BLANCHARD PRECIOUS METALS FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
January 6, 1998
Dear Shareholder,
As a result of the merger of Signet Banking Corporation with and into a
wholly-owned subsidiary of First Union Corporation effective November 28, 1997,
I am writing to shareholders of the Blanchard Precious Metals Fund, Inc. (the
"Fund"), to inform you of a Special Shareholders' meeting to be held on February
20, 1998. Before that meeting, I would like your vote on the important issues
affecting your Fund as described in the attached Prospectus/Proxy Statement.
The Prospectus/Proxy Statement includes three proposals. The first proposal
requests that shareholders consider and act upon an Agreement and Plan of
Reorganization whereby all of the assets of the Fund would be acquired by
Keystone Precious Metals Holdings in exchange for Class A shares of Keystone
Precious Metals Holdings and the assumption by Keystone Precious Metals Holdings
of certain liabilities of the Fund. You will receive shares of Keystone Precious
Metals Holdings having an aggregate net asset value equal to the aggregate net
asset value of your Fund shares. Details about Keystone Precious Metals
Holdings' investment objective, portfolio management team, performance, etc. are
contained in the attached Prospectus/Proxy Statement. The transaction is a
non-taxable event for shareholders.
The second proposal requests shareholder consideration of an Interim Investment
Advisory Agreement between the Fund and Virtus
Capital Management, Inc.
The third and final proposal requests shareholder consideration
of an Interim Sub-Advisory Agreement between Virtus Capital
Management, Inc. and Cavelti Capital Management, Ltd.
Information relating to the Interim Investment Advisory Agreement and the
Interim Sub-Advisory Agreement is contained in the attached Prospectus/Proxy
Statement.
The Board of Directors has approved the proposals and recommends that you vote
FOR these proposals.
I realize that this Prospectus/Proxy Statement will take time to review, but
your vote is very important. Please take the time to familiarize yourself with
the proposals presented and sign and return your proxy card in the enclosed
postage-paid envelope today.
<PAGE>
If you have any questions about this proxy, please call our proxy solicitor,
Shareholder Communications Corporation, at 800-733- 8481 ext. 437. You may also
FAX your completed and signed proxy card to 800-733-1885. If we do not receive
your completed proxy card after several weeks, you may be contacted by
Shareholder Communications Corporation who will remind you to vote your shares.
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
Edward C. Gonzales
President
Blanchard Precious Metals Fund, Inc.
<PAGE>
BLANCHARD PRECIOUS METALS FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Blanchard Precious Metals Fund, Inc. ("Precious Metals") will be
held at the offices of the Evergreen Funds, 200 Berkeley Street, 26th Floor,
Boston, Massachusetts 02116 on February 20, 1998 at 2:00 p.m. for the following
purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of November 26, 1997, providing for the acquisition of all
of the assets of Precious Metals by Keystone Precious Metals Holdings ("Keystone
Precious Metals"), a series of the Evergreen International Trust, in exchange
for Class A shares of Keystone Precious Metals and the assumption by Keystone
Precious Metals of certain identified liabilities of Precious Metals. The Plan
also provides for distribution of such shares of Keystone Precious Metals to
shareholders of Precious Metals in liquidation and subsequent termination of
Precious Metals. A vote in favor of the Plan is a vote in favor of the
liquidation and dissolution of Precious Metals.
2. To consider and act upon the Interim Management Contract between
Precious Metals and Virtus Capital Management, Inc.
3. To consider and act upon the Interim Sub-Advisory Agreement between
Virtus Capital Management, Inc. and Cavelti Capital Management, Ltd.
4. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Board of Directors of Precious Metals has fixed the close of
business on December 26, 1997 as the record date for the determination of
shareholders of Precious Metals entitled to notice of and to vote at the Meeting
or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION
<PAGE>
TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER
SOLICITATION.
By Order of the Board of Directors
John W. McGonigle
Secretary
January 6, 1998
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense involved in
validating your vote if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it
appears in the Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name of
the party signing should conform exactly to a name shown in the
Registration on the proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of Registration.
For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Sr. John B. Smith, Jr., Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JANUARY 6, 1998
Acquisition of Assets of
BLANCHARD PRECIOUS METALS FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By and in Exchange for Shares of
KEYSTONE PRECIOUS METALS HOLDINGS
a series of
Evergreen International Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
Blanchard Precious Metals Fund, Inc. ("Precious Metals") in connection with a
proposed Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of Precious Metals for consideration at a Special Meeting of
Shareholders to be held on February 20, 1998 at 2:00 p.m. at the offices of the
Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and any
adjournments thereof (the "Meeting"). The Plan provides for all of the assets of
Precious Metals to be acquired by Keystone Precious Metals Holdings ("Keystone
Precious Metals") in exchange for Class A shares of Keystone Precious Metals and
the assumption by Keystone Precious Metals of certain identified liabilities of
Precious Metals (hereinafter referred to as the "Reorganization"). Keystone
Precious Metals and Precious Metals are sometimes hereinafter referred to
individually as the "Fund" and collectively as the "Funds." Following the
Reorganization, Class A shares of Keystone Precious Metals will be distributed
to shareholders of Precious Metals in liquidation of Precious Metals and such
Fund will be terminated. No initial sales charge will be imposed in connection
with the shares of Keystone Precious Metals received by holders of shares of
Precious Metals. As a result of the proposed Reorganization, shareholders of
Precious Metals will receive that number of full and fractional Class A shares
of Keystone Precious Metals having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of Precious Metals. The
Reorganization is being structured as a tax-free reorganization for federal
income tax purposes.
Keystone Precious Metals is a separate series of Evergreen
International Trust, an open-end management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). The investment
objectives of Keystone Precious Metals are to seek long-term capital
appreciation while protecting the purchasing power of shareholders' capital and,
as a secondary objective, to obtain current income. Keystone
<PAGE>
Precious Metals invests primarily in common stocks of established companies
directly or indirectly engaged in mining, processing or dealing in gold or other
precious metals and minerals.
The primary investment objective of Precious Metals is to provide
long-term capital appreciation and preservation of purchasing power through
investments in physical precious metals, such as gold, silver, platinum, and
palladium, and in securities of companies involved with precious metals.
Shareholders of Precious Metals are also being asked to approve the
Interim Management Contract with Virtus Capital Management, Inc., a subsidiary
of First Union Corporation ("Virtus") (the "Interim Advisory Agreement"), with
the same terms and fees as the previous advisory agreement between Precious
Metals and Virtus and the Interim Sub-Advisory Agreement between Virtus and
Cavelti Capital Management, Ltd. ("Cavelti Capital") with the same terms and
fees as the previous sub- advisory agreement between Virtus and Cavelti Capital.
The Interim Advisory Agreement and Interim Sub-Advisory Agreement will be in
effect for the period of time between November 28, 1997, the date on which the
merger of Signet Banking Corporation with and into a wholly-owned subsidiary of
First Union Corporation was consummated, and the date of the Reorganization
(scheduled for on or about February 27, 1998).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Keystone Precious Metals
that shareholders of Precious Metals should know before voting on the
Reorganization. Certain relevant documents listed below, which have been filed
with the Securities and Exchange Commission ("SEC"), are incorporated in whole
or in part by reference. A Statement of Additional Information dated January 6,
1998, relating to this Prospectus/Proxy Statement and the Reorganization which
includes the financial statements of Keystone Precious Metals dated October 31,
1997 and Precious Metals dated September 30, 1997, has been filed with the SEC
and is incorporated by reference in its entirety into this Prospectus/Proxy
Statement. A copy of such Statement of Additional Information is available upon
request and without charge by writing to Keystone Precious Metals at 200
Berkeley Street, Boston, Massachusetts 02116, or by calling toll-free
1-800-343-2898.
The Prospectus of Keystone Precious Metals dated April 30, 1997, as
amended, and its Annual Report for the fiscal year ended October 31, 1997 are
incorporated herein by reference in their entirety. Shareholders of Precious
Metals will receive, with this Prospectus/Proxy Statement, copies of the
Prospectus of Keystone Precious Metals. Additional information about Keystone
Precious Metals is contained in its Statement of Additional Information of the
same date which has been filed with the SEC and which is available upon request
and without charge by writing
<PAGE>
to or calling Keystone Precious Metals at the address or telephone number listed
in the preceding paragraph.
The Prospectus of Precious Metals dated November 30, 1997, insofar as
it relates to Precious Metals only, and not to any other funds described
therein, is incorporated herein in its entirety by reference. Copies of the
Prospectus and related Statement of Additional Information dated the same date,
are available upon request without charge by writing to Precious Metals at the
address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-829- 3863.
Included as Exhibits A, B and C to this Prospectus/Proxy Statement are
a copy of the Plan, the Interim Advisory Agreement and the Interim Sub-Advisory
Agreement, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of any bank and are not insured or otherwise protected by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency and involve investment risk, including
possible
loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES...........................................6
SUMMARY .................................................................8
Proposed Plan of Reorganization..................................9
Tax Consequences................................................10
Investment Objectives and Policies of the Funds.................11
Comparative Performance Information for each Fund...............11
Management of the Funds.........................................12
Investment Advisers and Sub-Adviser.............................12
Administrator...................................................14
Portfolio Manager...............................................14
Distribution of Shares..........................................14
Purchase and Redemption Procedures..............................15
Exchange Privileges.............................................16
Dividend Policy.................................................16
Risks .......................................................17
REASONS FOR THE REORGANIZATION...........................................19
Agreement and Plan of Reorganization............................22
Federal Income Tax Consequences.................................24
Pro-forma Capitalization........................................25
Shareholder Information.........................................26
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.........................27
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS..........................30
Forms of Organization...........................................30
Capitalization..................................................30
Shareholder Liability...........................................31
Shareholder Meetings and Voting Rights..........................32
Liquidation or Dissolution......................................32
Liability and Indemnification of Trustees and Directors.........33
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT.....................34
Introduction....................................................34
Comparison of the Interim Advisory Agreement and the
Previous Advisory Agreement............................35
Information about Precious Metals' Investment Adviser...........36
INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT.................37
Introduction....................................................37
Comparison of the Interim Sub-Advisory Agreement and the
Previous Sub-Advisory Agreement........................38
ADDITIONAL INFORMATION...................................................39
<PAGE>
VOTING INFORMATION CONCERNING THE MEETING................................40
FINANCIAL STATEMENTS AND EXPERTS.........................................43
LEGAL MATTERS............................................................43
OTHER BUSINESS...........................................................43
APPENDIX A...............................................................45
APPENDIX B...............................................................47
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
<PAGE>
COMPARISON OF FEES AND EXPENSES
It is anticipated that on or about January 9, 1998 Keystone Precious
Metals will become a multiple class fund. As of that date the Fund will offer
Class A, Class B and Class C shares. It is further anticipated that at that time
current outstanding shares of Keystone Precious Metals will become Class B
shares of the Fund. On or before January 16, 1998, it is anticipated that any
Class B shares of Keystone Precious Metals purchased prior to January 1, 1995
will convert to Class A shares of the Fund. The amounts for Class A shares of
Keystone Precious Metals set forth in the following tables and in the examples
are based on the expenses of Keystone Precious Metals for the fiscal year ended
October 31, 1997. The amounts for shares of Precious Metals set forth in the
following tables and in the examples are based on the expenses for Precious
Metals for the fiscal year ended September 30, 1997. The pro forma amounts for
Class A shares of Keystone Precious Metals are based on what the combined
expenses would have been for Keystone Precious Metals for the fiscal year ending
October 31, 1997. The pro forma numbers reflect the events described above.
The following tables show for Keystone Precious Metals, Precious Metals
and Keystone Precious Metals pro forma, assuming consummation of the
Reorganization, the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A shares of Keystone
Precious Metals and shares of Precious Metals, as applicable.
Comparison of Class A Shares
of Keystone Precious Metals With
Shares of Precious Metals
<TABLE>
<CAPTION>
Keystone
Keystone Precious
Precious Precious Metals Pro
Metals Metals Forma
---------- ------ ----------
Shareholder
Transaction Shares Shares Class A
Expenses ------ ------ -------
<S> <C> <C> <C>
Maximum Sales Load None None 4.75%
Imposed on Purchases
(as a percentage of
offering price) (1)
<PAGE>
Maximum Sales Load 4.00% None None
Imposed on Reinvested
Dividends (as a
percentage of offering
price)
Contingent Deferred None None None
Sales Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower)
Exchange Fee None None None
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee 0.70% 1.00% 0.67%
12b-1 Fees (2) 0.75% 0.25%
1.00%
Other Expenses 0.46% 0.64%
0.78% -------- ---------
---------
Annual Fund Operating 2.48% 2.21% 1.56%
Expenses --------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------
(1) The 4.75% sales load, as described in the "Examples" paragraph below,
has been waived for Precious Metals' shareholders.
(2) Class A shares of Keystone Precious Metals can pay up to 0.75% of
average daily net assets as a 12b-1 fee. For the foreseeable future,
the Class A 12b-1 fees will be limited to 0.25% of average daily net
assets.
Examples. The following tables show for Keystone Precious Metals and
Precious Metals, and for Keystone Precious Metals pro forma, assuming
consummation of the Reorganization, examples of the cumulative effect of
shareholder transaction expenses and annual fund operating expenses indicated
above on a $1,000 investment in each class of shares for the periods specified,
assuming a 5% annual return. In the case of Keystone Precious Metals pro forma,
the example does not reflect the imposition of the 4.75% maximum sales load on
purchases of Class A shares since Precious Metals shareholders who receive Class
A shares of Keystone Precious Metals in the Reorganization or who purchase
<PAGE>
additional Class A shares of Keystone Precious Metals subsequent to the
Reorganization will not incur any sales load.
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Keystone Precious
Metals $25 $77 $132 $282
Precious Metals $22 $69 $118 $254
Keystone Precious
Metals Pro Forma $16 $49 $85 $186
Class A
</TABLE>
The purpose of the foregoing examples is to assist Precious Metals
shareholders in understanding the various costs and expenses that an investor in
Keystone Precious Metals would bear directly and indirectly as a result of the
Reorganization as compared with the various direct and indirect expenses
currently borne by a shareholder in Precious Metals. These examples should not
be considered a representation of past or future expenses or annual return.
Actual expenses may be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
and, to the extent not inconsistent with such additional information, the
Prospectus of Keystone Precious Metals dated April 30, 1997, as amended, and the
Prospectus of Precious Metals dated November 30, 1997 (which are incorporated
herein by reference), the Plan, the Interim Advisory Agreement and the Interim
Sub-Advisory Agreement, forms of which are attached to this Prospectus/Proxy
Statement as Exhibits A, B and C, respectively.
Proposed Plan of Reorganization
The Plan provides for the transfer of all of the assets of Precious
Metals in exchange for Class A shares of Keystone Precious Metals and the
assumption by Keystone Precious Metals of certain identified liabilities of
Precious Metals. The identified liabilities consist only of those liabilities
reflected on the Fund's statement of assets and liabilities determined
immediately preceding the Reorganization. The Plan also calls for the
distribution of shares of Keystone Precious Metals to Precious Metals
shareholders in liquidation of Precious Metals as part of the Reorganization. As
a result of the
<PAGE>
Reorganization, the shareholders of Precious Metals will become the owners of
that number of full and fractional Class A shares of Keystone Precious Metals
having an aggregate net asset value equal to the aggregate net asset value of
the shareholders' shares of Precious Metals, as of the close of business
immediately prior to the date that Precious Metals' assets are exchanged for
shares of Keystone Precious Metals. See "Reasons for the Reorganization -
Agreement and Plan of Reorganization."
The Board of Directors of Precious Metals, including the Directors who
are not "interested persons," as such term is defined in the 1940 Act (the
"Independent Directors"), have concluded that the Reorganization would be in the
best interests of shareholders of Precious Metals, and that the interests of the
shareholders of Precious Metals will not be diluted as a result of the
transactions contemplated by the Reorganization. Accordingly, the Directors have
submitted the Plan for the approval of Precious Metals' shareholders.
THE BOARD OF DIRECTORS OF PRECIOUS METALS
RECOMMENDS APPROVAL BY SHAREHOLDERS OF
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen International Trust, on behalf of Keystone
Precious Metals, have also approved the Plan, and accordingly Keystone Precious
Metals' participation in the Reorganization.
Approval of the Reorganization on the part of Precious Metals will
require the affirmative vote of a majority of Precious Metals' shares voted and
entitled to vote, with all classes voting together as a single class at a
Meeting at which a quorum of the Fund's shares is present. A majority of the
outstanding shares entitled to vote, represented in person or by proxy, is
required to constitute a quorum at the Meeting. See "Voting Information
Concerning the Meeting."
The merger (the "Merger") of Signet Banking Corporation ("Signet") with
and into a wholly-owned subsidiary of First Union Corporation ("First Union")
has been consummated and, as a result, by law the Merger terminated the
investment advisory agreement between Virtus and Precious Metals and the
sub-advisory agreement between Virtus and Cavelti Capital. Prior to consummation
of the Merger, Precious Metals received an order from the SEC which permitted
the implementation, without formal shareholder approval, of a new investment
advisory agreement between the Fund and Virtus and a new sub-advisory agreement
between Virtus and Cavelti Capital for a period of not more than 120 days
beginning on the date of the closing of the Merger and continuing through the
date the Interim Advisory Agreement and Interim Sub-Advisory Agreement are
approved by the Fund's shareholders (but in no event later than April 30, 1998).
The Interim Advisory Agreement and the Interim Sub-Advisory Agreement
<PAGE>
have the same terms and fees as the previous investment advisory agreement
between Precious Metals and Virtus and the previous sub-advisory agreement
between Virtus and Cavelti Capital, respectively. The Reorganization is
scheduled to take place on or about February 27, 1998.
Approval of the Interim Advisory Agreement and Interim Sub- Advisory
Agreement requires the affirmative vote of (i) 67% or more of the shares of
Precious Metals present in person or by proxy at the Meeting, if holders of more
than 50% of the shares of Precious Metals outstanding on the record date are
present, in person or by proxy, or (ii) more than 50% of the outstanding shares
of Precious Metals, whichever is less. See "Voting Information Concerning the
Meeting."
If the shareholders of Precious Metals do not vote to approve the
Reorganization, the Directors will consider other possible courses of action in
the best interests of shareholders.
Tax Consequences
Prior to or at the completion of the Reorganization, Precious Metals
will have received an opinion of Sullivan & Worcester LLP that the
Reorganization has been structured so that no gain or loss will be recognized by
the Fund or its shareholders for federal income tax purposes as a result of the
receipt of shares of Keystone Precious Metals in the Reorganization. The holding
period and aggregate tax basis of shares of Keystone Precious Metals that are
received by Precious Metals' shareholders will be the same as the holding period
and aggregate tax basis of shares of the Fund previously held by such
shareholders, provided that shares of the Fund are held as capital assets. In
addition, the holding period and tax basis of the assets of Precious Metals in
the hands of Keystone Precious Metals as a result of the Reorganization will be
the same as in the hands of the Fund immediately prior to the Reorganization,
and no gain or loss will be recognized by Keystone Precious Metals upon the
receipt of the assets of the Fund in exchange for shares of Keystone Precious
Metals and the assumption by Keystone Precious Metals of certain identified
liabilities.
Investment Objectives and Policies of the Funds
The investment objectives and policies of Keystone Precious Metals and
Precious Metals are similar in that both seek capital appreciation primarily
through investments in securities of companies related to precious metals. There
are, however, differences between the Funds' objectives and policies.
The investment objectives of Keystone Precious Metals are to seek
long-term capital appreciation while protecting the purchasing power of
shareholders' capital and secondly, to obtain current income. Keystone Precious
Metals invests primarily in
<PAGE>
common stocks of established companies directly or indirectly engaged in mining,
processing or dealing in gold or other precious metals and minerals.
The primary investment objective of Precious Metals is to provide
long-term capital appreciation and preservation of purchasing power through
investments in physical precious metals, such as gold, silver, platinum, and
palladium, and in securities of companies involved with precious metals. The
Fund will ordinarily tend to emphasize precious metals securities over physical
precious metals investments.
See "Comparison of Investment Objectives and Policies" below.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the respective Prospectus and Statement of Additional Information of the
Funds. The total return of Keystone Precious Metals and Precious Metals for the
one, five, and if applicable, ten year periods ended September 30, 1997, and for
both Funds for the periods from inception through September 30, 1997 are set
forth in the table below. The calculations of total return assume the
reinvestment of all dividends and capital gains distributions on the
reinvestment date and the deduction of all recurring expenses (including sales
charges) that were charged to shareholders' accounts.
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 5 Years 10 Years From
Ended Ended Ended Inception
September September September To
30, 30, 30, September Inception
1997 1997 1997 30, 1997 Date
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Keystone (19.88%) 6.65% (1.82%) 9.58% 1/30/78
Precious
Metals
Precious (15.24%) 9.96% N/A 1.27% 6/22/88
Metals
- ---------
</TABLE>
Important information about Keystone Precious Metals is also contained
in management's discussion of Keystone Precious Metals' performance, attached
hereto as Exhibit D. This information also appears in the most recent Annual
Report of Keystone Precious Metals.
<PAGE>
Management of the Funds
The overall management of Keystone Precious Metals and of Precious
Metals is the responsibility of, and is supervised by, the Board of Trustees of
Evergreen International Trust and the Board of Directors of Precious Metals,
respectively.
Investment Advisers and Sub-Adviser
Keystone Investment Management Company ("Keystone") serves as
investment adviser to Keystone Precious Metals. Keystone has served as
investment adviser to the Keystone family of mutual funds since 1932 and as
investment adviser to Keystone Precious Metals since 1984. Keystone is an
indirect wholly-owned subsidiary of First Union National Bank ("FUNB"). FUNB is
a subsidiary of First Union, the sixth largest bank holding company in the
United States based on total assets as of September 30, 1997. The Capital
Management Group of FUNB, Evergreen Asset Management Corp. and Keystone manage
the Evergreen family of mutual funds with assets of approximately $40 billion as
of November 30, 1997. For further information regarding Keystone, FUNB and First
Union, see "Fund Management and Expenses Investment Adviser" in the Prospectus
of Keystone Precious Metals.
Keystone manages investments, provides various administrative services
and supervises the daily business affairs of Keystone Precious Metals subject to
the authority of the Evergreen International Trust's Board of Trustees. Keystone
Precious Metals pays Keystone a fee for its services at the annual rate of 0.75%
of the Fund's average daily net assets up to $100,000,000; 0.625% of net assets
between $100,000,000 and $200,000,000; and 0.50% of net assets over
$200,000,000.
Since August 1, 1995, Harbor Capital Management Company, Inc. ("Harbor
Capital"), located at 125 High Street, Boston, Massachusetts 02110, has served
as a consultant to Keystone with respect to Keystone Precious Metals pursuant to
a Consultant Agreement. Under the Consultant Agreement, Harbor Capital provides
Keystone with monthly reports discussing the world's gold bullion markets and
gold stock markets, and advice regarding economic factors an trends in the
precious metals sector. For its services, Harbor Capital receives from Keystone
a fee at the annual rate of 0.10% of Keystone Precious Metals' average daily net
assets. Keystone Precious Metals has no responsibility to pay Harbor Capital's
fee.
Virtus serves as the investment adviser for Precious Metals. As
investment adviser, Virtus is responsible for performing or providing for all
management and administrative services for the Fund. In carrying out its
obligations, Virtus provides or arranges for investment research and supervision
of the Fund's investments; selects and evaluates the performance of the Fund's
<PAGE>
sub-adviser, Cavelti Capital; and conducts or arranges for a continuous program
of appropriate sale or other disposition of the Fund's assets, subject at all
times to the direction of the Board of Directors. Virtus compensates Cavelti
Capital from the advisory fee received from Precious Metals. See "Information
Regarding the Interim Sub-Advisory Agreement." For its services as investment
adviser, Virtus receives a fee at an annual rate of 1.00% of Precious Metals'
average daily net assets up to $150,000,000; 0.875% of net assets between
$150,000,000 and $300,000,000; and 0.75% of net assets over $300,000,000.
Each investment adviser may, at its discretion, reduce or waive its fee
or reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Each investment adviser may reduce or cease these voluntary
waivers and reimbursements at any time.
Administrator
Federated Administrative Services ("FAS") provides Precious Metals with
certain administrative personnel and services including certain legal and
accounting services. FAS is entitled to receive a fee for such services at the
following annual rates: 0.15% on the first $250 million of average daily net
assets of the combined assets of the funds in the Blanchard/Virtus mutual fund
family, 0.125% on the next $250 million of such assets, 0.10% on the next $250
million of such assets; and 0.075% on assets in excess of $750 million.
Portfolio Manager
John Madden has been the Portfolio Manager of Keystone Precious Metals
since 1995 and is a Vice President and Senior Portfolio Manager of Keystone.
Before joining Keystone in 1994, Mr. Madden was an investment analyst and then
Vice President at Pioneer Funds, Boston, Massachusetts from 1982 to 1994. He has
over 29 years of investment experience.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of the shares of Keystone Precious Metals. EDI
distributes the Fund's shares directly or through broker-dealers, banks
(including FUNB), or other financial intermediaries. Effective on or about
January 9, 1998, Keystone Precious Metals will offer three classes of shares:
Class A, Class B, and Class C. Each class has separate distribution
arrangements. (See "Distribution-Related Expenses" below.) No class will bear
the distribution expenses relating to the shares of any other class.
In the proposed Reorganization, shareholders of Precious Metals will
receive Class A shares of Keystone Precious Metals.
<PAGE>
Class A shares of Keystone Precious Metals currently incur Rule 12b-1 fees of
0.25% per year, while shares of Precious Metals incur 12b-1 fees at the rate of
0.75% per year. Because the Reorganization will be effected at net asset value
without the imposition of a sales charge, Keystone Precious Metals shares
acquired by shareholders of Precious Metals pursuant to the proposed
Reorganization would not be subject to any initial sales charge or contingent
deferred sales charge as a result of the Reorganization.
The following is a summary description of charges and fees for the
Class A shares of Keystone Precious Metals which will be received by Precious
Metals shareholders in the Reorganization. More detailed descriptions of the
distribution arrangements applicable to the classes of shares are contained in
the respective Keystone Precious Metals Prospectus and the Precious Metals
Prospectus and in each Fund's respective Statement of Additional Information.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees. For a description of the initial sales charges
applicable to purchases of Class A shares, see "Purchase and Redemption of
Shares - How to Buy Shares" in the Prospectus for Keystone Precious Metals.
Holders of shares of Precious Metals who receive Class A shares of Keystone
Precious Metals will be able to purchase additional Class A shares of Keystone
Precious Metals and of any other Evergreen fund at net asset value. No initial
sales charge will be imposed.
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectus and Statement of Additional Information.
Distribution-Related Expenses. Keystone Precious Metals has adopted a
Rule 12b-1 plan with respect to its Class A shares under which the Class may pay
for distribution-related expenses at an annual rate which may not exceed 0.75%
of average daily net assets attributable to the Class. Payments with respect to
Class A shares are currently limited to 0.25% of average daily net assets
attributable to the Class, which amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
Precious Metals has adopted a Rule 12b-1 plan with respect to its
shares under which Precious Metals may pay for distribution-related expenses at
an annual rate of 0.75% of average daily net assets.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectus and Statement of Additional
Information.
<PAGE>
Purchase and Redemption Procedures
Information concerning applicable sales charges and
distribution-related fees is provided above. Investments in the Funds are not
insured. The minimum initial purchase requirement for Keystone Precious Metals
is $1,000 (except for participants in certain retirement plans, for whom there
is no minimum, and for investments under a Systematic Investment Plan, for which
the minimum is $25) and the minimum investment for Precious Metals is $3,000
($2,000 for qualified pension plans). Precious Metals has a minimum investment
requirement of $200 for subsequent investments. There is no minimum for
subsequent purchases of shares of Keystone Precious Metals. Each Fund provides
for telephone, mail or wire redemption of shares at net asset value as next
determined after receipt of a redemption request on each day the New York Stock
Exchange ("NYSE") is open for trading. Additional information concerning
purchases and redemptions of shares, including how each Fund's net asset value
is determined, is contained in the respective Prospectus for each Fund. Each
Fund may involuntarily redeem shareholders' accounts that have less than $1,000
of invested funds. All funds invested in each Fund are invested in full and
fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Precious Metals currently permits shareholders to exchange such shares
for shares of another fund in the Blanchard Group of Funds or for Investment
shares of other funds managed by Virtus. In addition, such shares may be
exchanged for shares of Federated Emerging Markets Fund. Holders of shares of a
class of Keystone Precious Metals generally may exchange their shares for shares
of the same class of any other Evergreen fund. Precious Metals shareholders will
be receiving Class A shares of Keystone Precious Metals in the Reorganization
and, accordingly, with respect to shares of Keystone Precious Metals received by
Precious Metals shareholders in the Reorganization, the exchange privilege is
limited to the Class A shares of other Evergreen funds. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another Evergreen fund must amount to at least $1,000. The current exchange
privileges, and the requirements and limitations attendant thereto, are
described in each Fund's respective Prospectus and Statement of Additional
Information.
Dividend Policy
Each Fund distributes its net investment income dividends annually.
Distributions of any net realized gains of a Fund will be made at least
annually. Dividends and distributions are reinvested in additional shares of the
same class of the respective Fund, or paid in cash, as a shareholder has
elected.
<PAGE>
See the respective Prospectus of each Fund for further information concerning
dividends and distributions.
After the Reorganization, shareholders of Precious Metals who have
elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from Keystone Precious Metals reinvested
in shares of Keystone Precious Metals. Shareholders of Precious Metals who have
elected to receive dividends and/or distributions in cash will receive dividends
and/or distributions from Keystone Precious Metals in cash after the
Reorganization, although they may, after the Reorganization, elect to have such
dividends and/or distributions reinvested in additional shares of Keystone
Precious Metals.
Each of Keystone Precious Metals and Precious Metals 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, so long as each Fund distributes all of its net investment company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
Since the investment objectives and policies of each Fund are similar,
the risks involved in investing in each Fund's shares are similar. For a
discussion of each Fund's objectives and policies, see "Comparison of Investment
Objectives and Policies." There is no assurance that investment performances
will be positive and that the Funds will meet their investment objectives.
Precious Metals. The profits of the companies in which both Funds
invest, and ultimately the value of the securities of the Funds, are directly
affected by the price of gold and other precious metals and minerals. The price
of gold and other precious metals and minerals, in turn, is subject to
substantial short-term volatility caused by various conditions, including:
monetary and political developments within a particular country and among
various countries, such as currency devaluations or revaluations and exchange
controls; economic and social conditions such as industrial and commercial
demand, and investment and speculation; and trade restrictions between
countries. Because a significant portion of the world's gold ore reserves is
located in South Africa, the political, social and economic conditions there can
affect local and other gold and gold-related companies.
<PAGE>
Foreign Securities. Both Funds invest in foreign securities. Securities
markets of foreign countries in which the Funds may invest are generally not
subject to the same degree of regulation as the U.S. markets and may be more
volatile and less liquid than the major U.S. markets. The differences between
investing in foreign and U.S. companies include: (1) less publicly available
information about foreign companies; (2) the lack of uniform financial
accounting standards and practices among countries which could impair the
validity of direct comparisons of valuation measures (such as price/earnings
ratios) for securities in different countries; (3) less readily available market
quotations on foreign companies; (4) differences in government regulation and
supervision of foreign stock exchanges, brokers, listed companies, and banks;
(5) differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments; (6) generally lower foreign
stock market volume; (7) the likelihood that foreign securities may be less
liquid or more volatile, which may affect the Fund's ability to purchase or sell
large blocks of securities and thus obtain the best price; (8) transaction
costs, including brokerage charges and custodian charges associated with holding
foreign securities, may be higher; (9) the settlement periods for foreign
securities, which are sometimes longer than those for securities of U.S.
issuers, may affect portfolio liquidity; (10) the possibility that foreign
securities held by a Fund may be traded on days that the Fund does not value its
portfolio securities, such as Saturdays and customary business holidays, and
accordingly, the Fund's net asset value may be significantly affected on days
when shareholders do not have access to the Fund; and (11) political and social
instability, expropriation, and political or financial changes which adversely
affect investment in some countries.
Emerging Markets. Investing in securities of issuers in emerging
markets countries involves exposure to economic systems that are generally less
stable than those of developed countries. Investing in companies in emerging
markets countries may involve exposure to national policies that may restrict
investment by foreigners and undeveloped legal systems governing private and
foreign investments and private property. The typically small size of the
markets for securities issued by companies in emerging markets countries and the
possibility of a low or nonexistent volume of trading in those securities may
also result in a lack of liquidity and in price volatility for those securities.
When a Fund invests in foreign securities, they usually will be
denominated in foreign currencies, and the Fund may temporarily hold funds in
foreign securities. Thus, the value of a Fund's shares may be affected by
changes in exchange rates.
<PAGE>
Precious Metals is a non-diversified investment company. As such, there is
no limit on the percentage of assets which can be invested in the securities of
a single issuer. An investment in Precious Metals, therefore, will entail
greater risk than would exist in a diversified investment company because the
higher percentage of investments among fewer issuers may result in greater
fluctuations in the total market value of its shares. Any adverse developments
affecting the value of the securities held by Precious Metals will have a
greater impact on the total value of Precious Metals than would be the case if
Precious Metals' investments were diversified among more issuers.
Additional Information. Further information about these risks, as well as
other risks relating to an investment in Keystone Precious Metals, is set forth
in the Prospectus of Keystone Precious Metals at "Risk Factors."
REASONS FOR THE REORGANIZATION
On July 18, 1997, First Union entered into an Agreement and Plan of
Merger with Signet, which provided, among other things, for the Merger of Signet
with and into a wholly-owned subsidiary of First Union. The Merger was
consummated on November 28, 1997. As a result of the Merger it is expected that
FUNB and its affiliates will succeed to the investment advisory and
administrative functions currently performed for Precious Metals by various
units of Signet and various unaffiliated parties. It is also expected that
Signet will no longer, upon completion of the Reorganization and similar
reorganizations of other funds in the Signet mutual fund family, provide
investment advisory or administrative services to investment companies.
At a meeting held on September 16, 1997, the Board of Directors of
Precious Metals considered and approved the Reorganization as in the best
interests of shareholders of Precious Metals and determined that the interests
of existing shareholders of Precious Metals will not be diluted as a result of
the transactions contemplated by the Reorganization. In addition, the Directors
approved the Interim Advisory Agreement and Interim Sub-Advisory Agreement with
respect to Precious Metals.
As noted above, Signet has merged with and into a wholly-owned
subsidiary of First Union. Signet is the parent company of Virtus, investment
adviser to the mutual funds which comprise the Blanchard Group of Funds. The
Merger caused, as a matter of law, termination of the investment advisory
agreement between Precious Metals and Virtus and the sub-advisory agreement
between Virtus and Cavelti Capital. Precious Metals has received an order from
the SEC which permits Virtus and Cavelti Capital to continue to act as Precious
Metals' investment adviser and sub-adviser, respectively, without shareholder
approval, for a period of not more than 120 days from the date the Merger was
consummated
<PAGE>
(November 28, 1997) to the date of shareholder approval of a new investment
advisory agreement and sub-advisory agreement. Accordingly, the Directors
considered the recommendations of Signet in approving the proposed
Reorganization.
In approving the Plan, the Directors reviewed various factors about the
Funds and the proposed Reorganization. There are substantial similarities
between Keystone Precious Metals and Precious Metals. Specifically, Keystone
Precious Metals and Precious Metals have similar investment objectives and
policies and comparable risk profiles. See "Comparison of Investment Objectives
and Policies" below. At the same time, the Board of Directors evaluated the
potential economies of scale associated with larger mutual funds and concluded
that operational efficiencies may be achieved upon the combination of Precious
Metals with an Evergreen fund with a greater level of assets. As of September
30, 1997, Keystone Precious Metals' net assets were approximately $138.8 million
and Precious Metals' net assets were approximately $67.0 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that Precious Metals continue its existence and be separately
managed by Keystone or one of its affiliates, Precious Metals would be offered
through common distribution channels with the similar Keystone Precious Metals.
Precious Metals would also have to bear the cost of maintaining its separate
existence. Signet and Keystone believe that the prospect of dividing the
resources of the Evergreen mutual fund organization between two similar funds
could result in each Fund being disadvantaged due to an inability to achieve
optimum size, performance levels and the greatest possible economies of scale.
Accordingly, for the reasons noted above and recognizing that there can be no
assurance that any economies of scale or other benefits will be realized, Signet
and Keystone believe that the proposed Reorganization would be in the best
interests of each Fund and its shareholders.
The Board of Directors of Precious Metals met and considered the
recommendation of Signet and Keystone and, in addition, considered among other
things, (i) the terms and conditions of the Reorganization; (ii) whether the
Reorganization would result in the dilution of shareholders' interests; (iii)
expense ratios, fees and expenses of Keystone Precious Metals and Precious
Metals; (iv) the comparative performance records of each of the Funds; (v)
compatibility of their investment objectives and policies; (vi) the investment
experience, expertise and resources of Keystone; (vii) the service and
distribution resources available to the Evergreen funds and the broad array of
investment alternatives available to shareholders of the Evergreen funds; (viii)
the personnel and financial resources of First Union and its affiliates; (ix)
the fact that FUNB will bear the expenses incurred by Precious Metals in
connection with the Reorganization; (x) the fact that Keystone Precious Metals
will
<PAGE>
assume certain identified liabilities of Precious Metals; and (xi) the expected
federal income tax consequences of the Reorganization.
The Directors also considered the benefits to be derived by
shareholders of Precious Metals from the sale of its assets to Keystone Precious
Metals. In this regard, the Directors considered the potential benefits of being
associated with a larger entity and the economies of scale that could be
realized by the participation in such an entity by shareholders of Precious
Metals.
In addition, the Directors considered that there are alternatives
available to shareholders of Precious Metals, including the ability to redeem
their shares, as well as the option to vote against the Reorganization.
During their consideration of the Reorganization the Directors met with
Fund counsel and counsel to the Independent Directors regarding the legal issues
involved. The Trustees of Evergreen International Trust, on behalf of Keystone
Precious Metals, also concluded at a meeting on September 17, 1997 that the
proposed Reorganization would be in the best interests of shareholders of
Keystone Precious Metals and that the interests of the shareholders of Keystone
Precious Metals would not be diluted as a result of the transactions
contemplated by the Reorganization.
THE BOARD OF DIRECTORS OF PRECIOUS METALS
RECOMMENDS THAT THE SHAREHOLDERS APPROVE
THE PROPOSED REORGANIZATION.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).
The Plan provides that Keystone Precious Metals will acquire all of the
assets of Precious Metals in exchange for shares of Keystone Precious Metals and
the assumption by Keystone Precious Metals of certain identified liabilities of
Precious Metals on or about February 27, 1998 or such other date as may be
agreed upon by the parties (the "Closing Date"). Prior to the Closing Date,
Precious Metals will endeavor to discharge all of its known liabilities and
obligations. Keystone Precious Metals will not assume any liabilities or
obligations of Precious Metals other than those reflected in an unaudited
statement of assets and liabilities of Precious Metals prepared as of the close
of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on the
business day immediately prior to the Closing Date. The number of full and
fractional shares of each class of Keystone Precious Metals to be received by
the shareholders of Precious Metals will be determined by multiplying the
respective
<PAGE>
outstanding class of shares of Precious Metals by a factor which shall be
computed by dividing the net asset value per share of the respective class of
shares of Precious Metals by the net asset value per share of the respective
class of shares of Keystone Precious Metals. Such computations will take place
as of the close of regular trading on the NYSE on the business day immediately
prior to the Closing Date. The net asset value per share of each class will be
determined by dividing assets, less liabilities, in each case attributable to
the respective class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for Keystone
Precious Metals, will compute the value of each Fund's respective portfolio
securities. The method of valuation employed will be consistent with the
procedures set forth in the Prospectus and Statement of Additional Information
of Keystone Precious Metals, Rule 22c-1 under the 1940 Act, and with the
interpretations of such Rule by the SEC's Division of Investment Management.
At or prior to the Closing Date, Precious Metals will have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the Fund's shareholders (in shares of the Fund, or in cash, as the shareholder
has previously elected) all of the Fund's net investment company taxable income
for the taxable period ending on the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gains realized in
all taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, Precious
Metals will liquidate and distribute pro rata to shareholders of record as of
the close of business on the Closing Date the full and fractional shares of
Keystone Precious Metals received by Precious Metals. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Fund's shareholders on the share records of Keystone Precious Metals'
transfer agent. Each account will represent the respective pro rata number of
full and fractional shares of Keystone Precious Metals due to the Fund's
shareholders. All issued and outstanding shares of Precious Metals, including
those represented by certificates, will be canceled. The shares of Keystone
Precious Metals to be issued will have no preemptive or conversion rights. After
such distributions and the winding up of its affairs, Precious Metals will be
terminated. In connection with such termination, Precious Metals will file with
the SEC an application for termination as a registered investment company.
The consummation of the Reorganization is subject to the
conditions set forth in the Plan, including approval by Precious
<PAGE>
Metals' shareholders, accuracy of various representations and warranties and
receipt of opinions of counsel, including opinions with respect to those matters
referred to in "Federal Income Tax Consequences" below. Notwithstanding approval
of Precious Metals' shareholders, the Plan may be terminated (a) by the mutual
agreement of Precious Metals and Keystone Precious Metals; or (b) at or prior to
the Closing Date by either party (i) because of a breach by the other party of
any representation, warranty, or agreement contained therein to be performed at
or prior to the Closing Date if not cured within 30 days, or (ii) because a
condition to the obligation of the terminating party has not been met and it
reasonably appears that it cannot be met.
The expenses of Precious Metals in connection with the Reorganization
(including the cost of any proxy soliciting agent) will be borne by FUNB whether
or not the Reorganization is consummated. No portion of such expenses will be
borne directly or indirectly by Precious Metals or its shareholders. There are
no liabilities or expected reimbursements in connection with the 12b-1 Plan of
Precious Metals. As a result, no 12b-1 liabilities will be assumed by Keystone
Precious Metals following the Reorganization.
If the Reorganization is not approved by shareholders of Precious
Metals, the Board of Directors of Precious Metals will consider other possible
courses of action in the best interests of shareholders.
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368(a) of the Code. As a
condition to the closing of the Reorganization, Precious Metals will receive an
opinion of Sullivan & Worcester LLP to the effect that, on the basis of the
existing provisions of the Code, U.S. Treasury regulations issued thereunder,
current administrative rules, pronouncements and court decisions, for federal
income tax purposes, upon consummation of the Reorganization:
(1) The transfer of all of the assets of Precious Metals solely in
exchange for shares of Keystone Precious Metals and the assumption by Keystone
Precious Metals of certain identified liabilities, followed by the distribution
of Keystone Precious Metals' shares by Precious Metals in dissolution and
liquidation of Precious Metals, will constitute a "reorganization" within the
meaning of section 368(a)(1)(C) of the Code, and Keystone Precious Metals and
Precious Metals will each be a "party to a reorganization" within the meaning of
section 368(b) of the Code;
(2) No gain or loss will be recognized by Precious Metals on the
transfer of all of its assets to Keystone Precious Metals solely in exchange for
Keystone Precious Metals' shares and the
<PAGE>
assumption by Keystone Precious Metals of certain identified liabilities of
Precious Metals or upon the distribution of Keystone Precious Metals' shares to
Precious Metals' shareholders in exchange for their shares of Precious Metals;
(3) The tax basis of the assets transferred will be the same to
Keystone Precious Metals as the tax basis of such assets to Precious Metals
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Keystone Precious Metals will include the period during which
the assets were held by Precious Metals;
(4) No gain or loss will be recognized by Keystone Precious Metals upon
the receipt of the assets from Precious Metals solely in exchange for the shares
of Keystone Precious Metals and the assumption by Keystone Precious Metals of
certain identified liabilities of Precious Metals;
(5) No gain or loss will be recognized by Precious Metals' shareholders
upon the issuance of the shares of Keystone Precious Metals to them, provided
they receive solely such shares (including fractional shares) in exchange for
their shares of Precious Metals; and
(6) The aggregate tax basis of the shares of Keystone Precious Metals,
including any fractional shares, received by each of the shareholders of
Precious Metals pursuant to the Reorganization will be the same as the aggregate
tax basis of the shares of Precious Metals held by such shareholder immediately
prior to the Reorganization, and the holding period of the shares of Keystone
Precious Metals, including fractional shares, received by each such shareholder
will include the period during which the shares of Precious Metals exchanged
therefor were held by such shareholder (provided that the shares of Precious
Metals were held as a capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, a shareholder of Precious Metals would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Fund shares and the fair market value of Keystone Precious
Metals shares he or she received. Shareholders of Precious Metals should consult
their tax advisers regarding the effect, if any, of the proposed Reorganization
in light of their individual circumstances. It is not anticipated that the
securities of the combined portfolio will be sold in significant amounts in
order to comply with the policies and investment practices of Keystone Precious
Metals. Since the foregoing discussion relates only to the federal income tax
consequences of the Reorganization, shareholders of Precious Metals should also
consult their tax advisers as to the state and local tax consequences, if any,
of the Reorganization.
<PAGE>
Pro-forma Capitalization
The following table sets forth the capitalizations of Keystone Precious
Metals and Precious Metals as of September 30, 1997 and the capitalization of
Keystone Precious Metals on a pro forma basis as of that date, giving effect to
the proposed acquisition of assets at net asset value and the conversion of
3,900,247 Keystone Precious Metals Class B shares to Class A shares. See
"Comparison of Fees and Expenses." The pro forma data reflects an exchange ratio
of approximately 0.27988 Class A shares of Keystone Precious Metals issued for
each share of Precious Metals.
<TABLE>
<CAPTION>
Capitalization of Keystone Precious Metals,
Precious Metals and Keystone
Precious Metals (Pro Forma)
Keystone
Precious
Keystone Metals (After
Precious Precious Reorgani-
Metals Metals zation)
-------- --------- ------------
<S> <C> <C> <C>
Net Assets
Shares......................... N/A $67,037,240 N/A
Class A........................ N/A N/A $141,860,060
Class B........................ $138,766,357 N/A $63,943,537
------------ ------------ -------------
Total Net Assets $138,766,357 $67,037,240 $205,803,597
Net Asset Value Per
Share
Shares......................... N/A $5.37 N/A
Class A........................ N/A N/A $19.18
Class B........................ $19.18 N/A $19.18
Shares Outstanding
Shares......................... N/A 12,486,361 N/A
Class A........................ N/A N/A 7,396,168
Class B........................ 7,233,396 N/A 3,333,149
------------ ------------ -------------
All Classes.................... 7,233,396 12,486,361 10,729,317
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Reorganization; the actual number of
shares to be received will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the Reorganization.
Shareholder Information
<PAGE>
As of December 26, 1997 (the "Record Date"), there were 11,681,703
shares of beneficial interest of Precious Metals outstanding.
As of November 30, 1997, the officers and Directors of Precious Metals
beneficially owned as a group less than 1% of the outstanding shares of Precious
Metals. To Precious Metals' knowledge, the following persons owned beneficially
or of record more than 5% of Precious Metals' total outstanding shares as of
November 30, 1997:
<TABLE>
<CAPTION>
Percentage
Percentage of Shares of
of Shares Class
Before After
No. of Reorgan- Reorgan-
Name and Address Shares ization ization
<S> <C> <C> <C>
Charles Schwab 1,068,625 9.31% 3.74% Class A
Co. Inc.
101 Montgomery St.
San Francisco, CA
94104-4122
National Financial 622,217 5.42% 2.18% Class A
Services Corp. for
the Exclusive
Benefit of
Customers
Attn. Mutual Funds
Fifth Floor
200 Liberty St.
One World Financial
Center
New York, NY
10281-1003
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectus and Statement of Additional
Information of each Fund. The investment objectives, policies and restrictions
of Keystone Precious Metals can be found in the Prospectus of Keystone Precious
Metals under the caption "Investment Objectives and Policies." The investment
objectives, policies and restrictions of Precious Metals can be found in the
Prospectus of the Fund
<PAGE>
under the caption "The Funds' Investment Objectives and Policies." Unlike the
investment objectives of Precious Metals, which are fundamental, the investment
objectives of Keystone Precious Metals are non-fundamental and can be changed by
the Board of Trustees without shareholder approval.
The investment objectives of Keystone Precious Metals are to provide
shareholders with long-term capital appreciation and with protection of the
purchasing power of their capital and, as a secondary objective, to obtain
current income. Under normal circumstances, Keystone Precious Metals pursues its
objectives by investing at least 80% of its assets in common stocks of companies
that are engaged in, or which receive at least 50% of their revenue from other
companies engaged in, exploration, mining, processing or dealing in precious
metals (gold, silver, platinum and palladium) and minerals, such as diamonds.
For purposes of this policy, a company is considered to be engaged in a business
or activity if at least 50% of the company's assets, revenues or profits are
derived from that business or activity.
Currently, Keystone Precious Metals has a policy of investing a portion
of its assets in domestic or foreign issuers that operate in the Republic of
South Africa, the principal location of the known free-world gold ore reserves.
Keystone Precious Metals generally makes such investments by purchasing American
Depository Receipts. Keystone Precious Metals does not invest directly in
precious metals, but may invest up to 25% of its total assets in common or
preferred stock of wholly-owned subsidiaries that make such investments.
Currently, Keystone Precious Metals has one such subsidiary, Precious Metals
(Bermuda) Ltd.
The investment objective of Precious Metals is to provide long-term
capital appreciation and preservation of purchasing power through investments in
physical precious metals and securities of companies involved with precious
metals.
A secondary objective of Precious Metals is to reduce the risk of loss
of capital and decrease the volatility often associated with precious metals
investments by changing the allocation of the Fund's assets from precious metals
securities to physical precious metals investments and/or investing in
short-term instruments and government securities during periods when the
sub-adviser believes the precious metals markets may experience declines.
For the purpose of Precious Metals, the term "precious metals
securities" refers to the debt and equity securities of domestic and foreign
companies listed on domestic and foreign exchanges which are directly involved
in the exploration, development, mining, refining, manufacturing, dealing or
marketing of precious metals or precious metals products. A company will be
considered to be "involved in" such activity if
<PAGE>
it derives more than 50% of its revenues from or devotes more than 50% of its
assets to such activity. The Fund may invest in (1) publicly-traded common
stocks, (2) securities convertible into common stocks, such as convertible
preferred stock, convertible debentures, convertible rights and warrants (to the
extent permissible by the Fund's investment policies), and (3) debt securities
of such companies, all of which are believed by the sub-adviser to have the
potential for appreciation.
Precious Metals, unlike Keystone Precious Metals, may, from time to
time, invest up to 5% of its assets in unrated foreign debt securities which are
judged by the Fund's sub-adviser to be of at least comparable quality to
lower-rated U.S. debt securities (usually defined as Baa or lower by Moody's
Investors Service or BBB or lower by Standard & Poor's Ratings Group). Precious
Metals may invest up to 49% of its total assets in physical precious metals
through holdings in bullion or precious metals certificates or storage receipts
representing the physical metals.
Precious Metals and Keystone Precious Metals may purchase contracts for
forward delivery of physical precious metals. Forward contracts for precious
metals are contracts between the Fund and institutions dealing in precious
metals for the future receipt or delivery of metals at a price fixed at the time
of the transaction.
Both Funds may invest in derivatives such as options and futures.
Under normal conditions, Precious Metals has at least 65% of its total
assets invested in precious metals securities and physical precious metals
investments. Under other circumstances, the Fund may invest up to 100% of its
assets in short-term instruments, including commercial paper, bank certificates
of deposit, bankers' acceptances and securities of the U.S. government and its
agencies and instrumentalities as well as cash and cash equivalents denominated
in foreign currency.
Neither Keystone Precious Metals nor Precious Metals may invest more
than 5% of its assets in securities of any one issuer or purchase more than 10%
of the outstanding voting securities of any one issuer. However, because
Precious Metals is a non-diversified portfolio for purposes of the 1940 Act,
these restrictions apply to 50% of the assets of Precious Metals. As a
diversified portfolio under the 1940 Act, the same restrictions apply to 75% of
the assets of Keystone Precious Metals. Non- diversification may increase
investment risks.
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectus and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also
<PAGE>
set forth in the Prospectus and Statement of Additional
Information of each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Forms of Organization
Evergreen International Trust and Precious Metals are both open-end
management investment companies registered with the SEC under the 1940 Act which
continuously offer shares to the public. Evergreen International Trust is
organized as a Delaware business trust, and Precious Metals is organized as a
Maryland corporation. Evergreen International Trust is governed by a Declaration
of Trust, By-Laws and a Board of Trustees. Evergreen International Trust is also
governed by applicable Delaware and federal law. Keystone Precious Metals is a
series of Evergreen International Trust. Precious Metals is governed by its
Articles of Incorporation, By-Laws and a Board of Directors, as well as
applicable Maryland and federal law.
As set forth in the Supplement to the Prospectus of Keystone Precious
Metals, effective December 22, 1997, Keystone Precious Metals Holdings, Inc.,
was reorganized (the "Delaware Reorganization") from a Delaware corporation into
a series (Keystone Precious Metals) of Evergreen International Trust. In
connection with the Delaware Reorganization, the Fund's investment objectives
were reclassified from "fundamental" to "non-fundamental" and therefore may be
changed without shareholder approval; the Fund adopted certain standardized
investment restrictions; and the Fund eliminated or reclassified from
fundamental to non-fundamental certain of the Fund's other fundamental
investment restrictions. On January 9, 1998 Keystone Precious Metals will change
its name to Evergreen Precious Metals Fund.
Capitalization
The beneficial interests in Keystone Precious Metals are represented by
an unlimited number of transferable shares of beneficial interest, $.001 par
value per share. Precious Metals' authorized shares consist of 1,000,000,000
shares of common stock, par value $.001 per share. Evergreen International
Trust's Declaration of Trust and Precious Metals' Articles of Incorporation
permit the Trustees or Directors respectively, to allocate shares into an
unlimited number of series, and classes thereof, with rights determined by the
Trustees or Directors, all without shareholder approval. Currently, Precious
Metals has only a single series. Fractional shares may be issued by either Fund.
Each Fund's shares represent equal proportionate interests in the assets
belonging to the Funds. Shareholders of each Fund are entitled to receive
dividends and other amounts as determined by the Trustees or Directors.
Shareholders of each Fund vote separately, by class, as to matters, such as
approval of or
<PAGE>
amendments to Rule 12b-1 distribution plans, that affect only their particular
class and by series as to matters, such as approval of or amendments to
investment advisory agreements or proposed reorganizations, that affect only
their particular series.
Shareholder Liability
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result, to
the extent that Evergreen International Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject shareholders of a Delaware trust to liability. To guard
against this risk, the Declaration of Trust of Evergreen International Trust (a)
provides that any written obligation of the Trust may contain a statement that
such obligation may only be enforced against the assets of the Trust or the
particular series in question and the obligation is not binding upon the
shareholders of the Trust; however, the omission of such a disclaimer will not
operate to create personal liability for any shareholder; and (b) provides for
indemnification out of Trust property of any shareholder held personally liable
for the obligations of the Trust. Accordingly, the risk of a shareholder of
Evergreen International Trust incurring financial loss beyond that shareholder's
investment because of shareholder liability is limited to circumstances in
which: (i) the court refuses to apply Delaware law; (ii) no contractual
limitation of liability was in effect; and (iii) the Trust itself would be
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the risk of personal liability
to a shareholder of Evergreen International Trust is remote.
Shareholder Meetings and Voting Rights
Neither Evergreen International Trust on behalf of Keystone Precious
Metals nor Precious Metals is required to hold annual meetings of shareholders.
However, a meeting of shareholders for the purpose of voting upon the question
of removal of a Trustee or Director, respectively, must be called when requested
in writing by the holders of at least 10% of the outstanding shares of Evergreen
International Trust or Precious Metals. In addition, each is required to call a
meeting of shareholders for the purpose of electing Trustees or Directors if, at
any time, less than a majority of the Trustees or Directors then holding office
were elected by shareholders. Neither Evergreen International Trust nor Precious
Metals currently intends to hold regular shareholder meetings. Neither Evergreen
International Trust nor Precious Metals permits cumulative voting. For Keystone
Precious Metals and Precious Metals, a majority of the
<PAGE>
votes cast and entitled to vote is sufficient to act on a matter (unless
otherwise specifically required by the applicable governing documents or other
law, including the 1940 Act).
Under the Declaration of Trust of Evergreen International Trust, each
share of Keystone Precious Metals is entitled to one vote for each dollar of net
asset value applicable to each share. Under the voting provisions governing
Precious Metals, each share is entitled to one vote. The net asset values of the
mutual funds which are each a series of Evergreen International Trust have
different net asset values per share and can be expected to change in relation
to one another in the future. Because of the divergence in net asset values, a
given dollar investment in a fund with a lower net asset value will purchase
more shares and under Precious Metals' voting provisions have more votes, than
the same investment in a fund with a higher net asset value. Under the
Declaration of Trust of Evergreen International Trust, voting power is related
to the dollar value of a shareholder's investment rather than to the number of
shares held.
Liquidation or Dissolution
In the event of the liquidation of Keystone Precious Metals or Precious
Metals the shareholders are entitled to receive, when, and as declared by the
Trustees or Directors, respectively, the excess of the assets belonging to such
Fund or attributable to the class over the liabilities belonging to the Fund or
attributable to the class. In either case, the assets so distributable to
shareholders of the Fund will be distributed among the shareholders in
proportion to the number of shares of a class of the Fund held by them and
recorded on the books of the Fund.
Liability and Indemnification of Trustees and Directors
The Articles of Incorporation of Precious Metals provide that no
Director or officer shall be liable unless such Director or officer is found to
have acted in bad faith, with willful misfeasance, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
The Articles of Incorporation of Precious Metals provide that a present
or former Director or officer is entitled to indemnification against liabilities
and expenses with respect to claims related to his or her position with the
Fund, provided that no indemnification shall be provided to a Director or
officer against any liability to the Fund or the shareholders by reasons of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Under the Declaration of Trust of Evergreen International Trust, a Trustee
is liable to the Trust and its shareholders only
<PAGE>
for such Trustee's own willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of the office of
Trustee or the discharge of such Trustee's functions. As provided in the
Declaration of Trust, each Trustee of the Trust is entitled to be indemnified
against all liabilities against him or her, including the costs of litigation,
unless it is determined that the Trustee (i) did not act in good faith in the
reasonable belief that such Trustee's action was in or not opposed to the best
interests of the Trust; (ii) had acted with willful misfeasance, bad faith,
gross negligence or reckless disregard of such Trustee's duties; and (iii) in a
criminal proceeding, had reasonable cause to believe that such Trustee's conduct
was unlawful (collectively, "disabling conduct"). A determination that the
Trustee did not engage in disabling conduct and is, therefore, entitled to
indemnification may be based upon the outcome of a court action or
administrative proceeding or by (a) a vote of a majority of those Trustees who
are neither "interested persons" within the meaning of the 1940 Act nor parties
to the proceeding or (b) an independent legal counsel in a written opinion. The
Trust may also advance money for such litigation expenses provided that the
Trustee undertakes to repay the Trust if his or her conduct is later determined
to preclude indemnification and certain other conditions are met.
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of Evergreen International Trust,
Articles of Incorporation of Precious Metals, By-Laws, and Delaware and Maryland
law and is not a complete description of those documents or law. Shareholders
should refer to the provisions of such Declaration of Trust, Articles of
Incorporation, By-Laws, and Delaware and Maryland law directly for more complete
information.
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Directors of Precious Metals recommends that shareholders of
Precious Metals approve the Interim Advisory Agreement. The Merger became
effective on November 28, 1997. Pursuant to an order received from the SEC all
fees payable under the Interim Advisory Agreement will be placed in escrow and
paid to Virtus if shareholders approve the contract within 120 days of its
effective date. The Interim Advisory Agreement will remain in effect until the
earlier of the Closing Date for the Reorganization or two years from its
effective date. The terms of the Interim Advisory Agreement are essentially the
same as the Previous Advisory Agreement (as defined below). The only difference
between the Previous Advisory Agreement and the Interim Advisory Agreement, if
approved by shareholders, is the length of time each Agreement is
<PAGE>
in effect. A description of the Interim Advisory Agreement pursuant to which
Virtus continues as investment adviser to Precious Metals, as well as the
services to be provided by Virtus pursuant thereto is set forth below under
"Advisory Services." The description of the Interim Advisory Agreement in this
Prospectus/Proxy Statement is qualified in its entirety by reference to the
Interim Advisory Agreement, attached hereto as Exhibit B.
Virtus, a Maryland corporation formed in 1995 to succeed to the
business of Signet Asset Management, is an indirect wholly-owned subsidiary of
First Union. The address of Virtus is 707 East Main Street, Suite 1300,
Richmond, Virginia 23219. Virtus has served as investment adviser pursuant to an
Investment Advisory Agreement dated July 12, 1995. As used herein, the
Investment Advisory Agreement for Precious Metals is referred to as the
"Previous Advisory Agreement." At a meeting of the Board of Directors of
Precious Metals held on September 16, 1997, the Directors, including a majority
of the Independent Directors, approved the Interim Advisory Agreement for
Precious Metals.
The Directors have authorized Precious Metals to enter into the Interim
Advisory Agreement with Virtus. Such Agreement became effective on November 28,
1997. If the Interim Advisory Agreement for Precious Metals is not approved by
shareholders, the Directors will consider appropriate actions to be taken with
respect to Precious Metals' investment advisory arrangements at that time. The
Previous Advisory Agreement was last approved by the Directors, including a
majority of the Independent Directors, on May 11, 1997.
Comparison of the Interim Advisory Agreement and the Previous
Advisory Agreement
Advisory Services. The management and advisory services to be provided
by Virtus under the Interim Advisory Agreement are identical to those currently
provided by Virtus under the Previous Advisory Agreement. Under the Previous
Advisory Agreement and Interim Advisory Agreement, Virtus is responsible for
managing Precious Metals and overseeing the investment of its assets, subject at
all times to the supervision of the Board of Directors. Virtus selects, monitors
and evaluates the Fund's sub-adviser. Virtus periodically reviews the
sub-adviser's performance record and will make a change, if necessary, subject
to approval of the Board of Directors and shareholders.
FAS currently acts as administrator of Precious Metals. FAS will
continue during the term of the Interim Advisory Agreement as Precious Metals'
administrator for the same compensation as currently received. An affiliate of
FAS currently performs transfer agency services for Precious Metals'
shareholders. Commencing February 9, 1998 Evergreen Service Company will provide
such transfer agency services for the same fees charged
<PAGE>
by Precious Metals' current transfer agent. See "Summary -
Administrator."
Fees and Expenses. The investment advisory fees and expense
limitations for Precious Metals under the Previous Advisory
Agreement and the Interim Advisory Agreement are identical. See
"Summary - Investment Advisers and Sub-Adviser."
Expense Reimbursement. Virtus may, if it deems appropriate, assume
expenses of Precious Metals to the extent that the Fund's expenses exceed such
lower expense limitation as Virtus may, by notice to the Precious Metals,
voluntarily declare to be effective.
The Interim Advisory Agreement contains an identical provision.
Payment of Expenses and Transaction Charges. Under the Previous Advisory
Agreement, Precious Metals was required to pay or cause to be paid all of its
own expenses.
The Interim Advisory Agreement contains an identical provision.
Limitation of Liability. The Previous Advisory Agreement provided that
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties under the Agreement on the part of Virtus,
Virtus was not liable to Precious Metals or to any shareholder for any act or
omission in the course of or connected in any way with rendering services or for
any losses that may be sustained in the purchase, holding or sale of any
security.
The Interim Advisory Agreement contains an identical provision.
Termination; Assignment. The Interim Advisory Agreement provides that
it may be terminated without penalty by vote of a majority of the outstanding
voting securities of Precious Metals (as defined in the 1940 Act) or by a vote
of its Board of Directors on 60 days' written notice to Virtus or by Virtus on
60 days' written notice to Precious Metals. Also, the Interim Advisory Agreement
will automatically terminate in the event of its assignment (as defined in the
1940 Act). The Previous Advisory Agreement contained identical provisions as to
termination and assignment.
Information about Precious Metals' Investment Adviser
Virtus, a registered investment adviser, manages, in addition to the Fund,
The Virtus Funds, other funds of the Blanchard Group of Funds and three fixed
income trust funds. The
<PAGE>
name and address of each executive officer and director of Virtus is set forth
in Appendix A to this Prospectus/Proxy Statement.
For the fiscal year ended September 30, 1997 and the period from May 1,
1996 to September 30, 1996, Virtus received from Precious Metals management fees
of $744,283 and $442,945, respectively. For the fiscal year ended April 30,
1996, the Fund's investment management fee paid to Virtus and the prior manager
was $840,942. Signet acts as custodian for Precious Metals and received $50,200
for the fiscal year ended September 30, 1997. Commencing on or about January 20,
1998 FUNB will as Precious Metals' custodian during the term of the Interim
Advisory Agreement.
The Board of Directors considered the Interim Advisory Agreement as
part of its overall approval of the Plan. The Board of Directors considered,
among other things, the factors set forth above in "Reasons for the
Reorganization." The Board of Directors also considered the fact that there were
no material differences between the terms of the Interim Advisory Agreement and
the terms of the Previous Advisory Agreement.
THE DIRECTORS OF PRECIOUS METALS RECOMMEND
THAT SHAREHOLDERS APPROVE THE
INTERIM ADVISORY AGREEMENT.
INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Directors of Precious Metals recommends that shareholders of
Precious Metals approve the Interim Sub-Advisory Agreement. Such Agreement
became effective on November 28, 1997. Pursuant to an order from the SEC, all
fees payable under the Interim Sub-Advisory Agreement will be placed in escrow
and paid to Cavelti Capital if shareholders approve the contract within 120 days
of its effective date. The Interim Sub-Advisory Agreement will remain in effect
until the earlier of the Closing Date for the Reorganization or two years from
its effective date. The terms of the Interim Sub-Advisory Agreement are
essentially the same as the Previous Sub-Advisory Agreement (as defined below).
The only difference between the Previous Sub-Advisory Agreement and the Interim
Sub-Advisory Agreement, if approved by shareholders, is the length of time the
Agreement is in effect. A description of the Interim Sub- Advisory Agreement
pursuant to which Cavelti Capital continues as the investment sub-adviser to
Precious Metals, as well as the services to be provided by Cavelti Capital
pursuant thereto, is set forth below under "Sub-Advisory Services." The
description of the Interim Sub-Advisory Agreement in this Prospectus/Proxy
Statement is qualified in its entirety by reference to the Interim Sub-Advisory
Agreement, attached hereto as Exhibit C.
<PAGE>
Cavelti Capital Management, Ltd., 4100 Yonge Street, Willowdale,
Ontario MP2 2B6 Canada, has served as sub-adviser to Precious Metals pursuant to
a Sub-Advisory Agreement dated July 11, 1995 (the "Previous Sub-Advisory
Agreement") and is responsible for the day-to-day management of Precious Metals'
portfolio. See "Summary - Investment Advisers and Sub-Adviser." Cavelti Capital
is a Canadian money management firm specializing in bullion and precious metals
mining shares. Peter C. Cavelti, the President of Cavelti Capital, has extensive
experience in the field of precious metals. Cavelti Capital clients include
government agencies, financial institutions, mining companies and Canadian
closed-end funds.
The Directors have authorized Precious Metals to enter into the Interim
Sub-Advisory Agreement with Virtus and Cavelti Capital. Such Agreement became
effective on November 28, 1997. If the Interim Sub-Advisory Agreement for
Precious Metals is not approved by shareholders, the Directors will consider
appropriate actions to be taken with respect to Precious Metals' investment
sub-advisory arrangements at that time. The Previous Sub- Advisory Agreement was
last approved by the Directors, including a majority of the Independent
Directors, on May 11, 1997.
Comparison of the Interim Sub-Advisory Agreement and the Previous
Sub-Advisory Agreement
Sub-Advisory Services. The management and advisory services to be
provided by Cavelti Capital under the Interim Sub-Advisory Agreement are
identical to those currently provided by Cavelti Capital under the Previous
Sub-Advisory Agreement. Under the Previous Sub-Advisory Agreement, Cavelti
Capital supervised the investment and reinvestment of the cash, securities or
other properties comprising Precious Metals' portfolio, subject at all times to
the direction of Virtus and the policies and control of Precious Metals' Board
of Directors.
Fees and Expenses. The investment sub-advisory fees under the Previous
Sub-Advisory Agreement and the Interim Sub-Advisory Agreement are identical. As
compensation for its sub-advisory services under the Previous Sub-Advisory
Agreement Cavelti Capital was paid by Virtus a monthly fee at the annual rate of
0.30% of the first $150 million of the Fund's average daily net assets; plus
0.2625% of the Fund's average daily net assets in excess of $150 million but
less than $300 million; plus 0.255% of the Fund's average daily net assets in
excess of $300 million.
The fee paid to Cavelti Capital by Virtus for the fiscal year ended
September 30, 1997 was $223,285. The fee paid to Cavelti Capital for the period
May 1, 1996 to September 30, 1996 was $269,873. The fee paid to Cavelti Capital
by Virtus for the period from July 12, 1995 through April 30, 1996 was $228,140.
<PAGE>
The names and addresses of the principal executive officers and
directors of Cavelti Capital are set forth in Appendix B to this
Prospectus/Proxy Statement.
Limitation of Liability. The Previous Sub-Advisory Agreement provided
that in the absence of willful misfeasance, bad faith or gross negligence on the
part of Cavelti Capital or its officers, directors, or employees or reckless
disregard by Cavelti Capital of its duties under the Agreement, Cavelti Capital
shall not be liable to Virtus, Precious Metals or to any shareholder of Precious
Metals for any act or omission in the course of, or connected with, rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. The Interim Sub-Advisory Agreement contains an
identical provision.
Termination; Assignment. The Interim Sub-Advisory Agreement provides
that it may be terminated without penalty by vote of a majority of the
outstanding voting securities of Precious Metals (as defined in the 1940 Act) or
by a vote of a majority of Precious Metals' entire Board of Directors on 60
days' written notice to Cavelti Capital or by Virtus or Cavelti Capital on 60
days' written notice to the other party to the Agreement. Also, the Interim
Sub-Advisory Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act). The Previous Sub-Advisory Agreement
contained identical provisions as to termination and assignment.
The Board of Directors considered the Interim Sub-Advisory Agreement as
part of its overall approval of the Plan. The Board of Directors considered,
among other things, the factors set forth above in "Reasons for the
Reorganization." The Board of Directors also considered the fact that there were
no material differences between the terms of the Interim Sub-Advisory Agreement
and the terms of the Previous Sub-Advisory Agreement.
THE DIRECTORS OF PRECIOUS METALS RECOMMEND
THAT SHAREHOLDERS APPROVE THE
INTERIM SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
Keystone Precious Metals. Information concerning the operation and
management of Keystone Precious Metals is incorporated herein by reference from
the Prospectus dated April 30, 1997, as amended, a copy of which is enclosed,
and Statement of Additional Information dated April 30, 1997. A copy of such
Statement of Additional Information is available upon request and without charge
by writing to Keystone Precious Metals at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
<PAGE>
Precious Metals. Information about the Fund is included in its current
Prospectus dated November 30, 1997 and in the Statement of Additional
Information of the same date, that has been filed with the SEC, all of which are
incorporated herein by reference. Copies of the Prospectus and Statement of
Additional Information are available upon request and without charge by writing
to Precious Metals at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863.
Keystone Precious Metals and Precious Metals are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information, including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661- 2511 and Seven World Trade Center, Suite 1300, New York, New
York 10048.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Directors of Precious Metals to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., February 20, 1998, at
the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts
02116 and at any adjournments thereof. This Prospectus/Proxy Statement, along
with a Notice of the meeting and a proxy card, is first being mailed to
shareholders of Precious Metals on or about January 6, 1998. Only shareholders
of record as of the close of business on the Record Date will be entitled to
notice of, and to vote at, the Meeting or any adjournment thereof. The holders
of a majority of the outstanding shares entitled to vote, at the close of
business on the Record Date, present in person or represented by proxy, will
constitute a quorum for the Meeting. If the enclosed form of proxy is properly
executed and returned in time to be voted at the Meeting, the proxies named
therein will vote the shares represented by the proxy in accordance with the
instructions marked thereon. Unmarked proxies will be voted FOR the proposed
Reorganization, FOR the Interim Advisory Agreement, FOR the Interim Sub-Advisory
Agreement and FOR any other matters deemed appropriate. Proxies that reflect
abstentions and "broker non-votes" (i.e., shares held by brokers or nominees as
to which (i) instructions have not been received from the beneficial owners or
the persons entitled to vote or (ii) the broker or nominee does not have
discretionary voting power on a particular matter) will be counted as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum, but will not be counted as shares voted and will have no effect on
the vote regarding the Plan. However,
<PAGE>
such "broker non-votes" will have the effect of being counted as votes against
the Interim Advisory Agreement and the Interim Sub- Advisory Agreement which
must be approved by a percentage of the shares present at the Meeting or a
majority of the outstanding voting securities. A proxy may be revoked at any
time on or before the Meeting by written notice to the Secretary of Precious
Metals, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. Unless
revoked, all valid proxies will be voted in accordance with the specifications
thereon or, in the absence of such specifications, FOR approval of the Plan and
the Reorganization contemplated thereby, FOR approval of the Interim Advisory
Agreement and FOR approval of the Interim Sub-Advisory Agreement.
Approval of the Plan will require the affirmative vote of a majority of
the shares voted and entitled to vote at the Meeting at which a quorum of the
Fund's shares is present. Approval of the Interim Advisory Agreement and Interim
Sub-Advisory Agreement will require the affirmative vote of (i) 67% or more of
the outstanding voting securities if holders of more than 50% of the outstanding
voting securities are present, in person or by proxy, at the Meeting, or (ii)
more than 50% of the outstanding voting securities, whichever is less. Each full
share outstanding is entitled to one vote and each fractional share outstanding
is entitled to a proportionate share of one vote.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees of Keystone or Signet, their affiliates or
other representatives of Precious Metals (who will not be paid for their
soliciting activities). Shareholder Communications Corporation has been engaged
by Precious Metals to assist in soliciting proxies.
If you wish to participate in the Meeting, you may submit the proxy
card included with this Prospectus/Proxy Statement or attend in person. Any
proxy given by you is revocable.
In the event that sufficient votes to approve the Reorganization are
not received by February 20, 1998, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of proxies.
In determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such adjournment after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.
<PAGE>
A shareholder who objects to the proposed Reorganization will not be
entitled under either Maryland law or the Articles of Incorporation of Precious
Metals to demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Reorganization as proposed is not expected
to result in recognition of gain or loss to shareholders for federal income tax
purposes and that, if the Reorganization is consummated, shareholders will be
free to redeem the shares of Keystone Precious Metals which they receive in the
transaction at their then-current net asset value. Shares of Precious Metals may
be redeemed at any time prior to the consummation of the Reorganization.
Shareholders of Precious Metals may wish to consult their tax advisers as to any
differing consequences of redeeming Fund shares prior to the Reorganization or
exchanging such shares in the Reorganization.
Precious Metals does not hold annual shareholder meetings. If the
Reorganization is not approved, shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of Precious Metals
at the address set forth on the cover of this Prospectus/Proxy Statement such
that they will be received by the Fund in a reasonable period of time prior to
any such meeting.
The votes of the shareholders of Keystone Precious Metals are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the Reorganization.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Precious Metals whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this Prospectus/Proxy Statement needed to supply copies to the beneficial owners
of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Keystone Precious Metals as of October 31,
1997, and the financial statements and financial highlights for the periods
indicated therein, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements and financial highlights of Precious Metals
incorporated in this Prospectus/Proxy Statement by reference from the Annual
Report of the Blanchard Funds for the year ended September 30, 1997 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
<PAGE>
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Keystone
Precious Metals will be passed upon by Sullivan & Worcester LLP, Washington,
D.C.
OTHER BUSINESS
The Directors of Precious Metals do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE DIRECTORS OF PRECIOUS METALS RECOMMEND APPROVAL OF THE PLAN, THE
INTERIM ADVISORY AGREEMENT AND THE INTERIM SUB-ADVISORY AGREEMENT, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF
APPROVAL OF THE PLAN, THE INTERIM ADVISORY AGREEMENT AND THE INTERIM
SUB-ADVISORY AGREEMENT.
January 6, 1998
<PAGE>
APPENDIX A
The names and addresses of the principal executive officers
and directors of Virtus Capital Management, Inc. are as follows:
OFFICERS:
Name Address
- ---- -------
David C. Francis, Chief First Union National Bank
Investment Officer 201 South College Street
Charlotte, North Carolina 28288-
1195
Tanya Orr Bird, Vice Virtus Capital Management, Inc.
President 707 East Main Street
Suite 1300
Richmond, Virginia 23219
Josie Clemons Rosson, Vice Virtus Capital Management, Inc.
President, Assistant 707 East Main Street
Secretary Suite 1300
Richmond, Virginia 23219
L. Robert Cheshire, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
John E. Gray, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
Dillon S. Harris, Jr., Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
J. Kellie Allen, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
Ethel B. Sutton, Vice Evergreen Asset Management Corp.
President 2500 Westchester Avenue
Purchase, New York 10577
DIRECTORS:
<PAGE>
Name Address
- ---- -------
David C. Francis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
Donald A. McMullen First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
William M. Ennis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
Barbara J. Colvin First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
William D. Munn First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
<PAGE>
APPENDIX B
The names and addresses of the principal executive officers
and directors of Cavelti Capital Management, Ltd. are as follows:
OFFICERS:
Name Address
- ---- -------
Peter C. Cavelti Cavelti Capital Management, Ltd.
4100 Yonge Street
Willowdale, Ontario M2P 2B6
Canada
Heinz Thoma Cavelti Capital Management, Ltd.
4100 Yonge Street
Willowdale, Ontario M2P 2B6
Canada
Carolyn Cavelti Cavelti Capital Management, Ltd.
4100 Yonge Street
Willowdale, Ontario M2P 2B6
Canada
DIRECTORS:
Name Address
- ---- -------
Peter C. Cavelti Cavelti Capital Management, Ltd.
4100 Yonge Street
Willowdale, Ontario M2P 2B6
Canada
Heinz Thoma Cavelti Capital Management, Ltd.
4100 Yonge Street
Willowdale, Ontario M2P 2B6
Canada
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 26th day of November, 1997, by and between the Evergreen International
Trust, a Delaware business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116 (the "Trust"), with respect to the
Keystone Precious Metals Holdings series (the "Acquiring Fund"), and Blanchard
Precious Metals Fund, Inc., a Maryland corporation, with its principal place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779,(the
"Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A shares of
beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of certain
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund is an open-end, registered investment company
of the management type, and the Acquiring Fund is a separate investment series
of an open-end, registered investment company of the management type and the
Selling Fund owns securities that generally are assets of the character in which
the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of
beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
WHEREAS, the Board of Directors of the Selling Fund has determined that
the Selling Fund should exchange all of its assets and certain identified
liabilities for Acquiring Fund Shares and that the interests of the existing
shareholders of the Selling Fund will not be diluted as a result of the
transactions contemplated herein;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable time prior to the
Closing Date, furnish the Acquiring Fund with a list of its portfolio securities
and other investments. In the event
<PAGE>
that the Selling Fund holds any investments that the Acquiring Fund may not
hold, the Selling Fund, if requested by the Acquiring Fund, will dispose of such
securities prior to the Closing Date. In addition, if it is determined that the
Selling Fund and the Acquiring Fund portfolios, when aggregated, would contain
investments exceeding certain percentage limitations imposed upon the Acquiring
Fund with respect to such investments, the Selling Fund if requested by the
Acquiring Fund will dispose of a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, nothing herein shall require the Selling Fund to
dispose of any investments or securities if, in the reasonable judgment of the
Selling Fund, such disposition would adversely affect the tax-free nature of the
Reorganization or would violate the Selling Fund's fiduciary duty to its
shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the Reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the Reorganization, in each case calculated in accordance with such
Rule 2830.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the
<PAGE>
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the names of the Selling Fund Shareholders and representing the respective pro
rata number of the Acquiring Fund Shares due such shareholders. All issued and
outstanding shares of the Selling Fund will simultaneously be canceled on the
books of the Selling Fund. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures
<PAGE>
set forth in the Trust's Declaration of Trust and the Acquiring Fund's then
current prospectuses and statement of additional information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2. Holders of shares of
the Selling Fund will receive Class A shares of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about February 27, 1998 or such other date as the parties may agree to in
writing (the "Closing Date"). All acts taking place at the Closing shall be
deemed to take place simultaneously immediately prior to the opening of business
on the Closing Date unless otherwise provided. The Closing shall be held as of
9:00 a.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA
02116, or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. Signet Trust Company, as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to the
Acquiring Fund on the Closing Date; and (b) all necessary taxes including all
applicable federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the
<PAGE>
Valuation Date shall be postponed until the first business day after the day
when trading shall have been fully resumed and reporting shall have been
restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date shall deliver at the
Closing a certificate of an authorized officer stating that its records contain
the names and addresses of the Selling Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver or
cause Evergreen Service Company, its transfer agent as of the Closing Date, to
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of Blanchard Funds or provide
evidence satisfactory to the Selling Fund that such Acquiring Fund Shares have
been credited to the Selling Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, if any, receipts and other documents as
such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund
represents and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a Maryland Corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland.
(b) The Selling Fund is a Maryland Corporation that is
registered as an investment company classified as a management company of the
open-end type, and its registration with the Securities and Exchange Commission
(the "Commission") as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), is in full force and effect.
(c) The current prospectuses and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
<PAGE>
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of its Articles of Incorporation or By-Laws or of
any material agreement, indenture, instrument, contract, lease, or other
undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected on the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(g) The financial statements of the Selling Fund at September
30, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since September 30, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have
<PAGE>
been paid, or provision shall have been made for the payment thereof. To the
best of the Selling Fund's knowledge, no such return is currently under audit,
and no assessment has been asserted with respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.4. The Selling Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
<PAGE>
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2.1 REPRESENTATIONS OF THE ACQUIRING FUND. The
Acquiring Fund represents and warrants to the Selling Fund as
follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely
<PAGE>
affects its business or its ability to consummate the
transactions contemplated herein.
(f) The financial statements of the Acquiring Fund at February
28, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Selling Fund) fairly reflect the financial condition of the Acquiring
Fund as of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since February 28, 1997, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(k) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights and to general equity
principles.
<PAGE>
(l) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
4.2.2 REPRESENTATIONS OF PREDECESSOR FUND. The representations and
warranties set forth in Section 4.2.1 shall be deemed to include, to the extent
applicable, representations and warranties made by and on behalf of Keystone
Precious Metals Holdings, Inc. (the "Predecessor Fund"), a Delaware corporation,
as of the date hereof. The Acquiring Fund shall deliver to the Selling Fund a
certificate of the Predecessor Fund of even date making the representations set
forth in Section 4.2.1 with respect to the Predecessor Fund to the extent
applicable to the Predecessor Fund as of the date hereof.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
<PAGE>
5.2 APPROVAL OF SHAREHOLDERS. The Selling Fund will call a meeting of
the Selling Fund Shareholders to consider and act upon this Agreement and to
take all other action necessary to obtain approval of the transactions
contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by KPMG Peat
Marwick LLP and certified by the Selling Fund's President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 CAPITAL LOSS CARRYFORWARDS. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Acquiring Fund and the
Selling Fund shall cause KPMG Peat Marwick LLP to issue a letter addressed to
the Acquiring Fund and the Selling Fund, in form and substance satisfactory to
the Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling
<PAGE>
Fund and the related impact, if any, of the proposed transfer of all of the
assets of the Selling Fund to the Acquiring Fund and the ultimate dissolution of
the Selling Fund, upon the shareholders of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund, and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or
<PAGE>
affecting creditors' rights generally and to general equity
principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable. No shareholder
of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the
<PAGE>
Acquiring Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body, which materially and
adversely affects its business, other than as previously disclosed in the
Registration Statement.
Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Acquiring Fund at
which the contents of the Prospectus and Proxy Statement and related matters
were discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Prospectus and Proxy Statement (except to the extent indicated
in paragraph (g) of their above opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of the Trust's officers
and other representatives of the Acquiring Fund), no facts have come to their
attention that lead them to believe that the Prospectus and Proxy Statement as
of its date, as of the date of the Selling Fund Shareholders' meeting, and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquiring Fund
or necessary, in the light of the circumstances under which they were made, to
make the statements therein regarding the Acquiring Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief as to
the financial statements or any financial or statistical data, or as to the
information relating to the Selling Fund, contained in the Prospectus and Proxy
Statement or the Registration Statement, and that such opinion is solely for the
benefit of the Selling Fund. Such opinion shall contain such other assumptions
and limitations as shall be in the opinion of Sullivan & Worcester LLP
appropriate to render the opinions expressed therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
6.3 The merger between First Union Corporation and Signet Banking
Corporation shall be completed prior to the Closing Date.
6.4 The acquisition of the assets of the Predecessor Fund by the
Acquiring Fund shall have been completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the
transactions provided for herein shall be subject, at its
<PAGE>
election, to the performance by the Selling Fund of all the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Selling
Fund's President or Vice President and the Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquiring Fund and dated as of the
Closing Date, to such effect and as to such other matters as the Acquiring Fund
shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Selling Fund.
7.3.1 The Acquiring Fund shall have received on the Closing Date an
opinion of Dickstein Shapiro Morin & Oshinsky LLP, counsel to the Selling Fund,
in a form satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a Maryland corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland
and has the power to own all of its properties and assets and to carry on its
business as presently conducted.
(b) The Selling Fund is a separate investment series of a
Maryland corporation registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming due authorization, execution, and
delivery of this Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Maryland is
<PAGE>
required for consummation by the Selling Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the 1934 Act and
the 1940 Act, and as may be required under state securities laws.
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Selling Fund's Articles of Incorporation or By-laws, or any
provision of any material agreement, indenture, instrument, contract, lease or
other undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which the
Selling Fund is a party or by which it is bound.
(f) The descriptions in the Prospectus and Proxy Statement of
this Agreement, as set forth under the caption "Reasons for the Reorganization -
Agreement and Plan of Reorganization," the Interim Advisory Agreement and the
Previous Advisory Agreement, as set forth under the caption "Information
Regarding the Interim Advisory Agreement," the Interim Sub- Advisory Agreement
and the Previous Sub-Advisory Agreement, as set forth under the caption
"Information Regarding the Interim Sub-Advisory Agreement" and the description
of voting requirements applicable to approval of the Interim Advisory Agreement
and Interim Sub-Advisory Agreement, as set forth under the caption "Voting
Information Concerning the Meeting," insofar as the latter constitutes a summary
of applicable voting requirements under the Investment Company Act of 1940, as
amended, are, in each case, accurate and fairly present the information required
to be shown by the applicable requirements of Form N-14.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or before
the date of mailing of the Prospectus and Proxy Statement and the Closing Date,
required to be described in the Prospectus and Proxy Statement or to be filed as
an exhibit to the Registration Statement which are not described or filed as
required.
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling Fund or
any of its respective properties or assets and the Selling Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
<PAGE>
7.3.2 The Acquiring Fund shall have received on the closing Date an
opinion of C. Grant Anderson, Esq., Assistant Secretary of the Selling Fund, in
form satisfactory to the Acquiring Fund as follows: Assuming that a
consideration therefor of not less than the net asset value thereof has been
paid, and assuming that such shares were issued in accordance with the terms of
the Selling Fund's registration statement, or any amendment thereto, in effect
at the time of such issuance, all issued and outstanding shares of the Selling
Fund are legally issued and fully paid and non-assessable.
Mr. Anderson shall also state that he has reviewed and is familiar with
the contents of the Prospectus and Proxy Statement and, although he is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Prospectus and Proxy
Statement, on the basis of the foregoing, no facts have come to his attention
that lead him to believe that the Prospectus and Proxy Statement as of its date,
as of the date of the Selling Fund Shareholders' meeting, and as of the Closing
Date, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein regarding the Selling Fund or
necessary, in the light of the circumstances under which they were made, to make
the statements therein regarding the Selling Fund not misleading. Such opinion
may state that he does not express any opinion or belief as to the financial
statements or any financial or statistical data, or as to the information
relating to the Acquiring Fund, contained in the Prospectus and Proxy Statement
or Registration Statement.
The opinions set forth in paragraphs 7.3.1 and 7.3.2 may state that
such opinions are solely for the benefit of the Acquiring Fund. Such opinions
shall contain such other assumptions and limitations as shall be in the opinion
of Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson, as applicable,
appropriate to render the opinions expressed therein, and shall indicate, with
respect to matters of Maryland law, that as Dickstein Shapiro Morin & Oshinsky
LLP and C. Grant Anderson are not admitted to the bar of Maryland, such opinions
are based either upon the review of published statutes, cases and rules and
regulations of the State of Maryland or upon an opinion of Maryland counsel.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
7.4 The merger between First Union Corporation and Signet Banking
Corporation shall be completed prior to the Closing Date.
ARTICLE VIII
<PAGE>
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of the Selling Fund's
Articles of Incorporation and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company
<PAGE>
taxable income for all taxable periods ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid) and all of its net
capital gains realized in all taxable periods ending on or prior to the Closing
Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the
<PAGE>
Reorganization, and the holding period of the assets of the Selling Fund in the
hands of the Acquiring Fund will include the period during which those assets
were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of the Selling Fund responsible for financial and accounting matters,
nothing came to their attention that caused them to believe that such unaudited
pro forma financial statements do not comply as to form in all material respects
with the applicable accounting requirement of the 1933 Act and the published
rules and regulations thereunder;
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
been obtained from and is consistent with the accounting records of the Selling
Fund;
(d) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and Prospectus and
Proxy Statement were prepared based on the valuation of the Selling Fund's
assets in accordance with the Selling Fund's Articles of Incorporation and the
Acquiring Fund's then current prospectus and statement of additional information
pursuant to procedures customarily utilized by the Acquiring Fund in valuing its
own assets;
(e) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the
<PAGE>
projected expense ratios appearing in the Registration Statement and Prospectus
and Proxy Statement agree with underlying accounting records of the Selling Fund
or with written estimates by Selling Fund's management and were found to be
mathematically correct.
In addition, the Acquiring Fund shall have received from KPMG Peat
Marwick LLP a letter addressed to the Acquiring Fund dated on the Closing Date,
in form and substance satisfactory to the Acquiring Fund, to the effect, that on
the basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards), the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
(c) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank. Such expenses
include, without limitation, (a) expenses incurred in connection with the
entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the
<PAGE>
Registration Statement under the 1933 Act covering the Acquiring Fund Shares to
be issued pursuant to the provisions of this Agreement; (c) registration or
qualification fees and expenses of preparing and filing such forms as are
necessary under applicable state securities laws to qualify the Acquiring Fund
Shares to be issued in connection herewith in each state in which the Selling
Fund Shareholders are resident as of the date of the mailing of the Prospectus
and Proxy Statement to such shareholders; (d) postage; (e) printing; (f)
accounting fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees, Directors
or officers, to the other party or its Trustees, Directors or officers.
ARTICLE XII
<PAGE>
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of the State of Maryland,
without giving effect to the conflicts of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Evergreen International Trust personally,
but shall bind only the trust property of the Acquiring Fund, as provided in the
Declaration of Trust of the Trust. The execution and delivery of this Agreement
have been authorized by the Trust on behalf of the Acquiring Fund and signed by
authorized officers of
<PAGE>
the Trust, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officers shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Acquiring Fund as
provided in the Declaration of Trust of the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN INTERNATIONAL TRUST
ON BEHALF OF KEYSTONE
PRECIOUS METALS HOLDINGS
By:
Name:
Title:
BLANCHARD PRECIOUS METALS
FUND, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
BLANCHARD PRECIOUS METALS FUND, INC.
INTERIM MANAGEMENT CONTRACT
This Contract is made this 28th day of November, 1997 between Virtus
Capital Management, Inc., a Maryland corporation having its principal place of
business in Richmond, Virginia (the "Manager"), and Blanchard Precious Metals
Fund, Inc., a Maryland corporation having its principal place of business in
Pittsburgh,
Pennsylvania (the "Corporation").
WHEREAS the Corporation is an open-end management investment company as
that term is defined in the Investment Company Act of 1940, as amended,
and is registered as such with the Securities and Exchange Commission;
and
WHEREAS Manager is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The Corporation hereby appoints Manager as manager for each of the
portfolios ("Funds") of the Corporation which executes an exhibit to this
Contract, and Manager accepts the appointments. Subject to the direction of the
Directors of the Corporation, Manager shall provide or procure on behalf of each
of the Funds all management and administrative services. In carrying out its
obligations under this paragraph, the Manager shall: (i) provide or arrange for
investment research and supervision of the investments of the Funds; (ii) select
and evaluate the performance of each Fund's Portfolio Sub-Adviser; (iii) select
and evaluate the performance of the Administrator; and (iv) conduct or arrange
for a continuous program of appropriate sale or other disposition and
reinvestment of each Fund's assets.
2. Manager, in its supervision of the investments of each of the Funds,
will be guided by each of the Fund's investment objective and policies and the
provisions and restrictions contained in the Articles of Incorporation and
By-Laws of the Corporation and as set forth in the Registration Statements and
exhibits as may be on file with the Securities and Exchange Commission.
3. Each Fund shall pay or cause to be paid all of its own expenses and
its allocable share of Corporation expenses, including, without limitation, the
expenses of organizing the Corporation and continuing its existence; fees and
expenses of Directors and officers of the Corporation; fees for management
<PAGE>
services and administrative personnel and services; expenses incurred in the
distribution of its shares ("Shares"), including expenses of administrative
support services; fees and expenses of preparing and printing its Registration
Statements under the Securities Act of 1933 and the Investment Company Act of
1940, as amended, and any amendments thereto; expenses of registering and
qualifying the Corporation, the Funds, and Shares of the Funds under federal and
state laws and regulations; expenses of preparing, printing, and distributing
prospectuses (and any amendments thereto) to shareholders; interest expense,
taxes, fees, and commissions of every kind; expenses of issue (including cost of
Share certificates), purchase, repurchase, and redemption of Shares, including
expenses attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing and mailing costs, auditing, accounting, and
legal expenses; reports to shareholders and governmental officers and
commissions; expenses of meetings of Directors and shareholders and proxy
solicitations therefor; insurance expenses; association membership dues and such
nonrecurring items as may arise, including all losses and liabilities incurred
in administering the Corporation and the Funds. Each Fund will also pay its
allocable share of such extraordinary expenses as may arise including expenses
incurred in connection with litigation, proceedings, and claims and the legal
obligations of the Corporation to indemnify its officers and Directors and
agents with respect thereto.
4. Each of the Funds shall pay to Manager, for all services rendered to
each Fund by Manager hereunder, the fees set forth in the exhibits attached
hereto.
5. If, for any fiscal year, the total of all ordinary business expenses
of the Fund, including all investment advisory fees but excluding distribution
fees, taxes, interest and extraordinary expenses and certain other excludable
expenses, would exceed the most restrictive expense limits imposed by any
statute or regulatory authority of any jurisdiction in which Shares of the Fund
are offered for sale Manager shall reduce its management fee in order to reduce
such excess expenses, but will not be required to reimburse the Fund for any
ordinary business expenses which exceed the amount of its management fee for
such fiscal year. The amount of any such reduction is to be borne by the Manager
and shall be deducted from the monthly management fee otherwise payable to the
Manager during such fiscal year. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the current fiscal year which shall
have elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of this
Agreement.
6. The net asset value of each Fund's Shares as used herein will be
calculated to the nearest 1/10th of one cent.
<PAGE>
7. The Manager may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such lower
expense limitation as the Manger may, by notice to the Fund, voluntarily declare
to be effective.
8. This Contract shall begin for each Fund as of the date of execution
of the applicable exhibit and shall continue in effect with respect to each Fund
presently set forth on an exhibit (and any subsequent Funds added pursuant to an
exhibit during the initial term of this Contract) until the earlier of the
Closing Date defined in the Agreement and Plan of Reorganization dated as of
November 26, 1997 with respect to each Fund or for two years from the date of
this Contract set forth above and thereafter for successive periods of one year,
subject to the provisions for termination and all of the other terms and
conditions hereof if: (a) such continuation shall be specifically approved at
least annually by the vote of a majority of the Directors of the Corporation,
including a majority of the Directors who are not parties to this Contract or
interested persons of any such party cast in person at a meeting called for that
purpose; and (b) Manager shall not have notified a Fund in writing at least
sixty (60) days prior to the anniversary date of this Contract in any year
thereafter that it does not desire such continuation with respect to that Fund.
If a Fund is added after the first approval by the Directors as described above,
this Contract will be effective as to that Fund upon execution of the applicable
exhibit and will continue in effect until the next annual approval of the
Contract by the Directors and thereafter for successive periods of one year,
subject to approval as described above.
9. Notwithstanding any provision in this Contract, it may be terminated
at any time with respect to any Fund, without the payment of any penalty, by the
Directors of the Corporation or by a vote of the shareholders of that Fund on
sixty (60) days' written notice to Manager.
10. This Contract may not be assigned by Manager and shall
automatically terminate in the event of any assignment. Manager may employ or
contract with such other person, persons, corporation, or corporations at its
own cost and expense as it shall determine in order to assist it in carrying out
this Contract.
11. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the obligations or duties under this Contract on the
part of Manager, Manager shall not be liable to the Corporation or to any of the
Funds or to any shareholder for any act or omission in the course of or
connected in any way with rendering services or for any losses that may be
sustained in the purchase, holding, or sale of any security.
<PAGE>
12. This Contract may be amended at any time by agreement of the
parties provided that the amendment shall be approved both by the vote of a
majority of the Directors of the Corporation, including a majority of the
Directors who are not parties to this Contract or interested persons of any such
party to this Contract (other than as Directors of the Corporation) cast in
person at a meeting called for that purpose, and where required by Section
15(a)(2) of the Act, on behalf of a Fund by a majority of the outstanding voting
securities of such Fund as defined in Section 2(a)(42) of the Act.
13. The Manager acknowledges that all sales literature for investment
companies (such as the Corporation) are subject to strict regulatory oversight.
The Manager agrees to submit any proposed sales literature for the Corporation
(or any Fund) or for itself or its affiliates which mentions the Corporation (or
any Fund) to the Corporation's distributor for review and filing with the
appropriate regulatory authorities prior to the public release of any such sales
literature, provided, however, that nothing herein shall be construed so as to
create any obligation or duty on the part of the Manager to produce sales
literature for the Corporation (or any Fund). The Corporation agrees to cause
its distributor to promptly review all such sales literature to ensure
compliance with relevant requirements, to promptly advise Manager of any
deficiencies contained in such sales literature, to promptly file complying
sales literature with the relevant authorities, and to cause such sales
literature to be distributed to prospective investors in the Corporation.
14. Notice is hereby given that this instrument is executed on behalf
of the Directors of the Corporation as Directors and not individually and that
the obligations of this instrument are not binding upon any of the Directors, or
any of the officers, employees, agents or shareholders of the Corporation
individually but are binding only upon the assets and property of the
Corporation. Notice is also hereby given that the obligations pursuant to this
instrument of a particular Fund and of the Corporation with respect to that
particular Fund shall be limited solely to the assets of that particular Fund.
15. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
16. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
<PAGE>
EXHIBIT A
to the
Management Contract
BLANCHARD PRECIOUS METALS FUND, INC.
For all services rendered by Manager hereunder, the above-named Funds
of the Corporation shall pay to Manager and Manager agrees to accept as full
compensation for all services rendered hereunder, an annual management fee equal
to the following percentage ("the applicable percentage") of the average daily
net assets of each Fund
Name of Fund Percentage of Net Assets
Blanchard Precious 1% of the first $150 million
Metals Fund, Inc. of average daily net assets,
.875% of the Fund's
average daily net
assets in excess of
$150 million but not
exceeding $300
million and .75% of
the Fund's average
daily net assets in
excess of $300
million.
The portion of the fee based upon the average daily net assets of the
Fund shall be accrued daily at the rate of 1/365th of the applicable percentage
applied to the daily net assets of the Fund.
The management fee so accrued shall be paid to Manager daily.
<PAGE>
Witness the due execution hereof this 28th day of November, 1997.
Attest: Virtus Capital Management, Inc.
________________________ By: ___________________________
Assistant Secretary Senior Vice President
Attest: Blanchard Precious Metals Fund, Inc.
________________________ By: ____________________________
Assistant Secretary Vice President
<PAGE>
EXHIBIT C
INTERIM SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 28th day of November, 1997 by and between
VIRTUS CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Manager"), and
CAVELTI CAPITAL MANAGEMENT, LTD., a Canadian money management firm (the
"Portfolio Manager" or "Cavelti") with respect to the following recital of fact:
R E C I T A L
WHEREAS, Blanchard Precious Metals Fund, Inc. (the "Corporation") is
registered as an open-end non-diversified management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules
and regulations promulgated thereunder; and
WHEREAS, the Portfolio Manager is registered as an investment advisor
under the Investment Advisers Act of 1940, as amended, and engages in the
business of acting as an investment advisor; and
WHEREAS, the Corporation is authorized to issue shares of Common Stock
in separate series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Corporation intends to initially offer shares in one
series called the BLANCHARD PRECIOUS METALS FUND, INC. (such series, being
referred to as the "Fund"); and
WHEREAS, the Corporation and the Manager have entered into an agreement
to provide for management services for the Fund on the terms and conditions set
forth therein (the "Interim Management Agreement"); and
WHEREAS, the Portfolio Manager proposes to render investment advisory
services to the Manager in connection with the Manager's responsibilities to the
Fund's portfolio on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Investment Management. Cavelti shall act as the Portfolio Manager for
the Fund and shall, in such capacity, supervise the investment and reinvestment
of the cash, securities or other properties comprising the Fund's portfolio,
subject at
<PAGE>
all times to the direction of the Manager and the policies and control of the
Corporation's Board of Directors. Cavelti shall give the Fund the benefit of its
best judgment, efforts and facilities in rendering its services as Portfolio
Manager.
2. Investment Analysis and Implementation. In carrying out its obligation
under paragraph 1 hereof, the Portfolio Manager shall:
a. use the same skill and care in providing such
service as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
b. obtain and evaluate pertinent information about significant
developments and economics, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Fund's portfolio and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which the issuers engage, or with respect to securities which the
Portfolio Manager considers desirable for inclusion in the Fund's
portfolio;
c. determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report
thereon to the Manager;
d. formulate and implement continuing programs for
the purchases and sales of the securities of such issuers
and regularly report thereon to the Manager; and
e. take, on behalf of the Fund, all actions which appear to
the Fund and the Manager necessary to carry into effect such purchase
and sale programs and supervisory functions as aforesaid, including the
placing of orders for the purchase and sale of securities for the Fund
and the prompt reporting to the Manager of such purchases and sales.
3. Broker-Dealer Relationships. The Portfolio Manager is responsible
for decisions to buy and sell securities for the Fund's portfolio, broker-dealer
selection, and negotiation of brokerage commission rates. The Portfolio
Manager's primary consideration in effecting a security transaction will be
execution at the most favorable price. In selecting a broker-dealer to execute
each particular transaction, the Portfolio Manager will take the following into
consideration: the best net price available, the reliability, integrity and
financial condition of the broker-dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Fund on a continuing basis.
Accordingly, the price to the Fund in any
<PAGE>
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies as the Board of Directors
may determine, the Portfolio Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer for
effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Portfolio Manager determines in good faith that such amount
of commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Portfolio Manager's overall responsibilities
with respect to the Fund and to its other clients as to which it exercises
investment discretion. The Portfolio Manager is further authorized to allocate
the orders placed by it on behalf of the Fund to its affiliated broker-dealer or
to such brokers and dealers who also provide research or statistical material,
or other services to the Fund or the Portfolio Manager. Such allocation shall be
in such amounts and proportions as the Portfolio Manager shall determine and the
Portfolio Manager will report on said allocations regularly to Manager
indicating the brokers to whom such allocations have been made and the basis
therefor.
4. Control by Board of Directors. Any investment program undertaken by
the Portfolio Manager pursuant to this Agreement, as well as any other
activities undertaken by the Portfolio Manager on behalf of the Fund pursuant
thereto, shall at all times be subject to any directives of the Board of
Directors of the Corporation. The Manager shall provide the Portfolio Manager
with written notice of all such directives, so long as this Agreement remains in
effect.
5. Compliance with Applicable Requirements. In carrying
out its obligations under this Agreement, the Portfolio Manager
shall at all times conform to:
a. all applicable provisions of the 1940 Act;
b. the provisions of the Registration Statement of
the Corporation under the Securities Act of 1933 and the
1940 Act; and
c. any other applicable provisions of state and
federal law.
6. Expenses. The expenses connected with the Fund shall be borne by the
Portfolio Manager as follows:
<PAGE>
The Portfolio Manager shall maintain, at its expense and
without cost to the Manager or the Fund, a trading function in order to carry
out its obligations under subparagraph (e) of paragraph 2 hereof to place orders
for the purchase and sale of portfolio securities for the Fund.
7. Delegation of Responsibilities. Upon request of the Manager and with
the approval of the Corporation's Board of Directors, the Portfolio Manager may
perform services on behalf of the Fund which are not required by this Agreement.
Such services will be performed on behalf of the Fund and the Portfolio
Manager's cost in rendering such services may be billed monthly to the Manager,
subject to examination by the Manager's independent accountants. Payment or
assumption by the Portfolio Manager of any Fund expense that the Portfolio
Manager is not required to pay or assume under this Agreement shall not relieve
the Manager or the Portfolio Manager of any of their obligations to the Fund or
obligate the Portfolio Manager to pay or assume any similar Fund expense on any
subsequent occasions.
8. Compensation. For the services to be rendered and the facilities
furnished hereunder, the Manager shall pay the Portfolio Manager monthly
compensation of the sum of the amounts determined by applying the following
annual rates to the Fund's aggregate daily net assets: .30% of the Fund's net
assets up to the first $150 million; .2625% of the Fund's net assets in excess
of $150 million but less than $300 million; plus .255% of the Fund's net assets
in excess of $300 million. Compensation under this Agreement shall be calculated
and accrued daily and the amounts of the daily accruals shall be paid monthly.
If this Agreement becomes effective subsequent to the first day of a month or
shall terminate before the last day of a month, compensation for that part of
the month this Agreement is in effect shall be prorated in a manner consistent
with the calculation of the fees as set forth above. Payment of the Portfolio
Manager's compensation for the preceding month shall be made as promptly as
possible after the end of each month.
9. Expense Limitation. If, for any fiscal year, the total of all
ordinary business expenses of the Fund, including all investment advisory fees
but excluding brokerage commissions and fees, payments pursuant to the Rule
12b-1 Plan then in effect, taxes, interest and extraordinary expenses such as
litigation, would exceed the most restrictive expense limits imposed by a
statute or regulatory authority of any jurisdiction in which shares of the Fund
are offered for sale, the investment advisory fee, which the Manager would
otherwise receive from the Fund, shall be reduced by the amount of such excess.
The fee which the Portfolio Manager would otherwise receive from the Manager
pursuant to Paragraph 8 of this Agreement shall also be reduced
<PAGE>
proportionately. For example, if the Manager's fee is reduced by 1/4, the
Portfolio Manager's fee from the Manager will also be reduced by 1/4. Such
reduction shall be deducted from the monthly fee otherwise payable to the
Portfolio Manager by the Manager and, if such amount should exceed such monthly
fee, the Portfolio Manager agrees to repay the Manager such amount of its fee
previously received with respect to make up the deficiency no later than the
last day of the first month of the next succeeding fiscal year. For the purposes
of this paragraph, the term "fiscal year" shall exclude the portion of the
current fiscal year which shall have elapsed prior to the date hereof and shall
include the portion of the then current fiscal year which shall have elapsed at
the date of termination of this Agreement.
10. Term. This Agreement shall become effective at the close of
business on the date hereof and shall remain in force and effect until the
earlier of the Closing Date defined in the Agreement and Plan of Reorganization
dated November 26, 1997 with respect to the Fund or for two years after its
effective date, and shall remain in effect thereafter if approved in the manner
set forth in Section 11 hereof.
11. Renewal. Following the expiration of its initial term, the
Agreement shall continue in force and effect from year to year, provided that
such continuance is specifically approved at least annually:
a. by the Corporation's Board of Directors or by the
vote of a majority of the Fund's outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act),
and
b. by the affirmative vote of a majority of the Directors who
are not parties to this agreement or interested persons of a party to
this Agreement (other than as a Director of the Corporation), by votes
cast in person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by vote of the Corporation's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), or by the Manager or the Portfolio Manager,
on sixty (60) days' written notice to the other party. This Agreement shall
automatically terminate: (a) in the event of its assignment, the term
"assignment" having the meaning defined in Section 2(a)(4) of the 1940 Act, or
(b) in the event that the Interim Management Agreement between the Fund and the
Manager shall terminate.
<PAGE>
13. Liability of the Portfolio Manager. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the Portfolio Manager
or its officers, directors or employees, or reckless disregard by the Portfolio
Manager of its duties under this Agreement, the Portfolio Manager shall not be
liable to the Manager, the Corporation or to any shareholder of the Corporation
for any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Manager
for this purpose shall be 707 East Main Street, Suite 1300, Richmond, Virginia
23219, that of the Corporation for this purpose shall be Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and the address of the Portfolio
Manager for this purpose shall be 4100 Yonge Street, Willowdale, Ontario M2P 2B6
Canada.
15. Questions of Interpretation. Any questions of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange Commission
issued pursuant to said Act. In addition, where the effect of a requirement of
the 1940 Act reflected in the provision of this Agreement is revised by rule,
regulation or order of the Securities and Exchange Commission, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
Attest: VIRTUS CAPITAL MANAGEMENT, INC.
By
Title: Senior Vice President Title: Vice President
Attest: CAVELTI CAPITAL MANAGEMENT, LTD.
By
<PAGE>
Title: Title:
<PAGE>
PAGE 3
- --------------------------------------------------------------------
A Discussion With
Your Fund Manager
[Photo: John C. Madden, Jr.]
John C. Madden, Jr. is a vice president and senior portfolio
manager of Keystone Precious Metals Holdings, Inc. and Keystone
Global Resources and Development Fund. A Chartered
Financial Analyst, Mr. Madden has more than 30 years of
experience in investment research and management, specializing
in precious metals, natural resources and energy. He holds a BA
from Yale University.
Q What factors contributed to the declining price of gold during the period?
A Gold's brief rise above $400 early in 1996 gave investors, dealers and
speculators a good opportunity to take profits, but once speculator interest
dropped off, price levels moved lower. The price stabilized in the $380 range
from June to November, when real and rumored central bank sales contributed to a
further decline. The sale of 10 million ounces by the Dutch central bank and
discussions of sales by the International Monetary Fund and the Swiss government
sent the price to its one-year low of $339.85 an ounce in early February 1997.
Once the price dipped below $340, however, investors saw a buying opportunity.
Growing physical demand in the Far East and short covering by speculators led to
a quick run up at the end of February. On February 28, 1997, the price had
rebounded to $363.45 an ounce.
Q How did these market conditions affect the stocks of gold mining companies?
A It varied, as you can see from the chart. The Financial Times Gold Mines
Index lost almost twice as much as the metal, down 18.5% for the year compared
to -9.3% for gold bullion. The XAU, another popular index of gold stock
performance, lost 15.0%. But the average gold stock mutual fund, as measured by
Lipper Analytical Services, fared a little better, losing a more modest 7.6% for
the year.
- ----------------------------------- [BAR CHART] --------------------------------
Comparative performance of Keystone
Precious Metals Holdings, Inc. and key
market indexes, March 1, 1996-February 28, 1997
KPMH* -5.16%
Lipper Gold Fund Index -7.60%
Spot Gold -9.30%
XAU -15.00%
Keystone Precious Metals Holdings declined
less than the key market measures during the year.
*Includes reinvested dividends
- --------------------------------------------------------------------------------
Fund Profile
Objective: Seeks long-term capital appreciation and protection of purchasing
power by investing in gold-oriented or other precious metal and minerals
companies.
Commencement of investment operations: June 5, 1972
Net assets: $190.1 million
Newspaper listing: PrecMtl.
- --------------------------------------------------------------------------------
PAGE 4
- --------------------------------------------------------------------
Keystone Precious Metals Holdings, Inc.
Q How did the Fund perform during the year?
A Your Fund experienced lower volatility than either the price of gold or the
leading gold indexes, as shown in the chart. During the first half of the year,
the gold-related stocks in which your Fund invests generally experienced a
delayed reaction to changes in the price of gold, remaining high in May even as
gold bullion prices were declining. But once it became clear that the price of
gold had settled lower, gold stocks moved down, too. From November onward, gold
stock performance generally paralleled the price of the metal. Your Fund reached
its low for the year in early January, about a month ahead of the price of gold.
The Fund had a strong finish to the year, buoyed by a recovery in the South
African market. In February alone, the Fund gained 14.1% while the price of gold
rose 5.5%.
Q How were supply and demand during the year?
A The supply-demand dynamic remained positive during the year, despite the
relatively low inflation environment in the U.S. and other industrialized
countries. Demand from jewelry fabricators remained strong, and continues to
exceed the annual mined production of gold. Over the past few years, this gap
was filled by several sources, notably scrap supply, central bank sales and
forward sales by producers. When central bank sales taper off, we expect supply
to tighten, which we believe should provide a favorable environment for gold
stocks over the long term.
Q You increased the Fund's North American holdings to nearly 60% of the
portfolio during the year. Please describe some of these stocks.
A Over the year we reduced our exposure in Australia and expanded our holdings
in North America. One U.S. stock that has done quite well is Getchell Gold, a
spin-off from First Mississippi Corporation that
Asset Allocation (as a percentage of portfolio assets)
February 28, 1997 February 29, 1996
North America 59.1% 50%
- ------------------------------------------------------------
South Africa 26.8% 25%
- ------------------------------------------------------------
Australia 14.1% 25%
- ------------------------------------------------------------
produces about 200,000 ounces a year from operations in northern Nevada.
Getchell has been very successful in adding to reserves, and is now developing a
mine that will more than double company output. With growing reserves and a land
position that abuts that of Santa Fe Pacific Gold, there is also the possibility
for merger or takeover activity.
In Canada, we continue to like the Canadian royalty company Euro-Nevada.
Among other assets, this company holds royalties on Getchell's current reserves
and on Barrick Gold's Goldstrike property. In addition, the company is involved
in a joint venture to develop a low-cost, 250,000 ounce per year mine in Nevada.
Expected on stream in 1998, this mine should help the company record substantial
earnings gains over the next several years.
Q What is your strategy for managing the Fund?
A The Fund's objective is to seek long-term capital appreciation and protection
of purchasing power by investing in gold-oriented or other precious metal and
minerals companies. As a sector fund, it is likely
- ----------------------------------- [PIE CHART] --------------------------------
Asset Allocation
as of February 28, 1997
U.S 29%
Canada 30%
South Africa 27%
Australia 14%
- --------------------------------------------------------------------------------
PAGE 5
- --------------------------------------------------------------------
to experience greater price fluctuation than more diversified investments, but
we rely on a conservative strategy to reduce the level of volatility. We focus
on companies with growing reserves and expanding production that may have a
greater ability to maintain their value during periods of lower gold prices. We
believe this approach offers Fund investors the advantages of ongoing exposure
to the potential of gold stocks, but with reduced downside risk.
Q Bre-X Minerals, Ltd., a Canadian-based mining company, has been in the news
since the end of the Fund's fiscal year. Is this a Fund holding?
A The Fund held a minor position--less than one percent of the portfolio--in
Bre-X at the close of the fiscal year in February. In March, questions arose
about the accuracy of company reports of gold deposits in an Indonesian mine
owned by the company. We have liquidated our position in Bre-X.
Q What is your outlook for the gold market?
A Over the past year, the bull market for stocks, the strong dollar and minimal
inflation have created an unfavorable environment for gold investments. But the
fundamentals remain positive--demand by jewelry fabricators continues to outpace
mined production. While we are not anticipating a gold rally, neither do we
expect a return to the low gold prices we saw earlier this year. We believe the
companies in your Fund's portfolio are in a good position to benefit from even
small increases in the price of gold over the coming year.
Top 10 Holdings
as of February 28, 1997
Percentage of
Stock (Country) net assets
---------------------------------------------------------
Euro Nevada Mining (Canada) 7.1
---------------------------------------------------------
Franco Nevada Mining (Canada) 5.8
---------------------------------------------------------
Getchell Gold (United States) 5.5
---------------------------------------------------------
Newmont Mining Corp. (United States) 5.1
---------------------------------------------------------
Homestake Mining (United States) 5.1
---------------------------------------------------------
Barrick Gold (Canada) 4.5
---------------------------------------------------------
Newmont Gold (United States) 4.1
---------------------------------------------------------
Randgold & Exploration (South Africa) 3.7
---------------------------------------------------------
Santa Fe Pacific Gold (United States) 3.5
---------------------------------------------------------
Pioneer Group (United States) 3.3
---------------------------------------------------------
[diamond]
This column is intended to answer
questions about your Fund. If you have a question
you would like answered, please write to:
Evergreen Keystone Investment Services, Inc.
Attn: Shareholder Communications, 22nd Floor
200 Berkeley Street, Boston, Massachusetts 02116-5034.
PAGE 6
- --------------------------------------
Keystone Precious Metals Holdings, Inc.
Your Fund's Performance
- ------------------------------- [MOUNTAIN CHART] ------------------------------
Growth of an investment in
Keystone Precious Metals Holdings, Inc.
In Thousands
Reinvested Initial
Distributions Investment
2/87 10000 10000
2/88 8954 9714
2/89 9717 10748
2/90 11063 12236
2/91 8215 9255
2/92 8879 10094
2/93 8307 9515
2/94 14495 16601
2/95 11150 12833
2/96 15222 17521
2/97 13830 16616
A $10,000 investment in Keystone Precious Metals
Holdings, Inc. made on February 28, 1987 with all
distributions reinvested was worth $16,616 on
February 28, 1997. Past performance is no guarantee
of future results.
- --------------------------------------------------------------------------------
Twelve-Month Performance as of February 28, 1997
- -----------------------------------------------------------
Total return* -5.16%
Net asset value 2/29/96 $26.35
2/28/97 $23.94
Dividends None
Capital gains $0.99
* Before deducting contingent deferred sales charge (CDSC).
Historical Record as of February 28, 1997
- -----------------------------------------------------------
If you If you did
Cumulative total return redeemed not redeem
1-year -7.89% -5.16%
5-year 64.62% 64.62%
10-year 66.16% 66.16%
Average annual total return
1-year -7.89% -5.16%
5-year 10.48% 10.48%
10-year 5.21% 5.21%
The one-year return reflects the deduction of the 3% contingent deferred sales
charge for those investors who bought and sold Fund shares after one calendar
year. Investors who retained their fund investment received the one-year return
reported in the second column of the table.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
You may exchange your shares by phone or in writing. You may also exchange
funds using Keystone's Automated Response Line (KARL). The Fund reserves the
right to change or terminate the exchange offer.
PAGE 7
- --------------------------------------
Growth of an Investment
- ----------------------------------- [PIE CHART] --------------------------------
Comparison of change in value of a $10,000 investment in
Keystone Precious Metals Holdings, Inc., the Standard and
Poor's 500 Index and the Consumer Price Index.
In Thousands February 28, 1987 through February 28, 1997
Fund Average
Annual Total Return
---------------------------
1 Year 5 Year 10 Year
-7.89% 10.48% 5.21%
Standard & Poor's Consumer Price
Fund 500 Index (S&P 500) Index (CPI)
2/87 10000 10000 10000
2/88 9714 9717 10393
2/89 10748 10845 10894
2/90 12236 12860 11467
2/91 9255 14731 12076
2/92 10094 17081 12417
2/93 9515 18900 12817
2/94 16601 20476 13140
2/95 12833 21983 13517
2/96 17521 29612 13875
2/97 16616 37357 14252
*Reflects the deduction of the Fund's contingent deferred sales charge of 3%.
Past performance is no guarantee of future results. The Consumer Price Index is
through January 31, 1997.
- --------------------------------------------------------------------------------
This chart graphically compares your Fund's total return performance to certain
investment indexes. It is the result of fund performance guidelines issued by
the Securities and Exchange Commission. The intent is to provide investors with
more information about their investment.
Components of the chart
The chart is composed of three lines that represent the accumulated value of an
initial $10,000 investment for the period indicated. The lines illustrate a
hypothetical investment in:
1. Keystone Precious Metals Holdings, Inc.
Your Fund seeks capital appreciation primarily from investments in gold-oriented
or other precious metal and minerals companies. The return is quoted after
deducting sales charges (if applicable), fund expenses, and transaction costs
and assumes reinvestment of all distributions.
2. Standard & Poor's 500 Index (S&P 500)
The S&P 500 is a broad-based unmanaged index of common stock prices. It is
comprised of stocks of the largest U.S. companies. These stocks are selected and
compiled by Standard & Poor's Corporation according to criteria that may be
unrelated to your Fund's investment objective.
3. Consumer Price Index (CPI)
This index is a widely recognized measure of the cost of goods and services
produced in the U.S. The index contains factors such as prices of services,
housing, food, transportation and electricity which are compiled by the U.S.
Bureau of Labor Statistics. The CPI is generally considered a valuable benchmark
for investors who seek to outperform increases in the cost of living.
These indexes do not include transaction costs associated with buying and
selling securities, and do not hold cash to meet redemptions. It would be
difficult for most individual investors to duplicate these indexes.
Understanding what the chart means
The chart demonstrates your Fund's total return performance in relation to a
well known investment index and to
PAGE 8
- --------------------------------------
Keystone Precious Metals Holdings, Inc.
increases in the cost of living. It is important to understand what the chart
shows and does not show.
This illustration is useful because it charts Fund and index performance
over the same time frame and over a long period. Long-term performance is a more
reliable and useful measure of performance than measurements of short-term
returns or temporary swings in the market. Your financial adviser can help you
evaluate fund performance in conjunction with the other important financial
considerations such as safety, stability and consistency.
Limitations of the chart
The chart, however, limits the evaluation of Fund performance in several ways.
Because the measurement is based on total returns over an extended period of
time, the comparison often favors those funds which emphasize capital
appreciation when the market is rising. Likewise, when the market is declining,
the comparison usually favors those funds which take less risk.
Performance can be distorted
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund
may be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to buy
stocks that have been traded on a stock exchange for a minimum number of years
or of a certain company size. Indexes usually do not have the same investment
restrictions as your Fund.
Indexes do not include costs of investing
The comparison is further limited in its utility because the index does not take
into account any deductions for sales charges, transaction costs or other fund
expenses. Your Fund's performance figures do reflect such deductions. Sales
charges--whether up-front or deferred--pay for the cost of the investment advice
of your financial adviser. Transaction costs pay for the costs of buying and
selling securities for your Fund's portfolio. Fund expenses pay for the costs of
investment management and various shareholder services. None of these costs are
reflected in index total returns. The comparison is not completely realistic
because an index cannot be duplicated by an investor--even an unmanaged
index--without incurring some charges and expenses.
One of several measures
The chart is one of several tools you can use to understand your investment. It
should be read in conjunction with the Fund's prospectus, and annual and
semiannual reports. Also, your financial adviser, who understands your personal
financial situation, can best explain the features of your Keystone fund and how
it applies to your financial needs.
Future returns may be different
Shareholders also should be mindful that the long-run performance of either the
Fund or the indexes is not representative of what shareholders should expect to
receive from their Fund investment in the future; it is presented to illustrate
only past performance and is not a guarantee of future returns.
