter into such contracts and related options for hedging purposes.
The Fund will enter into futures on securities, currencies, or index-based
futures contracts in order to hedge against changes in interest or exchange
rates or securities prices. A futures contract on securities or currencies is an
agreement to buy or sell securities or currencies during a designated month at
whatever price exists at that time. A futures contract on a securities index
does not involve the actual delivery of securities, but merely requires the
payment of a cash settlement based on changes in the securities index. The Fund
does not make payment or deliver securities upon entering into a futures
contract. Instead, it deposits a margin deposit, which is adjusted to reflect
changes in the value of the contract and which remains in effect until the
contract is terminated. KEYSTONE INTERMEDIATE TERM BOND FUND may enter into
currency and other financial futures contracts and related options transactions.
The Fund may also employ new investment techniques with respect to options and
futures contracts and related options. KEYSTONE CAPITAL PRESERVATION AND INCOME
FUND may, upon thirty days' prior notice to shareholders enter into interest
rate swap contracts, financial futures contracts and related options
transactions. The Fund may employ new investment techniques related to any of
its investment policies.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may enter into closing purchase
and sale transactions in order to terminate a futures contract and may buy or
sell put and call options for the purpose of closing out their options
positions. The Fund's ability to enter into closing transactions depends on the
development and
19
<PAGE>
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 the Fund would continue to bear market risk on the transaction.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If a Fund would enter into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. A Fund
would "go long" (agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.
Risk Characteristics Of Options And Futures. Although options and futures
transactions are intended to enable the Funds to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Funds use of them can result in poorer performance (i.e., the Funds' returns may
be reduced). The Funds attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Funds use financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Funds' portfolios. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, the Funds' investment advisers could
be incorrect in their expectations and forecasts about the direction or extent
of market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Funds' investment advisers correctly predict
interest rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Funds may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although the Funds'
investment advisers will consider liquidity before entering into financial
futures contracts or options on financial futures contracts transactions, there
is no assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Funds' ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If a Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to the Fund could be significant.
Zero-Coupon And Stripped Securities. EVERGREEN SHORT-INTERMEDIATE BOND FUND,
EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND may invest in zero-coupon and stripped securities. Zero-coupon
securities in which the Funds may invest are debt obligations which are
generally issued at a discount and payable in full at maturity, and which do not
provide for current payments of interest prior to maturity. Zero-coupon
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of the Funds may fluctuate
over a greater range than shares of other mutual funds investing in securities
making current distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment banking firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and
20
<PAGE>
notes themselves are held in book-entry form at the Federal Reserve Bank or, in
the case of bearer securities (i.e., unregistered securities which are owned
ostensibly by the bearer or holder thereof), in trust on behalf of the owners
thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities". Under the
STRIPS program, the Funds will be able to have their beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidence
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Foreign Investments. EVERGREEN SHORT-INTERMEDIATE BOND FUND and KEYSTONE
INTERMEDIATE TERM BOND FUND may invest in foreign securities or securities
denominated in or indexed to foreign currencies and EVERGREEN INTERMEDIATE-TERM
BOND FUND may invest in U.S. dollar denominated securities of foreign issuers.
In addition, EVERGREEN SHORT-INTERMEDIATE BOND FUND may invest in foreign
currencies. These may involve additional risks. Specifically, they may be
affected by the strength of foreign currencies relative to the U.S. dollar, or
by political or economic developments in foreign countries. Accounting
procedures and government supervision may be less stringent than those
applicable to U.S. companies. There may be less publicly available information
about a foreign company than about a U.S. company. Foreign markets may be less
liquid or more volatile than U.S. markets and may offer less protection to
investors. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Foreign securities may be subject to foreign taxes, which may
reduce yield, and may be less marketable than comparable U.S. securities. All
these factors are considered by the investment adviser before making any of
these types of investments.
Risk Characteristics Of Asset-Backed Securities. The Funds may invest in
asset-backed securities. Asset-backed securities are created by the grouping of
certain governmental, government-related and private loans, receivables and
other lender assets into pools. Interests in these pools are sold as individual
securities. Payments from the asset pools may be divided into several different
tranches of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which may
be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Funds receive from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as CMOs,
prepayments may be allocated to one tranche of securities ahead of other
tranches, in order to reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Funds to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Funds which would be taxed as ordinary
income when distributed to the shareholders. The credit
21
<PAGE>
characteristics of asset-backed securities also differ in a number of respects
from those of traditional debt securities. The credit quality of most
asset-backed securities depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.
Derivatives. KEYSTONE INTERMEDIATE TERM BOND FUND may also invest in certain
other types of derivative instruments, including interest rate swaps, equity
swaps, index swaps, currency swaps and caps and floors, in addition to forwards,
futures, options, mortgage-backed securities and other asset-backed securities
as mentioned above. These vehicles can also be combined to create more complex
products called hybrid derivatives or structured securities.
The market value of derivatives or structured securities may vary
depending upon the manner in which the investments have been structured and may
fluctuate much more rapidly and to a much greater extent. As a result, the value
of such investments may change at a rate in excess of the rate at which
traditional fixed income securities change and, depending on the structure of
the derivative, would change in a manner opposite to the change in the market
value of a traditional fixed income security.
Borrowing. As a matter of fundamental policy, the Funds may not borrow money
except as a temporary measure to facilitate redemption requests or for
extraordinary or emergency purposes. The proceeds from borrowings may be used to
facilitate redemption requests which might otherwise require the untimely
disposition of portfolio securities. The specific limits applicable to borrowing
by each Fund are set forth in the Statement of Additional Information.
Restricted and Illiquid Securities. The Funds may invest in securities which are
subject to restrictions on resale under federal securities law. EVERGREEN
SHORT-INTERMEDIATE BOND FUND may invest up to 10% of its net assets and
EVERGREEN U.S. GOVERNMENT FUND may invest up to 10% of its total assets in such
securities. This restriction is not applicable to commercial paper issued under
Section 4(2) of the Securities Act of 1933. EVERGREEN SHORT-INTERMEDIATE BOND
FUND, EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND may invest up to 10% of their net assets in illiquid
securities. KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE
INTERMEDIATE TERM BOND FUND may also invest up to 15% of its net assets in
illiquid securities. Illiquid securities include certain restricted securities
not determined by the Trustees to be liquid, non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days after
notice.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust
under which the Fund is organized. CMG serves as investment adviser to EVERGREEN
SHORT-INTERMEDIATE BOND FUND, EVERGREEN INTERMEDIATE-TERM BOND FUND and
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND. Keystone serves as
investment adviser to KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE
INTERMEDIATE TERM BOND FUND. Keystone has provided advisory and management
services to investment companies, including certain of the Evergreen Keystone
funds and private accounts since it was organized in 1932.
FUNB is a subsidiary of First Union. First Union and FUNB are located at
201 South College Street, Charlotte, North Carolina 28288. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.
CMG manages the investments and supervises the daily business affairs of
the Funds for which it serves as investment adviser. As compensation therefor,
CMG is entitled to receive an annual fee equal to 0.50% of the average daily net
assets of EVERGREEN SHORT-INTERMEDIATE BOND FUND and 0.60% of the average daily
net assets of EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND. Keystone manages the investments
and supervises the daily business affairs of the Funds for which it serves as
investment adviser, subject to the authority of the Trustees. As payment for its
services, Keystone is entitled to receive from KEYSTONE CAPITAL PRESERVATION
FUND and from KEYSTONE INTERMEDIATE TERM BOND
22
<PAGE>
FUND a fee at the annual rate of 2.0% of gross dividend and interest income of
each Fund plus 0.50% of the first $100,000,000, plus 0.45% of the next
$100,000,000, plus 0.40% of the next $100,000,000, plus 0.35% of the next
$100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of amounts over
$500,000,000. The total annualized operating expenses of each Fund for the
fiscal period ended June 30, 1997, expressed as a percentage of average net
assets on an annual basis, are set forth in the section entitled "Financial
Highlights".
PORTFOLIO MANAGERS
Thomas L. Ellis, a Vice President of FUNB, has been the portfolio manager
of EVERGREEN SHORT-INTERMEDIATE BOND FUND since its inception in 1988. Prior to
joining FUNB in 1985, Mr. Ellis had seventeen years investment management and
sales experience, including eleven years marketing short and medium-term
obligations to institutional investors, and three years as head trader of First
Boston Corporation.
Bruce Besecker, a Vice President of FUNB, has been the portfolio manager
of EVERGREEN INTERMEDIATE-TERM BOND FUND since its inception in 1991. Prior to
joining FUNB, Mr. Besecker was a Vice President in the Fixed Income Unit of the
Financial Management Department of First Fidelity, N.A. ("First Fidelity").
The portfolio manager of EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND since its inception in 1991 has been Robert Cheshire. Mr.
Cheshire is a Vice President of FUNB and was formerly a Vice President in the
Institutional Asset Management Group of First Fidelity.
Christopher P. Conkey is the portfolio manager of KEYSTONE INTERMEDIATE
TERM BOND FUND. He is Chief Investment Officer of Fixed Income and Head of the
High Grade Bond Team for Keystone. Mr. Conkey, who joined Keystone in 1988,
manages a variety of high quality bond funds. He is a member of Keystone's
Investment Policy Committee and is responsible for directing the strategy
creation process for all high grade products. Mr. Conkey has 14 years of
investment experience.
Gary Pzegeo has been the portfolio manager of KEYSTONE CAPITAL
PRESERVATION AND INCOME FUND since 1997. Mr. Pzegeo is a Keystone Vice President
and Portfolio Manager in the Fixed Income group. Mr. Pzegeo joined Keystone in
1990 and has experience as a Senior Cash Manager, Senior Research Associate and
Analyst.
ADMINISTRATOR
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as
administrator to EVERGREEN SHORT-INTERMEDIATE BOND FUND, EVERGREEN
INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND. EKIS provides facilities, equipment and personnel to the Funds
and is entitled to receive a fee based on the aggregate average daily net assets
of the mutual funds for which FUNB affiliates serve as investment adviser.
EKIS's fee is calculated in accordance with the following schedule:
Administration Fee
------------------
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
EKIS also provides facilities, equipment and personnel to KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE TERM BOND FUND on
behalf of Keystone.
23
<PAGE>
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), the Funds' distributor, serves as sub-administrator
to the Funds and is entitled to receive a fee calculated on the aggregate
average daily net assets of all the mutual funds for which FUNB affiliates serve
as investment adviser. BISYS's fee is calculated in accordance with the
following schedule:
Sub-Administration Fee
----------------------
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
DISTRIBUTION PLANS
Distribution Plans. Each Fund's Class A, Class B and Class C shares pay for the
expenses associated with the distribution of its shares according to a
distribution plan that it has adopted pursuant to Rule 12b-1 under the 1940 Act
(each a "Plan" or collectively the "Plans"). Under the Plans, each Fund may
incur distribution-related and shareholder servicing-related expenses which are
based upon the following maximum annual rates:
Share Class % of Class's average daily net assets
- ----------- -------------------------------------
Class A shares 0.75%, currently limited to 0.25% for
KEYSTONE CAPITAL PRESERVATION FUND
and KEYSTONE INTERMEDIATE TERM BOND
FUND and 0.10% for EVERGREEN
SHORT-INTERMEDIATE BOND FUND
0.50% currently limited to 0.25% for
EVERGREEN INTERMEDIATE-TERM BOND
FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include each Fund's investment adviser or their affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Funds may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above.
EVERGREEN SHORT-INTERMEDIATE TERM BOND FUND has a shareholder service
plan ("Service Plan") in addition to the Plan adopted with respect to its Class
B shares. The Service Plan permits the fund to incur a fee of up to 0.25% of
Class B aggregate average daily net assets for ongoing personal services and/or
the maintenance of shareholder accounts. Plan and Service Plan payments to
financial intermediaries will not exceed 0.25% of the aggregate average daily
net assets attributable to each Class of shares of the Fund.
The Plans are in compliance with the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee to
6.25% of cumulative gross sales of shares of that class, plus interest on the
unpaid amount at the prime rate plus 1% per annum.
24
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You may purchase shares of each Fund through broker-dealers, banks or
other financial intermediaries or directly through EKD. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Keystone
Service Company ("EKSC"), 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. The minimum initial investment is $1,000, which may be waived in
certain situations. Subsequent investments in any amount may be made by check,
by wiring Federal funds, by direct deposit or by an electronic funds transfer
("EFT").
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the Application for more information. Only Class A, Class B and
Class C shares are offered through this Prospectus (see "General
Information" -- "Other Classes of Shares").
Class A Shares-Front-End Sales Charge Alternative. You may purchase Class A
shares of each Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 or more of Class A shares without
a front-end sales charge, however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1.0% of the purchase price or the redemption value will
be imposed on shares redeemed during the month of purchase and the 12-month
period following the month of purchase. The schedule of charges for Class A
shares is as follows:
Initial Sales Charge
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 3.36% 3.25% 2.75%
$ 50,000 - $ 99,000 3.09% 3.00% 2.75%
$ 100,000 - $ 249,999 2.56% 2.50% 2.25%
$ 250,000 - $ 499,999 2.04% 2.00% 1.75%
$ 500,000 - $ 999,999 1.52% 1.50% 1.25%
</TABLE>
Investment of $1 million or more -- Investments of $1 million or more are
available without a front-end sales charge. There is, however, a CDSC of 1.00%
on any shares redeemed during the month of purchase and the 12-month period
following the month of purchase.
Qualifying Plan -- Certain plans that are sponsored by an organization
having 100 or more eligible employees or tax sheltered annuity plans sponsored
by a public educational entity having 5,000 or more eligible employees. See the
SAI for more information.
No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and registered
investment advisers; (b) investment advisers, consultants or financial planners
who place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; (c) clients
of investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; (d) institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; (e) shareholders of record on October 12, 1990 in any series
of Evergreen Investment Trust in existence on that date, and the members of
their immediate families; (f) current and retired employees of FUNB and its
affiliates,
25
<PAGE>
EKD and any broker-dealer with whom EKD has entered into an agreement to sell
shares of the Funds, and members of the immediate families of such employees;
(g) and upon the initial purchase of an Evergreen Keystone fund by investors
reinvesting the proceeds from a redemption within the preceding thirty days of
shares of other mutual funds, provided such shares were initially purchased with
a front-end sales charge or subject to a CDSC. Certain broker-dealers or other
financial institutions may impose a fee on transactions in shares of the Funds.
When Class A shares are sold, EKD will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EKD may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Funds. Certain
purchases of Class A shares may qualify for reduced sales charges in accordance
with a Fund's concurrent purchases, Rights of Accumulation, Letter of Intent,
certain Retirement Plans and Reinstatement Privilege. Consult the Application
for additional information concerning these reduced sales charges. Consult the
Application for additional information concerning these reduced sales charges.
Class B Shares-Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC will vary according to the number of years from the month of
purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase............................... 5.00%
Second twelve-month period following the month of purchase........................................................ 4.00%
Third twelve-month period following the month of purchase......................................................... 3.00%
Fourth twelve-month period following the month of purchase........................................................ 3.00%
Fifth twelve-month period following the month of purchase......................................................... 2.00%
Sixth twelve-month period following the month of purchase......................................................... 1.00%
No CDSC is imposed on amounts redeemed therafter.
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to EKD
or its predecessor. Class B shares are subject to higher distribution and/or
shareholder service fees than Class A shares for a period of seven years after
the month of purchase (after which it is expected that they will convert to
Class A shares). The higher fees mean a higher expense ratio, so Class B shares
pay correspondingly lower dividends and may have a lower net asset value than
Class A shares. The Funds will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the calendar
month in which the shareholder's purchase order was accepted, Class B shares
will automatically convert to Class A shares and will no longer be subject to a
higher distribution services fee imposed on Class B shares. Such conversion will
be on the basis of the relative net asset values of the two Classes, without the
imposition of any sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares.
Class C Shares. 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, each 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 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"
below.
Contingent Deferred Sales Charge. Shares obtained from dividend or distribution
reinvestment are not subject to a CDSC. Any CDSC imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net asset value at the time of
purchase of such shares.
26
<PAGE>
No CDSC is imposed on a redemption of shares of the Fund in the event of
(1) death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of
accounts having an aggregate net asset value of less than $1,000; (5) automatic
withdrawals under the Systematic Withdrawal Plan of up to 1.00% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; or (8) withdrawals consisting of returns
of excess contributions or excess deferral amounts made to a retirement plan
participant.
The Funds may also sell Class A, Class B or, if applicable, Class C
shares at net asset value without any initial sales charge or a CDSC to certain
Directors, Trustees, officers and employees of the Funds, FUNB, 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.
How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount the Fund's net assets
attributable to that Class by the number of outstanding shares of that Class.
Shares are valued each day the New York Stock Exchange (the "Exchange") is open
as of the close of regular trading (currently 4:00 p.m. Eastern time). The
securities in a Fund are valued at their current market value determined on the
basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees of each Trust under which each Fund operates
believe would accurately reflect fair value. Non-dollar denominated securities
will be valued as of the close of the Exchange at the closing price of such
securities in their principal trading market.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares because 100% of your purchase is
invested immediately and because such shares will convert to Class A shares,
which incur lower ongoing distribution and/or shareholder service fees, after
seven years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year. Consult your financial intermediary for further information. The
compensation received by dealers and agents may differ depending on whether they
sell Class A, Class B or Class C shares. There is no size limit on purchases of
Class A shares.
In addition to the discount or commission paid to dealers, EKD and EKIS
may from time to time pay to broker-dealers additional cash or other incentives
that are conditioned upon the sale of a specified minimum dollar amount of
shares of a Fund and/or other Evergreen Keystone funds. Such incentives will
take the form of payment for attendance at seminars, lunches, dinners, sporting
events or theater performances, or payment for travel, lodging and entertainment
incurred in connection with travel by persons associated with a broker-dealer
and their immediate family members to urban or resort locations within or
outside the United States. Such a broker-dealer may elect to receive cash
incentives of equivalent amount in lieu of such payments. EKD may also limit the
availability of such incentives to certain specified dealers. EKD from time to
time sponsors promotions involving First Union Brokerage Services, Inc.
("FUBS"), an affiliate of each Fund's investment adviser, and select broker-
dealers, pursuant to which incentives are paid, including gift certificates and
payments in amounts up to 1.0% of the dollar amount of shares of a Fund sold.
Awards may also be made based on the opening of a minimum number of accounts.
Such promotions are not being made available to all broker-dealers. Certain
broker-dealers may also receive payments from EKD or a Fund's investment adviser
over and above the usual trail commissions or shareholder servicing payments
applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen mutual funds.
The Funds
27
<PAGE>
will not accept third party checks other than those payable directly to a
shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net redemption value on any
day the Exchange is open, either by writing to each Fund, c/o EKSC, or through
your financial intermediary. The amount you will receive is based on the net
asset value adjusted for fractions of a cent (less any applicable CDSC for Class
B or Class C shares) next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, a Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service. Certain financial intermediaries
may require that you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC, the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and EKSC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Exchange Act of 1934 and EKSC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
EKSC's offices are closed). The Exchange is closed on New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate sections on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (i) be mailed by check to the shareholder at the address in
which the account is registered or (ii) be wired to an account with the same
registration as the shareholder's account in a Fund at a designated commercial
bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. Each 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, the Funds, EKSC and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen
28
<PAGE>
Keystone Express Line or by telephone are genuine. The Funds, EKSC and EKD will
not be liable when following instructions received over the Evergreen Keystone
Express Line or by telephone that EKSC reasonably believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone Express Line offers you
specific fund account information and 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.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their 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 Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for thirty days. Shareholders will receive sixty
days' written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of a Fund's total net assets, during
any ninety day period for any one shareholder.
EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Keystone funds through your financial
intermediary or by calling or writing to EKSC or by using the Evergreen Keystone
Express Line as described above. Once an exchange request has been telephoned or
mailed, it is irrevocable and may not be modified or canceled. Exchanges will be
made on the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange, which represents
an initial investment in another Evergreen Keystone fund is subject to the
minimum investment and suitability requirements of each Fund.
Each of the Evergreen Keystone funds has different investment objectives
and policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event Class B or Class C shares are
exchanged for Class B or Class C shares, respectively, of other Evergreen
Keystone funds. If you redeem shares, the CDSC applicable to the Class B or
Class C shares of the Evergreen or Keystone fund originally purchased for cash
is applied. Also, Class B shares will continue to age following an exchange for
purposes of conversion to Class A shares and determining the amount of the
applicable CDSC.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges by Telephone and Mail. Exchange requests made after 4:00 p.m. (Eastern
time) will be processed using the net asset value determined on the next
business day. During periods of drastic economic or market changes, shareholders
may experience difficulty in effecting telephone exchanges. You should follow
the procedures outlined below for exchanges by mail if you are unable to reach
EKSC by telephone. If you wish to use the telephone exchange service you should
indicate this on the Application. As noted above, each Fund will employ
reasonable procedures to confirm that instructions for the redemption or
exchange of shares communicated by telephone are genuine. A telephone exchange
may be refused by a Fund or EKSC if it is believed advisable to do so.
Procedures for exchanging Fund shares by telephone may be modified or terminated
29
<PAGE>
at any time. Written requests for exchanges should follow the same procedures
outlined for written redemption requests in the section entitled "How to Redeem
Shares", however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, EKSC
or the toll-free number on the front page of this Prospectus. Some services are
described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan you may invest as
little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may invest not less than $100 or more than
$10,000 per investment into an existing account. 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 Funds Systematic
Investment Plan or Telephone Investment Plan may not be redeemed for ten days
from the date of investment.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this plan, you may receive (or designate a third party to receive) payments in a
stated amount of at least $75, or a maximum of 1.0% per month or 3.0% per
quarter of the total net asset value of your account when the Plan was
established. 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 (i) the
initial value of the account plus (ii) 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 a Fund's shares while
participating in a Systematic Withdrawal Plan.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and the
other Evergreen Keystone funds available to their participants. Investments made
by such employee benefit plans may be exempt from front-end sales charges if
they meet the criteria set forth under "Class A Shares-Front End Sales Charge
Alternative". Evergreen Asset, Keystone or CMG may provide compensation to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen Keystone funds available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
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. You should designate on the Application
(i) the dollar amount of each monthly or quarterly investment you wish to make
and (ii) 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
30
<PAGE>
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.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen Keystone fund shares you 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.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Savings
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity; 403(b)(7)
Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; and Money Purchase
Pension Plans. For details, including fees and application forms, call toll free
1-800-247-4075 or write to EKSC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. 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,
since it is a subsidiary of FUNB, and CMG are subject to and in compliance with
the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in CMG or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of a
Fund by its customers. If CMG or Keystone were prevented from continuing to
provide the services called for under the investment advisory agreement, it is
expected that the Trustees would identify, and call upon each Fund's
shareholders to approve, a new investment adviser. If this were to occur, it is
not anticipated that the shareholders of any Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends are declared and paid monthly for EVERGREEN
SHORT-INTERMEDIATE TERM BOND FUND, EVERGREEN INTERMEDIATE-TERM BOND FUND and
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND. Income dividends are
declared daily and paid monthly for KEYSTONE CAPITAL PRESERVATION AND INCOME
FUND and KEYSTONE INTERMEDIATE TERM BOND FUND. Distributions of any net realized
capital gains of the Funds will be made at least annually. Dividends and
distributions generally are taxable in the year in which they are paid, except
any dividends paid in January that were declared in the previous calendar
quarter will be treated as paid in December of the previous year. Income
dividends and capital gain distributions are automatically reinvested in
additional shares of the Fund making the distribution at the net asset value per
share at the close of business on the record date, unless the shareholder has
made a written request for payment in cash.
Each Fund has qualified and intends to continue to qualify to be treated
as a regulated investment company under the Code. While so qualified, it is
expected that each Fund will not be required to pay any Federal income taxes on
that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Funds,
to the extent they do not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements. Most shareholders of the Funds normally will
31
<PAGE>
have to pay Federal income taxes and any state or local taxes on the dividends
and distributions they receive from a Fund whether such dividends and
distributions are made in cash or in additional shares. Questions on how any
distributions will be taxed to the investor should be directed to the investor's
own tax adviser.
A Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States Federal income tax may be entitled, subject to certain
rules and limitations, to claim a Federal income tax credit or deduction for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional details. A Fund's transactions in options, futures and forward
contracts may be subject to special tax rules. These rules can affect the
amount, timing and characteristics of distributions to shareholders.
Each Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions, if any, and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, you must certify on the Application, or on a separate
form supplied by the Funds' transfer agent, that your social security or
taxpayer identification number is correct and that you are not currently subject
to backup withholding or are exempt from backup withholding. A shareholder who
acquires Class A shares of a Fund and sells or otherwise disposes of such shares
within ninety days of acquisition may not be allowed to include certain sales
charges incurred in acquiring such shares for purposes of calculating gain and
loss realized upon a sale or exchange of shares of the Fund.
The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the Statement of
Additional Information. In addition, you should consult your own tax adviser as
to the tax consequences of investments in the Funds, including the application
of state and local taxes which may be different from Federal income tax
consequences described above.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with the Fund.
Organization. EVERGREEN SHORT-INTERMEDIATE BOND FUND is a separate investment
series of Evergreen Investment Trust, which is a Massachusetts business trust
organized in 1984. EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND are separate investment series of
The Evergreen Lexicon Fund, which is a Massachusetts business trust organized in
1991. KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE
TERM BOND FUND are each Massachusetts business trusts, organized in 1990 and
1986, respectively. The Funds do not intend to hold annual shareholder meetings;
shareholder meetings will be held only when required by applicable law.
Shareholders have available certain procedures for the removal of Trustees.
Each Trust named above is empowered to establish, without shareholder
approval, additional investment series, which may have different investment
objectives, and additional Classes of shares for any existing or future series.
If an additional series or Class were established in a Fund, each share of the
series or Class would normally be entitled to one vote for all purposes.
Generally, shares of each series and Class would vote together as a single Class
on matters, such as the election of Trustees, that affect each series and Class
in substantially the same manner. Class A, Class B, Class C and Class Y shares
have identical voting, dividend, liquidation and other rights, except that each
Class bears, to the extent applicable, its own distribution and transfer agency
expenses as well as any other expenses applicable only to a specific Class. Each
Class of shares votes separately with respect to Rule 12b-1 distribution plans
and other matters for which separate Class voting is appropriate under
applicable law. Shares are entitled to dividends as determined by the Trustees
and, in liquidation of a Fund, are entitled to receive the net assets of the
Fund.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as each Fund's custodian.
32
<PAGE>
Registrar, Transfer Agent and Dividend Disbursing Agent. EKSC, P.O. Box 2121,
Boston, Massachusetts 02106-2121, acts as registrar, transfer agent and
dividend-disbursing agent for each of the Funds.
Principal Underwriter. EKD, an affiliate of BISYS, located at 125 W. 55th
Street, New York, New York 10019, is the principal underwriter of the Funds.
BISYS also acts as sub-administrator to the Funds.
Other Classes of Shares. EVERGREEN SHORT-INTERMEDIATE BOND FUND, EVERGREEN
INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND currently offer four classes of shares, Class A, Class B, Class
C and Class Y, and may in the future offer additional classes. Class Y shares
are not offered by this Prospectus and are only available to (i) all
shareholders of record in one or more of the Funds for which Evergreen Asset
served as investment adviser as of December 30, 1994, (ii) certain institutional
investors and (iii) investment advisory clients of CMG, Evergreen Asset,
Keystone or their affiliates. KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and
KEYSTONE INTERMEDIATE TERM BOND FUND currently offer Class A, Class B and Class
C shares. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing-related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares.
Performance Information. A Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. A Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Funds' financial statements. To calculate yield, a Fund takes
the interest income it earned from its portfolio of investments (as defined by
the SEC formula) for a 30-day period (net of expenses), divides it by the
average number of shares entitled to receive dividends, and expresses the result
as an annualized percentage rate based on a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all the
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in the Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc. and Morningstar, Inc. and other industry publications. A Fund may
also advertise in items of sales literature an "actual distribution rate" which
is computed by dividing the total ordinary income distributed (which may include
the excess of short-term capital gains over losses) to shareholders for the
latest twelve month period by the maximum public offering price per share on the
last day of the period. Investors should be aware that past performance may not
be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen Keystone funds, products, and services, which may include:
retirement investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the information provided to investors may quote financial
or business publications and periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques.
33
<PAGE>
The materials may also reprint, and use as advertising and sales literature,
articles from EVERGREEN KEYSTONE EVENTS, a quarterly magazine provided free of
charge to Evergreen Keystone fund shareholders.
Liability Under Massachusetts Law. Under Massachusetts law, Trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declaration of Trust under which each
Fund operates provides that no Trustee or shareholder will be personally liable
for the obligations of the Trust and that every written contract made by the
Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act of 1933, as amended. Copies of the
Registration Statements may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the offices of the SEC in Washington, D.C.
34
<PAGE>
<TABLE>
<S> <C>
INVESTMENT ADVISER
Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288
EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
Keystone Investment Management Company
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts 02205-9827
TRANSFER AGENT
Evergreen Keystone Service Company, Box 2121, Boston, Massachusetts 02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 125 W. 55th Street, New York, New York 10019
541692
</TABLE>
<PAGE>
PROSPECTUS September 3, 1997
(Evergreen logo appears here)
EVERGREEN KEYSTONE SHORT AND
INTERMEDIATE TERM BOND FUNDS
EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
CLASS Y SHARES
The Evergreen Keystone Short and Intermediate Term Bond Funds (the
"Funds") are designed to provide investors with a selection of investment
alternatives which seek to provide a high level of current income. This
Prospectus provides information regarding the Class Y shares offered by the
Funds. Each Fund is, or is a series of, an open-end, diversified,
management investment company. This Prospectus sets forth concise
information about the Funds that a prospective investor should know before
investing. The address of the Funds is 200 Berkeley Street, Boston,
Massachusetts 02116.
A Statement of Additional Information for the Funds dated
September 3, 1997, as supplemented from time to time, has been filed with
the Securities and Exchange Commission and is incorporated by reference
herein. The Statement of Additional Information provides information
regarding certain matters discussed in this Prospectus and other matters
which may be of interest to investors, and may be obtained without charge
by calling the Funds at (800) 343-2898. There can be no assurance that the
investment objective of any Fund will be achieved. Investors are advised to
read this Prospectus carefully.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OTHER OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, 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.
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.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 4
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 7
Investment Practices and Restrictions 8
MANAGEMENT OF THE FUNDS
Investment Adviser 12
Portfolio Managers 13
Administrator 13
Sub-Administrator 13
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 14
How to Redeem Shares 14
Exchange Privilege 15
Shareholder Services 16
Effect of Banking Laws 17
OTHER INFORMATION
Dividends, Distributions and Taxes 17
General Information 18
</TABLE>
OVERVIEW OF THE FUNDS
The following is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The Capital Management Group ("CMG") of First Union National Bank
("FUNB") serves as investment adviser to the Funds. FUNB is a subsidiary of
First Union Corporation ("First Union"), the sixth largest bank holding company
in the United States.
EVERGREEN SHORT-INTERMEDIATE BOND FUND seeks to provide a high level of
current income by investing in a broad range of investment grade debt
securities, with capital growth as a secondary objective.
EVERGREEN INTERMEDIATE-TERM BOND FUND seeks to maximize current yield
consistent with the preservation of capital.
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND seeks to preserve
principal value and maintain a high degree of liquidity while providing current
income.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in the Class Y shares of each Fund. For further
information see "Purchase and Redemption of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
</TABLE>
The following table shows for the Fund the estimated annual operating
expenses (as a percentage of average net assets) attributable to Class Y shares,
together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment for the periods specified assuming (i) a 5%
annual return and (ii) redemption at the end of each period.
EVERGREEN SHORT-INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Advisory Fees 0.50%
After 1 Year $ 16
12b-1 Fees 0.00%
After 3 Years $ 51
Other Expenses 0.12%
After 5 Years $ 88
After 10 Years $ 192
Total 0.62%
</TABLE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Management Fees 0.60%
After 1 Year $ 18
12b-1 Fees 0.00%
After 3 Years $ 57
Other Expenses 0.21%
After 5 Years $ 97
After 10 Years $ 212
Total 0.81%
</TABLE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C>
Management Fees 0.60%
After 1 Year $ 8
12b-1 Fees 0.00%
After 3 Years $ 26
Other Expenses 0.21%
After 5 Years $ 45
After 10 Years $ 100
Total 0.81%
</TABLE>
*The annual operating expenses and examples reflect fee waivers and expense
reimbursements where applicable. Actual expenses for Class Y shares for the most
recent fiscal period were as follows:
<TABLE>
<S> <C>
Evergreen Intermediate-Term Government Securities Fund............................ 0.89%
</TABLE>
From time to time, each Fund's investment adviser may, at its discretion,
reduce or waive its fees or reimburse the Funds for certain of their expenses in
order to reduce their expense ratios. Each Fund's investment adviser may cease
these waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Y Class
shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are estimated amounts based on the experience
of each Fund for the fiscal period ended June 30, 1997. Such expenses have been
restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL
EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more
complete description of the various costs and expenses borne by the Funds see
"Management of the Funds."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the table for EVERGREEN SHORT-INTERMEDIATE BOND FUND has been
audited by KPMG Peat Marwick LLP, the Fund's independent auditors. For EVERGREEN
INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND, the information in the tables for the fiscal year ended June
30, 1997 and the ten month period ended June 30, 1996, has been audited by KPMG
Peat Marwick LLP. Information for the fiscal periods prior to June 30, 1996, has
been audited by other auditors. A report of KPMG Peat Marwick LLP on the audited
information with respect to each Fund is incorporated by reference into the
Fund's Statement of Additional Information. The following information for each
Fund should be read in conjunction with the financial statements and related
notes which are incorporated by reference into the Fund's Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN SHORT-INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JUNE 30, ENDED YEAR ENDED AUGUST 31,
1997 1996 JUNE 30, 1995 (B) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of
period........................ $9.82 $10.02 $9.52 $10.43 $10.41 $10.54
Income from investment
operations:
Net investment income........... 0.64 0.64 0.33 0.65 0.69 0.70
Net realized and unrealized gain
(loss) on investments......... 0.02 (0.19) 0.49 (0.91) 0.19 (0.02)
Total from investment
operations.................... 0.66 0.45 0.82 (0.26) 0.88 0.68
Less distributions from:
Net investment income........... (0.65) (0.65) (0.32) (0.65) (0.68) (0.70)
In excess of net investment
income........................ 0 0 0 0 0 0
Net realized gains on
investments................... 0 0 0 0 (0.18) (0.11)
Total distributions............. (0.65) (0.65) (0.32) (0.65) (0.86) (0.81)
Net asset value end of period... $9.83 $9.82 $10.02 $9.52 $10.43 $10.41
TOTAL RETURN ................ 6.88% 4.63% 8.80% (2.55%) 8.67% 6.64%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................ 0.62% 0.69% 0.67%(a) 0.65% 0.66% 0.69%
Total expenses excluding
indirectly paid expenses... P 0.62% -- -- -- -- --
Net investment income......... 6.48% 6.45% 6.68%(a) 6.56% 6.41% 6.67%
Portfolio turnover rate......... 45% 76% 34% 48% 73% 66%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $357,706 $352,095 $347,050 $345,025 $376,445 $324,068
<CAPTION>
JANUARY 4, 1994 (C)
DECEMBER 31,
1991
<S> <C>
CLASS Y SHARES
Net asset value beginning of
period........................ $10.06
Income from investment
operations:
Net investment income........... 0.71
Net realized and unrealized gain
(loss) on investments......... 0.56
Total from investment
operations.................... 1.27
Less distributions from:
Net investment income........... (0.71)
In excess of net investment
income........................ (0.01)
Net realized gains on
investments................... (0.07)
Total distributions............. (0.79)
Net asset value end of period... $10.54
TOTAL RETURN ................ 13.80%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses................ 0.69%(a)
Total expenses excluding
indirectly paid expenses... --
Net investment income......... 7.12%(a)
Portfolio turnover rate......... 53%
NET ASSETS END OF PERIOD
(THOUSANDS)................... $256,254
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from December 31 to June 30.
(c) Commencement of class operations.
4
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
NOVEMBER 1, 1991
(COMMENCEMENT
TEN MONTHS OF CLASS OPERATIONS)
YEAR ENDED ENDED YEAR ENDED AUGUST 31, THROUGH
JUNE 30, 1997 JUNE 30, 1996 (B) 1995 1994 1993 AUGUST 31, 1992
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of
period............................. $10.10 $10.29 $9.93 $10.99 $10.56 $10.00
Income from investment operations:
Net investment income................ 0.61 0.48 0.56 0.55 0.63 0.55
Net realized and unrealized gain
(loss) on investments.............. 0.08 (0.19) 0.40 (0.86) 0.66 0.55
Total from investment operations..... 0.69 0.29 0.96 (0.31) 1.29 1.10
Less distributions from:
Net investment income................ (0.60) (0.48) (0.56) (0.55) (0.64) (0.54)
Net realized gains on investments.... 0 0 (0.04) (0.20) (0.22) 0
Tax basis return of capital.......... (0.02) 0 0 0 0 0
Total distributions.................. (0.62) (0.48) (0.60) (0.75) (0.86) (0.54)
Net asset value end of period........ $10.17 $10.10 $10.29 $9.93 $10.99 $10.56
TOTAL RETURN (C)..................... 6.97% 2.82% 10.13% (2.91%) 12.90% 11.29%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses..................... 0.81% 0.80%(a) 0.69% 0.55% 0.55% 0.55%(a)
Total expenses excluding indirectly
paid expenses.................... 0.81% -- -- -- -- --
Total expenses excluding waivers
and reimbursements............... 0.81% 0.87%(a) 0.83% 0.83% 0.83% 0.86%(a)
Net investment income.............. 5.97% 5.75%(a) 5.63% 5.32% 5.93% 6.49%(a)
Portfolio turnover rate.............. 86% 52% 73% 69% 49% 65%
NET ASSETS END OF PERIOD
(THOUSANDS)........................ $ 156,346 $ 157,814 $95,961 $91,724 $86,892 $ 66,695
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from August 31 to June 30.
5
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
NOVEMBER 1, 1991
(COMMENCEMENT
TEN MONTHS OF CLASS OPERATIONS)
YEAR ENDED ENDED YEAR ENDED AUGUST 31, THROUGH
JUNE 30, 1997 JUNE 30, 1996 (B) 1995 1994 1993 AUGUST 31, 1992
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning
of period....................... $9.99 $10.15 $9.92 $10.61 $10.41 $10.00
Income from investment operations:
Net investment income............. 0.56 0.46 0.55 0.54 0.57 0.48
Net realized and unrealized gain
(loss) on investments........... 0.03 (0.16) 0.23 (0.64) 0.24 0.40
Total from investment
operations...................... 0.59 0.30 0.78 (0.10) 0.81 0.88
Less distributions from:
Net investment income............. (0.56) (0.46) (0.55) (0.54) (0.58) (0.47)
Net realized gains on
investments..................... 0 0 0 (0.05) (0.03) --
Total distributions............... (0.56) (0.46) (0.55) (0.59) (0.61) (0.47)
Net asset value end of period..... $10.02 $9.99 $10.15 $9.92 $10.61 $10.41
TOTAL RETURN...................... 6.08% 3.00% 8.16% (0.99%) 8.03% 9.04%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.................. 0.81% 0.80%(a) 0.70% 0.55% 0.55% 0.55%(a)
Total expenses excluding
indirectly paid expenses...... 0.81% -- -- -- -- --
Total expenses excluding waivers
and reimbursements............ 0.89% 0.87%(a) 0.84% 0.82% 0.83% 0.86%(a)
Net investment income........... 5.52% 5.47%(a) 5.54% 5.22% 5.48% 5.68% (a)
Portfolio turnover rate........... 68% 28% 45% 45% 31% 47%
NET ASSETS END OF PERIOD
(THOUSANDS)..................... $71,588 $87,004 $106,066 $106,448 $119,172 $87,648
</TABLE>
(a) Annualized.
(b) The Fund changed its fiscal year end from August 31 to June 30.
6
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Fund are stated below.
Each Fund's investment objective cannot be changed without shareholder approval.
While there is no assurance that each Fund's objective will be achieved, the
Funds will endeavor to do so by following the investment policies detailed
below. Unless otherwise indicated, the investment policies of a Fund may be
changed by the Board of Trustees of Evergreen Investment Trust or The Evergreen
Lexicon Fund (each a "Trust" or collectively, the "Trusts") as the case may be,
(the "Trustees"), without the approval of shareholders. Shareholders will be
notified before any material change in these policies becomes effective. In
addition to the investment policies detailed below, each Fund may employ certain
additional investment strategies which are discussed in "Investment Practices
and Restrictions".
EVERGREEN SHORT-INTERMEDIATE BOND FUND
The objective of EVERGREEN SHORT-INTERMEDIATE BOND FUND is to attain a
high level of current income, with capital growth as a secondary objective,
through investment in a broad range of investment grade debt securities. The
Fund is suitable for conservative investors who want attractive income and
permits them to participate in a broad portfolio of fixed income securities
rather than purchasing a single issue. While the Fund may invest in securities
rated BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors
Service ("Moody's"), the investment adviser currently intends to limit the
Fund's investments to securities rated A or higher by Moody's or S&P, or which,
if unrated, are considered to be of comparable quality by the Fund's investment
adviser. A description of the rating categories is contained in an Appendix to
the Statement of Additional Information.
Debt securities may include fixed, adjustable rate, zero coupon, or
stripped securities, debentures, notes, U.S. government securities, and debt
securities convertible into, or exchangeable for, preferred or common stock.
Debt securities may also include mortgage-backed and asset-backed securities
(see "Investment Practices and Restrictions", below). The duration of the
securities will not exceed 10 years. The Fund intends to maintain a dollar-
weighted average maturity of 5 years or less.
In normal market conditions the Fund may invest up to 20% of its assets
in money market instruments consisting of: (1) high grade commercial paper,
including master demand notes; (2) obligations of banks or savings and loan
associations having at least $1 billion in deposits, including certificates of
deposit and bankers' acceptances; (3) A-rated or better corporate obligations;
(4) obligations issued or guaranteed by the U.S. government or by any agency or
instrumentality of the U.S. government; and (5) repurchase agreements
collateralized by any security listed above.
The types of U.S. government securities in which the Fund may invest
include: direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and notes, bonds, and discount notes of U.S. government
agencies or instrumentalities, such as the Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation ("FHLMC"); Federal National Mortgage Association ("FNMA");
Government National Mortgage Association ("GNMA"); Student Loan Marketing
Association; Tennessee Valley Authority; Export-Import Bank of the United
States; Commodity Credit Corporation; Federal Financing Bank; and National
Credit Union Administration (collectively, "U.S. government securities"). Some
U.S. government agency obligations are backed by the full faith and credit of
the U.S. Treasury. Others in which the Fund may invest are supported by: the
issuer's right to borrow an amount limited to a specific line of credit from the
U.S. Treasury; discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality; or the credit of the agency
or instrumentality.
The Fund may also invest up to 20% of its assets in foreign securities or
U.S. securities traded in foreign markets in order to provide further
diversification. The Fund may also invest in preferred stock; units which are
debt securities with stock or warrants attached; and obligations denominated in
foreign currencies. In making these decisions, the Fund's investment adviser
will consider such factors as the condition and growth potential of various
economies and securities markets, currency and taxation considerations and other
pertinent financial, social, national and political factors. (See "Investment
Practices and Restrictions" -- "Foreign Investments".)
7
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
The investment objective of the EVERGREEN INTERMEDIATE-TERM BOND FUND is
to maximize current yield consistent with the preservation of capital.
The Fund invests its assets in U.S. Treasury obligations; obligations
issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government; receipts evidencing separately traded
principal and interest components of U.S. government obligations; corporate
bonds and debentures rated, at the time of purchase, A or better by S&P or
Moody's or, if unrated determined to be of comparable quality by the investment
adviser; mortgage-backed securities and asset-backed securities rated, at the
time of purchase, at least AA by S&P or Aa by Moody's, commercial paper rated
A-1 or better by Moody's or P-1 or better by S&P or, if unrated, determined to
be of comparable quality at the time of investment as determined by the
investment adviser; short-term bank obligations including certificates of
deposit; time deposits and bankers' acceptances of U.S. commercial banks or
savings and loan institutions with assets of at least $1 billion as of the end
of their most recent fiscal year; U.S. dollar denominated securities of the
government of Canada and its provincial and local governments; U.S. dollar
denominated securities issued or guaranteed by foreign governments, their
political subdivisions, agencies or instrumentalities; U.S. dollar denominated
obligations of supranational entities; and repurchase agreements involving any
of the foregoing securities; and U.S. dollar denominated securities of other
foreign issuers. A description of the rating categories is contained in the
Statement of Additional Information.
The Fund will maintain an average weighted maturity of approximately five
to fifteen years, although under normal conditions the investment adviser
expects the Fund to maintain an average weighted maturity of five to ten years.
The investment adviser may vary the average maturity substantially in
anticipation of a change in the interest rate environment.
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
The investment objective of EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND is to preserve principal value and maintain a high degree of
liquidity while providing current income.
The Fund invests exclusively in U.S. Treasury obligations, obligations
issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government, receipts evidencing separately traded
principal and interest components of U.S. government obligations, obligations of
supranational entities and repurchase agreements involving any of such
obligations. No more than 35% of the Fund's assets may be invested in receipts,
obligations of supranational entities and repurchase agreements involving such
securities.
The Fund will maintain an average weighted remaining maturity of
approximately three to ten years, although under normal conditions the
investment adviser expects to maintain an average maturity of three to six
years. No remaining maturity will exceed ten years. The investment adviser may
vary the average maturity substantially in anticipation of a change in the
interest rate environment.
The U.S. government obligations that the Fund may acquire include
securities representing an interest in a pool of mortgage loans that are issued
or guaranteed by a U.S. government agency. The primary issuers of these
mortgage-backed securities are GNMA, FNMA and FHLMC. The only agency which may
actually guarantee principal or interest is the GNMA. Mortgage-backed securities
are in most cases "pass through" instruments through which the holder receives a
share of all interest and principal payments from the mortgages underlying the
certificates. The mortgage backing these securities include conventional
thirty-year fixed rate mortgages. However, due to scheduled and unscheduled
principal payments on the underlying loans, these securities have a shorter
average maturity and, therefore, less principal volatility than comparable
bonds. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Fund will reinvest the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
For purposes of complying with the Fund's investment policy of acquiring
securities with remaining maturity of ten years or less, the investment adviser
will use the expected life of a mortgage-backed security.
INVESTMENT PRACTICES AND RESTRICTIONS
Risk Factors. Bond prices move inversely to interest rates, i.e. as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
obligations in which each Fund may invest may be variable or floating rate
8
<PAGE>
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. government securities if, in the opinion of each Fund's
investment adviser, market conditions warrant a temporary defensive investment
strategy.
Downgrades. If any security invested in by any of the Funds loses its rating or
has its rating reduced after the Fund has purchased it, the Fund is not required
to sell or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase
agreements are agreements by which a Fund purchases a security (usually U.S.
government securities) for cash and obtains a simultaneous commitment from the
seller (usually a bank or broker/dealer) to repurchase the security at an
agreed-upon price and specified future date. The repurchase price reflects an
agreed-upon interest rate for the time period of the agreement. The Funds risk
is the inability of the seller to pay the agreed-upon price on the delivery
date. However, this risk is tempered by the ability of the Fund to sell the
security in the open market in the case of a default. In such a case, a Fund may
incur costs in disposing of the security which would increase Fund expenses. The
Funds investment adviser will monitor the creditworthiness of the firms with
which the Funds enter into repurchase agreements.
When-Issued And Delayed Delivery Transactions. The Funds may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which a Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause a
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, a Fund may pay more or less than the market value of the securities
on the settlement date. The Funds may dispose of a commitment prior to
settlement if the investment adviser deems it appropriate to do so. In addition,
the Funds may enter into transactions to sell their purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Funds may realize
short-term profits or losses upon the sale of such commitments.
Lending Of Portfolio Securities. In order to generate additional income, a Fund
may lend up to 15% of its portfolio securities on a short-term or long-term
basis to broker/dealers, banks, or other institutional borrowers of securities.
The Funds will only enter into loan arrangements with creditworthy borrowers and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100% of the value of the securities loaned. There is the risk that
when lending portfolio securities, the securities may not be available to a Fund
on a timely basis and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price. In addition, in the event that a borrower of
securities would file for bankruptcy or become insolvent, disposition of the
securities may be delayed pending court action.
Options And Futures. EVERGREEN SHORT-INTERMEDIATE BOND FUND may engage in
options and futures transactions. Options and futures transactions are intended
to enable a Fund to manage market, interest rate or exchange rate risk, and the
Funds do not use these transactions for speculation or leverage.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may attempt to hedge all or a
portion of its portfolio through the purchase of both put and call options on
its portfolio securities and listed put options on financial futures contracts
for portfolio securities. The Fund may also write covered call options on its
portfolio securities to attempt to increase current income. The Fund will
maintain its position in securities, option rights, and segregated cash subject
to puts and calls until the options are exercised, closed, or have expired. An
option position may be closed out only on an exchange which provides a secondary
market for an option of the same series. The Fund may purchase listed put
options on financial futures contracts. These options will be used only to
protect portfolio securities against decreases in value resulting from market
factors such as an anticipated increase in interest rates.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may write (i.e., sell) covered
call and put options. By writing a call option, a 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, a Fund becomes obligated
during the term of the option to purchase the securities underlying the option
at the exercise price if the option is exercised. The Fund also may write
straddles (combinations of covered puts and calls on the same underlying
security). The Fund may
9
<PAGE>
only write "covered" options. This means that so long as a Fund is obligated as
the writer of a call option, it will own the underlying securities subject to
the option or, in the case of call options on U.S. Treasury bills, the Fund
might own substantially similar U.S. Treasury bills. A Fund will be considered
"covered" with respect to a put option it writes if, so long as it is obligated
as the writer of the put option, it deposits and maintains with its custodian in
a segregated account liquid assets having a value equal to or greater than the
exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. A Fund receives a premium from writing a
call or put option it they retains whether or not the option is exercised. By
writing a call option, Funds might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Funds might
become obligated to purchase the underlying securities for more than their
current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If a Fund would enter into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. A Fund
would "go long" (agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may also enter into currency and
other financial futures contracts and write options on such contracts. The Fund
intends to enter into such contracts and related options for hedging purposes.
The Fund will enter into futures on securities, currencies, or index-based
futures contracts in order to hedge against changes in interest or exchange
rates or securities prices. A futures contract on securities or currencies is an
agreement to buy or sell securities or currencies during a designated month at
whatever price exists at that time. A futures contract on a securities index
does not involve the actual delivery of securities, but merely requires the
payment of a cash settlement based on changes in the securities index. The Fund
does not make payment or deliver securities upon entering into a futures
contract. Instead, it puts down a margin deposit, which is adjusted to reflect
changes in the value of the contract and which remains in effect until the
contract is terminated.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may sell or purchase currency and
other financial futures contracts. When a futures contract is sold by the Fund,
the profit on the contract will tend to rise when the value of the underlying
securities or currencies declines and to fall when the value of such securities
or currencies increases. Thus, the Fund sells futures contracts in order to
offset a possible decline in the profit on its securities or currencies. If a
futures contract is purchased by the Fund, the value of the contract will tend
to rise when the value of the underlying securities or currencies increases and
to fall when the value of such securities or currencies declines.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may enter into closing purchase
and sale transactions in order to terminate a futures contract and may buy or
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 the Fund would continue to bear market risk on the
transaction.
Risk Characteristics Of Options And Futures. Although options and futures
transactions are intended to enable EVERGREEN SHORT-INTERMEDIATE TERM BOND FUND
to manage market, exchange, or interest rate risks, these investment devices can
be highly volatile, and the Fund's use of them can result in poorer performance
(i.e., the Fund's returns may be reduced). The Fund's attempt to use such
investment devices for hedging purposes may not be successful. Successful
futures strategies require the ability to predict future movements in securities
prices, interest rates and other economic factors. When the Fund's use financial
futures contracts and options on financial futures contracts as hedging devices,
there is a risk that the prices of the securities subject to the financial
futures contracts and options on financial futures contracts may not correlate
perfectly with the prices of the securities in the Funds' portfolio. This may
cause the financial futures contract and any related options to react to market
10
<PAGE>
changes differently than the portfolio securities. In addition, the Fund's
investment adviser could be incorrect in its expectations and forecasts about
the direction or extent of market factors, such as interest rates, securities
price movements, and other economic factors. Even if the Fund's investment
adviser correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. In these events, the Fund
may lose money on the financial futures contracts or the options on financial
futures contracts. It is not certain that a secondary market for positions in
financial futures contracts or for options on financial futures contracts will
exist at all times. Although the Fund's investment adviser will consider
liquidity before entering into financial futures contracts or options on
financial futures contracts transactions, there is no assurance that a liquid
secondary market on an exchange will exist for any particular financial futures
contract or option on a financial futures contract at any particular time. The
Fund's ability to establish and close out financial futures contracts and
options on financial futures contract positions depends on this secondary
market. If the Fund is unable to close out its position due to disruptions in
the market or lack of liquidity, the Fund may lose money on the futures contract
or option, and the losses to the Fund could be significant.
Zero-Coupon And Stripped Securities. The Funds may invest in zero-coupon and
stripped securities. Zero-coupon securities in which the Funds may invest are
debt obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of the Funds may fluctuate over a greater range than shares of other
mutual funds investing in securities making current distributions of interest
and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment banking firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities". Under the
STRIPS program, the Funds will be able to have their beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidence
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Foreign Investments. EVERGREEN SHORT-INTERMEDIATE BOND FUND may invest in
foreign securities or securities denominated in or indexed to foreign currencies
and EVERGREEN INTERMEDIATE-TERM BOND FUND may invest in U.S. dollar denominated
securities of foreign issuers. In addition, EVERGREEN SHORT-INTERMEDIATE BOND
FUND may invest in foreign currencies. These may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States
11
<PAGE>
because of differences in the legal systems. Foreign securities may be subject
to foreign taxes, which may reduce yield, and may be less marketable than
comparable U.S. securities. All these factors are considered by the investment
adviser before making any of these types of investments.
Risk Characteristics Of Asset-Backed Securities. The Funds may invest in
asset-backed securities. Asset-backed securities are created by the grouping of
certain governmental, government-related and private loans, receivables and
other lender assets into pools. Interests in these pools are sold as individual
securities. Payments from the asset pools may be divided into several different
tranches of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which may
be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Funds receive from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as CMOs,
prepayments may be allocated to one tranche of securities ahead of other
tranches, in order to reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Funds to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Funds which would be taxed as ordinary
income when distributed to the shareholders. The credit characteristics of
asset-backed securities also differ in a number of respects from those of
traditional debt securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets underlying such
securities, how well the entity issuing the securities is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement to such securities.
Borrowing. As a matter of fundamental policy, the Funds may not borrow money
except as a temporary measure to facilitate redemption requests or for
extraordinary or emergency purposes. The proceeds from borrowings may be used to
facilitate redemption requests which might otherwise require the untimely
disposition of portfolio securities. The specific limits applicable to borrowing
by each Fund are set forth in the Statement of Additional Information.
Restricted And Illiquid Securities. EVERGREEN SHORT-INTERMEDIATE BOND FUND may
invest up to 10% of its net assets in securities which are subject to
restrictions on resale under federal securities law. This restriction is not
applicable to commercial paper issued under Section 4(2) of the Securities Act
of 1933. EVERGREEN SHORT-INTERMEDIATE BOND FUND, EVERGREEN INTERMEDIATE-TERM
BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND may invest
up to 10% of their net assets in illiquid securities. Illiquid securities
include certain restricted securities not determined by the Trustees to be
liquid, non-negotiable time deposits, and repurchase agreements providing for
settlement in more than seven days after notice.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
The management of each Fund is supervised by the Trustees of the Trust
under which the Fund is organized. CMG of FUNB serves as investment adviser to
each Fund. FUNB is a subsidiary of First Union, the sixth largest bank holding
company in the United States. First Union is headquartered in Charlotte, North
Carolina, and had $143 billion in consolidated assets as of June 30, 1997. First
Union and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States. The investment advisory
affiliates of FUNB manage or otherwise oversee the investment of over $61.9
billion in assets belonging to a wide range of clients, including all of the
Evergreen Keystone funds.
12
<PAGE>
CMG manages investments and supervises the daily business affairs of each
Fund and, as compensation therefor, is entitled to receive an annual fee equal
to 0.50% of the average daily net assets of EVERGREEN SHORT-INTERMEDIATE BOND
FUND and 0.60% of the average daily net assets of EVERGREEN INTERMEDIATE-TERM
BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND. The total
annualized operating expenses of each Fund for the fiscal period ended June 30,
1996, expressed as a percentage of average net assets on an annual basis, are
set forth in the section entitled "Financial Highlights".
PORTFOLIO MANAGERS
Thomas L. Ellis, a Vice President of FUNB, has been the portfolio manager
of EVERGREEN SHORT- INTERMEDIATE BOND FUND since its inception in 1988. Prior to
joining FUNB in 1985, Mr. Ellis had seventeen years investment management and
sales experience, including eleven years marketing short and medium-term
obligations to institutional investors, and three years as head trader of First
Boston Corporation.
Bruce Besecker, a Vice President of FUNB, has been the portfolio manager
of EVERGREEN INTERMEDIATE-TERM BOND FUND since its inception in 1991. Prior to
joining FUNB, Mr. Besecker was a Vice President in the Fixed Income Unit of the
Financial Management Department of First Fidelity, N.A. ("First Fidelity").
The portfolio manager of EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND since its inception in 1991 has been Robert Cheshire. Mr.
Cheshire is a Vice President of FUNB and was formerly a Vice President in the
Institutional Asset Management Group of First Fidelity since 1990.
ADMINISTRATOR
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as
administrator to the Funds, subject to the supervision and control of the
Trustees of the Trust under which each Fund has been established. EKIS provides
facilities, equipment and personnel to the Funds and is entitled to receive a
fee based on the aggregate average daily net assets of all the mutual funds for
which FUNB affiliates serve as investment adviser, calculated in accordance with
the following schedule:
<TABLE>
<CAPTION>
Administration Fee
<S> <C>
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
</TABLE>
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), distributor for the Evergreen Keystone Funds, serves
as sub-administrator to the Funds and is entitled to receive a fee based on the
aggregate average daily net assets of all the mutual funds for which FUNB
affiliates serve as investment adviser, calculated in accordance with the
following schedule:
<TABLE>
<CAPTION>
Sub-Administration Fee
<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 serve as
investment advisers were approximately $30.5 billion as of June 30, 1997.
13
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Class Y shares are offered at net asset value without a front-end sales
charge or a contingent deferred sales load. Class Y shares are only offered to
(i) persons who at or prior to December 31, 1994, owned shares in a mutual fund
advised by Evergreen Asset Management Corp. ("Evergreen Asset"), (ii) certain
institutional investors and (iii) investment advisory clients of CMG or FUNB
affiliates.
Eligible investors may purchase Class Y shares of any of the Funds
through broker-dealers, banks or other financial intermediaries, or directly
through EKD. In addition, you may purchase Class Y shares of any of the Funds by
mailing to that Fund, c/o Evergreen Keystone Service Company ("EKSC"), P.O. Box
2121, Boston, Massachusetts 02106-2121, a completed 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 Application. The minimum initial investment is $1,000, which
may be waived in certain situations. Subsequent investments in any amount may be
made by check, by wiring federal funds, by direct deposit or by an electronic
funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the Application
for more information. Only Class Y shares are offered through this Prospectus
(see "General Information" -- "Other Classes of Shares").
How the Funds Value their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees of each Trust under which each Fund operates
believe would accurately reflect fair value. Non-dollar denominated securities
will be valued as of the close of the Exchange at the closing price of such
securities in their principal trading markets.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen Keystone funds.
The Funds will not accept third party checks other than those payable directly
to a shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may redeem Class Y shares in a Fund to the Fund for cash, at their
net redemption value on any day the Exchange is open, either by writing to the
Fund, c/o EKSC, or through your financial intermediary. The amount you will
receive is based on the net asset value adjusted for fractions of a cent next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares recently
purchased by check, a Fund will not send proceeds until it is reasonably
satisfied that the check has been collected (which may take up to 15 days). Once
a redemption request has been telephoned or mailed, it is irrevocable and may
not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service. Certain financial intermediaries may require that you give
instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC; the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, and many commercial banks.
Additional documentation is
14
<PAGE>
required for the sale of shares by corporations, financial intermediaries,
fiduciaries and surviving joint owners. Signature guarantees are required for
all redemption requests for shares with a value of more than $50,000. Currently,
the requirement for a signature guarantee has been waived on redemptions of
$50,000 or less when the account address of record has been the same for a
minimum period of 30 days. Each Fund and EKSC reserve the right to withdraw this
waiver at any time. A signature guarantee must be provided by a bank or trust
company (not a Notary Public), a member firm of a domestic stock exchange or by
other financial institutions whose guarantees are acceptable under the
Securities Exchange Act of 1934 and EKSC's policies.
Shareholders may withdraw amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or EKSCs
offices are closed). The Exchange is closed on New Years Day, Martin Luther King
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Redemption requests received after 4:00 p.m.
(Eastern time) will be processed using the net asset value determined on the
next business day. Such redemption requests must include the shareholder's
account name, as registered with a Fund, and the account number. During periods
of drastic economic or market changes, shareholders may experience difficulty in
effecting telephone redemptions. If you cannot reach the Fund by telephone, you
should follow the procedures for redeeming by mail or through a broker-dealer as
set forth herein. The telephone redemption service is not made available to
shareholders automatically. Shareholders wishing to use the telephone redemption
service must complete the appropriate sections on the Application and choose how
the redemption proceeds are to be paid. Redemption proceeds will either (i) be
mailed by check to the shareholder at the address in which the account is
registered or (ii) be wired to an account with the same registration as the
shareholder's account in a Fund at a designated commercial bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. Each 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, the Funds, EKSC, and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen Keystone Express Line or by telephone are genuine.
The Funds, EKSC, and EKD will not be liable when following instructions received
over the Evergreen Keystone Express Line or by telephone that EKSC reasonably
believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone Express Line offers you
specific fund account information and 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.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their 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 Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for thirty days. Shareholders will receive sixty
days' written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of a Fund's total net assets, during
any ninety day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your Class Y shares for
shares of the same Class in the other Evergreen Keystone funds through your
financial intermediary, by calling or writing to EKSC or by using the Evergreen
Keystone Express Line as described above. Once an exchange request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Exchanges will be made on the basis of the relative
15
<PAGE>
net asset values of the shares exchanged next determined after an exchange
request is received. An exchange which represents an initial investment in
another Evergreen Keystone fund is subject to the minimum investment and
suitability requirements of each Fund.
Each of the Evergreen Keystone funds has different investment objectives
and policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges By Telephone And Mail. Exchange requests received by a Fund after 4:00
p.m. (Eastern time) will be processed using the net asset value determined at
the close of the next business day. During periods of drastic economic or market
changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach EKSC by telephone. If you wish to use the telephone
exchange service you should indicate this on the Application. As noted above,
each Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by a Fund or EKSC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares"; however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, EKSC
or call the toll-free number on the front page of this Prospectus. Some services
are described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may invest not less than $100 or more than
$10,000 per investment into an existing account. 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 Funds' Systematic
Investment Plan or Telephone Investment Plan may not be redeemed for ten days
from the date of investment.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and may be
as much as 1.0% per month or 3.0% 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.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
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.
16
<PAGE>
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen Keystone fund. You should designate on the Application
(i) the dollar amount of each monthly or quarterly investment you wish to make,
and (ii) 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.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Class Y Evergreen Keystone fund shares you 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.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Salary
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity Plans;
403(b)(7) Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; Pension and
Target Benefit and Money Purchase Plans. For details, including fees and
application forms, call toll free 1-800-247-4075 or write to EKSC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. 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. CMG is
subject to and in compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in CMG being prevented from continuing to
perform the services required under the investment advisory contract or from
acting as agent in connection with the purchase of shares of a Fund by its
customers. If CMG was prevented from continuing to provide the services called
for under the investment advisory agreement, it is expected that the Trustees
would identify, and call upon each Fund's shareholders to approve, a new
investment adviser. If this were to occur, it is not anticipated that the
shareholders of any Fund would suffer any adverse financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
For each Fund, net income dividends, if any, are declared and paid
monthly. Distributions of any net realized capital gains of the Funds will be
made at least annually or more frequently. Dividends and distributions generally
are taxable in the year in which they are paid, except any dividends paid in
January that were declared in the previous calendar quarter will be treated as
paid in December of the previous year. Income dividends and capital gain
distributions are automatically reinvested in additional shares of the Fund
making the distribution at the net asset value per share at the close of
business on the record date, unless the shareholder has made a written request
for payment in cash.
Each Fund has qualified and intends to continue to qualify to be treated
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). While so qualified, it is expected that each Fund will not
be required to pay any Federal income taxes on that portion of its investment
company taxable income and any net realized capital gains it distributes to
shareholders. The Code imposes a 4% nondeductible excise tax on regulated
investment companies, such as the Funds, to the extent they do not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements. Most shareholders of the
Funds normally will have to pay Federal income taxes and any state or local
taxes on the dividends and distributions they receive from a Fund whether such
dividends and distributions are made in cash or in additional shares. Questions
on how any distributions will be taxed to the investor should be directed to the
investor's own tax adviser.
Following the end of each calendar year, every shareholder of the Funds
will be sent applicable tax information and information regarding the dividends
and capital gain distributions made during the calendar year.
17
<PAGE>
A Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States Federal income tax may be entitled, subject to certain
rules and limitations, to claim a Federal income tax credit or deduction for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional details. A Fund's transactions in options, futures and forward
contracts may be subject to special tax rules. These rules can affect the
amount, timing and characteristics of distributions to shareholders.
Each Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions, if any, and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, you must certify on the Application, or on a separate
form supplied by the Funds' transfer agent that your social security or taxpayer
identification number is correct and that you are not currently subject to
backup withholding or are exempt from backup withholding.
The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the Statement of
Additional Information. In addition, you should consult your own tax adviser as
to the tax consequences of investments in the Funds, including the application
of state and local taxes which may be different from Federal income tax
consequences described above.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with the Fund.
Organization. EVERGREEN SHORT-INTERMEDIATE BOND FUND is a separate investment
series of Evergreen Investment Trust, which is a Massachusetts business trust
organized in 1984. EVERGREEN INTERMEDIATE-TERM BOND FUND AND EVERGREEN
INTERMEDIATE-TERM GOVERMENT SECURITIES FUND are separate investment series of
The Evergreen Lexicon Fund, which is a Massachusetts business trust organized in
1991. The Funds do not intend to hold annual shareholder meetings; shareholder
meetings will be held only when required by applicable law. Shareholders have
available certain procedures for the removal of Trustees.
A shareholder in each Class of a Fund will be entitled to his or her
share of all dividends and distributions from a Fund's assets, based upon the
relative value of such shares to those of other Classes of the Fund, and, upon
redeeming shares, will receive the then current net asset value of the Class of
shares of the Fund represented by the redeemed shares less any applicable
contingent deferred sales charge. Each Trust named above is empowered to
establish, without shareholder approval, additional investment series, which may
have different investment objectives, and additional Classes of shares for any
existing or future series. If an additional series or Class were established in
a Fund, each share of the series or Class would normally be entitled to one vote
for all purposes. Generally, shares of each series and Class would vote together
as a single Class on matters, such as the election of Trustees, that affect each
series and Class in substantially the same manner. Class A, Class B, Class C and
Class Y shares have identical voting, dividend, liquidation and other rights,
except that each Class bears, to the extent applicable, its own distribution and
transfer agency expenses as well as any other expenses applicable only to a
specific Class. Each Class of shares votes separately with respect to Rule 12b-1
distribution plans and other matters for which separate Class voting is
appropriate under applicable law. Shares are entitled to dividends as determined
by the Trustees and, in liquidation of a Fund, are entitled to receive the net
assets of the Fund.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as each Fund's custodian.
Registrar, Transfer Agent and Dividend-Disbursing Agent. Evergreen Keystone
Service Company, P.O. Box 2121, Boston, Massachusetts 02106-2121 serves as each
Fund's registrar, transfer agent and dividend-disbursing agent.
Principal Underwriter. EKD, an affiliate of BISYS, is located at 125 W. 55th
Street, New York, New York 10019, and is the principal underwriter of the Funds.
BISYS also acts as sub-administrator to the Funds and provides personnel to
serve as officers of the Funds.
Other Classes of Shares. Each Fund currently offers four classes of shares,
Class A, Class B, Class C and Class Y, and may in the future offer additional
classes. Class Y shares are the only class of shares offered by this
18
<PAGE>
Prospectus and are only available to (i) persons who at or prior to December 31,
1994, owned shares in a mutual fund advised by Evergreen Asset Management Corp.,
(ii) certain institutional investors and (iii) investment advisory clients of
CMG or FUNB affiliates. The dividends payable with respect to Class A, Class B
and Class C shares will be less than those payable with respect to Class Y
shares due to the distribution and shareholder servicing-related expenses borne
by Class A, Class B and Class C shares and the fact that such expenses are not
borne by Class Y shares.
Performance Information. A Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. A Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Funds' financial statements. To calculate yield, a Fund takes
the interest income it earned from its portfolio of investments (as defined by
the SEC formula) for a 30-day period (net of expenses), divides it by the
average number of shares entitled to receive dividends, and expresses the result
as an annualized percentage rate based on a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all the
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in the Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc. and Morningstar, Inc. and other industry publications. A Fund may
also advertise in items of sales literature an "actual distribution rate" which
is computed by dividing the total ordinary income distributed (which may include
the excess of short-term capital gains over losses) to shareholders for the
latest twelve month period by the maximum public offering price per share on the
last day of the period. Investors should be aware that past performance may not
be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen Keystone funds, products, and services, which may include:
retirement investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the information provided to investors may quote financial
or business publications and periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques. The materials may also reprint, and use as advertising
and sales literature, articles from EVERGREEN KEYSTONE EVENTS, a quarterly
magazine provided free of charge to Evergreen Keystone fund shareholders.
Liability Under Massachusetts Law. Under Massachusetts law, Trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declaration of Trust under which each
Fund operates provide that no Trustee or shareholder will be personally liable
for the obligations of the Trust and that every written contract made by the
Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act of 1933, as amended. Copies of the
Registration Statements may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the offices of the SEC in Washington, D.C.
19
<PAGE>
INVESTMENT ADVISERS
Capital Management Group of First Union National Bank, 210 South College
Street, Charlotte, North Carolina, 28228
EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
TRANSFER AGENT
Evergreen Keystone Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C.
20036
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 125 W. 55th Street, New York, New York
10019
61334 541693
<PAGE>
EVERGREEN SHORT-INTERMEDIATE TERM BOND FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1997
EVERGREEN KEYSTONE SHORT AND INTERMEDIATE TERM BOND FUNDS
200 Berkeley Street, Boston, Massachusetts 02116
800-343-2898
Evergreen Short-Intermediate Bond Fund ("Short-Intermediate")
Evergreen Intermediate-Term Bond Fund ("Evergreen Intermediate")
Evergreen Intermediate-Term
Government Securities Fund ("Intermediate Government")
Keystone Capital Preservation and Income Fund ("Capital Preservation")
Keystone Intermediate Term Bond Fund ("Keystone Intermediate")
This Statement of Additional Information pertains to all classes of
shares of the Funds listed above. It is not a prospectus and should be read in
conjunction with the Prospectus dated September 3, 1997, as supplemented from
time to time, for the Fund in which you are making or contemplating an
investment. The Evergreen Keystone Short and Intermediate Term Bond Funds are
offered through two separate Prospectuses: one offering Class A, Class B and
Class C shares of Short-Intermediate, Evergreen Intermediate, Intermediate
Government, Capital Preservation and Keystone Intermediate, and a separate
prospectus offering Class Y shares of Short-Intermediate, Evergreen Intermediate
and Intermediate Government. Copies of each Prospectus may be obtained without
charge by calling the number listed above.
TABLE OF CONTENTS
Investment Objectives and Policies...............................3
Investment Restrictions.........................................15
Certain Risk Considerations.....................................20
Management......................................................20
Investment Advisers.............................................29
Distribution Plans..............................................33
Allocation of Brokerage.........................................35
Additional Tax Information......................................37
Net Asset Value.................................................39
Purchase of Shares..............................................40
General Information about the Funds.............................51
Performance Information.........................................53
Financial Statements............................................57
Appendix A......................................................59
21467
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds Investment Objectives and Policies" in
each Fund's Prospectus)
The investment objective of each Fund and a description of the securities
in which each Fund may invest is set forth under "Description of the Funds
Investment Objectives and Policies" in the relevant Prospectus. The investment
objectives of each Fund are fundamental and cannot be changed without the
approval of shareholders. The following expands the discussion in the Prospectus
regarding certain investments of each Fund.
Types of Investments
United States ("U.S.") Government Obligations (All Funds)
The types of U.S. government obligations in which the Funds may invest
generally include obligations issued or guaranteed by U.S. government agencies
or instrumentalities.
These securities are backed by:
(1)the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
(2)the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive
financial support from the U.S. government are:
(i)Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association;
(vi) Government National Mortgage Association; and
vii) Student Loan Marketing Association
GNMA Securities. The Funds may invest in securities issued by the Government
National Mortgage Association ("GNMA"), a wholly-owned U.S. government
corporation, which guarantees the timely payment of principal and interest, but
not premiums paid to purchase these instruments. The market value and interest
yield of these instruments can vary due to market interest rate fluctuations and
early prepayments of underlying mortgages. These securities represent ownership
in a pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly scheduled
payments of principal and interest. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price to its par value, which may result in a loss.
Mortgage-Backed or Asset-Backed Securities. Short-Intermediate, Evergreen
Intermediate, and Keystone Intermediate may invest in mortgage-backed securities
and asset-backed securities. Capital Preservation may invest in mortgage-backed
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Two principal types of mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the scheduled payments of interest
and principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Funds may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, each Fund's Adviser (as
hereinafter defined) considers the financial strength of the guarantor or other
provider of credit support, the type and extent of credit enhancement provided
as well as the documentation and structure of the issue itself and the credit
support.
Restricted and Illiquid Securities (All Funds)
The ability of the Board of Trustees of Evergreen Investment Trust, in
the case of Short-Intermediate, The Evergreen Lexicon Trust, in the case of
Evergreen Intermediate and Intermediate Government, Capital Preservation and
Keystone Intermediate ("Trustees") to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for sale under the
Rule. The Funds which invest in Rule 144A securities believe that the Staff of
the SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under the Rule) for determination by the
Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
Variable or Floating Rate Instruments
Certain of the investments of Evergreen Intermediate, Intermediate
Government, Capital Preservation and Keystone Intermediate may include variable
or floating rate instruments which may involve a demand feature and may include
variable amount master demand notes which may or may not be backed by bank
letters of credit. Variable or floating rate instruments bear interest at a rate
which varies with changes in market rates. The holder of an instrument with a
demand feature may tender the instrument back to the issuer at par prior to
maturity. A variable amount master demand note is issued pursuant to a written
agreement between the issuer and the holder, its amount may be increased by the
holder or decreased by the holder or issuer, it is payable on demand, and the
rate of interest varies based upon an agreed formula. The quality of the
underlying credit must, in the opinion of each Fund's Adviser, be equivalent to
the long-term bond or commercial paper ratings applicable to permitted
investments for each Fund. The Adviser will monitor, on an ongoing basis, the
earning power, cash flow, and liquidity ratios of the issuers of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
When-Issued and Delayed Delivery Securities (All Funds)
The Funds may enter into securities transactions on a when-issued
basis. These transactions involve the purchase of debt obligations on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of commitment to purchase. The Funds will only make
commitments to purchase obligations on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery. Capital Preservation
and Keystone Intermediate do not intend to invest more than 5% of their assets
in when issued or delayed delivery transactions.
Segregated accounts will be established with the custodian, and Short-
Intermediate, Evergreen Intermediate and Intermediate Government will maintain
liquid assets in an amount at least equal in value to a Fund's commitments to
purchase when-issued securities. If the value of these assets declines, a Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause segregation of more than 20%, of the
total value of their assets.
Lending of Portfolio Securities (All Funds)
The Funds may lend securities pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. government or its agencies,
or any combination of cash and such securities, as collateral equal at all times
to 100% of the market value of the securities lent. The collateral received when
a Fund lends portfolio securities must be valued daily and, should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to the lending Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Fund or the
borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. A Fund
does not have the right to vote securities on loan, but would terminate the loan
and regain the right to vote if that were considered important with respect to
the investment. Any loan may be terminated by either party upon reasonable
notice to the other party. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by the Adviser to be of good
standing and when, in the judgment of the Adviser, the consideration which can
be earned currently from such securities loans justifies the attendant risk.
Such loans will not be made if, as a result, the aggregate amount of all
outstanding securities loans for Evergreen Intermediate and Intermediate
Government exceed one-third of the value of a Fund's total assets taken at fair
market value. Loans of securities by Short-Intermediate, Capital Preservation
and Keystone Intermediate are limited to 15% of each Fund's total assets.
Reverse Repurchase Agreements
Short-Intermediate, Capital Preservation and Keystone Intermediate may
also enter into reverse repurchase agreements. These transactions are similar to
borrowing cash. In a reverse repurchase agreement, a Fund transfers possession
of a portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market value
in cash, and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Options and Futures Transactions
Options in which Short-Intermediate trades must be listed on national
securities exchanges.
Purchasing Put and Call Options on Financial Futures Contracts
Short-Intermediate may purchase listed put and call options on
financial futures contracts for U.S. Government securities. Keystone
Intermediate may enter into currency and other financial futures contracts and
related options transactions for hedging purposes and not for speculation.
Unlike entering directly into a futures contract, which requires the purchaser
to buy a financial instrument on a set date at an undetermined price, the
purchase of a put option on a futures contract entitles (but does not obligate)
its purchaser to decide on or before a future date whether to assume a short
position at the specified price.
A Fund may purchase put and call options on futures to protect
portfolio securities against decreases in value resulting from an anticipated
increase in market interest rates. Generally, if the hedged portfolio securities
decrease in value during the term of an option, the related futures contracts
will also decrease in value and the put option will increase in value. In such
an event, a Fund will normally close out its option by selling an identical put
option. If the hedge is successful, the proceeds received by the Fund upon the
sale of the put option plus the realized decrease in value of the hedged
securities.
Alternately, a Fund may exercise its put option to close out the
position. To do so, it would enter into a futures contract of the type
underlying the option. If the Fund neither closes out nor exercises an option,
the option will expire on the date provided in the option contract, and the
premium paid for the contract will be lost.
Purchasing Options
Short-Intermediate may purchase both put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which a Fund holds or will be purchasing against decreases or
increases in value. A Fund may purchase call and put options for the purpose of
offsetting previously written call and put options of the same series. If the
Fund is unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised.
Keystone Intermediate may purchase call and put options to close out
existing positions.
Short-Intermediate intends to purchase put and call options on currency
and other financial futures contracts for hedging purposes. A put option
purchased by the Fund would give it the right to assume a position as the seller
of a futures contract. A call option purchased by the Fund would give it the
right to assume a position as the purchaser of a futures contract. The purchase
of an option on a futures contract requires the Fund to pay a premium. In
exchange for the premium, the Fund becomes entitled to exercise the benefits,
if any, provided by the futures contract, but is not required to take any action
under the contract. If the option cannot be exercised profitably before it
expires, the Fund's loss will be limited to the amount of the premium and any
transaction costs.
Short-Intermediate currently does not intend to invest more than 5% of
its net assets in options transactions.
Short-Intermediate may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for related
options would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases futures contracts, an amount of cash and cash equivalents, equal
to the underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with the Fund's
custodian (or the broker, if legally permitted) to collateralize the position
and thereby insure that the purchase of such futures contracts is unleveraged.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, a Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, a Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by a Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, a Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Derivatives - Keystone Intermediate Only
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes. Each of these uses entails greater risk than if
derivatives were used solely for hedging purposes. The Fund uses futures
contracts and related options for hedging purposes. Derivatives are a valuable
tool which, when used properly, can provide significant benefit to Fund
shareholders. Keystone Investment Management Company ("Keystone") is not an
aggressive user of derivatives with respect to the Fund. However, the Fund may
take positions in those derivatives that are within its investment policies if,
in Keystone's judgement, this represents an effective response to current or
anticipated market conditions. Keystone's use of derivatives is subject to
continuous risk assessment and control from the standpoint of the Fund's
investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options,
futures, forwards and swaps -- from which virtually any type of derivative
transaction can be created.
Debt instruments that incorporate one or more of these building blocks
for the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities." An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued in
connection with the restructuring of certain foreign obligations. The term
"derivative" is also sometimes used to describe securities involving rights to a
portion of the cash flows from an underlying pool of mortgages or other assets
from which payments are passed through to the owner of, or that collateralize,
the securities.
While the judicious use of derivatives by experienced investment managers
such as Keystone can be beneficial, derivatives also involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in the Fund.
o Market Risk -- This is the general risk attendant to all investments
that the value of a particular investment will decline or otherwise
change in a way detrimental to the Fund's interest.
o Management Risk -- Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of a
derivative requires an understanding not only of the underlying
instrument, but also of the derivative itself, without the benefit of
observing the performance of the derivative under all possible market
conditions. In particular, the use and complexity of derivatives
require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess
the risk that a derivative adds to the Fund's portfolio and the ability
to forecast price, interest rate or currency exchange rate movements
correctly.
o Credit Risk -- This is the risk that a loss may be sustained by the
Fund as a result of the failure of another party to a derivative
(usually referred to as a "counterparty") to comply with the terms of
the derivative contract. The credit risk for exchange traded
derivatives is generally less than for privately negotiated
derivatives, since the clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee
of performance. This guarantee is supported by a daily payment system
(i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there
is no similar clearing agency guarantee. Therefore, the Fund considers
the creditworthiness of each counterparty to a privately negotiated
derivative in evaluating potential credit risk.
o Liquidity Risk -- Liquidity risk exists when a particular instrument
is difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
o Leverage Risk -- Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
o Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are
complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counter parties or a loss of
value to a Fund. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, the Fund's use of derivatives
may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
Writing Put and Call Options - Short-Intermediate and Keystone Intermediate Only
A Fund may write (i.e., sell) covered call and put options. By writing
a call option, the Fund becomes obligated during the term of the option to
deliver the securities underlying the option upon payment of the exercise price.
By writing a put option, the Fund becomes obligated during the term of the
option to purchase the securities underlying the option at the exercise price if
the option is exercised. Short-Intermediate also may write straddles
(combinations of covered puts and calls on the same underlying security).
The Funds may only write "covered" options. This means that so long as a
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written options against all of its securities which are available
for writing options, the Fund may be unable to write additional options unless
it sells a portion of its portfolio holdings to obtain new securities against
which it can write options. If this were to occur, higher portfolio turnover and
correspondingly greater brokerage commissions and other transaction costs may
result. However, each Fund does not expect that this will occur.
Each Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of the put option, it
deposits and maintains with its custodian in a segregated account liquid assets
having a value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through
a receipt of premiums, a greater current return than would be realized on the
underlying securities alone. A Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, a Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
Section 4(2) Commercial Paper
Short-Intermediate may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2)of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Fund, who agrees that it is purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2)commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Fund's Adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Fund does not intend to subject such paper to
the limitation applicable to restricted securities.
Repurchase Agreements (All Funds)
Certain of the investments of the Funds may include agreements which
are agreements by which a person (e.g., a Fund) obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or recognized securities dealer) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
A Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Trustees.
Foreign Securities
Short-Intermediate may invest up to 20% of its assets in foreign
securities or U.S. securities traded in foreign markets and Evergreen
Intermediate may invest in U.S. dollar denominated obligations or securities of
foreign issuers. Keystone Intermediate may invest in foreign securities and in
securities denominated in foreign currencies. Permissible investments may
consist of obligations of foreign branches of U.S. banks and of foreign banks,
including European certificates of deposit, European time deposits, Canadian
time deposits and Yankee certificates of deposit, and investments in Canadian
commercial paper, foreign securities and Europaper. These instruments may
subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
Foreign Currency Transactions
As one way of managing exchange rate risk, Short-Intermediate and
Keystone Intermediate may enter into forward currency exchange contracts
(agreements to purchase or sell currencies at a specified price and date). The
exchange rate for the transaction (the amount of currency the Fund will deliver
and receive when the contract is completed) is fixed when a Fund enters into the
contract. A Fund usually will enter into these contracts to stabilize the U.S.
dollar value of a security it has agreed to buy or sell. A Fund intends to use
these contracts to hedge the U.S. dollar value of a security it already owns,
particularly if the Fund expects a decrease in the value of the currency in
which the foreign security is denominated. Although the Fund will attempt to
benefit from using forward contracts, the success of its hedging strategy will
depend on the Adviser's ability to predict accurately the future exchange rates
between foreign currencies and the U.S. dollar. The value of a Fund's
investments denominated in foreign currencies will depend on the relative
strengths of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the U.S. dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by a Fund. A Fund
may also purchase and sell options related to foreign currencies in connection
with hedging strategies.
Short-Intermediate will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the Fund's assets
denominated in that currency, but as consistent with its other investment
policies, is not otherwise limited in its ability to use this strategy.
Interest Rate Transactions - Swaps, Caps and Floors
Capital Preservation and Keystone Intermediate
If a Fund enters into interest rate swap, cap or floor transactions, it
expects to do so primarily for hedging purposes, which may include preserving a
return or spread on a particular investment or portion of its portfolio or
protecting against an increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use these transactions
in a speculative manner.
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a contractually-based principal
("notional") amount from the party selling the interest rate cap or floor. The
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to a Fund from
interest rate transactions is limited to the net amount of interest payments
that the Fund is contractually obligated to make.
Other Investments
The Funds are not prohibited from investing in obligations of banks
which are clients of the Distributor (as herein after defined). However, the
purchase of shares of the Funds by such banks or by their customers will not be
a consideration in determining which bank obligations the Funds will purchase.
The Funds will not purchase obligations of its Adviser or its affiliates.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by each Fund's
Adviser without shareholder approval, subject to review and approval by the
Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1.....Concentration of Assets in Any One Issuer
Diversification of Investments
With respect to 75% of the value of its assets, a Fund will not purchase
securities of any one issuer (other than cash, cash items or securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities) if as a
result more than 5% of the value of its total assets would be invested in the
securities of the issuer. Evergreen Intermediate and Intermediate Government
will not acquire more than 10% of the outstanding voting securities of any one
issuer.
2.....Purchase of Securities on Margin
......No Fund will purchase securities on margin, except that each Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions.
A deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options transactions is
not considered the purchase of a security on margin.
3.....Unseasoned Issuers
......Neither Short-Intermediate*, Capital Preservation or Keystone Intermediate
may invest more than 5% of its total assets in securities of unseasoned issuers
that have been in continuous operation for less than three years, including
operating periods of their predecessors.
4.....Underwriting
......Short-Intermediate, Evergreen Intermediate and Intermediate Government
will not underwrite any issue of securities except as they may be deemed an
underwriter under the Securities Act of 1933 in connection with the sale of
securities in accordance with their investment objectives, policies and
limitations.
......Capital Preservation and Keystone Intermediate will not underwrite
securities of other issuers, except that each Fund may purchase securities from
the issuer or others and dispose of such securities in a manner consistent with
its investment objective.
5.....Interests in Oil, Gas or Other Mineral Exploration or Development
Programs.
Short-Intermediate*, Evergreen Intermediate and Intermediate Government
will not purchase interests in oil, gas or other mineral exploration or
development programs or eases, although each Fund may purchase the securities of
other issuers which invest in or sponsor such programs.
6.....Concentration in Any One Industry
......Short-Intermediate will not invest more than 25% of the value of its total
assets in any one industry except the Fund may invest more than 25% of its total
assets in securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities.
......Keystone Intermediate may not purchase any security (other than U.S.
government securities) of any issuer if as a result more than 25% of its total
assets would be invested in a single industry; except that (a) there is no
restriction with respect to obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities' (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; (c)
the industry classification of utilities will be determined according to their
services (for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; and (d) the industry classification of
medically related industries will be determined according to their services (for
example, management, hospital supply, medical equipment and pharmaceuticals will
each be considered a separate industry).
7.....Warrants
......Short-Intermediate*, Evergreen Intermediate* and Intermediate Government*
will not invest more than 5% of their assets in warrants, including those
acquired in units or attached to other securities. For purposes of this
restriction, warrants acquired by the Funds in units or attached to securities
may be deemed to be without value.
8.....Ownership by Trustees/Officers
None of Short-Intermediate*, Evergreen Intermediate or Intermediate
Government may purchase or retain the securities of any issuer if (i) one or
more officers or Trustees of a Fund or its investment adviser individually
owns or would own, directly or beneficially, more than 1/2 of 1% of the
securities of such issuer, and (ii) in the aggregate, such persons own or would
own, directly or beneficially, more than 5% of such securities.
9.....Short Sales
......Short-Intermediate, Capital Preservation and Keystone Intermediate will
not make short sales of securities or maintain a short position, unless at all
times when a short position is open it owns an equal amount of such securities
or of securities which, without payment of any further consideration are
convertible into or exchangeable for securities of the same issue as, and equal
in amount to, the securities sold short.
The use of short sales will allow a Fund to retain certain bonds in its
portfolio longer than it would without such sales. To the extent that the Fund
receives the current income produced by such bonds for a longer period than it
might otherwise, the Fund's investment objective is furthered.
......Evergreen Intermediate and Intermediate Government will not sell any
securities short.
10....Lending of Funds and Securities
......Short-Intermediate will not lend portfolio securities valued at more than
15% of its total assets to broker-dealers.
......Capital Preservation and Keystone Intermediate may not make loans, except
that a Fund may (a) purchase or hold debt securities consistent with its
investment objective, (b) lend portfolio securities valued at not more than 15%
of its total assets to broker-dealers and (c) enter into repurchase agreements.
......Evergreen Intermediate and Intermediate Government may not make loans,
except that (a) a Fund may purchase or hold debt instruments in accordance with
its investment objective and policies; (b) a Fund may enter into repurchase
agreements, and (c) the Funds may engage in securities lending as described in
the Prospectus and in this Statement of Additional Information.
11....Commodities
......Short-Intermediate will not purchase or sell commodities or commodity
contracts; however, the Fund may enter into futures contracts on financial
instruments or currency and sell or buy options on such contracts. Evergreen
Intermediate and Intermediate Government may not purchase commodities or
commodities contracts. However, subject to their permitted investments, any Fund
may invest in companies which invest in commodities and commodities contracts.
......Capital Preservation and Keystone Intermediate may not purchase or sell
commodities or commodity contracts.
12....Real Estate
......Short-Intermediate may not buy or sell real estate although the Fund may
invest in securities of companies whose business involves the purchase or sale
of real estate or in securities which are secured by real estate or interests in
real estate.
......Evergreen Intermediate and Intermediate Government may not purchase or
sell real estate, real estate limited partnership interests, and interests in a
pool of securities that are secured by interests in real estate. However,
subject to their permitted investments, any Fund may invest in companies which
invest in real estate.
......Capital Preservation and Keystone Intermediate may not purchase or sell
real estate, except that each Fund may purchase and sell securities secured by
real estate and securities of companies which invest in real estate, and may
engage in financial futures contracts and related options transactions.
13....Borrowing, Senior Securities, Reverse Repurchase Agreements
......Evergreen Intermediate and Intermediate Government will not borrow money
except as a temporary measure for extraordinary or emergency purposes in an
amount up to one-third of the value of total assets, including the amounts
borrowed. Any borrowing will be done from a bank and to the extent such
borrowing exceeds 5% of the value of a Fund's total assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any time
fall below 300%, the Fund shall within three days thereafter or such longer
period as the Securities and Exchange Commission (the "SEC") may prescribe by
rules and regulations, reduce the amount of its borrowings to such an extent
that the asset coverage of such borrowings shall be at least 300%. This
borrowing provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate heavy redemption requests if they should
occur and is not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such borrowings will
reduce income.
Short-Intermediate may borrow only in amounts not in excess of 5% of
the value of its total assets in order to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The entry by Short-Intermediate into futures contracts shall be
deemed a borrowing. Any such borrowings need not be collateralized.
Short-Intermediate will not purchase any securities while borrowings in excess
of 5% of the value of their total assets are outstanding.
......Capital Preservation and Keystone Intermediate will not borrow money or
enter into reverse repurchase agreements, except that each Fund may enter into
reverse repurchase agreements or borrow money from banks for temporary or
emergency purposes in aggregate amounts of up to one-third of the value of each
Fund's net assets; provided that, while borrowings from banks (not including
reverse repurchase agreements) exceed 5% of the Fund's net assets, any such
excess borrowings will be repaid before additional investments are made.
......Capital Preservation and Keystone Intermediate may not issue senior
securities; the purchase or sale of securities on a "when issued" basis or
collateral arrangement with respect to the writing of options on securities are
not deemed to be the issuance of a senior security.
14....Pledging Assets
......No Fund will mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. In these cases, Short-Intermediate may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of borrowing and Evergreen
Intermediate and Intermediate Government may do so in amounts up to 10% of their
total assets. Margin deposits for the purchase and sale of financial futures
contracts and related options and segregation or collateral arrangements made in
connection with options activities are not deemed to be a pledge.
......Capital Preservation and Keystone Intermediate may not pledge more than
15% of each Fund's net assets to secure indebtedness; the purchase or sale of
securities on a "when issued" basis or collateral arrangement with respect to
the writing of options on securities are not deemed to be a pledge of assets.
15....Investing in Securities of Other Investment Companies
......Short-Intermediate will purchase securities of investment companies only
in open-market transactions involving customary broker's commissions. Evergreen
Intermediate and Intermediate Government may only purchase securities of other
investment companies which are money market funds and CMOs and REMICs deemed to
be investment companies.
In each case the Funds will only make such purchases to the extent
permitted by the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation or acquisition of assets. It
should be noted that investment companies incur certain expenses such as
management fees and therefore any investment by a Fund in shares of another
investment company would be subject to such duplicate expenses.
It is the position of the SEC's Staff that certain nongovernmental issuers
of CMOs and REMICs constitute investment companies pursuant to the 1940 Act and
either (a) investments in such instruments are subject to the limitations set
forth above or (b) the issuers of such instruments have received orders from the
SEC exempting such instruments from the definition of investment company.
......Capital Preservation and Keystone Intermediate may not purchase securities
of other investment companies, except as part of a merger, consolidation,
purchase of assets or similar transaction.
16....Restricted Securities
......Short-Intermediate will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
17....Illiquid Securities
......Short-Intermediate, Evergreen Intermediate* and Intermediate Government*
will not invest more than 10% of their net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven days
after notice and certain securities determined by the Trustees not to be liquid.
18....Options
......Evergreen Intermediate and Intermediate Government may not write or
purchase puts, calls, options or combinations thereof.
19....Control
......Evergreen Intermediate and Intermediate Government may not invest in
companies for the purpose of exercising control.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
The Funds did not borrow money, sell securities short, invest in
reverse repurchase agreements in excess of 5% of the value of their net assets,
or invest more than 5% of their net assets in the securities of other investment
companies in the last fiscal year, and have no present intent to do so during
the coming year.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan association, having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment, to be
"cash items".
CERTAIN RISK CONSIDERATIONS
There can be no assurance that a Fund will achieve its investment
objectives and an investment in the Fund involves certain risks which are
described under "Description of the Funds - Investment Objectives and Policies"
in the Prospectus.
MANAGEMENT
The Evergreen Keystone funds consist of sixty-six mutual funds. Each
mutual fund is, or is a series of, a registered, open-end management company.
Trustees and executive officers of each mutual fund, their ages, and
their principal occupations during the last five years are shown below.
JAMES S. HOWELL (72), 4124 Crossgate Road, Charlotte, NC-Chairman of the
Evergreen group of mutual funds and Trustee. Retired Vice President of Lance
Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the
Carolinas from 1989 to 1993.
RUSSELL A. SALTON, III, M.D. (49), 205 Regency Executive Park, Charlotte, NC
- -Trustee. Medical Director, U.S. Healthcare of Charlotte, North Carolina since
1996; President, Primary Physician Care from 1990 to 1996.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee.
Attorney, Law Offices of Michael S. Scofield since 1969.
Messrs. Howell, Salton and Scofield are Trustees of all Evergreen Keystone
mutual funds.
GERALD M. MCDONNELL (57), 821 Regency Drive, Charlotte, NC -Trustee. Sales
Representative with Nucor-Yamoto Inc. (steel producer) since 1988.
THOMAS L. McVERRY (58), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of
Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from
1988 to 1990; Vice President of Rexham Industries, Inc. (diversified
manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham
Corporation from 1979 to 1990.
WILLIAM WALT PETTIT (41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC- Trustee. Partner in the law firm Holcomb and Pettit, P.A. since
1990.
Messrs. McDonnell, McVerry and Pettit are Trustees of all Evergreen Keystone
mutual funds, except those established within the Evergreen Variable Trust.
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL- Trustee. Real
estate developer and construction consultant since 1980; President of Centrum
Equities since 1987 and Centrum Properties, Inc. since 1980.
FOSTER BAM (70), Greenwich Plaza, Greenwich, CT- Trustee. Partner in the law
firm of Cummings and Lockwood since 1968.
Messrs. Ashkin and Bam are Trustees of all Evergreen Keystone mutual funds,
except those established within the Evergreen Variable Trust and Evergreen
Investment Trust.
FREDERICK AMLING (69) Trustee. Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member, Board of
Advisers, Credito Emilano (banking); and former Economics and Financial
Consultant, Riggs National Bank.
CHARLES A. AUSTIN III (61) Trustee. Investment Counselor to Appleton
Partners, Inc.; former Managing Director, Seaward Management Corporation
(investment advice); and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment advice).
GEORGE S. BISSELL* (67) Chairman of the Keystone group of mutual funds, and
Trustee. Chairman of the Board and Trustee of Anatolia College; Trustee of
University Hospital (and Chairman of its Investment Committee); former Director
and Chairman of the Board of Hartwell Keystone; and former Chairman of the Board
and Chief Executive Officer of Keystone Investments, Inc..
EDWIN D. CAMPBELL (69) Trustee. Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; former Dean, School of Business, Adelphi University; and former
Executive Director, Coalition of Essential Schools, Brown University.
CHARLES F. CHAPIN (67) Trustee. Former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, NC).
K. DUN GIFFORD (57) Trustee. Chairman of the Board, Director, and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments, Inc. and Keystone Investment Management Company.
LEROY KEITH, JR. (57) Trustee. Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund, and
The Phoenix Big Edge Series Fund; and former President, Morehouse College.
F. RAY KEYSER, JR. (69) Trustee and Advisor to the Boards of Trustees of the
Evergreen group of mutual funds. Counsel, Keyser, Crowley & Meub, P.C.; Member,
Governor's (VT) Council of Economic Advisers; Chairman of the Board and
Director, Central Vermont Public Service Corporation and Hitchcock Clinic;
Director, Vermont Yankee Nuclear Power Corporation, Vermont Electric Power
Company, Inc., Grand Trunk Corporation, Central Vermont Railway, Inc., S.K.I.
Ltd., Sherburne Corporation, Union Mutual Fire Insurance Company, New England
Guaranty Insurance Company, Inc., and the Investment Company Institute; former
Governor of Vermont.
DAVID M. RICHARDSON (55) Trustee. Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director, Commerce and Industry Association of
New Jersey, 411 International, Inc., and J&M Cumming Paper Co.
RICHARD J. SHIMA (57) Trustee and Advisor to the Boards of Trustees of the
Evergreen group of mutual funds. Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director of
Connecticut Natural Gas Corporation, Trust Company of Connecticut, Hartford
Hospital, Old State House Association, and Enhance Financial Services, Inc.;
Chairman, Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-
Oxford School and Greater Hartford YMCA; former Director, Executive Vice
President, and Vice Chairman of The Travelers Corporation.
ANDREW J. SIMONS (57) Trustee. Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; former President, Nassau County Bar Association;
former Associate Dean and Professor of Law, St. John's University School of Law.
Messrs. Amling, Austin, Bissell, Campbell, Chapin, Gifford, Keith, Keyser,
Richardson, Shima and Simons are Trustees or Directors of the twenty-five funds
in the Keystone group of mutual funds. Their addresses are 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, Fl Trustee
Emeritus. Corporate consultant since 1967.
Mr. Jeffries has been serving as a Trustee Emeritus of eleven Evergreen Keystone
Mutual Funds since January 1, 1996 (excluded are Evergreen Variable Trust,
Evergreen Investment Trust, as well as the Keystone group of mutual funds).
EXECUTIVE OFFICERS
JOHN J. PILEGGI (37), 230 Park Avenue, Suite 910, New York, NY- President and
Treasurer. Consultant to BISYS Fund Services since 1996. Senior Managing
Director, Furman Selz LLC since 1992, Managing Director from 1984 to 1992.
GEORGE O. MARTINEZ (37), 3435 Stelzer Road, Columbus, OH-Secretary. Senior Vice
President/Director of Administration and Regulatory Services, BISYS Fund
Services since April 1995. Vice President/Assistant General Counsel, Alliance
Capital Management from 1988 to 1995.
* This Trustee may be considered an "interested person" of the Funds within the
meaning of the 1940 Act.
For the fiscal period ended June 30, 1997, Trustees of the Funds
received $9,451 and $175,376 in retainers and fees from The Evergreen Lexicon
Fund and Evergreen Investment Trust, respectively. For the year ending June 30,
1997, fees paid to Independent Trustees on a fund complex wide basis were
approximately $1,110,975.
The officers of the Trusts are all officers and/or employees of The BISYS Group,
Inc. ("BISYS Group"), except for Mr. Pileggi, who is a consultant to The BISYS
Group. The BISYS Group is an affiliate of Evergreen Keystone Distributor, Inc.
("EKD"), the distributor of each Class of shares of each Fund.
No officer or Trustee of the Trusts owned more than 1.0% of any Class
of shares of any of the Funds as of August 31, 1997.
Set forth below for each of the Trustees receiving in excess of $60,000
for the fiscal period of July 1, 1996 through June 30, 1997 is the aggregate
compensation paid to such Trustee by the Evergreen Keystone funds:
Total Compensation
From Fund Complex
Name Paid To Trustee
James S. Howell $93,800
Gerald M. McDonnell 80,000
Thomas L. McVerry 85,000
William Walt Pettit 82,500
Russell A Salton, III M.D. 87,000
Michael S. Scofield 88,200
Set forth below is information with respect to each person, who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of August 31, 1997.
<TABLE>
<S> <C> <C> <C>
Name of % of
Name and Address Fund/Class No. of Shares Class
- ---------------- ---------- ------------- ----------
FUBS & Co. FEBO Short-Intermediate/A 104,641 5.77%
Ronald L. Spector
D/B/A River Walk
1800 Second Street, Suite 808
Sarasota, FL 34236-5904
FUBS & Co. FEBO Short-Intermediate/C 11,335 10.90%
Dreamland Skating Rink Inc
PO Drawer 13207
Pensacola, FL 32591-3207
MLPF&S for sole benefit Short-Intermediate/C 10,680 10.27%
of its customersAttn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl.
Jacksonville, FL 32246-6484
Florida Osteopathic Short-Intermediate/C 10,373 9.98%
Medical Assoc.
2007 Apalachee Pky
Tallahassee, FL 32301-4847
FUBS & Co. FEBO Short-Intermediate/C 6,963 6.70%
Rachel W. Fort and Edward C Fort
2737 Stockton St.
Winston Salem, NC 27127
FUBS & Co. FEBO Short-Intermediate/C 5,573 5.36%
Victor Wozniak and
Vermell Wozniak Dreamland Trst
PO Drawer 13207
Pensacola, FL 32591-3207
FUBS & Co. FEBO Short-Intermediate/C 5,402 5.20%
Emmaus Lutheran Church
2500 So. Volusia Ave.
Orange City, FL 32763-9124
PaineWebber for the Short-Intermediate/C 5,199 5.00%
benefit of Robert Bowen &
Mona Carpenter-Bowen
Jt Ten Wros
1686 Massachusetts Ave.
Lunenburg, MA 01462-1843
First Union National Bank Short-Intermediate/Y 18,345,872 49.60%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Short-Intermediate/Y 18,249,273 49.33%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
FUBS & Co. FEBO Evergreen Intermediate/B 9,843 8.56%
Veronica B. Birdsong
1255 B Road
Loxahatchee, FL 33470-4248
First Union Natl Bank-FL Evergreen Intermediate/B 15,110 13.15%
C/F Lurene N. Roser IRA
5200 N. Ocean Dr. Apt. 17D
Singer Island, FL 33404-2618
FUBS & Co. FEBO Evergreen Intermediate/B 9,745 8.48%
Frances E. Clyma Rev Trust
Frances E. Clyma and
Robert L. Mastin Co-Tttees
U/A/D 01/25/96
Palm Beach Garde, FL 33410
FUBS & Co. FEBO Evergreen Intermediate/B 7,907 6.88%
Mary Louise Chatman
Flora Louise Chatman Wages POA
9532 Ft. Foote Road
Ft. Washington, MD 20744-5753
Margaret S. Collins Evergreen Intermediate/C 2,106 73.72%
1106 Lothian Drive
Tallahassee, FL 32312-2836
Peter M. Kopp and Evergreen Intermediate/C 495 17.33%
Mary Jean Kopp JtWros
C/O OC International
5801 North Union Blvd.
Colorado Springs, CO 80918
FUBS & Co. FEBO Evergreen Intermeidate/C 246 8.60%
Chris J. Thigpen
4497 Pineland Dr.
Evans, GA 30809-3233
First Union National Bank Evergreen Intermediate/Y 10,131,742 64.61%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Evergreen Intermediate/Y 5,508,432 35.13%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
First Union Bank-CT C/F Inc Intermediate Government/A 8,663 15.09%
F/B/O Zeno Chicarilli PSP
Attn: Zeno Chicarilli
2 Cobblefield Lane
Guilford, CT 06437-2384
FUBS & Co. FEBO Intermediate Government/A 7,023 12.24%
Upper Saucon Volunteer Fire
Department #1
C/O Joseph Hoffstetter
4888 Lanark Rd.
Center Valley, PA 18034-8605
NJ State Fireman's Assoc. Intermediate Government/A 5,258 9.20%
Of Morris Township
11 Catalpa Rd.
Morristown, NJ 07960-6132
Ignaz Keglovits & Intermediate Government/A 4,755 8.28%
Mary Keglovits Jtten
15 North 9th Street
Coplay, PA 18037-1527
Doris Mack Intermediate Government/A 4,412 7.69%
8 Mountain View Dr.
Chester, NJ 07930-3104
FUBS & Co. FEBO Intermediate Government/A 3,051 5.32%
Alice T. Brophy
30 Rosedale Ave.
Madison, NJ 07940-2146
FUBS & Co. FEBO Intermediate Government/B 10,160 17.29%
Joseph Kacsur
7040 Woodside Oak Circle
Sarasota, FL 34231-5565
FUBS & Co. FEBO Intermediate Government/B 9,921 16.88%
Carmela M. Woodruff
1 College Lane Apt 86
Brevard, NC 28712
FUBS & Co. FEBO Intermediate Government/B 9,833 16.73%
Frances E. Clyma Rev Trust
Frances E. Clyma and
Robert L Mastin Co-Ttees
U/A/D 01/25/96
Palm Beach Garde, FL 33410
FUBS & Co. FEBO Intermediate Government/B 3,444 5.86%
First Union Natl Bank/TN F/B/O
Geri McNamara Loan Account
Attn: Tracy Brown
600 S. Main St.
Goodlettsville, TN 37072-1701
First Union Natl Bank-TN C/F Intermediate Government/B 3,392 5.77%
William E. Bass Sr. IRA
102 Grace Drive
Goodlettsville, TN 37072-3537
FUBS & Co. FEBO Intermediate Government/B 3,193 5.43%
Loretta Bukowski and
Helen Bukowski
8860 Taft Street
Pembroke Pines, FL 33024-4635
FUBS & Co. FEBO Intermediate Government/B 3,182 5.47%
Howard J. Carroll
4019 N. Chesterbrook Road
Arlington, VA 22207-4635
Donaldson Lufkin Jenrette Intermediate Government/C 10,753 89.85%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S for sole benefit Intermediate Government/C 1,185 9.90%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
First Union National Bank Intermediate Government/Y 6,111,264 85.32%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Intermediate Government/Y 1,018,405 14.22%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
Smith Barney Inc. Capital Preservation/A 243,272 14.78%
00154924733
388 Greenwich Street
New York, NY 10013
MLPF&S for the sole benefit Capital Preservation/A 287,313 16.24%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
Gary W. Grant & Capital Preservation/A 112,183 6.81%
Eva Grant Jt/Wros
10906 Wickline
Houston, TX 77024
MLPF&S for the sole benefit Capital Preservation/B 420,391 13.24%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
MLPF&S for sole benefit Capital Preservation/C 80,684 19.86%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
St. Ann's Catholic Church Capital Preservation/C 20,673 5.09%
Attn: Fr Peter McKenna
PO Box 256
La Vernia, TX 78121-0256
MLPF&S for the sole benefit Keystone Intermediate/A 251,460 22.38%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette Keystone Intermediate/A 64,213 5.71%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S for the sole benefit Keystone Intermediate/B 167,500 13.80%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
MLPF&S for sole benefit Keystone Intermediate/C 206,121 28.80%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
NFSC FEBO #BNG-522228 Keystone Intermediate/C 36,285 5.07%
Ctr for the Advancement of HLT
Rena Convissor
k2000 Florida Ave. NW
Suite 210
Washington, DC 20009-1231
</TABLE>
INVESTMENT ADVISERS
(See also "Management of the Funds" in each Fund's Prospectus) The
investment adviser of Short-Intermediate, Evergreen Intermediate and
Intermediate Government is First Union National Bank ("FUNB"), located at 201
South College Street, Charlotte, North Carolina 28288 which, in turn, is a
subsidiary of First Union Corporation ("First Union"), a bank holding company
headquartered in Charlotte, North Carolina. FUNB provides investment advisory
services to the Funds through its Capital Management Group ("CMG"). Keystone
Investment Management Company ("Keystone"), a subsidiary of FUNB located at 200
Berkeley Street, Boston, Massachusetts 02116, is investment adviser to Capital
Preservation and Keystone Intermediate.
Under their respective Investment Advisory Agreements with each Fund, CMG
and Keystone (each an "Adviser" and, collectively, the "Advisers") have agreed
to furnish reports, statistical and research services and recommendations with
respect to each Fund's portfolio of investments. In addition, each Adviser
provides office facilities to the Funds and performs a variety of administrative
services. Each Fund pays the cost of all of its other expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining their
registration under the Securities Act of 1933, as amended, and the 1940 Act,
printing prospectuses (for existing shareholders) as they are updated, state
qualifications, mailings, brokerage, custodian and stock transfer charges,
printing, legal and auditing expenses, expenses of shareholder meetings and
reports to shareholders. Notwithstanding the foregoing, the Adviser will pay the
costs of printing and distributing prospectuses used for prospective
shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
three most recent fiscal periods reflected in its registration statement are set
forth below. Prior to December 11, 1997, Keystone Management Inc., ("Keystone
Management") provided investment management services to Keystone Intermediate.
Keystone, the Fund's investment adviser, was entitled to a certain percentage of
the fee paid by the Fund to Keystone Management, and was paid by Keystone
Management. Total dollar amounts paid by the Fund to Keystone Management, the
Fund's former investment manager, for investment management and administrative
services rendered, are inclusive of the amounts paid to by Keystone Management
to Keystone for investment advisory services are shown:
<TABLE>
<S> <C> <C> <C>
Six Months
SHORT-INTERMEDIATE Year Ended Year Ended Ended
06/30/97 6/30/96 6/30/95
--------- -------- --------
Advisory Fee $1,998,063 $1,951,949 $961,697
========= ========= =========
Ten Months
EVERGREEN Year Ended Ended Year Ended
INTERMEDIATE 06/30/97 6/30/96 8/31/95
---------- ---------- ---------
Advisory Fee $987,044 $600,081 $544,577
Waiver ( 0) ( 64,983) (128,003)
-------- -------- --------
Net Advisory Fee $987,044 $535,098 $416,574
========= ========= =========
Ten Months
INTERMEDIATE Year Ended Ended Year Ended
GOVERNMENT 06/30/97 06/30/96 8/31/95
---------- -------- --------
Advisory Fee $546,941 $506,065 $634,185
Waiver ( 73,557) (61,160) (144,507)
--------- --------- --------
Net Advisory Fee $473,384 $444,905 $489,678
========= ========= =========
Nine Months
CAPITAL Ended Year Ended Year Ended
PRESERVATION 06/30/97 09/30/96 09/30/95
---------- -------- --------
Advisory Fee $284,977 $493,147 $605,247
Waiver/Reimb. (245,255) (341,016) (503,005)
---------- -------- --------
Net Advisory Fee $ 39,722 $152,131 $102,242
========== ========= =========
Eleven Months
KEYSTONE Ended Year Ended Year Ended
INTERMEDIATE 06/30/97 07/31/96 07/31/95
Advisory Fee $202,102 $273,644 $291,834
Waiver/Reimb. (145,636) (191,096) (207,571)
-------- -------- --------
Net Advisory Fee $ 56,466 $ 82,548 $ 84,263
======== ========= ========
</TABLE>
Expense Limitations
Keystone voluntarily limits the annual expenses, excluding indirectly
paid expenses, of Class A, Class B and Class C shares to 0.90%, 1.65% and 1.65%
of average net class assets, respectively, for Capital Preservation and to
1.10%, 1.85% and 1.85% of average net class assets, respectively, for Keystone
Intermediate. Keystone intends to continue the foregoing expense limitations on
a calendar month-by-month basis. Keystone will periodically evaluate the
foregoing expense limitations and may modify or terminate them in the future.
The Investment Advisory Agreements are terminable, without the payment
of any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of the
Trust's Trustees or by the Adviser. The Investment Advisory Agreements will
automatically terminate in the event of their assignment. Each Investment
Advisory Agreement provides in substance that the Adviser shall not be liable
for any action or failure to act in accordance with its duties thereunder in the
absence of wilful misfeasance, bad faith or gross negligence on the part of the
Adviser or of reckless disregard of its obligations thereunder. Each Investment
Advisory Agreement continues for two years from its effective date and will
continue from year to year with respect to each Fund provided that such
continuance is approved annually by a vote of a majority of the Trustees
including a majority of those Trustees who are not parties thereto or
"interested persons" of any such party cast in person at a meeting duly called
for the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities of each Fund.
Certain other clients of the Adviser may have investment objectives and
policies similar to those of the Funds. An Adviser may, from time to time, make
recommendations which result in the purchase or sale of a particular security by
its other clients simultaneously with a Fund. If transactions on behalf of more
than one client during the same period increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price or quantity. It is the policy of the Advisers to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by each Adviser to the accounts involved, including the Funds. When two or more
clients of an Adviser (including one or more of the Funds) are purchasing or
selling the same security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
Although the investment objectives of the Funds are not the same, and
their investment decisions are made independently of each other, they rely upon
the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to
permit purchase and sales transactions to be effected between each Fund and the
other registered investment companies for which Evergreen Asset Management
Corp., a subsidiary of FUNB ("Evergreen Asset"), Keystone or FUNB act as
investment adviser or between the Fund and any advisory clients of Evergreen
Asset, Keystone, FUNB or their affiliates. Each Fund may from time to time
engage in such transactions but only in accordance with these procedures and if
they are equitable to each participant and consistent with each participant's
investment objectives.
Prior to July 1, 1995, Federated Administrative Services, a subsidiary of
Federated Investors, provided legal, accounting and other administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust.
Prior to January 19, 1996, SEI Financial Management Company acted as
administrator for Evergreen Intermediate and Intermediate Government. For the
ten months ended June 30, 1996, and the fiscal year ended August 31, 1995
Evergreen Intermediate incurred $97,364 and $154,291, respectively, in
administrative service costs. For ten months ended June 30, 1996 and the fiscal
year ended August 31, 1995 Government incurred $91,283 and $179,686,
respectively, in administrative service costs.
Commencing July 8, 1995, in the case of Evergreen Investment Trust, and on
January 19, 1996, in the case of The Evergreen Lexicon Fund, Evergreen Asset
began providing administrative services to each of the portfolios of the Trusts
for a fee based on the average daily net assets of each Fund administered by
Evergreen Asset for which FUNB affiliates also served as investment adviser,
calculated daily and payable monthly at the following annual rates: .050% on the
first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion;
.020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets
in excess of $30 billion.
At present, Evergreen Keystone Investment Services ("EKIS") serves as
administrator to Short-Intermediate, Evergreen Intermediate and Intermediate
Government subject to the supervision and control of the Trustees of each Trust.
As administrator, EKIS provides facilities, equipment and personnel to the Funds
and is entitled to receive a fee based on the average daily net assets of all
mutual funds for which CMG, Keystone or Evergeen Asset serve as investment
adviser, calculated in accordance with the following schedule:.050% on the first
$7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on
the next $10 billion; .015% on the next $5 billion; and .010% on assets in
excess of $30 billion.
EKIS also provides administrative services to Capital Preservation and
Keystone Intermediate on behalf of their investment adviser.
Prior to January 1, 1997, Furman Selz LLC, an affiliate of Evergreen
Keystone Distributor, Inc. (formerly Evergreen Funds Distributor, Inc.,
distributor for the Evergreen Keystone funds (the "Distributor"), served as
sub-administrator to Short-Intermediate, Evergreen Intermediate and Intermediate
Government and was entitled to receive a fee from each Fund calculated on the
average daily net assets of each Fund at a rate based on the total assets of the
mutual funds administered by Evergreen Asset for which FUNB affiliates also
served as investment adviser, calculated in accordance with the following
schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050%
on the next $15 billion; and .0040% on assets in excess of $25 billion.
BISYS Fund Services ("BISYS"), an affiliate of EKD, now serves as
sub-administrator to each Fund and is entitled to receive a fee from each Fund
calculated daily and payable monthly at an annual rate based on the aggregate
average daily net assets of the mutual funds for which FUNB, Evergreen Asset,
Keystone or any affiliate of First Union serves as investment adviser,
calculated in accordance with the following schedule: .0100% of the first $7
billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and
.0040% on assets in excess of $25 billion. The total assets of mutual funds for
which Evergreen Asset, FUNB or Keystone serve as investment adviser as of June
30, 1997 were approximately $30.5 billion.
For the fiscal years ended June 30, 1997 and 1996, and the fiscal
period ended June 30, 1995, Short-Intermediate incurred $167,636, $205,938 and
$159,002, respectively, in administrative service costs.
For the fiscal year ended June 30, 1997, the fiscal period ended June
30, 1996 and the fiscal year ended August 31, 1995, Evergreen Intermediate
incurred $69,536, $97,364 and $154,291, respectively, in administrative service
costs.
For the fiscal year ended June 30, 1997, the fiscal period ended June
30, 1996 and the fiscal year ended August 31, 1995, Intermediate Government
incurred $38,083, $91,283 and $179,686, respectively, in administrative service
costs.
For the fiscal period ended June 30, 1997, and the fiscal years ended
September 30, 1996 and 1995, Capital Preservation incurred $34,481, $24,176 and
$17,744 in administrative service costs.
For the fiscal period ended June 30, 1997, and the fiscal years ended
July 31, 1996 and 1995, Keystone Intermediate incurred $11,267, $23,963 and
$17,790 in administrative service costs.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A, Class B and Class C shares and are charged as class
expenses, as accrued. The distribution fees attributable to the Class B shares
and Class C shares are designed to permit an investor to purchase such shares
through broker-dealers without the assessment of a front-end sales charge, and,
in the case of Class C shares, without the assessment of a contingent deferred
sales charge after the first year following the month of purchase, while at the
same time permitting the Distributor to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and function of the
combined contingent deferred sales charge and distribution services fee on the
Class B shares and the Class C shares are the same as those of the front-end
sales charge and distribution fee with respect to the Class A shares in that in
each case the sales charge and/or distribution fee provide for the financing of
the distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (each
a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the
amounts expended under the Plans and the purposes for which such expenditures
were made to the Trustees of each Trust for their review on a quarterly basis.
Also, each Plan provides that the selection and nomination of the Independent
Trustees are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of each Trust or by vote
of the holders of a majority of the outstanding voting securities of that Class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.
In addition to the Plans, Short-Intermediate, Evergreen Intermediate
and Intermediate Government have adopted Shareholder Services Plans whereby
shareholder servicing agents may receive fees from each Fund for providing
services which include, but are not limited to, distributing prospectuses and
other information, providing shareholder assistance, and communicating or
facilitating purchases and redemptions of Class B and Class C shares of a Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of a Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class. Any Plan, Shareholder Service Plan or
Distribution Agreement may be terminated (i) by a Fund without penalty at any
time by a majority vote of the holders of the outstanding voting securities of
the Fund, voting separately by Class or by a majority vote of the Independent
Trustees, or (ii) by the Distributor. To terminate any Distribution Agreement,
any party must give the other parties 60 days' written notice; to terminate a
Plan only, the Fund need give no notice to the Distributor. Any Distribution
Agreement will terminate automatically in the event of its assignment.
The Funds incurred the following Distribution Plan and, where
applicable, Shareholder Services Plan fees:
Distribution Fees:
Short-Intermediate. For the fiscal year ended June 30, 1997 $18,961, $222,264
and $10,470 on behalf of Class A, Class B and Class C shares.
Evergreen Intermediate. For the fiscal year ended June 30, 1997 $6,972, $7,180
and $255 on behalf of Class A, Class B and Class C shares.
Intermediate Government. For the fiscal year ended June 30, 1997 $2,047, $6,442
and $242 on behalf of Class A, Class B and Class C shares.
Capital Preservation. For the fiscal period ended June 30, 1997 $28,581,
$285,293 and $32,267 on behalf of Class A, Class B and Class C shares.
Keystone Intermediate. For the fiscal period ended June 30, 1997 $24,268,
$129,648 and $74,834 on behalf of Class A, Class B and Class C shares.
Shareholder Services Fees:
Short-Intermediate. For the fiscal years ended June 30, 1997 and 1996, $55,566
and $47,700, respectively, on behalf of Class B shares; and $2,618 and $2,221,
respectively, on behalf on Class C shares.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of the
Adviser. In general, the same individuals perform the same functions for the
other funds managed by the Adviser. A Fund will not effect any brokerage
transactions with any broker or dealer affiliated directly or indirectly with
the Adviser unless such transactions are fair and reasonable, under the
circumstances, to the Fund's shareholders. Circumstances that may indicate that
such transactions are fair or reasonable include the frequency of such
transactions, the selection process and the commissions payable in connection
with such transactions.
A portion of any transactions in equity securities for each Fund will
occur on domestic stock exchanges. Transactions on stock exchanges involve the
payment of brokerage commissions. In transactions on stock exchanges in the
United States, these commissions are negotiated, whereas on many foreign stock
exchanges these commissions are fixed. In the case of securities traded in the
foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market maker, although the Fund may place an over-the-counter order with a
broker-dealer if a better price (including commission) and execution are
available.
It is anticipated that most of each Fund's purchase and sale transactions
involving fixed income securities will be with the issuer or an underwriter or
with major dealers in such securities acting as principals. Such transactions
are normally on a net basis and generally do not involve payment of brokerage
commissions. However, the cost of securities purchased from an underwriter
usually includes a commission paid by the issuer to the underwriter. Purchases
or sales from dealers will normally reflect the spread between bid and ask
prices.
In selecting firms to effect securities transactions, the primary
consideration of each Fund shall be prompt execution at the most favorable
price. A Fund will also consider such factors as the price of the securities and
the size and difficulty of execution of the order. If these objectives may be
met with more than one firm, the Fund will also consider the availability of
statistical and investment data and economic facts and opinions helpful to the
Fund. The extent of receipt of such services would tend to reduce the expenses
of the Adviser or its affiliates.
For the fiscal period ending June 30, 1997, none of the Funds paid
commissions to affiliated brokers.
None of the Funds, with the exception of Keystone Intermediate, paid
brokerage commissions for each of their three most recent fiscal periods.
Keystone Intermediate paid no brokerage commissions for the fiscal periods ended
June 30, 1997 and July 31, 1996. For the fiscal year ended July 31, 1995, the
Fund paid $34,700 in brokerage commissions.
ADDITIONAL TAX INFORMATION
(See also "Other Information - Dividends, Distributions,
and Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a regulated investment company, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities or foreign currencies and other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities; (b) derive less than 30% of its gross income from the sale
or other disposition of securities, options, futures or forward contracts (other
than those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the RIC's principal
business of investing in securities (or options and futures with respect
thereto) held for less than three months this provision is repealed; and (c)
diversify its holdings so that, at the end of each quarter of its taxable year,
(i) at least 50% of the market value of the Fund's total assets is represented
by cash, U.S. government securities and other securities limited in respect of
any one issuer, to an amount not greater than 5% of the Fund's total assets and
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. government securities and securities of other regulated
investment companies). By so qualifying, a Fund is not subject to Federal income
tax if it timely distributes its investment company taxable income and any net
realized capital gains. A 4% nondeductible excise tax will be imposed on a Fund
to the extent it does not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any). Any dividends received by a Fund from domestic
corporations will constitute a portion of the Fund's gross investment income. It
is anticipated that this portion of the dividends paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction for corporations. Shareholders will be informed of the amounts of
dividends which so qualify.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders (who are not exempt from tax) as ordinary income.
Such distributions are not eligible for the dividends-received deduction. Any
loss recognized upon the sale of shares of a Fund held by a
shareholder for six months or less will be treated as a long-term capital loss
to the extent that the shareholder received a long-term capital gain
distribution with respect to such shares.
Distributions by each Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the
forthcoming distribution. Those purchasing just prior to a distribution will
then receive what is in effect a return of capital upon the distribution which
will nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gain or loss
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Long term capital gains on assets held
for more than 18 months are taxable at a maximum rate of 28%; such gains on
assets held for more than 18 months are taxable at a maximum rate of 20%.
Generally, any loss realized on a sale or exchange will be disallowed to the
extent shares disposed of are replaced within a period of sixty-one days
beginning thirty days before and ending thirty days after the shares are
disposed of. Any loss realized by a shareholder on the sale of shares of the
Fund held by the shareholder for six months or less will be treated for tax
purposes as a long-term capital loss to the extent of any distributions of net
capital gains received by the shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported by
each shareholder on his or her Federal income tax return. Shareholders electing
to receive distributions in the form of additional shares will have a cost basis
for Federal income tax purposes in each share so received equal to the net asset
value of a share of a Fund on the reinvestment date. Each shareholder should
consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% Federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to Federal, state and local tax consequences of investing in shares of
a Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
NET ASSET VALUE
The following information supplements that set forth in each Prospectus
under the subheading "How to Buy Shares - How the Funds Value Their Shares" in
the Section entitled "Purchase and Redemption of Shares".
The public offering price of shares of a Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge
"Alternative". On each Fund business day on which a purchase or redemption order
is received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any weekday,
exclusive of national holidays on which the Exchange is closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic
or foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked price and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
The respective per share net asset values of the Class A, Class B,
Class C and Class Y shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class Band
Class C shares may be lower than the per share net asset value of the Class A
shares (and, in turn, that of Class A shares may be lower than Class Y shares)as
a result of the greater daily expense accruals, relative to Class A and Class Y
shares, of Class B and Class C shares relating to distribution services fees
(and, with respect to Short-Intermediate, Evergreen Intermediate and
Intermediate Government) Shareholder Service Plan fee and, to the extent
applicable, transfer agency fees and the fact that Class Y shares bear no
additional distribution, shareholder service or transfer agency related fees.
While it is expected that, in the event each Class of shares of a Fund realizes
net investment income or does not realize a net operating loss for a period, the
per share net asset values of the four classes will tend to converge immediately
after the payment of dividends, which dividends will differ by approximately the
amount of the expense accrual differential among the Classes, there is no
assurance that this will be the case. In the event one or more Classes of a Fund
experiences a net operating loss for any fiscal period, the net asset value per
share of such Class or Classes will remain lower than that of Classes that
incurred lower expenses for the period.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York.
In addition, European or Far Eastern securities trading generally or in
a particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and on which the Fund's net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the Exchange will
not be reflected in a Fund's calculation of net asset value unless the Trustees
deem that the particular event would materially affect net asset value, in which
case an adjustment will be made. Securities transactions are accounted for on
the trade date, the date the order to buy or sell is executed. Dividend income
and other distributions are recorded on the ex-dividend date, except certain
dividends and distributions from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date.
PURCHASE OF SHARES
The following information supplements that set forth in each Fund's
Prospectus under the heading "Purchase and Redemption of Shares - How To Buy
Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), with a contingent deferred
sales charge (the "deferred sales charge alternative"), or without any front-end
sales charge, but with a contingent deferred sales charge imposed only during
the first year after the month of purchase (the "level-load alternative"), as
described below. Class Y shares which, as described below, are not offered to
the general public, are offered without any front-end or contingent sales
charges. Shares of each Fund are offered on a continuous basis through (i)
investment dealers that are members of the National Association of Securities
Dealers, Inc. and have entered into selected dealer agreements with the
Distributor ("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered into selected
agent agreements with the Distributor ("selected agents"), or (iii) the
Distributor. The minimum for initial investment is $1,000; there is no minimum
for subsequent investments. The subscriber may use the Application available
from the Distributor for his or her initial investment. Sales personnel of
selected dealers and agents distributing a Fund's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
through selected dealers or agents or directly through the Distributor. A Fund
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be executed
at the public offering price equal to the net asset value next determined (plus
for Class A shares, the applicable sales charges), as described below. Orders
received by the Distributor prior to the close of regular trading on the
Exchange on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the Exchange on that
day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m Eastern time.
If the selected dealer or agent fails to do so, the investor's right to that
day's closing price must be settled between the investor and the selected dealer
or agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of shares of a Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Application. Payment for shares
purchased by telephone can be made only by Electronic Funds Transfer from a bank
account maintained by the shareholder at a bank that is a member of the National
Automated Clearing House Association ("ACH"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a Fund business
day, the order to purchase shares is automatically placed the same Fund business
day for non-money market funds, and two days following the day the order is
received for money market funds, and the applicable public offering price will
be the public offering price determined as of the close of business on such
business day. Full and fractional shares are credited to a subscriber's account
in the amount of his or her subscription. As a convenience to the subscriber,
and to avoid unnecessary expense to a Fund, stock certificates representing
shares of a Fund are not issued. This facilitates later redemption and relieves
the shareholder of the responsibility for and inconvenience of lost or stolen
certificates.
Alternative Purchase Arrangements
Short-Intermediate, Evergreen Intermediate and Intermediate Government
issue four classes of shares: (i) Class A shares, which are sold to investors
choosing the front-end sales charge alternative; (ii) Class B shares, which are
sold to investors choosing the deferred sales charge alternative; (iii) Class C
shares, which are sold to investors choosing the level-load sales charge
alternative; and (iv) Class Y shares, which are offered only to (a) persons who
at or prior to December 30, 1994 owned shares in a mutual fund advised by
Evergreen Asset, (b) certain investment advisory clients of the Advisers and
their affiliates, and (c) institutional investors. Capital Preservation and
Keystone Intermediate offer Class A, Class B and Class C shares. Each class of
shares each represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that (i)
only Class A, Class B and Class C shares are subject to a Rule 12b-1
distribution fee, (ii) Class B and Class C shares of Short- Intermediate,
Evergreen Intermediate and Intermediate Government are subject to a Shareholder
Service Plan fee, (iii) Class A shares bear the expense of the front-end sales
charge and Class B and Class C shares bear the expense of the deferred sales
charge, (iv) Class B shares and Class C shares each bear the expense of a higher
Rule 12b-1 distribution services fee and, where applicable, Shareholder Service
Plan fee than Class A shares and, in the case of Class B shares, higher transfer
agency costs, (v) with the exception of Class Y shares, each Class of each Fund
has exclusive voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services (and, to the extent applicable,
Shareholder Service Plan fee) is paid which relates to a specific Class and
other matters for which separate Class voting is appropriate under applicable
law, provided that, if the Fund submits to a simultaneous vote of Class A, Class
B and Class C shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect to the Class A
shares, the Class A shareholders and the Class B and Class C shareholders will
vote separately by Class, and (vi) only the Class B shares are subject to a
conversion feature. Each Class has different exchange privileges and certain
different shareholder service options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent applicable, Shareholder Service Plan) fee and contingent deferred sales
charges on Class B shares prior to conversion, or the accumulated distribution
services (and, to the extent applicable, Shareholder Service Plan) fee on Class
C shares, would be less than the front-end sales charge and accumulated
distribution services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher return of Class A
shares. Class B and Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at the lowest applicable sales
charge. For this reason, the Distributor will reject any order (except orders
for Class B shares from certain retirement plans) for more than $2,500,000 for
Class B or Class C shares.
Class A shares are subject to a lower distribution services fee and no
Shareholder Service Plan fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares. However, because
front-end sales charges are deducted at the time of purchase, investors
purchasing Class A shares would not have all their funds invested initially and,
therefore, would initially own fewer shares. Investors not qualifying for
reduced front-end sales charges who expect to maintain their investment for an
extended period of time might consider purchasing Class A shares because the
accumulated continuing distribution (and, to the extent applicable, Shareholder
Service Plan) charges on Class B shares or Class C shares may exceed the
front-end sales charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration against the fact
that, because of such front-end sales charges, not all their funds will be
invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution services (and, to the extent applicable, Shareholder Service Plan)
fees and, in the case of Class B shares, being subject to a contingent deferred
sales charge for a six-year period. For example, based on current fees and
expenses, an investor subject to the 4.75% front-end sales charge imposed on
Class A shares of the Funds would have to hold his or her investment
approximately seven years for the Class B and Class C distribution services
(and, to the extent applicable, Shareholder Service Plan) fees, to exceed the
front-end sales charge plus the accumulated distribution services fee of Class A
shares. In this example, an investor intending to maintain his or her investment
for a longer period might consider purchasing Class A shares. This example does
not take into account the time value of money, which further reduces the impact
of the Class B and Class C distribution services (and, to the extent applicable,
Shareholder Service Plan) fees on the investment, fluctuations in net asset
value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the six year period during
which Class B shares are subject to a contingent deferred sales charge may find
it more advantageous to purchase Class C shares if available through their
broker-dealers.
With respect to each Fund, the Trustees have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. On an ongoing basis, the Trustees, pursuant to their
fiduciary duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.
Front-End Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any sales charges.
The Fund receives the entire net asset value of its Class A shares sold to
investors. The Distributor's commission is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission
"re-allowed" to selected dealers and agents. The Distributor will reallow
discounts to selected dealers and agents in the amounts indicated in the table
in the Prospectus. In this regard, the Distributor may elect to reallow the
entire sales charge to selected dealers and agents for all sales with respect to
which orders are placed with the Distributor.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,00 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of each Fund for at the end of each Fund's latest fiscal
period.
<TABLE>
<S> <C> <C> <C> <C>
Date Net Asset Per Share Offering
Value Sales Price
Charge Per Share
Short- 6/30/97 9.83 0.33 10.16
Intermediate
Evergreen 6/30/97 10.17 0.34 10.51
Intermediate
Intermediate 6/30/97 10.02 0.34 10.36
Government
Capital 6/30/97 9.80 0.33 10.13
Preservation
Keystone 6/30/97 8.93 0.30 9.23
Intermediate
</TABLE>
With respect to Short-Intermediate, the following commissions were paid
to and amounts were retained by Federated Securities Corp. through July 7, 1995
which until such date was the principal underwriter of portfolios of Evergreen
Investment Trust. For the period from July 8, 1995 through June 30, 1997,
commissions were paid to and amounts were retained by the current Distributor as
noted below:
Six Months
SHORT- Year Ended Year Ended Ended
INTERMEDIATE 06/30/97 06/30/96 06/3/95
Commissions
Received 52,484 $74,999 $39,906
Commissions 6,833 9,560 1,334
Retained
With respect to Evergreen Intermediate and Intermediate Government, the
following commissions were paid to and amounts were retained by Federated
Securities Corp. through July 7, 1995 which until such date was the principal
underwriter of portfolios of The Evergreen Lexicon Fund. For the period from
July 8, 1995 through June 30, 1997, commissions were paid to and amounts were
retained by the current Distributor as noted below:
Six Months
Year Ended Year Ended Ended
06/30/97 06/30/96 06/3/95
EVERGREEN
INTERMEDIATE
Commissions 3,201 --- ---
Received
Commissions 504 --- ---
Retained
Six Months
INTERMEDIATE Year Ended Year Ended Ended
GOVERNMENT 06/30/97 06/30/96 06/3/95
Commissions 522 --- ---
Received
Commissions 77 --- ---
Retained
With respect to Capital Preservation and Keystone Intermediate, the
following commissions were paid to and amounts were retained by EKIS which prior
to December 1, 1996, was the distributor for Capital Preservation and Keystone
Intermediate. Since that date, commissions have been paid to and amounts
retained by the current Distributor as noted below:
Period
CAPITAL Ended Year Ended Year Ended
PRESERVATION 06/30/97 09/30/96 09/30/95
Commissions $305,542 $490,274 $750,634
Received
Commissions 244,211 397,085 630,122
Retained
Period
KEYSTONE Ended Year Ended Year Ended
INTERMEDIATE 06/30/97 07/31/96 07/31/95
Commissions $236,373 $300,084 $330,026
Received
Commissions 166,717 86,191 131,149
Retained
Investors choosing the front-end sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more Evergreen
Keystone funds (other than the money market funds) into a single "purchase," if
the resulting "purchase" totals at least $100,000. The term "purchase" refers
to: (i) a single purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an individual,
his or her spouse and their children under the age of 21 years purchasing shares
for his, her or their own account(s); (ii) a single purchase by a trustee or
other fiduciary purchasing shares for a single trust, estate or single fiduciary
account although more than one beneficiary is involved; or (iii) a single
purchase by an organization exempt from federal income tax under Section 501
(c)(3) or (13) of the Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Code. The term "purchase"
also includes purchases by any "company," as the term is defined in the 1940
Act, but does not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other than the
purchase of shares of a Fund or shares of other registered investment companies
at a discount. The term "purchase" does not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein are
credit card holders of a company, policy holders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
A "purchase" may also include shares, purchased at the same time through a
single selected dealer or agent, of any Evergreen Keystone Fund.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the previous
day) of (a) all Class A shares of the Fund held by the
investor and(b) all such shares of any other Evergreen
Keystone fund held by the investor; and
(iii) the net asset value of all shares described in paragraph; and
(iv) shares owned by another shareholder eligible to combine his or
her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned Class A, B or C shares of an
Evergreen Keystone fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of a Fund worth an additional
$100,000, the sales charge for the $100,000 purchase, in the case of the Funds,
would be at the 2.50% rate applicable to a single $300,000 purchase of shares of
the Fund, rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on a purchase through a selected dealer or agent,
the investor or selected dealer or agent must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Letter of Intent. Class A investors may also obtain the reduced sales
charges shown in the Prospectus by means of a written Letter of Intent, which
expresses the investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares of the Fund or any other Evergreen
Keystone fund. Each purchase of shares under a Letter of Intent will be made at
the public offering price or prices applicable at the time of such purchase to a
single transaction of the dollar amount indicated in the Letter of Intent. At
the investor's option, a Letter of Intent may include purchases of Class A
shares of the Fund or any other Evergreen Keystone fund made not more than 90
days prior to the date that the investor signs a Statement of Intention;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the Evergreen Keystone funds under a single Letter
of Intent. For example, if at the time an investor signs a Letter of Intent to
invest at least $100,000 in Class A shares of the Fund, the investor and the
investor's spouse each purchase shares of the Fund worth $20,000 (for a total of
$40,000), it will only be necessary to invest a total of $60,000 during the
following 13 months in Class A shares of the Fund or any other Evergreen
Keystone fund, to qualify for the 3.75% sales charge applicable to purchases in
any Evergreen Keystone Equity or Long-Term Bond Fund on the total amount being
invested (the sales charge applicable to an investment of $100,000).
The Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the Letter
of Intent and qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of the 13-month
period. The difference in sales charge will be used to purchase additional
shares of the Fund subject to the rate of sales charge applicable to the actual
amount of the aggregate purchases.
Investors wishing to enter into a Letter of Intent in conjunction with
their initial investment in Class A shares of a Fund should complete the
appropriate portion of the Application while current Class A shareholders
desiring to do so can obtain a form of Letter of Intent by contacting a Fund at
the address or telephone number shown on the cover of this Statement of
Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified benefit and savings plans may make shares of the
Evergreen Keystone funds available to their participants. Investments made by
such employee benefit plans may be exempt from any applicable front-end sales
charges if they meet the criteria set forth in the Prospectus under "Class A
Shares-Front End Sales Charge Alternative." The Advisers may provide
compensation to organizations providing administrative and record keeping
services to plans which make shares of the Evergreen Keystone Funds available to
their participants.
Reinstatement Privilege. A Class A shareholder who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are reinvested in shares
of the Fund. The reinstatement privilege may be used by the shareholder only
once, irrespective of the number of shares redeemed or repurchased, except that
the privilege may be used without limit in connection with transactions whose
sole purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
Information.
Sales at Net Asset Value. In addition to the categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset
value, i.e., without any sales charge, to: (i) certain investment advisory
clients of the Advisers or their affiliates; (ii) officers and present or former
Trustees of the Trusts; present or former trustees of other investment companies
managed by the Advisers; officers, directors and present or retired full-time
employees of the Advisers, the Distributor, and their affiliates; officers,
directors and present and full-time employees of selected dealers or agents; or
the spouse, sibling, direct ancestor or direct descendant (collectively
"relatives") of any such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or relative; or the
estate of any such person or relative, if such shares are purchased for
investment purposes (such shares may not be resold except to the Fund); (iii)
certain employee benefit plans for employees of the Advisers, the Distributor
and their affiliates; (iv) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer and approved by the
Distributor, pursuant to which such persons pay an asset-based fee to such
broker-dealer, or its affiliate or agent, for service in the nature of
investment advisory or administrative services. These provisions are intended to
provide additional job-related incentives to persons who serve the Funds or work
for companies associated with the Funds and selected dealers and agents of the
Funds. Since these persons are in a position to have a basic understanding of
the nature of an investment company as well as a general familiarity with the
Fund, sales to these persons, as compared to sales in the normal channels of
distribution, require substantially less sales effort. Similarly, these
provisions extend the privilege of purchasing shares at net asset value to
certain classes of institutional investors who, because of their investment
sophistication, can be expected to require significantly less than normal sales
effort on the part of the Funds and the Distributor.
Deferred Sales Charge Alternatives--Class B and Class C Shares
Investors choosing the deferred sales charge alternative purchase Class
B shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without a front-end
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used by the Distributor to defray the expenses of the
Distributor related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to selected dealers and agents for selling Class B shares. The
combination of the contingent deferred sales charge and the distribution
services fee (and, with respect to Short-Intermediate, Evergreen Intermediate
and Intermediate Government, the Shareholder Service Plan fee) enables the Fund
to sell the Class B shares without a sales charge being deducted at the time of
purchase. The higher distribution services fee (and, as applicable, the
Shareholder Service Plan fee) incurred by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within six years of purchase will be subject to a contingent deferred sales
charge at the rates set forth in the Prospectus charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
contingent deferred sales charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares.
In determining the contingent deferred sales charge applicable to a
redemption, it will be assumed that the redemption is first of any Class A
shares or Class C shares in the shareholder's Fund account, second of Class B
shares held for over six years or Class B shares acquired pursuant to
reinvestment of dividends or distributions and third of Class B shares held
longest during the six-year period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a
contingent deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or (ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
Conversion Feature. At the end of the period ending seven years after
the end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee (and, with respect to
Short-Intermediate, Evergreen Intermediate and Intermediate Government, the
Shareholder Service Plan fee) imposed on Class B shares. Such conversion will be
on the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee (and, with respect to
Short-Intermediate, Evergreen Intermediate and Intermediate Government,
Shareholder Service Plan fee) and transfer agency costs with respect to Class B
shares does not result in the dividends or distributions payable with respect to
other Classes of a Fund's shares being deemed "preferential dividends" under the
Code, and (ii) the conversion of Class B shares to Class A shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B shares to Class A shares may be suspended if such an opinion is no longer
available at the time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might continue to be
subject to the higher distribution services fee (and, as applicable, the
Shareholder Service Plan fee) for an indefinite period which may extend beyond
the period ending seven years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level-load sales charge alternative purchase
Class C shares at the public offering price equal to the net asset value per
share of the Class C shares on the date of purchase without the imposition of a
front-end sales charge. However, you will pay a 1.0% contingent deferred sales
charge if you redeem shares during the first year after the month of purchase.
No charge is imposed in connection with redemptions made more than one year
after the month of purchase. Class C shares are sold without a front-end sales
charge so that the Fund will receive the full amount of the investor's purchase
payment and after the first year without a contingent deferred sales charge so
that the investor will receive as proceeds upon redemption the entire net asset
value of his or her Class C shares. The Class C distribution services fee (and,
with respect to Short-Intermediate, Evergreen Intermediate and Intermediate
Government, Shareholder Service Plan fee) enables the Fund to sell Class C
shares without either a front-end or contingent deferred sales charge. However,
unlike Class B shares, Class C shares do not convert to any other Class shares
of the Fund. Class C shares incur higher distribution services fees (and, with
respect to Short-Intermediate, Evergreen Intermediate and Intermediate
Government, Shareholder Service Plan fee) than Class A shares, and will thus
have a higher expense ratio and pay correspondingly lower dividends than Class A
shares.
Class Y Shares
Class Y shares are not offered to the general public and are available
only to (i) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "Other Information - General Information" in each Fund's Prospectus)
Capitalization and Organization
Short-Intermediate is a separate series of Evergreen Investment Trust, a
Massachusetts business trust. Evergreen Intermediate and Intermediate Government
are each separate series of The Evergreen Lexicon Fund, a Massachusetts business
trust. Capital Preservation and Keystone Intermediate are each a Massachusetts
business trust. The Trusts are governed by separate Boards of Trustees.
Short-Intermediate, Evergreen Intermediate and Intermediate Government may
issue an unlimited number of shares of beneficial interest with a $0.0001 par
value. Capital Preservation and Keystone Intermediate may issue an unlimited
number of shares with no par value. All shares of the Funds have equal rights
and privileges. Each share is entitled to one vote, to participate equally in
dividends and distributions declared by the Funds and on liquidation to their
proportionate share of the assets remaining after satisfaction of outstanding
liabilities. Shares of these Funds are fully paid, nonassessable and fully
transferable when issued and have no pre-emptive, conversion or exchange rights.
Fractional shares have proportionally the same rights, including voting rights,
as are provided for a full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his or her earlier death,
incapacity, resignation or removal. Shareholders can remove a Trustee upon a
vote of two-thirds of the outstanding shares of beneficial interest of
the Trust. Vacancies will be filled by a majority of the remaining Trustees,
subject to the 1940 Act. As a result, normally no annual or regular meetings of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.
Shares have noncumulative 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 if they choose to do so and in such event the holders of the
remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more Funds. Any issuance of shares of another series or class would be governed
by the 1940 Act and the law of the Commonwealth of Massachusetts. If shares of
another series of the Trust were issued in connection with the creation of
additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees, that affected all portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in the same investment portfolio. Except for
the different distribution related and other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of each Fund. The rights of the holders of
shares of a series of a Fund may not be modified except by the vote of a
majority of the outstanding shares of such series.
Distributor
EKD (the "Distributor"), 125 W. 55th Street, New York, New York 10019,
serves as each Fund's principal underwriter, and as such may solicit orders from
the public to purchase shares of any Fund. The Distributor is not obligated to
sell any specific amount of shares and will purchase shares for resale only
against orders for shares. Under the agreement between the Fund and the
Distributor, the Fund has agreed to indemnify the Distributor, in the absence of
its willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended.
EKD replaces EKIS as Distributor of Capital Preservation and Keystone
Intermediate. EKIS may no longer act as principal underwriter of such Funds 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 act as
principal underwriter of the Funds as discussed above, EKIS may continue to
receive compensation from Capital Preservation and Keystone Intermediate 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 a Fund,
subject to certain restrictions.
Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the
Funds.
Independent Auditors
KPMG Peat Marwick LLP has been selected to be the independent auditors of
the Funds.
PERFORMANCE INFORMATION
Total Return
From time to time a Fund may advertise its "total return". Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the Securities
and Exchange Commission, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to the value of such
investment at the end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares of the Fund are
assumed to have been reinvested when paid and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been paid. The Fund
will include performance data for Class A, Class B, Class C and Class Y shares
in any advertisement or information including performance data of the Fund.
With respect to Evergreen Intermediate and Intermediate Government,
Class B and Class C shares were not being offered as of August 31, 1995. The
average annual compounded total return for each Class of shares offered by the
Funds for the most recently completed one, five and ten year fiscal periods is
set forth in the table below.
<TABLE>
<S> <C> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years From
Ended Ended Ended Ended Inception*
6/30/97 6/30/97 6/30/97 6/30/97 to 6/30/97
SHORT-INTERMEDIATE
Class A 3.30% 5.62% 5.05% N/A 7.14%
Class B 0.78% 4.98% N/A N/A 4.17%
Class C 4.77% N/A N/A N/A 5.73%
Class Y 6.88% 6.92% 5.92% N/A 7.01%
EVERGREEN
INTERMEDIATE
Class A 3.41% N/A N/A N/A 5.24%
Class B 0.91% N/A N/A N/A (1.15%)
Class C 4.91% N/A N/A N/A 5.31%
Class Y 6.97% 7.18% 6.60% N/A 7.13%
INTERMEDIATE
GOVERNMENT
Class A 2.55% N/A N/A N/A 4.38%
Class B 0.03% N/A N/A N/A (0.66%)
Class C 4.03% N/A N/A N/A 4.85%
Class Y 6.08% 6.19% 5.38% N/A 5.82%
CAPITAL
PRESERVATION
Class A 3.26% N/A N/A N/A 5.84%
Class B 1.04% 4.59% 3.80% N/A 4.51%
Class C 5.05% 5.54% N/A N/A 4.55%
KEYSTONE
INTERMEDIATE
Class A 5.30% 6.34% 5.89% 6.56% N/A
Class B 3.17% 5.82% N/A N/A 4.61%
Class C 7.06% 6.67% N/A N/A 4.96%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* INCEPTION DATE
SHORT-INTERMEDIATE Class A January 3, 1989
Class B January 25, 1993
Class C September 6, 1994
Class Y January 4, 1991
EVERGREEN INTERMEDIATE Class A May 2, 1995
Class B January 30, 1996
Class C April 29, 1996
Class Y November 1, 1991
INTERMEDIATE GOVERNMENT Class A May 2, 1995
Class B February 9, 1996
Class C April 10, 1996
Class Y November 1, 1991
CAPITAL PRESERVATION Class A December 30, 1994
Class B July 1, 1991
Class C February 1, 1993
KEYSTONE INTERMEDIATE Class A February 13, 1987
Class B February 1, 1993
Class C February 1, 1993
A Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is
useful in reviewing a Fund's performance but such information may not provide a
basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions.
YIELD CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the Securities and
Exchange Commission's yield formula) for a given 30-day or one month period, net
of expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. The formula for
calculating yield is as follows:
6
YIELD = 2[(a-b+1) -1]
-------------------
cd
Where a = Interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
Income is calculated for purposes of yield quotations in accordance
with standardized methods applicable to all stock and bond funds. Gains and
losses generally are excluded from the calculation. Income calculated for
purposes of determining a Fund's yield differs from income as determined for
other accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
The yield of each Fund for the thirty-day period ended June 30, 1997
for each Class of shares offered by the Funds is set forth in the table below:
SHORT-INTERMEDIATE EVERGREEN INTERMEDIATE
Class A - 5.99% Class A - 5.57%
Class B - 5.29% Class B - 4.81%
Class C - 5.28% Class C - 4.83%
Class Y - 6.30% Class Y - 5.82%
INTERMEDIATE GOVERNMENT CAPITAL PRESERVATION
Class A - 5.25% Class A - 5.81%
Class B - 4.44% Class B - 5.22%
Class C - 4.17% Class C - 5.25%
Class Y - 5.49%
KEYSTONE INTERMEDIATE
Class A - 5.82%
Class B - 5.25%
Class C - 5.26%
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
GENERAL
From time to time, a Fund may quote its performance in advertising
and other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Lehman
Brothers Intermediate Government Bond Index, or any other commonly quoted index
of common stock and bond prices. The Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average and the Lehman Brothers Intermediate
Government Bond Index are unmanaged indices of selected common stock and bond
prices. A Fund's performance may also be compared to those of other mutual funds
having similar objectives. This comparative performance would be expressed as a
ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's
broker or to each Adviser at the address or telephone number shown on the front
cover of this Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the Registration
Statement filed by the Trusts with the SEC under the Securities Act of 1933.
Copies of the Registration Statement may be obtained at a reasonable charge from
the SEC or may be examined, without charge, at the offices of the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
Each Fund's financial statements for the fiscal period ended June 30, 1997
and the report thereon of KPMG Peat Marwick LLP, are incorporated by reference
herein from the Funds' Annual Report, as filed with the SEC pursuant to Section
30(d) of the 1940 Act and Rule 30d-1 thereunder.
You may obtain a copy of the Funds' Annual Report without charge by
writing to EKSC, P.O. Box 2121, Boston, Massachusetts 02106-2121, or by calling
EKSC toll free at 1-800-343-2898.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND, MUNICIPAL NOTE AND COMMERCIAL
PAPER RATINGS
APPENDIX "A"
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Service. A Standard & Poor's corporate
or municipal bond rating is a current assessment of the credit worthiness
of an obligor with respect to a specific obligation. This assessment of credit
worthiness may take into consideration obligers such as guarantors, insurers or
lessees. The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform any audit in connection
with the ratings and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. 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.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay interest and
repay any principal.
AA - Debt rated AA also qualifies as high quality debt
obligations. Capacity to pay interest and repay principal is very strong and in
the majority of instances they differ from AAA issues only in small degree.
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.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a
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 outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB - rating.
B - Debt rated B has greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods; it will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate and municipal issues. The ratings
measure the credit worthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
Moody's Investors Service. A brief description of the applicable rating
symbols Moody's Investors Service, Inc. and their meanings follows:
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.
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 fluctuations 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.
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.
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. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
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 good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
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.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds
and issue so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible
risk factors; AA -- high credit quality, with strong protection factors and
modest risk, which may vary very slightly from time to time because of economic
conditions; A-- average credit quality with adequate protection factors, but
with greater and more variable risk factors in periods of economic stress. The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.
Fitch Investors Service L.P.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those rating
categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
o Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.) Note rating symbols
are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and
municipal short-term obligations will be designated Moody's Investment Grade
(MIG). This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
are uppermost in importance in short-term borrowing, while various factors of
major importance in bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
o MIG 2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security
elements are accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
Moody's Investors Service: Commercial paper rated "Prime" carries the
smallest degree of investment risk. The modifiers 1, 2, and 3 are used to denote
relative strength within this highest classification.
Standard & Poor's Ratings Service: "A" is the highest commercial paper
rating category utilized by Standard & Poor's Ratings Group which uses the
numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
Duff & Phelps, Inc.: Duff 1 is the highest commercial paper rating
category utilized by Duff & Phelps which uses + or - to denote relative strength
within this classification. Duff 2 represents good certainty of timely payment,
with minimal risk factors. Duff 3 represents satisfactory protection factors,
with risk factors larger and subject to more variation.
Fitch Investors Service L.P.: F-1+ -- denotes exceptionally strong
credit quality given to issues regarded as having strongest degree of assurance
for timely payment; F-1 -- very strong, with only slightly less degree of
assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a
satisfactory degree of assurance for timely payment.
EVERGREEN INVESTMENT TRUST
PART C. OTHER INFORMATION
Item 24.
Financial Statements and Exhibits
a. Financial Statements
The following financial statements are incorporated by reference
to the Annual Report of the Evergreen High Grade Tax Free Fund
dated May 31, 1997.
Schedule of Investments dated May 31, 1997
Financial Highlights for the Class A shares for the period from
February 21, 1992 (Commencement of Class Operations) through
December 31, 1992, each of the years in the two-year period ended
December 31, 1994, the period from January 1, 1995 through August
31, 1995, the year ended August 31, 1996 and the period September
1, 1996 through May 31, 1997.
Financial Highlights for the Class B shares for the period from
January 11, 1993 (Commencement of Class Operations) through
December 31, 1993, the year ended December 31, 1994, the period
from January 1, 1995 through August 31, 1995, the year ended
August 31, 1996 and the period from September 1, 1996 through May
31, 1997.
Financial Highlights for the Class Y shares for the fiscal period
from February 28, 1994 (Commencement of Class Operations) to
December 31, 1994, the period January 1, 1995 through August 31,
1995, the year ended August 31, 1996 and the period September 1,
1996 through May 31, 1997.
Statement of Assets and Liabilities as of May 31, 1997.
Statement of Operations for the nine months ended May 31, 1997
and the year ended August 31, 1996.
Statements of Changes in Net Assets of for the nine months ended
May 31, 1997, the year ended August 31, 1996 and the year ended
August 31, 1995.
Notes to Financial Statements.
Report of Independent Auditors dated July 8, 1997.
The following financial statements are incorporated by reference
to the Annual Report of the Evergreen Short-Intermediate Bond Fund
dated June 30, 1997.
Schedule of Investments dated June 30, 1997
Financial Highlights for Class A shares for each of the years in
the two-year period ended June 30, 1997, the six-month period
ended June 30, 1995, each of the years in the four-year period
ended December 31, 1994, the nine-month period ended December 31,
1990, the year ended March 31, 1990, and the period from January
28, 1989 (Commencement of Class Operations) through March 31,
1989.
Financial Highlights for Class B shares for each of the years in
the two-year period ended June 30, 1997, the six-month period
ended June 30, 1995, the year ended December 31, 1994, and the
period from January 25, 1993 (Commencement of Class Operations)
through December 31, 1993.
Financial Highlights for the Class C shares for each of the years
in the two-year period ended June 30, 1997, the six-month period
ended June 30, 1995, and the period from September 6, 1994,
(Commencement of Class Operations) through December 31, 1994.
Financial Highlights for the Class Y shares for each of the years
in the two-year period ended June 30, 1997, the six-month period
ended June 30, 1995, each of the years in the three-year period
ended December 31, 1994, and the period from January 4, 1991
(Commencement of Class Operations) through December 31, 1991.
Statement of Assets and Liabilities as of June 30, 1997.
Statement of Operations for the year ended June 30, 1997.
Statements of Changes in Net Assets for each of the years in
` the two-year period ended June 30, 1997.
Notes to Financial Statements
Report of Independent Auditors dated August 8, 1997.
b. Exhibits:
(1)(a) Declaration of Trust (1)
(b) Amendment to Declaration of Trust (14)
(c) Amendment to Declaration of Trust (22)
(2)(a) By-Laws (1)
(b) Amendment to the By-Laws (3)
(3) Not applicable
(4)(a) Specimen Certificate for Shares of Beneficial
Interest (19)
(4)(b) Declaration of Trust, Articles V (Section 5.1),
VI, VII and X
(4)(c) By-Laws, Articles 2, 7.8 and 8
(5) Investment Advisory Contract (21)
(6)(a) Distributor's Contract(22)
(b) Previous Distributors Contract(21)
(7) Form of Deferred Compensation Plan(26)
(8) Custodian Contract (21)
(9)(a) Form of Dealer Agreement (26)
(9)(b) Fund Accounting and Shareholder
Recordkeeping Agreement (20)
(9)(c) (i) Previous Transfer Agency and Service Agreement(21)
(ii) Shareholder Services Plan (21)
(iii) Shareholder Services Agreement (21)
(9)(d) Administrative Services Agreement (26)
(9)(e) Sub-Administrator Agreement (26)
(10) Opinion and Consent of Counsel relating to
shares of Evergreen High Grade Tax Free Fund
Opinion and Consent of Counsel relating to
shares of Evergreen Short-Intermediate Municipal Fund
(24)
(11) Consent of KPMG Peat Marwick LLP, Independent
Auditors (27)
Consent of Price Waterhouse LLP, Independent
Auditors (27)
(12) Not applicable
(13) Copy of Initial Capital Understanding (1)
(14) Forms of model plans used in the establishment of
retirement plans in connection with which Registrant
offers its securities (25)
(15)(a) Distribution Plan
First Union Utility
Portfolio - Class B Investment Shares (21)
First Union Funds - Class C
Investment Shares (17)
(b) Exhibit to Class C Investment Shares (21)
(c) Rule 12b-1 Agreement (14)
(d) Amendment Number 5 to 12b-1 Agreement(21)
(16) Performance calculations (27)
(17) Financial Data Schedules (27)
(18) Multiple Class Plan (26)
(19) Powers of Attorney (26)
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A. (File Nos. 2-94560 and 811-4154).
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File Nos. 2-94560 and 811-4154).
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 filed on July 30, 1990 on Form N-1A (File Nos. 2-94560
and 811-4154).
(11) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 filed on August 26, 1992 on Form N-1A (File Nos. 2-
94560 and 811-4154).
(14) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 28 filed on April 15, 1993 on Form N-1A (File Nos. 2-
94560 and 811-4154).
(15) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 filed on April 30, 1993 on Form N-1A (File Nos. 2-
94560 and 811-4154).
(16) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 filed on June 14, 1993 on Form N-1A (File Nos. 2-94560
and 811-4154).
(17) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 32 filed on November 2, 1993 on Form N-1A (File Nos. 2-
94560 and 811-4154).
(18) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 filed on December 29, 1993 on Form N-1A (File Nos. 2-
94560 and 811-4154).
(19) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 35 filed on February 25, 1994 on Form N-1A (File Nos. 2-
94560 and 811-4154).
(20) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 36 filed on June 28, 1994 on Form N-1A (File Nos. 2-94560
and 811-4154).
(21) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 38 filed on December 30, 1994 on Form N-1A (File Nos. 2-
94560 and 811-4154).
(22) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 40 filed on July 6, 1995 on Form N-1A (File Nos. 2-94560
and 811-4154).
(23) Response is incoporated by refernce to Registrant's Post-Effective
Amendment No. 44 filed on April 1, 1996 on Form N-1A (File Nos. 2-94560
and 811-4154)
(24) Incorporated herein by reference to Rule 24f-2 Notice filed August 29,
1997
(25) Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96.
(26) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 50 filed on July 31, 1997 on Form N-1A (File Nos. 2-94560
and 811-4154).
(27) Filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant:
Not applicable.
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of August 31, 1997
Shares of beneficial interest
(.0001 par value)
Evergreen High Grade Tax Free Fund
Class A Shares 1,271
Class B Shares 950
Class Y Shares 511
Evergreen Short-Intermediate Term Bond Fund
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
Item 27. Indemnification: (1.)
- --------------------------------------
(1.) Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 35 filed on February 25, 1994 on Form N-1A
(File Nos. 2-94560 and 811-4154).
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment
adviser, see the section entitled "Management of the
Funds-Investment Adviser" in Part A.
The Trustees and principal executive officers of the Fund's
Investment Adviser, and the Directors of the Fund's Manager, are
set forth in the following tables:
FIRST UNION NATIONAL BANK
BOARD OF DIRECTORS
Edward E. Crutchfield
Anthony P. Terracciano
John R. Georgius
Marion A. Cowell, Jr.
Robert T. Atwood
All of the Directors are located at the following address:
First Union National Bank, 301 South College Street,
Charlotte, NC 28288
FIRST UNION NATIONAL BANK
EXECUTIVE OFFICERS
Edward E. Crutchfield, Chairman & CEO, First Union Corporation
John R. Georgius, Vice Chairman, First Union Corporation
Marion A. Cowell, Jr., Secretary and EVP, First Union Corporation
Robert T. Atwood, EVP & CFO, First Union Corporation
Anthony P. Terracciano, President, First Union Corporation
All of the Executive Officers are located at the following
address: First Union National Bank, 301 South College Street,
Charlotte, NC 28288
Item 29. Principal Underwriters
Evergreen Keystone Distributor, Inc.(formerly known as Evergreen Funds
Distributor, Inc.) The Director and principal executive officers are:
Director Michael C. Petrycki
Officers Lynn J. Mangum Chairman/CEO
Robert J. McMullan Executive Vice President/Treasurer
J. David Huber President
Kevin J. Dell Vice President/General Counsel/Secretary
Mark J. Rybarczyk Senior Vice President
Dennis Sheehan Senior Vice President
Mark Dillon Senior Vice President
George Martinez Senior Vice President
D'Ray Moore Vice President
Dale Smith Vice President
Michael Burns Vice President
Bruce Treff Assistant Secretary
Annamaria Porcaro Assistant Secretary
Evergreen Keystone Distributor, Inc. acts as Distributor for the
following registered investment companies or separate series thereof:
Evergreen Trust:
Evergreen Fund
Evergreen Aggressive Growth Fund
Evergreen Income and Growth Fund (formerly Evergreen Total Return Fund)
Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
Evergreen Money Market Trust:
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen American Retirement Trust:
Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
Evergreen Municipal Trust:
Evergreen Tax Exempt Money Market Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Equity Trust:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
Evergreen Foundation Trust:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Investment Trust:
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund
Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund
Evergreen U.S. Government Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
Evergreen Latin America Fund
Evergreen Lexicon Trust:
Evergreen Intermediate Term Government Securities Fund
Evergreen Intermediate Term Bond Fund
Evergreen Tax Free Trust:
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax Free Income Fund
Evergreen Variable Trust:
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Evergreem VA Global Leaders Fund
Evergreen VA Strategic Income Fund
Evergreen VA Aggressive Growth Fund
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Intermediate Term Bond Fund
Keystone Omega Fund
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund:
Florida Tax Free Fund
Massachusetts Tax Free Fund
Pennsylvania Tax Free Fund
New York Tax Free Fund
Keystone State Tax Free Fund- Series II:
California Tax Free Fund
Missouri Tax Free Fund
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Small Company Growth Fund (S-4)
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone International Fund Inc.
Keystone Precious Metals Holdings, Inc.
Keystone Tax Free Fund
<PAGE>
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are maintained at the offices of:
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171, the
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
First Union National Bank, 301 South College Street,
Charlotte, North Carolina 28288
Keystone Investment Management Company and Evergreen Keystone Service Company,
200 Berkeley Street, Boston, Massachusetts 02116-5034
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 52 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in The City of New
York, State of New York, on the 4th day of September, 1997.
EVERGREEN INVESTMENT TRUST
/s/ John J. Pileggi
by-----------------------------
John J. Pileggi, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 52 to the Registration Statement has been
signed below by the following persons in the capacities indicated on the 4th day
of September, 1997.
Signatures Title
- ----------- -----
/s/John J. Pileggi
- ----------------------- President and
John J. Pileggi Treasurer
/s/James S. Howell*
- ----------------------- Trustee
James S. Howell
by James P. Wallin
Attorney - In - Fact
/s/Gerald M. McDonnell*
- ----------------------- Trustee
Gerald M. McDonnell
by James P. Wallin
Attorney - In - Fact
/s/Thomas L. McVerry*
- ---------------------- Trustee
Thomas L. McVerry
by James P. Wallin
Attorney - In - Fact
/s/William Walt Pettit*
- ----------------------- Trustee
William Walt Pettit
by James P. Wallin
Attorney - In - Fact
/s/Russell A. Salton, III, M.D*
- ------------------------------ Trustee
Russell A. Salton, III, M.D
by James P. Wallin
Attorney - In - Fact
/s/Michael S. Scofield*
- ----------------------- Trustee
Michael S. Scofield
by James P. Wallin
Attorney - In - Fact
* By:/s/ James P. Wallin
--------------------
James P. Wallin**
Attorney-in-Fact
** Jaems P. Wallin, by signing his name hereto, does hereby sign this document
on behalf of each of the aobe-named individuals pursuant to powers of attorney
duly executed by such persons filed as part of the Registration Statement to
Registrant's previous filngs on Form N-1a.
<PAGE>
INDEX TO EXHIBITS
Exhibit Exhibit
No.
10 Opinion and Consent of Counsel
11 Consent of KPMG Peat Marwick LLP, Independent Auditors
Consent of Price Waterhouse LLP, Independent Auditors
16 Performance Calculations
17 Financial Data Schedules
James P. Wallin
2500 Westchester Avenue
Purchase, New York 10577
September 4, 1997
Evergreen Investment Trust
200 Berkeley Street
Boston, Massachusetts 02110
Dear Sirs:
Evergreen Investment Trust, a Massachusetts business trust (the "Fund"), is
filing with the Securities and Exchange Commission a Post-Effective Amendment to
its Registration Statement on Form N-1A (the "Amendment") for the purpose of
registering additional shares pursuant to Rule 24e-2 under the Investment
Company Act of 1940 (the "Rule"). The effect of the Amendment, when accompanied
by this Opinion, will be to register additional shares of beneficial interest of
the EVERGREEN HIGH GRADE TAX FREE FUND series of the Fund (the "Shares") in the
amounts set forth on the facing page of the Amendment.
I have, as counsel, participated in various proceedings relating to the Fund and
to the Amendment. I have examined copies, either certified or otherwise proved
to our satisfaction to be genuine, of the Fund's Declaration of Trust, as now in
effect, the minutes of meetings of the Trustees of the Fund and other documents
relating to the organization and operation of the Fund. I have also reviewed the
form of the Amendment being filed by the Fund. I am generally familiar with the
business affairs of the Fund.
The Fund has advised me that the Shares will only be sold in the manner
contemplated by the prospectus of the Fund current at the time of sale, and that
the Shares will only be sold for a consideration not less than the net asset
value thereof as required by the Investment Company Act of 1940 and not less
than the par value thereof.
Based upon the foregoing, it is my opinion that the shares will be, when issued,
fully paid and non-assessable. However, I note that as set forth in the
Registration Statement, the Fund's shareholders might, under certain
circumstances, be liable for transactions effected by the Fund.
I hereby consent to the filing of this Opinion with the Securites and Exchange
Commission together with the Amendment, and to the filing of this Opinion under
the securities laws of any state.
I am a member of the Bar of the State of New York and do not hold myself out as
being conversant with the laws of any jurisdiction other than those of the
United States of America and the State of New York. I note that I am not
licensed to practice law in The Commonwealth of Massachusetts, and to the extent
that any opinion expressed herein involves the law of Massachusetts, such
opinion would be understood to be to be based solely upon my review of the
documents referred to above, the published statutes of that Commonwealth and,
where applicable, published cases, rules or regulations or regularly bodies of
that Commonwealth.
Very truly yours,
/s/ James P. Wallin
-------------------
James P. Wallin
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Capital Presrvation and Income Fund
The Evergreen Lexicon Fund
Keystone Intermediate Term Bond Fund
Evergeen Investment Trust
We consent to the use of our reports dated August 8, 1997 incorporated by
reference herein and to the reference to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the Prospectuses.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachsuetts
September 4, 1997
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 52 to the Registration Statement on Form N-1A (the "Registration
Statement") of our reports dated July 8, 1997, relating to the financial
statements and financial highlights appearing in the May 31, 1997 Annual Reports
to Shareholders of the Evergreen High Grade Tax Free Fund and the Evergreen
Short-Intermediate Municipal Fund, which are also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Auditors" in the Prospectuses
and under the heading "Financial Statements" in the Statement of Additional
Information.
/s/Price Waterhouse LLP
New York, NY
September 2, 1997
HIGH GRADE
$952.50
A A NAV
TIME ACCOUNT A AVERAGE A/C VALUE A AVERAGE
PERIOD VALUE CLASS ANNNUAL W/LOAD CLASS ANNNUAL
- --------------------------------------------------------------------------------
BLANK 1,427.97 0.00% 952.50 -4.75% -4.75%
9 MO 1,358.29 5.13% 5.13% 1,001.36 0.14% 0.14%
QTR 1,418.71 0.65% 0.65% 958.72 -4.13% -4.13%
YTD 1,411.41 1.17% 1.17% 963.67 -3.63% -3.63%
1 1,334.73 6.99% 6.99% 1,019.04 1.90% 1.90%
3 1,171.22 21.92% 6.83% 1,161.30 16.13% 5.11%
5 1,028.53 38.84% 6.78% 1,322.42 32.24% 5.75%
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 42.80% 6.98% 1,360.14 36.01% 6.00%
INCEPTION FACTOR: 5.2795
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1000
B B NAV LEVEL VALUE OF VALUE OF B
TIME ACCOUNT B AVERAGE LOAD CLASS B CLASS B INIT. B AVERAGE
PERIOD VALUE CLASS ANNNUAL COMP INVESTMENT INVESTMENT CUMULATIVE ANNUAL
- --------------------------------------------------------------------------------------------------------------------------
BLANK 1,265.49 0.00% 50.00 1000.00 1000.00 0.00%
9 MO 1,210.46 4.55% 4.55% 50.00 1045.47 1015.86 -0.45% -0.45%
QTR 1,259.63 0.47% 0.47% 49.77 1004.65 995.43 -4.51% -4.51%
YTD 1,254.72 0.86% 0.86% 49.64 1008.59 992.71 -4.10% -4.10%
1 1,191.69 6.19% 6.19% 50.00 1061.93 1021.58 1.19% 1.19%
3 1,060.75 19.30% 6.06% 30.00 1193.01 1054.21 16.30% 5.16%
5 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 26.55% 5.51% 20.00 1265.49 1045.11 24.55% 5.13%
INCEPTION FACTOR: 4.3890
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B B NAV LEVEL VALUE OF VALUE OF B
TIME ACCOUNT B AVERAGE LOAD CLASS B CLASS B INIT. B AVERAGE
PERIOD VALUE CLASS ANNNUAL COMP INVESTMENT INVESTMENT CUMULATIVE ANNUAL
- ----------------------------------------------------------------------------------------------------------------------------------
BLANK 1,265.49 0.00% 50.00 1000.00 1000.00 0.00%
9 MO 1,210.46 4.55% 4.55% 50.00 1045.47 1015.86 -0.45% -0.45%
QTR 1,259.63 0.47% 0.47% 49.77 1004.65 995.43 -4.51% -4.51%
YTD 1,254.72 0.86% 0.86% 49.64 1008.59 992.71 -4.10% -4.10%
1 1,191.69 6.19% 6.19% 50.00 1061.93 1021.58 1.19% 1.19%
3 1,060.75 19.30% 6.06% 30.00 1193.01 1054.21 16.30% 5.16%
5 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 26.55% 5.51% 20.00 1265.49 1045.11 24.55% 5.13%
INCEPTION FACTOR: 4.3890
</TABLE>
HIGH GRADE TAX FREE FUND
PERFORMANCE STATISTICS
CLASS Y Y
ACCOUNT Y AVERAGE
YEARS VALUE CLASS ANNNUAL
- -------------------------------------------------------------------
31-May-97BLANK 1,176.43 0.00%
31-Aug-96 9 MO 1,116.99 5.32% 5.32%
28-Feb-97 QTR 1,168.11 0.71% 0.71%
31-Dec-96 YTD 1,161.62 1.28% 1.28%
31-May-96 1 1,096.93 7.25% 7.25%
31-May-94 3 957.75 22.83% 7.10%
31-May-92 5 0.00 #VALUE! #VALUE!
31-May-87 10 0.00 #VALUE! #VALUE!
28-Feb-9INCEPT. 1,000.00 17.64% 5.11%
INCEPTION FACTOR: 3.2575
- ----------------------------------------------------------------------------
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
RK43 Evergreen High Grade Tax Free FCLASS A #NAME? PHASE II-ROLLING
- -------------------------------------------------------------------------------
A
PRICING DATE 05/31/97
..........
30 DAY YTM 4.19356%
..........
<TABLE>
<CAPTION>
............................................................................................
PRICE ST VARIABLE ZERO COUPON LONG TERM AMORTIATION TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
............................................................................................
<S> <C> <C> <C> <C> <C>
1 05/02/97 1,057.69 14,617.91 15,675.60 44.98030005
2 05/03/97 1,057.69 14,617.91 15,675.60 44.98030005
3 05/04/97 1,057.69 14,617.91 15,675.60 44.98030005
4 05/05/97 984.99 14,622.53 15,607.52 44.97270488
5 05/06/97 993.37 14,620.36 15,613.73 44.90467600
6 05/07/97 1,065.74 14,628.12 15,693.86 44.88035759
7 05/08/97 1,105.12 14,616.67 15,721.79 44.95568075
8 05/09/97 1,164.02 14,604.20 15,768.22 45.01541340
9 05/10/97 1,164.02 14,604.20 15,768.22 45.01541340
10 05/11/97 1,164.02 14,604.20 15,768.22 45.01541340
11 05/12/97 1,078.08 14,604.20 15,682.28 45.15852209
12 05/13/97 692.63 15,153.03 15,845.66 45.05879180
13 05/14/97 594.86 14,943.32 15,538.18 45.06779755
14 05/15/97 464.01 15,096.31 15,560.32 45.06933301
15 05/16/97 611.78 14,940.68 15,552.46 44.83466904
16 05/17/97 611.78 14,940.68 15,552.46 44.83466904
17 05/18/97 611.78 14,940.68 15,552.46 44.83466904
18 05/19/97 591.11 14,947.38 15,538.49 44.78711899
19 05/20/97 576.89 14,949.73 15,526.62 44.91524603
20 05/21/97 586.32 14,955.35 15,541.67 44.88172130
21 05/22/97 582.73 14,957.62 15,540.35 44.75406895
22 05/23/97 644.17 14,955.50 15,599.67 44.75178998
23 05/24/97 644.17 14,955.50 15,599.67 44.75178998
24 05/25/97 644.17 14,955.50 15,599.67 44.75178998
25 05/26/97 644.17 14,955.50 15,599.67 44.75178998
26 05/27/97 517.69 15,139.74 15,657.43 44.72515899
27 05/28/97 504.14 15,142.13 15,646.27 44.67590380
28 05/29/97 485.35 15,140.86 15,626.21 44.76903599
29 05/30/97 115.17 15,562.39 15,677.56 44.75516105
30 05/31/97 115.17 15,562.39 15,677.56 44.75516105
22,130.52 0.00 446,952.50 0.00 469,083.02
</TABLE>
TOTAL INCOME FOR PERIOD 210,554.51
TOTAL EXPENSES FOR PERIOD 42,905.47
AVERAGE SHARES OUTSTANDING 4,233,659.52
LAST PRICE DURING PERIOD 11.43
<TABLE>
<CAPTION>
............................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
............................................................................................
<S> <C> <C> <C> <C> <C>
7,050.93 1,383.27 4,246,519.732 11.33 7,050.93 1,383.27 4,246,519.732
7,050.93 1,383.27 4,246,519.732 11.33 14,101.86 2,766.55 8,493,039.464
7,050.93 1,383.27 4,246,519.732 11.33 21,152.79 4,149.82 12,739,559.196
7,019.12 1,382.41 4,246,802.920 11.33 28,171.91 5,532.23 16,986,362.116
7,011.29 1,382.04 4,240,191.686 11.33 35,183.20 6,914.27 21,226,553.802
7,043.46 1,378.97 4,239,904.383 11.32 42,226.66 8,293.24 25,466,458.185
7,067.84 1,378.46 4,237,786.028 11.34 49,294.50 9,671.70 29,704,244.213
7,098.13 1,384.84 4,249,684.325 11.36 56,392.63 11,056.54 33,953,928.538
7,098.13 1,384.84 4,249,684.325 11.36 63,490.76 12,441.39 38,203,612.863
7,098.13 1,384.84 4,249,684.325 11.36 70,588.89 13,826.23 42,453,297.188
7,081.89 1,387.35 4,249,684.325 11.37 77,670.78 15,213.58 46,702,981.513
7,139.86 1,387.87 4,247,780.065 11.37 84,810.64 16,601.45 50,950,761.578
7,002.72 1,385.87 4,241,720.280 11.41 91,813.36 17,987.32 55,192,481.858
7,012.93 1,390.12 4,239,302.056 11.41 98,826.29 19,377.44 59,431,783.914
6,972.89 1,387.55 4,231,505.480 11.41 105,799.18 20,764.99 63,663,289.394
6,972.89 1,387.55 4,231,505.480 11.41 112,772.07 22,152.55 67,894,794.874
6,972.89 1,387.55 4,231,505.480 11.41 119,744.96 23,540.10 72,126,300.354
6,959.24 1,385.33 4,224,590.456 11.41 126,704.20 24,925.43 76,350,890.810
6,973.82 1,391.94 4,244,771.945 11.41 133,678.02 26,317.37 80,595,662.755
6,975.37 1,390.24 4,239,541.007 11.40 140,653.39 27,707.61 84,835,203.762
6,954.94 1,383.76 4,223,791.522 11.41 147,608.33 29,091.37 89,058,995.284
6,981.13 1,385.75 4,225,883.865 11.41 154,589.46 30,477.12 93,284,879.149
6,981.13 1,385.75 4,225,883.865 11.41 161,570.59 31,862.87 97,510,763.014
6,981.13 1,385.75 4,225,883.865 11.41 168,551.72 33,248.62 101,736,646.879
6,981.13 1,385.75 4,225,883.865 11.41 175,532.85 34,634.37 105,962,530.744
7,002.81 1,384.16 4,221,183.865 11.40 182,535.66 36,018.53 110,183,714.609
6,990.11 1,381.01 4,215,611.654 11.40 189,525.77 37,399.54 114,399,326.263
6,995.70 1,380.68 4,214,692.783 11.40 196,521.47 38,780.22 118,614,019.046
7,016.52 2,062.63 4,197,883.316 11.43 203,537.99 40,842.85 122,811,902.362
7,016.52 2,062.63 4,197,883.316 11.43 210,554.51 42,905.47 127,009,785.678
210,554.51 42,905.47 4,233,659.523
</TABLE>
B
PRICING DATE 05/31/97
..........
30 DAY YTM 3.62962%
...........
<TABLE>
<CAPTION>
..............................................................................................
PRICE ST VARIABLE ZERO COUPON LONG TERM AMORTIZATION TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
..............................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 05/02/97 1,057.69 0.00 14,617.91 0.00 15,675.60 30.88044933
2 05/03/97 1,057.69 0.00 14,617.91 0.00 15,675.60 30.88044933
3 05/04/97 1,057.69 0.00 14,617.91 0.00 15,675.60 30.88044933
4 05/05/97 984.99 0.00 14,622.53 0.00 15,607.52 30.90663699
5 05/06/97 993.37 0.00 14,620.36 0.00 15,613.73 30.98343045
6 05/07/97 1,065.74 0.00 14,628.12 0.00 15,693.86 30.97025469
7 05/08/97 1,105.12 0.00 14,616.67 0.00 15,721.79 30.98831478
8 05/09/97 1,164.02 0.00 14,604.20 0.00 15,768.22 30.91679341
9 05/10/97 1,164.02 0.00 14,604.20 0.00 15,768.22 30.91679341
10 05/11/97 1,164.02 0.00 14,604.20 0.00 15,768.22 30.91679341
11 05/12/97 1,078.08 0.00 14,604.20 0.00 15,682.28 30.99812216
12 05/13/97 692.63 0.00 15,153.03 0.00 15,845.66 31.13910941
13 05/14/97 594.86 0.00 14,943.32 0.00 15,538.18 31.09387916
14 05/15/97 464.01 0.00 15,096.31 0.00 15,560.32 31.08869419
15 05/16/97 611.78 0.00 14,940.68 0.00 15,552.46 31.38361953
16 05/17/97 611.78 0.00 14,940.68 0.00 15,552.46 31.38361953
17 05/18/97 611.78 0.00 14,940.68 0.00 15,552.46 31.38361953
18 05/19/97 591.11 0.00 14,947.38 0.00 15,538.49 31.42754752
19 05/20/97 576.89 0.00 14,949.73 0.00 15,526.62 31.35197433
20 05/21/97 586.32 0.00 14,955.35 0.00 15,541.67 31.36722780
21 05/22/97 582.73 0.00 14,957.62 0.00 15,540.35 31.47402520
22 05/23/97 644.17 0.00 14,955.50 0.00 15,599.67 31.48928417
23 05/24/97 644.17 0.00 14,955.50 0.00 15,599.67 31.48928417
24 05/25/97 644.17 0.00 14,955.50 0.00 15,599.67 31.48928417
25 05/26/97 644.17 0.00 14,955.50 0.00 15,599.67 31.48928417
26 05/27/97 517.69 0.00 15,139.74 0.00 15,657.43 31.52979124
27 05/28/97 504.14 0.00 15,142.13 0.00 15,646.27 31.57212630
28 05/29/97 485.35 0.00 15,140.86 0.00 15,626.21 31.40391915
29 05/30/97 115.17 0.00 15,562.39 0.00 15,677.56 31.32930248
30 05/31/97 115.17 0.00 15,562.39 0.00 15,677.56 31.32930248
22,130.52 0.00 446,952.50 0.00 469,083.02
</TABLE>
TOTAL INCOME FOR PERIOD 146,421.56
TOTAL EXPENSES FOR PERIOD 50,168.18
AVERAGE SHARES OUTSTANDING 2,944,206.22
LAST PRICE DURING PERIOD 10.89
<TABLE>
<CAPTION>
............................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
..............................................................................................
<S> <C> <C> <C> <C> <C> <C>
4,840.70 1,595.45 2,915,374.892 10.79 4,840.70 1,595.45 2,915,374.892
4,840.70 1,595.45 2,915,374.892 10.79 9,681.40 3,190.90 5,830,749.784
4,840.70 1,595.45 2,915,374.892 10.79 14,522.10 4,786.35 8,746,124.676
4,823.76 1,597.09 2,918,534.622 10.79 19,345.86 6,383.44 11,664,659.298
4,837.67 1,601.13 2,925,657.101 10.79 24,183.53 7,984.57 14,590,316.399
4,860.43 1,600.27 2,925,799.295 10.78 29,043.96 9,584.84 17,516,115.694
4,871.92 1,597.25 2,921,140.225 10.80 33,915.88 11,182.09 20,437,255.919
4,875.03 1,598.82 2,918,702.782 10.82 38,790.91 12,780.91 23,355,958.701
4,875.03 1,598.82 2,918,702.782 10.82 43,665.94 14,379.73 26,274,661.483
4,875.03 1,598.82 2,918,702.782 10.82 48,540.97 15,978.55 29,193,364.265
4,861.21 1,600.88 2,917,106.844 10.83 53,402.18 17,579.43 32,110,471.109
4,934.20 1,612.39 2,935,544.494 10.83 58,336.38 19,191.82 35,046,015.603
4,831.42 1,607.41 2,926,513.941 10.87 63,167.80 20,799.23 37,972,529.544
4,837.50 1,612.07 2,924,258.168 10.87 68,005.30 22,411.30 40,896,787.712
4,880.92 1,632.85 2,961,992.603 10.87 72,886.22 24,044.15 43,858,780.315
4,880.92 1,632.85 2,961,992.603 10.87 77,767.14 25,676.99 46,820,772.918
4,880.92 1,632.85 2,961,992.603 10.87 82,648.06 27,309.84 49,782,765.521
4,883.37 1,634.23 2,964,435.317 10.87 87,531.43 28,944.07 52,747,200.838
4,867.90 1,633.42 2,962,957.856 10.87 92,399.33 30,577.49 55,710,158.694
4,874.99 1,633.42 2,962,957.856 10.86 97,274.32 32,210.91 58,673,116.550
4,891.17 1,635.99 2,970,449.926 10.87 102,165.49 33,846.90 61,643,566.476
4,912.22 1,639.22 2,973,513.639 10.87 107,077.71 35,486.12 64,617,080.115
4,912.22 1,639.22 2,973,513.639 10.87 111,989.93 37,125.34 67,590,593.754
4,912.22 1,639.22 2,973,513.639 10.87 116,902.15 38,764.56 70,564,107.393
4,912.22 1,639.22 2,973,513.639 10.87 121,814.37 40,403.78 73,537,621.032
4,936.75 1,640.43 2,975,798.165 10.86 126,751.12 42,044.21 76,513,419.197
4,939.86 1,640.75 2,979,141.153 10.86 131,690.98 43,684.96 79,492,560.350
4,907.24 1,628.24 2,956,460.162 10.86 136,598.22 45,313.20 82,449,020.512
4,911.67 2,427.49 2,938,583.017 10.89 141,509.89 47,740.69 85,387,603.529
4,911.67 2,427.49 2,938,583.017 10.89 146,421.56 50,168.18 88,326,186.546
146,421.56 50,168.18 2,849,231.824
</TABLE>
C
PRICING DATE 05/31/97
...........
30 DAY YTM 4.66165%
...........
<TABLE>
<CAPTION>
...............................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM AMORTIATION TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 05/02/97 1,057.69 0.00 14,617.91 0.00 15,675.60 24.13925062
2 05/03/97 1,057.69 0.00 14,617.91 0.00 15,675.60 24.13925062
3 05/04/97 1,057.69 0.00 14,617.91 0.00 15,675.60 24.13925062
4 05/05/97 984.99 0.00 14,622.53 0.00 15,607.52 24.12065814
5 05/06/97 993.37 0.00 14,620.36 0.00 15,613.73 24.11189355
6 05/07/97 1,065.74 0.00 14,628.12 0.00 15,693.86 24.14938773
7 05/08/97 1,105.12 0.00 14,616.67 0.00 15,721.79 24.05600447
8 05/09/97 1,164.02 0.00 14,604.20 0.00 15,768.22 24.06779319
9 05/10/97 1,164.02 0.00 14,604.20 0.00 15,768.22 24.06779319
10 05/11/97 1,164.02 0.00 14,604.20 0.00 15,768.22 24.06779319
11 05/12/97 1,078.08 0.00 14,604.20 0.00 15,682.28 23.84335576
12 05/13/97 692.63 0.00 15,153.03 0.00 15,845.66 23.80209879
13 05/14/97 594.86 0.00 14,943.32 0.00 15,538.18 23.83832329
14 05/15/97 464.01 0.00 15,096.31 0.00 15,560.32 23.84197279
15 05/16/97 611.78 0.00 14,940.68 0.00 15,552.46 23.78171143
16 05/17/97 611.78 0.00 14,940.68 0.00 15,552.46 23.78171143
17 05/18/97 611.78 0.00 14,940.68 0.00 15,552.46 23.78171143
18 05/19/97 591.11 0.00 14,947.38 0.00 15,538.49 23.78533349
19 05/20/97 576.89 0.00 14,949.73 0.00 15,526.62 23.73277963
20 05/21/97 586.32 0.00 14,955.35 0.00 15,541.67 23.75105090
21 05/22/97 582.73 0.00 14,957.62 0.00 15,540.35 23.77190584
22 05/23/97 644.17 0.00 14,955.50 0.00 15,599.67 23.75892584
23 05/24/97 644.17 0.00 14,955.50 0.00 15,599.67 23.75892584
24 05/25/97 644.17 0.00 14,955.50 0.00 15,599.67 23.75892584
25 05/26/97 644.17 0.00 14,955.50 0.00 15,599.67 23.75892584
26 05/27/97 517.69 0.00 15,139.74 0.00 15,657.43 23.74504978
27 05/28/97 504.14 0.00 15,142.13 0.00 15,646.27 23.75196980
28 05/29/97 485.35 0.00 15,140.86 0.00 15,626.21 23.82704485
29 05/30/97 115.17 0.00 15,562.39 0.00 15,677.56 23.91553647
30 05/31/97 115.17 0.00 15,562.39 0.00 15,677.56 23.91553647
22,130.52 0.00 446,952.50 0.00 469,083.02
</TABLE>
TOTAL INCOME FOR PERIOD 112,106.86
TOTAL EXPENSES FOR PERIOD 17,660.33
AVERAGE SHARES OUTSTANDING 2,254,129.04
LAST PRICE DURING PERIOD 10.89
<TABLE>
<CAPTION>
.................................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
..................................................................................................
<S> <C> <C> <C> <C> <C> <C>
3,783.97 574.09 2,278,948.872 10.79 3,783.97 574.09 2,278,948.872
3,783.97 574.09 2,278,948.872 10.79 7,567.94 1,148.18 4,557,897.744
3,783.97 574.09 2,278,948.872 10.79 11,351.91 1,722.27 6,836,846.616
3,764.64 573.12 2,277,730.052 10.79 15,116.55 2,295.39 9,114,576.668
3,764.77 573.82 2,276,801.877 10.79 18,881.32 2,869.21 11,391,378.545
3,789.97 573.38 2,281,423.330 10.78 22,671.29 3,442.59 13,672,801.875
3,782.03 570.18 2,267,660.014 10.80 26,453.32 4,012.77 15,940,461.889
3,795.06 572.35 2,272,122.274 10.82 30,248.38 4,585.12 18,212,584.163
3,795.06 572.35 2,272,122.274 10.82 34,043.44 5,157.46 20,484,706.437
3,795.06 572.35 2,272,122.274 10.82 37,838.50 5,729.81 22,756,828.711
3,739.18 566.22 2,243,800.960 10.83 41,577.68 6,296.03 25,000,629.671
3,771.60 566.70 2,243,870.212 10.83 45,349.28 6,862.73 27,244,499.883
3,704.04 566.62 2,243,630.815 10.87 49,053.32 7,429.35 29,488,130.698
3,709.89 568.44 2,242,618.595 10.87 52,763.21 7,997.79 31,730,749.293
3,698.64 568.89 2,244,522.919 10.87 56,461.85 8,566.68 33,975,272.212
3,698.64 568.89 2,244,522.919 10.87 60,160.49 9,135.58 36,219,795.131
3,698.64 568.89 2,244,522.919 10.87 63,859.13 9,704.47 38,464,318.050
3,695.88 568.68 2,243,575.723 10.87 67,555.01 10,273.15 40,707,893.773
3,684.90 568.51 2,242,896.256 10.87 71,239.91 10,841.66 42,950,790.029
3,691.31 568.65 2,243,531.473 10.86 74,931.22 11,410.31 45,194,321.502
3,694.24 568.14 2,243,540.681 10.87 78,625.46 11,978.45 47,437,862.183
3,706.31 568.66 2,243,540.681 10.87 82,331.77 12,547.11 49,681,402.864
3,706.31 568.66 2,243,540.681 10.87 86,038.08 13,115.77 51,924,943.545
3,706.31 568.66 2,243,540.681 10.87 89,744.39 13,684.42 54,168,484.226
3,706.31 568.66 2,243,540.681 10.87 93,450.70 14,253.08 56,412,024.907
3,717.86 567.99 2,241,070.200 10.86 97,168.56 14,821.07 58,653,095.107
3,716.30 567.47 2,241,232.348 10.86 100,884.86 15,388.54 60,894,327.455
3,723.26 567.98 2,243,150.243 10.86 104,608.12 15,956.52 63,137,477.698
3,749.37 851.91 2,243,196.744 10.89 108,357.49 16,808.43 65,380,674.442
3,749.37 851.91 2,243,196.744 10.89 112,106.86 17,660.33 67,623,871.186
112,106.86 17,660.33 2,181,415.200
</TABLE>
Y
PRICING DATE 05/31/97
..........
30 DAY YTM #DIV/0!
..........
<TABLE>
<CAPTION>
...........................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME FACTOR
...........................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 05/02/97 1057.69 0.00 14,617.91 0.00 15,675.60 0.00000000
2 05/03/97 1057.69 0.00 14,617.91 0.00 15,675.60 0.00000000
3 05/04/97 1057.69 0.00 14,617.91 0.00 15,675.60 0.00000000
4 05/05/97 984.99 0.00 14,622.53 0.00 15,607.52 0.00000000
5 05/06/97 993.37 0.00 14,620.36 0.00 15,613.73 0.00000000
6 05/07/97 1065.74 0.00 14,628.12 0.00 15,693.86 0.00000000
7 05/08/97 1105.12 0.00 14,616.67 0.00 15,721.79 0.00000000
8 05/09/97 1164.02 0.00 14,604.20 0.00 15,768.22 0.00000000
9 05/10/97 1164.02 0.00 14,604.20 0.00 15,768.22 0.00000000
10 05/11/97 1164.02 0.00 14,604.20 0.00 15,768.22 0.00000000
11 05/12/97 1078.08 0.00 14,604.20 0.00 15,682.28 0.00000000
12 05/13/97 692.63 0.00 15,153.03 0.00 15,845.66 0.00000000
13 05/14/97 594.86 0.00 14,943.32 0.00 15,538.18 0.00000000
14 05/15/97 464.01 0.00 15,096.31 0.00 15,560.32 0.00000000
15 05/16/97 611.78 0.00 14,940.68 0.00 15,552.46 0.00000000
16 05/17/97 611.78 0.00 14,940.68 0.00 15,552.46 0.00000000
17 05/18/97 611.78 0.00 14,940.68 0.00 15,552.46 0.00000000
18 05/19/97 591.11 0.00 14,947.38 0.00 15,538.49 0.00000000
19 05/20/97 576.89 0.00 14,949.73 0.00 15,526.62 0.00000000
20 05/21/97 586.32 0.00 14,955.35 0.00 15,541.67 0.00000000
21 05/22/97 582.73 0.00 14,957.62 0.00 15,540.35 0.00000000
22 05/23/97 644.17 0.00 14,955.50 0.00 15,599.67 0.00000000
23 05/24/97 644.17 0.00 14,955.50 0.00 15,599.67 0.00000000
24 05/25/97 644.17 0.00 14,955.50 0.00 15,599.67 0.00000000
25 05/26/97 644.17 0.00 14,955.50 0.00 15,599.67 0.00000000
26 05/27/97 517.69 0.00 15,139.74 0.00 15,657.43 0.00000000
27 05/28/97 504.14 0.00 15,142.13 0.00 15,646.27 0.00000000
28 05/29/97 485.35 0.00 15,140.86 0.00 15,626.21 0.00000000
29 05/30/97 115.17 0.00 15,562.39 0.00 15,677.56 0.00000000
30 05/31/97 115.17 0.00 15,562.39 0.00 15,677.56 0.00000000
22,130.52 0.00 446,952.50 0.00 469,083.02
</TABLE>
<TABLE>
<CAPTION>
EVERGREEN SHORT INTERMEDIATE BOND
$967.50
A NAV A A
TIME ACCOUNT A AVERAGE A/C VALUE A AVERAGE
PERIOD VALUE CLASS ANNNUAL W/LOAD CLASS ANNNUAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BLANK 1,847.87 0.00% 967.50 -3.25% -3.25%
6 MO 1,805.25 2.36% 2.36% 990.34 -0.97% -0.97%
QTR 1,804.78 2.39% 2.39% 990.60 -0.94% -0.94%
YTD 1,805.25 2.36% 2.36% 990.34 -0.97% -0.97%
1 1,730.76 6.77% 6.77% 1,032.97 3.30% 3.30%
3 1,517.13 21.80% 6.79% 1,178.42 17.84% 5.62%
5 1,397.66 32.21% 5.74% 1,279.15 27.92% 5.05%
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 84.79% 7.57% 1,787.82 78.78% 7.14%
INCEPTION FACTOR: 8.4192
</TABLE>
<TABLE>
<CAPTION>
$1,000
B B NAV LEVEL VALUE OF VALUE OF B
TIME ACCOUNT B AVERAGE LOAD CLASS B CLASS B INIT. B AVERAGE
PERIOD VALUE CLASS ANNNUAL COMP INVESTMENT INVESTMENT CUMULATIVE ANNUAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLANK 1,217.32 0.00% 50.000 1,000.00 1,000.00 0.00%
6 MO 1,193.77 1.97% 1.97% 49.597 1,019.73 991.94 -2.99% -2.99%
QTR 1,190.68 2.24% 2.24% 50.000 1,022.38 1,008.19 -2.76% -2.76%
YTD 1,193.77 1.97% 1.97% 49.597 1,019.73 991.94 -2.99% -2.99%
1 1,150.85 5.78% 5.78% 50.000 1,057.76 1,001.02 0.78% 0.78%
3 1,025.69 18.68% 5.88% 30.000 1,186.83 1,004.08 15.68% 4.98%
5 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 21.73% 4.54%18.638 1,217.32 931.88 19.87% 4.17%
INCEPTION FACTOR: 4.4329
</TABLE>
<TABLE>
<CAPTION>
$1,000
C C NAV LEVEL VALUE OF VALUE OF
ACCOUNT C AVERAGE LOAD CLASS C CLASS C INIT. C AVERAGE
VALUE CLASS ANNNUAL COMP INVESTMENT INVESTMENT CUMULATIVE ANNUAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLANK 1,169.95 0.00% 10.00 1,000.00 1,000.00 0.00%
6 MO 1,147.31 1.97% 1.97% 9.92 1,019.73 991.94 0.98% 0.98%
QTR 1,144.34 2.24% 2.24% 10.00 1,022.38 1,008.19 1.24% 1.24%
YTD 1,147.31 1.97% 1.97% 9.92 1,019.73 991.94 0.98% 0.98%
1 1,106.08 5.77% 5.77% 10.00 1,057.75 1,001.02 4.77% 4.77%
3 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
5 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 16.99% 5.73% 0.00 1,169.95 1,000.00 16.99% 5.73%
INCEPTION FACTOR: 2.8192
</TABLE>
<TABLE>
<CAPTION>
Y
ACCOUNT Y AVERAGE
YEARS VALUE CLASS ANNNUAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
30-Jun-97 BLANK 1,552.77 0.00%
31-Dec-96 6 MO 1,514.59 2.52% 2.52%
31-Mar-97 QTR 1,515.97 2.43% 2.43%
31-Dec-96 YTD 1,514.59 2.52% 2.52%
30-Jun-96 1 1,452.83 6.88% 6.88%
30-Jun-94 3 1,270.34 22.23% 6.92%
30-Jun-92 5 1,164.95 33.29% 5.92%
30-Jun-87 10 0.00 #VALUE! #VALUE!
04-Jan-9 INCEPT. 1,000.00 55.28% 7.01%
INCEPTION FACTOR: 6.4932
</TABLE>
- --------------------------------------------------------------------------------
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
2L15 Evergreen Short Intermediate FuCLASS A #NAME? PHASE II-ROLLING
- -------------------------------------------------------------------------------
A
PRICING DATE 05/31/97
.........
30 DAY YTM 3.74213%
.........
<TABLE>
<CAPTION>
......................................................................................
PRICE ST VARIABLE ZERO COUPO LONG TERM AMORTIATION TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
<S> <C> <C> <C> <C> <C>
..........................................................................................
1 05/02/97 8,313.41 239.78 8,553.19 40.000 996 7
2 05/03/97 8,313.41 239.78 8,553.19 40.000 996 7
3 05/04/97 8,313.41 239.78 8,553.19 40.000 996 7
4 05/05/97 8,326.20 229.10 8,555.30 40.038 963 3
5 05/06/97 8,309.69 229.10 8,538.79 40.041 093 7
6 05/07/97 8,312.02 0.00 8,312.02 38.066 374 1
7 05/08/97 8,305.15 0.00 8,305.15 38.109 195 7
8 05/09/97 8,297.90 0.00 8,297.90 38.087 476 5
9 05/10/97 8,297.90 0.00 8,297.90 38.087 476 5
10 05/11/97 8,297.90 0.00 8,297.90 38.087 476 5
11 05/12/97 8,289.19 0.00 8,289.19 38.089 185 8
12 05/13/97 8,140.98 0.00 8,140.98 38.145 809 4
13 05/14/97 8,098.54 0.00 8,098.54 38.175 069 1
14 05/15/97 8,099.24 0.00 8,099.24 38.185 523 2
15 05/16/97 5,588.87 186.30 5,775.17 13.447 900 2
16 05/17/97 5,588.87 186.30 5,775.17 13.447 900 2
17 05/18/97 5,588.87 186.30 5,775.17 13.447 900 2
18 05/19/97 5,591.01 168.49 5,759.50 13.447 322 8
19 05/20/97 5,591.81 160.27 5,752.08 13.461 249 3
20 05/21/97 5,592.58 164.38 5,756.96 13.463 876 3
21 05/22/97 5,580.83 178.76 5,759.59 13.463 876 2
22 05/23/97 5,578.97 189.04 5,768.01 13.462 391 5
23 05/24/97 5,578.97 189.04 5,768.01 13.462 391 5
24 05/25/97 5,578.97 189.04 5,768.01 13.462 391 5
25 05/26/97 5,578.97 189.04 5,768.01 13.462 391 5
26 05/27/97 5,577.47 189.04 5,766.51 13.463 971 2
27 05/28/97 5,578.16 194.78 5,772.94 13.448 070 5
28 05/29/97 5,572.77 196.84 5,769.61 13.457 566 2
29 05/30/97 5,505.42 182.87 5,688.29 13.451 389 4
30 05/31/97 5,505.42 182.87 5,688.29 13.451 389 4
0.00 0.00 204,892.90 4,110.90 209,003.80
</TABLE>
TOTAL INCOME FOR PERIOD 57,760.95
TOTAL EXPENSES FOR PERIOD 10,442.52
AVERAGE SHARES OUTSTANDING 1,466,119.22
LAST PRICE DURING PERIOD 10.43
<TABLE>
<CAPTION>
.......................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
.......................................................................................
<S> <C> <C> <C> <C> <C> <C>
3,421.36 612.84 2,582,828.878 10.41 3,421.36 612.84 2,582,828.878
3,421.36 612.84 2,582,828.878 10.41 6,842.72 1,225.67 5,165,657.756
3,421.36 612.84 2,582,828.878 10.41 10,264.08 1,838.51 7,748,486.634
3,425.45 613.01 2,582,813.822 10.41 13,689.53 2,451.52 10,331,300.456
3,419.02 613.01 2,583,215.844 10.42 17,108.55 3,064.53 12,914,516.300
3,164.08 565.97 2,384,105.349 10.42 20,272.63 3,630.50 15,298,621.649
3,165.03 566.31 2,385,544.888 10.42 23,437.66 4,196.81 17,684,166.537
3,160.46 566.43 2,385,544.888 10.42 26,598.12 4,763.24 20,069,711.425
3,160.46 566.43 2,385,544.888 10.42 29,758.58 5,329.66 22,455,256.313
3,160.46 566.43 2,385,544.888 10.42 32,919.04 5,896.09 24,840,801.201
3,157.28 566.52 2,385,544.888 10.42 36,076.32 6,462.61 27,226,346.089
3,105.44 566.66 2,385,549.848 10.43 39,181.76 7,029.27 29,611,895.937
3,091.62 566.87 2,385,549.848 10.42 42,273.38 7,596.14 31,997,445.785
3,092.74 566.42 2,385,549.848 10.42 45,366.12 8,162.56 34,382,995.633
776.64 142.47 600,035.076 10.42 46,142.76 8,305.03 34,983,030.709
776.64 142.47 600,035.076 10.42 46,919.40 8,447.50 35,583,065.785
776.64 142.47 600,035.076 10.42 47,696.04 8,589.97 36,183,100.861
774.50 142.48 600,035.076 10.42 48,470.54 8,732.45 36,783,135.937
774.30 142.47 600,035.076 10.42 49,244.84 8,874.92 37,383,171.013
775.11 142.46 600,035.076 10.42 50,019.95 9,017.38 37,983,206.089
775.46 142.46 600,035.076 10.42 50,795.41 9,159.84 38,583,241.165
776.51 142.51 600,035.076 10.42 51,571.92 9,302.35 39,183,276.241
776.51 142.51 600,035.076 10.42 52,348.43 9,444.87 39,783,311.317
776.51 142.51 600,035.076 10.42 53,124.94 9,587.38 40,383,346.393
776.51 142.51 600,035.076 10.42 53,901.45 9,729.89 40,983,381.469
776.40 142.52 600,035.076 10.42 54,677.85 9,872.41 41,583,416.545
776.35 142.52 600,040.036 10.42 55,454.20 10,014.93 42,183,456.581
776.45 142.53 600,040.036 10.42 56,230.65 10,157.46 42,783,496.617
765.15 142.53 600,040.036 10.43 56,995.80 10,299.99 43,383,536.653
765.15 142.53 600,040.036 10.43 57,760.95 10,442.52 43,983,576.689
57,760.910,442.52 1,466,119.223
</TABLE>
B
PRICING DATE 05/31/97
...........
30 DAY YTM 2.93671%
...........
<TABLE>
<CAPTION>
............................................................................................
PRICE ST VARIABL ZERO COUPON LONG TERM AMORTIATION TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
<S> <C> <C> <C> <C> <C> <C> <C>
............................................................................................
1 05/02/97 0.00 0.00 8,313.41 239.78 8,553.19 10.514 889 6
2 05/03/97 0.00 0.00 8,313.41 239.78 8,553.19 10.514 889 6
3 05/04/97 0.00 0.00 8,313.41 239.78 8,553.19 10.514 889 6
4 05/05/97 0.00 0.00 8,326.20 229.10 8,555.30 10.514 618 5
5 05/06/97 0.00 0.00 8,309.69 229.10 8,538.79 10.513 469 1
6 05/07/97 0.00 0.00 8,312.02 0.00 8,312.02 10.829 722 9
7 05/08/97 0.00 0.00 8,305.15 0.00 8,305.15 10.835 363 0
8 05/09/97 0.00 0.00 8,297.90 0.00 8,297.90 10.829 177 5
9 05/10/97 0.00 0.00 8,297.90 0.00 8,297.90 10.829 177 5
10 05/11/97 0.00 0.00 8,297.90 0.00 8,297.90 10.829 177 5
11 05/12/97 0.00 0.00 8,289.19 0.00 8,289.19 10.829 588 7
12 05/13/97 0.00 0.00 8,140.98 0.00 8,140.98 10.685 869 9
13 05/14/97 0.00 0.00 8,098.54 0.00 8,098.54 10.694 067 3
14 05/15/97 0.00 0.00 8,099.24 0.00 8,099.24 10.697 180 5
15 05/16/97 0.00 0.00 5,588.87 186.30 5,775.17 14.981 104 6
16 05/17/97 0.00 0.00 5,588.87 186.30 5,775.17 14.981 104 6
17 05/18/97 0.00 0.00 5,588.87 186.30 5,775.17 14.981 104 6
18 05/19/97 0.00 0.00 5,591.01 168.49 5,759.50 14.980 461 0
19 05/20/97 0.00 0.00 5,591.81 160.27 5,752.08 14.940 102 3
20 05/21/97 0.00 0.00 5,592.58 164.38 5,756.96 14.943 018 2
21 05/22/97 0.00 0.00 5,580.83 178.76 5,759.59 14.943 018 2
22 05/23/97 0.00 0.00 5,578.97 189.04 5,768.01 14.941 363 9
23 05/24/97 0.00 0.00 5,578.97 189.04 5,768.01 14.941 363 9
24 05/25/97 0.00 0.00 5,578.97 189.04 5,768.01 14.941 363 9
25 05/26/97 0.00 0.00 5,578.97 189.04 5,768.01 14.941 363 9
26 05/27/97 0.00 0.00 5,577.47 189.04 5,766.51 14.884 395 3
27 05/28/97 0.00 0.00 5,578.16 194.78 5,772.94 14.866 725 1
28 05/29/97 0.00 0.00 5,572.77 196.84 5,769.61 14.877 208 0
29 05/30/97 0.00 0.00 5,505.42 182.87 5,688.29 14.926 004 2
30 05/31/97 0.00 0.00 5,505.42 182.87 5,688.29 14.926 004 2
0.00 0.00 204,892.90 4,110.90 209,003.80
</TABLE>
TOTAL INCOME FOR PERIOD 26,250.15
TOTAL EXPENSES FOR PERIOD 9,779.30
AVERAGE SHARES OUTSTANDING 670,434.94
LAST PRICE DURING PERIOD 10.10
<TABLE>
<CAPTION>
.......................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
<S> <C> <C> <C> <C> <C> <C>
.......................................................................................
899.36 329.68 679,069.939 10.07 899.36 329.68 679,069.939
899.36 329.68 679,069.939 10.07 1,798.72 659.36 1,358,139.878
899.36 329.68 679,069.939 10.07 2,698.08 989.04 2,037,209.817
899.56 329.46 678,402.506 10.07 3,597.64 1,318.50 2,715,612.323
897.72 329.39 678,417.401 10.07 4,495.36 1,647.89 3,394,029.724
900.17 329.51 678,417.401 10.07 5,395.53 1,977.40 4,072,447.125
899.89 329.53 678,417.401 10.08 6,295.42 2,306.93 4,750,864.526
898.59 329.59 678,417.401 10.08 7,194.01 2,636.52 5,429,281.927
898.59 329.59 678,417.401 10.08 8,092.60 2,966.11 6,107,699.328
898.59 329.59 678,417.401 10.08 8,991.19 3,295.70 6,786,116.729
897.69 329.64 678,417.401 10.08 9,888.88 3,625.34 7,464,534.130
869.93 324.88 668,421.840 10.08 10,758.81 3,950.22 8,132,955.970
866.06 324.97 668,421.840 10.09 11,624.87 4,275.19 8,801,377.810
866.39 324.73 667,470.879 10.09 12,491.26 4,599.92 9,468,848.689
865.18 324.81 667,635.234 10.09 13,356.44 4,924.73 10,136,483.923
865.18 324.81 667,635.234 10.09 14,221.62 5,249.54 10,804,119.157
865.18 324.81 667,635.234 10.09 15,086.80 5,574.35 11,471,754.391
862.80 324.83 667,635.234 10.09 15,949.60 5,899.18 12,139,389.625
859.37 323.58 665,147.666 10.09 16,808.97 6,222.76 12,804,537.291
860.26 323.57 665,147.666 10.09 17,669.23 6,546.33 13,469,684.957
860.66 323.56 665,147.666 10.09 18,529.89 6,869.89 14,134,832.623
861.82 323.70 665,147.666 10.09 19,391.71 7,193.59 14,799,980.289
861.82 323.70 665,147.666 10.09 20,253.53 7,517.28 15,465,127.955
861.82 323.70 665,147.666 10.09 21,115.35 7,840.98 16,130,275.621
861.82 323.70 665,147.666 10.09 21,977.17 8,164.67 16,795,423.287
858.31 322.46 662,533.911 10.09 22,835.48 8,487.13 17,457,957.198
858.25 322.44 662,533.911 10.09 23,693.73 8,809.57 18,120,491.109
858.36 322.43 662,533.911 10.09 24,552.09 9,132.00 18,783,025.020
849.03 323.65 665,011.611 10.10 25,401.12 9,455.65 19,448,036.631
849.03 323.65 665,011.611 10.10 26,250.15 9,779.30 20,113,048.242
26,250.15 9,779.30 670,434.941
</TABLE>
C
PRICING DATE 05/31/97
...........
30 DAY YTM 3.93379%
...........
<TABLE>
<CAPTION>
...........................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM AMORTIATION TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
...........................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 05/02/97 0.00 0.00 8,313.41 239.78 8,553.19 49.48411373
2 05/03/97 0.00 0.00 8,313.41 239.78 8,553.19 49.48411373
3 05/04/97 0.00 0.00 8,313.41 239.78 8,553.19 49.48411373
4 05/05/97 0.00 0.00 8,326.20 229.10 8,555.30 49.44641829
5 05/06/97 0.00 0.00 8,309.69 229.10 8,538.79 49.44543716
6 05/07/97 0.00 0.00 8,312.02 0.00 8,312.02 51.10390300
7 05/08/97 0.00 0.00 8,305.15 0.00 8,305.15 51.05544131
8 05/09/97 0.00 0.00 8,297.90 0.00 8,297.90 51.08334601
9 05/10/97 0.00 0.00 8,297.90 0.00 8,297.90 51.08334601
10 05/11/97 0.00 0.00 8,297.90 0.00 8,297.90 51.08334601
11 05/12/97 0.00 0.00 8,289.19 0.00 8,289.19 51.08122548
12 05/13/97 0.00 0.00 8,140.98 0.00 8,140.98 51.16832075
13 05/14/97 0.00 0.00 8,098.54 0.00 8,098.54 51.13086368
14 05/15/97 0.00 0.00 8,099.24 0.00 8,099.24 51.11729633
15 05/16/97 0.00 0.00 5,588.87 186.30 5,775.17 71.57099526
16 05/17/97 0.00 0.00 5,588.87 186.30 5,775.17 71.57099526
17 05/18/97 0.00 0.00 5,588.87 186.30 5,775.17 71.57099526
18 05/19/97 0.00 0.00 5,591.01 168.49 5,759.50 71.57221613
19 05/20/97 0.00 0.00 5,591.81 160.27 5,752.08 71.59864844
20 05/21/97 0.00 0.00 5,592.58 164.38 5,756.96 71.59310555
21 05/22/97 0.00 0.00 5,580.83 178.76 5,759.59 71.59310560
22 05/23/97 0.00 0.00 5,578.97 189.04 5,768.01 71.59624457
23 05/24/97 0.00 0.00 5,578.97 189.04 5,768.01 71.59624457
24 05/25/97 0.00 0.00 5,578.97 189.04 5,768.01 71.59624457
25 05/26/97 0.00 0.00 5,578.97 189.04 5,768.01 71.59624457
26 05/27/97 0.00 0.00 5,577.47 189.04 5,766.51 71.65163343
27 05/28/97 0.00 0.00 5,578.16 194.78 5,772.94 71.68520435
28 05/29/97 0.00 0.00 5,572.77 196.84 5,769.61 71.66522587
29 05/30/97 0.00 0.00 5,505.42 182.87 5,688.29 71.62260642
30 05/31/97 0.00 0.00 5,505.42 182.87 5,688.29 71.62260642
0.00 0.00 204,892.90 4,110.90 209,003.80
</TABLE>
TOTAL INCOME FOR PERIOD 124,992.62
TOTAL EXPENSES FOR PERIOD 20,109.71
AVERAGE SHARES OUTSTANDING 3,193,628.51
LAST PRICE DURING PERIOD 10.10
<TABLE>
<CAPTION>
..................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
..................................................................................
<S> <C> <C> <C> <C> <C> <C>
4,232.47 669.97 3,196,754.771 10.07 4,232.47 669.97 3,196,754.771
4,232.47 669.97 3,196,754.771 10.07 8,464.94 1,339.94 6,393,509.542
4,232.47 669.97 3,196,754.771 10.07 12,697.41 2,009.91 9,590,264.313
4,230.29 669.01 3,191,274.662 10.07 16,927.70 2,678.92 12,781,538.975
4,222.04 668.95 3,191,630.497 10.07 21,149.74 3,347.87 15,973,169.472
4,247.77 671.47 3,202,355.423 10.07 25,397.51 4,019.34 19,175,524.895
4,240.23 670.48 3,197,653.337 10.07 29,637.74 4,689.82 22,373,178.232
4,238.84 671.35 3,201,228.312 10.07 33,876.58 5,361.17 25,574,406.544
4,238.84 671.35 3,201,228.312 10.07 38,115.42 6,032.53 28,775,634.856
4,238.84 671.35 3,201,228.312 10.07 42,354.26 6,703.88 31,976,863.168
4,234.22 671.43 3,200,951.438 10.08 46,588.48 7,375.31 35,177,814.606
4,165.60 671.77 3,201,655.804 10.08 50,754.08 8,047.08 38,379,470.410
4,140.85 670.93 3,196,859.381 10.09 54,894.93 8,718.01 41,576,329.791
4,140.11 670.08 3,190,534.700 10.09 59,035.04 9,388.09 44,766,864.491
4,133.35 670.07 3,190,549.567 10.09 63,168.39 10,058.16 47,957,414.058
4,133.35 670.07 3,190,549.567 10.09 67,301.74 10,728.24 51,147,963.625
4,133.35 670.07 3,190,549.567 10.09 71,435.09 11,398.31 54,338,513.192
4,122.20 670.15 3,190,737.872 10.09 75,557.29 12,068.46 57,529,251.064
4,118.41 669.65 3,188,616.996 10.09 79,675.70 12,738.11 60,717,868.060
4,121.59 669.46 3,187,744.846 10.09 83,797.29 13,407.57 63,905,612.906
4,123.47 669.45 3,187,744.846 10.09 87,920.76 14,077.02 67,093,357.752
4,129.68 669.78 3,188,240.386 10.09 92,050.44 14,746.80 70,281,598.138
4,129.68 669.78 3,188,240.386 10.09 96,180.12 15,416.58 73,469,838.524
4,129.68 669.78 3,188,240.386 10.09 100,309.80 16,086.36 76,658,078.910
4,129.68 669.78 3,188,240.386 10.09 104,439.48 16,756.14 79,846,319.296
4,131.80 670.29 3,190,332.784 10.09 108,571.28 17,426.43 83,036,652.080
4,138.34 671.34 3,195,624.518 10.09 112,709.62 18,097.77 86,232,276.598
4,134.80 670.66 3,192,485.997 10.09 116,844.42 18,768.43 89,424,762.595
4,074.10 670.64 3,192,046.415 10.10 120,918.52 19,439.07 92,616,809.010
4,074.10 670.64 3,192,046.415 10.10 124,992.62 20,109.71 95,808,855.425
124,992.620,109.71 3,193,628.514
</TABLE>
Y
PRICING DATE 05/31/97
..........
30 DAY YTM #DIV/0!
..........
<TABLE>
<CAPTION>
...........................................................................................
PRICE ST FIXED ZERO COUPO LONG TERM TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME FACTOR
...........................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 05/02/97 0.00 0.00 8,313.41 239.78 8,553.19 0.000 000 0
2 05/03/97 0.00 0.00 8,313.41 239.78 8,553.19 0.000 000 0
3 05/04/97 0.00 0.00 8,313.41 239.78 8,553.19 0.000 000 0
4 05/05/97 0.00 0.00 8,326.20 229.10 8,555.30 0.000 000 0
5 05/06/97 0.00 0.00 8,309.69 229.10 8,538.79 0.000 000 0
6 05/07/97 0.00 0.00 8,312.02 0.00 8,312.02 0.000 000 0
7 05/08/97 0.00 0.00 8,305.15 0.00 8,305.15 0.000 000 0
8 05/09/97 0.00 0.00 8,297.90 0.00 8,297.90 0.000 000 0
9 05/10/97 0.00 0.00 8,297.90 0.00 8,297.90 0.000 000 0
10 05/11/97 0.00 0.00 8,297.90 0.00 8,297.90 0.000 000 0
11 05/12/97 0.00 0.00 8,289.19 0.00 8,289.19 0.000 000 0
12 05/13/97 0.00 0.00 8,140.98 0.00 8,140.98 0.000 000 0
13 05/14/97 0.00 0.00 8,098.54 0.00 8,098.54 0.000 000 0
14 05/15/97 0.00 0.00 8,099.24 0.00 8,099.24 0.000 000 0
15 05/16/97 0.00 0.00 5,588.87 186.30 5,775.17 0.000 000 0
16 05/17/97 0.00 0.00 5,588.87 186.30 5,775.17 0.000 000 0
17 05/18/97 0.00 0.00 5,588.87 186.30 5,775.17 0.000 000 0
18 05/19/97 0.00 0.00 5,591.01 168.49 5,759.50 0.000 000 0
19 05/20/97 0.00 0.00 5,591.81 160.27 5,752.08 0.000 000 0
20 05/21/97 0.00 0.00 5,592.58 164.38 5,756.96 0.000 000 0
21 05/22/97 0.00 0.00 5,580.83 178.76 5,759.59 0.000 000 0
22 05/23/97 0.00 0.00 5,578.97 189.04 5,768.01 0.000 000 0
23 05/24/97 0.00 0.00 5,578.97 189.04 5,768.01 0.000 000 0
24 05/25/97 0.00 0.00 5,578.97 189.04 5,768.01 0.000 000 0
25 05/26/97 0.00 0.00 5,578.97 189.04 5,768.01 0.000 000 0
26 05/27/97 0.00 0.00 5,577.47 189.04 5,766.51 0.000 000 0
27 05/28/97 0.00 0.00 5,578.16 194.78 5,772.94 0.000 000 0
28 05/29/97 0.00 0.00 5,572.77 196.84 5,769.61 0.000 000 0
29 05/30/97 0.00 0.00 5,505.42 182.87 5,688.29 0.000 000 0
30 05/31/97 0.00 0.00 5,505.42 182.87 5,688.29 0.000 000 0
0.00 0.00 204,892.90 4,110.90 209,003.80
</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> FUND NAME CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 96,357,879
<INVESTMENTS-AT-VALUE> 100,590,593
<RECEIVABLES> 2,004,968
<ASSETS-OTHER> 26,968
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102,622,529
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 493,307
<TOTAL-LIABILITIES> 493,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42,062,573
<SHARES-COMMON-STOCK> 4,207,467
<SHARES-COMMON-PRIOR> 4,715,330
<ACCUMULATED-NII-CURRENT> 58,913
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (66,171)
<OVERDISTRIBUTION-GAINS> (610,163)
<ACCUM-APPREC-OR-DEPREC> 4,369,366
<NET-ASSETS> 45,814,519
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,065,215
<OTHER-INCOME> 0
<EXPENSES-NET> (376,962)
<NET-INVESTMENT-INCOME> 1,688,253
<REALIZED-GAINS-CURRENT> 294,551
<APPREC-INCREASE-CURRENT> 451,277
<NET-CHANGE-FROM-OPS> 2,434,081
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,696,428)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 138,266
<NUMBER-OF-SHARES-REDEEMED> (737,802)
<SHARES-REINVESTED> 91,672
<NET-CHANGE-IN-ASSETS> (4,770,527)
<ACCUMULATED-NII-PRIOR> 54,782
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (183,630)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (376,962)
<AVERAGE-NET-ASSETS> 49,025,643
<PER-SHARE-NAV-BEGIN> 10.72
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> (0.37)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 1.03
<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> FUND NAME CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 96,357,879
<INVESTMENTS-AT-VALUE> 100,590,593
<RECEIVABLES> 2,004,968
<ASSETS-OTHER> 26,968
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102,622,529
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 493,307
<TOTAL-LIABILITIES> 493,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,982,936
<SHARES-COMMON-STOCK> 2,927,195
<SHARES-COMMON-PRIOR> 3,004,556
<ACCUMULATED-NII-CURRENT> 37,115
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (164,594)
<OVERDISTRIBUTION-GAINS> (244,709)
<ACCUM-APPREC-OR-DEPREC> (736,690)
<NET-ASSETS> 31,874,058
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,358,016
<OTHER-INCOME> 0
<EXPENSES-NET> (429,151)
<NET-INVESTMENT-INCOME> 928,865
<REALIZED-GAINS-CURRENT> 192,857
<APPREC-INCREASE-CURRENT> 296,829
<NET-CHANGE-FROM-OPS> 1,418,551
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (934,247)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 418,835
<NUMBER-OF-SHARES-REDEEMED> (546,605)
<SHARES-REINVESTED> 50,410
<NET-CHANGE-IN-ASSETS> (349,687)
<ACCUMULATED-NII-PRIOR> 34,402
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (120,811)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (429,151)
<AVERAGE-NET-ASSETS> 32,246,674
<PER-SHARE-NAV-BEGIN> 10.72
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 1.78
<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> FUND NAME CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 96,357,879
<INVESTMENTS-AT-VALUE> 100,590,593
<RECEIVABLES> 2,004,968
<ASSETS-OTHER> 26,968
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 102,622,529
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 493,307
<TOTAL-LIABILITIES> 493,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,021,180
<SHARES-COMMON-STOCK> 2,244,589
<SHARES-COMMON-PRIOR> 2,341,584
<ACCUMULATED-NII-CURRENT> 28,504
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (179,078)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 570,038
<NET-ASSETS> 24,440,645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,073,566
<OTHER-INCOME> 0
<EXPENSES-NET> (148,516)
<NET-INVESTMENT-INCOME> 925,050
<REALIZED-GAINS-CURRENT> 152,617
<APPREC-INCREASE-CURRENT> 234,585
<NET-CHANGE-FROM-OPS> 1,312,252
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (929,415)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 296,083
<NUMBER-OF-SHARES-REDEEMED> (434,833)
<SHARES-REINVESTED> 41,755
<NET-CHANGE-IN-ASSETS> (652,431)
<ACCUMULATED-NII-PRIOR> 26,472
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (95,488)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (148,516)
<AVERAGE-NET-ASSETS> 25,484,656
<PER-SHARE-NAV-BEGIN> 10.72
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> (0.39)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.89
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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> EVERGREEN SHORT INTERMEDIATE BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 398,505,815
<INVESTMENTS-AT-VALUE> 396,658,262
<RECEIVABLES> 6,003,275
<ASSETS-OTHER> 57,165
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 402,718,702
<PAYABLE-FOR-SECURITIES> 3,803,972
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,078
<TOTAL-LIABILITIES> 4,043,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,326,243
<SHARES-COMMON-STOCK> 1,800,182
<SHARES-COMMON-PRIOR> 1,896,450
<ACCUMULATED-NII-CURRENT> 102,728
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (796,135)
<ACCUM-APPREC-OR-DEPREC> 70,198
<NET-ASSETS> 17,703,034
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,344,932
<OTHER-INCOME> 0
<EXPENSES-NET> (136,212)
<NET-INVESTMENT-INCOME> 1,208,720
<REALIZED-GAINS-CURRENT> (94,035)
<APPREC-INCREASE-CURRENT> 114,935
<NET-CHANGE-FROM-OPS> 1,229,620
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,217,283)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 584,893
<NUMBER-OF-SHARES-REDEEMED> (775,720)
<SHARES-REINVESTED> 93,998
<NET-CHANGE-IN-ASSETS> (927,262)
<ACCUMULATED-NII-PRIOR> 105,443
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (706,522)
<GROSS-ADVISORY-FEES> (94,805)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (136,212)
<AVERAGE-NET-ASSETS> 18,961,082
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> (0.64)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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> EVERGREEN SHORT INTERMEDIATE BOND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 398,505,815
<INVESTMENTS-AT-VALUE> 396,658,262
<RECEIVABLES> 6,003,275
<ASSETS-OTHER> 57,165
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 402,718,702
<PAYABLE-FOR-SECURITIES> 3,803,972
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,078
<TOTAL-LIABILITIES> 4,043,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,233,647
<SHARES-COMMON-STOCK> 2,257,458
<SHARES-COMMON-PRIOR> 2,135,588
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,214
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (835,768)
<ACCUM-APPREC-OR-DEPREC> (161,902)
<NET-ASSETS> 22,237,191
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,577,551
<OTHER-INCOME> 0
<EXPENSES-NET> (359,729)
<NET-INVESTMENT-INCOME> 1,217,822
<REALIZED-GAINS-CURRENT> (116,496)
<APPREC-INCREASE-CURRENT> 149,416
<NET-CHANGE-FROM-OPS> 1,250,742
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,225,460)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 520,912
<NUMBER-OF-SHARES-REDEEMED> (486,579)
<SHARES-REINVESTED> 87,527
<NET-CHANGE-IN-ASSETS> 1,231,161
<ACCUMULATED-NII-PRIOR> 1,915
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (724,415)
<GROSS-ADVISORY-FEES> (111,141)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (359,729)
<AVERAGE-NET-ASSETS> 22,226,445
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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> EVERGREEN SHORT-INTERMEDIATE CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 398,505,815
<INVESTMENTS-AT-VALUE> 396,658,262
<RECEIVABLES> 6,003,275
<ASSETS-OTHER> 57,165
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 402,718,702
<PAYABLE-FOR-SECURITIES> 3,803,972
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,078
<TOTAL-LIABILITIES> 4,043,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,038,682
<SHARES-COMMON-STOCK> 104,492
<SHARES-COMMON-PRIOR> 117,319
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,013)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (26,796)
<ACCUM-APPREC-OR-DEPREC> 18,542
<NET-ASSETS> 1,029,415
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 74,177
<OTHER-INCOME> 0
<EXPENSES-NET> (16,945)
<NET-INVESTMENT-INCOME> 57,232
<REALIZED-GAINS-CURRENT> (5,315)
<APPREC-INCREASE-CURRENT> 5,723
<NET-CHANGE-FROM-OPS> 57,640
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (58,085)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,729
<NUMBER-OF-SHARES-REDEEMED> (53,064)
<SHARES-REINVESTED> 4,508
<NET-CHANGE-IN-ASSETS> (125,434)
<ACCUMULATED-NII-PRIOR> 491
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (21,723)
<GROSS-ADVISORY-FEES> (5,236)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (16,945)
<AVERAGE-NET-ASSETS> 1,046,988
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 1.62
<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> 101
<NAME> EVRGREEN SHORT INTERMEDIATE Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 398,505,815
<INVESTMENTS-AT-VALUE> 396,658,262
<RECEIVABLES> 6,003,275
<ASSETS-OTHER> 57,165
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 402,718,702
<PAYABLE-FOR-SECURITIES> 3,803,972
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,078
<TOTAL-LIABILITIES> 4,043,050
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 373,940,577
<SHARES-COMMON-STOCK> 36,392,215
<SHARES-COMMON-PRIOR> 35,621,066
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (119,132)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (14,341,042)
<ACCUM-APPREC-OR-DEPREC> (1,774,391)
<NET-ASSETS> 357,706,012
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 25,352,800
<OTHER-INCOME> 0
<EXPENSES-NET> (2,210,221)
<NET-INVESTMENT-INCOME> 23,142,579
<REALIZED-GAINS-CURRENT> (1,885,942)
<APPREC-INCREASE-CURRENT> 2,396,159
<NET-CHANGE-FROM-OPS> 23,652,796
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23,369,583)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,302,391
<NUMBER-OF-SHARES-REDEEMED> (12,121,462)
<SHARES-REINVESTED> 1,353,407
<NET-CHANGE-IN-ASSETS> 5,610,738
<ACCUMULATED-NII-PRIOR> 2,493
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (12,537,798)
<GROSS-ADVISORY-FEES> (1,786,881)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (2,210,221)
<AVERAGE-NET-ASSETS> 357,377,983
<PER-SHARE-NAV-BEGIN> 9.82
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> (0.65)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
