<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JANUARY 31, 1997.
File Nos. 33-11047
and 811-4950
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 20 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 [X]
KEYSTONE FUND FOR TOTAL RETURN
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(617) 210-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
The Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A Rule 24f-2 Notice for Registrant's last fiscal
year was filed January 29, 1997.
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KEYSTONE FUND FOR TOTAL RETURN
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 20
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 20 to Registration
Statement No. 33-11047/811-4950 consists of
the following pages, items of information, and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C - OTHER INFORMATION - ITEMS 24(a) and 24(b)
Financial Statements
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
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KEYSTONE FUND FOR TOTAL RETURN
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Expense Information
3 Financial Highlights
4 Cover Page
Description of the Funds
Other Information
5 Management of the Funds
5A Not applicable
6 Other Information
7 Purchase and Redemption of Shares
8 Purchase and Redemption of Shares
9 Not applicable
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KEYSTONE FUND FOR TOTAL RETURN
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
13 Investment Objectives and Policies
Investment Restrictions
Non Fundamental Operating Policies
Appendix
14 Management
15 Management
16 Investment Advisers
Distribution Plans
17 Allocation of Brokerage
18 Net Asset Value
Purchase of Shares
19 Net Asset Value
Purchase of Shares
20 Additional Tax Information
21 Distribution Plans
22 Performance Information
23 Financial Statements
- --------------------------------------------------------------------------------
EVERGREEN/KEYSTONE(SM) GROWTH AND INCOME FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS April 1, 1997
(Evergreen Keystone logo)
EVERGREEN UTILITY FUND
EVERGREEN GROWTH AND INCOME FUND
EVERGREEN VALUE FUND
EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN INCOME AND GROWTH FUND
KEYSTONE FUND FOR TOTAL RETURN
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen/Keystone Growth and Income Funds (the "Funds") are
designed to provide investors with a selection of investment alternatives which
seek to provide capital growth, income and diversification. This Prospectus
provides information regarding the Class A, Class B and Class C shares offered
by the Funds. Each Fund is, or is a series of, an open-end, diversified,
management investment company. This Prospectus sets forth concise information
about the Funds that a prospective investor should know before investing. The
address of the Evergreen Funds is 2500 Westchester Avenue, Purchase, New York
10577. The address of the Keystone Fund is 200 Berkeley Street, Boston,
Massachusetts 02116.
A "Statement of Additional Information" for the Funds and certain other
funds in the Evergreen/Keystone group of mutual funds dated April 1, 1997 has
been filed with the Securities and Exchange Commission and is incorporated by
reference herein. The Statement of Additional Information provides information
regarding certain matters discussed in this Prospectus and other matters which
may be of interest to investors, and may be obtained without charge by calling
the Evergreen Funds at (800) 807-2940. There can be no assurance that the
investment objective of any Fund will be achieved. Investors are advised to read
this Prospectus carefully.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN (SM) and EVERGREEN/KEYSTONE (SM) are Service Marks of Evergreen
Keystone Investment Services, Inc. Copyright 1995 and 1997, Evergreen Keystone
Investment Services, Inc.
1
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
OVERVIEW OF THE FUNDS
EXPENSE INFORMATION
FINANCIAL HIGHLIGHTS
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies
Investment Practices and Restrictions
Special Risk Considerations
MANAGEMENT OF THE FUNDS
Investment Advisers
Sub-Adviser
Distribution Plans and Agreements
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
How to Redeem Shares
Exchange Privilege
Shareholder Services
Effect of Banking Laws
OTHER INFORMATION
Dividends, Distributions and Taxes
General Information
- --------------------------------------------------------------------------------
OVERVIEW OF THE FUNDS
- --------------------------------------------------------------------------------
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus and the information appearing
in the Statement of Additional Information. See "Description of the Funds" and
"Management of the Funds". No Fund is responsible for the information relating
to any other Fund contained in this Prospectus.
The investment adviser to EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
SMALL CAP EQUITY INCOME FUND, and EVERGREEN INCOME AND GROWTH FUND is Evergreen
Asset Management Corp. which, with its predecessors, has served as an investment
adviser to the Evergreen mutual funds since 1971. Evergreen Asset Management
Corp. is a wholly-owned subsidiary of First Union National Bank of North
Carolina, which in turn is a subsidiary of First Union Corporation, the sixth
largest bank holding company in the United States. The Capital Management Group
of First Union National Bank of North Carolina serves as investment adviser to
EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND. Keystone Investment Management
Company, also an indirect wholly-owned subsidiary of First Union National Bank
of North Carolina, serves as investment adviser to the KEYSTONE FUND FOR TOTAL
RETURN.
EVERGREEN UTILITY FUND seeks high current income and moderate capital
appreciation.
EVERGREEN GROWTH AND INCOME FUND seeks to achieve a return composed of
capital appreciation in the value of its shares and current income. The Fund
will attempt to meet its objective by investing in the securities of companies
which are undervalued in the marketplace relative to those companies' assets,
breakup value, earnings, or potential earnings growth.
EVERGREEN VALUE FUND seeks long-term capital growth, with current
income as a secondary objective.
EVERGREEN SMALL CAP EQUITY INCOME FUND attempts to maximize the "total
return" on its portfolio of investments. The Fund invests in common and
preferred stocks, securities convertible into or exchangeable for common stocks
and fixed income securities. In attempting to achieve its objective, the Fund
invests primarily in companies with total market capitalization of less than
$500 million.
2
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KEYSTONE FUND FOR TOTAL RETURN seeks total return from a combination of
capital growth and income. The Fund will invest principally in dividend paying
common stocks, preferred stocks and securities convertible into common stocks,
but may also invest in non-dividend paying common stocks if, in the judgment of
the Fund's investment adviser, that is consistent its objectives.
EVERGREEN INCOME AND GROWTH FUND (formerly Evergreen Total Return Fund)
attempts to maximize the "total return" on its portfolio of investments. It
invests primarily in common and preferred stocks, securities convertible into or
exchangeable for common stocks and fixed income securities.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
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EXPENSE INFORMATION
- --------------------------------------------------------------------------------
The table set forth below summarizes the shareholder transaction costs
associated with an investment in each Class A, Class B and Class C Shares of the
Funds. For further information see "Purchase and Redemption of Fund Shares" and
"General Information -- Other Classes of Shares".
[TO BE ADDED]
The following tables show for each Fund the estimated annual operating
expenses (as a percentage of average net assets) attributable to each Class of
Shares, together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment in each Class for the periods specified assuming
(i) a 5% annual return, and (ii) redemption at the end of each period and,
additionally for Class B and C, no redemption at the end of each period.
In the following examples (i) the expenses for Class A Shares assume
deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the
expenses for Class B Shares and Class C Shares assume deduction at the time of
redemption (if applicable) of the maximum contingent deferred sales charge
applicable for that time period, and (iii) the expenses for Class B Shares
reflects the conversion to Class A Shares seven years after purchase (years
eight through ten, therefore, reflect Class A expenses).
[TO BE ADDED]
From time to time, each Fund's investment adviser may, at its
discretion, reduce or waive its fees or reimburse the Funds for certain of their
expenses in order to reduce their expense ratios. Each Fund's investment adviser
may cease these waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in each Class of
Shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are estimated amounts based on the experience
of each Fund for the most recent fiscal period. Such expenses have been restated
to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND
ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of the various costs and expenses borne by the Funds see "Management
of the Funds". As a result of asset-based sales charges, long-term shareholders
may pay more than the economic equivalent of the maximum front-end charges
permitted under the rules of the National Association of Securities Dealers,
Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the five most recent fiscal years or the life of
the Fund if shorter, for EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND and
KEYSTONE FUND FOR TOTAL RETURN has been audited by KPMG Peat Marwick LLP, each
Fund's independent auditors, the Fund's independent auditors and for EVERGREEN
SMALL CAP EQUITY INCOME FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN
INCOME AND GROWTH
3
<PAGE>
FUND has been audited by Ernst & Young LLP, each Fund's independent auditors. A
report of KPMG Peat Marwick LLP, Price Waterhouse LLP, or Ernst & Young LLP, as
the case may be, on the audited information with respect to each Fund is
incorporated by reference in the Fund's Statement of Additional Information. The
following information for each Fund should be read in conjunction with the
financial statements and related notes which are incorporated by reference in
the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the
Fund's annual report to shareholders, which may be obtained without charge.
[TO BE ADDED BY AMENDMENT]
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
Unless otherwise noted in this Prospectus, the Funds' investment
policies are not fundamental and may be changed without shareholder approval.
Each Fund's investment objective is fundamental and may not be changed without
shareholder approval.
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions", below.
EVERGREEN GROWTH AND INCOME FUND
The investment objective of EVERGREEN GROWTH AND INCOME FUND is to
achieve a return composed of capital appreciation in the value of its shares and
current income.
The Fund seeks to achieve its investment objective by investing in the
securities of companies which are undervalued in the marketplace relative to
those companies' assets, breakup value, earnings or potential earnings growth.
These companies are often found among those which have had a record of financial
success but are currently in disfavor in the marketplace for reasons the Fund's
investment adviser perceives as temporary or erroneous. Such investments when
successfully timed are expected to be the means for achieving the Fund's
investment objective. This inherently contrarian approach may require greater
reliance upon the analytical and research capabilities of the Fund's investment
adviser than an investment in certain other equity funds. Consequently, an
investment in the Fund may involve more risk than other equity funds. The Fund
should not be considered suitable for investors who are unable or unwilling to
assume the risks of loss inherent in such a program. Nor should the Fund be
considered a balanced or complete investment program.
The Fund will use the "value timing" approach as a process for
purchasing securities when events indicate that fundamental investment values
are being ignored in the marketplace. Fundamental investment value is based on
one or more of the following: assets -- tangible and intangible (examples of the
latter include brand names or licenses), capitalization of earnings, cash flow
or potential earnings growth. A discrepancy between market valuation and
fundamental value often arises due to the presence of unrecognized assets or
business opportunities, or as a result of incorrectly perceived or short-term
negative factors. Changes in regulations, basic economic or monetary shifts and
legal action (including the initiation of bankruptcy proceedings) are some of
the factors that create these capital appreciation opportunities. If the
securities in which the Fund invests never reach their perceived potential or
the valuation of such securities in the marketplace does not in fact reflect
significant undervaluation, there may be little or no appreciation or a
depreciation in the value of such securities.
The Fund will invest primarily in common stocks and securities
convertible into or exchangeable for common stock. It is anticipated that the
Fund's investments in these securities will contribute to the Fund's return
primarily through capital appreciation. In addition, the Fund will invest in
nonconvertible preferred stocks and debt securities. It is anticipated that the
Fund's investments in these securities will also produce capital appreciation
but the current income component of return will be a more significant factor in
their selection. However, the Fund will invest in nonconvertible preferred stock
and debt securities only if the anticipated capital appreciation plus income
from such investments is equivalent to that anticipated from investments in
equity or equity-related securities. The Fund may invest up to 5% of its total
assets in debt securities which are rated below investment grade, commonly known
as "junk bonds". Investments of this type are subject to greater risk of loss of
principal and interest. See "Special Risk Considerations".
4
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EVERGREEN SMALL CAP EQUITY INCOME FUND
The investment objective of EVERGREEN SMALL CAP EQUITY INCOME FUND is
to achieve a return consisting of current income and capital appreciation in the
value of its shares. The emphasis on current income and capital appreciation
will be relatively equal although, over time, changes in market conditions and
the level of interest rates may cause the Fund to vary its emphasis between
these two elements in its search for the optimum return for its shareholders.
The Fund seeks to achieve its investment objective through investments in common
stocks, preferred stocks, securities convertible into or exchangeable for common
stocks and fixed income securities. Under normal conditions, the Fund will
invest at least 65% of its total assets in equity securities (including
convertible debt securities) of companies that, at the time of purchase, have
"total market capitalization" -- present market value per share multiplied by
the total number of shares outstanding -- of less than $500 million. The Fund
may invest up to 35% of its total assets in equity securities of companies that
at the time of purchase have a total market capitalization of $500 million or
more, and in excess of that percentage during temporary defensive periods. As of
December 31, 1994, 1995 and 1996, approximately 64.5%, 69.9% and . %,
respectively, of the Fund's portfolio consisted of equity securities.
To the extent that the Fund seeks capital appreciation, it expects that
its investments will provide growth over the long-term. Investments, however,
may be made on occasion for the purpose of short-term capital appreciation if
the Fund believes that such investments will benefit its shareholders.
Purchasing securities for short-term trading is subject to certain rules and
involves additional brokerage expenses. The Fund may make investments in
securities regardless of whether or not such securities are traded on a national
securities exchange. The value of portfolio securities and their yields are
expected to fluctuate over time because of varying general economic and market
conditions.
The Fund's portfolio will vary over time depending upon the economic
outlook and market conditions. The composition of its portfolio will be subject
to the discretion of the Fund's investment adviser. Ordinarily, the Fund
anticipates that most of its portfolio will consist of equity securities and
convertible debt securities. A significant portion of the equity investments,
however, will be income producing. If in the judgment of the Fund's investment
adviser a defensive position is appropriate, the Fund may take a defensive
position and invest without limit in debt securities or government securities or
hold its assets in cash or cash equivalents. The quality standards for debt
securities include: Obligations of banks and commercial paper rated no lower
than P-2 by Moody's Investor's Service ("Moody's"), A-2 by Standard and Poor's
Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P") or having a
comparable rating from another nationally recognized statistical rating
organization ("SRO"); and non-convertible debt securities rated no lower than
Baa by Moody's or BBB by S&P. For a description of such ratings see the
Statement of Additional Information.
The Fund may invest in real estate investment trusts ("Reits"). Equity
Reits invest directly in real property while mortgage Reits invest in mortgages
on real property. The Fund does not intend to invest in Reits that are primarily
mortgage Reits. Equity Reits usually provide a high current yield plus the
opportunity of long-term price appreciation of real estate values. Reits may be
subject to certain risks associated with the direct ownership of real estate.
See "Special Risk Considerations".
EVERGREEN INCOME AND GROWTH FUND
The investment objective of EVERGREEN INCOME AND GROWTH FUND (formerly
Evergreen Total Return Fund)
is to achieve a return consisting of current income and capital appreciation in
the value of its shares. The emphasis on current income and capital appreciation
will be relatively equal although, over time, changes in the outlook for market
conditions and the level of interest rates will cause the Fund to vary its
emphasis between these two elements in its search for the optimum return for its
shareholders. To the extent that the Fund is emphasizing current income, it may
purchase securities in anticipation of participating in dividends. This practice
may result in a higher rate of portfolio turnover and may affect the Fund's
overall return. The Fund seeks to achieve its investment objective through
investments in common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks and fixed income securities. The Fund may invest
up to 20% of its total assets in the securities of foreign issuers either
directly or in the form of ADRs, European Depository Receipts ("EDRs") or other
securities convertible into securities of foreign issuers. See "Special Risk
Considerations", below. The Fund may also write covered call options.
To the extent that the Fund seeks capital appreciation, it expects that
its investments will provide growth over the long-term. Investments, however,
may be made on occasion for the purpose of short-term capital appreciation if
the Fund believes that such investments will benefit its shareholders.
The Fund may make investments in securities (other than options)
regardless of whether or not such securities are traded on a national securities
exchange. The value of portfolio securities and their yields, as well as
opportunities to realize net
5
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gains from a covered call options writing program, are expected to fluctuate
over time because of varying general economic and market conditions.
The Fund's portfolio will vary over time depending upon the economic
outlook and market conditions. The composition of its portfolio will be largely
unrestricted and subject to the discretion of the Fund's investment adviser.
Ordinarily, the Fund anticipates that approximately 75% of its portfolio will
consist of equity securities and the other 25% of debt securities (including
convertible debt securities). As of January 31, 1995, 1996 and 1997,
approximately 91%, 91% and __%, respectively, of the Fund's portfolio consisted
of equity securities. The balance of the Fund's portfolio consisted of debt
securities (including convertible debt securities). If, in the judgment of the
Fund's investment adviser, the appreciation potential for equity securities
exceeds the return available from debt securities or government securities,
investments in equity securities could exceed 75% of the Fund's portfolio. Most
equity investments, however, will be income producing. The quality standards for
debt securities include: Obligations of banks having total assets of at least
one billion dollars which are members of the FDIC; commercial paper rated no
lower than P-2 by Moody's or A-2 by S&P; and non-convertible debt securities
rated no lower than Baa by Moody's or BBB by Standard & Poor's. Securities rated
Baa or BBB may have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to weaken the ability of the issuers of
such bonds' to make principal and interest payments than is the case with higher
rated bonds. However, like the higher rated bonds, these securities are
considered investment grade. For a description of such ratings, see the
Statement of Additional Information. See "Special Risk Considerations".
EVERGREEN UTILITY FUND
The investment objective of EVERGREEN UTILITY FUND is to achieve a
return consisting of high current income and moderate capital appreciation. The
Fund invests primarily in a diversified portfolio of equity and debt securities
of utility companies that produce, transmit or distribute gas or electrical
energy, as well as those companies which provide communications facilities, such
as telephone and telegraph companies. As a matter of investment policy, the Fund
will invest at least 65% of the value of its total assets in utility companies
that derive 50% of their revenues from utilities or assets relating to utility
industries. In addition, the Fund may invest up to 35% of its assets in common
stock of non-utility companies. As of December 31, 1995 and 1996, approximately
77.8% and ____%, respectively, of the Fund's portfolio consisted of investments
in utility companies.
The Fund may invest in:
common and preferred stocks, bonds and convertible preferred stocks of
utility companies selected by the Fund's investment adviser on the
basis of traditional research techniques, including assessment of
earnings and dividend growth prospects and of the risk and volatility
of the individual company's industry. However, other factors, such as
product position, market share or profitability may also be considered
by the Fund's investment adviser. The Fund will only invest its assets
in debt securities rated Baa or higher by Moody's or BBB or higher by
S&P or which, if unrated, are considered to be of comparable quality by
the Fund's investment adviser;
securities which are either issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities include
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and notes, bonds and discount notes of U.S. government
agencies or instrumentalities such as the Farm Credit System, including
the National Bank for Cooperatives, Farm Credit Banks and Banks for
Cooperatives, Farmers Home Administration, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association, Government National Mortgage Association, Student Loan
Marketing Association, Tennessee Valley Authority, Export-Import Bank
of the United States, Commodity Credit Corporation, Federal Financing
Bank and National Credit Union Administration. Some of these securities
are supported by the full faith and credit of the U.S. government, and
others are supported only by the full faith and credit of the agency or
instrumentality;
commercial paper, including master demand notes;
American Depositary Receipts ("ADRs") of foreign companies traded on
the New York or American Stock Exchanges or the over-the-counter
market;
foreign securities (either foreign or U.S. securities traded in foreign
markets). The Fund may also invest in other obligations denominated in
foreign currencies. In making these decisions, the Fund's investment
adviser will consider such factors as the condition and growth
potential of various economies and securities markets, currency and
taxation considerations and other pertinent financial, social, national
and political factors. (See "Special Risk Considerations"
6
<PAGE>
below.) The Fund will not invest more than 10% of its assets in foreign
securities;
obligations, including certificates of deposit and bankers'
acceptances, of banks or savings and loan associations having
at least $1 billion in deposits and insured by the Bank Insurance Fund
or the Savings Association Mortgage Fund, including U.S. branches of
foreign banks and foreign branches of U.S. banks; and
securities of other investment companies.
As of December 31, 1996 approximately ___% of the Fund's portfolio
consisted of equity securities.
Bonds rated Baa by Moody's or BBB by S&P may have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to weaken the ability of the issuers of such bonds' to make principal and
interest payments thanis the case with higher rated bonds. However, like the
higher rated bonds, these securities are considered investment grade. For a
description of such ratings, see the Statement of Additional Information.
EVERGREEN VALUE FUND
The investment objective of the EVERGREEN VALUE FUND is long-term
capital appreciation with current income as a secondary objective. Normally, at
least 75% of the Fund's assets will be invested in equity securities of U.S.
companies with prospects for earnings growth and dividends. As of December 31,
1994, 1995 and 1996 approximately 97%, 89% and __%, respectively, of the Fund's
portfolio consisted of equity securities.
The Fund's investments, in order of priority, consist of:
common and preferred stocks, bonds and convertible preferred stock of
U.S. companies with a minimum market capitalization of $100 million
which are listed on the New York or American Stock Exchanges or traded
in over-the-counter markets. The primary consideration is for those
industries and companies with the potential for capital appreciation;
income is a secondary consideration;
ADRs of foreign companies traded on the New York or American Stock
Exchanges or the over-the-counter market;
foreign securities (either foreign or U.S. securities traded in
foreign markets). The Fund may also invest in obligations denominated
in foreign currencies. In making these decisions, the Fund's
investment adviser will consider such factors as the condition and
growth potential of various economies and securities markets, currency
and taxation implications and other pertinent financial, social,
national and political factors. (See "Special Risk Considerations");
convertible bonds rated no lower than BBB by S&P or Baa by Moody's or,
if not rated, determined to be of comparable quality by the Fund's
investment adviser;
money market instruments;
fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock the Fund may acquire rated no lower than
BBB by S&P or Baa by Moody's or which, if not rated, determined to be
of comparable quality by the Fund's investment adviser (up to 5% of
total assets);
zero coupon bonds issued or guaranteed by the U.S. government, its
agencies or instrumentalities (up to 5% of total assets);
obligations, including certificates of deposit and bankers'
acceptances, of banks or savings and loan associations having at least
$1 billion in deposits and insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, including U.S. branches of foreign
banks and foreign branches of U.S. banks; and
prime commercial paper, including master demand notes rated no lower
than A-1 by S&P or Prime 1 by Moody's.
Bonds rated BBB by S&P or Baa by Moody's may have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to weaken such bonds' prospects for principal and interests payments than
higher rated bonds. However, like the higher rated bonds, these securities are
considered investment grade. For a description of such ratings see the Statement
of Additional Information.
7
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND FOR TOTAL RETURN seeks total return from a combination of
capital growth and income. Under ordinary circumstances, the Fund will invest
principally in dividend paying common stocks, preferred stocks and securities
convertible into common stocks. Non-dividend paying stocks may also be owned by
the Fund if, in the judgment of the Fund's investment adviser, that is
consistent with its objectives. The Fund may invest up to 50% of its assets in
securities of foreign issuers located in developed countries as well as emerging
markets countries. For this purpose, countries with emerging markets are
generally those where the per capita income is in the low to middle ranges, as
determined, from time to time, by the International Bank for Reconstruction and
Development ("World Bank"). The Fund may invest up to 35% of its total assets in
debt securities of U.S. and foreign issuers, including secured and unsecured
debt obligations, having any assigned rating by S&P or Moody's or which are
unrated. The Fund may also invest in non-investment grade rated zero coupon and
payment-in-kind ("PIK") securities. See "Special Risk Consideration".
The Fund may invest up to 35% of its total assets under ordinary
circumstances in the following types of money market instruments: (1) commercial
paper, including master demand notes, which at the date of investment is rated
A-1, the highest grade, by S&P, PRIME-1, the highest grade, by Moody's or, if
not rated by such services, is issued by a company which at the date of
investment has an outstanding issue rated A or better by S&P or Moody's; (2)
obligations, including certificates of deposit and bankers' acceptances, of
banks or savings and loan associations having at least $1 billion in assets as
of the date of their most recently published financial statements that are
members of the Federal Deposit Insurance Corporation, including U.S. branches of
foreign banks and foreign branches of U.S. banks; (3) corporate obligations that
at the date of investment are rated A or better by S&P or Moody's; and (4)
obligations issued or guaranteed by the U.S. government or by any agency or
instrumentality of the U.S.
INVESTMENT PRACTICES AND RESTRICTIONS
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. government securities if, in the opinion of the Funds'
investment advisers, market conditions warrant a temporary defensive investment
strategy. In addition, KEYSTONE FUND FOR TOTAL RETURN may also make temporary
investments in debt securities and high grade preferred stocks for defensive
purposes when it believes market conditions warrant.
Portfolio Turnover and Brokerage. It is contemplated that Lieber & Company, an
affiliate of Evergreen Asset Management Corp. ("Evergreen Asset") and a member
of the New York and American Stock Exchanges, will to the extent practicable
effect substantially all of the portfolio transactions for the EVERGREEN SMALL
CAP EQUITY INCOME FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN INCOME
AND GROWTH FUND on those exchanges. The portfolio turnover rate experienced by a
Fund directly affects brokerage commissions and other transaction costs which
the Fund must pay. A portfolio turnover rate of 100% would occur if all of a
Fund's portfolio securities were replaced in one year. It is anticipated that
the annual portfolio turnover rate for the EVERGREEN INCOME AND GROWTH FUND may
exceed 100%. A high rate of portfolio turnover will increase brokerage costs.
The portfolio turnover rate for each Fund is set forth in the tables contained
in the section entitled "Financial Highlights". See the Statement of Additional
Information for further information regarding the brokerage allocation practices
of the Funds.
Borrowing. As a matter of fundamental policy, the Funds other than KEYSTONE FUND
FOR TOTAL RETURN, may not borrow money except as a temporary measure to
facilitate redemption requests or for extraordinary or emergency purposes. The
proceeds from borrowings may be used to facilitate redemption requests which
might otherwise require the untimely disposition of portfolio securities.
KEYSTONE FUND FOR TOTAL RETURN may borrow in amounts up to one-third of its
assets for the aformentioned purposes as well as leverage. The specific limits
applicable to borrowing by each Fund are set forth in the Statement of
Additional Information.
Lending of Portfolio Securities. In order to generate income and to offset
expenses, the Funds may lend portfolio securities to brokers, dealers and other
financial institutions. The Funds' investment advisers will monitor the
creditworthiness of such borrowers. Loans of securities by the Funds, if and
when made, may not exceed 30% of the value of the net assets of the EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP
EQUITY INCOME FUND, 15% of the value of the total assets of EVERGREEN UTILITY
FUND and KEYSTONE FUND FOR TOTAL RETURN and 5% of the value of the total assets
of EVERGREEN VALUE FUND, and must be collateralized by cash or U.S. government
securities that are maintained at all times in an amount equal to at least 100%
of the current market value of the securities loaned, including accrued
interest. While such securities are on loan, the borrower will pay a Fund any
income accruing thereon, and the Fund may invest the cash collateral in
portfolio securities, thereby increasing its return. Any gain or
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loss in the market price of the loaned securities which occurs during the term
of the loan would affect a Fund and its investors. A Fund has the right to call
a loan and obtain the securities loaned at any time on notice of not more than
five business days.
A Fund may pay reasonable fees in connection with such loans.
There is the risk that when lending portfolio securities, the
securities may not be available to a Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
Short Sales. The EVERGREEN INCOME AND GROWTH FUND and EVERGREEN GROWTH AND
INCOME FUND may, as a defensive strategy, make short sales of securities. A
short sale occurs when a seller sells a security and makes delivery to the buyer
by borrowing the security. Short sales of a security are generally made in cases
where the seller expects the market value of the security to decline. To
complete a short sale, the seller must replace the security borrowed by
purchasing it at the market price at the time of replacement, or by delivering
securities from the seller's own position to the lender. In the event the market
value of a security sold short were to increase, the seller would realize a loss
to the extent that the cost of purchasing the security for delivery to the
lender were greater than the proceeds from the short sale. In the event a short
sale is completed by delivery of securities to the lender from the seller's own
position, the seller would forego any gain that would otherwise be realized on
such securities.
Illiquid or Restricted Securities. EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN UTILITY FUND and KEYSTONE FUND FOR TOTAL
RETURN may invest up to 15% of their net assets, and EVERGREEN SMALL CAP EQUITY
INCOME FUND and EVERGREEN VALUE FUND may invest up to 10% of their net assets,
in illiquid securities and other securities which are not readily marketable,
including non-negotiable time deposits, certain restricted securities not deemed
by the Trustees to be liquid and repurchase agreements with maturities longer
than seven days. Securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, which have been determined to be liquid, will not be
considered by the Funds' investment advisers to be illiquid or not readily
marketable and, therefore, are not subject to the aforementioned 15% or 10%
limits. The inability of a Fund to dispose of illiquid or not readily marketable
investments readily or at a reasonable price could impair the Fund's ability to
raise cash for redemptions or other purposes. The liquidity of securities
purchased by a Fund which are eligible for resale pursuant to Rule 144A will be
monitored by the Funds' investment advisers on an ongoing basis, subject to the
oversight of the Trustees. In the event that such a security is deemed to be no
longer liquid, a Fund's holdings will be reviewed to determine what action, if
any, is required to ensure that the retention of such security does not result
in a Fund having more than 15% or 10%of its net assets, as applicable, invested
in illiquid or not readily marketable securities.
Repurchase Agreements and Reverse Repurchase Agreements. The Funds may enter
into repurchase agreements with member banks of the Federal Reserve System,
including the Funds' custodian or primary dealers in U.S. Government securities.
A repurchase agreement is an arrangement pursuant to which a buyer purchases a
security and simultaneously agrees to resell it to the vendor at a price that
results in an agreed-upon market rate of return which is effective for the
period of time (which is normally one to seven days, but may be longer) the
buyer's money is invested in the security. The arrangement results in a fixed
rate of return that is not subject to market fluctuations during the holding
period. A Fund requires continued maintenance of collateral with its custodian
in an amount at least equal to the repurchase price (including accrued
interest). In the event a vendor defaults on its repurchase obligation, a Fund
might suffer a loss to the extent that the proceeds from the sale of the
collateral were less than the repurchase price. If the vendor becomes the
subject of bankruptcy proceedings, a Fund might be delayed in selling the
collateral. The Funds' investment advisers will review and continually monitor
the creditworthiness of each institution with which a Fund enters into a
repurchase agreement to evaluate these risks.
EVERGREEN UTILITY FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND,
EVERGREEN VALUE FUND, and KEYSTONE FUND FOR TOTAL RETURN may borrow money by
entering into a "reverse repurchase agreement" by which it agrees to sell
portfolio securities to financial institutions such as banks and broker-dealers,
and to repurchase them at a mutually agreed upon date and price, for temporary
or emergency purposes. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account cash, U.S. government
securities or liquid high grade debt obligations having a value at least equal
to the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
Each Fund, other than KEYSTONE FUND FOR TOTAL RETURN, will not enter into
reverse repurchase agreements exceeding 5% of the value of its total assets.
When-Issued and Delayed Delivery Transactions. EVERGREEN UTILITY FUND, EVERGREEN
VALUE FUND and KEYSTONE FUND FOR TOTAL RETURN may purchase securities on a
when-issued or delayed delivery basis. These
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transactions are arrangements in which a Fund purchases securities with payment
and delivery scheduled for a future time. The seller's failure to complete these
transactions may cause a Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary from
the purchase prices. Accordingly, a Fund may pay more or less than the market
value of the securities on the settlement date. The Funds may dispose of a
commitment prior to settlement if the Funds investment adviser deems it
appropriate to do so. In addition, the Funds may enter into transactions to sell
their purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize short-term profits or losses upon the sale of such
commitments.
Fixed Income Securities -- Downgrades. If any security invested in by any of the
Funds loses its rating or has its rating reduced after the Fund has purchased
it, the Fund is not required to sell or otherwise dispose of the security, but
may consider doing so.
OPTIONS, FUTURES and DERIVATIVES
In addition to making investments directly in securities, the Funds may
write covered put and call options and hedge their investments by purchasing
options. In addition EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND, EVERGREEN
SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may engage in
transactions in futures contracts and related options. The investment adviser to
the EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND
does not currently intend to write covered put options, purchase options or
engage in transactions in futures contracts and related options, but may do so
in the future. The Funds may engage in foreign currency exchange transactions to
protect against changes in future exchange rates.
Writing Options. Each Fund may write covered call options, and EVERGREEN VALUE
FUND and KEYSTONE FUND FOR TOTAL RETURN may write covered put options, on
certain portfolio securities in an attempt to earn income and realize a higher
return on their portfolios. A call option gives the purchaser of the option the
right to buy a security from the writer at the exercise price at any time during
the option period. An option may not be written if, afterwards, securities
comprising more than 5% of the market value of a Fund's equity securities would
be subject to call options. A Fund realizes income from the premium paid to it
in exchange for writing the call option. Once it has written a call option on a
portfolio security and until the expiration of such option, a Fund forgoes the
opportunity to profit from increases in the market price of such security in
excess of the exercise price of the call option. Should the price of the
security on which a call has been written decline, a Fund bears the risk of
loss, which would be offset to the extent the Fund has received premium income.
A Fund will only write "covered" options traded on recognized securities
exchanges. An option will be deemed covered when a Fund either owns the security
(or securities convertible into such security) on which the option has been
written in an amount sufficient to satisfy the obligations arising under a call
option; or (ii) in the case of call and put options, the Fund's custodian
maintains cash or high-grade liquid debt securities belonging to the Fund in an
amount not less that the amount needed to satisfy the Fund's obligations with
respect to options written on securities it does not own. A "closing purchase
transaction" may be entered into with respect to a call option written by a Fund
for the purpose of closing its position. The Fund will realize a profit (or
loss) from such transaction if the cost of such transaction is less (or more)
than the premium received from the writing of the option. Because increases in
the market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the repurchase of a
call option may be offset in whole or in part by unrealized appreciation of the
underlying security owned by the Fund.
Purchasing Put and Call Options on Securities. EVERGREEN VALUE FUND and KEYSTONE
FUND FOR TOTAL RETURN may purchase put options to protect its portfolio holdings
in an underlying security against a decline in market value. This protection is
provided during the life of the put option since the Fund, as holder of the put,
is able to sell the underlying security at the exercise price regardless of any
decline in the underlying security's market price. For the purchase of a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, any profit which the
Fund might otherwise have realized on the underlying security will be reduced by
the premium paid for the put option and by transaction costs.
A Fund may also purchase a call option to hedge against an increase in price of
a security that it intends to purchase. This protection is provided during the
life of the call option since the Fund, as holder of the call, is able to buy
the underlying security at the exercise price regardless of any increase in the
underlying security's market price. For the purchase of a call option to be
profitable, the market price of the underlying security must rise sufficiently
above the exercise price to cover the premium and transaction costs. By using
call options in this manner, any profit which the Fund might have realized had
it bought the underlying security at the time it purchased the call option will
be reduced by the premium paid for the call option and by transaction costs.
Futures, Options and Other Derivative Instruments. EVERGREEN UTILITY FUND,
EVERGREEN VALUE FUND,
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EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may
purchase and sell various financial instruments ("Derivative Instruments) such
as financial futures contracts (including interest rate, index and foreign
currency futures contracts), options (such as options on securities, indices,
foreign currencies and futures contracts), forward currency contracts and
interest rate, equity index and currency swaps, caps, collars and floors. The
index Derivative Instruments EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND,
EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may
use may be based on indices of U.S. or foreign equity or debt securities. These
Derivative Instruments may be used, for example, to preserve a return or spread,
to lock in unrealized market value gains or losses, to facilitate or substitute
for the sale or purchase of securities, to manage the duration of securities, to
alter the exposure of a particular investment or portion of the Fund's portfolio
to fluctuations in interest rates or currency rates, to uncap a capped security
or to convert a fixed rate security into a variable rate security or a variable
rate security into a fixed rate security.
A Fund's ability to use these instruments may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies and there can be no assurance that any strategy that is used
will succeed. See the Statement of Additional Information for more information
regarding these instruments and the risks relating thereto.
Risks of Derivative Instruments. The use of Derivative instruments, including
written put and call options, involves special risks, including: (1) the lack
of, or imperfect, correlation between price movements of the Fund's current or
proposed portfolio investments that are the subject of the transactions as well
as price movements of the Derivative Instruments involved in the transaction;
(2) possible lack of a liquid secondary market for any particular Derivative
Instrument at a particular time; (3) the need for additional portfolio
management skills and techniques; (4) losses due to unanticipated market price
movements; (5) the fact that, while such strategies can reduce the risk of loss,
they can also reduce the opportunity for gain, or even result in losses, by
offsetting favorable price movements in portfolio investments; (6) incorrect
forecasts by a Fund's investment adviser concerning interest or currency
exchange rates or direction of price fluctuations of the investment that is the
subject of the transaction, which may result in the strategy being ineffective;
(7) loss of premiums paid by the Fund on options it purchases; and (8) the
possible inability of the Fund to purchase or sell a portfolio security at a
time when it would otherwise be favorable for it to do so, or the need to sell a
portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with such transactions
and the possible inability of the Fund to close out or liquidate its positions.
A Fund's investment adviser may use Derivative Instruments, including written
put and call options, for hedging purposes (i.e. by paying a premium or
foregoing the opportunity for profit in return for protection against downturns
in markets generally or the prices of individual securities or currencies) and
also may use Derivative Instruments to try to enhance the return characteristics
of a Fund's portfolio of investments (i.e. by receiving premiums in connection
with the writing of options and thereby accepting the risk of downturns in
markets generally or the prices of individual securities or currencies or by
paying premiums with the hope that the underlying Derivative Instruments will
appreciate). The use of Derivative Instruments for hedging purposes or to
enhance a Fund's return characteristics can increase investment risk. If a
Fund's investment adviser judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed, resulting in leverage. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a position
that the Fund has entered into. Options and futures transactions may increase
portfolio turnover rates, which would result in greater commission expenses and
transaction costs.
Foreign Currency Transactions. To the extent a Funds may invest in non-U.S.
dollar denominated securities, it may enter into foreign currency transactions
to obtain the necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot or cash basis at prevailing rates
or through forward foreign currency exchange contracts ("forward contracts").
EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may
also enter into forward foreign currency exchange contracts to protect Fund
assets denominated in a foreign currency against adverse changes in foreign
currency exchange rates or exchange control regulations. Such changes could
unfavorably affect the value of Fund assets which are denominated in foreign
currencies, such as foreign securities or funds deposited in foreign banks, as
measured in U.S. dollars. The use of forward contracts for hedging purposes may
limit any potential gain that might result from a relative increase in the value
of such currencies and might, in certain cases, result in losses to the Fund. A
forward contract is an obligation to purchase or sell an amount of a particular
currency at a specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time a Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Funds will not enter into a forward contract
with a term of more than one year. In addition to forward contracts entered into
for hedging purposes, EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND
FOR TOTAL RETURN will generally enter into a forward contract to provide the
proper currency to settle a securities
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transaction at the time the transaction occurs ("trade date"). The period
between trade date and settlement date will vary between 24 hours and 60 days,
depending upon local custom.
Options on Foreign Currencies. EVERGREEN SMALL CAP EQUITY INCOME FUND and
KEYSTONE FUND FOR TOTAL RETURN also purchase foreign currency put options. A put
option gives the holder, upon payment of a premium, the right to sell a currency
at the exercise price until the expiration of the option and serves to ensure
against adverse currency price movements in the underlying portfolio assets
denominated in that currency. Exchange listed options on seven major currencies
are traded in the U.S. In addition, several major U.S. investment firms make
markets in unlisted options on foreign currencies. Such unlisted options may be
available with respect to a wide range of foreign currencies than listed options
and may have more flexible terms. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risks
associated with the individual issuer. No more than 5% of a Fund's net assets
may be represented by premiums paid by the Fund with respect to options on
foreign currencies outstanding at any one time. Furthermore, the market value of
unlisted options on foreign currencies will be included with other illiquid
assets held by the Fund for purposes of the 15% limit on such assets. The Funds
may write a call option on a foreign currency only in conjunction with a
purchase of a put option on that currency. A call option written by a Fund gives
the purchaser, upon payment of a premium, the right to purchase from the Fund a
currency at the exercise price until the expiration of the option. Writing call
options in this manner is designed to reduce the cost of downside currency
protection but has the effect of limiting currency appreciation potential.
SPECIAL RISK CONSIDERATIONS
Fixed Income Investments. Investments by the Funds in fixed income
securities are subject to a number of risks. For example, changes in economic
conditions could result in the weakening of the capacity of the issuers of such
securities to make principal and interest payments, particularly in the case of
issuers of non-investment grade fixed income securities. In addition, the market
value of fixed-income securities in a Fund's portfolio can be expected to vary
inversely to changes in prevailing interest rates. In the event there is a
downgrading in the rating of a fixed income security held in a Fund's portfolio,
the Fund may continue to hold the security if such action is deemed to be in the
best interests of the Fund and its shareholders.
Investment in Small Companies. EVERGREEN GROWTH AND INCOME FUND may
invest from time to time, and EVERGREEN SMALL CAP EQUITY INCOME FUND will invest
in securities of little-known, relatively small and special situation companies.
Investments in such companies may tend to be speculative and volatile. A lack of
management depth in such companies could increase the risks associated with the
loss of key personnel. Also, the material and financial resources of such
companies may be limited, with the consequence that funds or external financing
necessary for growth may be unavailable. Such companies may also be involved in
the development or marketing of new products or services for which there are no
established markets. If projected markets do not materialize or only regional
markets develop, such companies may be adversely affected or be subject to the
consequences of local events. Moreover, such companies may be insignificant
factors in their industries and may become subject to intense competition from
larger companies. Securities of small and special situation companies in which
the Funds invest will frequently be traded only in the over-the-counter market
or on regional stock exchanges and will often be closely held. Securities of
this type may have limited liquidity and be subject to wide price fluctuations.
As a result of the risk factors described above, the net asset value of each
Fund's shares can be expected to vary significantly.
Investment in Foreign Securities. EVERGREEN INCOME AND GROWTH FUND, EVERGREEN
UTILITY FUND and KEYSTONE FUND FOR TOTAL RETURN may invest in foreign
securities. Investments in foreign securities require consideration of certain
factors not normally associated with investments in securities of U.S. issuers.
For example, a change in the value of any foreign currency relative to the U.S.
dollar will result in a corresponding change in the U.S. dollar value of
securities denominated in that currency. Accordingly, a change in the value of
any foreign currency relative to the U.S. dollar will result in a corresponding
change in the U.S. dollar value of the assets of the Fund denominated or traded
in that currency. If the value of a particular foreign currency falls relative
to the U.S. dollar, the U.S. dollar value of the assets of a Fund denominated in
such currency will also fall. The performance of a Fund will be measured in U.S.
dollars.
Securities markets of foreign countries generally are not subject to
the same degree of regulation as the U.S. markets and may be more volatile and
less liquid. Lack of liquidity may affect a Fund's ability to purchase or sell
large blocks of securities and thus obtain the best price. The lack of uniform
accounting standards and practices among countries impairs the validity of
direct comparisons of valuation measures (such as price/earnings ratios) for
securities in different countries. In addition, a Fund may incur costs
associated with currency hedging and the conversion of foreign currency into
U.S. dollars and may be adversely affected by restrictions on the conversion or
transfer of foreign currency. Other considerations include political and social
instability, expropriation, the lack of available information, higher
transaction costs (including brokerage charges), increased custodian charges
associated with holding foreign securities and different securities settlement
practices. Settlement periods
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for foreign securities, which are sometimes longer than those for securities of
U.S. issuers, may affect portfolio liquidity. These different settlement
practices may cause missed purchasing opportunities and/or the loss of interest
on money market and debt investments pending further equity or long-term debt
investments. In addition, 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, a Fund's net asset value may
be significantly affected on days when shareholders do not have access to the
Fund.
Additionally, accounting procedures and government supervision may be
less stringent than those applicable to U.S. companies. It may also be more
difficult to enforce contractual obligations abroad than would be the case in
the United States because of differences in the legal systems. Foreign
securities may be subject to foreign taxes, which may reduce yield, and may be
less marketable than comparable U.S. securities. All these factors are
considered by each Fund's investment adviser before making any of these types of
investments.
ADRs and EDRs and other securities convertible into securities of
foreign issuers may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement. Generally ADRs, in
registered form, are designed for use in United States securities markets and
EDRs, in bearer form, are designed for use in European securities markets.
Investments Related to Real Estate. EVERGREEN INCOME AND GROWTH FUND may invest
up to 15% of its net assets and EVERGREEN SMALL CAP EQUITY INCOME FUND may
invest without limit in investments related to real estate, including real
estate investment trust ("REITS"). Risks associated with investment in
securities of companies in the real estate industry include: declines in the
value of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
variations in rental income, changes in neighborhood values, the appeal of
properties to tenants and increases in interest rates. In addition, equity real
estate investment trusts may be affected by changes in the value of the
underlying property owned by the trusts, while mortgage real estate investment
trusts may be affected by the quality of credit extended. Equity and mortgage
real estate investment trusts are dependent upon management skills, may not be
diversified and are subject to the risks of financing projects. Such trusts are
also subject to heavy cash flow dependency, defaults by borrowers, self
liquidation and the possibility of failing to qualify for tax-free pass-through
of income under the Internal Revenue Code of 1986, as amended (the "Code") and
to maintain exemption from the Investment Company Act of 1940, as amended (the
"1940 Act"). In the event an issuer of debt securities collateralized by real
estate defaulted, it is conceivable that a Fund could end up holding the
underlying real estate.
Lower-rated Securities. EVERGREEN GROWTH AND INCOME FUND and KEYSTONE FUND FOR
TOTAL RETURN may invest a portion of their assets in securities rated below Baa
by Moody's or BBB by S&P (commonly known as "junk bonds"). Lower-rated and
comparable unrated securities (collectively referred to in this discussion as
"lower-rated securities") will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are
out-weighed by large uncertainties or major risk exposures to adverse
conditions; and are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation.
While the market values of lower-rated securities tend to react less to
fluctuations in interest rate levels than the market values of higher rated
securities, the market values of certain lower-rated securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower-rated securities
generally present a higher degree of credit risk. Issuers of lower- rated
securities are often highly leveraged and may not have more traditional methods
of financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because lower-rated securities generally are unsecured
and frequently are subordinated to the prior payment of senior indebtedness. A
Fund may incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings. The existence of limited markets for lower-rated securities may
diminish a Fund's ability to obtain accurate market quotations for purposes of
valuing such securities and calculating its net asset value. For additional
information about the possible risks of investing in junk bonds, see "Investment
Objectives and Policies - Junk Bonds" in the Statement of Additional
Information.
Investments in the Utility Industry. In view of the EVERGREEN UTILITY FUND'S
investment concentration, investors should be aware of certain risks associated
with the utility industry in general. These include difficulties in earning
adequate returns on investments despite frequent rate increases, restrictions on
operations and increased costs and delays due to governmental regulations,
building or construction delays, environmental regulations, difficulty of the
capital markets in absorbing utility debt
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and equity securities, and difficulties in obtaining fuel at reasonable prices.
Other Investment Restrictions. Each Fund has adopted additional investment
restrictions that are set forth in the Statement of Additional Information.
Unless otherwise noted, the restrictions and policies set forth above are not
fundamental and may be changed without shareholder approval. Shareholders will
be notified of any changes in policies that are not fundamental.
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MANAGEMENT OF THE FUNDS
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INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust
under which the Fund has been established ("Trustees"). Evergreen Asset has been
retained by EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND
and EVERGREEN SMALL CAP EQUITY INCOME FUND as investment adviser. Evergreen
Asset succeeded on June 30, 1994 to the advisory business of a corporation with
the same name, but under different ownership, which was organized in 1971.
Evergreen Asset, with its predecessors, has served as investment adviser to the
Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary
of First Union National Bank of North Carolina ("FUNB"). The address of
Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a
subsidiary of First Union Corporation ("First Union"), the sixth largest bank
holding company in the United States. Stephen A. Lieber and Nola Maddox Falcone
serve as the chief investment officers of Evergreen Asset and, along with
Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and
the former general partners of Lieber & Company which, as described below,
provides certain subadvisory services to Evergreen Asset in connection with its
duties as investment adviser to the Funds. The Capital Management Group of FUNB
("CMG") serves as investment adviser to EVERGREEN UTILITY FUND and EVERGREEN
VALUE FUND.
Keystone Investment Management Company ("Keystone") has been retained
by KEYSTONE FUND FOR TOTAL RETURN to serve as investment adviser. Keystone
succeded on December 11, 1996 to the advisory business of a corporation with the
same name, but under different ownership, which provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of FUNB.
First Union is headquartered in Charlotte, North Carolina, and had $132
billion in consolidated assets as of February 29, 1997. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States. CMG manages or otherwise oversees the
investment of over $45 billion in assets belonging to a wide range of clients,
including all the series of Evergreen Investment Trust (formerly known as First
Union Funds) the two series of The Evergreen Lexicon Fund (formerly The FFB
Lexicon Fund) and the two series of Evergreen Tax Free Trust (formerly the FFB
Funds Trust). First Union Brokerage Services, Inc., a wholly-owned subsidiary of
FUNB, is a registered broker-dealer that is principally engaged in providing
retail brokerage services consistent with its federal banking authorizations.
First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is
a registered broker-dealer principally engaged in providing, consistent with its
federal banking authorizations, private placement, securities dealing, and
underwriting services.
As investment adviser to EVERGREEN INCOME AND GROWTH FUND, EVERGREEN
GROWTH AND INCOME FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND, Evergreen
Asset manages each Fund's investments, provides various administrative services
and supervises each Fund's daily business affairs, subject to the authority of
the Trustees. Evergreen Asset is entitled to receive from each of EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP
EQUITY INCOME FUND a fee equal to 1% of average daily net assets on an annual
basis on the first $750 million in assets, .9 of 1% of average daily net assets
on an annual basis on the next $250 million in assets, and .8 of 1% of average
daily net assets on an annual basis on assets over $1 billion. The fees paid by
EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN
SMALL CAP EQUITY INCOME FUND are higher than the rate paid by most other
investment companies.
CMG manages investments and supervises the daily business affairs of
EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND and, as compensation therefor,
is entitled to receive an annual fee equal to .50 of 1% of average daily net
assets of each Fund.
Keystone act as investment adviser to KEYSTONE FUND FOR TOTAL RETURN
and manages the Fund's investments, provides various administrative services and
supervises the Fund's daily business affairs, subject to the authority of the
Trustees. As payment for its services, Keystone is entitled to receive from the
KEYSTONE FUND FOR TOTAL RETURN a fee, calculated on an annual basis, equal to
1.5% of Gross Dividend and Interest Income of the Fund plus 0.60% of the first
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$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.55% of the next $100,000,000, plus 0.50% of the next $100,000,000, plus 0.45%
of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35% of the
next $500,000,000, plus 0.30% of amounts over $1,000,000,000, computed as of the
close of business each business day and paid daily.
The total annualized operating expenses of each Fund for the fiscal
year ended December 31, 1996 (January 31, 1996 in the case of EVERGREEN INCOME
AND GROWTH FUND) expressed as a percentage of average net assets on an annual
basis are set forth in the section entitled "Financial Highlights". Such
expenses reflect all voluntary expense reimbursements which may be revised or
terminated at any time.
Evergreen Asset serves as administrator to EVERGREEN UTILITY FUND and
EVERGREEN VALUE FUND and is entitled to receive a fee based on the average daily
net assets of these Funds at a rate based on the total assets of the mutual
funds administered by Evergreen Asset for which CMG or Evergreen Asset also
serve as investment adviser, calculated in accordance with the following
schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on
the next $5 billion; .020% on the next $10 billion; .015% on the next $5
billion; and .010% on assets in excess of $30 billion. BISYS Fund Services, an
affiliate of Evergreen Keystone Distributor, Inc. (formerly Evergreen Funds
Distributor, Inc.), distributor for the Evergreen group of mutual funds, serves
as sub-administrator to EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND and is
entitled to receive a fee from each Fund calculated on the average daily net
assets of each Fund at a rate based on the total assets of the mutual funds
administered by Evergreen Asset for which CMG, Keystone or Evergreen Asset also
serve as investment adviser, calculated in accordance with the following
schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050%
on the next $15 billion; and .0040% on assets in excess of $25 billion. The
total assets of the mutual funds administered by Evergreen Asset for which CMG,
Keystone or Evergreen Asset serve as investment adviser were approximately $___
billion as of February 29, 199_.
The portfolio manager for EVERGREEN INCOME AND GROWTH FUND is Nola
Maddox Falcone, C.F.A., who is President and Co-Chief Executive Officer of
Evergreen Asset. Ms. Falcone has served as the principal manager of each Fund
since 1985 and 1993, respectively. The portfolio manager for EVERGREEN
FOUNDATION FUND is Stephen A. Lieber, who is Chairman and Co-Chief Executive
Officer of Evergreen Asset. Mr. Lieber has served as such Fund's principal
manager since its inception. The portfolio manager for EVERGREEN GROWTH AND
INCOME FUND is Edmund H. Nicklin, Jr. C.F.A. Mr. Nicklin has served as the
Fund's principal manager since its inception. Mrs. Falcone and Mr. Nicklin have
been associated with Evergreen Asset and its predecessor since 1974 and 1982,
respectively.
The portfolio manager for EVERGREEN UTILITY FUND since its inception in
1991 is H. Bradley Donovan, who is an Assistant Vice President of FUNB. Mr.
Donovan joined FUNB in 1981 and has been with First Union since 1992. Prior to
that Mr. Donovan had served as a portfolio manager and equity analyst at the
Bank of Boston. EVERGREEN VALUE FUND is currently being managed by experienced
members of the CMG staff. CMG has been managing trust assets for over fifty
years.
Walter McCormick has been the Portfolio Manager of KEYSTONE FUND FOR
TOTAL RETURN since 1987. Mr. McCormick is also a Vice President and Senior
Portfolio Manager of Keystone and has more than 25 years' investment experience.
SUB-ADVISER
Evergreen Asset has entered into sub-advisory agreements with Lieber &
Company which provide that Lieber & Company's research department and staff will
furnish Evergreen Asset with information, investment recommendations, advice and
assistance, and will be generally available for consultation on the portfolios
of EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and
EVERGREEN SMALL CAP EQUITY INCOME FUND. Lieber & Company will be reimbursed by
Evergreen Asset in connection with the rendering of services on the basis of the
direct and indirect costs of performing such services. There is no additional
charge to EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and
EVERGREEN SMALL CAP EQUITY INCOME FUND for the services provided by Lieber &
Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase,
New York 10577.
Lieber & Company is an indirect, wholly-owned, subsidiary of First Union.
DISTRIBUTION PLANS AND AGREEMENTS
Rule 12b-1 under the 1940 Act permits an investment company to pay
expenses associated with the distribution of its shares in accordance with a
duly adopted plan. Each Fund has adopted for each of its Class A, Class B and
Class C shares a Rule 12b-1 plan (each, a "Plan" or collectively the "Plans").
Under the Plans, each Fund may incur distribution-related and
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shareholder servicing-related expenses which may not exceed an annual rate of
.75 of 1% of the aggregate average daily net assets attributable to each Fund's
Class A shares, 1% of the aggregate average daily net assets attributable to the
Class B and Class C shares of EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH
AND INCOME FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND, and KEYSTONE FUND FOR
TOTAL RETURN and .75 of 1% of the aggregate average daily net assets
attributable to the Class B and Class C shares of EVERGREEN UTILITY FUND and
EVERGREEN VALUE FUND. Payments under the Plans adopted with respect to Class A
shares are currently voluntarily limited to .25 of 1% of each Fund's aggregate
average daily net assets attributable to Class A shares. The Plans provide that
a portion of the fee payable thereunder may constitute a service fee to be used
for providing ongoing personal services and/or the maintenance of shareholder
accounts. EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND have each, in addition
to the Plans adopted with respect to their Class B and Class C shares, adopted
shareholder service plans ("Service Plans") relating to the Class B and Class C
shares which permit each Fund to incur a fee of up to .25 of 1% of the aggregate
average daily net assets attributable to the Class B and Class C shares for
ongoing personal services and/or the maintenance of shareholder accounts. Such
service fee payments to financial intermediaries for such purposes, whether
pursuant to a Plan or Service Plan, will not exceed .25 of 1% of the aggregate
average daily net assets attributable to each Class of shares of each Fund.
Each Fund has also entered into a distribution agreement (each a
"Distribution Agreement" or collectively the "Distribution Agreements") with
Evergreen Keystone Distributor, Inc. ("EKD"). Pursuant to the Distribution
Agreements, each Fund will compensate EKD for its services as distributor at a
rate which may not exceed an annual rate of .25 of 1% of a Fund's aggregate
average daily net assets attributable to Class A shares, .75 of 1% of a Fund's
aggregate average daily net assets attributable to the Class B shares and .75 of
1% of a Fund's aggregate average daily net assets attributable to the Class C
shares. The Distribution Agreements provide that EKD will use the distribution
fee received from a Fund for payments (i) to compensate broker-dealers or other
persons for distributing shares of the Funds, including interest and principal
payments made in respect of amounts paid to broker-dealers or other persons that
have been financed (EKD may assign its rights to receive compensation under the
Plans to secure such financings), (ii) to otherwise promote the sale of shares
of the Fund, and (iii) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative, accounting and
other services with respect to the Fund's shareholders. The financing of
payments made by EKD to compensate broker-dealers or other persons for
distributing shares of the Funds may be provided by FUNB or its affiliates. The
Funds may also make payments under the Plans (and in the case of EVERGREEN
UTILITY FUND and EVERGREEN VALUE FUND, the Service Plans), in amounts up to .25
of 1% of a Fund's aggregate average daily net assets on an annual basis
attributable to Class B and Class C shares, to compensate organizations, which
may include EKD and each Fund's investment adviser or their affiliates, for
personal services rendered to shareholders and/or the maintenance of shareholder
accounts.
The Funds may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above. Since EKD's compensation
under the Distribution Agreements is not directly tied to the expenses incurred
by EKD, the amount of compensation received by it under the Distribution
Agreements during any year may be more or less than its actual expenses and may
result in a profit to EKD. Distribution expenses incurred by EKD in one fiscal
year that exceed the level of compensation paid to EKD for that year may be paid
from distribution fees received from a Fund in subsequent fiscal years.
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to .75
of 1% and .25 of 1%, respectively, of the average annual net assets attributable
to that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per annum.
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PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers,
banks or other financial intermediaries, or directly through EKD. The minimum
initial investment is $1,000, which may be waived in certain situations. There
is no minimum for subsequent investments. Investments of $25 or more are allowed
under the Systematic Investment Program. Share certificates are not issued. In
states where EKD is not registered as a broker-dealer shares of a Fund will only
be sold through other broker-dealers or other financial institutions that are
registered. See the Share Purchase Application and Statement of Additional
Information for more information. Only Class A, Class B and Class C shares are
offered through this Prospectus (see "General Information" -- "Other Classes of
Shares"). In addition, you may open an account for the purchase of shares of the
KEYSTONE
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FUND FOR TOTAL RETURN by mailing a completed account application and a check
payable to the Fund to: KEYSTONE FUND FOR TOTAL RETURN, c/o Evergreen Keystone
Service Company, Inc., P.O. Box 2121, Boston, Massachusetts 02106-2121, or you
may telephone 1-800-343-2898 to obtain the number of an account to which you can
wire or electronically transfer and then send in a completed account
application. Subsequent investments in any amount may be made by check, by
wiring Federal funds or by an electronic funds transfer ("EFT").
Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A
shares at net asset value plus an initial sales charge on purchases under
$1,000,000. On purchases of $1,000,000 or more, a contingent deferred sales
charge ("CDSC") equal to 1% of the lesser of the purchase price or redemption
value will be imposed on shares redeemed during the first year after purchase.
The schedule of charges for Class A shares is as follows:
INITIAL SALES CHARGE
as a % as a %
of the Net of the
Amount Offering Commission to Dealer/Agent
Amount of Purchase Invested Price as a % of Offering Price
Less than $50,000 4.99% 4.75% 4.25%
$50,000 - $99,999 4.71% 4.50% 4.25%
$100,000 - $249,999 3.90% 3.75% 3.25%
$250,000 - $499,999 2.56% 2.50% 2.00%
$500,000 - $999,999 2.04% 2.00% 1.75%
Over $1,000,000 None None 1.00% on the first $2,999,999;
plus .50 of 1% on amounts of
$3,000,000 and up to $4,999,999;
plus .25 of 1% on amounts
$5,000,000 and over
No front-end sales charges are imposed on Class A shares purchased by:
institutional investors, which may include bank trust departments and registered
investment advisers; investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; clients of
investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; shareholders of record on October 12, 1990 in any series of
Evergreen Investment Trust in existence on that date, and the members of their
immediate families; employees of FUNB and its affiliates, EKD and any
broker-dealer with whom EKD has entered into an agreement to sell shares of the
Funds, and members of the immediate families of such employees; and upon the
initial purchase of an Evergreen mutual fund by investors reinvesting the
proceeds from a redemption within the preceding thirty days of shares of other
mutual funds, provided such shares were initially purchased with a front-end
sales charge or subject to a CDSC. Certain broker-dealers or other financial
institutions may impose a fee on transactions in shares of a Fund.
Class A shares may also be purchased at net asset value by qualified
and non-qualified employee benefit and savings plans which make shares of the
Funds and the other Evergreen/Keystone mutual funds available to their
participants, and which: (a) are employee benefit plans having at least
$1,000,000 in investable assets, or 250 or more eligible participants; or (b)
are non-qualified benefit or profit sharing plans which are sponsored by an
organization which also makes the Evergreen/Keystone mutual funds available
through a qualified plan meeting the criteria specified under (a). In connection
with sales made to plans of the type described in the preceding sentence that
are clients of broker-dealers, and which do not qualify for sales at net asset
value under the conditions set forth in the paragraph above, payments may be
made in an amount equal to .50 of 1% of the net asset value of shares purchased.
These payments are subject to reclaim in the event shares are redeemed within
twelve months after purchase.
When Class A shares are sold, EKD will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EKD may also pay fees to
banks from sales charges for services performed on behalf of the bank's
customers in connection with the purchase of shares of the Funds. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to .25 of 1% of the
average daily value on an annual basis of Class A shares held by their clients.
Certain purchases of Class A shares may qualify for reduced sales charges in
accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity
Discount, Statement of Intention, Privilege for Certain Retirement Plans and
Reinstatement Privilege.
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Consult the Share Purchase Application and Statement of Additional Information
for additional information concerning these reduced sales charges.
Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after purchase. Shares obtained
from dividend or distribution reinvestment are not subject to the CDSC. The
amount of the CDSC (expressed as a percentage of the lesser of the current net
asset value or original cost) will vary according to the number of years from
the purchase of Class B shares as set forth below.
Year Since
Purchase Contingent Deferred Sales Charge
FIRST 5%
SECOND 4%
THIRD and FOURTH 3%
FIFTH 2%
SIXTH 1%
The CDSC is deducted from the amount of the redemption and is paid to
EKD. The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet distribution requirements for certain
qualified retirement plans or in the case of certain redemptions made under a
Fund's Systematic Cash Withdrawal Plan. Class B shares are subject to higher
distribution and/or shareholder service fees than Class A shares for a period of
seven years (after which it is expected that they will convert to Class A
shares). The higher fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares. See the Statement of Additional Information for further details.
Class C Shares -- Level-Load Alternative. You can purchase Class C shares
without any initial sales charge and, therefore, the full amount of your
investment will be used to purchase Fund shares. However, you will pay a 1% CDSC
if you redeem shares during the first year after purchase. Class C shares incur
higher distribution and/or shareholder service fees than Class A shares but,
unlike Class B shares, do not convert to any other class of shares of the Fund.
The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares. Shares obtained from dividend or distribution reinvestment are not
subject to the CDSC. The maximum amount of Class C shares that may be purchased
is $500,000.
With respect to Class B shares and Class C shares, no CDSC will be
imposed on: (1) the portion of redemption proceeds attributable to increases in
the value of the account due to increases in the net asset value per share, (2)
shares acquired through reinvestment of dividends and capital gains, (3) shares
held for more than seven years (in the case of Class B shares) or one year (in
the case of Class C shares) after the end of the calendar month of acquisition,
(4) accounts following the death or disability of a shareholder, or (5) minimum
required distributions to a shareholder over the age of 70 1/2 from an IRA or
other retirement plan.
How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees of each Trust under which each Fund operates
believe would accurately reflect fair value. Non-dollar denominated securities
will be valued as of the close of the Exchange at the closing price of such
securities in their principal trading market.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution charges and/or shareholder service fees, after
seven years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year. Consult your financial intermediary for further information. The
compensation received by dealers and agents may differ depending on whether they
sell Class A, Class B or Class C shares. The Funds will not normally accept any
purchase of Class B shares in the amount of $250,000 or more, and will not
normally accept any
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<PAGE>
purchase of Class C shares in the amount of $1,000,000 or more. There is no size
limit on purchases of Class A shares.
In addition to the discount or commission paid to dealers, EKD will
from time to time pay to dealers additional cash or other incentives that are
conditioned upon the sale of a specified minimum dollar amount of shares of a
Fund and/or other Evergreen mutual funds. Such incentives will take the form of
payment for attendance at seminars, lunches, dinners, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer and their immediate
family members to urban or resort locations within or outside the United States.
Such a dealer may elect to receive cash incentives of equivalent amount in lieu
of such payments. EKD may also limit the availability of such incentives to
certain specified dealers. EKD from time to time sponsors promotions involving
First Union Brokerage Services, Inc. ("FUBS"), an affiliate of each Fund's
investment adviser, and other selected dealers, pursuant to which incentives are
paid, including gift certificates and payments in amounts up to 1% of the dollar
amount of shares of a Fund sold. Awards may also be made based on the opening of
a minimum number of accounts. Such promotions are not being made available to
all dealers. Certain broker-dealers may also receive payments from EKD or a
Fund's investment adviser over and above the usual trail commissions or
shareholder servicing payments applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or its investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen mutual funds.
The Funds will not accept third party checks other than those payable directly
to a shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may "redeem", i.e. sell, your shares in a Fund to the Fund on any
day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value (less any
applicable CDSC for Class B or Class C shares) next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, a Fund will
not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to fifteen days). Once a redemption request has
been telephoned or mailed, it is irrevocable and may not be modified or
canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. Eastern time for
you to receive that day's net asset value (less any applicable CDSC for Class B
or Class C shares). Your financial intermediary is responsible for furnishing
all necessary documentation to a Fund and may charge you for this service.
Certain financial intermediaries may require that you give instructions earlier
than 4:00 p.m.
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form ), in the case of all Funds except KEYSTONE FUND
FOR TOTAL RETURN, to State Street Bank and Trust Company ("State Street"), and,
in the case of KEYSTONE FUND FOR TOTAL RETURN to Evergreen/Keystone Services
Company. Stock power forms are available from your financial intermediary, State
Street, and many commercial banks. Additional documentation is required for the
sale of shares by corporations, financial intermediaries, fiduciaries and
surviving joint owners. Signature guarantees are required for all redemption
requests for shares with a value of more than $50,000 or where the redemption
proceeds are to be mailed to an address other than that shown in the account
registration. A signature guarantee must be provided by a bank or trust company
(not a Notary Public), a member firm of a domestic stock exchange or by other
financial institutions whose guarantees are acceptable to State Street.
Shareholders may withdraw amounts of $1,000 or more from their accounts
by calling the telephone number on the front page of this Prospectus between the
hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day (i.e., any
weekday exclusive of days on which the Exchange or State Street's offices are
closed). The Exchange is closed on New Year's Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Redemption requests made after 4:00 p.m. (Eastern time) will be processed using
the net asset value determined on the next business day. Such redemption
requests must include the shareholder's account name, as registered with a Fund,
and the account number. During periods of drastic economic or market changes,
shareholders may experience difficulty in effecting telephone redemptions.
Shareholders who are unable to reach a Fund or State Street by telephone should
follow the procedures outlined above for redemption by mail.
The telephone redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share Purchase Application and choose how the redemption
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proceeds are to be paid. Redemption proceeds will either (i) be mailed by check
to the shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the shareholder's account in a
Fund at a designated commercial bank. State Street currently deducts a $5 wire
charge from all redemption proceeds wired. This charge is subject to change
without notice. A shareholder who decides later to use this service, or to
change instructions already given, should fill out a Shareholder Services Form
and send it to, in the case of all Funds except KEYSTONE FUND FOR TOTAL RETURN,
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827 and,in the case of KEYSTONE FUND FOR TOTAL RETURN Evergreen/Keystone
Services Company, located at 200 Berkeley Street, Boston, Massachusetts 02116,
with such shareholder's signature guaranteed by a bank or trust company (not a
Notary Public), a member firm of a domestic stock exchange or by other financial
institutions whose guarantees are acceptable to State Street. Shareholders
should allow approximately ten days for such form to be processed. The Funds
will employ reasonable procedures to verify that telephone requests are genuine.
These procedures include requiring some form of personal identification prior to
acting upon instructions and tape recording of conversations. If a Fund fails to
follow such procedures, it may be liable for any losses due to unauthorized or
fraudulent instructions. The Fund shall not be liable for following telephone
instructions reasonably believed to be genuine. Also, each Fund reserves the
right to refuse a telephone redemption request, if it is believed advisable to
do so. Financial intermediaries may charge a fee for handling telephonic
requests. The telephone redemption option may be suspended or terminated at any
time without notice.
General. The redemption of shares is a taxable transaction for Federal income
tax purposes. Under unusual circumstances, a Fund may suspend redemptions or
postpone payment for up to seven days or longer, as permitted by Federal
securities law. The Funds reserve the right to close an account that through
redemption has remained below $1,000 for thirty days. Shareholders will receive
sixty days' written notice to increase the account value before the account is
closed. The Funds have elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which each Fund is obligated to redeem shares solely in cash, up to
the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day
period for any one shareholder. See the Statement of Additional Information for
further details.
EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen mutual funds through your financial
intermediary, or by telephone or mail as described below. An exchange which
represents an initial investment in another Evergreen mutual fund must amount to
at least $1,000. Once an exchange request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled. Exchanges will be made on the
basis of the relative net asset value of the shares exchanged next determined
after an exchange request is received. Exchanges are subject to minimum
investment and suitability requirements.
Each of the Evergreen mutual funds has different investment objectives
and policies. For complete information, a prospectus of the Fund into which an
exchange will be made should be read prior to the exchange. An exchange is
treated for Federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event Class B or Class C shares are
exchanged for Class B or Class C shares, respectively, of other Evergreen mutual
funds. If you redeem shares, the CDSC applicable to the Class B or Class C
shares of the Evergreen mutual fund originally purchased for cash is applied.
Also, Class B shares will continue to age following an exchange for purposes of
conversion to Class A shares and determining the amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000
or more by telephone by calling the telephone number on the front page of this
Prospectus (or in the case of KEYSTONE FUND FOR TOTAL RETURN call 1-
800-247-4075). Exchange requests made after 4:00 p.m. (Eastern time) will be
processed using the net asset value determined on the next business day. During
periods of drastic economic or market changes, shareholders may experience
difficulty in effecting telephone exchanges. You should follow the procedures
outlined below for exchanges by mail if you are unable to reach the transfer
agent by telephone. If you wish to use the telephone exchange service you should
indicate this on the Share Purchase Application. As noted above, each Fund will
employ reasonable procedures to confirm that instructions for the redemption or
exchange of shares communicated by telephone are genuine. A telephone exchange
may be refused by a Fund
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or the transfer agent if it is believed advisable to do so. Procedures for
exchanging Fund shares by telephone may be modified or terminated at any time.
Written requests for exchanges should follow the same procedures outlined for
written redemption requests in the section entitled "How to Redeem Shares",
however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, EKD or the toll-free number on the front page of this Prospectus
(or in the case of KEYSTONE FUND FOR TOTAL RETURN call 1-800-247-4075). Some
services are described in more detail in the Share Purchase Application.
Systematic Investment Plan. You may make monthly or quarterly investments into
an existing account automatically in amounts of not less than $25 per month or
$75 per quarter. Each Fund reserves the right to close an account that through
liquidation or termination of the Systematic Investment Plan has not reached a
minimum balance of $1,000 ($250 for retirement accounts) within 24 months of the
initial investment. You can open a Systematic Investment Plan in the EVERGREEN
GROWTH AND INCOME FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND, EVERGREEN
UTILITY FUND and EVERGREEN VALUE FUND for a minimum of only $50 per month with
no initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Shares purchased under a Fund's Systematic Investment Plan or Telephone
Investment Plan may not be redeemed for ten days from the date of investment.
Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the Funds
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase Application. Under this plan, you may receive (or designate a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $75. Fund shares will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. Any applicable Class B CDSC will be
waived with respect to redemptions occurring under a Systematic Cash Withdrawal
Plan during a calendar year to the extent that such redemptions do not exceed
10% of (i) the initial value of the account plus (ii) the value, at the time of
purchase, of any subsequent investments.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and the
other Evergreen mutual funds available to their participants. Investments made
by such employee benefit plans may be exempt from front-end sales charges if
they meet the criteria set forth under "Class A Shares-Front End Sales Charge
Alternative". Each Fund's investment adviser may provide compensation to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen mutual funds available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Funds at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested. If you elect to receive dividends and
distributions in cash and the U.S. Postal Service cannot deliver the checks, or
if the checks remain uncashed for six months, the checks will be reinvested into
your account at the then current net asset value.
Tax Sheltered Retirement Plans. You may open a pension and profit sharing
account in any Evergreen/Keystone mutual fund (except those funds having an
objective of providing tax free income) under the following prototype retirement
plans: (i) Individual Retirement Accounts ("IRAs") and Rollover IRAs; (ii)
Simplified Employee Pension (SEP) for sole proprietors, partnerships and
corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for
corporations and their employees.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations,
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a Member Bank or an affiliate thereof may act as investment adviser, transfer
agent or custodian to a registered open-end investment company and may also act
as agent in connection with the purchase of shares of such an investment company
upon the order of its customer. Evergreen Asset and Keystone, since they are
subsidiaries of FUNB, and CMG are subject to and in compliance with the
aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in CMG or Evergreen Asset and Keystone
being prevented from continuing to perform the services required under the
investment advisory contract or from acting as agent in connection with the
purchase of shares of a Fund by its customers. If CMG or Evergreen Asset and
Keystone were prevented from continuing to provide the services called for under
the investment advisory agreement, it is expected that the Trustees would
identify, and call upon each Fund's shareholders to approve, a new investment
adviser. If this were to occur, it is not anticipated that the shareholders of
any Fund would suffer any adverse financial consequences.
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OTHER INFORMATION
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DIVIDENDS, DISTRIBUTIONS AND TAXES
It is the policy of each Fund to distribute to shareholders its
investment company taxable income, if any, quarterly and any net realized
capital gains annually or more frequently as required as a condition of
continued qualification as a regulated investment company by the Code. Dividends
and distributions generally are taxable in the year in which they are paid,
except any dividends paid in January that were declared in the previous calendar
quarter may be treated as paid in December of the previous year. Income
dividends and capital gain distributions are automatically reinvested in
additional shares of the Fund making the distribution at the net asset value per
share at the close of business on the record date, unless the shareholder has
made a written request for payment in cash.
Each Fund has qualified and intends to continue to qualify to be
treated as a regulated investment company under the Code. While so qualified, it
is expected that each Fund will not be required to pay any Federal income tax on
that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Funds,
to the extent they do not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements. Most shareholders of the Funds normally will have to pay Federal
income tax and any state or local taxes on the dividends and distributions they
receive from a Fund whether such dividends and distributions are made in cash or
in additional shares. Questions on how any distributions will be taxed to the
investor should be directed to the investor's own tax adviser.
Under current law, the highest Federal income tax rate applicable to
net long-term capital gains realized by individuals is 28%. The rate applicable
to corporations is 35%. Certain income from a Fund may qualify for a corporate
dividends-received deduction of 70%. Following the end of each calendar year,
every shareholder of the Fund will be sent applicable tax information and
information regarding the dividends and capital gain distributions made during
the calendar year.
A Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States Federal income tax may be entitled, subject to certain
rules and limitations, to claim a Federal income tax credit or deduction for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional details. A Fund's transactions in options, futures and forward
contracts may be subject to special tax rules. These rules can affect the
amount, timing and characteristics of distributions to shareholders.
Each Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, you must certify on the Share Purchase Application, or
on a separate form supplied by State Street, that your social security or
taxpayer identification number is correct and that you are not currently subject
to backup withholding or are exempt from backup withholding.
The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the Statement of
Additional
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<PAGE>
Information. In addition, you should consult your own tax adviser as to the tax
consequences of investments in the Funds, including the application of state and
local taxes which may be different from Federal income tax consequences
described above.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, a Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.
Organization. The EVERGREEN INCOME AND GROWTH FUND is a Massachusetts business
trust organized in 1986, and was originally organized as Maryland corporation in
1978. EVERGREEN GROWTH AND INCOME FUND is a Massachusetts business trust
organized in 1986. The EVERGREEN SMALL CAP EQUITY INCOME FUND is a separate
series of The Evergreen American Retirement Trust, a Massachusetts business
trust organized in 1987. EVERGREEN BALANCED FUND and EVERGREEN VALUE FUND are
separate investment series of Evergreen Investment Trust (formerly First Union
Funds), a Massachusetts business trust organized in 1984. KEYSTONE FUND FOR
TOTAL RETURN is a Massachusetts business trust organized in October, 1986.
The Funds do not intend to hold annual shareholder meetings; shareholder
meetings will be held only when required by applicable law. Shareholders have
available certain procedures for the removal of Trustees. A shareholder in each
Class of a Fund will be entitled to his or her share of all dividends and
distributions from a Fund's assets, based upon the relative value of such shares
to those of other Classes of the Fund and, upon redeeming shares, will receive
the then current net asset value of the Class of shares of the Fund represented
by the redeemed shares less any applicable CDSC. Each Trust named above is
empowered to establish, without shareholder approval, additional investment
series, which may have different investment objectives, and additional Classes
of shares for any existing or future series. If an additional series or Class
were established in a Fund, each share of the series or Class would normally be
entitled to one vote for all purposes. Generally, shares of each series and
Class would vote together as a single Class on matters, such as the election of
Trustees, that affect each series and Class in substantially the same manner.
Class A, B, C and Y shares have identical voting, dividend, liquidation and
other rights, except that each Class bears, to the extent applicable, its own
distribution, shareholder service and transfer agency expenses as well as any
other expenses applicable only to a specific Class. Each Class of shares votes
separately with respect to Rule 12b-1 distribution plans and other matters for
which separate class voting is appropriate under applicable law. Shares are
entitled to dividends as determined by the Trustees and, in liquidation of a
Fund, are entitled to receive the net assets of the Fund.
Custodian, Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street
Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as
each Fund's custodian and , in the case of all Funds except KEYSTONE FUND FOR
TOTAL RETURN, registrar, transfer agent and dividend-disbursing agent. State
Street is compensated for its services as transfer agent by a fee based upon the
number of shareholder accounts maintained for the Funds. Evergreen/Keystone
Services Company, located at 200 Berkeley Street, Boston, Massachusetts 02116,
is a wholly-owned subsidiary of Keystone and serves as the transfer agent and
dividend disbursing agent for KEYSTONE FUND FOR TOTAL RETURN,
Principal Underwriter. EKD, an affiliate of BISYS Fund Services, located at 120
Clove Road, Little Falls, New Jersey 07424, is the principal underwriter of the
Funds. BISYS Fund Services also provides certain sub-administrative services to
Evergreen Asset and Keystone in connection with its role as investment adviser
to the Funds, including providing personnel to serve as officers of the Funds.
Other Classes of Shares. Each Fund, except KEYSTONE FUND FOR TOTAL RETURN which
does not offer Class Y shares, currently offers four classes of shares, Class A,
Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are not offered by this Prospectus and are only available to (i)
persons who at or prior to December 31, 1994, owned shares in a mutual fund
advised by Evergreen Asset, (ii) certain institutional investors and (iii)
investment advisory clients of CMG, Evergreen Asset or their affiliates. The
dividends payable with respect to Class A, Class B and Class C shares will be
less than those payable with respect to Class Y shares due to the distribution
and shareholder servicing related expenses borne by Class A, Class B and Class C
shares and the fact that such expenses are not borne by Class Y shares.
Performance Information. From time to time, the Funds may quote their "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for Class A, Class B and Class C shares. A Fund's total return for each such
period is computed by finding, through the use of a formula
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<PAGE>
prescribed by the Securities and Exchange Commission ("SEC"), the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, dividends and capital gains distributions
paid on shares of a Fund are assumed to have been reinvested when paid and the
maximum sales charges applicable to purchases of a Fund's shares are assumed to
have been paid. Yield is a way of showing the rate of income the Fund earns on
its investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, the Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest income it earned from its portfolio of investments (as defined by
the SEC formula) for a 30-day period (net of expenses), divides it by the
average number of shares entitled to receive dividends, and expresses the result
as an annualized percentage rate based on the Fund's share price at the end of
the 30-day period. This yield does not reflect gains or losses from selling
securities.
Performance data for each Class of shares will be included in any
advertisement or sales literature using performance data of a Fund. These
advertisements may quote performance rankings or ratings of a Fund by financial
publications or independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. A
Fund may also advertise in items of sales literature an "actual distribution
rate" which is computed by dividing the total ordinary income distributed (which
may include the excess of short-term capital gains over losses) to shareholders
for the latest twelve month period by the maximum public offering price per
share on the last day of the period. Investors should be aware that past
performance may not be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen mutual funds, products, and services, which may include:
retirement investing; brokerage products, and services, the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the information provided to investors may quote financial
or business publications and periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques. The materials may also reprint, and use as advertising
and sales literature, articles from EVERGREEN EVENTS, a quarterly magazine
provided free of charge to Evergreen mutual fund shareholders.
Liability Under Massachusetts Law. Under Massachusetts law, Trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declarations of Trust under which the
Funds operate provide that no Trustee or shareholder will be personally liable
for the obligations of the Trust and that every written contract made by the
Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act of 1933. Copies of the Registration
Statements may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the offices of the SEC in Washington, D.C.
INVESTMENT ADVISERS
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York
10577
EVERGREEN GROWTH AND INCOME FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN INCOME AND GROWTH FUND
Capital Management Group of First Union National Bank of North Carolina, 210
South College Street, Charlotte, North Carolina, 28228
EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts
02205-9827
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LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
EVERGREEN FOUNDATION FUND
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072
EVERGREEN TOTAL RETURN FUND, EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
AMERICAN RETIREMENT FUND
KPMGPeat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219
EVERGREEN BALANCED FUND, EVERGREEN VALUE FUND
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 120 Clove Road,
Little Falls, New Jersey 07424
42430 536115REV01
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* * * * * * * * * * * * * * * *
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EVERGREEN/KEYSTONE(SM) GROWTH AND INCOME FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS April 1, 1997
(Evergreen Keystone logo)
EVERGREEN UTILITY FUND
EVERGREEN GROWTH AND INCOME FUND
EVERGREEN VALUE FUND
EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN INCOME AND GROWTH FUND
KEYSTONE FUND FOR TOTAL RETURN
CLASS Y SHARES
The Evergreen/Keystone Growth and Income Funds (the "Funds") are
designed to provide investors with a selection of investment alternatives which
seek to provide capital growth, income and diversification. This Prospectus
provides information regarding the Class Y shares offered by the Funds. Each
Fund is, or is a series of, an open-end, diversified, management investment
company. This Prospectus sets forth concise information about the Funds that a
prospective investor should know before investing. The address of the Evergreen
Funds is 2500 Westchester Avenue, Purchase, New York 10577. The address of the
Keystone Fund is 200 Berkeley Street, Boston, Massachusetts 02116.
A "Statement of Additional Information" for the Funds and certain other
funds in the Evergreen/Keystone group of mutual funds dated April 1, 1997 has
been filed with the Securities and Exchange Commission and is incorporated by
reference herein. The Statement of Additional Information provides information
regarding certain matters discussed in this Prospectus and other matters which
may be of interest to investors, and may be obtained without charge by calling
the Evergreen Funds at (800) 807-2940. There can be no assurance that the
investment objective of any Fund will be achieved. Investors are advised to read
this Prospectus carefully.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN (SM) and EVERGREEN/KEYSTONE (SM) are Service Marks of Evergreen
Keystone Investment Services, Inc. Copyright 1995 and 1997, Evergreen Keystone
Investment Services, Inc.
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
OVERVIEW OF THE FUNDS
EXPENSE INFORMATION
FINANCIAL HIGHLIGHTS
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies
Investment Practices and Restrictions
Special Risk Considerations
MANAGEMENT OF THE FUNDS
Investment Advisers
Sub-Adviser
Distribution Plans and Agreements
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
How to Redeem Shares
Exchange Privilege
Shareholder Services
Effect of Banking Laws
OTHER INFORMATION
Dividends, Distributions and Taxes
General Information
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OVERVIEW OF THE FUNDS
- --------------------------------------------------------------------------------
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus and the information appearing
in the Statement of Additional Information. See "Description of the Funds" and
"Management of the Funds". No Fund is responsible for the information relating
to any other Fund contained in this Prospectus.
The investment adviser to EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
SMALL CAP EQUITY INCOME FUND, and EVERGREEN INCOME AND GROWTH FUND is Evergreen
Asset Management Corp. which, with its predecessors, has served as an investment
adviser to the Evergreen mutual funds since 1971. Evergreen Asset Management
Corp. is a wholly-owned subsidiary of First Union National Bank of North
Carolina, which in turn is a subsidiary of First Union Corporation, the sixth
largest bank holding company in the United States. The Capital Management Group
of First Union National Bank of North Carolina serves as investment adviser to
EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND. Keystone Investment Management
Company, also an indirect wholly-owned subsidiary of First Union National Bank
of North Carolina, serves as investment adviser to the KEYSTONE FUND FOR TOTAL
RETURN.
EVERGREEN UTILITY FUND seeks high current income and moderate capital
appreciation.
EVERGREEN GROWTH AND INCOME FUND seeks to achieve a return composed of
capital appreciation in the value of its shares and current income. The Fund
will attempt to meet its objective by investing in the securities of companies
which are undervalued in the marketplace relative to those companies' assets,
breakup value, earnings, or potential earnings growth.
EVERGREEN VALUE FUND seeks long-term capital growth, with current
income as a secondary objective.
EVERGREEN SMALL CAP EQUITY INCOME FUND attempts to maximize the "total
return" on its portfolio of investments. The Fund invests in common and
preferred stocks, securities convertible into or exchangeable for common stocks
and fixed income securities. In attempting to achieve its objective, the Fund
invests primarily in companies with total market capitalization of less than
$500 million.
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KEYSTONE FUND FOR TOTAL RETURN seeks total return from a combination of
capital growth and income. The Fund will invest principally in dividend paying
common stocks, preferred stocks and securities convertible into common stocks,
but may also invest in non-dividend paying common stocks if, in the judgment of
the Fund's investment adviser, that is consistent its objectives.
EVERGREEN INCOME AND GROWTH FUND (formerly Evergreen Total Return Fund)
attempts to maximize the "total return" on its portfolio of investments. It
invests primarily in common and preferred stocks, securities convertible into or
exchangeable for common stocks and fixed income securities.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
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EXPENSE INFORMATION
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The table set forth below summarizes the shareholder transaction costs
associated with an investment in each Class Y Shares of the Funds. For further
information see "Purchase and Redemption of Fund Shares" and "General
Information -- Other Classes of Shares".
[TO BE ADDED]
[TO BE ADDED]
From time to time, each Fund's investment adviser may, at its
discretion, reduce or waive its fees or reimburse the Funds for certain of their
expenses in order to reduce their expense ratios. Each Fund's investment adviser
may cease these waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in each Class of
Shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are estimated amounts based on the experience
of each Fund for the most recent fiscal period. Such expenses have been restated
to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND
ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of the various costs and expenses borne by the Funds see "Management
of the Funds". As a result of asset-based sales charges, long-term shareholders
may pay more than the economic equivalent of the maximum front-end charges
permitted under the rules of the National Association of Securities Dealers,
Inc.
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FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the five most recent fiscal years or the life of
the Fund if shorter, for EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND and
KEYSTONE FUND FOR TOTAL RETURN has been audited by KPMG Peat Marwick LLP, each
Fund's independent auditors, the Fund's independent auditors and for EVERGREEN
SMALL CAP EQUITY INCOME FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN
INCOME AND GROWTH
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FUND has been audited by Ernst & Young LLP, each Fund's independent auditors. A
report of KPMG Peat Marwick LLP, Price Waterhouse LLP, or Ernst & Young LLP, as
the case may be, on the audited information with respect to each Fund is
incorporated by reference in the Fund's Statement of Additional Information. The
following information for each Fund should be read in conjunction with the
financial statements and related notes which are incorporated by reference in
the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the
Fund's annual report to shareholders, which may be obtained without charge.
[TO BE ADDED BY AMENDMENT]
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DESCRIPTION OF THE FUNDS
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INVESTMENT OBJECTIVES AND POLICIES
Unless otherwise noted in this Prospectus, the Funds' investment
policies are not fundamental and may be changed without shareholder approval.
Each Fund's investment objective is fundamental and may not be changed without
shareholder approval.
In addition to the investment policies detailed below, each Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions", below.
EVERGREEN GROWTH AND INCOME FUND
The investment objective of EVERGREEN GROWTH AND INCOME FUND is to
achieve a return composed of capital appreciation in the value of its shares and
current income.
The Fund seeks to achieve its investment objective by investing in the
securities of companies which are undervalued in the marketplace relative to
those companies' assets, breakup value, earnings or potential earnings growth.
These companies are often found among those which have had a record of financial
success but are currently in disfavor in the marketplace for reasons the Fund's
investment adviser perceives as temporary or erroneous. Such investments when
successfully timed are expected to be the means for achieving the Fund's
investment objective. This inherently contrarian approach may require greater
reliance upon the analytical and research capabilities of the Fund's investment
adviser than an investment in certain other equity funds. Consequently, an
investment in the Fund may involve more risk than other equity funds. The Fund
should not be considered suitable for investors who are unable or unwilling to
assume the risks of loss inherent in such a program. Nor should the Fund be
considered a balanced or complete investment program.
The Fund will use the "value timing" approach as a process for
purchasing securities when events indicate that fundamental investment values
are being ignored in the marketplace. Fundamental investment value is based on
one or more of the following: assets -- tangible and intangible (examples of the
latter include brand names or licenses), capitalization of earnings, cash flow
or potential earnings growth. A discrepancy between market valuation and
fundamental value often arises due to the presence of unrecognized assets or
business opportunities, or as a result of incorrectly perceived or short-term
negative factors. Changes in regulations, basic economic or monetary shifts and
legal action (including the initiation of bankruptcy proceedings) are some of
the factors that create these capital appreciation opportunities. If the
securities in which the Fund invests never reach their perceived potential or
the valuation of such securities in the marketplace does not in fact reflect
significant undervaluation, there may be little or no appreciation or a
depreciation in the value of such securities.
The Fund will invest primarily in common stocks and securities
convertible into or exchangeable for common stock. It is anticipated that the
Fund's investments in these securities will contribute to the Fund's return
primarily through capital appreciation. In addition, the Fund will invest in
nonconvertible preferred stocks and debt securities. It is anticipated that the
Fund's investments in these securities will also produce capital appreciation
but the current income component of return will be a more significant factor in
their selection. However, the Fund will invest in nonconvertible preferred stock
and debt securities only if the anticipated capital appreciation plus income
from such investments is equivalent to that anticipated from investments in
equity or equity-related securities. The Fund may invest up to 5% of its total
assets in debt securities which are rated below investment grade, commonly known
as "junk bonds". Investments of this type are subject to greater risk of loss of
principal and interest. See "Special Risk Considerations".
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EVERGREEN SMALL CAP EQUITY INCOME FUND
The investment objective of EVERGREEN SMALL CAP EQUITY INCOME FUND is
to achieve a return consisting of current income and capital appreciation in the
value of its shares. The emphasis on current income and capital appreciation
will be relatively equal although, over time, changes in market conditions and
the level of interest rates may cause the Fund to vary its emphasis between
these two elements in its search for the optimum return for its shareholders.
The Fund seeks to achieve its investment objective through investments in common
stocks, preferred stocks, securities convertible into or exchangeable for common
stocks and fixed income securities. Under normal conditions, the Fund will
invest at least 65% of its total assets in equity securities (including
convertible debt securities) of companies that, at the time of purchase, have
"total market capitalization" -- present market value per share multiplied by
the total number of shares outstanding -- of less than $500 million. The Fund
may invest up to 35% of its total assets in equity securities of companies that
at the time of purchase have a total market capitalization of $500 million or
more, and in excess of that percentage during temporary defensive periods. As of
December 31, 1994, 1995 and 1996, approximately 64.5%, 69.9% and . %,
respectively, of the Fund's portfolio consisted of equity securities.
To the extent that the Fund seeks capital appreciation, it expects that
its investments will provide growth over the long-term. Investments, however,
may be made on occasion for the purpose of short-term capital appreciation if
the Fund believes that such investments will benefit its shareholders.
Purchasing securities for short-term trading is subject to certain rules and
involves additional brokerage expenses. The Fund may make investments in
securities regardless of whether or not such securities are traded on a national
securities exchange. The value of portfolio securities and their yields are
expected to fluctuate over time because of varying general economic and market
conditions.
The Fund's portfolio will vary over time depending upon the economic
outlook and market conditions. The composition of its portfolio will be subject
to the discretion of the Fund's investment adviser. Ordinarily, the Fund
anticipates that most of its portfolio will consist of equity securities and
convertible debt securities. A significant portion of the equity investments,
however, will be income producing. If in the judgment of the Fund's investment
adviser a defensive position is appropriate, the Fund may take a defensive
position and invest without limit in debt securities or government securities or
hold its assets in cash or cash equivalents. The quality standards for debt
securities include: Obligations of banks and commercial paper rated no lower
than P-2 by Moody's Investor's Service ("Moody's"), A-2 by Standard and Poor's
Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P") or having a
comparable rating from another nationally recognized statistical rating
organization ("SRO"); and non-convertible debt securities rated no lower than
Baa by Moody's or BBB by S&P. For a description of such ratings see the
Statement of Additional Information.
The Fund may invest in real estate investment trusts ("Reits"). Equity
Reits invest directly in real property while mortgage Reits invest in mortgages
on real property. The Fund does not intend to invest in Reits that are primarily
mortgage Reits. Equity Reits usually provide a high current yield plus the
opportunity of long-term price appreciation of real estate values. Reits may be
subject to certain risks associated with the direct ownership of real estate.
See "Special Risk Considerations".
EVERGREEN INCOME AND GROWTH FUND
The investment objective of EVERGREEN INCOME AND GROWTH FUND (formerly
Evergreen Total Return Fund)
is to achieve a return consisting of current income and capital appreciation in
the value of its shares. The emphasis on current income and capital appreciation
will be relatively equal although, over time, changes in the outlook for market
conditions and the level of interest rates will cause the Fund to vary its
emphasis between these two elements in its search for the optimum return for its
shareholders. To the extent that the Fund is emphasizing current income, it may
purchase securities in anticipation of participating in dividends. This practice
may result in a higher rate of portfolio turnover and may affect the Fund's
overall return. The Fund seeks to achieve its investment objective through
investments in common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks and fixed income securities. The Fund may invest
up to 20% of its total assets in the securities of foreign issuers either
directly or in the form of ADRs, European Depository Receipts ("EDRs") or other
securities convertible into securities of foreign issuers. See "Special Risk
Considerations", below. The Fund may also write covered call options.
To the extent that the Fund seeks capital appreciation, it expects that
its investments will provide growth over the long-term. Investments, however,
may be made on occasion for the purpose of short-term capital appreciation if
the Fund believes that such investments will benefit its shareholders.
The Fund may make investments in securities (other than options)
regardless of whether or not such securities are traded on a national securities
exchange. The value of portfolio securities and their yields, as well as
opportunities to realize net
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gains from a covered call options writing program, are expected to fluctuate
over time because of varying general economic and market conditions.
The Fund's portfolio will vary over time depending upon the economic
outlook and market conditions. The composition of its portfolio will be largely
unrestricted and subject to the discretion of the Fund's investment adviser.
Ordinarily, the Fund anticipates that approximately 75% of its portfolio will
consist of equity securities and the other 25% of debt securities (including
convertible debt securities). As of January 31, 1995, 1996 and 1997,
approximately 91%, 91% and __%, respectively, of the Fund's portfolio consisted
of equity securities. The balance of the Fund's portfolio consisted of debt
securities (including convertible debt securities). If, in the judgment of the
Fund's investment adviser, the appreciation potential for equity securities
exceeds the return available from debt securities or government securities,
investments in equity securities could exceed 75% of the Fund's portfolio. Most
equity investments, however, will be income producing. The quality standards for
debt securities include: Obligations of banks having total assets of at least
one billion dollars which are members of the FDIC; commercial paper rated no
lower than P-2 by Moody's or A-2 by S&P; and non-convertible debt securities
rated no lower than Baa by Moody's or BBB by Standard & Poor's. Securities rated
Baa or BBB may have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to weaken the ability of the issuers of
such bonds' to make principal and interest payments than is the case with higher
rated bonds. However, like the higher rated bonds, these securities are
considered investment grade. For a description of such ratings, see the
Statement of Additional Information. See "Special Risk Considerations".
EVERGREEN UTILITY FUND
The investment objective of EVERGREEN UTILITY FUND is to achieve a
return consisting of high current income and moderate capital appreciation. The
Fund invests primarily in a diversified portfolio of equity and debt securities
of utility companies that produce, transmit or distribute gas or electrical
energy, as well as those companies which provide communications facilities, such
as telephone and telegraph companies. As a matter of investment policy, the Fund
will invest at least 65% of the value of its total assets in utility companies
that derive 50% of their revenues from utilities or assets relating to utility
industries. In addition, the Fund may invest up to 35% of its assets in common
stock of non-utility companies. As of December 31, 1995 and 1996, approximately
77.8% and ____%, respectively, of the Fund's portfolio consisted of investments
in utility companies.
The Fund may invest in:
common and preferred stocks, bonds and convertible preferred stocks of
utility companies selected by the Fund's investment adviser on the
basis of traditional research techniques, including assessment of
earnings and dividend growth prospects and of the risk and volatility
of the individual company's industry. However, other factors, such as
product position, market share or profitability may also be considered
by the Fund's investment adviser. The Fund will only invest its assets
in debt securities rated Baa or higher by Moody's or BBB or higher by
S&P or which, if unrated, are considered to be of comparable quality by
the Fund's investment adviser;
securities which are either issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities include
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and notes, bonds and discount notes of U.S. government
agencies or instrumentalities such as the Farm Credit System, including
the National Bank for Cooperatives, Farm Credit Banks and Banks for
Cooperatives, Farmers Home Administration, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association, Government National Mortgage Association, Student Loan
Marketing Association, Tennessee Valley Authority, Export-Import Bank
of the United States, Commodity Credit Corporation, Federal Financing
Bank and National Credit Union Administration. Some of these securities
are supported by the full faith and credit of the U.S. government, and
others are supported only by the full faith and credit of the agency or
instrumentality;
commercial paper, including master demand notes;
American Depositary Receipts ("ADRs") of foreign companies traded on
the New York or American Stock Exchanges or the over-the-counter
market;
foreign securities (either foreign or U.S. securities traded in foreign
markets). The Fund may also invest in other obligations denominated in
foreign currencies. In making these decisions, the Fund's investment
adviser will consider such factors as the condition and growth
potential of various economies and securities markets, currency and
taxation considerations and other pertinent financial, social, national
and political factors. (See "Special Risk Considerations"
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below.) The Fund will not invest more than 10% of its assets in foreign
securities;
obligations, including certificates of deposit and bankers'
acceptances, of banks or savings and loan associations having
at least $1 billion in deposits and insured by the Bank Insurance Fund
or the Savings Association Mortgage Fund, including U.S. branches of
foreign banks and foreign branches of U.S. banks; and
securities of other investment companies.
As of December 31, 1996 approximately ___% of the Fund's portfolio
consisted of equity securities.
Bonds rated Baa by Moody's or BBB by S&P may have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to weaken the ability of the issuers of such bonds' to make principal and
interest payments thanis the case with higher rated bonds. However, like the
higher rated bonds, these securities are considered investment grade. For a
description of such ratings, see the Statement of Additional Information.
EVERGREEN VALUE FUND
The investment objective of the EVERGREEN VALUE FUND is long-term
capital appreciation with current income as a secondary objective. Normally, at
least 75% of the Fund's assets will be invested in equity securities of U.S.
companies with prospects for earnings growth and dividends. As of December 31,
1994, 1995 and 1996 approximately 97%, 89% and __%, respectively, of the Fund's
portfolio consisted of equity securities.
The Fund's investments, in order of priority, consist of:
common and preferred stocks, bonds and convertible preferred stock of
U.S. companies with a minimum market capitalization of $100 million
which are listed on the New York or American Stock Exchanges or traded
in over-the-counter markets. The primary consideration is for those
industries and companies with the potential for capital appreciation;
income is a secondary consideration;
ADRs of foreign companies traded on the New York or American Stock
Exchanges or the over-the-counter market;
foreign securities (either foreign or U.S. securities traded in
foreign markets). The Fund may also invest in obligations denominated
in foreign currencies. In making these decisions, the Fund's
investment adviser will consider such factors as the condition and
growth potential of various economies and securities markets, currency
and taxation implications and other pertinent financial, social,
national and political factors. (See "Special Risk Considerations");
convertible bonds rated no lower than BBB by S&P or Baa by Moody's or,
if not rated, determined to be of comparable quality by the Fund's
investment adviser;
money market instruments;
fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock the Fund may acquire rated no lower than
BBB by S&P or Baa by Moody's or which, if not rated, determined to be
of comparable quality by the Fund's investment adviser (up to 5% of
total assets);
zero coupon bonds issued or guaranteed by the U.S. government, its
agencies or instrumentalities (up to 5% of total assets);
obligations, including certificates of deposit and bankers'
acceptances, of banks or savings and loan associations having at least
$1 billion in deposits and insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, including U.S. branches of foreign
banks and foreign branches of U.S. banks; and
prime commercial paper, including master demand notes rated no lower
than A-1 by S&P or Prime 1 by Moody's.
Bonds rated BBB by S&P or Baa by Moody's may have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to weaken such bonds' prospects for principal and interests payments than
higher rated bonds. However, like the higher rated bonds, these securities are
considered investment grade. For a description of such ratings see the Statement
of Additional Information.
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KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND FOR TOTAL RETURN seeks total return from a combination of
capital growth and income. Under ordinary circumstances, the Fund will invest
principally in dividend paying common stocks, preferred stocks and securities
convertible into common stocks. Non-dividend paying common stocks may also be
owned by the Fund if, in the judgment of the Fund's investment adviser, that is
consistent with or will enhance the Fund's ability to achieve its objectives.
The Fund may invest up to 50% of its assets in securities of foreign issuers
located in developed countries as well as emerging markets countries. For this
purpose, countries with emerging markets are generally those where the per
capita income is in the low to middle ranges, as determined, from time to time,
by the International Bank for Reconstruction and Development ("World Bank"). The
Fund may invest up to 35% of its total assets in debt securities of U.S. and
foreign issuers, including secured and unsecured debt obligations, having any
assigned rating by S&P or Moody's or which are unrated. The Fund may also invest
in non-investment grade rated zero coupon and payment-in-kind ("PIK")
securities. See "Special Risk Consideration".
The Fund may invest up to 35% of its total assets under ordinary
circumstances in the following types of money market instruments: (1) commercial
paper, including master demand notes, which at the date of investment is rated
A-1, the highest grade, by S&P, PRIME-1, the highest grade, by Moody's or, if
not rated by such services, is issued by a company which at the date of
investment has an outstanding issue rated A or better by S&P or Moody's; (2)
obligations, including certificates of deposit and bankers' acceptances, of
banks or savings and loan associations having at least $1 billion in assets as
of the date of their most recently published financial statements that are
members of the Federal Deposit Insurance Corporation, including U.S. branches of
foreign banks and foreign branches of U.S. banks; (3) corporate obligations that
at the date of investment are rated A or better by S&P or Moody's; and (4)
obligations issued or guaranteed by the U.S. government or by any agency or
instrumentality of the U.S.
INVESTMENT PRACTICES AND RESTRICTIONS
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. government securities if, in the opinion of the Funds'
investment advisers, market conditions warrant a temporary defensive investment
strategy. In addition, KEYSTONE FUND FOR TOTAL RETURN may also make temporary
investments in debt securities and high grade preferred stocks for defensive
purposes when it believes market conditions warrant.
Portfolio Turnover and Brokerage. It is contemplated that Lieber & Company, an
affiliate of Evergreen Asset Management Corp. ("Evergreen Asset") and a member
of the New York and American Stock Exchanges, will to the extent practicable
effect substantially all of the portfolio transactions for the EVERGREEN SMALL
CAP EQUITY INCOME FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN INCOME
AND GROWTH FUND on those exchanges. The portfolio turnover rate experienced by a
Fund directly affects brokerage commissions and other transaction costs which
the Fund must pay. A portfolio turnover rate of 100% would occur if all of a
Fund's portfolio securities were replaced in one year. It is anticipated that
the annual portfolio turnover rate for the EVERGREEN INCOME AND GROWTH FUND may
exceed 100%. A high rate of portfolio turnover will increase brokerage costs.
The portfolio turnover rate for each Fund is set forth in the tables contained
in the section entitled "Financial Highlights". See the Statement of Additional
Information for further information regarding the brokerage allocation practices
of the Funds.
Borrowing. As a matter of fundamental policy, the Funds other than KEYSTONE FUND
FOR TOTAL RETURN, may not borrow money except as a temporary measure to
facilitate redemption requests or for extraordinary or emergency purposes. The
proceeds from borrowings may be used to facilitate redemption requests which
might otherwise require the untimely disposition of portfolio securities.
KEYSTONE FUND FOR TOTAL RETURN may borrow in amounts up to one-third of its
assets for the aformentioned purposes as well as leverage. The specific limits
applicable to borrowing by each Fund are set forth in the Statement of
Additional Information.
Lending of Portfolio Securities. In order to generate income and to offset
expenses, the Funds may lend portfolio securities to brokers, dealers and other
financial institutions. The Funds' investment advisers will monitor the
creditworthiness of such borrowers. Loans of securities by the Funds, if and
when made, may not exceed 30% of the value of the net assets of the EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP
EQUITY INCOME FUND, 15% of the value of the total assets of EVERGREEN UTILITY
FUND and KEYSTONE FUND FOR TOTAL RETURN and 5% of the value of the total assets
of EVERGREEN VALUE FUND, and must be collateralized by cash or U.S. government
securities that are maintained at all times in an amount equal to at least 100%
of the current market value of the securities loaned, including accrued
interest. While such securities are on loan, the borrower will pay a Fund any
income accruing thereon, and the Fund may invest the cash collateral in
portfolio securities, thereby increasing its return. Any gain or
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loss in the market price of the loaned securities which occurs during the term
of the loan would affect a Fund and its investors. A Fund has the right to call
a loan and obtain the securities loaned at any time on notice of not more than
five business days.
A Fund may pay reasonable fees in connection with such loans.
There is the risk that when lending portfolio securities, the
securities may not be available to a Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
Short Sales. The EVERGREEN INCOME AND GROWTH FUND and EVERGREEN GROWTH AND
INCOME FUND may, as a defensive strategy, make short sales of securities. A
short sale occurs when a seller sells a security and makes delivery to the buyer
by borrowing the security. Short sales of a security are generally made in cases
where the seller expects the market value of the security to decline. To
complete a short sale, the seller must replace the security borrowed by
purchasing it at the market price at the time of replacement, or by delivering
securities from the seller's own position to the lender. In the event the market
value of a security sold short were to increase, the seller would realize a loss
to the extent that the cost of purchasing the security for delivery to the
lender were greater than the proceeds from the short sale. In the event a short
sale is completed by delivery of securities to the lender from the seller's own
position, the seller would forego any gain that would otherwise be realized on
such securities.
Illiquid or Restricted Securities. EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN UTILITY FUND and KEYSTONE FUND FOR TOTAL
RETURN may invest up to 15% of their net assets, and EVERGREEN SMALL CAP EQUITY
INCOME FUND and EVERGREEN VALUE FUND may invest up to 10% of their net assets,
in illiquid securities and other securities which are not readily marketable,
including non-negotiable time deposits, certain restricted securities not deemed
by the Trustees to be liquid and repurchase agreements with maturities longer
than seven days. Securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, which have been determined to be liquid, will not be
considered by the Funds' investment advisers to be illiquid or not readily
marketable and, therefore, are not subject to the aforementioned 15% or 10%
limits. The inability of a Fund to dispose of illiquid or not readily marketable
investments readily or at a reasonable price could impair the Fund's ability to
raise cash for redemptions or other purposes. The liquidity of securities
purchased by a Fund which are eligible for resale pursuant to Rule 144A will be
monitored by the Funds' investment advisers on an ongoing basis, subject to the
oversight of the Trustees. In the event that such a security is deemed to be no
longer liquid, a Fund's holdings will be reviewed to determine what action, if
any, is required to ensure that the retention of such security does not result
in a Fund having more than 15% or 10%of its net assets, as applicable, invested
in illiquid or not readily marketable securities.
Repurchase Agreements and Reverse Repurchase Agreements. The Funds may enter
into repurchase agreements with member banks of the Federal Reserve System,
including the Funds' custodian or primary dealers in U.S. Government securities.
A repurchase agreement is an arrangement pursuant to which a buyer purchases a
security and simultaneously agrees to resell it to the vendor at a price that
results in an agreed-upon market rate of return which is effective for the
period of time (which is normally one to seven days, but may be longer) the
buyer's money is invested in the security. The arrangement results in a fixed
rate of return that is not subject to market fluctuations during the holding
period. A Fund requires continued maintenance of collateral with its custodian
in an amount at least equal to the repurchase price (including accrued
interest). In the event a vendor defaults on its repurchase obligation, a Fund
might suffer a loss to the extent that the proceeds from the sale of the
collateral were less than the repurchase price. If the vendor becomes the
subject of bankruptcy proceedings, a Fund might be delayed in selling the
collateral. The Funds' investment advisers will review and continually monitor
the creditworthiness of each institution with which a Fund enters into a
repurchase agreement to evaluate these risks.
EVERGREEN UTILITY FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND,
EVERGREEN VALUE FUND, and KEYSTONE FUND FOR TOTAL RETURN may borrow money by
entering into a "reverse repurchase agreement" by which it agrees to sell
portfolio securities to financial institutions such as banks and broker-dealers,
and to repurchase them at a mutually agreed upon date and price, for temporary
or emergency purposes. At the time a Fund enters into a reverse repurchase
agreement, it will place in a segregated custodial account cash, U.S. government
securities or liquid high grade debt obligations having a value at least equal
to the repurchase price (including accrued interest) and will subsequently
monitor the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
Each Fund, other than KEYSTONE FUND FOR TOTAL RETURN, will not enter into
reverse repurchase agreements exceeding 5% of the value of its total assets.
When-Issued and Delayed Delivery Transactions. EVERGREEN UTILITY FUND, EVERGREEN
VALUE FUND and KEYSTONE FUND FOR TOTAL RETURN may purchase securities on a
when-issued or delayed delivery basis. These
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transactions are arrangements in which a Fund purchases securities with payment
and delivery scheduled for a future time. The seller's failure to complete these
transactions may cause a Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary from
the purchase prices. Accordingly, a Fund may pay more or less than the market
value of the securities on the settlement date. The Funds may dispose of a
commitment prior to settlement if the Funds investment adviser deems it
appropriate to do so. In addition, the Funds may enter into transactions to sell
their purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize short-term profits or losses upon the sale of such
commitments.
Fixed Income Securities -- Downgrades. If any security invested in by any of the
Funds loses its rating or has its rating reduced after the Fund has purchased
it, the Fund is not required to sell or otherwise dispose of the security, but
may consider doing so.
OPTIONS, FUTURES and DERIVATIVES
In addition to making investments directly in securities, the Funds may
write covered put and call options and hedge their investments by purchasing
options. In addition EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND, EVERGREEN
SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may engage in
transactions in futures contracts and related options. The investment adviser to
the EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND
does not currently intend to write covered put options, purchase options or
engage in transactions in futures contracts and related options, but may do so
in the future. The Funds may engage in foreign currency exchange transactions to
protect against changes in future exchange rates.
Writing Options. Each Fund may write covered call options, and EVERGREEN VALUE
FUND and KEYSTONE FUND FOR TOTAL RETURN may write covered put options, on
certain portfolio securities in an attempt to earn income and realize a higher
return on their portfolios. A call option gives the purchaser of the option the
right to buy a security from the writer at the exercise price at any time during
the option period. An option may not be written if, afterwards, securities
comprising more than 5% of the market value of a Fund's equity securities would
be subject to call options. A Fund realizes income from the premium paid to it
in exchange for writing the call option. Once it has written a call option on a
portfolio security and until the expiration of such option, a Fund forgoes the
opportunity to profit from increases in the market price of such security in
excess of the exercise price of the call option. Should the price of the
security on which a call has been written decline, a Fund bears the risk of
loss, which would be offset to the extent the Fund has received premium income.
A Fund will only write "covered" options traded on recognized securities
exchanges. An option will be deemed covered when a Fund either owns the security
(or securities convertible into such security) on which the option has been
written in an amount sufficient to satisfy the obligations arising under a call
option; or (ii) in the case of call and put options, the Fund's custodian
maintains cash or high-grade liquid debt securities belonging to the Fund in an
amount not less that the amount needed to satisfy the Fund's obligations with
respect to options written on securities it does not own. A "closing purchase
transaction" may be entered into with respect to a call option written by a Fund
for the purpose of closing its position. The Fund will realize a profit (or
loss) from such transaction if the cost of such transaction is less (or more)
than the premium received from the writing of the option. Because increases in
the market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the repurchase of a
call option may be offset in whole or in part by unrealized appreciation of the
underlying security owned by the Fund.
Purchasing Put and Call Options on Securities. EVERGREEN VALUE FUND and KEYSTONE
FUND FOR TOTAL RETURN may purchase put options to protect its portfolio holdings
in an underlying security against a decline in market value. This protection is
provided during the life of the put option since the Fund, as holder of the put,
is able to sell the underlying security at the exercise price regardless of any
decline in the underlying security's market price. For the purchase of a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, any profit which the
Fund might otherwise have realized on the underlying security will be reduced by
the premium paid for the put option and by transaction costs.
A Fund may also purchase a call option to hedge against an increase in price of
a security that it intends to purchase. This protection is provided during the
life of the call option since the Fund, as holder of the call, is able to buy
the underlying security at the exercise price regardless of any increase in the
underlying security's market price. For the purchase of a call option to be
profitable, the market price of the underlying security must rise sufficiently
above the exercise price to cover the premium and transaction costs. By using
call options in this manner, any profit which the Fund might have realized had
it bought the underlying security at the time it purchased the call option will
be reduced by the premium paid for the call option and by transaction costs.
Futures, Options and Other Derivative Instruments. EVERGREEN UTILITY FUND,
EVERGREEN VALUE FUND,
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EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may
purchase and sell various financial instruments ("Derivative Instruments) such
as financial futures contracts (including interest rate, index and foreign
currency futures contracts), options (such as options on securities, indices,
foreign currencies and futures contracts), forward currency contracts and
interest rate, equity index and currency swaps, caps, collars and floors. The
index Derivative Instruments EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND,
EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may
use may be based on indices of U.S. or foreign equity or debt securities. These
Derivative Instruments may be used, for example, to preserve a return or spread,
to lock in unrealized market value gains or losses, to facilitate or substitute
for the sale or purchase of securities, to manage the duration of securities, to
alter the exposure of a particular investment or portion of the Fund's portfolio
to fluctuations in interest rates or currency rates, to uncap a capped security
or to convert a fixed rate security into a variable rate security or a variable
rate security into a fixed rate security.
A Fund's ability to use these instruments may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies and there can be no assurance that any strategy that is used
will succeed. See the Statement of Additional Information for more information
regarding these instruments and the risks relating thereto.
Risks of Derivative Instruments. The use of Derivative instruments, including
written put and call options, involves special risks, including: (1) the lack
of, or imperfect, correlation between price movements of the Fund's current or
proposed portfolio investments that are the subject of the transactions as well
as price movements of the Derivative Instruments involved in the transaction;
(2) possible lack of a liquid secondary market for any particular Derivative
Instrument at a particular time; (3) the need for additional portfolio
management skills and techniques; (4) losses due to unanticipated market price
movements; (5) the fact that, while such strategies can reduce the risk of loss,
they can also reduce the opportunity for gain, or even result in losses, by
offsetting favorable price movements in portfolio investments; (6) incorrect
forecasts by a Fund's investment adviser concerning interest or currency
exchange rates or direction of price fluctuations of the investment that is the
subject of the transaction, which may result in the strategy being ineffective;
(7) loss of premiums paid by the Fund on options it purchases; and (8) the
possible inability of the Fund to purchase or sell a portfolio security at a
time when it would otherwise be favorable for it to do so, or the need to sell a
portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with such transactions
and the possible inability of the Fund to close out or liquidate its positions.
A Fund's investment adviser may use Derivative Instruments, including written
put and call options, for hedging purposes (i.e. by paying a premium or
foregoing the opportunity for profit in return for protection against downturns
in markets generally or the prices of individual securities or currencies) and
also may use Derivative Instruments to try to enhance the return characteristics
of a Fund's portfolio of investments (i.e. by receiving premiums in connection
with the writing of options and thereby accepting the risk of downturns in
markets generally or the prices of individual securities or currencies or by
paying premiums with the hope that the underlying Derivative Instruments will
appreciate). The use of Derivative Instruments for hedging purposes or to
enhance a Fund's return characteristics can increase investment risk. If a
Fund's investment adviser judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed, resulting in leverage. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a position
that the Fund has entered into. Options and futures transactions may increase
portfolio turnover rates, which would result in greater commission expenses and
transaction costs.
Foreign Currency Transactions. To the extent a Funds may invest in non-U.S.
dollar denominated securities, it may enter into foreign currency transactions
to obtain the necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot or cash basis at prevailing rates
or through forward foreign currency exchange contracts ("forward contracts").
EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may
also enter into forward foreign currency exchange contracts to protect Fund
assets denominated in a foreign currency against adverse changes in foreign
currency exchange rates or exchange control regulations. Such changes could
unfavorably affect the value of Fund assets which are denominated in foreign
currencies, such as foreign securities or funds deposited in foreign banks, as
measured in U.S. dollars. The use of forward contracts for hedging purposes may
limit any potential gain that might result from a relative increase in the value
of such currencies and might, in certain cases, result in losses to the Fund. A
forward contract is an obligation to purchase or sell an amount of a particular
currency at a specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time a Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated and are maintained until
the contract has been settled. The Funds will not enter into a forward contract
with a term of more than one year. In addition to forward contracts entered into
for hedging purposes, EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND
FOR TOTAL RETURN will generally enter into a forward contract to provide the
proper currency to settle a securities
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<PAGE>
transaction at the time the transaction occurs ("trade date"). The period
between trade date and settlement date will vary between 24 hours and 60 days,
depending upon local custom.
Options on Foreign Currencies. EVERGREEN SMALL CAP EQUITY INCOME FUND and
KEYSTONE FUND FOR TOTAL RETURN also purchase foreign currency put options. A put
option gives the holder, upon payment of a premium, the right to sell a currency
at the exercise price until the expiration of the option and serves to ensure
against adverse currency price movements in the underlying portfolio assets
denominated in that currency. Exchange listed options on seven major currencies
are traded in the U.S. In addition, several major U.S. investment firms make
markets in unlisted options on foreign currencies. Such unlisted options may be
available with respect to a wide range of foreign currencies than listed options
and may have more flexible terms. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risks
associated with the individual issuer. No more than 5% of a Fund's net assets
may be represented by premiums paid by the Fund with respect to options on
foreign currencies outstanding at any one time. Furthermore, the market value of
unlisted options on foreign currencies will be included with other illiquid
assets held by the Fund for purposes of the 15% limit on such assets. The Funds
may write a call option on a foreign currency only in conjunction with a
purchase of a put option on that currency. A call option written by a Fund gives
the purchaser, upon payment of a premium, the right to purchase from the Fund a
currency at the exercise price until the expiration of the option. Writing call
options in this manner is designed to reduce the cost of downside currency
protection but has the effect of limiting currency appreciation potential.
SPECIAL RISK CONSIDERATIONS
Fixed Income Investments. Investments by the Funds in fixed income
securities are subject to a number of risks. For example, changes in economic
conditions could result in the weakening of the capacity of the issuers of such
securities to make principal and interest payments, particularly in the case of
issuers of non-investment grade fixed income securities. In addition, the market
value of fixed-income securities in a Fund's portfolio can be expected to vary
inversely to changes in prevailing interest rates. In the event there is a
downgrading in the rating of a fixed income security held in a Fund's portfolio,
the Fund may continue to hold the security if such action is deemed to be in the
best interests of the Fund and its shareholders.
Investment in Small Companies. EVERGREEN GROWTH AND INCOME FUND may
invest from time to time, and EVERGREEN SMALL CAP EQUITY INCOME FUND will invest
in securities of little-known, relatively small and special situation companies.
Investments in such companies may tend to be speculative and volatile. A lack of
management depth in such companies could increase the risks associated with the
loss of key personnel. Also, the material and financial resources of such
companies may be limited, with the consequence that funds or external financing
necessary for growth may be unavailable. Such companies may also be involved in
the development or marketing of new products or services for which there are no
established markets. If projected markets do not materialize or only regional
markets develop, such companies may be adversely affected or be subject to the
consequences of local events. Moreover, such companies may be insignificant
factors in their industries and may become subject to intense competition from
larger companies. Securities of small and special situation companies in which
the Funds invest will frequently be traded only in the over-the-counter market
or on regional stock exchanges and will often be closely held. Securities of
this type may have limited liquidity and be subject to wide price fluctuations.
As a result of the risk factors described above, the net asset value of each
Fund's shares can be expected to vary significantly.
Investment in Foreign Securities. EVERGREEN INCOME AND GROWTH FUND, EVERGREEN
UTILITY FUND and KEYSTONE FUND FOR TOTAL RETURN may invest in foreign
securities. Investments in foreign securities require consideration of certain
factors not normally associated with investments in securities of U.S. issuers.
For example, a change in the value of any foreign currency relative to the U.S.
dollar will result in a corresponding change in the U.S. dollar value of
securities denominated in that currency. Accordingly, a change in the value of
any foreign currency relative to the U.S. dollar will result in a corresponding
change in the U.S. dollar value of the assets of the Fund denominated or traded
in that currency. If the value of a particular foreign currency falls relative
to the U.S. dollar, the U.S. dollar value of the assets of a Fund denominated in
such currency will also fall. The performance of a Fund will be measured in U.S.
dollars.
Securities markets of foreign countries generally are not subject to
the same degree of regulation as the U.S. markets and may be more volatile and
less liquid. Lack of liquidity may affect a Fund's ability to purchase or sell
large blocks of securities and thus obtain the best price. The lack of uniform
accounting standards and practices among countries impairs the validity of
direct comparisons of valuation measures (such as price/earnings ratios) for
securities in different countries. In addition, a Fund may incur costs
associated with currency hedging and the conversion of foreign currency into
U.S. dollars and may be adversely affected by restrictions on the conversion or
transfer of foreign currency. Other considerations include political and social
instability, expropriation, the lack of available information, higher
transaction costs (including brokerage charges), increased custodian charges
associated with holding foreign securities and different securities settlement
practices. Settlement periods
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<PAGE>
for foreign securities, which are sometimes longer than those for securities of
U.S. issuers, may affect portfolio liquidity. These different settlement
practices may cause missed purchasing opportunities and/or the loss of interest
on money market and debt investments pending further equity or long-term debt
investments. In addition, 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, a Fund's net asset value may
be significantly affected on days when shareholders do not have access to the
Fund.
Additionally, accounting procedures and government supervision may be
less stringent than those applicable to U.S. companies. It may also be more
difficult to enforce contractual obligations abroad than would be the case in
the United States because of differences in the legal systems. Foreign
securities may be subject to foreign taxes, which may reduce yield, and may be
less marketable than comparable U.S. securities. All these factors are
considered by each Fund's investment adviser before making any of these types of
investments.
ADRs and EDRs and other securities convertible into securities of
foreign issuers may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement. Generally ADRs, in
registered form, are designed for use in United States securities markets and
EDRs, in bearer form, are designed for use in European securities markets.
Investments Related to Real Estate. EVERGREEN INCOME AND GROWTH FUND may invest
up to 15% of its net assets and EVERGREEN SMALL CAP EQUITY INCOME FUND may
invest without limit in investments related to real estate, including real
estate investment trust ("REITS"). Risks associated with investment in
securities of companies in the real estate industry include: declines in the
value of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
variations in rental income, changes in neighborhood values, the appeal of
properties to tenants and increases in interest rates. In addition, equity real
estate investment trusts may be affected by changes in the value of the
underlying property owned by the trusts, while mortgage real estate investment
trusts may be affected by the quality of credit extended. Equity and mortgage
real estate investment trusts are dependent upon management skills, may not be
diversified and are subject to the risks of financing projects. Such trusts are
also subject to heavy cash flow dependency, defaults by borrowers, self
liquidation and the possibility of failing to qualify for tax-free pass-through
of income under the Internal Revenue Code of 1986, as amended (the "Code") and
to maintain exemption from the Investment Company Act of 1940, as amended (the
"1940 Act"). In the event an issuer of debt securities collateralized by real
estate defaulted, it is conceivable that a Fund could end up holding the
underlying real estate.
Lower-rated Securities. EVERGREEN GROWTH AND INCOME FUND and KEYSTONE FUND FOR
TOTAL RETURN may invest a portion of their assets in securities rated below Baa
by Moody's or BBB by S&P (commonly known as "junk bonds"). Lower-rated and
comparable unrated securities (collectively referred to in this discussion as
"lower-rated securities") will likely have some quality and protective
characteristics that, in the judgment of the rating organization, are
out-weighed by large uncertainties or major risk exposures to adverse
conditions; and are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation.
While the market values of lower-rated securities tend to react less to
fluctuations in interest rate levels than the market values of higher rated
securities, the market values of certain lower-rated securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower-rated securities
generally present a higher degree of credit risk. Issuers of lower- rated
securities are often highly leveraged and may not have more traditional methods
of financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because lower-rated securities generally are unsecured
and frequently are subordinated to the prior payment of senior indebtedness. A
Fund may incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings. The existence of limited markets for lower-rated securities may
diminish a Fund's ability to obtain accurate market quotations for purposes of
valuing such securities and calculating its net asset value. For additional
information about the possible risks of investing in junk bonds, see "Investment
Objectives and Policies - Junk Bonds" in the Statement of Additional
Information.
Investments in the Utility Industry. In view of the EVERGREEN UTILITY FUND'S
investment concentration, investors should be aware of certain risks associated
with the utility industry in general. These include difficulties in earning
adequate returns on investments despite frequent rate increases, restrictions on
operations and increased costs and delays due to governmental regulations,
building or construction delays, environmental regulations, difficulty of the
capital markets in absorbing utility debt
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and equity securities, and difficulties in obtaining fuel at reasonable prices.
Other Investment Restrictions. Each Fund has adopted additional investment
restrictions that are set forth in the Statement of Additional Information.
Unless otherwise noted, the restrictions and policies set forth above are not
fundamental and may be changed without shareholder approval. Shareholders will
be notified of any changes in policies that are not fundamental.
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MANAGEMENT OF THE FUNDS
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INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust
under which the Fund has been established ("Trustees"). Evergreen Asset has been
retained by EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND
and EVERGREEN SMALL CAP EQUITY INCOME FUND as investment adviser. Evergreen
Asset succeeded on June 30, 1994 to the advisory business of a corporation with
the same name, but under different ownership, which was organized in 1971.
Evergreen Asset, with its predecessors, has served as investment adviser to the
Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned subsidiary
of First Union National Bank of North Carolina ("FUNB"). The address of
Evergreen Asset is 2500 Westchester Avenue, Purchase, New York 10577. FUNB is a
subsidiary of First Union Corporation ("First Union"), the sixth largest bank
holding company in the United States. Stephen A. Lieber and Nola Maddox Falcone
serve as the chief investment officers of Evergreen Asset and, along with
Theodore J. Israel, Jr., were the owners of Evergreen Asset's predecessor and
the former general partners of Lieber & Company which, as described below,
provides certain subadvisory services to Evergreen Asset in connection with its
duties as investment adviser to the Funds. The Capital Management Group of FUNB
("CMG") serves as investment adviser to EVERGREEN UTILITY FUND and EVERGREEN
VALUE FUND.
Keystone Investment Management Company ("Keystone") has been retained
by KEYSTONE FUND FOR TOTAL RETURN to serve as investment adviser. Keystone
succeded on December 11, 1996 to the advisory business of a corporation with the
same name, but under different ownership, which provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of FUNB.
First Union is headquartered in Charlotte, North Carolina, and had $132
billion in consolidated assets as of February 29, 1997. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States. CMG manages or otherwise oversees the
investment of over $45 billion in assets belonging to a wide range of clients,
including all the series of Evergreen Investment Trust (formerly known as First
Union Funds) the two series of The Evergreen Lexicon Fund (formerly The FFB
Lexicon Fund) and the two series of Evergreen Tax Free Trust (formerly the FFB
Funds Trust). First Union Brokerage Services, Inc., a wholly-owned subsidiary of
FUNB, is a registered broker-dealer that is principally engaged in providing
retail brokerage services consistent with its federal banking authorizations.
First Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is
a registered broker-dealer principally engaged in providing, consistent with its
federal banking authorizations, private placement, securities dealing, and
underwriting services.
As investment adviser to EVERGREEN INCOME AND GROWTH FUND, EVERGREEN
GROWTH AND INCOME FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND, Evergreen
Asset manages each Fund's investments, provides various administrative services
and supervises each Fund's daily business affairs, subject to the authority of
the Trustees. Evergreen Asset is entitled to receive from each of EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP
EQUITY INCOME FUND a fee equal to 1% of average daily net assets on an annual
basis on the first $750 million in assets, .9 of 1% of average daily net assets
on an annual basis on the next $250 million in assets, and .8 of 1% of average
daily net assets on an annual basis on assets over $1 billion. The fees paid by
EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN
SMALL CAP EQUITY INCOME FUND are higher than the rate paid by most other
investment companies.
CMG manages investments and supervises the daily business affairs of
EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND and, as compensation therefor,
is entitled to receive an annual fee equal to .50 of 1% of average daily net
assets of each Fund.
Keystone act as investment adviser to KEYSTONE FUND FOR TOTAL RETURN
and manages the Fund's investments, provides various administrative services and
supervises the Fund's daily business affairs, subject to the authority of the
Trustees. As payment for its services, Keystone is entitled to receive from the
KEYSTONE FUND FOR TOTAL RETURN a fee, calculated on an annual basis, equal to
1.5% of Gross Dividend and Interest Income of the Fund plus 0.60% of the first
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$100,000,000 of the aggregate net asset value of the shares of the Fund, plus
0.55% of the next $100,000,000, plus 0.50% of the next $100,000,000, plus 0.45%
of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35% of the
next $500,000,000, plus 0.30% of amounts over $1,000,000,000, computed as of the
close of business each business day and paid daily.
The total annualized operating expenses of each Fund for the fiscal
year ended December 31, 1996 (January 31, 1996 in the case of EVERGREEN INCOME
AND GROWTH FUND) expressed as a percentage of average net assets on an annual
basis are set forth in the section entitled "Financial Highlights". Such
expenses reflect all voluntary expense reimbursements which may be revised or
terminated at any time.
Evergreen Asset serves as administrator to EVERGREEN UTILITY FUND and
EVERGREEN VALUE FUND and is entitled to receive a fee based on the average daily
net assets of these Funds at a rate based on the total assets of the mutual
funds administered by Evergreen Asset for which CMG or Evergreen Asset also
serve as investment adviser, calculated in accordance with the following
schedule: .050% of the first $7 billion; .035% on the next $3 billion; .030% on
the next $5 billion; .020% on the next $10 billion; .015% on the next $5
billion; and .010% on assets in excess of $30 billion. BISYS Fund Services, an
affiliate of Evergreen Keystone Distributor, Inc. (formerly Evergreen Funds
Distributor, Inc.), distributor for the Evergreen group of mutual funds, serves
as sub-administrator to EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND and is
entitled to receive a fee from each Fund calculated on the average daily net
assets of each Fund at a rate based on the total assets of the mutual funds
administered by Evergreen Asset for which CMG, Keystone or Evergreen Asset also
serve as investment adviser, calculated in accordance with the following
schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050%
on the next $15 billion; and .0040% on assets in excess of $25 billion. The
total assets of the mutual funds administered by Evergreen Asset for which CMG,
Keystone or Evergreen Asset serve as investment adviser were approximately $___
billion as of February 29, 199_.
The portfolio manager for EVERGREEN INCOME AND GROWTH FUND is Nola
Maddox Falcone, C.F.A., who is President and Co-Chief Executive Officer of
Evergreen Asset. Ms. Falcone has served as the principal manager of each Fund
since 1985 and 1993, respectively. The portfolio manager for EVERGREEN
FOUNDATION FUND is Stephen A. Lieber, who is Chairman and Co-Chief Executive
Officer of Evergreen Asset. Mr. Lieber has served as such Fund's principal
manager since its inception. The portfolio manager for EVERGREEN GROWTH AND
INCOME FUND is Edmund H. Nicklin, Jr. C.F.A. Mr. Nicklin has served as the
Fund's principal manager since its inception. Mrs. Falcone and Mr. Nicklin have
been associated with Evergreen Asset and its predecessor since 1974 and 1982,
respectively.
The portfolio manager for EVERGREEN UTILITY FUND since its inception in
1991 is H. Bradley Donovan, who is an Assistant Vice President of FUNB. Mr.
Donovan joined FUNB in 1981 and has been with First Union since 1992. Prior to
that Mr. Donovan had served as a portfolio manager and equity analyst at the
Bank of Boston. EVERGREEN VALUE FUND is currently being managed by experienced
members of the CMG staff. CMG has been managing trust assets for over fifty
years.
Walter McCormick has been the Portfolio Manager of KEYSTONE FUND FOR
TOTAL RETURN since 1987. Mr. McCormick is also a Vice President and Senior
Portfolio Manager of Keystone and has more than 25 years' investment experience.
SUB-ADVISER
Evergreen Asset has entered into sub-advisory agreements with Lieber &
Company which provide that Lieber & Company's research department and staff will
furnish Evergreen Asset with information, investment recommendations, advice and
assistance, and will be generally available for consultation on the portfolios
of EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and
EVERGREEN SMALL CAP EQUITY INCOME FUND. Lieber & Company will be reimbursed by
Evergreen Asset in connection with the rendering of services on the basis of the
direct and indirect costs of performing such services. There is no additional
charge to EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and
EVERGREEN SMALL CAP EQUITY INCOME FUND for the services provided by Lieber &
Company. The address of Lieber & Company is 2500 Westchester Avenue, Purchase,
New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of
First Union.
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PURCHASE AND REDEMPTION OF SHARES
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HOW TO BUY SHARES
Eligible investors may purchase Fund shares at net asset value by mail
or wire as described below. The Funds impose no sales charges on Class Y shares.
Class Y shares are the only class of shares offered by this Prospectus and are
only available to (i) all shareholders of record in one or more of the Evergreen
Funds as of December 30, 1994, (ii) certain institutional investors and (iii)
investment advisory clients of the Adviser and its affiliates. The minimum
initial investment is $1,000, which may be waived in certain situations. There
is no minimum for subsequent investments. Investors may make subsequent
investments by establishing a Systematic Investment Plan or a Telephone
Investment Plan.
Purchases by Mail or Wire. Each investor must complete the enclosed Share
Purchase Application and mail it together with a check made payable to the Fund
whose shares are being purchased, to State Street Bank and Trust Company ("State
Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on
U.S. banks will be subject to foreign collection which will delay an investor's
investment date and will be subject to processing fees.
When making subsequent investments, an investor should either enclose
the return remittance portion of the statement, or indicate on the face of the
check, the name of the Fund in which an investment is to be made, the exact
title of the account, the address, and the Fund account number. Purchase
requests should not be sent to a Fund in New York. If they are, the Fund must
forward them to State Street, and the request will not be effective until State
Street receives them.
Initial investments may also be made by wire by (i) calling State
Street at 800-423-2615 for an account number and (ii) instructing your bank,
which may charge a fee, to wire federal funds to State Street, as follows: State
Street Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and
Shareholder Services. The wire must include references to the Fund in which an
investment is being made, account registration, and the account number. A
completed Application must also be sent to State Street indicating that the
shares have been purchased by wire, giving the date the wire was sent and
referencing the account number. Subsequent wire investments may be made by
existing shareholders by following the instructions outlined above. It is not
necessary, however, for existing shareholders to call for another account
number.
How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as a Fund's Trustees believe would accurately reflect fair
market value. Non-dollar denominated securities will be valued as of the close
of the Exchange at the closing price of such securities in their principal
trading market.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Adviser incurs. If such
investor is an existing shareholder, a Fund may redeem shares from an investor's
account to reimburse the Fund or the Adviser for any loss. In addition, such
investors may be prohibited or restricted from making further purchases in any
of the Evergreen Funds.
The Share Purchase Application may not be used to invest in any of the
prototype retirement plans for which the Funds are an available investment. For
information about the requirements to make such investments, including copies of
the necessary application forms, please call the telephone number set forth on
the cover page of this Prospectus. A Fund cannot accept investments specifying a
certain price or date and reserves the right to reject any specific purchase
order, including orders in connection with exchanges from the other Evergreen
Funds. Although not currently anticipated, each Fund reserves the right to
suspend the offer of shares for a period of time.
Shares of each Fund are sold at the net asset value per share next
determined after a shareholder's order is received. Investments by federal funds
wire or by check will be effective upon receipt by State Street. Qualified
institutions may telephone orders for the purchase of Fund shares. Investors may
also purchase shares through a broker/dealer, which may charge a fee for the
service.
HOW TO REDEEM SHARES
You may "redeem", i.e., sell your shares in a Fund to the Fund on any
day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value next calculated
after the Fund receives your request in proper form. Proceeds generally will be
sent to you within seven days. However, for shares recently purchased by check,
a Fund will not send proceeds until it is reasonably satisfied that the check
has been collected (which may take up to 15 days). Once a redemption request has
been telephoned or mailed, it is irrevocable and may not be modified or
canceled.
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to State Street which is the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, State Street, and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, financial intermediaries, fiduciaries and surviving joint owners.
Signature guarantees are required for all redemption requests for shares with a
value of more than $10,000 or where the redemption proceeds are to be mailed to
an address other than that shown in the account registration. A signature
guarantee must be provided by a bank or trust company (not a Notary Public), a
member firm of a domestic stock exchange or by other financial institutions
whose guarantees are acceptable to State Street.
Shareholders may withdraw amounts of $1,000 or more from their accounts
by calling State Street (800-423- 2615) between the hours of 9:00 a.m. and 4:00
p.m. (Eastern time) each business day (i.e., any weekday exclusive of days on
which the New York Stock Exchange or State Street's offices are closed). The New
York Stock Exchange is closed on New Year's Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Redemption requests made after 4:00 p.m. (Eastern time) will be processed using
the net asset value determined on the next business day. Such redemption
requests must include the shareholder's account name, as registered with a Fund,
and the account number. During periods of drastic economic or market changes,
shareholders may experience difficulty in effecting telephone redemptions.
Shareholders who are unable to reach a Fund or State Street by telephone should
follow the procedures outlined above for redemption by mail.
The telephone redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the enclosed Application and choose how the redemption proceeds
are to be paid. Redemption proceeds will either (i) be mailed by check to the
shareholder at the address in which the account is registered or (ii) be wired
to an account with the same registration as the shareholder's account in a Fund
at a designated commercial bank. State Street currently deducts a $5 wire charge
from all redemption proceeds wired. This charge is subject to change without
notice. A shareholder who decides later to use this service, or to change
instructions already given, should fill out a Shareholder Services Form and send
it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827, with such shareholder's signature guaranteed by a bank or trust
company (not a Notary Public), a member firm of a domestic stock exchange or by
other financial institutions whose guarantees are acceptable to State Street.
Shareholders should allow approximately ten days for such form to be processed.
The Funds will employ reasonable procedures to verify that telephone requests
are genuine. These procedures include requiring some form of personal
identification prior to acting upon instructions and tape recording of
conversations. If the Fund fails to follow such procedures, it may be liable for
any losses due to unauthorized or fraudulent instructions. The Fund shall not be
liable for following telephone instructions reasonably believed to be genuine.
Also, the Fund reserves the right to refuse a telephone redemption request, if
it is believed advisable to do so. Financial intermediaries may charge a fee for
handling telephonic requests. The telephone redemption option may be suspended
or terminated at any time without notice.
General. The sale of shares is a taxable transaction for Federal tax purposes.
Under unusual circumstances, a Fund may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by Federal securities law. The
Funds reserve the right to close an account that through redemption has remained
below $1,000 for 30 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed. The Funds have elected
to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant
to which each Fund is obligated to redeem shares solely in cash, up to the
lesser of $250,000 or 1% of a Fund's total net assets during any ninety day
period for any one shareholder. See the Statement of Additional Information for
further details.
EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Funds by telephone or mail as described
below. An exchange which represents an initial investment in another Evergreen
Fund must amount to at least $1,000. Once an exchange request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Exchanges will be made on the basis of the relative net asset values of the
shares exchanged next determined after an exchange request is received.
Exchanges are subject to minimum investment and suitability requirements.
Each of the Evergreen Funds have different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange is
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treated for Federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Each Fund imposes a
fee of $5 per exchange on shareholders who exchange in excess of four times per
calendar year. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000
or more by telephone by calling State Street (800-423-2615). Exchange requests
made after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach State Street by telephone. If you wish to use the
telephone exchange service you should indicate this on the Share Purchase
Application. As noted above, each Fund will employ reasonable procedures to
confirm that instructions for the redemption or exchange of shares communicated
by telephone are genuine. A telephone exchange may be refused by a Fund or State
Street if it is believed advisable to do so. Procedures for exchanging Fund
shares by telephone may be modified or terminated at any time. Written requests
for exchanges should follow the same procedures outlined for written redemption
requests in the section entitled "How to Redeem Shares", however, no signature
guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the
Funds, or the toll-free number for the Funds, 800-807-2940. Some services are
described in more detail in the Share Purchase Application.
Systematic Investment Plan. You may make monthly or quarterly investments into
an existing account automatically in amounts of not less than $25.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the Fund's
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase Application. Under this plan, you may receive (or designate a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $100. Fund shares will be redeemed as necessary to meet withdrawal
payments. All participants must elect to have their dividends and capital gain
distributions reinvested automatically.
Retirement Plans. Eligible investors may invest in each Fund under the following
prototype retirement plans: (i) Individual Retirement Account (IRA); (ii)
Simplified Employee Pension (SEP) for sole proprietors, partnerships and
corporations; and (iii) Profit-Sharing and Money Purchase Pension Plans for
corporations and their employees.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested. If you elect to receive dividends and
distributions in cash and the U.S. Postal Service cannot deliver the checks, or
if the checks remain uncashed for six months, the checks will be reinvested into
your account at the then current net asset value.
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OTHER INFORMATION
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DIVIDENDS, DISTRIBUTIONS AND TAXES
It is the policy of each Fund to distribute to shareholders its
investment company taxable income, if any, quarterly and any net realized
capital gains annually or more frequently as required as a condition of
continued qualification as a regulated investment company by the Code. Dividends
and distributions generally are taxable in the year in which they are paid,
except any dividends paid in January that were declared in the previous calendar
quarter may be treated as paid in December of the previous year. Income
dividends and capital gain distributions are automatically reinvested in
additional shares of the Fund making the distribution at the net asset value per
share at the close of business on the record date, unless the shareholder has
made a written request for payment in cash.
Each Fund has qualified and intends to continue to qualify to be
treated as a regulated investment company under the Code. While so qualified, it
is expected that each Fund will not be required to pay any Federal income tax on
that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Funds,
to the extent they do not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements. Most shareholders of the Funds normally will have to pay Federal
income tax and any state or local taxes on the dividends and distributions they
receive from a Fund whether such dividends and distributions are made in cash or
in additional shares. Questions on how any distributions will be taxed to the
investor should be directed to the investor's own tax adviser.
Under current law, the highest Federal income tax rate applicable to
net long-term capital gains realized by individuals is 28%. The rate applicable
to corporations is 35%. Certain income from a Fund may qualify for a corporate
dividends-received deduction of 70%. Following the end of each calendar year,
every shareholder of the Fund will be sent applicable tax information and
information regarding the dividends and capital gain distributions made during
the calendar year.
A Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States Federal income tax may be entitled, subject to certain
rules and limitations, to claim a Federal income tax credit or deduction for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional details. A Fund's transactions in options, futures and forward
contracts may be subject to special tax rules. These rules can affect the
amount, timing and characteristics of distributions to shareholders.
Each Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, you must certify on the Share Purchase Application, or
on a separate form supplied by State Street, that your social security or
taxpayer identification number is correct and that you are not currently subject
to backup withholding or are exempt from backup withholding.
The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the Statement of
Additional
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Information. In addition, you should consult your own tax adviser as to the tax
consequences of investments in the Funds, including the application of state and
local taxes which may be different from Federal income tax consequences
described above.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, a Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.
Organization. The EVERGREEN INCOME AND GROWTH FUND is a Massachusetts business
trust organized in 1986, and was originally organized as Maryland corporation in
1978. EVERGREEN GROWTH AND INCOME FUND is a Massachusetts business trust
organized in 1986. The EVERGREEN SMALL CAP EQUITY INCOME FUND is a separate
series of The Evergreen American Retirement Trust, a Massachusetts business
trust organized in 1987. EVERGREEN BALANCED FUND and EVERGREEN VALUE FUND are
separate investment series of Evergreen Investment Trust (formerly First Union
Funds), a Massachusetts business trust organized in 1984. KEYSTONE FUND FOR
TOTAL RETURN is a Massachusetts business trust organized in October, 1986.
The Funds do not intend to hold annual shareholder meetings; shareholder
meetings will be held only when required by applicable law. Shareholders have
available certain procedures for the removal of Trustees. A shareholder in each
Class of a Fund will be entitled to his or her share of all dividends and
distributions from a Fund's assets, based upon the relative value of such shares
to those of other Classes of the Fund and, upon redeeming shares, will receive
the then current net asset value of the Class of shares of the Fund represented
by the redeemed shares less any applicable CDSC. Each Trust named above is
empowered to establish, without shareholder approval, additional investment
series, which may have different investment objectives, and additional Classes
of shares for any existing or future series. If an additional series or Class
were established in a Fund, each share of the series or Class would normally be
entitled to one vote for all purposes. Generally, shares of each series and
Class would vote together as a single Class on matters, such as the election of
Trustees, that affect each series and Class in substantially the same manner.
Class A, B, C and Y shares have identical voting, dividend, liquidation and
other rights, except that each Class bears, to the extent applicable, its own
distribution, shareholder service and transfer agency expenses as well as any
other expenses applicable only to a specific Class. Each Class of shares votes
separately with respect to Rule 12b-1 distribution plans and other matters for
which separate class voting is appropriate under applicable law. Shares are
entitled to dividends as determined by the Trustees and, in liquidation of a
Fund, are entitled to receive the net assets of the Fund.
Custodian, Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street
Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827 acts as
each Fund's custodian and , in the case of all Funds except KEYSTONE FUND FOR
TOTAL RETURN, registrar, transfer agent and dividend-disbursing agent. State
Street is compensated for its services as transfer agent by a fee based upon the
number of shareholder accounts maintained for the Funds. Evergreen/Keystone
Services Company, located at 200 Berkeley Street, Boston, Massachusetts 02116,
is a wholly-owned subsidiary of Keystone and serves as the transfer agent and
dividend disbursing agent for KEYSTONE FUND FOR TOTAL RETURN,
Principal Underwriter. EKD, an affiliate of BISYS Fund Services, located at 120
Clove Road, Little Falls, New Jersey 07424, is the principal underwriter of the
Funds. BISYS Fund Services also provides certain sub-administrative services to
Evergreen Asset and Keystone in connection with its role as investment adviser
to the Funds, including providing personnel to serve as officers of the Funds.
Other Classes of Shares. Each Fund, except KEYSTONE FUND FOR TOTAL RETURN which
does not offer Class Y shares, currently offers four classes of shares, Class A,
Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are not offered by this Prospectus and are only available to (i)
persons who at or prior to December 31, 1994, owned shares in a mutual fund
advised by Evergreen Asset, (ii) certain institutional investors and (iii)
investment advisory clients of CMG, Evergreen Asset or their affiliates. The
dividends payable with respect to Class A, Class B and Class C shares will be
less than those payable with respect to Class Y shares due to the distribution
and shareholder servicing related expenses borne by Class A, Class B and Class C
shares and the fact that such expenses are not borne by Class Y shares.
Performance Information. From time to time, the Funds may quote their "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for Class A, Class B and Class C shares. A Fund's total return for each such
period is computed by finding, through the use of a formula
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<PAGE>
prescribed by the Securities and Exchange Commission ("SEC"), the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, dividends and capital gains distributions
paid on shares of a Fund are assumed to have been reinvested when paid and the
maximum sales charges applicable to purchases of a Fund's shares are assumed to
have been paid. Yield is a way of showing the rate of income the Fund earns on
its investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, the Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest income it earned from its portfolio of investments (as defined by
the SEC formula) for a 30-day period (net of expenses), divides it by the
average number of shares entitled to receive dividends, and expresses the result
as an annualized percentage rate based on the Fund's share price at the end of
the 30-day period. This yield does not reflect gains or losses from selling
securities.
Performance data for each Class of shares will be included in any
advertisement or sales literature using performance data of a Fund. These
advertisements may quote performance rankings or ratings of a Fund by financial
publications or independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. A
Fund may also advertise in items of sales literature an "actual distribution
rate" which is computed by dividing the total ordinary income distributed (which
may include the excess of short-term capital gains over losses) to shareholders
for the latest twelve month period by the maximum public offering price per
share on the last day of the period. Investors should be aware that past
performance may not be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen mutual funds, products, and services, which may include:
retirement investing; brokerage products, and services, the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the information provided to investors may quote financial
or business publications and periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques. The materials may also reprint, and use as advertising
and sales literature, articles from EVERGREEN EVENTS, a quarterly magazine
provided free of charge to Evergreen mutual fund shareholders.
Liability Under Massachusetts Law. Under Massachusetts law, Trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declarations of Trust under which the
Funds operate provide that no Trustee or shareholder will be personally liable
for the obligations of the Trust and that every written contract made by the
Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act of 1933. Copies of the Registration
Statements may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the offices of the SEC in Washington, D.C.
INVESTMENT ADVISERS
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York
10577
EVERGREEN GROWTH AND INCOME FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN INCOME AND GROWTH FUND
Capital Management Group of First Union National Bank of North Carolina, 210
South College Street, Charlotte, North Carolina, 28228
EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts
02205-9827
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LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
EVERGREEN FOUNDATION FUND
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072
EVERGREEN TOTAL RETURN FUND, EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
AMERICAN RETIREMENT FUND
KPMGPeat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219
EVERGREEN BALANCED FUND, EVERGREEN VALUE FUND
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 120 Clove Road,
Little Falls, New Jersey 07424
42430 536115REV01
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* * * * * * * * * * * * * * * *
STATEMENT OF ADDITIONAL INFORMATION
April 1, 1997
THE EVERGREEN KEYSTONE GROWTH AND INCOME AND BALANCED FUNDS
The Evergreen Funds
2500 Westchester Avenue, Purchase, New York 10577-2555
1-800-807-2940
The Keystone Funds
200 Berkeley Street, Boston, Massachusetts 02116-5034
1-800-343-2898
Growth and Income Funds
Evergreen Growth and Income Fund ("Growth and Income")
Evergreen Income and Growth Fund (formerly Evergreen Total Return Fund)
("Income and Growth")
Evergreen Small Cap Equity Income Fund ("Small Cap")
Evergreen Utility Fund ("Utility")
Evergreen Value Fund ("Value")
Keystone Fund for Total Return ("Total Return")
Balanced Funds
Evergreen Foundation Fund ("Foundation")
Evergreen Tax Strategic Foundation Fund ("Tax Strategic")
Evergreen American Retirement Fund ("American Retirement")
Evergreen Balanced Fund ("Balanced")
This Statement of Additional Information pertains to all classes of shares of
the Funds listed above. It is not a prospectus and should be read in conjunction
with the Prospectus dated April 1, 1997, for the Fund in which you are making or
contemplating an investment. The Evergreen Keystone Growth and Income and
Balanced Funds are offered through four separate prospectuses: one offering
Class A, Class B and Class C shares and a separate prospectus offering Class Y
shares of Growth and Income, Income and Growth, Small Cap, Utilty, Value and
Total Return; and one offering Class A, Class B and Class C shares and a
separate prospectus offering Class Y shares of Foundation, Tax Strategic,
American Retirement and Balanced.
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TABLE OF CONTENTS
Investment Objectives and Policies.................................2
Investment Restrictions............................................7
Non-Fundamental Operating Policies................................15
Certain Risk Considerations.......................................16
Management........................................................17
Investment Advisers...............................................29
Distribution Plans................................................34
Allocation of Brokerage...........................................38
Additional Tax Information........................................41
Net Asset Value...................................................43
Purchase of Shares................................................45
Performance Information...........................................59
Financial Statements..............................................64
Appendix A - Description of Bond, Municipal Note
and Commercial Paper Ratings.....................................64
INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds - Investment Objectives
and Policies" in each Fund's Prospectus)
The investment objective of each Fund and a description of the securities
in which each Fund may invest is set forth under "Description of the Funds
"Investment Objectives and Policies" in the relevant Prospectus. The investment
objectives are fundamental and cannot be changed without the approval of
shareholders. The following expands upon the discussion in the Prospectus
regarding certain investments of each Fund.
U.S. Government Securities (All Funds)
The types of U.S. government securities in which the Funds may invest
generally include direct obligations of the U.S. Treasury such as U. S.
Treasury bills, notes and bonds and obligations issued or guaranteed by U.S.
government agencies or instrumentalities. These securities are backed by:
(i) the full faith and credit of the U.S. Treasury;
(ii) the issuer's right to borrow from the U.S. Treasury;
(iii) the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
(iv) the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive
financial support from the U.S. government are:
(i) Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
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(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association
Restricted and Illiquid Securities (All Funds)
Each Fund may invest in restricted and illiquid securities. The ability
of the Board of Trustees ("Trustees") to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for sale under the
Rule. The Funds which invest in Rule 144A securities believe that the Staff of
the SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under the Rule) for determination by the
Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
Restricted securities would generally be acquired either from
institutional investors who originally acquired the securities in private
placements or directly from the issuers of the securities in private placements.
Restricted securities and securities that are not readily marketable may sell at
a discount from the price they would bring if freely marketable.
When-Issued and Delayed Delivery Securities
(Balanced, Tax Strategic, Utility, Value and Total Return)
Securities puchased on a when-issued or delayed delivery basis are made
to secure what is considered to be an advantageous price or yield for a Fund. No
fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of a Fund sufficient to make payment for the securities
to be purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction has
been settled. Balanced, Utility and Value do not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause the
segregation of more than 20% of the total value of their assets and Tax
Strategic's commitment to purchase when-issued securities will not exceed 25% of
the Fund's total assets.
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Lending of Portfolio Securities (All Funds)
Each Fund may lend its portfolio securities to generate income and to
offset expenses. The collateral received when a Fund lends portfolio securities
must be valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the lending Fund.
During the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities. Loans are subject to termination
at the option of the Fund or the borrower. A Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent collateral
to the borrower or placing broker. A Fund does not have the right to vote
securities on loan, but would terminate the loan and regain the right to vote if
that were considered important with respect to the investment.
Reverse Repurchase Agreements
(Small Cap, Utility, Value, Tax Strategic, Balanced and Total Return)
Reverse repurchase agreements are similar to borrowing cash. In a reverse
repurchase agreement, a Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in
a dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Options and Futures Transactions (All Funds)
Options which Balanced, Utility and Value trade must be listed on
national securities exchanges.
Purchasing Put and Call Options on Financial Futures Contracts
Balanced, Utility, Value and Total Return may purchase put and call
options on financial futures contracts (in the case of Utility and Value limited
to options on financial futures contracts for U.S. government securities).
Unlike entering directly into a futures contract, which requires the purchaser
to buy a financial instrument on a set date at an undetermined price, the
purchase of a put option on a futures contract entitles (but does not obligate)
its purchaser to decide on or before a future date whether to assume a short
position at the specified price.
A Fund may purchase put and call options on futures to protect portfolio
securities against decreases in value resulting from an anticipated increase in
market interest rates. Generally, if the hedged portfolio securities decrease in
value during the term of an option, the related futures contracts will also
decrease in value and the put option will increase in value. In such an event,
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a Fund will normally close out its option by selling an identical put option. If
the hedge is successful, the proceeds received by the Fund upon the sale of the
put option plus the realized gain offsets the decrease in value of the hedged
securities.
Alternately, a Fund may exercise its put option to close out the
position. To do so, it would enter into a futures contract of the type
underlying the option. If the Fund neither closes out nor exercises an option,
the option will expire on the date provided in the option contract, and only the
premium paid for the contract will be lost.
Purchasing Options
Balanced, Utility, Value and Total Return may purchase both put and call
options on their portfolio securities. These options will be used as a hedge to
attempt to protect securities which a Fund holds or will be purchasing against
decreases or increases in value. A Fund may purchase call and put options for
the purpose of offsetting previously written call and put options of the same
series. If the Fund is unable to effect a closing purchase transaction with
respect to covered options it has written, the Fund will not be able to sell the
underlying securities or dispose of assets held in a segregated account until
the options expire or are exercised.
Balanced, Utility, Value and Total Return intend to purchase put and call
options on currency and other financial futures contracts for hedging purposes.
A put option purchased by a Fund would give it the right to assume a position as
the seller of a futures contract. A call option purchased by the Fund would give
it the right to assume a position as the purchaser of a futures contract. The
purchase of an option on a futures contract requires the Fund to pay a premium.
In exchange for the premium, the Fund becomes entitled to exercise the benefits,
if any, provided by the futures contract, but is not required to take any action
under the contract. If the option cannot be exercised profitably before it
expires, the Fund's loss will be limited to the amount of the premium and any
transaction costs.
Utility and Value currently do not intend to invest more than 5% of their
net assets in options transactions. Total Return will not purchase a put option
if as a result of such purchase, more than 10% of its total assets would be
invested in premiums for such option.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, a Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, a Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by a Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is
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instead settlement between the Fund and the broker of the amount one would owe
the other if the futures contract expired. In computing its daily net asset
value, a Fund will mark-to-market its open futures positions. The Fund is also
required to deposit and maintain margin when it writes call options on futures
contracts.
Balanced will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
Income and Growth and Growth and Income may write covered call options to
a limited extent on their portfolio securities ("covered options") in an attempt
to earn additional income. A Fund will write only covered call option contracts
and will receive premium income from the writing of such contracts. Income and
Growth and Growth and Income may purchase call options to close out a previously
written call option. In order to do so, the Fund will make a "closing purchase
transaction" -- the purchase of a call option on the same security with the same
exercise price and expiration date as the call option which it has previously
written. A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. If an option is exercised, a Fund
realizes a long-term or short-term gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received.
Junk Bonds (Growth and Income and Total Return)
Consistent with its strategy of investing in "undervalued" securities,
Growth and Income may invest in lower medium and low-quality bonds also known as
"junk bonds" and may also purchase bonds in default if, in the opinion of the
Fund's investment adviser, there is significant potential for capital
appreciation. Growth and Income, however, will not invest more than 5% of its
total assets in debt securities which are rated below investment grade. These
bonds are regarded as speculative with respect to the issuer's continuing
ability to meet principal and interest payments. High yield bonds may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade bonds. A projection of an economic downturn, or
higher interest rates, for example, could cause a decline in high yield bond
prices because such events could lessen the ability of highly leveraged
companies to make principal and interest payments on their debt securities. In
addition, the secondary trading market for high yield bonds may be less liquid
than the market for higher grade bonds, which can adversely affect the ability
to dispose of such securities.
Variable and Floating Rate Securities (Foundation)
Foundation may invest no more than 5% of its total assets, at the time of
the investment in question, in variable and floating rate securities. The terms
of variable and floating rate instruments provide for the interest rate to be
adjusted according to a formula on certain predetermined dates. Variable and
floating rate instruments that are repayable on demand at a future date are
deemed to have a maturity equal to the time remaining until the principal will
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be received on the assumption that the demand feature is exercised on the
earliest possible date. For the purposes of evaluating the interest-rate
sensitivity of the Fund, variable and floating rate instruments are deemed to
have a maturity equal to the period remaining until the next interest-rate
readjustment. For the purposes of evaluating the credit risks of variable and
floating rate instruments, these instruments are deemed to have a maturity equal
to the time remaining until the earliest date the Fund is entitled to demand
repayment of principal.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by the Fund's
investment adviser without shareholder approval, subject to review and approval
by the Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1. Concentration of Assets in Any One Issuer
Neither Growth and Income nor Income and Growth may invest more than 5%
of their net assets, at the time of the investment in question, in the
securities of any one issuer other than the U.S. government and its agencies or
instrumentalities.
American Retirement may not invest more than 5% of its total assets, at
the time of the investment in question, in the securities of any one issuer
other than the U.S. government and its agencies or instrumentalities.
None of Balanced, Foundation, Small Cap, Utility, Value or Total Return
may invest more than 5% of its total assets, at the time of the investment in
question, in the securities of any one issuer other than the U.S. government and
its agencies or instrumentalities, except that up to 25% of the value of a
Fund's total assets may be invested without regard to such 5% limitation.
Tax Strategic may not invest more than 5% of its total assets, at the
time of the investment in question, in the securities of any one issuer other
than the U.S. government and its agencies or instrumentalities, except that up
to 25% of the value of the Fund's total assets may be invested without regard to
such 5% limitation. For this purpose each political subdivision, agency, or
instrumentality and each multi-state agency of which a state is a member, and
each public authority which issues industrial development bonds on behalf of a
private entity, will be regarded as a separate issuer for determining the
diversification of the Fund's portfolio.
2. Ten Percent Limitation on Securities of Any One Issuer
None of American Retirement, Foundation, Small Cap, Growth and Income or
Income and Growth may purchase more than 10% of any class of securities of any
one issuer other than the U.S. government and its agencies or instrumentalities.
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Neither Value nor Utility may purchase more than 10% of the outstanding
voting securities of any one issuer.
Neither Tax Strategic* nor Total Return may not purchase more than 10% of
the voting securities of any one issuer other than the U.S. government and its
agencies or instrumentalities.
3. Investment for Purposes of Control or Management
None of American Retirement, Foundation, Growth and Income, Small Cap*,
Tax Strategic*, Income and Growth, Utility*, Value or Total Return may invest in
companies for the purpose of exercising control or management.
4. Purchase of Securities on Margin
None of American Retirement, Balanced, Foundation, Growth and Income,
Small Cap*, Tax Strategic*, Income and Growth, Utility, Value or Total Return
may purchase securities on margin, except that each Fund may obtain such
short-term credits as may be necessary for the clearance of transactions. A
deposit or payment by a Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not considered
the purchase of a security on margin.
5. Unseasoned Issuers
Neither American Retirement nor Foundation may invest in the securities
of unseasoned issuers that have been in continuous operation for less than three
years, including operating periods of their predecessors.
None of Income and Growth, Value*, Utility* or Total Return may invest
more than 5% of its total assets in securities of unseasoned issuers that have
been in continuous operation for less than three years, including operating
periods of their predecessors.
None of Growth and Income, Small Cap* and Tax Strategic* may invest more
than 15% of its total assets (10% of total net assets in the case of Growth and
Income) in securities of unseasoned issuers that have been in continuous
operation for less than three years, including operating periods of their
predecessors.
6. Underwriting
American Retirement, Foundation, Growth and Income, Small Cap, Tax
Strategic, Income and Growth, Balanced, Utility, Value and Total Return will not
underwrite any issue of securities except as they may be deemed an underwriter
under the Securities Act of 1933 in connection with the sale of securities in
accordance with their investment objectives, policies and limitations.
7. Interests in Oil, Gas or Other Mineral Exploration or Development
Programs.
None of American Retirement, Foundation, Growth and Income, Small Cap,
Tax Strategic or Income and Growth may purchase, sell or invest in interests in
oil, gas or other mineral exploration or development programs.
Neither Balanced* nor Utility* will purchase interests in oil, gas or
other mineral exploration or development programs or leases, although each Fund
may
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purchase the securities of other issuers which invest in or sponsor such
programs.
Value will not purchase interests in oil, gas or other mineral
exploration or development programs or leases, although it may purchase the
publicly traded securities of companies engaged in such activities.
8. Concentration in Any One Industry
Neither Growth and Income nor Income and Growth may concentrate its
investments in any one industry, except that each Fund may invest up to 25% of
its total net assets in any one industry.
None of American Retirement, Foundation, Small Cap and Tax Strategic may
invest 25% or more of its total assets in the securities of issuers conducting
their principal business activities in any one industry; provided, that this
limitation shall not apply (i) with respect to each Fund, to obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities, or
(ii) with respect to Tax Strategic, to municipal securities. For purposes of
this restriction, utility companies, gas, electric, water and telephone
companies will be considered separate industries.
Balanced and Value will not invest 25% or more of the value of their
total assets in any one industry except Balanced may invest more than 25% and
Value may invest 25% or more of its total assets in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
Utility will not invest more than 25% of its total assets (valued at the
time of investment) in securities of companies engaged principally in any one
industry other than the utilities industry, except that this restriction does
not apply to cash or cash items and securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
Total Return will not purchase any security (other than U.S. government
securities) of any issuer if as a result more than 25% of its total assets would
be invested in a single industry; except that (a) there is no restriction with
respect to obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities; (b) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily related
to financing the activities of the parents; (c) the industry classification of
utilities will be determined according to their services (for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry); and (d) the industry classification of medically related industries
will be determined according to their services (for example, management,
hospital supply, medical equipment and pharmaceuticals will each be considered a
separate industry).
9. Warrants
None of American Retirement, Growth and Income, Income and Growth, Small
Cap*, Foundation or Tax Strategic* may invest more than 5% of its net assets in
warrants and, of this amount, no more than 2% of each Fund's net assets may be
invested in warrants that are listed on neither the New York nor the American
Stock Exchange.
Utility* and Value* will not invest more than 5% of their net assets in
warrants, including those acquired in units or attached to other securities.
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For purposes of this restriction, warrants acquired by the Funds in units or
attached to securities may be deemed to be without value.
10. Ownership by Trustees/Officers
None of American Retirement, Balanced*, Foundation, Growth and Income,
Small Cap*, Tax Strategic*, Income and Growth, Utility* or Value* may purchase
or retain the securities of any issuer if (i) one or more officers or Trustees
of a Fund or its investment adviser individually owns or would own, directly or
beneficially, more than 1/2 of 1% of the securities of such issuer, and (ii) in
the aggregate, such persons own or would own, directly or beneficially, more
than 5% of such securities.
Portfolio securities of any Fund may not be purchased from or sold or
loaned to its Adviser or any affiliate thereof, or any of their Directors,
officers or employees.
11. Short Sales
Neither American Retirement nor Foundation may make short sales of
securities unless, at the time of each such sale and thereafter while a short
position exists, each Fund owns the securities sold or securities convertible
into or carrying rights to acquire such securities.
None of Growth and Income, Tax Strategic* and Income and Growth may make
short sales of securities unless, at the time of each such sale and thereafter
while a short position exists, each Fund owns an equal amount of securities of
the same issue or owns securities which, without payment by the Fund of any
consideration, are convertible into, or are exchangeable for, an equal amount of
securities of the same issue.
Small Cap,* may not make short sales of securities unless, at the time of
each such sale and thereafter while a short position exists, each Fund owns an
equal amount of securities of the same issue or owns securities which, without
payment by the Fund of any consideration, are convertible into, or are
exchangeable for, an equal amount of securities of the same issue (and provided
that transactions in futures contracts and options are not deemed to constitute
selling securities short).
Neither Balanced nor Total Return will make short sales of securities or
maintain a short position, unless at all times when a short position is open it
owns an equal amount of such securities or of securities which, without payment
of any further consideration are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the securities sold short. With
respect to Balanced, the use of short sales will allow the Fund to retain
certain bonds in its portfolio longer than it would without such sales. To the
extent that the Fund receives the current income produced by such bonds for a
longer period than it might otherwise, the Fund's investment objective is
furthered.
Utility and Value will not sell any securities short.
12. Lending of Funds and Securities
Neither Small Cap nor Tax Strategic may lend its funds to other persons,
except through the purchase of a portion of an issue of debt securities publicly
distributed or the entering into of repurchase agreements.
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None of American Retirement, Foundation, Growth and Income and Income and
Growth may lend its funds to other persons, except through the purchase of a
portion of an issue of debt securities publicly distributed.
None of Foundation, Small Cap or Tax Strategic, may lend its portfolio
securities, unless the borrower is a broker, dealer or financial institution
that pledges and maintains collateral with the Fund consisting of cash or
securities issued or guaranteed by the U.S. government having a value at all
times not less than 100% of the current market value of the loaned securities,
including accrued interest, provided that the aggregate amount of such loans
shall not exceed 30% of the Fund's total assets.
Neither American Retirement or Growth and Income may lend its portfolio
securities, unless the borrower is a broker, dealer or financial institution
that pledges and maintains collateral with the Fund consisting of cash or
securities issued or guaranteed by the U.S. government having a value at all
times not less than 100% of the value of the loaned securities (100% of the
current market value for American Retirement), provided that the aggregate
amount of such loans shall not exceed 30% of the Fund's net assets.
Income and Growth may not lend its portfolio securities, unless the
borrower is a broker, dealer or financial institution that pledges and maintains
collateral with the Fund consisting of cash, letters of credit or securities
issued or guaranteed by the U.S. government having a value at all times not less
than 100% of the current market value of the loaned securities (100% of the
value of the loaned securities for Income and Growth), including accrued
interest, provided that the aggregate amount of such loans shall not exceed 30%
of the Fund's net assets.
Balanced will not lend any of its assets except portfolio securities in
accordance with its investment objective, policies and limitations.
Utility will not lend any of its assets, except portfolio securities up
to 15% of the value of its total assets. This does not prevent the Fund from
purchasing or holding corporate or government bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer, repurchase
agreements, or other transactions which are permitted by the Fund's investment
objectives and policies or the Declaration of Trust governing the Fund.
Value will not lend any of its assets except that it may purchase or hold
corporate or government bonds, debentures, notes, certificates of indebtedness
or other debt securities of an issuer, repurchase agreements or other
transactions which are permitted by the Fund's investment objectives and
policies or the Declaration of Trust by which the Fund is governed or lend
portfolio securities valued at not more than 5% of its total assets to
broker-dealers.
Total Return will not make loans, except that the Fund may purchase or
hold debt securities consistent with its investment objecive, lend portfolio
securities valued at not more than 15% of its total assets to broker-dealers and
enter into repurchase agreements.
13. Commodities
Tax Strategic may not purchase, sell or invest in commodities, commodity
contracts or financial futures contracts.
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Small Cap may not purchase, sell or invest in physical commodities unless
acquired as a result of ownership of securities or other instruments (but this
shall not prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities).
None of American Retirement, Foundation, Growth and Income, Income and
Growth may purchase, sell or invest in commodities or commodity contracts.
None of Balanced, Utility or Value will purchase or sell commodities or
commodity contracts; however, each Fund may enter into futures contracts on
financial instruments or currency and sell or buy options on such contracts.
Total Return will not purchase or sell commodities or commodity contracts
or real estate, except that it may purchase and sell securities secured by real
estate and securities of companies which invest in real estate and may engage in
currency or other financial futures contracts and related options transactions.
14. Real Estate
Small Cap may not purchase or invest in real estate or interests in real
estate (but this shall not prevent the Fund from investing in marketable
securities issued by companies such as real estate investment trusts which deal
in real estate or interests therein).
None of American Retirement, Foundation, Growth and Income, Tax Strategic
or Income and Growth may purchase, sell or invest in real estate or interests in
real estate, except that (i) each Fund may purchase, sell or invest in
marketable securities of companies holding real estate or interests in real
estate, including real estate investment trusts, and (ii) Tax Strategic may
purchase, sell or invest in municipal securities or other debt securities
secured by real estate or interests therein.
None of Balanced, Utility or Value will buy or sell real estate although
each Fund may invest in securities of companies whose business involves the
purchase or sale of real estate or in securities which are secured by real
estate or interests in real estate. Neither Utility nor Value will invest in
limited partnership interests in real estate.
15. Borrowing, Senior Securities, Repurchase Agreements and Reverse
Repurchase Agreements
None of American Retirement, Foundation or Income and Growth may borrow
money except from banks as a temporary measure to facilitate redemption requests
which might otherwise require the untimely disposition of portfolio investments
and for extraordinary or emergency purposes (and, with respect to American
Retirement only, for leverage), provided that the aggregat amount of such
borrowings shall not exceed 5% of the value of the Fund's total net assets (5%
of total assets for American Retirement and Foundation) at the time of any such
borrowing, or mortgage, pledge or hypothecate its assets, except in an amount
sufficient to secure any such borrowing. Neither American Retirement nor
Foundation may issue senior securities, except as permitted by the Investment
Company Act of 1940. Neither Foundation nor American Retirement may enter into
repurchase agreements or reverse repurchase agreements.
Neither Small Cap nor Tax Strategic may borrow money, issue senior
securities or enter into reverse repurchase agreements, except for temporary or
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emergency purposes, and not for leveraging, and then in amounts not in excess of
10% of the value of each Fund's total assets at the time of such borrowing; or
mortgage, pledge or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of each Fund's total assets at the time of such
borrowing, provided that each of Small Cap, Tax Strategic will not purchase any
securities at any time when borrowings, including reverse repurchase agreements,
exceed 5% of the value of its total assets. Neither Fund will enter into reverse
repurchase agreements exceeding 5% of the value of its total assets.
Growth and Income may not borrow money except from banks as a temporary
measure for extraordinary or emergency purposes, provided that the aggregate
amount of such borrowings shall not exceed 5% of the value of the Fund's total
assets at the time of such borrowing; or mortgage, pledge or hypothecate its
assets, except in an amount not exceeding 15% of its assets taken at cost to
secure such borrowing. Growth and Income may not issue senior securities, as
defined in the Investment Company Act of 1940, except that this restriction
shall not be deemed to prohibit the Fund from (i) making any permitted
borrowings, mortgages or pledges, (ii) lending its portfolio securities, or
(iii) entering into permitted repurchase transactions.
Balanced and Utility will not issue senior securities except that each
Fund may borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amounts borrowed
and except to the extent a Fund may enter into futures contracts. The Funds will
not borrow money or engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary or emergency measure to
facilitate management of their portfolios by enabling them to, for example, meet
redemption requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. Balanced will not purchase any securities while
any borrowings are outstanding. Utility will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding. Neither Balanced
nor Utility will mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. In these cases, Balanced and Utility may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of borrowing. Margin deposits for
the purchase and sale of financial futures contracts and related options and
segregation or collateral arrangements made in connection with options
activities are not deemed to be a pledge.
Value will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements as a temporary measure
for extraordinary or emergency purposes and then only in amounts not in excess
of 10% of the value of its total assets; provided that while borrowings exceed
5% of the Fund's total assets, any such borrowings will be repaid before
additional investments are made. The Fund will not purchase any securities while
borrowings in excess of 5% of the value of its total assets are outstanding. The
Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage purposes. The Fund will not mortgage, pledge or hypothecate
any assets except to secure permitted borrowings. In these cases, the Fund may
pledge assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 10% of the value of total assets at the time of borrowing.
Margin deposits for the purchase and sale of financial futures contracts and
related options and segregation or collateral arrangements made in connection
with options activities are not deemed to be a pledge.
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Total Return will not borrow money or enter into reverse repurchase
agreements, except that the Fund may enter into reverse repurchase agreements or
borrow money from banks for temporary or emergency purposes in aggregate amounts
up to one-third of the value of the Fund's net assets; provided that while
borrowings from banks (not including reverse repurchase agreements) exceed 5% of
the Fund's net assets, any such borrowings will be repaid before additional
investments are made. The Fund will not pledge more than 15% of its net assets
to secure indebtedness; the purchase or sale of securities on a "when issued"
basis or collateral arrangement with respect to the writing of options on
securities are not deemed to be a pledge of assets. The Fund will not issue
senior securities; the purchase or sale of securities on a "when issued" basis
or collateral arrangement with respect to the writing of options on securities
are not deemed to be the issuance of a senior security. The Fund will not make
loans, except that the Fund may purchase or hold debt securities consistent with
its investment objective, lend portfolio securities valued at not more than 15%
of its total assets to broker-dealers and enter into repurchase agreements.
16. Joint Trading
None of American Retirement, Foundation, Growth and Income, Small Cap,*
Tax Strategic,* or Income and Growth may participate on a joint or joint and
several basis in any trading account in any securities. (The "bunching of orders
or the purchase or sale of portfolio securities with its investment adviser or
accounts under its management to reduce brokerage commissions, to average prices
among them or to facilitate such transactions is not considered a trading
account in securities for purposes of this restriction).
17. Options
Foundation and Tax Strategic* may not write, purchase or sell put or call
options, or combinations thereof.
Neither Growth and Income nor Income and Growth may write, purchase or
sell put or call options, or combinations thereof, except that each Fund is
authorized to write covered call options on portfolio securities and to purchase
call options in closing purchase transactions, provided that (i) such options
are listed on a national securities exchange, (ii) the aggregate market value of
the underlying securities does not exceed 25% of the Fund's net assets, taken at
current market value on the date of any such writing, and (iii) the Fund retains
the underlying securities for so long as call options written against them make
the shares subject to transfer upon the exercise of any options.
American Retirement may not write, purchase or sell put or call options,
or combinations thereof, except that the Fund is authorized (i) to write call
options traded on a national securities exchange against no more than 15% of the
value of the equity securities (including securities convertible into equity
securities) held in its portfolio, provided that the Fund owns the optioned
securities or securities convertible into or carrying rights to acquire the
optioned securities and (ii) to purchase call options in closing purchase
transactions.
Utility* will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of the Fund's
total assets would be invested in premiums on open put options. Utility* will
not write call options on securities unless securities are held in the Fund's
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portfolio or unless the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of any further payment.
18. Investment in Equity Securities
American Retirement may not invest more than 75% of the value of its
total assets in equity securities (including securities convertible into equity
securities).
19. Investing in Securities of Other Investment Companies
Balanced*, Utility and Value will purchase securities of investment
companies only in open-market transactions involving customary broker's
commissions. However, these limitations are not applicable if the securities are
acquired in a merger, consolidation or acquisition of assets. It should be noted
that investment companies incur certain expenses such as management fees and
therefore any investment by a Fund in shares of another investment company would
be subject to such duplicate expenses.
Total Return may not purchase securities of other investment companies,
except as part of a merger, consolidation, purchase or assets or similar
transaction.
Each other Fund may purchase the securities of other investment
companies, except to the extent such purchases are not permitted by applicable
law.
20. Restricted Securities
Balanced and Value will not invest more than 10% of their net assets in
securities subject to restrictions on resale under the Securities Act of 1933
(except for, in the case of Balanced, certain restricted securities which meet
criteria for liquidity established by the Trustees).
Utility* will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933,
except for commercial paper issued under Section 4(2) of the Securities Act of
1933 and certain other restricted securities which meet the criteria for
liquidity as established by the Trustees.
NON FUNDAMENTAL OPERATING POLICIES
Certain Funds have adopted additional non-fundamental operating policies.
Operating policies may be changed by the Board of Trustees without a shareholder
vote.
1. Futures and Options Transactions
Small Cap will not: (i) sell futures contracts, purchase put options or
write call options if, as a result, more than 30% of the Fund's total assets
would be hedged with futures and options under normal conditions; (ii) purchase
futures contracts or write put options if, as a result, the Fund's total
obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 30% of its total assets; or (iii) purchase call
options if, as a result, the current value of option premiums for options
purchased by the Fund would exceed 5% of the Fund's total assets. These
limitations do not apply to options attached to, or acquired or traded together
15
<PAGE>
with their underlying securities, and do not apply to securities that
incorporate features similar to options.
2. Illiquid Securities.
None of American Retirement, Foundation, Growth and Income, Small Cap,
Tax Strategic or Income and Growth may invest more than 15% of its net assets in
illiquid securities and other securities which are not readily marketable,
including repurchase agreements which have a maturity of longer than seven days,
but excluding securities eligible for resale under Rule 144A of the Securities
Act of 1933, as amended, which the Trustees have determined to be liquid.
Balanced and Utility will not invest more than 10% (in the case of
Balanced) or 15% (in the case of Utility) of its net assets in illiquid
securities, including repurchase agreements providing for settlement in more
than seven days after notice and certain securities determined by the Trustees
not to be liquid and, in the case of Utility, in non-negotiable time deposits.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
CERTAIN RISK CONSIDERATIONS
There can be no assurance that a Fund will achieve its investment
objective and an investment in the Fund involves certain risks which are
described under "Description of the Funds - Investment Objectives and Policies"
in each Fund's Prospectus.
In addition, the ability of Tax Strategic to achieve its investment
objective is dependent on the continuing ability of the issuers of Municipal
Securities in which the Fund invests -- and of banks issuing letters of credit
backing such securities -- to meet their obligations with respect to the payment
of interest and principal when due. The ratings of Moody's Investors Service,
Inc., Standard & Poor's Ratings Service, a division of McGraw Hill Companies,
Inc.and other nationally recognized rating organizations represent their
opinions as to the quality of Municipal Securities which they undertake to rate.
Ratings are not absolute standards of quality; consequently, Municipal
Securities with the same maturity, coupon, and rating may have different yields.
There are variations in Municipal Securities, both within a particular
classification and between classifications, resulting from numerous factors.
Unlike other types of investments, Municipal Securities have
traditionally not been subject to regulation by, or registration with, the SEC,
although there have been proposals which would provide for regulation in the
future.
The federal bankruptcy statutes relating to the debts of political
subdivisions and authorities of states of the United States provide that, in
certain circumstances, such subdivisions or authorities may be authorized to
initiate bankruptcy proceedings without prior notice to or consent of creditors,
which proceedings could result in material and adverse changes in the rights of
holders of their obligations. In addition, there have been lawsuits challenging
the issuance of pollution control revenue bonds or the validity of their
issuance under state or federal law which could ultimately
16
<PAGE>
affect the validity of those Municipal Securities or the tax-free nature of the
interest thereon.
MANAGEMENT
The Trustees and executive officers of the Trusts, their ages, addresses
and principal occupations during the past five years are set forth below:
TRUSTEES
JAMES S. HOWELL (72), 4124 Crossgate Road, Charlotte, NC
Chairman of the Evergreen Group of Mutual Funds, and Trustee. Retired Vice
President of Lance Inc. (food manufacturing); Chairman of the Distribution
Comm. Foundation for the Carolinas from 1989 to 1993.
RUSSELL A. SALTON, III, M.D. (49), 205 Regency Executive Park, Charlotte, NC
Trustee. Medical Director, U.S. Healthcare of the Charlotte, NC Carolinas
since 1996; President, Primary Physician Care from 1990 to 1996.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street Suite 980, Charlotte, NC
Trustee. Attorney, Law Offices of Michael S. Scofield since 1969.
Messrs. Howell, Salton and Scofield are Trustees of all forty-three investment
companies:
GERALD M. MCcDONNELL (57), 821 Regency Drive, Charlotte, NC
Trustee. Sales Representative with Nucor-Yamoto Inc. (steel producer) since
1988.
THOMAS L. McVERRY (58), 4419 Parkview Drive, Charlotte, NC Trustee. Director
of Carolina Cooperative Federal Credit Union since 1990 and Rexham
Corporation from 1988 to 1990; Vice President of Rexham Industries, Inc.
(diversified manufacturer) from 1989 to 1990; Vice President-Finance and
Resources, Rexham Corporation from 1979 to 1990.
WILLIAM WALT PETTIT*(41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC Trustee. Partner in the law firm Holcomb and Pettit, P.A.
since 1990.
Messrs. McDonnell, McVerry and Pettit are Trustees of forty-two of the
investment companies (excluded is Evergreen Variable Trust).
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL
Trustee. Real estate developer and construction consultant since 1980;
President of Centrum Equities since 1987 and Centrum Properties, Inc. since
1980.
FOSTER BAM* (70), Greenwich Plaza, Greenwich, CT
Trustee. Partner in the law firm of Cummings and Lockwood since 1968.
Messrs. Ashkin and Bam are Trustees of forty-one of the investment companies
(excluded are Evergreen Variable Trust and Evergreen Investment Trust).
FREDERICK AMLING ( )
Trustee. Professor, Finance Department, George Washington University;
President, Amling & Company (investment advice); Member, Board of Advisers,
Credito Emilano (banking); and former Economics and Financial Consultant,
Riggs National Bank.
17
<PAGE>
CHARLES A. AUSTIN III ( )
Trustee. Investment Counselor to Appleton Partners, Inc.; former Managing
Director, Seaward Management Corporation (investment advice); and former
Director, Executive Vice President and Treasurer, State Street Research &
Management Company (investment advice).
GEORGE S. BISSELL* ( )
Chairman of the Keystone Investments Family of Funds, and Trustee. Director
of Keystone Investments; Chairman of the Board and Trustee of Anatolia
College; Trustee of University Hospital (and Chairman of its Investment
Committee); former Director and Chairman of the Board of Hartwell Keystone;
and former Chairman of the Board and Chief Executive Officer of Keystone
Investments.
EDWIN D. CAMPBELL ( )
Trustee. Director and former Executive Vice President, National Alliance of
Business; former Vice President, Educational Testing Services; former Dean,
School of Business, Adelphi University; and former Executive Director,
Coalition of Essential Schools, Brown University.
CHARLES F. CHAPIN ( )
Trustee. Former Group Vice President, Textron Corp.; and former Director,
Peoples Bank (Charlotte, NC).
K. DUN GIFFORD ( )
Trustee. Chairman of the Board, Director, and Executive Vice President, The
London Harness Company; Managing Partner, Roscommon Capital Corp.; Trustee,
Cambridge College; Chairman Emeritus and Director, American Institute of
Food and Wine; Chief Executive Officer, Gifford Gifts of Fine Foods;
Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments and Keystone.
LEROY KEITH, JR. ( )
Trustee. Director of Phoenix Total Return Fund and Equifax, Inc.; Trustee
of Phoenix Series Fund, Phoenix Multi-Portfolio Fund, and The Phoenix Big
Edge Series Fund; and former President, Morehouse College.
F. RAY KEYSER, JR. ( )
Trustee. Counsel, Keyser, Crowley & Meub, P.C.; Member, Governor's (VT)
Council of Economic Advisers; Chairman of the Board and Director, Central
Vermont Public Service Corporation and Hitchcock Clinic; Director, Vermont
Yankee Nuclear Power Corporation, Vermont Electric Power Company, Inc.,
Grand Trunk Corporation, Central Vermont Railway, Inc., S.K.I. Ltd.,
Sherburne Corporation, Union Mutual Fire Insurance Company, New England
Guaranty Insurance Company, Inc., and the Investment Company Institute;
former Governor of Vermont; former Director and President, Associated
Industries of Vermont; former Chairman and President, Vermont Marble
Company; former Director of Keystone; and former Director and Chairman of
the Board, Green Mountain Bank.
DAVID M. RICHARDSON ( )
Trustee. Executive Vice President, DHR International, Inc. (executive
recruitment); former Senior Vice President, Boyden Inter-national Inc.
(executive recruitment); and Director, Commerce and Industry Association of
New Jersey, 411 International, Inc., and J&M Cumming Paper Co.
RICHARD J. SHIMA ( )
18
<PAGE>
Trustee. Chairman, Environmental Warranty, Inc., and Consultant, Drake Beam
Morin, Inc. (executive outplacement); Director of Connecticut Natural Gas
Corporation, Trust Company of Connecticut, Hartford Hospital, Old State
House Association, and Enhance Financial Services, Inc.; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford School and
Greater Hartford YMCA; former Director, Executive Vice President, and Vice
Chairman of The Travelers Corporation; former Managing Director of Russell
Miller, Inc.; and former Member, Georgetown College Board of Advisors.
ANDREW J. SIMONS* ( )
Trustee. Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky & Armentano,
P.C.; former President, Nassau County Bar Association; former Associate Dean
and Professor of Law, St. John's University School of Law.
Messrs. Amling, Austin, Bissell, Campbell, Chapin, Gifford, Keith, Keyser,
Richardson, Shima and Simons are Trustees or Directors of the thirty funds in
the Keystone Group of Funds. Their address is 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, FL
Trustee Emeritus. Corporate consultant since 1967.
Mr. Jeffries has been serving as a Trustee Emeritus of eleven of the investment
companies since January 1, 1996 (excluded are Evergreen Variable Trust,
Evergreen Investment Trust and the Keystone Group of Funds).
EXECUTIVE OFFICERS
JOHN J. PILEGGI (37), 230 Park Avenue, Suite 910, New York, NY President and
Treasurer. Consultant to BISYS Fund Services since 1996. Senior Managing
Director, Furman Selz LLC since 1992, Managing Director from 1984 to 1992.
GEORGE MARTINEZ (37), 3435 Stelzer Road, Columbus, OH
Secretary. Senior Vice President/Director of Administration and Regulatory
Services, BISYS Fund Services since April 1995. Vice President/Assistant
GeneralCounsel, Alliance Capital Management from 1988 to 1995.
- --------
* Messrs. Pettit, Bam, Bissell and Simons may each be deemed to be an
"interested person" within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act").
The officers of the Trusts are all officers and/or employees of BISYS
Fund Services. BISYS Fund Services is an affiliate of Evergreen Keystone
Distributor, Inc., the distributor of each Class of shares of each Fund.
The Funds do not pay any direct remuneration to any officer or Trustee
who is an "affiliated person" of either First Union National Bank of North
Carolina, Evergreen Asset Management Corp. or Keystone Investment Management
Company or their affiliates. See "Investment Advisers". Currently, none of the
Trustees is an "affiliated person" as defined in the 1940 Act. The Trusts pay
each Trustee who is not an "affiliated person" an annual retainer and a fee per
meeting attended, plus expenses, as follows:
Name of Trust/Fund Annual Retainer Meeting Fee
Income and Growth $ 5,500 $ 300
19
<PAGE>
Growth and Income 500 100
The Evergreen American Retirement Trust 1,000
American Retirement 100
Small Cap 100
Evergreen Foundation Trust 500
Foundation 100
Tax Strategic 100
Evergreen Investment Trust 15,000** 2,000**
Balanced
Utility
Value
Keystone Total Return ______***
- --------------------
** Allocated among the fourteen funds of the Evergreen Investment Trust based on
assets. *** Allocated among the more than thirty funds in the Keystone
Investments Family of Funds.
In addition:
(1) The Chairman of the Board of the Evergreen Group of Mutual Funds is paid an
annual retainer of $5,000, and the Chairman of the Audit Committee is paid an
annual retainer of $2,000. These retainers are allocated among all the funds in
the Evergreen group of mutual funds, based upon assets.
(2) The Chairman of the Board of the Keystone Investments Family of Funds is
paid an annual retainer of $_______________.
(3) Each member of the Audit Committee is paid an annual retainer of $500.
(4) Each non-affiliated Trustee is paid a fee of $500 for each special
telephonic meeting in which he paricipates, regardless of the number of Funds
for which the meeting is called.
(5) Each non-affiliated Trustee is paid a fee of $250 for each special Committee
of the Board telephone conference call meeting of one or more Funds in which he
participates.
(6) Any individual who has been appointed as a Trustee Emeritus of one or more
funds in the Evergreen Group of mutual funds is paid one-half of the fees that
are payable to regular Trustees.
Set forth below for each of the Trustees is the aggregate compensation
(and expenses) paid to such Trustees by each Trust for the fiscal year ended
December 31, 1996 (fiscal year ended November 30, 1996 for Total Return and
January 31, 1997 for Income and Growth).
Aggregate Compensation From Each Trust
Total
Compensation
Evergreen Evergreen Evergreen Keystone
From Trusts
Income Growth American Evergreen Evergreen Fund for
Fund
Name of and Growth and Income Retirement Foundation Investment Total
Complex Paid
20
<PAGE>
Trustee Fund Fund Trust Trust Trust Return
Trustees
L.B. Ashkin
F. Bam
J.S. Howell
G.M. McDonnell
T.L. McVerry
W.W. Pettit
R.A. Salton
M.S. Scofield
F.Amling
C.A. Austin
G.S. Bissell
E.D. Campbell
C.F. Chapin
K.D. Gifford
L. Keith
F.R. Keyser
D.M. Richardson
R.J. Shima
A.J. Simons
R.J. Jeffries
The number and percent of outstanding shares of each Fund owned by
officers and Trustees as a group on February 28, 1997 is as follows:
No. of Shares Owned
By Officers and Ownership by Officers and
Trustees Trustees as a % of
Name of Fund as a Group Shares Outstanding
Balanced
Income and Growth
Growth and Income
American Retirement
Small Cap
Foundation
Tax Strategic
Utility
Value
As of November 30, 1996, none of the Trustees and officers of Total Return
beneficially owned any of the Fund's then outstanding Class A, B and C shares.
Set forth below is information with respect to each person, who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of February 28, 1997.
Name of % of
Name and Address Fund/Class No. of Shares Class/Fund
- ---------------- ---------- -------------
- ---------------
State Street Bank & Trust Co Balanced/C 809 5.86%/.0%
Cust for the IRA of
Kathleen McEvoy
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
21
<PAGE>
Fubs & Co. Febo Balanced/C 718 5.19%/0%
Vivian G. Hardin IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Balanced/C 966
6.99%/.01%
Daniel J. Plummer
Janet R. Plummer
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Balanced/C 1,942
14.05%/0%
Leroy Selby, Jr.
Leroy Selby, III
C/O First Union National Bank
301 S. Tron Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Balanced/C 1,826 13.21%/0%
Mary Martha McBee Summerour C/F
Rebecca Jean Summerour
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Balanced/C 898 6.50%/0%
Annabelle D. Thompson
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Balanced/Y 49,791,633
81.05%/68.32%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Balanced/Y 11,633,627
18.94%/15.96%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Income and Growth/A 13,303
6.07%/.03%
Steven Brad Zlatkiss
C/O First Union National Bank
301 S. Tryon Street
Charlotee, NC 28288-0001
22
<PAGE>
Fubs & Co. Febo Income and Growth/C 1,331
5.11%/0%
Perlean Wade Boozer and
Velina Wade
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Income and Growth/C 2,611
10.03%/0%
Roberto Paiz and
Magalis Paiz and
Asteria De La Fuente
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Income and Growth/C 1,955
7.51%/0%
Barbara B. Bachmann
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Income and Growth/C 3,802
14.60%/0%
Nancy C. Logreco And
George E. Logreco
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Income and Growth/C 1,579
6.06%/0%
William A.Martin IRA R/O
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Growth and Income/C 29,045 26.24%/.14%
Clara Caudill
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Fidelity Bank Growth and Income/Y 4,688,120
29.46%/23.40%
Attn Christine James
Broad & Walnut Street
2 1/2 With Bldg
Philadelphia, PA 19109
First Fidelity Bank Growth and Income/Y 3,109,279
19.54%/15.51%
Broad & Walnut Street
2 1/2 With Bldg
Philadelphia, PA 19109
23
<PAGE>
First Union National Bank/EB/INT Growth and Income/Y 1,024,525 6.44%/5.11%
Cash Account
Attn. Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor
CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT Growth and Income/Y 1,956,232 12.29%/9.76%
Cash Account
Attn. Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor
CMG 1151
Charlotte, NC 28202-1911
First Union Natl Bank-VA C/F American Retirement/A 10,542 5.78%/.27%
Robert C Ewers IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo American Retirement/A 15,699 8.61%/.41%
Joe Hughes Jr. and
Debra A Hughes
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo American Retirement/A 10,033 5.50%/.26%
Lothar Sindram
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- American Retirement/C 769
5.21%/.02%
VA C/F
James L. Wilkinson Rollover IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo American Retirement/C 4,358 29.54%/.11%
Melvin H. Sease and
Clara K. Sease
C/O First Union National Bank
301 S. Tryon St.
Charlotte, NC 28288-0001
First Union National Bank-Fl American Retirement/C 778 5.27%/.02%
Earline McKinnie-IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo American Retirement/C 1,207 8.18%/.03%
Odus Williams and
Christine Williams
C/O First Union National Bank
301 S Tryon Street
24
<PAGE>
Charlotte, NC 28288-0001
Fubs & Co. Febo American Retirement/C 1,243 8.43%/.03%
Helen D. Just
C/O First Union National Bank
301 S Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- American Retirement/C 2,450 16.61%/.06%
VA C/F
William A Martin IRA R/O
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo American Retirement/C 1,565
10.61%/.04%
Odette I Struys
C/O First Union National Bank
301 S Tryon Street
Charlotte, NC 28288-0001
Charles Schwab & Co. Inc. American Retirement/Y 156,762
5.17%/4.09%
Cash Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
Charles Schwab & Co. Inc. American Retirement/Y 618,596
20.40%/16.13%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
Stephen A. Lieber American Retirement/Y 171,346
5.65%/4.47%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
State Street Bank & Trust Co. Small Cap/A 1,028
5.28%/.21%
Cust For the IRA of
Lynn B. Crookston
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Small Cap/A 6,549
33.68%/1.33%
Elizabeth M. Screven
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
25
<PAGE>
First Union National Bank- Small Cap/A 1,105
5.68%/.22%
FL C/F
Aura Dominguez
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Small Cap/A 1,385
7.12%/.28%
Carlene Toron
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Lewco Securities Corp. Small Cap/A 1,384 7.11%/.28%
FBO A/C # W24-400190-5-04 34
Exchange Place
4th Floor Jersey City, NJ 07302-3901
First Union National Bank- Small Cap/B 2,428 9.90%/.46%
NC C/F
Harold T. Brooks IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Small Cap/B 6,872
28.02%/1.40%
GA C/F
Lawrence Pelowski
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- Small Cap/B 1,547 6.31%/.31%
FL C/F
James P. Turner IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- Small Cap/B 1,459 5.95%/.30%
FL C/F
Robert H. Carr IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- Small Cap/B 1,394 5.68%/.28%
NC C/F
Eric W. Johnson IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- Small Cap/C 110 5.39%/.02%
FL C/F, Inc.
26
<PAGE>
Michael A. Sorg IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- Small Cap/C 110 5.39%/.02%
FL C/F, Inc.
Matthew R. Sorg IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- Small Cap/C 1,365 66.77%/.28%
VA C/F, Inc.
Bruce S. Barker IRA
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- Small Cap/C 437 21.37%/.09%
VA C/F
Brenton S. Farmer IRA
C/O First Union National Bank
301 S Tryon Street
Charlotte, NC 28288-0001
Nola Maddox Falcone Small Cap/Y 56,754 12.73%/11.54%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Stephen A. Lieber Small Cap/Y 113,510 25.46%/23.08%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Charles Schwab & Co. Inc. Small Cap/Y 29,785 6.68%/6.06%
Reinvest Account
101 Montgomery Street
Mutual Fund Dept.
San Francisco, CA 94104-4122
First Union National Bank/EB Small Cap/Y 65,128 14.61%/13.24%
Cash Account
Attn: Trust Operations Fund
401 S. Tryon Street
3rd Floor CMG 11
Charlotte, NC 28202-1911
First Union National Bank/EB Small Cap/Y 24,508 5.50%/ 4.98%
Reinvest Account
Attn: Trust Operations Fund
401 S. Tryon Street
3rd Floor CMG 11
Charlotte, NC 28202-1911
Charles Schwab & Co. Inc. Foundation/A 960,412
11.60%/1.25%
27
<PAGE>
101 Montgomery St.
San Francisco, CA 49104-4122
Charles Schwab & Co. Inc. Foundation/Y 5,155,427 11.44%/6.73%
101 Montgomery Street
San Francisco, CA 94104-4122
First Union National Bank/EB Foundation/Y 12,455,187 27.64%/16.26%
Reinvest Account
Attn: Trust Operations Fund
401 S. Tryon Street
3rd Floor CMG 11
Charlotte, NC 28202-1911
Mac & Co. Foundation/Y 6,406,497 14.22%/8.36%
A/C 195-6432
C/O Mellon Bank NA
Mutual Funds
P.O. Box 320
Pittsburgh, PA 15230-0320
Fubs & Co. Febo Tax Strategic /C 4,971 11.32%/.23%
Harry A. Edwards Jr.
Linda R. Edwards
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Tax Strategic /C 8,896 20.26%/.41%
Wade H. Moser, Jr. M.D.
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Tax Strategic /C 14,663 33.39%/.68%
Brenda Dykgraaf
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Tax Strategic /C 5,077 11.56%/.23%
Paul E. Hook and
Mary G. Hook
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Tax Strategic /C 2,619 5.96%/.12%
William Kent and
Janet R. Kent
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Nola Maddox Falcone Tax Strategic /Y 100,357 8.93%/4.64%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
28
<PAGE>
Constance E. Lieber Tax Strategic /Y 58,774 5.23%/2.72%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Stephen A. Lieber Tax Strategic/Y 509,312 45.34%/23.71%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Fubs & Co. Febo Utility/C 5,909 25.42%/.04%
Elsie B. Strom
Lewis F. Strom
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Utility/C 3,212 13.82%/.02%
Laura Alyce Hulbert
Ronald F. Hulbert
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Utility/C 1,178 5.07%/.0%
Evelyn L. Smith
Creg Smith
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Utility/C 1,543 6.64%/.01%
Ruth D. Hayes and
D. W. Hayes
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Utility/Y 599,595 81.93%/ 4.24%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Utility/Y 122,268 16.17%/.86%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Value/C 1,874 5.03%/0%
Kimberly Lynn Hadley
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Value/C 3,538 9.49%/0%
29
<PAGE>
Alex G. Suero
Maria E. Espinosa
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC
28288-0001
Fubs & Co. Febo Value/C 1,921 5.15%/0%
William H. Smith
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank- Value/C 2,014 5.40%/0%
Cecil Elders
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Value/Y 29,394,176 71.12%/46.93%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Value/Y 8,404,542
20.34%/13.42%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Fidelity Bank Value/Y 2,561,782 6.25%/4.12%
Attn: Joanne Monteiro
123 S. Broad St.
Philadelphia, PA 19109-1029
- ---------------------------------
First Fidelity Bank acts in various capacities for numerous accounts. As
a result of its ownership of _________% of Growth and Income on February 28,
1997, First Fidelity Bank may be deemed to "control" that Fund as that term in
defined in the 1940 Act.
First Union National Bank of North Carolina and its affiliates act in
various capacities for numerous accounts. As a result of its ownership on
February 28, 1997, of ______% of the Class Y shares of Balanced, _________% and
_________%, respectively, of the Class B and Class C shares of Small Cap,
________% of the Class Y shares of Foundation, _________% of the Class Y shares
of Utility and _________% of the Class Y shares of Value, First Fidelity Bank
may be deemed to "control" those Funds as that term in defined in the 1940 Act.
Fubs and Co. Febo acts in various capacities for numerous accounts. As a
result of its ownership on February 28, 1997, of _________% of the Class C
30
<PAGE>
shares of Balanced, _________% of the Class C shares of American Retirement,
________% of the Class A shares of Small Cap, _______% of the Class C shares of
Tax Strategic and _________% of the Class C shares of Utility, Fubs and Co. may
be deemed to "control" those Funds as that term in defined in the 1940 Act.
As a result of Stephen A. Lieber's ownership on February 28, 1997, of
_______% of the Class Y shares of Small Cap and ________% of the Class Y shares
of Tax Strategic, Mr. Lieber may be deemed to "control" those Funds as that term
in defined in the 1940 Act.
INVESTMENT ADVISERS
(See also "Management of the Fund" in each Fund's Prospectus)
The investment adviser of Income and Growth, Growth and Income,
American Retirement, Small Cap, Foundation and Tax Strategic is Evergreen Asset
Management Corp., a New York corporation, with offices at 2500 Westchester
Avenue, Purchase, New York or ("Evergreen Asset" or the "Adviser"). Evergreen
Asset is owned by First Union National Bank of North Carolina ("FUNB" or the
"Adviser") which, in turn, is a subsidiary of First Union Corporation ("First
Union"), a bank holding company headquartered in Charlotte, North Carolina.
The investment adviser of Balanced, Utility and Value is FUNB which
provides investment advisory services through its Capital Management Group.
The investment adviser of Total Return is Keystone Investment
Management Company ("Keystone" or the "Adviser"), a ______________ corporation,
with offices at 200 Berkeley Street, Boston, Massachusetts. Keystone is owned by
FUNB.
The Directors of Evergreen Asset are Richard K. Wagoner and Barbara I.
Colvin. The executive officers of Evergreen Asset are Stephen A. Lieber,
Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President and
Co-Chief Executive Officer, and Theodore J. Israel, Jr., Executive Vice
President. The Directors of Keystone are Donald McMullen, William M. Ennis, II
and Barbara I. Colvin. The executive officers of Keystone are James R. McCall,
President, Edward F. Godfrey, Senior Vice President, Chief Financial Officer
and Treasurer, Philip M. Bryne, Senior Vice President, and Rosemary D. Van
Antwerp, Senior Vice President, General Counsel and Secretary.
On June 30, 1994, Evergreen Asset and Lieber & Company ("Lieber"), were
acquired by First Union through certain of its subsidiaries. Contemporaneously
with the acquisition, Income and Growth, Growth and Income, American Retirement,
Small Cap, Foundation and Tax Strategic entered into a new investment advisory
agreement with Evergreen Asset and into a distribution agreement with Evergreen
Keystone Distributor, Inc. (formerly known as Evergreen Funds Distributor,
(Inc.) (the "Distributor"), an affiliate of BISYS Fund Services. At that time,
Evergreen Asset also entered into a new sub-advisory agreement with Lieber
pursuant to which Lieber provides certain services to Evergreen Asset in
connection with its duties as investment adviser. The new advisory and
sub-advisory agreements were approved by the shareholders of Income and Growth,
Growth and Income, American Retirement, Small Cap, Foundation and Tax Strategic
at their meeting held on June 23, 1994, and became effective on June 30, 1994.
On September 6, 1996, First Union and FUNB entered into an Agreeement
and Plan of Acquisition and Merger (the "Merger") with Keystone Investments,
Inc. ("Keystone Investments"), the corporate parent of Keystone, which provided,
among other things, for the merger of Keystone Investments with and into a
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<PAGE>
wholly-owned subsidiary of FUNB. The Merger was consummated on December 11,
1996. Keystone continues to provide investment advisory services to the Keystone
Investments Family of Funds. Contemporaneously with the Merger, Total Return
entered into a new investment advisory agreement with Keystone and into a
principal underwriting agreement with the Distributor.
Under the Investment Advisory Agreement with each Fund, each Adviser
has agreed to furnish reports, statistical and research services and
recommendations with respect to each Fund's portfolio of investments. In
addition, each Adviser provides office facilities to the Funds and performs a
variety of administrative services. Each Fund pays the cost of all of its other
expenses and liabilities, including expenses and liabilities incurred in
connection with maintaining their registration under the Securities Act of 1933,
as amended, and the 1940 Act, printing prospectuses (for existing shareholders)
as they are updated, state qualifications, mailings, brokerage, custodian and
stock transfer charges, printing, legal and auditing expenses, expenses of
shareholder meetings and reports to shareholders. Notwithstanding the foregoing,
each Adviser will pay the costs of printing and distributing prospectuses used
for prospective shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
three most recent fiscal periods reflected in its registration statement are set
forth below:
BALANCED Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $4,870,748 $4,621,512
========== ========== ==========
INCOME AND GROWTH Year Ended Year Ended Year Ended
1/31/97 1/31/96 1/31/95
Advisory Fee $9,343,195 $8,542,289
========== =========== ===========
Expense
Reimbursement $ 53,576
FOUNDATION Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $5,387,186 $2,551,768
========== ========== ========
Expense
Reimbursement 11,064
SMALL CAP Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $45,397 $29,075
--------- -------- --------
Waiver ($45,397) ($29,075)
Net Advisory Fee $ 0 $ 0
========= ========= =========
Expense
Reimbursement $164,584 $63,704
--------- ------- -------
32
<PAGE>
UTILITY Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $456,021 $153,458
--------- ----------
Waiver ($299,028) ($152,038)
Net Advisory Fee $156,993 $ 1,420
========= =========
Expense
Reinbursement $ 51,894 $106,957
-------- ---------
GROWTH AND INCOME Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $1,332,685 $684,891
======== ======== ========
Expense
Reimbursement $ 38,106
--------
AMERICAN Year Ended Year Ended Year Ended
RETIREMENT 12/31/96 12/31/95 12/31/94
Advisory Fee $297,242 $292,628
======== ======== ========
Expense
Reimbursement $ 76,464
--------
TAX STRATEGIC Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $140,386 $ 65,915
------ ------ --------
Waiver ($96,975) ($65,915)
Net Advisory Fee $ 43,411 $ 0
========== ========= =========
Expense
Reimbursement $ 85,543 $ 3,777
------ ------ ------
VALUE Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $5,120,579 $3,850,673
TOTAL RETURN Year Ended Year Ended Year Ended
11/30/96 11/30/95 11/30/94
Advisory Fee
Utility commenced operations on January 4, 1994 and, therefore, the
first year's figures set forth in the table above reflect for Utility investment
advisory fees paid for the period from commencement of operations through
December 31, 1994.
Expense Limitations
33
<PAGE>
Evergreen Asset has voluntarily agreed to reimburse Small Cap to the
extent that any of the Fund's aggregate operating expenses (including the
Adviser's fee but excluding interest, taxes, brokerage commissions, Rule 12b-1
distribution fees and shareholder servicing fees and extraordinary expenses)
exceed 1.50% of its average net assets until such time as said Fund's net assets
reach $15 million.
Total Return voluntarily limits Class A expenses to 1.50% of the
average daily net assets of Class A shares, such expense limitation to be
reevaluated on a calendar month basis and to be modified or eliminated in the
future at the discretion of Keystone.
The Investment Advisory Agreements are terminable, without the payment
of any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of each
Trust's Trustees or by the respective Adviser. The Investment Advisory
Agreements will automatically terminate in the event of their assignment. Each
Investment Advisory Agreement provides in substance that the Adviser shall not
be liable for any action or failure to act in accordance with its duties
thereunder in the absence of willful misfeasance, bad faith or gross negligence
on the part of the Adviser or of reckless disregard of its obligations
thereunder.
The Investment Advisory Agreements with respect to Income and Growth,
Growth and Income, American Retirement, Small Cap, Foundation and Tax Strategic
were approved by each Fund's shareholders on June 23, 1994, became effective on
June 30, 1994, and were last approved by the Trustees of each Trust on February
8, 1996.
The Investment Advisory Agreement with respect to Balanced, Utility and
Value dated February 28, 1985, and amended from time to time thereafter, was
last approved by the Trustees of Evergreen Investment Trust on February 8, 1996.
The Investment Advisory Agreement with respect to Total Return was
approved by the Fund's shareholders on December 9, 1996, and became effective on
December 11, 1996.
Each Investment Advisory Agreement will continue in effect from year to
year provided that its continuance is approved annually by a vote of a majority
of the Trustees of each Trust including a majority of those Trustees who are not
parties thereto or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting duly called for the purpose of voting on such
approval or a majority of the outstanding voting shares of each Fund.
Certain other clients of each Adviser may have investment objectives
and policies similar to those of the Funds. Each Adviser (including the
sub-adviser) may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients simultaneously
with a Fund. If transactions on behalf of more than one client during the same
period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or quantity. It
is the policy of each Adviser to allocate advisory recommendations and the
placing of orders in a manner which is deemed equitable by the Adviser to the
accounts involved, including the Funds. When two or more of the clients of the
Adviser (including one or more of the Funds) are purchasing or selling the same
security on a given day from the same broker-dealer, such transactions may be
averaged as to price.
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<PAGE>
Although the investment objectives of the Funds are not the same, and
their investment decisions are made independently of each other, they rely upon
the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, each
Adviser attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to
permit purchase and sales transactions to be effected between each Fund and the
other registered investment companies for which Evergreen Asset, FUNB or
Keystone act as investment adviser or between the Fund and any advisory clients
of Evergreen Asset, FUNB, Keystone or Lieber. Each Fund may from time to time
engage in such transactions but only in accordance with these procedures and if
they are equitable to each participant and consistent with each participant's
investment objectives.
Prior to July 7, 1995, Federated Administrative Services, a subsidiary
of Federated Investors, provided legal, accounting and other administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust. The Trust paid a fee for such services at the following annual rate: .15%
on the first $250 million average daily net assets of the Trust; .125% on the
next $250 million; .10% on the next $250 million and .075% on assets in excess
of $250 million. For the period ended July 7, 1995, and the fiscal years ended
December 31, 1994 and 1993 Balanced incurred $392,991, $779,584 and $597,752,
respectively, in administrative service costs. For the period ended July 7,
1995, and the period from January 4, 1994 (commencement of operations) to
December 31, 1994, Utility incurred $10,384 and $16,382, respectively, in
administrative service costs, all of which were voluntarily waived. For the
period ended July 7,1995, and for the fiscal years ended December 31, 1994 and
1993, Value incurred $374,216, $649,487, and $526,836, respectively, in
administrative service costs.
Evergreen Asset has been providing administrative services to each of
the portfolios of Evergreen Investment Trust since July 8, 1995, for a fee based
on the average daily net assets of each fund administered by Evergreen Asset for
which Evergreen Asset or FUNB also serves as investment adviser, calculated
daily and payable monthly at the following annual rates: .050% on the first $7
billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on
the next $10 billion; .015% on the next $5 billion; and .010% on assets in
excess of $30 billion. For the period from July 8, 1995 through December 31,
1995, and the fiscal year ended December 31, 1996, Balanced, Utility and Value
incurred the following administration costs: Balanced $283,139 and
$____________, respectively; Utility $39,330 and $____________, respectively;
and Value $323,050 and $___________, respectively. For the period July 8, 1995
through December 31, 1995 and the fiscal year ended December 31, 1996, Utility
incurred $35,512 and $_____________, respectively, in administrative service
costs, all of which was voluntarily waived. BISYS Fund Services, an affiliate of
the Distributor, serves as sub-administrator to Balanced, Utility and Value and
is entitled to receive a fee from each Fund calculated on the average daily net
assets of each Fund at a rate based on the total assets of the mutual funds
administered by Evergreen Asset for which FUNB or Evergreen Asset also serve as
investment adviser, calculated in accordance with the following schedule:
35
<PAGE>
.0100% of the first $7 billion; .0075% on the next $3 billion; .0050% on the
next $15 billion; and .0040% on assets in excess of $25 billion. The total
assets of the mutual funds administered by Evergreen Asset for which Evergreen
Asset, FUNB or Keystone serve as investment adviser were approximately $_______
billion as of February 28, 1997.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A, B and C shares and are charged as class expenses,
as accrued. The distribution fees attributable to the Class B shares and Class C
shares are designed to permit an investor to purchase such shares through
broker-dealers without the assessment of a front-end sales charge, and, in the
case of Class C shares, without the assessment of a contingent deferred sales
charge after the first year following purchase, while at the same time
permitting the Distributor to compensate broker-dealers in connection with the
sale of such shares. In this regard the purpose and function of the combined
contingent deferred sales charge and distribution services fee on the Class B
shares and the Class C shares, are the same as those of the front-end sales
charge and distribution fee with respect to the Class A shares in that in each
case the sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (each a
"Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the
amounts expended under the Plan and the purposes for which such expenditures
were made to the Trustees of each Trust for their review on a quarterly basis.
Also, each Plan provides that the selection and nomination of the disinterested
Trustees are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Growth and Income, Income and Growth, American Retirement, Small Cap,
Foundation and Tax Strategic commenced offering Class A, B or C shares on
January 3, 1995. Each Plan with respect to such Funds became effective on
December 30, 1994 and was initially approved by the sole shareholder of each
Class of shares of each Fund with respect to which a Plan was adopted on that
date and by the unanimous vote of the Trustees of each Trust, including the
disinterested Trustees voting separately, at a meeting called for that purpose
and held on December 13, 1994. The Distribution Agreements between each Fund and
the Distributor pursuant to which distribution fees are paid under the Plans by
each Fund with respect to its Class A, Class B and Class C shares were also
approved at the December 13, 1994 meeting by the unanimous vote of the Trustees,
including the disinterested Trustees voting separately.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of each Trust or by vote
of the holders of a majority of the outstanding voting securities of that
36
<PAGE>
Class and, in either case, by a majority of the disinterested Trustees of the
Trust.
Prior to July 8, 1995, Federated Securities Corp., a subsidiary of
Federated Investors, served as the distributor for Balanced, Utility and Value
as well as other portfolios of Evergreen Investment Trust. The Distribution
Agreements between each Fund and the Distributor pursuant to which distribution
fees are paid under the Plans by each Fund with respect to its Class A, Class B
and Class C shares were approved on April 20, 1995 by the unanimous vote of the
Trustees including the disinterested Trustees voting separately.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.
In addition to the Plans, Balanced, Utility and Value have each adopted
a Shareholder Services Plan whereby shareholder servicing agents may receive
fees from the Fund for providing services which include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance, and communicating or facilitating purchases and redemptions of Class
B and Class C shares of the Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of a Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. With respect to Balanced,
Utility, and Value, amendments to the Shareholder Services Plan require a
majority vote of the disinterested Trustees but do not require a shareholders
37
<PAGE>
vote. Any Plan, Shareholder Services Plan or Distribution Agreement may be
terminated (a) by a Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
Class or by a majority vote of the disinterested Trustees, or (b) by the
Distributor. To terminate any Distribution Agreement, any party must give the
other parties 60 days' written notice; to terminate a Plan only, the Fund need
give no notice to the Distributor. Any Distribution Agreement will terminate
automatically in the event of its assignment.
Income and Growth, Growth and Income, American Retirement, Small Cap,
Foundation and Tax Strategic incurred the following Distribution Services Plans
and Shareholder Services fees:
Distribution Services Fees:
INCOME AND GROWTH. For the fiscal period from January 3, 1995 (commencement of
class operations) through January 31, 1995, the fiscal years ended January 31,
1996 and 1997, $7, $4,915 and $___________ on behalf of its Class A shares,
$126, $46,636 and $___________, respectively on behalf of its Class B shares,
and $7, $1,516 and $________, respectively on behalf of its Class C shares.
GROWTH AND INCOME. For the fiscal period from January 3,1995 (commencement of
class operations) through December 31, 1995 and the fiscal year ended December
31, 1996, $22,055 and $__________, respectively, on behalf of its Class A
shares, $159,114 and $___________, respectively, on behalf of its Class B
shares, and $6,902 and $_________, respectively, on behalf of its Class C
shares.
AMERICAN RETIREMENT. For the fiscal period from January 3,1995 (commencement of
class operations) through December 31, 1995 and the fiscal year ended December
31, 1996, $659 and $_________, respectively, on behal of its Class A shares,
$9,137 and $_________, respectively, on behalf of its Class B shares, and $187
and $________, respectively, on behalf of its Class C shares.
SMALL CAP. For the fiscal period from January 3, 1995 (commencement of class
operations) through December 31, 1995 and the fiscal year ended December 31,
1996, $340 and $________, respectively, on behalf of its Class A shares, $1,298
and $_______, respectively, on behalf of its Class B shares, and $111 and
$_______, respecively, on behalf of its Class C shares.
FOUNDATION. For the fiscal period from January 3, 1995 (commencement of class
operations) through December 31, 1995 and the fiscal year ended December 31,
1996, $116,677 and $_________, respectively on behalf of its Class A shares,
$972,541 and $____________, respectively, on behalf of its Class B shares, and
$37,823 and $____________, respectively, on behalf of its Class C shares.
TAX STRATEGIC. For the fiscal period from January 3, 1995 (commencement of class
operations) through December 31, 1995 and the fiscal year ended December 31,
1996, $2,582 and $________, respectively, on behalf of its Class A shares,
$21,725 and $__________, respectively, on behalf of its Class B shares, and
$1,292 and $___________, respectively, on behalf of its Class C shares.
Shareholder Services Fees:
INCOME AND GROWTH. For the fiscal period from January 3, 1995 (commencement of
class operations) through January 31, 1995, the fiscal years ended January 31,
1996 and 1997, shareholder services fees on behalf of $42, $15,546 and
38
<PAGE>
$__________, respectively, on behalf of its Class B shares, and $3, $505 and
$____________, respectively, on behalf of its Class C shares.
GROWTH AND INCOME. For the fiscal period from January 3, 1995 (commencement of
class operations) through December 31, 1995 and the fiscal year ended December
31, 1996, shareholder services fees of $53,139 and $___________ on behalf of its
Class B shares, and $2,301 and $___________, respectively, on behalf of its
Class C shares.
AMERICAN RETIREMENT. For the fiscal period from January 3, 1995 (commencement of
class operations) through December 31, 1995 and the fiscal year ended December
31, 1996, $3,045 and $_________, respectively, on behalf of its Class B shares,
and $62 and $________, respectively, on behalf of its Class C shares.
SMALL CAP. For the fiscal period from January 3, 1995 (commencement of class
operations) through December 31, 1995 and the fiscal year ended December 31,
1996, $433 and $_______, respectively, on behalf of its Class B shares, and $37
and $_______, respectively, on behalf of its Class C shares.
FOUNDATION. For the fiscal period from January 3, 1995 (commencement of class
operations) through December 31, 1995 and the fiscal year ended December 31,
1996, $324,180 and $____________, respectively, on behalf of its Class B shares,
and $12,608 and $____________, respectively, on behalf of its Class C shares.
TAX STRATEGIC. For the fiscal period from January 3, 1995 (commencement of class
operations) through December 31, 1995 and the fiscal year ended December 31,
1996, $7,242 and $__________, respectively, on behalf of its Class B shares, and
$431 and $___________, respectively, on behalf of its Class C shares.
Balanced, Value and Utility incurred the following Distribution
Services Plans and Shareholder Services Plans fees:
Distribution Services Fees:
BALANCED. For the fiscal years ended December 31, 1994, 1995 and 1996, $102,621,
$102,400 and $________, respectively, on behalf of Class A shares, and $670,202,
$784,084 and $________, respectively, on behalf of Class B shares; for the
period from September 2, 1994 (commencement of operations) to December 31, 1994,
and the fiscal years ended December 31, 1995 and 1996, $310, $1,811 and $______,
respectively, on behalf of Class C shares.
VALUE. For the fiscal years ended December 31, 1994, 1995 and 1996, $473,347,
$603,896 and $_______, respectively, on behalf of Class A shares, and $621,330,
$916,221 and $________, respectively, on behalf of Class B shares; for the
period from September 2, 1994 (commencement of operations) to December 31, 1994,
and the fiscal years ended December 31, 1995 and 1996, $716, $4,798 and $______,
respectively, on behalf of Class C shares.
UTILITY. For the fiscal years ended December 31, 1994, 1995 and 1996, $9,658,
$133,582 and $________, respectively, on behalf of Class A shares, and $169,007,
$234,357 and $________, respectively, on behalf of Class B shares; for the
period from September 2, 1994 (commencement of operations) to December 31, 1994,
and the fiscal years ended December 31, 1995 and 1996, $232, $1,271 and
$_______, respectively, on behalf of Class C shares.
Shareholder Services Plans fees:
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BALANCED. For the fiscal years ended December 31, 1994, 1995 and 1996, $83,641,
$261,361 and $_______, respectively, on behalf of Class B shares, and $103, $604
and $________, respectively, on behalf of Class C shares.
UTILITY. For the fiscal years ended December 31, 1994, 1995 and 1996, $24,141,
$78,119 and $_______, respectively, on behalf of Class B shares, and $77, $424
and $_________, respectively, on behalf of Class C shares.
VALUE. For the fiscal years ended December 31, 1994, 1995 and 1996, $83,225,
$305,407 and $___________, respectively, on behalf of Class B shares, and $239,
$1,599 and $__________, respectively, on behalf of Class C shares.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of each
Fund's Adviser. In general, the same individuals perform the same functions for
the other funds managed by each Adviser. A Fund will not effect any brokerage
transactions with any broker or dealer affiliated directly or indirectly with
the Adviser unless such transactions are fair and reasonable, under the
circumstances, to the Fund's shareholders. Circumstances that may indicate that
such transactions are fair or reasonable include the frequency of such
transactions, the selection process and the commissions payable in connection
with such transactions.
A substantial portion of the transactions in equity securities for each
Fund will occur on domestic stock exchanges. Transactions on stock exchanges
involve the payment of brokerage commissions. In transactions on stock exchanges
in the United States, these commissions are negotiated, whereas on many foreign
stock exchanges these commissions are fixed. In the case of securities traded in
the foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market maker, although the Fund may place an over-the-counter order with a
broker-dealer if a better price (including commission) and execution are
available.
It is anticipated that most purchase and sale transactions involving
fixed income securities will be with the issuer or an underwriter or with major
dealers in such securities acting as principals. Such transactions are normally
on a net basis and generally do not involve payment of brokerage commissions.
However, the cost of securities purchased from an underwriter usually includes
commission paid by the issuer to the underwriter. Purchases or sales from
dealers will normally reflect the spread between bid and ask prices.
In selecting firms to effect securities transactions, the primary
consideration of each Fund shall be prompt execution at the most favorable
price. Each Adviser will also consider such factors as the price of the
securities and the size and difficulty of execution of the order. If these
objectives may be met with more than one firm, the Adviser will also consider
the availability of statistical and investment data and economic facts and
opinions helpful to the Fund. To the extent that receipt of these services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
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Under Section 11(a) of the Securities Exchange Act of 1934, as amended,
and the rules adopted thereunder by the SEC, Lieber may be compensated for
effecting transactions in portfolio securities for a fund on a national
securities exchange provided the conditions of the rules are met. Each Fund
advised by Evergreen Asset has entered into an agreement with Lieber authorizing
Lieber to retain compensation for brokerage services. In accordance with such
agreement, it is contemplated that Lieber, a member of the New York and American
Stock Exchanges, will, to the extent practicable, provide brokerage services to
Growth and Income, Income and Growth, American Retirement, Small Cap, Foundation
and Tax Strategic with respect to substantially all securities transactions
effected on the New York and American Stock Exchanges. In such transactions, the
Adviser will seek the best execution at the most favorable price while paying a
commission rate no higher than that offered to other clients of Lieber or that
which can be reasonably expected to be offered by an unaffiliated broker-dealer
having comparable execution capability in a similar transaction. However, no
Fund will engage in transactions in which Lieber would be a principal. While no
Fund advised by Evergreen Asset contemplates any ongoing arrangements with other
brokerage firms, brokerage business may be given from time to time to other
firms. In addition, the Trustees have adopted procedures pursuant to Rule 17e-1
under the 1940 Act to ensure that all brokerage transactions with Lieber, as an
affiliated broker-dealer, are fair and reasonable.
Neither Total Return nor Keystone intends on placing securities
transactions with any particular broker. The Fund's Board of Trustees has
determined, however, that the Fund may consider sales of Fund shares as a factor
in the selection of brokers to execute portfolio transactions, subject to the
requirements of best execution described above. The Fund expects that purchases
and sales of securitis will usually be effected through brokerage transactions
for which commissions are payable. Purchases from underwriters will include the
underwriting commission or concession, and purchases from dealers serving as
market makers will include a dealer's mark-up or reflect a dealer's mark-down.
Where transactions are made in the over-the-counter market, the Fund will deal
with primary market makers unless more favorable prices are otherwise
obtainable. Under its Advisory Agreement, Keystone is permitted to pay higher
brokerage commissions for brokerage and research services in accordance with
Section 28(e) of the Securities Exchange Act of 1934. In the event Keystone
follows such a practice, it will do so on a basis that is fair and equitable to
the Fund.
Any profits from brokerage commissions accruing to Lieber as a result
of portfolio transactions for the Growth and Income, Income and Growth, American
Retirement, Small Cap, Foundation and Tax Strategic will accrue to FUNB and to
its ultimate parent, First Union. The Investment Advisory Agreements do not
provide for a reduction of the Adviser's fee with respect to any Fund by the
amount of any profits earned by Lieber from brokerage commissions generated by
portfolio transactions of the Fund.
The following chart shows: (1) the brokerage commissions paid by each
Fund advised by Evergreen Asset during their last three fiscal years; (2) the
amount and percentage thereof paid to Lieber; and (3) the percentage of the
total dollar mount of all portfolio transactions with respect to which
commissions have been paid which were effected by Lieber:
INCOME AND GROWTH Year Ended Year Ended Year Ended
1/31/97 1/31/96 1/31/95
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Total Brokerage $3,255,068 $3,755,606
Commissions
Dollar Amount and % $2,982,640 $3,465,900
paid to Lieber 92% 92%
% of Transactions
Effected by Lieber 90% 97%
FOUNDATION Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $393,121 $282,250
Commissions
Dollar Amount and % $380,226 $ 276,985
paid to Lieber 98% 98%
% of Transactions
Effected by Lieber 97% 98%
SMALL CAP Year Ended Year Ended Period Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $5,968 $ 3,998
Commissions
Dollar Amount and % $4,863 $ 3,618
paid to Lieber 81% 90%
% of Transactions
Effected by Lieber 77% 90%
GROWTH AND INCOME Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $210,923 $80,871
Commissions
Dollar Amount and % $160,659 $71,721
paid to Lieber 76% 89%
% of Transactions
Effected by Lieber 74% 88%
AMERICAN RETIREMENT Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $57,216 $203,922
Commissions
Dollar Amount and % $53,276 $202,838
paid to Lieber 93% 99%
% of Transactions
Effected by Lieber 82% 99%
TAX STRATEGIC Year Ended Year Ended Period Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $37,374 $24,872
Commissions
Dollar Amount and % $35,954 $24,072
paid to Lieber 96% 97%
% of Transactions
Effected by Lieber 94% 98%
Income and Growth changed its fiscal year end from March 31 to January
31 during the first period covered by the foregoing table. Accordingly, the
commissions reported in the foregoing table reflect for Income and Growth the
period from April 1, 1994 to January 31, 1995.
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Balanced, Value, Utility and Total Return did not pay any commissions
to Lieber. For the fiscal years ended December 31, 1996, 1995 and 1994, Balanced
paid $________, $615,041 and $450,569, respectively, in commissions on brokerage
transactions. For the fiscal year ended December 31, 1996 and 1995, and for the
period from January 4, 1994 (commencement of operations) to December 31, 1994,
Utility paid $___________, $272,806 and $66,294, respectively, in commissions on
brokerage transactions. For the fiscal years ended December 31, 1996, 1995 and
1994, Value paid $_________________, $1,644,077 and $1,437,338, respectively, in
commissions on brokerage transactions. For the fiscal years ended November 30,
1996, 1995 and 1994, Total Return paid $___________, $92,665 and $65,514,
respectively, in commissions on brokerage transactions.
ADDITIONAL TAX INFORMATION
(See also "Other Information - Dividends,
Distributions and Taxes" in each Fund's Prospectus)
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a regulated investment company, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to proceeds from securities loans, gains from the sale or other
disposition of securities or foreign currencies and other income (including
gains from options, futures or forward contracts) derived with respect to its
business of investing in such securities; (b) derive less than 30% of its gross
income from the sale or other disposition of securities, options, futures or
forward contracts (other than those on foreign currencies), or foreign
currencies (or options, futures or forward contracts thereon) that are not
directly related to the RIC's principal business of investing in securities (or
options and futures with respect thereto) held for less than three months; and
(c) diversify its holdings so that, at the end of each quarter of its taxable
year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash, U.S. government securities and other securities limited in
respect of any one issuer, to an amount not greater than 5% of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities and securities of other
regulated investment companies). By so qualifying, a Fund is not subject to
Federal income tax if it timely distributes its investment company taxable
income and any net realized capital gains. A 4% nondeductible excise tax will be
imposed on a Fund to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each Fund anticipates meeting
such distribution requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any). Any dividends received by a Fund from domestic
corporations will constitute a portion of the Fund's gross investment income. It
is anticipated that this portion of the dividends paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction for corporations. Shareholders will be informed of the amounts of
dividends which so qualify.
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Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the dividends-received deduction. Any loss
recognized upon the sale of shares of a Fund held by a shareholder for six
months or less will be treated as a long-term capital loss to the extent that
the shareholder received a long-term capital gain distribution with respect to
such shares.
Distributions of investment company taxable income and any net
short-term capital gains will be taxable as ordinary income as described above
to shareholders (who are not exempt from tax), whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in each share so
received equal to the net asset value of a share of a Fund on the reinvestment
date.
Distributions by each Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive
what is in effect a return of capital upon the distribution which will
nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gains or loss
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent shares disposed of are replaced within
a period of sixty-one days beginning thirty days before and ending thirty days
after the shares are disposed of. Any loss realized by a shareholder on the sale
of shares of the Fund held by the shareholder for six months or less will be
disallowed to the extent of any exempt interest dividends received by the
shareholder with respect to such shares, and will be treated for tax purposes as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her Federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% Federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these
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shareholders, whether taken in cash or reinvested in additional shares, and any
redemption proceeds will be reduced by the amounts required to be withheld.
Investors may wish to consult their own tax advisers about the applicability of
the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e.,U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to Federal, state and local tax consequences of investing in shares of
a Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
Special Tax Considerations for Tax Strategic
With respect to Tax Strategic, to the extent that the Fund distributes
exempt interest dividends to a shareholder, interest on indebtedness incurred or
continued by such shareholder to purchase or carry shares of the Fund is not
deductible. Furthermore, entities or persons who are "substantial users" (or
related persons) of facilities financed by "private activity" bonds (some of
which were formerly referred to as "industrial development" bonds) should
consult their tax advisers before purchasing shares of the Fund. "Substantial
user" is defined generally as including a "non-exempt person" who regularly uses
in its trade or business a part of a facility financed from the proceeds of
industrial development bonds.
The percentage of the total dividends paid by the Fund with respect to
any taxable year that qualifies as exempt interest dividends will be the same
for all shareholders of the Fund receiving dividends with respect to such year.
If a shareholder receives an exempt interest dividend with respect to any share
and such share has been held for six months or less, any loss on the sale or
exchange of such share will be disallowed to the extent of the exempt interest
dividend amount.
NET ASSET VALUE
The following information supplements that set forth in each Fund's
Prospectus under the subheading "How to Buy Shares - How the Funds Value Their
Shares" in the Section entitled "Purchase and Redemption of Shares".
The public offering price of shares of a Fund is its net asset value
plus, in the case of Class A shares, a sales charge which will vary depending
upon the purchase alternative chosen by the investor, as more fully described in
the Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales
Charge Alternative". On each Fund business day on which a purchase or redemption
order is received by a Fund and trading in the types of securities in which a
Fund invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its
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liabilities, by the total number of its shares then outstanding. A Fund business
day is any weekday, exclusive of national holidays on which the Exchange is
closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic
or foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked prices and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
The respective per share net asset values of the Class A, Class B,
Class C and Class Y shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class B
and Class C shares may be lower than the per share net asset value of the Class
A shares (and, in turn, that of Class A shares may be lower than Class Y shares)
as a result of the greater daily expense accruals, relative to Class A and Class
Y shares, of Class B and Class C shares relating to distribution services fees
(and, with respect to Balanced, Utility and Value, shareholder service fee) and,
to the extent applicable, transfer agency fees and the fact that Class Y shares
bear no additional distribution, shareholder service or transfer agency related
fees. While it is expected that, in the event each Class of shares of a Fund
realizes net investment income or does not realize a net operating loss for a
period, the per share net asset values of the four Classes will tend to converge
immediately after the payment of dividends, which dividends will differ by
approximately the amount of the expense accrual differential among the Classes,
there is no assurance that this will be the case. In the event one or more
Classes of a Fund experiences a net operating loss for any fiscal period, the
net asset value per share of such Class or Classes will remain lower than that
of Classes that incurred lower expenses for the period.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York.
Furthermore, trading takes place in various foreign markets on days
which are not business days in New York and on which the Fund's net asset value
is not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the Exchange
will not be reflected in a Fund's calculation of net asset value unless the
Trustees deem that the particular event would materially affect net asset value,
in which case an adjustment will be made. Securities transactions
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are accounted for on the trade date, the date the order to buy or sell is
executed. Dividend income and other distributions are recorded on the
ex-dividend date, except certain dividends and distributions from foreign
securities which are recorded as soon as the Fund is informed after the
ex-dividend date.
PURCHASE OF SHARES
The following information supplements that set forth in each Fund's
Prospectus under the heading "Purchase and Redemption of Shares - How To Buy
Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), with a contingent deferred
sales charge (the deferred sales charge alternative"), or without any front-end
sales charge, but with a contingent deferred sales charge imposed only during
the first year after purchase (the "level-load alternative"), as described
below. Class Y shares which, as described below, are not offered to the general
public, are offered without any front-end or contingent sales charges. Shares of
each Fund are offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with the Distributor ("selected
dealers"), (ii) depository institutions and other financial intermediaries or
their affiliates, that have entered into selected agent agreements with the
Distributor ("selected agents"), or (iii) the Distributor. The minimum for
initial investment is $1,000; there is no minimum for subsequent investments.
The subscriber may use the Share Purchase Application available from the
Distributor for his or her initial investment. Sales personnel of selected
dealers and agents distributing a Fund's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
through selected dealers or agents or directly through the Distributor. A Fund
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to the net asset value next
determined (plus for Class A shares, the applicable sales charges), as described
below. Orders received by the Distributor prior to the close of regular trading
on the Exchange on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on the Exchange on
that day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to that day's
closing price must be settled between the investor and the selected dealer or
agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
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Following the initial purchase of shares of a Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Share Purchase Application. Payment for
shares purchased by telephone can be made only by Electronic Funds Transfer from
a bank account maintained by the shareholder at a bank that is a member of the
National Automated Clearing House Association ("ACH"). If a shareholder's
telephone purchase request is received before 3:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically placed the same Fund
business day for non-money market funds, and two days following the day the
order is received for money market funds, and the applicable public offering
price will be the public offering price determined as of the close of business
on such business day. Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to a Fund, stock certificates
representing shares of a Fund are not issued. This facilitates later redemption
and relieves the shareholder of the responsibility for and inconvenience of lost
or stolen certificates.
Alternative Purchase Arrangements
Each Fund issues four classes of shares: (i) Class A shares, which are
sold to investors choosing the front-end sales charge alternative; (ii) Class B
shares, which are sold to investors choosing the deferred sales charge
alternative; (iii) Class C shares, which are sold to investors choosing the
level-load sales charge alternative; and (iv) Class Y shares, which are offered
only to (a) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (b) certain investment advisory clients
of the Advisers and their affiliates, and (c) institutional investors. The four
Classes of shares each represent an interest in the same portfolio of
investments of the Fund, have the same rights and are identical in all respects,
except that (I) only Class A, Class B and Class C shares are subject to a Rule
12b-1 distribution fee, (II) Class B and Class C shares of Balanced, Utility and
Value are subject to a shareholder service fee, (III) Class A shares bear the
expense of the front-end sales charge and Class B and Class C shares bear the
expense of the deferred sales charge, (IV) Class B shares and Class C shares
each bear the expense of a higher Rule 12b-1 distribution services fee and
shareholder service fee than Class A shares and, in the case of Class B shares,
higher transfer agency costs, (V) with the exception of Class Y shares, each
Class of each Fund has exclusive voting rights with respect to provisions of the
Rule 12b-1 Plan pursuant to which its distribution services (and, to the extent
applicable, shareholder service) fee is paid which relates to a specific Class
and other matters for which separate Class voting is appropriate under
applicable law, provided that, if the Fund submits to a simultaneous vote of
Class A, Class B and Class C shareholders an amendment to the Rule 12b-1 Plan
that would materially increase the amount to be paid thereunder with respect to
the Class A shares, the Class A shareholders and the Class B and Class C
shareholders will vote separately by Class, and (VI) only the Class B shares are
subject to a conversion feature. Each Class has different exchange privileges
and certain different shareholder service options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent applicable, shareholder service) fee and contingent deferred sales
charges on Class B shares prior to conversion, or the accumulated distribution
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services (and, to the extent applicable, shareholder service) fee on Class C
shares, would be less than the front-end sales charge and accumulated
distribution services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher return of Class A
shares. Class B and Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at the lowest applicable sales
charge. For this reason, the Distributor will reject any order (except orders
for Class B shares from certain retirement plans) for more than $2,500,000 for
Class B shares or $500,000 for Class C shares.
Class A shares are subject to a lower distribution services fee and no
shareholder service fee and, accordingly, pay correspondingly higher dividends
per share than Class B shares or Class C shares. However, because front-end
sales charges are deducted at the time of purchase, investors purchasing Class A
shares would not have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced front-end sales
charges who expect to maintain their investment for an extended period of time
might consider purchasing Class A shares because the accumulated continuing
distribution (and, to the extent applicable, shareholder service) charges on
Class B shares or Class C shares may exceed the front-end sales charge on Class
A shares during the life of the investment. Again, however, such investors must
weigh this consideration against the fact that, because of such front-end sales
charges, not all their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution services (and, to the extent applicable, shareholder service) fees
and, in the case of Class B shares, being subject to a contingent deferred sales
charge for a six-year period. For example, based on current fees and expenses,
an investor subject to the 4.75% front-end sales charge imposed by Evergreen
Equity and Long-Term Bond Funds would have to hold his or her investment
approximately seven years for the Class B and Class C distribution services
(and, to the extent applicable, shareholders service) fees, to exceed the
front-end sales charge plus the accumulated distribution services fee of Class A
shares. In this example, an investor intending to maintain his or her investment
for a longer period might consider purchasing Class A shares. This example does
not take into account the time value of money, which further reduces the impact
of the Class B and Class C distribution services (and, to the extent applicable,
shareholder service) fees on the investment, fluctuations in net asset value or
the effect of different performance assumptions.
Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the six year period during
which Class B shares are subject to a contingent deferred sales charge may find
it more advantageous to purchase Class C shares.
With respect to each Fund, the Trustees have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. On an ongoing basis, the Trustees, pursuant to their
fiduciary duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.
Front-End Sales Charge Alternative--Class A Shares
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The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any sales charges.
The Fund receives the entire net asset value of its Class A shares sold to
investors. The Distributor's commission is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission "reallowed"
to selected dealers and agents. The Distributor will reallow discounts to
selected dealers and agents in the amounts indicated in the table in the
Prospectus. In this regard, the Distributor may elect to reallow the entire
sales charge to selected dealers and agents for all sales with respect to which
orders are placed with the Distributor.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,000 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of each Fund at the end of each Fund's latest fiscal
year.
Net Per Share Offering
Asset Sales Price
Value Charge Date Per Share
Balanced $12.95 $0.65 12/31/96 $13.60
Growth and Income $22.53 $1.12 12/31/96 $23.65
Income and Growth $ $ 1/31/97 $
American Retirement $13.86 $0.69 12/31/96 $14.55
Small Cap $13.10 $0.65 12/31/96 $13.75
Foundation $16.13 $0.80 12/31/96 $16.93
Tax Strategic $13.50 $0.67 12/31/96 $14.17
Utility $10.53 $.54 12/31/96 $11.10
Value $20.57 $1.03 12/31/96 $21.60
Total Return 11/30/96
Prior to January 3, 1995, shares of Growth and Income, Income and
Growth, American Retirement, Small Cap, Foundation and Tax Strategic were
offered exclusively on a no-load basis and, accordingly, no underwriting
commissions were paid in respect of sales of shares of these Funds or retained
by the Distributor. In addition, since Class B and Class C shares were not
offered by Growth and Income, Income and Growth, American Retirement, Small Cap,
Foundation or Tax Strategic prior to January 3, 1995, contingent deferred sales
charges have been paid to the distributor with respect to Class B or Class C
shares only since January 3, 1995.
With respect to Balanced, Utility and Value, the following commissions
were paid to and amounts were retained by Federated Securities Corp. through
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July 7, 1995, which until such date was the principal underwriter of portfolios
of Evergreen Investment Trust. For the period from July 8 through December 31,
1995, commissions were paid to and amounts were retained by the current
Distributor as noted below:
Year Ended Period from Period From
Year Ended
12/31/96 7/8/95 to 1/1/95 to 12/31/94
12/31/95 7/7/95
BALANCED
Commissions Received $15,844 $11,841 $605,000
Commissions Retained $ 1,731 $ 1,303 $12,000
VALUE
Commissions Received $58,797 $56,058 1,003,000
Commissions Retained $ 6,615 $ 6,001 $36,000
UTILITY
Period from
1/4/94 to
12/31/94
Commissions Received $15,692 $20,958 $243,999
Commissions Retained $ 1,727 $ 2,228 $10,000
With respect to Income and Growth, Growth and Income, American
Retirement, Small Cap, Foundation and Tax Strategic, the following commissions
were paid to and amounts were retained by the Distributor for the periods
indicated:
Year Ended Year Ended Period from 1/3/95
INCOME AND GROWTH 1/31/97 1/31/96 to 1/31/95
Commissions Received $ 98,890 $4,585
Commissions Retained $ 10,733 ---
Year Ended Year Ended
GROWTH AND INCOME 12/31/96 12/31/95
Commissions Received $ 326,249
Commissions Retained $ 37,300
AMERICAN RETIREMENT
Commissions Received $ 42,447
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Commissions Retained $ 7,397
SMALL CAP
Commissions Received $ 778
Commissions Retained $ 284
FOUNDATION
Commissions Received $1,604,275
Commissions Retained $ 178,885
TAX STRATEGIC
Commissions Received $ 28,976
Commissions Retained $ 3,266
Investors choosing the front-end sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more Evergreen
Keystone Funds other than the money market funds into a single "purchase", if
the resulting "purchase" totals at least $100,000. The term "purchase" refers
to:(i) a single purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an individual,
his or her spouse and their children under the age of 21 years purchasing shares
for his, her or their own account(s); (ii) a single purchase by a trustee or
other fiduciary purchasing shares for a single trust, estate or single fiduciary
account although more than one beneficiary is involved; or (iii) a single
purchase for the employee benefit plans of a single employer. The term
"purchase" also includes purchases by any "company", as the term is defined in
the 1940 Act, but does not include purchases by any such company which has not
been in existence for at least six months or which has no purpose other than the
purchase of shares of a Fund or shares of other registered investment companies
at a discount. The term "purchase" does not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein are
credit card holders of a company, policy holders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
A "purchase" may also include shares, purchased at the same time through a
single selected dealer or agent, of any Evergreen Keystone Fund. Currently, the
Evergreen Keystone Funds include:
Evergreen Trust:
Evergreen Fund
Evergreen Aggressive Growth Fund
Evergreen Equity Trust:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
Evergreen Income and Growth Fund
The Evergreen American Retirement Trust:
The Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
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Evergreen Foundation Trust:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Municipal Trust:
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Florida High Income Municipal Bond Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Money Market Trust:
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen Investment Trust:
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund
Evergreen Value Fund Evergreen Utility Fund
Evergreen Short Intermediate Bond Fund
Evergreen U.S. Government Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
Evergreen Lexicon Fund:
Evergreen Intermediate Term Government Securities Fund
Evergreen Intermediate Term Bond Fund
Evergreen Tax Free Trust:
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax Free Income Fund
Evergreen Variable Trust:
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Strategic Income Fund
Evergreen VA Aggressive Growth Fund
Keystone America Fund Family:
Keystone Fund for Total Return
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Balanced Fund II
Keystone Capital Preservation and Income Fund
Keystone Small Company Growth Fund II
Keystone Fund of the Americas
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone Intermediate Term Bond Fund
Keystone Omega Fund
Keystone Global Resources and Development Fund
Keystone Strategic Income Fund
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Tax Free Income Fund
Keystone World Bond Fund
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Prospectuses for the Evergreen Keystone Funds may be obtained without
charge by contacting the Distributor or the Advisers at the address or telephone
number shown on the front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all Class A, Class B and Class C shares
of the Fund held by the investor and (b) all such shares of
any other Evergreen Keystone Fund held by the investor; and
(iii) the net asset value of all shares described in paragraph
(ii) owned by another shareholder eligible to combine his or
her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned Class A, B or C shares of an
Evergreen Keystone Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of a Fund worth an additional
$100,000, the sales charge for the $100,000 purchase, in the case of any
Evergreen Equity or Long-Term Bond Fund, would be at the 2.50% rate applicable
to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on a purchase through a selected dealer or agent,
the investor or selected dealer or agent must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Statement of Intention. Class A investors may also obtain the reduced
sales charges shown in the Prospectus by means of a written Statement of
Intention, which expresses the investor's intention to invest not less than
$100,000 within a period of 13 months in Class A shares (or Class A, Class B
and/or Class C shares) of the Fund or any other Evergreen Keystone Fund. Each
purchase of shares under a Statement of Intention will be made at the public
offering price or prices applicable at the time of such purchase to a single
transaction of the dollar amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases of Class A, B
or C shares of the Fund or any other Evergreen mutual fund made not more than 90
days prior to the date that the investor signs a Statement of Intention;
however, the 13-month period during which the Statement of Intention is in
effect will begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the Evergreen Keystone Funds under a single
Statement of ntention. For example, if at the time an investor signs a Statement
of Intention to invest at least $100,000 in Class A shares of the Fund, the
investor and the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to invest a total of
$60,000 during the following 13 months in shares of the Fund or any other
Evergreen Keystone Fund, to qualify for the 3.75% sales charge applicable to
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puchases in any Evergreen Equity or Long-Term Bond Fund on the total amount
being invested (the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention is 5% of such amount. Shares purchased with the
first 5% of such amount will be held in escrow (while remaining registered in
the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased, and such escrowed shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. Dividends on escrowed shares, whether
paid in cash or reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow will be released.
To the extent that an investor purchases more than the dollar amount indicated
on the Statement of Intention and qualifies for a further reduced sales charge,
the sales charge will be adjusted for the entire amount purchased at the end of
the 13-month period. The difference in sales charge will be used to purchase
additional shares of the Fund subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention in conjunction
with their initial investment in Class A shares of a Fund should complete the
appropriate portion of the Subscription Application found in the Prospectus
while current Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting a Fund at the address or telephone number
shown on the cover of this Statement of Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified benefit and savings plans may make shares of the
Evergreen mutual funds available to their participants. Investments made by such
employee benefit plans may be exempt from any applicable front-end sales charges
if they meet the criteria set forth in the Prospectus under "Class A
Shares-Front End Sales Charge Alternative". The Advisers may provide
compensation to organizations providing administrative and recordkeeping
services to plans which make shares of the Evergreen mutual funds available to
their participants.
Reinstatement Privilege. A Class A shareholder who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are reinvested in shares
of the Fund. The reinstatement privilege may be used by the shareholder only
once, irrespective of the number of shares redeemed or repurchased, except that
the privilege may be used without limit in connection with transactions whose
sole purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
Information.
Sales at Net Asset Value. In addition to the categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset
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value, i.e., without any sales charge, to: (i) certain investment advisory
clients of the Advisers or their affiliates; (ii) officers and present or former
Trustees of the Trusts; present or former trustees of other investment companies
managed by the Advisers; officers, directors and present or retired full-time
employees of the Advisers, the Distributor, and their affiliates; officers,
directors and present and full-time employees of selected dealers or agents; or
the spouse, sibling, direct ancestor or direct descendant (collectively
"relatives") of any such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or relative; or the
estate of any such person or relative, if such shares are purchased for
investment purposes (such shares may not be resold except to the Fund); (iii)
certain employee benefit plans for employees of the Advisers, the Distributor
and their affiliates; (iv) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer and approved by the
Distributor, pursuant to which such persons pay an asset-based fee to such
broker-dealer, or its affiliate or agent, for service in the nature of
investment advisory or administrative services. These provisions are intended to
provide additional job-related incentives to persons who serve the Funds or work
for companies associated with the Funds and selected dealers and agents of the
Funds. Since these persons are in a position to have a basic understanding of
the nature of an investment company as well as a general familiarity with the
Fund, sales to these persons, as compared to sales in the normal channels of
distribution, require substantially less sales effort. Similarly, these
provisions extend the privilege of purchasing shares at net asset value to
certain classes of institutional investors who, because of their investment
sophistication, can be expected to require significantly less than normal sales
effort on the part of the Funds and the Distributor.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative purchase Class
B shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without a front-end
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used by the Distributor to defray the expenses of the
Distributor related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to selected dealers and agents for selling Class B shares. The
combination of the contingent deferred sales charge and the distribution
services fee (and, with respect to Balanced, Utility and Value, the shareholder
service fee) enables the Fund to sell the Class B shares without a sales charge
being deducted at the time of purchase. The higher distribution services fee
(and, with respect to Balanced, Utility and Value, the shareholder service fee)
incurred by Class B shares will cause such shares to have a higher expense ratio
and to pay lower dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within six years of purchase will be subject to a contingent deferred sales
charge at the rates set forth in the Prospectus charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
contingent deferred sales charge will be assessed on shares derived from
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reinvestment of dividends or capital gains distributions. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares.
In determining the contingent deferred sales charge applicable to a
redemption, it will be assumed that the redemption is first of any Class A
shares or Class C shares in the shareholder's Fund account, second of Class B
shares held for over eight years or Class B shares acquired pursuant to
reinvestment of dividends or distributions and third of Class B shares held
longest during the eight-year period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a
contingent deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or (ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
Conversion Feature. At the end of the period ending seven years after
the end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee (and, with respect to
Balanced, Utility and Value, the shareholder service fee) imposed on Class B
shares. Such conversion will be on the basis of the relative net asset values of
the two classes, without the imposition of any sales load, fee or other charge.
The purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee (and, with respect to
Balanced, Utility and Value, shareholder service fee) and transfer agency costs
with respect to Class B shares does not result in the dividends or distributions
payable with respect to other Classes of a Fund's shares being deemed
"preferential dividends" under the Code, and (ii) the conversion of
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Class B shares to Class A shares does not constitute a taxable event under
Federal income tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the time such
conversion is to occur. In that event, no further conversions of Class B shares
would occur, and shares might continue to be subject to the higher distribution
services fee (and, with respect to Balanced, Utility and Value, the shareholder
service fee) for an indefinite period which may extend beyond the period ending
seven years after the end of the calendar month in which the shareholder's
purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level load sales charge alternative purchase
Class C shares at the public offering price equal to the net asset value per
share of the Class C shares on the date of purchase without the imposition of a
front-end sales charge. However, you will pay a 1.0% contingent deferred sales
charge if you redeem shares during the first year after purchase. No charge is
imposed in connection with redemptions made more than one year from the date of
purchase. Class C shares are sold without a front-end sales charge so that the
Fund will receive the full amount of the investor's purchase payment and after
the first year without a contingent deferred sales charge so that the investor
will receive as proceeds upon redemption the entire net asset value of his or
her Class C shares. The Class C distribution services fee (and, with respect to
Balanced, Utility and Value, shareholder service fee) enables the Fund to sell
Class C of shares without either a front-end or contingent deferred sales
charge. However, unlike Class B shares, Class C shares do not convert to any
other Class shares of the Fund. Class C shares incur higher distribution
services fees (and, with respect to Balanced, Utility and Value, shareholder
service fees) than Class A shares, and will thus have a higher expense ratio and
pay correspondingly lower dividends than Class A shares.
Class Y Shares
Class Y shares are not offered to the general public and are available
only to (i) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS (See also "Other
Information - General Information"
in each Fund's Prospectus)
Capitalization and Organization
Each of the Evergreen Growth and Income Fund and Evergreen Income and
Growth Fund is a Massachusetts business trust. Evergreen American Retirement
Fund and Evergreen Small Cap Equity Income Fund are each separate series of The
Evergreen American Retirement Trust, a Massachusetts business trust. The
Evergreen Foundation Fund and Evergreen Tax Strategic Foundation Fund are each
separate series of the Evergreen Foundation Trust, a Massachusetts business
trust. The Evergreen Balanced Fund, Evergreen Utility Fund and Evergreen Value
Fund, which prior to July 7, 1995 were known as the First Union Balanced
Portfolio, First Union Utility Portfolio and First Union Value Portfolio,
respectively, are each separate series of Evergreen Investment Trust, a
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Massachusetts business trust. Keystone Fund for Total Return (formerly Keystone
America Fund for Total Return) is a Massachusetts business trust. On July 7,
1995, First Union Funds changed its name to Evergreen Investment Trust. The
above-named Trusts are individually referred to in this Statement of Additional
Information as the "Trust" and collectively as the "Trusts." Each Trust is
governed by a board of trustees. Unless otherwise stated, references to the
"Board of Trustees" or "Trustees" in this Statement of Additional Information
refer to the Trustees of all the Trusts.
Income and Growth and Growth and Income may issue an unlimited number
of shares of beneficial interest with a $0.001 par value. American Retirement,
Small Cap, Foundation, Tax Strategic, Balanced, Value and Utility may issue an
unlimited number of shares of beneficial interest with a $0.0001 par value.
Total Return may issue an unlimited number of shares of beneficial interest with
a $______ par value. All shares of these Funds have equal rights and privileges.
Each share is entitled to one vote, to participate equally in dividends and
distributions declared by the Funds and on liquidation to their proportionate
share of the assets remaining after satisfaction of outstanding liabilities.
Shares of these Funds are fully paid, nonassessable and fully transferable when
issued and have no pre-emptive, conversion or exchange rights. Fractional shares
have proportionally the same rights, including voting rights, as are provided
for a full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his or her earlier death,
incapacity, resignation or removal. Shareholders can remove a Trustee upon a
vote of two-thirds of the outstanding shares of beneficial interest of the
Trust. Vacancies will be filled by a majority of the remaining Trustees, subject
to the 1940 Act. As a result, normally no annual or regular meetings of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of Trustees can elect
100% of the Trustees if they choose to do so and in such event the holders of
the remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more of the Trusts. Any issuance of shares of another series or class would be
governed by the 1940 Act and the law of the Commonwealth of Massachusetts. If
shares of another series of a Trust were issued in connection with the creation
of additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees, that affected all portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in the same investment portfolio. Except for
the different distribution related and other specific costs borne by such
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additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders' meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of each Fund. The rights of the holders of
shares of a series of a Fund may not be modified except by the vote of a
majority of the outstanding shares of such series.
An order has been received from the SEC permitting the issuance and
sale of multiple classes of shares representing interests in each Fund. In the
event a Fund were to issue additional Classes of shares other than those
described herein, no further relief from the SEC would be required.
Distributor
Evergreen Keystone Distributor, Inc. (formerly known as Evergreen Funds
Distributor, Inc. (the "Distributor"), 230 Park Avenue, New York, New York
10169, serves as each Fund's principal underwriter, and as such may solicit
orders from the public to purchase shares of any Fund. The Distributor is not
obligated to sell any specific amount of shares and will purchase shares for
resale only against orders for shares. Under the Distribution Agreement between
the Fund and the Distributor, the Fund has agreed to indemnify the Distributor,
in the absence of its willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations thereunder, against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended.
Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the
Funds.
Independent Auditors
Price Waterhouse LLP has been selected to be the independent auditors
of Income and Growth, Foundation and Tax Strategic.
KPMG Peat Marwick LLP has been selected to be the independent auditors
of Growth and Income, American Retirement, Small Cap, Balanced, Utility, Value
and Total Return.
PERFORMANCE INFORMATION
Total Return
From time to time a Fund may advertise its "total return." Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the SEC the
average annual compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charge applicable to purchases of
Fund shares is assumed to have been paid. The Fund will include performance
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<PAGE>
data for Class A, Class B, Class C and Class Y shares in any advertisement or
information including performance data of the Fund.
With respect to Income and Growth, Growth and Income, American
Retirement, Small Cap, Foundation and Tax Strategic, the shares of each Fund
outstanding prior to January 3, 1995 have been reclassified as Class Y shares.
The average annual compounded total return for each Class of shares offered by
the Funds for the most recently completed one, five and ten year fiscal periods
is set forth in the table below.
INCOME AND GROWTH 1 Year 5 Years 10 Years
Ended Ended Ended
1/31/97 1/31/97 1/31/97
Class A
Class B
Class C
Class Y
From
GROWTH AND INCOME 1 Year 5 Years 10/15/86
Ended Ended (inception)
12/31/96 12/31/96 to 12/31/96
Class A
Class B
Class C
Class Y
From
AMERICAN 1 Year 5 Years 3/14/88
RETIREMENT Ended Ended (inception)
12/31/96 12/31/96 to 12/31/96
Class A
Class B
Class C
Class Y
From
SMALL CAP 1 Year 10/1/93
Ended (inception)
12/31/96 to 12/31/96
Class A
Class B
Class C
Class Y
FOUNDATION 1 Year 5 Years From 1/2/90
Ended Ended (inception)
12/31/96 12/31/96 to 12/31/96
Class A
Class B
Class C
Class Y
TAX STRATEGIC 1 Year From 11/02/93
Ended (inception) to
12/31/96 12/31/96
Class A
61
<PAGE>
Class B
Class C
Class Y
BALANCED 1 Year
Ended From inception*
12/31/96 to 12/31/96
Class A
Class B
Class C
Class Y
UTILITY 1 Year From inception**
Ended to 12/31/96
12/31/96
Class A
Class B
Class C
Class Y
VALUE 1 Year 5 Years
Ended Ended From inception***
12/31/96 12/31/96 to 12/31/96
Class A
Class B
Class C
Class Y
* Inception date: Class A - June 6, 1991; Class B - January 25, 1993; Class C
- -
September 2, 1994; Class Y - April 1, 1991.
** Inception date: Class A - January 4, 1994; Class B - January 4, 1994; Class
C
- - September 2, 1994; Class Y - February 28, 1994.
*** Inception date: Class A - April 12, 1985; Class B - January 25, 1993; Class
C - September 2, 1994; Class Y - December 31, 1990.
The performance numbers for Income and Growth, Growth and Income,
American Retirement, Small Cap, Foundation and Tax Strategic for the Class A,
Class B and Class C shares are hypothetical numbers based on the performance for
Class Y shares as adjusted for any applicable front-end sales charge or
contingent deferred sales charge through January 3, 1995 (commencement of class
operations) and the actual performance of each class subsequent to January 3,
1995. The performance data calculated prior to January 3, 1995, does not reflect
any Rule 12b-1 fees. If such fees were reflected the returns would be lower.
A Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is
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<PAGE>
useful in reviewing a Fund's performance but such information may not provide a
basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions.
YIELD CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the SEC yield formula) for
a given 30-day or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income) in order to arrive at an annual
percentage rate. The formula for calculating yield is as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where a = Interest earned during the period
b = Expenses accrued for the period (net of reimbursements) c = The
average daily number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
Income is calculated for purposes of yield quotations in accordance
with standardized methods applicable to all stock and bond funds. Gains and
losses generally are excluded from the calculation. Income calculated for
purposes of determining a Fund's yield differs from income as determined for
other accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
The yield of each Fund for the thirty-day period ended December 31,
1996 (November 30, 1996 with respect to the Class A, Class B and Class C shares
of
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<PAGE>
Total Return*, and January 31, 1997 with respect to Income and Growth) for each
Class of shares offered by the Funds is set forth in the table below:
Income and Growth Tax Strategic
Class A Class A
Class B Class B
Class C Class C
Class Y Class Y
Growth and Income Balanced
Class A Class A
Class B Class B
Class C Class C
Class Y Class Y
American Retirement Utility
Class A Class A
Class B Class B
Class C Class C
Class Y Class Y
Small Cap Value
Class A Class A
Class B Class B
Class C Class C
Class Y Class Y
Foundation Total Return
Class A Class A
Class B Class B
Class C Class C
Class Y
* Total Return commenced offering Class Y shares effective December 15, 1996.
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
GENERAL
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Russell 2000 Index, or any other commonly quoted index of common stock prices.
The Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average and the Russell 2000 Index are unmanaged indices of selected common
stock prices. A Fund's performance may also be compared to those of other mutual
funds having similar objectives. This comparative performance would be expressed
as a ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may
64
<PAGE>
be useful to investors who wish to compare a Fund's past performance with that
of its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's broker
or to each Adviser at the address or telephone number shown on the front cover
of this Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the Registration
Statements filed by the Trusts with the SEC under the Securities Act of 1933.
Copies of the Registration Statements may be obtained at a reasonable charge
from the SEC or may be examined, without charge, at the offices of the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
Each Fund's financial statements appearing in their most current fiscal
year Annual Report to shareholders and the report thereon of the independent
auditors appearing therein, namely Price Waterhouse LLP (in the case of Income
and Growth, Foundation and Tax Strategic) or KPMG Peat Marwick LLP (in the case
of Growth and Income, American Retirement, Small Cap, Balanced, Utility, Value
and Total Return) are incorporated by reference in this Statement of Additional
Information. The Annual Reports to Shareholders for each Fund, which contain the
referenced statements, are available upon request and without charge.
APPENDIX "A"
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Service. A Standard & Poor's corporate or
municipal bond rating is a current assessment of the credit worthiness of an
obligor with respect to a specific obligation. This assessment of credit
worthiness may take into consideration obligors such as guarantors, insurers or
lessees. The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform any audit in connection
with the ratings and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
2. Nature of and provisions of the obligation.
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<PAGE>
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay interest and
repay any principal.
AA - Debt rated AA also qualifies as high quality debt obligations.
Capacity to pay interest and repay principal is very strong and in the majority
of instances they differ from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB - rating.
B - Debt rated B has greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
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<PAGE>
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods; it will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate and municipal issues. The ratings
measure the credit worthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's rating symbols and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
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<PAGE>
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. NOTE:
Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issue so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk
factors; AA -- high credit quality, with strong protection factors and modest
risk, which may vary very slightly from time to time because of economic
conditions; A--average credit quality with adequate protection factors, but with
greater and more variable risk factors in periods of economic stress. The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.
Fitch Investors Service LLP: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those rating
categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less
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<PAGE>
will likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria will be used in
making that assessment.
o Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.) Note rating
symbols are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and
municipal short-term obligations will be designated Moody's Investment Grade
(MIG). This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
are uppermost in importance in short-term borrowing, while various factors of
major importance in bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
o MIG 2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security
elements are accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries
the smallest degree of investment risk. The modifiers 1, 2, and 3 are used to
denote relative strength within this highest classification.
Standard & Poor's Ratings Service: "A" is the highest commercial paper
rating category utilized by Standard & Poor's Ratings Group which uses the
numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
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Duff & Phelps, Inc.: Duff 1 is the highest commercial paper rating
category utilized by Duff & Phelps which uses + or - to denote relative strength
within this classification. Duff 2 represents good certainty of timely payment,
with minimal risk factors. Duff 3 represents satisfactory protection factors,
with risk factors larger and subject to more variation.
Fitch Investors Service LLP: F-1+ -- denotes exceptionally strong
credit quality given to issues regarded as having strongest degree of assurance
for timely payment; F-1 -- very strong, with only slightly less degree of
assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a
satisfactory degree of assurance for timely payment.
70
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24 (a) Financial Statements
To be filed by amendment.
<PAGE>
Item 24 (b) Exhibits
(1) (a) Registrant's Declaration of Trust, as supplemented ("Declaration of
Trust").(1)
(b) Second Supplemented Declaration of Trust.(2)
(2) (a) Registrant's By-Laws, as amended ("By-Laws").(1)
(b) Amendment to By-Laws.(2)
(3) Not applicable.
(4) (a) Registrant's share certificate.(3)
(b) Declaration of Trust, Articles III, V, VI, and VIII.(1)
(c) By-Laws, Article 2.(1)
(5) Investment Advisory and Management Agreement between Registrant and
Keystone Investment Management Company ("Advisory Agreement")(2)
(6) (a) Form of Principal Underwriting Agreement between Registrant and
Evergreen Keystone Distributor, Inc. ("EKD") with respect to Class A and
C shares ("Class A and C Underwriting Agreement").(2)
(b) Form of Principal Underwriting Agreement between Registrant and EKD
with respect to the Class Y shares ("Class Y Underwriting Agreement").(2)
(c) Form of Principal Underwriting Agreement between Registrant and EKD
with respect to Class B-2 shares ("Class B-2 Underwriting Agreement").(2)
(d) Form of Dealer Agreement used by EKD.(2)
(7) Not applicable.
(8) (a) Custodian, Fund Accounting and Recordkeeping Agreement between
Registrant and State Street Bank & Trust Company, as amended ("Custodian
Agreement"). (1)
(b) Amendment to Custodian Agreement.(2)
(9) (a) Form of Marketing Services Agreement between EKD and Evergreen
Keystone Investment Services, Inc. ("EKIS").(2)
(b) Form of Sub-Administrator Agreement between Keystone Investment
Management Company and BISYS Group, Inc.(2)
(c) Form of Principal Underwriting Agreements with EKIS (each a
"Continuation Agreement").(2)
(10) Opinion and consent of counsel as to the legality of the securities
registered.(4)
(11) Not applicable.
(12) Not applicable.
(13) Subscription Agreements, as amended. (3, 5)
(14) Model plans used in the establishment of retirement plans. (6)
(15) Class A, Class B, and Class C Distribution Plans. (7)
(16) Not applicable.
(17) Not applicable.
(18) Multiple Class Plan. (8)
(19) Powers of Attorney. (2)
- -----------------------
(1) Filed with Post-Effective Amendment No. 15 ("Post-Effective Amendment 15")
to Registration Statement No. 33-11047/811-4950 (the "Registration
Statement") and incorporated by reference herein.
(2) Filed herewith.
(3) Filed with Pre-Effective Amendment No. 1 to the Registration Statement and
incorporated by reference herein.
(4) Filed with 24f-2 Notice on January 29, 1997 and incorporated by reference
herein.
(5) Filed with the Registration Statement and incorporated by reference herein.
(6) Filed with Post-Effective Amendment No. 66 to Registration Statement for
Keystone Balanced Fund (K-1) (File No. 2-10527/811-96) and incorporated by
reference herein.
(7) Filed with Post-Effective Amendment No. 18 to the Registration Statement
and incorporated by reference herein.
(8) Filed with Post-Effective Amendment No. 19 to the Registration Statement
and incorporated by reference herein.
<PAGE>
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holder as of December 31, 1996
-------------- ------------------------------
Shares of Beneficial
Interest, without par
value
Class A - 1,892
Class B - 2,010
Class C - 794
Item 27. Indemnification
Provisions for the indemnification of Registrant's Trustees and officers
are contained in Article VIII of the Declaration of Trust, a copy of
which was filed with Post-Effective Amendment No. 15 and is incorporated by
reference herein.
Provisions for the indemnification of EKD, Registrant's principal
underwriter, are contained in Section 10 of the Class A and C Underwriting
Agreement, a copy of the form of which is filed herewith.
Provisions for the indemnification of EKD are contained in Section 9 of
the Class B-2 Underwriting Agreement, a copy of the form of which is filed
herewith.
Provisions for the indemnification of EKIS are contained in Section 5 of
the Class A and C Continuation Agreement, a copy of the form of which is filed
herewith.
Provisions for the indemnification of EKIS are contained in Section 9 of
the Class B Continuation Agreements, copies of the forms of which are filed
herewith.
Provisions for the indemnification of Keystone Investment Management
Company, Registrant's investment adviser, are contained in Section 6 of the
Advisory Agreement, a copy of which is filed herewith.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
The following tables list the names of the various officers and
directors of Keystone Investment Management Company, Registrant's
investment adviser, and their respective positions. For each named
individual, the tables list, for at least the past two years, (i) any
other organizations (excluding investment advisory clients) with which
the officer and/or director has had or has substantial involvement;
and (ii) positions held with such organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
<S> <C> <C>
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer First Union Keystone, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Chairman of the Board and Director:
Keystone Fixed Income Advisers, Inc.
Keystone Institutional Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Evergreen Keystone Investment Services, Inc.
Evergreen Keystone Service Company
Boston Children's Services Associates
Middlesex School
Middlebury College
Formerly:
Chairman of the Board,
Chief Executive Officer,
President and Director:
Keystone Management, Inc.
Keystone Software, Inc.
Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Fiduciary Investment Company, Inc.
Barbara J. Colvin Director Chief Operating Officer
Evergreen Keystone Investment Services, Inc.
Senior Vice President
First Union Corporation
William M. Ennis II Director President
Evergreen Keystone Investment Services, Inc.
Senior Vice President
First Union Corporation
Donald McMullen Director Executive Vice President
First Union Corporation
Philip M. Byrne Senior Vice Senior Vice President:
President First Union Keystone, Inc.
Formerly:
President and Director:
Keystone Institutional Company, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Chief Operating Officer Director, Senior Vice President
Godfrey Chief Financial Officer and Treasurer:
First Union Keystone, Inc.
Evergreen Keystone Investment Services, Inc.
Formerly:
Treasurer:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Treasurer and Director:
Hartwell Keystone Advisers, Inc.
James R. McCall President None
Rosemary D. Senior Vice General Counsel, Senior Vice President and Secretary:
Van Antwerp President, First Union Keystone, Inc.
General Counsel Senior Vice President, General Counsel and Director:
and Secretary Evergreen Keystone Service Company
Evergreen Keystone Investment Services, Inc.
Formerly:
Senior Vice President and General Counsel:
Keystone Institutional Company, Inc.
Senior Vice President, General Counsel and Director:
Fiduciary Investment Company, Inc.
Senior Vice President, General Counsel, Director and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Senior Vice President and Secretary:
Hartwell Keystone Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income Advisers, Inc.
J. Kevin Kenely Vice President Vice President:
First Union Keystone, Inc.
Evergreen Keystone Investment Services, Inc.
Formerly:
Controller
Keystone Investments, Inc.
Keystone Investment Management Company
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Vice President:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
John D. Rogol Vice President Vice President and
Controller:
First Union Keystone, Inc.
Evergreem Keystone Investment Services, Inc.
Formerly:
Controller:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
John Addeo Vice President None
Andrew Baldassarre Vice President None
David Benhaim Vice President None
Donald Bisson Vice President None
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
J. Gary Craven Senior Vice None
President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
Betsy Blacher Senior Vice None
President
Walter T. Senior Vice None
McCormick President
George F. Wilkins Senior Vice None
President
Andrew G. Baldassare Vice President None
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Dana E. Erikson Vice President None
Sami J. Karam Vice President None
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Eleanor H. Marsh Vice President None
James D. Medredeff Vice President None
Stanley M. Niksa Vice President None
Jonathan A. Noonan Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
Joyce W. Petkovich Vice President None
Daniel A. Rabasco Vice President None
Harlen R. Sanderling Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Peter Willis Vice President None
Richard A. Wisentaner Vice President None
Cheryle E. Wanble Vice President None
Walter Zagrobski Vice President None
</TABLE>
<PAGE>
Item 29. Principal Underwriter
(a) Evergreen Keystone Distributor, Inc., the Registrant's principal
underwriter, also acts as principal underwriter for the following
entities:
Keystone Quality Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Balanced Fund II
Keystone Capital Preservation and Income Fund
Keystone Fund of the Americas
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone Intermediate Term Bond Fund
Keystone International Fund Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Income Fund
Keystone Tax Free Fund
Keystone Tax Free Income Fund
Keystone World Bond Fund
Evergreen Trust
The Evergreen Equity Trust
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Total Return Fund
The Evergreen American Retirement Trust
The Evergreen Foundation Trust
The Evergreen Municipal Trust
The Evergreen Money Market Fund
Evergreen Investment Trust
Evergreen Lexicon Trust
Evergreen Tax Free Trust
Evergreen Variable Trust
(b) For information with respect to each officer and director of
Registrant's principal underwriter, see the following pages.
Positions with Positions with
Name Principal Underwriter Registrant
- ---- --------------------- --------------
Robert A. Hering* President None
Michael C. Petrycki* Vice President None
Gordon M. Forrester* Vice President None
Lawrence Wagner* Vice President,
Chief Financial Officer None
Steven D. Blecher* Vice President,
Treasurer, Secretary None
Elizabeth Q. Solazzo* Assistant Secretary None
Thalia M. Cody* Assistant Secretary None
* Located at 230 Park Avenue, New York, New York 10169
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
First Union Keystone, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Iron Mountain
3431 Sharp Slot Road
Swansea, Massachusetts 02720
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes to
furnish to each person to whom a copy of the Registrant's prospectus
is delivered with a copy of its latest annual report to shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized in the City of Boston, and The Commonwealth of Massachusetts,
on the 31st day of January 1997.
KEYSTONE FUND FOR TOTAL RETURN
/s/ George S Bissell
---------------------------
George Bissell
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 31st day of January 1997.
SIGNATURES TITLE
- ---------- -----
<TABLE>
<S> <C> <C>
/s/ George S. Bissell /s/ Charles F. Chapin
- ------------------------ ------------------------- -------------------------
George S. Bissell Charles F. Chapin* William Walt Pettit
Chairman of the Board of Trustees Trustee Trustee
and Chief Executive Officer
/s/ John J. Pileggi /s/ K. Dun Gifford /s/ David M. Richardson
- ------------------------- ------------------------- -------------------------
John J. Pileggi K. Dun Gifford* David M. Richardson*
President amd Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ Frederick Amling
- ------------------------- ------------------------- -------------------------
Frederick Amling* James S. Howell Russell A. Salton, III MD
Trustee Trustee Trustee
/s/ Laurence B. Ashkin /s/ Leroy Keith, Jr.
- ------------------------- ------------------------- -------------------------
Laurence B. Ashkin Leroy Keith, Jr.* Michael S. Scofield
Trustee Trustee Trustee
/s/ Charles A. Austin, III /s/ F. Ray Keyser, Jr. /s/ Richard J. Shima
- ------------------------- ------------------------- -------------------------
Charles A. Austin, III* F. Ray Keyser, Jr.* Richard J. Shima*
Trustee Trustee Trustee
/s/ Andrew J. Simons
- ------------------------- ------------------------- -------------------------
Foster Bam Gerald M. McDonell Andrew J. Simons*
Trustee Trustee Trustee
/s/ Edwin D. Campbell
- ------------------------- -------------------------
Edwin D. Campbell* Thomas L. McVerry
Trustee Trustee
</TABLE>
*By:/s/ James M. Wall
- -----------------------------
James M. Wall**
Attorney-in-Fact
** James M. Wall, by signing his name hereto, does hereby sign this document
on behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
- -------------- ------- ----------------
1 (A) Declaration of Trust(1)
(B) Second Supplemental
Declaration of Trust(2)
2 (A) By-Laws(1)
(B) Amendment to By-Laws(2)
4 (A) Specimen Share Certificate(3)
(B) Declaration of Trust(1)
(C) By-Laws(1)
5 Advisory Agreement(2)
6 (A) Form of Class A and C Underwriting Agreement(2)
(B) Form of Class Y Underwriting Agreements(2)
(C) Form of Class B-2 Underwriting Agreement(2)
(D) Form of Dealer Agreement(2)
8 (A) Custodian Agreement(1)
(B) Amendment to Custodian Agreement(2)
9 (A) Form of Marketing Services Agreement (2)
(B) Form of Sub-Administrator Agreement (2)
(C) Form of Continuation Agreements (2)
10 Opinion and Consent of Counsel(4)
13 Subscription Agreements, as amended(3, 5)
14 Model Retirement Plans(6)
15 Class A, B and C Distribution Plans(7)
18 Multiple Class Plan(8)
19 Powers of Attorney(2)
- -----------------
1 Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
2 Filed herewith.
3 Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.
4 Incorporated by reference to Rule 24f-2 Notice filed January 29, 1997.
5 Incorporated herein by reference to the Registration Statement.
6 Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement for Keystone Balanced Fund (K-1) (File No.
2-10527/811-96).
7 Incorporated herein by reference to Post-Effective Amendment No. 18 to the
Registration Statement.
8 Incorporated herein by reference to Post-Effective Amendment No. 19 to the
Registration Statement.
KEYSTONE AMERICA FUND FOR TOTAL RETURN
SECOND SUPPLEMENTAL
DECLARATION OF TRUST
Effective May 1, 1995
SECOND SUPPLEMENTAL DECLARATION OF TRUST dated March 15, 1995 made by
George S. Bissell, Albert H. Elfner, III, Frederick Amling, Charles A. Austin,
III, Edwin D. Campbell, K. Dun Gifford, Charles F. Chapin, Leroy Keith, Jr., F.
Ray Keyser, Jr., David M. Richardson, Richard J. Shima and Andrew J. Simons
(hereinafter with their successors referred to as the "Trustees") to DECLARATION
OF TRUST dated October 24, 1986.
WHEREAS, the Trustees have determined to change the name of the Trust
and to change the designation of its principal office to 200 Berkeley Street,
Boston, Massachusetts 02116.
NOW, THEREFORE, the Trustees hereby declare that they will amend the
Declaration of Trust of this Trust as hereinafter set forth:
ARTICLE I, Name and Definitions, Section 1. Name., is hereby amended to
read as follows:
"This Trust shall be known as the "Keystone Fund for Total Return" and
the Trustees shall conduct the business of this Trust under that name
or any other name as they may from time to time determine."
This Amendment shall become effective as of May 1, 1995.
All other provisions of the Declaration of Trust shall continue as
originally stated.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have caused this Second Supplemental Declaration of Trust to be executed
on the 15th day of March, 1995.
/s/ George S. Bissell /s/ Charles F. Chapin
- ------------------------------ ------------------------------
George S. Bissell, Trustee Charles F. Chapin, Trustee
/s/ Albert H. Elfner, III /s/ K. Dun Gifford
- ------------------------------ ------------------------------
Albert H. Elfner, III, Trustee K. Dun Gifford, Trustee
/s/ Frederick Amling /s/ Leroy Keith, Jr.
- ------------------------------ ------------------------------
Frederick Amling, Trustee Leroy Keith, Jr., Trustee
/s/ Charles A. Austin, III /s/ F. Ray Keyser, Jr.
- ------------------------------ ------------------------------
Charles A. Austin, III, Trustee F. Ray Keyser, Jr., Trustee
/s/ Edwin D. Campbell /s/ David M. Richardson
- ------------------------------ ------------------------------
Edwin D. Campbell, Trustee David M. Richardson, Trustee
/s/ Andrew J. Simons /s/ Richard J. Shima
- ------------------------------ ------------------------------
Andrew J. Simons, Trustee Richard J. Shima, Trustee
KEYSTONE FUND FOR TOTAL RETURN
Revised Article 4, Section 4.1 of the By-Laws as adopted by the Board
of Trustees on June 19, 1996:
4.1 Term. A Trustee shall serve until his or her death, retirement, resignation
or removal from office or until his or her successor is elected and qualifies. A
Trustee holding office shall automatically retire on December 31 of the year in
which he or she reaches the age of seventy-five.
Dated: September 13, 1996
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 11th day of December, 1996, by and between KEYSTONE FUND
FOR TOTAL RETURN, a Massachusetts business trust (the "Fund"), and KEYSTONE
INVESTMENT MANAGEMENT COMPANY, a Delaware corporation (the "Adviser").
WHEREAS, the Fund and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the Fund.
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the Fund
in conformity with the Fund's investment objectives and restrictions as may be
set forth from time to time in the Fund's then current prospectus and statement
of additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Fund, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. The Adviser shall place all orders for the purchase and sale of portfolio
securities for the account of the Fund with broker-dealers selected by the
Adviser. In executing portfolio transactions and selecting broker-dealers, the
Adviser will use its best efforts to seek best execution on behalf of the Fund.
In assessing the best execution available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In evaluating
the best execution available, and in selecting the broker-dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are used in Section 28(e) of the Securities Exchange
Act of 1934 (the "1934 Act") provided to the Fund and/or other accounts over
which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office space
in the offices of the Adviser or in such other place as may be agreed upon by
the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Adviser's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Adviser assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Adviser or with its affiliates, or with any adviser retained by the
Adviser, and of all officers of the Fund as such, and (2) all expenses of the
Adviser incurred in connection with its services hereunder. The Fund assumes and
shall pay all other expenses of the Fund, including, without limitation: (1) all
charges and expenses of any custodian or depository appointed by the Fund for
the safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Trustees of the Fund who are not affiliated with the Adviser or any of its
affiliates, or with any adviser retained by the Adviser; (5) all brokers' fees,
expenses and commissions and issue and transfer taxes chargeable to the Fund in
connection with transactions involving securities and other property to which
the Fund is a party; (6) all costs and expenses of distribution of its shares
incurred pursuant to a Plan of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"); (7) all taxes and trust fees
payable by the Fund to Federal, state or other governmental agencies; (8) all
costs of certificates representing shares of the Fund; (9) all fees and expenses
involved in registering and maintaining registrations of the Fund and of its
shares with the Securities and Exchange Commission (the "Commission") and
registering or qualifying its shares under state or other securities laws,
including, without limitation, the preparation and printing of registration
statements, prospectuses and statements of additional information for filing
with the Commission and other authorities; (10) expenses of preparing, printing
and mailing prospectuses and statements of additional information to
shareholders of the Fund; (11) all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing notices, reports and proxy
materials to shareholders of the Fund; (12) all charges and expenses of legal
counsel for the Fund and for Trustees of the Fund in connection with legal
matters relating to the Fund, including, without limitation, legal services
rendered in connection with the Fund's existence, trust and financial structure
and relations with its shareholders, registrations and qualifications of
securities under Federal, state and other laws, issues of securities, expenses
which the Fund has herein assumed, whether customary or not, and extraordinary
matters, including, without limitation, any litigation involving the Fund, its
Trustees, officers, employees or agents; (13) all charges and expenses of filing
annual and other reports with the Commission and other authorities; and (14) all
extraordinary expenses and charges of the Fund. In the event that the Adviser
provides any of these services or pays any of these expenses, the Fund will
promptly reimburse the Adviser therefor.
The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. As compensation for the Adviser's services to the Fund during the period
of this Agreement, the Fund will pay to the Adviser a fee at the annual rate of:
AGGREGATE NET ASSET VALUE
MANAGEMENT FEE OF THE SHARES OF THE FUND
- -------------------------------------------------------------------------------
1.5% of gross dividend and interest income plus
0.60% of the first $ 100,000,000, plus
0.55% of the first 100,000,000, plus
0.50% of the next 100,000,000, plus
0.45% of the next 100,000,000, plus
0.40% of the next 100,000,000, plus
0.35% of the next 500,000,000, plus
0.30% of amounts over 1,000,000,000
- -------------------------------------------------------------------------------
computed as of the close of business on each business day.
A pro rata portion of the Fund's fee shall be payable in arrears at the end
of each day or calendar month as the Adviser may from time to time specify to
the Fund. If and when this Agreement terminates, any compensation payable
hereunder for the period ending with the date of such termination shall be
payable upon such termination. Amounts payable hereunder shall be promptly paid
when due.
5. The Adviser may enter into an agreement to retain, at its own expense, a
firm or firms ("SubAdviser") to provide the Fund all of the services to be
provided by the Adviser hereunder, if such agreement is approved as required by
law. Such agreement may delegate to such SubAdviser all of Adviser's rights,
obligations and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from the Adviser's willful misfeasance,
bad faith, gross negligence or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
Director, partner, employee, or agent of the Adviser, who may be or become an
officer, Trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund (other than services
or business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Fund and not as an officer, Director,
partner, employee, or agent or one under the control or direction of the Adviser
even though paid by it. The Fund agrees to indemnify and hold the Adviser
harmless from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state and foreign securities and blue
sky laws, as amended from time to time) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which the Adviser takes or does or omits to take or do
hereunder provided that the Adviser shall not be indemnified against any
liability to the Fund or to its shareholders (or any expenses incident to such
liability) arising out of a breach of fiduciary duty with respect to the receipt
of compensation for services, willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties, or from
reckless disregard by it of its obligations and duties under this Agreement.
7. The Fund shall cause its books and accounts to be audited at least once
each year by a reputable independent public accountant or organization of public
accountants who shall render a report to the Fund.
8. Subject to and in accordance with the Declaration of Trust of the Fund,
the Articles of Incorporation of the Adviser and the governing documents of any
SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Fund or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of Keystone Investments, Inc. or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of Keystone Investments, Inc. are or may be interested in the Fund or any
Adviser as Trustees, Directors, officers, shareholders or otherwise; that the
Adviser (or any such successor) is or may be interested in the Fund or any
SubAdviser as shareholder, or otherwise; and that the effect of any such adverse
interests shall be governed by said Declaration of Trust of the Fund, Articles
of Incorporation of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect after December 10, 1998, only so
long as (1) such continuance is specifically approved at least annually by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund, and (2) such renewal has been approved by the
vote of a majority of Trustees of the Fund who are not interested persons, as
that term is defined in the 1940 Act, of the Adviser or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund; and on sixty days' written notice to the Fund,
this Agreement may be terminated at any time without the payment of any penalty
by the Adviser. This Agreement shall automatically terminate upon its assignment
(as that term is defined in the 1940 Act). Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed postage prepaid, to the
other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution by the Fund shall have
been first approved by the vote of the holders of a majority of the outstanding
voting securities of the Fund and by the vote of a majority of Trustees of the
Fund who are not interested persons (as that term is defined in the 1940 Act) of
the Adviser, any predecessor of the Adviser, or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval. A "majority of the
outstanding voting securities of the Fund" shall have, for all purposes of this
Agreement, the meaning provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period other
than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE FUND OF THE AMERICAS
By: /s/ George S. Bissell
--------------------------------------
Name: GEORGE S. BISSELL
Title: Chairman of the Board
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By: /s/ Rosemary D. Van Antwerp
--------------------------------------
Name: ROSEMARY D. VAN ANTWERP
Title: Senior Vice President
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT effective this 11th day of December, 1996 by and between each
of the parties listed on Exhibit A attached hereto and made a part hereof, each
for itself and not jointly (each a "Fund"), and Evergreen Keystone Distributor,
Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest of the Fund
("Shares") as an independent contractor upon the terms and conditions
hereinafter set forth. Except as the Fund may from time to time agree, Principal
Underwriter will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such broker,
dealer or other person shall have any authority to act as agent for the Fund;
such broker, dealer or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value, and Principal Underwriter shall be entitled to receive commission
payments for sales of the Class A and C Shares (as set forth on Exhibit B
attached hereto and made a part hereof) sold on or after December 11, 1996 and
as set forth in the then current prospectus and/or statement of additional
information of the Fund and to receive the sales charges, including contingent
deferred sales charges, as set forth in the then current prospectus and/or
statement of additional information of the Fund for Shares sold on or after
December 11, 1996. In accordance with the assignment made between Evergreen
Keystone Investment Services, Inc. ("EKIS") and Principal Underwriter dated
December 11, 1996, Principal Underwriter is to be entitled to receive commission
payments for sales of the Class A and C Shares sold on or after December 1, 1996
but before December 11, 1996 by EKIS as set forth in the then current prospectus
and/or statement of additional information of the Fund and to receive the sales
charges, including contingent deferred sales charges, as set forth in the then
current prospectus and/or statement of additional information of the Fund for
Shares sold on or after December 1, 1996 but before December 11, 1996. For
purposes of this Principal Underwriting Agreement, all Shares sold after
December 1, 1996 and for which the Principal Underwriter may receive commissions
and contingent deferred sales charges shall be deemed "Post-Acquisition Shares."
The determination of which shares of the Fund are Post-Acquisition Shares shall
be made in accordance with Schedule I attached to the Principal Underwriting
Agreement between each Fund which is a party to this Agreement and EKIS dated
December 11, 1996 and shall be the same as the "Post-distributor Shares" defined
therein, calculated as though the Distributor Last Sale Cut-Off Date, as such
term is defined in Schedule I, was November 30, 1996. Principal Underwriter may
reallow all or a part of such commissions and the sales charges to such brokers,
dealers or other persons as Principal Underwriter may determine.
5. The payment provisions of this Agreement shall be applicable to the
extent necessary to enable the Fund to comply with the obligation of the Fund to
pay Principal Underwriter in accordance with this Agreement in respect of Class
C Shares and shall remain in effect so long as any payments are required to be
made by the Fund pursuant to the irrevocable payment instruction under the
Master Sale Agreement between Principal Underwriter and Mutual Fund Funding
1994-1 dated as of December 6, 1996 (the "Master Sale Agreement").
6. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within ten (10) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
7. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information will be supplied by the Fund to Principal Underwriter in
reasonable quantities upon request.
8. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
9. The Fund appoints Principal Underwriter as its agent to accept orders
for redemptions and repurchases of Shares at values and in the manner determined
in accordance with the then current prospectus and/or statement of additional
information of the Fund.
10. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a material
fact contained in the Fund's registration statement, pros pectus or
statement of additional information (including amendments and
supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the reckless
disregard of its obligations and duties under this Agreement.
11. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged omission
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or
omission was made in reliance upon information furnished or confirmed in
writing to the Fund by the Principal Underwriter.
12. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund and the direct expenses of the issue of
Shares.
13. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plans, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plans and the purposes for which such
expenditures were made.
14. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plans of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of any Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
15. This Agreement shall be construed in accordance with the laws
of The Commonwealth of Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE BALANCED FUND II KEYSTONE CAPITAL
PRESERVATION AND INCOME FUND KEYSTONE FUND
FOR TOTAL RETURN KEYSTONE FUND OF THE
AMERICAS KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT
FUND KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
each for itself and not jointly
By: /s/ George S. Bissell
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By:________________________________
<PAGE>
EXHIBIT A
TO
PRINCIPAL UNDERWRITING AGREEMENT
DATED DECEMBER 11, 1996
BETWEEN EVERGREEN KEYSTONE DISTRIBUTOR, INC.
AND
KEYSTONE AMERICA FUND FAMILY
KEYSTONE BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND-SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
<PAGE>
EXHIBIT B
TO
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN
KEYSTONE AMERICA FUND FAMILY
AND
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
DATED DECEMBER 11, 1996
SCHEDULE OF COMMISSIONS
Class A Shares Up to 0.25% annually of the average
daily net asset value of Class A shares
of a Fund
Class C Shares Up to 1.00% annually of the average
daily net asset value of Class C shares
of a Fund, consisting of commissions at
the annual rate of 0.75% of the average
daily net asset value of a Fund and
service fees of 0.25% of the average
daily net asset value of a Fund
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS Y SHARES OF
KEYSTONE FUND FOR TOTAL RETURN
AGREEMENT made this 11th day of December, 1996 by and between Keystone
Fund For Total Return, a Massachusetts business trust ("Fund"), and Evergreen
Keystone Distributor, Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class Y shares of beneficial interest of the Fund ("Shares")
as an independent contractor upon the terms and conditions hereinafter set
forth. Except as the Fund may from time to time agree, Principal Underwriter
will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such brokers,
dealers or other persons shall have any authority to act as agent for the Fund;
such brokers, dealers or other persons shall act only as principal in the sale
of Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right, in its sole discretion, to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net
asset value.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within ten (10) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issuance of the Shares.
6. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement
of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information
(including amendments and supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Directors and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund, and the direct expenses of the issuance
of Shares.
12. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of any 12b-1 Trustees referred to in any 12b-1 Plan of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of any Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
13. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE FUND FOR TOTAL RETURN
By: /s/ George S. Bissell
------------------------------
EVERGREEN KEYSTONE DISTRIBUTOR, iNC.
By: /s/ illegible
------------------------------
FORM OF PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE FUND FOR TOTAL RETURN
AGREEMENT made effective this __ day of December 1996 by and between
Keystone [FUND NAME] Fund, a Massachusetts business trust, ("Fund"),and
Evergreen Keystone Distributor, Inc., a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund'"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act'"), Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Principal Underwriter and
the Fund may from time to time agree, the Principal Underwriter will act as
agent for the Fund and not as principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-2 Shares and to promote distribution of the B-2 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-2 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the Prospectus and/or
Statement of Additional Information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received.
The Fund shall not be liable to anyone for failure to accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
Evergreen Keystone Investment Services Company ("EKISC") by other classes of
Shares of the Fund to the extent required in order to comply with Section 14
hereof, and shall pay over to the Principal Underwriter CDSCs (as defined in
Section 14 hereof) as set forth in the Fund's current Prospectus and Statement
of Additional Information, and as required by Section 14 hereof. The Principal
Underwriter shall also receive payments consisting of shareholder service fees
("Service Fees") at the rate of .25% per annum of the average daily net asset
value of the Class B-2 Shares. The Principal Underwriter may allow all or a part
of said Distribution Fees and CDSCs received by it (not paid to others as
hereinafter provided) to such brokers, dealers or other persons as Principal
Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three Business
Days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
1
<PAGE>
such payment is not received within such period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-2 Shares any representations concerning the
B-2 Shares except those contained in the then current Prospectus and/or
Statement of Additional Information covering the Shares and in printed
information approved by the Fund as information supplemental to such Prospectus
and Statement of Additional Information. Copies of the then current Prospectus
and Statement of Additional Information and any such printed supplemental
information will be supplied by the Fund to the Principal Underwriter in
reasonable quantities upon request.
7. The Principal Underwriter agrees to comply with the National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) (the "Business Conduct Rules") or any successor rule (which succeeds the
Rules of Fair Practice of the NASD defined in the Purchase and Sale Agreement,
dated as of May 31, 1995 (the "Citibank Purchase Agreement"), between Evergreen
Keystone Investment Services Company (formerly Keystone Investment Distributors
Company), Citibank, N.A. and Citicorp North America, Inc., as agent).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current Prospectus and/or Statement of
Additional Information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon:
a. any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
Prospectus or Statement of Additional Information (including amendments
and supplements thereto); or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, Prospectus
or Statement of Additional Information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, Prospectus or Statement of Additional
Information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
2
<PAGE>
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, Prospectus or Statement of Additional Information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-2 Shares for sale under the
so-called "blue sky'" laws of any state or for registering B-2 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-2
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares
for sale under the so called "blue sky" laws of any state, the preparation and
printing of Prospectuses, Statements of Additional Information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of Prospectuses and
Statements of Additional Information to holders of B-2 Shares, and the direct
expenses of the issue of B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund,
provide to the Board of Trustees or Directors (together herein called the
"Directors") of the Fund in connection with sales of B-2 Shares not less than
quarterly a written report of the amounts received from the Fund therefor and
the purpose for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the 1940 Act, of any such party and who have no direct
or indirect financial interest in the operation of the Fund's Rule 12b-l plan
for Class B-2 Shares or in any agreements related to the plan at least annually
in accordance with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
3
<PAGE>
agreement related to the plan or by a vote of a majority of the outstanding
voting securities of Class B-2 on not more than sixty days written notice to any
other party to the Agreement; and shall terminate automatically in the event of
its assignment (as defined in the 1940 Act), which shall not include assignment
of the Principal Underwriter's Allocable Portion of Distribution Fees (as
hereinafter defined) and Allocable Portion of CDSCs provided for hereunder
and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of B-2 Shares and also permit the Fund to pay, pursuant to the Principal
Underwriting Agreement dated as of December 11, 1996, between the Fund and EKISC
in respect of Class B-2 Shares, the Allocable Portion of Distribution Fees due
EKISC in respect of B-2 Shares and, pursuant to the Principal Underwriting
Agreement dated as of December 11, 1996 between the Fund and EKISC in respect of
Class B-1 Shares, the Allocable Portion of Distribution Fees due EKISC in
respect of B-1 Shares (together the "EKISC Underwriting Agreements"), and shall
remain in effect so long as any payments are required to be made by the Fund
pursuant to the irrevocable payment instructions pursuant to the Citibank
Purchase Agreement and the Master Sale Agreement between the Principal
Underwriter and Mutual Fund Funding 1994-1 dated as of December 6, 1996 (the
"Master Sale Agreement") (the "Irrevocable Payment Instructions")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Business Conduct Rules as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall mean the portion of the Asset Based
Sales Charge allocable to Distributor Shares (as defined in Schedule I hereto to
this Agreement) in accordance with Schedule I hereto. The Fund agrees to cause
its transfer agent (the "Transfer Agent") to maintain the records and arrange
for the payments on behalf of the Fund at the times and in the amounts and to
the accounts required by Schedule I hereto, as the same may be amended from time
to time. It is acknowledged and agreed that by virtue of the operation of
Schedule I hereto the Principal Underwriter's Allocable Portion of Distribution
Fees paid by the Fund in respect of Shares, may, to the extent provided in
Schedule I hereto, take into account Distribution Fees payable by the Fund in
respect of other existing and future classes and/or subclasses of shares of the
Fund which would be treated as "Shares" under Schedule I hereto. The Fund will
limit amounts paid to any subsequent principal underwriters of Shares to the
portion of the Asset Based Sales Charge paid in respect of Shares which is
allocable to Post-distributor Shares (as defined in Schedule I hereto) in
accordance with Schedule I hereto. The Fund's payments to the Principal
Underwriter in consideration of its services in connection with the sale of B-2
Shares shall be the Distribution Fees attributable to B-2 Shares which are
Distributor Shares (as defined in Schedule I hereto) and all other amounts
constituting the Principal Underwriter's Allocable Portion of Distribution Fees
shall be the Distribution Fees related to the sale of other Shares which are
Distributor Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the contingent deferred sales charges payable upon redemption thereof as
set forth in the then current Prospectus and/or Statement of Additional
Information of the Fund ("CDSCs") and to pay over to the Principal Underwriter
the Principal
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
4
<PAGE>
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall mean the portion thereof allocable to Distributor Shares (as defined in
Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Business Conduct Rules, in each case enacted or promulgated
after December 1, 1996, or in connection with a Complete Termination (as
hereinafter defined). For the purposes of this Section 14.5, "Complete
Termination" means a termination of the Fund's Rule 12b-l plan for B-2 Shares
involving the cessation of payments of the Distribution Fees, and the cessation
of payments of distribution fees pursuant to every other Rule 12b-1 plan of the
Fund for every existing or future B-Class-of-Shares (as hereinafter defined) and
the Fund's discontinuance of the offering of every existing or future B-Class-of
Shares, which conditions shall be deemed satisfied when they are first complied
with hereafter and so long thereafter as they are complied with prior to the
date upon which all of the B-2 Shares which are Distributor Shares pursuant to
Schedule I hereto shall have been redeemed or converted. For purposes of this
Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of Shares
of the Fund, the B-2 Class of Shares of the Fund and each other class of shares
of the Fund hereafter issued which would be treated as Shares under Schedule I
hereto or which has substantially similar economic characteristics to the B-1 or
B-2 Classes of Shares taking into account the total sales charge, CDSC or other
similar charges borne directly or indirectly by the holder of the shares of such
class. The parties agree that the existing C Class of Shares of the Fund does
not have substantially similar economic characteristics to the B-1 or B-2
Classes of Shares taking into account the total sales charge, CDSC or other
similar charges borne directly or indirectly by the holder of such shares. For
purposes of clarity the parties to this agreement hereby state that they intend
that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares and will not be considered
to be a B-Class-of-Shares if it has
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<PAGE>
economic characteristics substantially similar to the economic characteristics
of the existing C Class of shares of the Fund taking into account the total
sales charge, CDSC or other similar charges borne directly or indirectly by the
holder of such shares.
14.6 The Principal Underwriter may assign, sell or otherwise transfer
any part of its Allocable Portions and obligations of the Fund related thereto
(but not the Principal Underwriter's obligations to the Fund provided for in
this Agreement, provided, however, the Principal Underwriter may delegate and
subcontract certain functions to other broker-dealers so long as it remains
employed by the Fund) to any person (an "Assignee") and any such assignment
shall be effective as to the Fund upon written notice to the Fund by the
Principal Underwriter. In connection therewith the Fund shall pay all or any
amounts in respect of its Allocable Portions directly to the Assignee thereof as
directed in a writing by the Principal Underwriter in the Irrevocable Payment
Instruction, as the same may be amended from time to time with the consent of
the Fund, and the Fund shall be without liability to any person if it pays such
amounts when and as so directed, except for underpayments of amounts actually
due, without any amount payable as consequential or other damages due to such
underpayment and without interest except to the extent that delay in payment of
Distribution Fees and CDSCs results in an increase in the maximum Sales Charge
allowable under the Business Conduct Rules, which increases daily at a rate of
prime plus one percent per annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-2 Shares, except as provided
in the Fund's Prospectus or Statement of Additional Information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
14.8 Notwithstanding anything contained herein in this Agreement to the
contrary, the Fund shall comply with its obligations under the EKISC
Underwriting Agreements and the attached Schedule I and any replacement
Agreement, provided that such replacement agreement does not increase the
Allocable Portion currently payable to EKISC, to pay to EKISC its Allocable
Portion (as defined in the EKISC Underwriting Agreement) of the Distribution
Fees (as defined in the EKISC Underwriting Agreement) in respect of Class B-2
Shares as required therein and to comply with its obligations under the
Irrevocable Payment Instructions (as defined in the Citibank Purchase Agreement,
as defined therein).
15. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE FUND FOR TOTAL RETURN EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By: By:
Title: Title:
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<PAGE>
EXHIBIT A TO PRINCIPAL UNDERWRITING AGREEMENT
DATED DECEMBER 11, 1996 BETWEEN
KEYSTONE FUND FOR TOTAL RETURN AND EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Keystone Fund for Total Return Fund (the "Fund") and Evergreen
Keystone Distributor, Inc. ("EKDI") agree that the Collection Rights of
EKDI, as such term is defined in the Principal Underwriting Agreement
dated as of December __, 1996 between the Fund and EKDI (the
"Agreement"), paid by the Fund pursuant to the Agreement with respect
to Distributor Shares, as that term is defined in Schedule I to the
Agreement, sold on or after December 1, 1996 will be utilized by EKDI
as follows:
(a) to the extent that the total amount of Collection Rights recieved
by EKDI with respect to Distributor Shares of all Funds, as that term
is defined in Schedule I, does not exceed 4.25% (except that in the
case of Keystone Capital Preservation Fund, the amount shall be 3%) of
the aggregate net asset value at the time of sale of the Distributor
Shares sold on or after December 1, 1996, plus any interest and other
fees, costs and expenses that may be paid in accordance with the
financing of commissions paid to selling brokers regarding such
Distributor Shares of such Funds (the "Brokers Commission and
Expenses"), the entire amount of the Collection Rights with respect to
such Distributor Shares may only be used by the Principal Underwriter
for payment of the Brokers Commission and Expenses and may not be used
for any other purpose.
(b) to the extent that there is no longer any unrecovered Brokers
Commission and Expenses with respect to the Distributor Shares sold on
or after December 1, 1996 (including shares purchased in connection
with the reinvestment of dividends on such Distributor Shares as
determined in accordance with Sechedule I ) as provided in (a), above,
the Fund will pay the Principal Underwriter a fee in an amount up to
the remaining Collection Rights attributable to such Shares to
compensate Evergreen Keystone Investment Services, Inc., as marketing
services agent for the Principal Underwriter (the "Marketing Services
Agent").
The foregoing calculations shall be the responsibility of the Transfer
Agent and Administrator and not the resonsibility of the Principal Underwriter.
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<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
RELATING TO CLASS B-2 SHARES
OF
KEYSTONE FUND FOR TOTAL RETURN
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts in respect of Asset Based Sales Charges (as hereinafter
defined) and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter
defined) of each Fund (as hereinafter defined) shall be allocated between
Distributor Shares (as hereinafter defined) and Post-distributor Shares (as
hereinafter defined) of such Fund in accordance with the rules set forth in
clauses (B) and (C). Clause (B) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account (as
hereinafter defined) in maintaining records relating to Distributor Shares and
Post- distributor Shares. Clause (C) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account in
determining what portion of the Asset Based Sales Charge (as hereinafter
defined) payable in respect of each class of Shares of such Fund and what
portion of the CDSC (as hereinafter defined) payable by the holders of Shares of
such Fund is attributable to Distributor Shares and Post-distributor Shares,
respectively.
Notwithstanding anything herein to the contrary, no amounts relating
to the EKISC Allocable Portion (as defined in the EKISC Underwriting Agreements)
shall be allocated hereunder and no Shares attributable to EKISC pursuant to the
EKISC Underwriting Agreements shall constitute Distributor Shares or
Post-distributor Shares or otherwise be allocated to any person or entity except
as contemplated by the EKISC Underwriting Agreements and the Irrevocable Payment
Instructions.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class
B-2 Shares of the Instant Fund dated as of December 11, 1996 between the Instant
Fund and the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) or any successor rule (the "Business Conduct Rules) it being understood that
for purposes of this Schedule I such term does not include the Service Fee.
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<PAGE>
"Business Day" shall mean any day on which the banks and The New York
Stock Exchange are not authorized or required to close in New York City or the
State of North Carolina.
"Capital Gain Dividend" shall mean, in respect of any Share of any
Fund, a Dividend in respect of such Share which is designated by such Fund as
being a "capital gain dividend" as such term is defined in Section 852 of the
Internal Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred
sales charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such
Fund issued under circumstances where a CDSC would be payable upon the
redemption of such Share if such CDSC is not waived or shall have not otherwise
expired.
"Date of Original Purchase" shall mean, in respect of any Commission
Share of any Fund, the date on which such Commission Share was first issued by
such Fund; provided, that if such Share is a Commission Share and such Fund
issued the Commission Share (or portion thereof) in question in connection with
a Free Exchange for a Commission Share (or portion thereof) of another Fund, the
Date of Original Purchase for the Commission Share (or portion thereof) in
question shall be the date on which the Commission Share (or portion thereof) of
the other Fund was first issued by such other Fund (unless such Commission Share
(or portion thereof) was also issued by such other Fund in a Free Exchange, in
which case this proviso shall apply to that Free Exchange and this application
shall be repeated until one reaches a Commission Share (or portion thereof)
which was issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Evergreen Keystone Distributor, Inc.,
its successors and assigns.
"Distributor's Account" shall mean the account designated in the
Irrevocable Payment Instructions of the Distributor.
"Distributor Inception Date" shall mean, in respect of any Fund and
solely for the purpose of making the calculations contained herein, December 1,
1996.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any
Fund, the date identified as the last sale of a Commission Share during the
period the Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs on or after the
Distributor Inception Date and on or prior to the Distributor Last Sale Cut-off
Date in respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any
dividend or other distribution by such Fund in respect of such Share.
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<PAGE>
"Free Exchange" shall mean any exchange of a Commission Share (or
portion thereof) of one Fund (the "Redeeming Fund") for a Share (or portion
thereof) of another Fund (the "Issuing Fund"), under any arrangement which
defers the exchanging Shareholder's obligation to pay the CDSC in respect of the
Commission Share (or portion thereof) of the Redeeming Fund so exchanged until
the later redemption of the Share (or portion thereof) of the Issuing Fund
received in such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such
Fund other than a Commission Share, including, without limitation: (i) Shares
issued in connection with the automatic reinvestment of Capital Gain Dividends
or Other Dividends by such Fund; (ii) Special Free Shares issued by such Fund;
and (iii) Shares (or portion thereof) issued by such Fund in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Free Share (or portion thereof) is
invested in such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series
or portfolios of regulated investment companies identified in Exhibit J to the
Master Sale Agreement, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone [FUND NAME] Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be The Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such
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<PAGE>
Distributor Last Sale Cutoff Date; and (iii) the period of time commencing on
the day immediately following the Distributor Last Sale Cutoff Date in respect
of such Fund to and including the last day of the calendar month in which such
Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner
of which is a registered broker-dealer which has agreed with the Transfer Agent
to provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in
respect of each Omnibus Account, the Business Day next following the twentieth
day of each calendar month for the calendar month immediately preceding such
date so long as the record owner is able to allocate the Asset Based Sales
Charge accruing in respect of Shares of any Fund as contemplated by this
Schedule I no more frequently than monthly; provided, that at such time as the
record owner of such Omnibus Account is able to provide information sufficient
to allocate the Asset Based Sales Charge accruing in respect of such Shares of
such Fund owned of record by such Omnibus Account as contemplated by this
Schedule I on a weekly or daily basis, the Omnibus Asset Based Sales Charge
Settlement Date shall be a weekly date as in the case of the Omnibus CDSC
Settlement Date or a daily date as in the case of Asset Based Sales Charges
accruing in respect of Shareholder Accounts other than Omnibus Accounts, as the
case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission
Share of any Fund, the amount paid (i.e., the Net Asset Value thereof on such
date), on the Date of Original Purchase in respect of such Commission Share, by
such Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid
in respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all
Shares of such Fund the Month of Original Purchase of which occurs after the
Distributor Last Sale Cut-off Date for such Fund.
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"Buyer" shall mean Mutual Fund Funding, as Buyer under the Master Sale
Agreement, and its successors and assigns in such capacity.
"Master Sale Agreement" shall mean that certain Master Sale Agreement
dated as of December 6, 1996 between Evergreen Keystone Distributors, Inc., as
Seller, and Mutual Fund Funding, as Buyer.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Exhibit G to the Master Sale Agreement under the designation
"Keystone America Funds", as the same may be amended from time to time by notice
from the Distributor and the Buyer to the Fund and the Transfer Agent; provided,
that such term shall include, after the Distributor Last Sale Cut-off Date, a
share of a new class of shares of such Fund: (i) with respect to each record
owner of Shares which is not treated in the records of each Transfer Agent and
Sub-transfer Agent for such Fund as an entirely separate and distinct class of
shares from the classes of shares specified Exhibit G to the Master Sale
Agreement or (ii) the shares of which class may be exchanged for shares of
another Fund of the classes of shares specified in Exhibit G to the Master Sale
Agreement under the designation "Keystone America Funds" of any class existing
on or prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on
which can be reinvested in shares of the classes specified on Exhibit G to the
Master Sale Agreement under the automatic dividend reinvestment options; or (iv)
which is otherwise treated as though it were of the same class as the class of
shares specified on Schedule II to the Irrevocable Payment Instruction.
"Shareholder Account" shall have the meaning set forth in
clause (B)(l) hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in
clause (B)(1) hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account,
the record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND
AND THE RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) Shareholder Accounts and Sub-shareholder Accounts. The Transfer
Agent shall maintain a separate account (a "Shareholder Account") for each
record owner of Shares of each Fund. Each Shareholder Account (other than
Omnibus Accounts) will represent a record owner of Shares of such Fund, the
records of which will be kept in accordance with this Schedule I. In the case of
an Omnibus Account, the Transfer Agent shall require that the record owner of
the Omnibus Account maintain a separate account (a "Sub-shareholder Account")
for each record owner of Shares which are reflected in the Omnibus Account, the
records of which will be kept in accordance with this Schedule I.
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Each such Shareholder Account and Sub-shareholder Account shall relate solely to
Shares of such Fund and shall not relate to any other class of shares of such
Fund.
(2) Commission Shares. For each Shareholder Account (other than an
Omnibus Account), the Transfer Agent shall maintain daily records of each
Commission Share of such Fund which records shall identify each Commission Share
of such Fund reflected in such Shareholder Account by the Month of Original
Purchase of such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) Free Shares. The Transfer Agent shall maintain daily records of
each Shareholder Account (other than an Omnibus Account) in respect of any Fund
so as to identify each Free Share (including each Special Free Share) reflected
in such Shareholder Account by the Month of Original Purchase of such Free
Share. In addition, the Transfer Agent shall require that each Shareholder
Account (other than an Omnibus Account) have in effect separate elections
relating to reinvestment of Capital Gain Dividends and relating to reinvestment
of Other Dividends in respect of any Fund. Either such Shareholder Account shall
have elected to reinvest all Capital Gain Dividends or such Shareholder Account
shall have elected to have all Capital Gain Dividends distributed. Similarly,
either such Shareholder Account shall have elected to reinvest all Other
Dividends or such Shareholder Account shall have elected to have all Other
Dividends distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect
of each Omnibus Account maintain daily records for each Sub-shareholder Account
in the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the
Distributor Last Sale Cutoff Date for such Fund shall be
identified as Distributor Shares.
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(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cutoff Date
for such Fund shall be identified as Distributor Shares in a
number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of
business in the last day of the immediately preceding
calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cutoff Date
for such Fund shall be identified as Post-distributor Shares
in a number computed as follows:
(A * (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the
close of business in the last day of the immediately
preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a Class
A Share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cut-off Date for such Fund shall be identified as
Distributor Shares in a number computed as follows:
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
15
<PAGE>
A * (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a class
A share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cutoff Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last to day of the immediately
preceding calendar month.
(4) Appreciation Amount and Cost Accumulation Amount. The Transfer
Agent shall maintain on a daily basis in respect of each Shareholder Account
(other than Omnibus Accounts) a Cost Accumulation Amount representing the total
of the Original Purchase Amounts paid by such Shareholder Account for all
Commission Shares reflected in such Shareholder Account as of the close of
business on each day. In addition, the Transfer Agent shall maintain on a daily
basis in respect of each Shareholder Account (other than Omnibus Accounts)
sufficient records to enable it to compute, as of the date of any actual or
deemed redemption or Free Exchange of a Commission Share reflected in such
Shareholder
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
16
<PAGE>
Account an amount (such amount an
"Appreciation Amount") equal to the excess, if any, of the Net Asset Value as of
the close of business on such day of the Commission Shares reflected in such
Shareholder Account minus the Cost Accumulation Amount as of the close of
business on such day. In the event that a Commission Share (or portion thereof)
reflected in a Shareholder Account is redeemed or under these rules is deemed to
have been redeemed (whether in a Free Exchange or otherwise), the Appreciation
Amount for such Shareholder Account shall be reduced, to the extent thereof, by
the Net Asset Value of the Commission Share (or portion thereof) redeemed, and
if the Net Asset Value of the Commission Share (or portion thereof) being
redeemed equals or exceeds the Appreciation Amount, the Cost Accumulation Amount
will be reduced to the extent thereof, by such excess. If the Appreciation
Amount for such Shareholder Account immediately prior to any redemption of a
Commission Share (or portion thereof) is equal to or greater than the Net Asset
Value of such Commission Share (or portion thereof) deemed to have been tendered
for redemption, no CDSCs will be payable in respect of such Commission Share (or
portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect
of each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account); provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) Identification of Redeemed Shares. If a Shareholder Account
(other than an Omnibus Account) tenders a Share of a Fund for redemption (other
than in connection with an exchange of such Share for
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
17
<PAGE>
a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), such tendered Share will be deemed to be a
Free Share if there are any Free Shares reflected in such Shareholder Account
immediately prior to such tender. If there is more than one Free Share reflected
in such Shareholder Account immediately prior to such tender, such tendered
Share will be deemed to be the Free Share with the earliest Month of Original
Purchase. If there are no Free Shares reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Commission Share with the earliest Month of Original Purchase reflected in such
Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(6) Identification of Exchanged Shares. When a Shareholder Account
(other than an Omnibus Account) tenders Shares of one Fund (the "Redeeming
Fund") for redemption where the proceeds of such redemption are to be
automatically reinvested in shares of another Fund (the "Issuing Fund") to
effect an exchange (whether or not pursuant to a Free Exchange) into Shares of
the Issuing Fund: (1) such Shareholder Account will be deemed to have tendered
Shares (or portions thereof) of the Redeeming Fund with each Month of Original
Purchase represented by Shares of the redeeming Fund reflected in such
Shareholder Account immediately prior to such tender in the same proportion that
the number of Shares of the redeeming Fund with such Month of Original Purchase
reflected in such Shareholder immediately prior to such tender bore to the total
number of Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender, and on that basis the tendered Shares of the
Redeeming Fund will be identified as Distributor Shares or Post-distributor
Shares; (2) such Shareholder Account will be deemed to have tendered Commission
Shares (or portions thereof) and Free Shares (or portions thereof) of the
Redeeming Fund of each category (i.e., Distributor Shares or Post-distributor
Shares) in the same proportion that the number of Commission Shares or Free
Shares (as the case may be) of the Redeeming Fund in such category reflected in
such Shareholder Account bore to the total number of Shares of the Redeeming
Fund in such category reflected in such Shareholder Account immediately prior to
such tender, (3) the Shares (or portions thereof) of the Issuing Fund issued in
connection with such exchange will be deemed to have the same Months of Original
Purchase as the Shares (or portions thereof) of the Redeeming Fund so tendered
and will be categorized as Distributor Shares and Post-distributor Shares
accordingly, and (4) the Shares (or portions thereof) of each Category of the
Issuing Fund issued in connection with such exchange will be deemed to be
Commission Shares and Free Shares in the same proportion that the Shares of such
Category of the Redeeming Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based
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18
<PAGE>
upon the Date of Original Purchase) to determine which Commission Shares (or
portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(7) Identification of Converted Shares. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a Class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a Class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCs AMONG
DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the
amounts of Asset Based Sales Charges and CDSCs payable by each Fund in respect
of Shares between Distributor Shares and Post-distributor Shares:
(1) Receivables Constituting CDSCs: CDSCs will be treated as relating
to Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) Receivables Constituting Asset Based Sales Charges:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A * (B/C)
where:
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19
<PAGE>
A = Total amount of Asset Based Sales Charge accrued in respect
of such Shareholder Account (other than an Omnibus Account) on
such day.
B = Number of Distributor Shares reflected in such Shareholder
Account (other than an Omnibus Account) on the close of
business on such day
C = Total number of Distributor Shares and Post-distributor
Shares reflected in such Shareholder Account (other than an
Omnibus Account) and outstanding as of the close of business
on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Buyer.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A * ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as
of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
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20
<PAGE>
D = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month (or portion thereof), times Net Asset
Value per Share as of such time.
E = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of such calendar month (or
portion thereof), times Net Asset Value per Share as
of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed as follows:
A * ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
D = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month (or portion thereof), times Net Asset
Value per Share as of such time.
E = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of such calendar month (or
portion thereof), times Net Asset Value per Share as
of such time.
(3) Payments on behalf of each Fund.
On the close of business on each day, or to the extent the parties agree less
frequently, the Transfer Agent shall cause payment to be made of the amount of
the Asset Based Sales Charge and CDSCs accruing on such day in respect of the
Shares of such Fund owned of record by Shareholder Accounts (other than Omnibus
Accounts) by two separate wire transfers, directly from accounts of such Fund as
follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect
of Shareholder Accounts other than Omnibus Accounts and
allocable to Distributor Shares in accordance with the
preceding rules shall be paid to the Distributor's Account,
unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
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21
<PAGE>
2. The Asset Based Sales Charges and CDSCs accruing in respect
of Shareholder Accounts other than Omnibus Accounts and
allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction
received from any future distributor of Shares of the Instant
Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and
allocable to Distributor Shares in accordance with the
preceding rules shall he paid to the Distributor's Account,
unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and
allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction
received from any future distributor of Shares of the Instant
Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer
Agent for each Fund shall cause payment to be made of the amount of the Asset
Based Sales Charge accruing for the period to which such Omnibus Asset Based
Sales Charge Settlement Date relates in respect of the Shares of such Fund owned
of record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such
Omnibus Account and allocable to Distributor Shares shall be
paid to the Distributor's Collection Account, unless the
Distributor otherwise instructs the Fund in any irrevocable
payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such
Omnibus Account and allocable to Post-Distributor Shares shall
be paid in accordance with direction received from any future
distributor of Shares of the Instant Fund.
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22
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
230 PARK AVENUE
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
To Whom It May Concern:
You currently have a dealer agreement ("Agreement") with Evergreen
Keystone Distributor, Inc. ("Company"). Effective January 1, 1997 the
Agreement is amended and restated in its entirety as set forth below.
The Company, principal underwriter, invites you to participate in the
distribution of shares, including separate classes of shares, ("Shares") of
the Keystone Fund Family, the Keystone America Fund Family, the Evergreen Fund
Family and to the extent applicable their separate investment series
(collectively "Funds" and each individually a "Fund") designated by us which
are currently or hereafter underwritten by the Company, subject to the
following terms:
1. You will offer and sell Shares of the Funds at the public offering price
with respect to the applicable class described in the then current prospectus
and/or statement of additional information ("Prospectus") of the Fund whose
Shares you offer. You will offer Shares only on a forward pricing basis, i.e.
orders for the purchase, repurchase or exchange of Shares accepted by you
prior to the close of the New York Stock Exchange and placed with us the same
day prior to the close of our business day, 5:00 p.m. Eastern Time, shall be
confirmed at the closing price for that business day. You agree to place
orders for Shares only with us and at such closing price. In the event of a
difference between verbal and written price confirmation, the written
confirmations shall be considered final. Prices of a Fund's Shares are
computed by and are subject to withdrawal by each Fund in accordance with its
Prospectus. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others
to place orders on your behalf. This Agreement on your part runs to us and the
respective Fund and is for the benefit and enforceable by each.
2. In the distribution and sale of Shares, you shall not have authority to act
as agent for the Fund, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not
to accept any specific order for the purchase or exchange of Shares.
3. In addition to the distribution services provided by you with respect to a
Fund you may be asked to render administrative, account maintenance and other
services as necessary or desirable for shareholders of such Fund ("Shareholder
Services").
4. Notwithstanding anything else contained in this Agreement or in any other
agreement between us, the Company hereby acknowledges and agrees that any
information received from you concerning your customer in the course of this
arrangement is confidential. Except as requested by the customer or as
required by law and except for the respective Fund, its officers, directors,
employees, agents or service providers, the Company will not provide nor
permit access to such information by any person or entity, including any First
Union Corporation bank or First Union Brokerage Services, Inc.
5. So long as this Agreement remains in effect, we will pay you commissions on
sales of Shares of the Funds and service fees for Shareholder Services, in
accordance with the Schedule of Commissions and Service Fees ("Schedule")
attached hereto and made a part hereof, which Schedule may be modified from
time to time or rescinded by us, in either case without prior notice. You have
no vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on Shares
previously sold by you or by any person who is not a broker or dealer actually
engaged in the investment banking or securities business. You will receive
commissions in accordance with the attached Schedule on all purchase
transactions in shareholder accounts (excluding reinvestment of income
dividends and capital gains distributions) for which you are designated as
Dealer of Record except where we determine that any such purchase was made
with the proceeds of a redemption or repurchase of Shares of the same Fund or
another Fund, whether or not the transaction constitutes the exercise of the
exchange privilege. Commissions will be paid to you twice a month. You will
receive service fees for shareholder accounts for which you are designated
Dealer of Record as provided in the Schedule. You hereby represent that
receipt of such service fees by you will be disclosed to your customers.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your agent shall cease upon the termination of this
Agreement or upon the shareholder's instruction to transfer his or her account
to another Dealer of Record.
6. Payment for all Shares purchased from us shall be made to the Company and
shall be received by the Company within three business days after the
acceptance of your order or such shorter time as may be required by law. If
such payment is not received by us, we reserve the right, without prior
notice, forthwith to cancel the sale, or, at our option, to sell such Shares
back to the respective Fund in which case we may hold you responsible for any
loss, including loss of profit, suffered by us or by such Fund resulting from
your failure to make payment as aforesaid.
7. You agree to purchase Shares of the Funds only from us or from your
customers. If you purchase Shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your
customers, or for your own bonafide investment without a view to resale. If
you purchase Shares from your customers, you agree to pay such customers the
applicable net asset value per Share less any contingent deferred sales charge
("CDSC") that would be applicable under the Prospectus ("repurchase price").
8. You will sell Shares only (a) to your customers at the prices described in
paragraph 2 above; or (b) to us as agent for a Fund at the repurchase price. In
such a sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account in
purchasing Shares for resale to us, you agree to pay your customer not less nor
more than the repurchase price which you receive from us. If you act as agent
for your customer in selling Shares to us, you agree not to charge your customer
more than a fair commission for handling the transaction. You shall not withhold
placing with us orders received from your customers so as to profit yourself as
a result of such withholding.
10. We will not accept from you any conditional orders for Shares.
11. If any Shares sold to you under the terms of this Agreement are
repurchased by a Fund, or are tendered for redemption, within seven business
days after the date of our confirmation of the original purchase by you, it is
agreed that you shall forfeit your right to any commissions on such sales even
though the shareholder may be charged a CDSC by the Fund.
We will notify you of any such repurchase or redemption within the next
ten business days after the date on which the certificate or written request
for redemption is delivered to us or to the Fund, and you shall forthwith
refund to us the full amount of any commission you received on such sale. We
agree, in the event of any such repurchase or redemption, to refund to the
Fund any commission we retained on such sale and, upon receipt from you of the
commissions paid to you, to pay such commissions forthwith to the Fund.
12. Shares sold to you hereunder shall not be issued until payment has been
received by the Fund concerned. If transfer instructions are not received from
you within 15 days after our acceptance of your order, the Company reserves
the right to instruct the transfer agent for the Fund concerned to register
Shares sold to you in your name and notify you of such. You agree to hold
harmless and indemnify the Company, the Fund and its transfer agent for any
loss or expense resulting from such registration.
13. You agree to comply with any compliance standards that may be furnished to
you by us regarding when each class of Shares of a Fund may appropriately be
sold to particular customers.
14. No person is authorized to make any representations concerning Shares of a
Fund except those contained in the Prospectus and in sales literature issued
by us supplemental to such Prospectus. In purchasing Shares from us you shall
rely solely on the representations contained in the appropriate Prospectus and
in such sales literature. We will furnish additional copies of such
Prospectuses and sales literature and other releases and information issued by
us in reasonable quantities upon request. You agree that you will in all
respects duly conform with all laws and regulations applicable to the sales of
Shares of the Funds and will indemnify and hold harmless the Funds, their
directors and trustees and the Company from any damage or expenses on account
of any wrongful act by you, your representatives, agents or sub-agents in
connection with any orders or solicitation or orders of Shares of the Funds by
you, your representatives, agents or sub-agents.
15. Each party hereto represents that it is (1) a member of the National
Association of Securities Dealers, Inc., and agrees to notify the other should
it cease to be a member of such Association and agrees to the automatic
termination of this Agreement at that time or (2) excluded from the definition
of broker-dealer under the Securities Exchange Act of 1934. It is further
agreed that all rules or regulations of the Association now in effect or
hereafter adopted, including its Business Conduct Rule 2830(d), which are
binding upon underwriters and dealers in the distribution of the securities of
open-end investment companies, shall be deemed to be a part of this Agreement
to the same extent as if set forth in full herein.
16. You will not offer the Funds for sale in any State where they are not
qualified for sale under the blue sky laws and regulations of such State or
where you are not qualified to act as a dealer except for States in which they
are exempt from qualification.
17. This Agreement supersedes and cancels any prior agreement with respect to
the sales of Shares of any of the Funds underwritten by the Company. The
Agreement may be amended by us at any time upon written notice to you.
18. This amendment to the Agreement shall be effective on January 1, 1997 and
all sales hereunder are to be made, and title to Shares of the Funds shall
pass in The Commonwealth of Massachusetts. This Agreement shall be interpreted
in accordance with the laws of The Commonwealth of Massachusetts.
19. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the
addressed specified by you.
20. Either part may terminate this Agreement at any time by written notice to
the other party.
- --------------------------- EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Dealer or Broker Name
- --------------------------- /s/ Robert A. Hering
Address
ROBERT A. HERING, President
<PAGE>
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC. ROBERT A. HERING
230 PARK AVENUE President
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
Dear Financial Professional:
This Schedule of Commissions and Service Fees ("Schedule") supersedes any
previous Schedules, is hereby made part of our dealer agreement ("Agreement")
with you effective January 1, 1997 and will remain in effect until modified or
rescinded by us. Capitalized terms used in this Schedule and not defined
herein have the same meaning as such terms have in the Agreement. All
commission rates and service fee rates set forth in this Schedule may be
modified by us from time to time without prior notice.
I. KEYSTONE FUNDS
KEYSTONE QUALITY BOND FUND (B-1) KEYSTONE MID-CAP GROWTH FUND (S-3)
KEYSTONE DIVERSIFIED BOND FUND (B-2) KEYSTONE SMALL COMPANY GROWTH FUND (S-4)
KEYSTONE HIGH INCOME BOND FUND (B-4) KEYSTONE INTERNATIONAL FUND INC.
KEYSTONE BALANCED FUND (K-1) KEYSTONE PRECIOUS METALS HOLDINGS, INC.
KEYSTONE STRATEGIC GROWTH FUND (K-2) KEYSTONE TAX FREE FUND
KEYSTONE GROWTH AND INCOME FUND (S-1) (COLLECTIVELY "KEYSTONE FUNDS")
1. COMMISSIONS FOR THE KEYSTONE FUNDS (OTHER THAN KEYSTONE PRECIOUS METALS
HOLDINGS, INC.)
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Shares of such Keystone Funds rtds d such er tv amrr
rdKeystone Fundat the rate of 4.0% of the aggregate public offering price of
such Shares as described in the Fund's Prospectus ("Offering Price") when sold
in an eligible sale.
2. COMMISSIONS FOR KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Except as otherwise provided for in our Agreement, we will pay you
commissions on your sale of Shares of Keystone Precious Metals Holdings, Inc.
as the rate of the Offering Price when sold in an eligible sale as follows:
AMOUNT OF PURCHASE COMMISSION AMOUNT OF PURCHASE COMMISSION
Less than $100,000 4% $250,000-$499,999 1%
$100,000-$249,999 2% $500,000 and above 0.5%
3. SERVICE FEES
We will pay you service fees based on the aggregate net asset value of
Shares of the Keystone Funds (other than Keystone Precious Metals Holdings,
Inc.) you have sold on or after June 1, 1983 and of Keystone Precious Metals
Holdings, Inc. you have sold on or after November 19, 1984, which remain
issued and outstanding on the books of such Funds on the fifteenth day of the
third month of each calendar quarter (March 15, June 15, September 15 and
December 15, each hereinafter a "Service Fee Record Date") and which are
registered in the names of customers for whom you are dealer of record
("Eligible Shares"). Such service fees will be calculated quarterly at the
rate of 0.0625% per quarter of the aggregate net asset value of all such
Eligible Shares (approximately 0.25% annually) on the Service Fee Record Date;
provided, however, that in any calendar quarter in which service fees earned
by you on Eligible Shares of all Funds (except Keystone Liquid Trust Class A
Shares) are less than $50.00 in the aggregate, no service fees will be paid to
you nor will such amounts be carried over for payment in a future quarter.
Service fees will be payable within five business days after the Service Fee
Record Date. Service fees will only be paid by us to the extent that such
amounts have been paid to us by the Funds.
4. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
<TABLE>
<CAPTION>
II. KEYSTONE AMERICA FUNDS AND EVERGREEN FUNDS
KEYSTONE AMERICA FUNDS
<S> <C>
KEYSTONE GOVERNMENT SECURITIES FUND KEYSTONE OMEGA FUND
KEYSTONE STATE TAX FREE FUND KEYSTONE SMALL COMPANY GROWTH FUND - II
KEYSTONE STATE TAX FREE FUND - SERIES II KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE STRATEGIC INCOME FUND KEYSTONE BALANCED FUND - II
KEYSTONE TAX FREE INCOME FUND (COLLECTIVELY "KEYSTONE EQUITY AND LONG TERM INCOME FUNDS")
KEYSTONE WORLD BOND FUND KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND OF THE AMERICAS KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE GLOBAL OPPORTUNITIES FUND (COLLECTIVELY "KEYSTONE INTERMEDIATE INCOME FUNDS")
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. KEYSTONE LIQUID TRUST
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
EVERGREEN FUNDS
EVERGREEN U.S. GOVERNMENT FUND EVERGREEN AMERICAN RETIREMENT FUND
EVERGREEN HIGH GRADE TAX FREE FUND EVERGREEN FOUNDATION FUND
EVERGREEN FLORIDA MUNICIPAL BOND FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND
EVERGREEN GEORGIA MUNICIPAL BOND FUND EVERGREEN UTILITY FUND
EVERGREEN NEW JERSEY MUNICIPAL BOND FUND EVERGREEN TOTAL RETURN FUND
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (COLLECTIVELY "EVERGREEN EQUITY AND LONG TERM INCOME FUNDS")
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND EVERGREEN MONEY MARKET FUND
EVERGREEN FUND EVERGREEN TAX EXEMPT MONEY MARKET FUND
EVERGREEN U.S. REAL ESTATE EQUITY FUND EVERGREEN TREASURY MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND EVERGREEN PENNSYLVANIA TAX FREE MONEY MARKET FUND
EVERGREEN AGGRESSIVE GROWTH FUND (COLLECTIVELY "EVERGREEN MONEY MARKET FUNDS")
EVERGREEN INTERNATIONAL EQUITY FUND EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN GLOBAL LEADERS FUND EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN EMERGING MARKETS FUND EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN BALANCED FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
EVERGREEN GROWTH & INCOME FUND (COLLECTIVELY "EVERGREEN INTERMEDIATE INCOME AND
EVERGREEN VALUE FUND MONEY MARKET FUNDS")
</TABLE>
A. CLASS A SHARES
1. COMMISSIONS
Except as otherwise provided in our Agreement, in paragraph 2 below or in
connection with certain types of purchases at net asset value which are
described in the Prospectuses for the Keystone America Funds and the Evergreen
Funds, we will pay you commissions on your sales of Shares of such Funds in
accordance with the following sales charge schedules* on sales where we
receive a commission from the shareholder:
KEYSTONE AMERICA AND EVERGREEN EQUITY AND LONG TERM INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 4.75% 4.25%
$50,000-$99,999 4.50% 4.25%
$100,000-$249,999 3.75% 3.25%
$250,000-$499,999 2.50% 2.00%
$500,000-$999,999 2.00% 1.75%
Over $1,000,000 None See paragraph 2
KEYSTONE AMERICA AND EVERGREEN INTERMEDIATE INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 3.25% 2.75%
$50,000-$99,999 3.00% 2.75%
$100,000-$249,999 2.50% 2.25%
$250,000-$499,999 2.00% 1.75%
$500,000-$999,999 1.50% 1.25%
Over $1,000,000 None See paragraph 2
KEYSTONE LIQUID TRUST AND EVERGREEN MONEY MARKET FUNDS
No sales charge for any amount of purchase.
2. COMMISSIONS FOR CERTAIN TYPES OF PURCHASES
With respect to (a) purchases of Class A Shares in the amount of $1 million
or more and/or (b) purchases of Class A Shares made by a corporate or certain
other qualified retirement plan or a non-qualified deferred compensation plan
or a Title I tax sheltered annuity or TSA Plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan"), (each such
purchase a "NAV Purchase"), we will pay you commissions as follows:
<TABLE>
<CAPTION>
a. Purchases described in 2(a) above
AMOUNT OF COMMISSION AS A PERCENTAGE
PURCHASE OF OFFERING PRICE
<S> <C>
$1,000,000-$2,999,999 1.00% of the first $2,999,999, plus
$3,000,000-$4,999,999 0.50% of the next $2,000,000, plus
$5,000,000 0.25% of amounts equal to or over $5,000,000
b. Purchases described in 2(b) above .50% of amount of purchase (subject to recapture
upon early redemption)
</TABLE>
* These sales charge schedules apply to purchases made at one time or pursuant
to Rights of Accumulation or Letters of Intent. Any purchase which is made
pursuant to Rights of Accumulation or Letter of Intent is subject to the
terms described in the Prospectus(es) for the Fund(s) whose Shares are being
purchased.
3. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of up to the entire sales charge to certain
dealers. Such incentives may, at our discretion, be limited to dealers who
allow their individual selling representatives to participate in such
additional commissions.
4. SERVICE FEES FOR EVERGREEN FUNDS (OTHER THAN EVERGREEN MONEY MARKET FUNDS)
AND KEYSTONE AMERICA FUNDS (OTHER THAN KEYSTONE STATE TAX FREE FUND,
KEYSTONE STATE TAX FREE FUND - SERIES II, KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND AND KEYSTONE LIQUID TRUST)
a. Keystone America Funds Only. Until March 31, 1997, we will pay you
service fees based on the aggregate net asset value of Shares of such Funds
you have sold which remain issued and outstanding on the books of such Funds
on the fifteenth day of the third month of each calendar quarter (March 15,
June 15, September 15 and December 15, each hereinafter a "Service Fee Record
Date") and which are registered in the names of customers for whom you are
dealer of record ("Eligible Shares"). Such service fees will be calculated
quarterly at the rate of 0.0625% per quarter of the aggregate net asset value
of all such Eligible Shares (approximately 0.25% annually) on the Service Fee
Record Date; provided, however, that in any calendar quarter in which total
service fees earned by you on Eligible Shares of all Keystone Funds (except
Keystone Liquid Trust Class A Shares) are less than $50.00 in the aggregate,
no service fees will be paid to you nor will such amounts be carried over for
payment in a future quarter. Service fees will be paid within five days after
the Service Fee Record Date. Service fees will only be paid by us to the
extent that such amounts have been paid to us by the Funds.
b. Evergreen Funds and Keystone America Funds (after March 31, 1997). We
will pay you service fees based on the average daily net asset value of Shares
of such Funds you have sold which are issued and outstanding on the books of
such Funds during each calendar quarter and which are registered in the names
of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0625% per quarter
of the daily average net asset value of all such Eligible Shares
(approximately 0.25% annually) during such quarter; provided, however, that in
any calendar quarter in which total service fees earned by you on Eligible
Shares of all Funds (except Keystone Liquid Trust Class A Shares) are less
than $50.00 in the aggregate, no service fees will be paid to you nor will
such amounts be carried over for payment in a future quarter. Service fees
will be paid by the twentieth day of the month before the end of the
respective quarter. Service fees will only be paid by us to the extent that
such amounts have been paid to us by the Funds.
5. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees based on the aggregate
net asset value of Shares of such Funds you have sold which remain issued and
outstanding on the books of the Funds on the fifteenth day of the third month
of each calendar quarter (March 15, June 15, September 15 and December 15,
each hereinafter a "Service Fee Record Date") and which are registered in the
names of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0375% per quarter
of the aggregate net asset value of all such Eligible Shares (approximately
0.15% annually) on the Service Fee Record Date; provided, however, that in any
calendar quarter in which total service fees earned by you on Eligible Shares
of all Funds (except Keystone Liquid Trust Class A Shares) are less than
$50.00 in the aggregate, no service fees will be paid to you nor will such
amounts be carried over for payment in a future quarter. Service fees will be
paid within five days after the Service Fee Record Date. Service fees will
only be paid by us to the extent that such amounts have been paid to us by the
Funds.
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that the quarterly rate will be 0.0375%
(approximately 0.15% annually).
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(b) above on Shares sold on or after July 1, 1997.
6. SERVICE FEES FOR KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(a) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
7. SERVICE FEES FOR KEYSTONE LIQUID TRUST
We will pay you service fees based on the aggregate net asset value of all
Shares of such Fund you have sold which remain issued and outstanding on the
books on the Fund on the fifteenth day of the third month of each calendar
quarter (March 15, June 15, September 15 and December 15, each hereinafter a
"Service Fee Record Date") and which are registered in the names of customers
for whom you are dealer of record ("Eligible Shares"). Such service fees will
be calculated at the rates set forth below and based on the aggregate net
asset value of all such Eligible Shares on the Service Fee Record Date;
provided, however, that no such service fees will be paid to you for any
quarter if the aggregate net asset value of such Eligible Shares on the last
business day of the quarter is less than $2 million; and provided further,
however, that service fees will only be paid to us to the extent that such
amounts have been paid to us by the Fund. Service fees will be paid within 5
days after the Service Fee Record Date. The quarterly rates at which such
service fees are payable and the net asset value to which such rates will be
applied are set forth below:
ANNUAL QUARTERLY AGGREGATE NET ASSET
RATE PAYMENT RATE VALUE OF SHARES
0.00000% 0.00000% of the first $1,999,999, plus
0.15000% 0.03750% of the next $8,000,000, plus
0.20000% 0.05000% of the next $15,000,000, plus
0.25000% 0.06250% of the next $25,000,000, plus
0.30000% 0.07500% of amounts over $50,000,000
8. SERVICE FEES FOR EVERGREEN MONEY MARKET FUNDS
We will pay you service fees calculated as provided in section II (A)(4)(b)
except that the quarterly rate will be 0.075% (approximately 0.30% annually.)
<PAGE>
B. CLASS B SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Class B Shares of the Keystone America Funds and the
Evergreen Funds at the rate of 4.00% of the aggregate Offering Price of such
Shares, when sold in an eligible sale.
2. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions, to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
3. SERVICE FEES FOR EVERGREEN FUNDS AND KEYSTONE AMERICA FUNDS (OTHER THAN
KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE FUND - SERIES II)
a. Keystone America Funds - Until March 31, 1997, we will pay you service
fees calculated as provided in section II (A)(4)(a) above.
b. Evergreen Funds and Keystone America Funds (after March 31. 1997). We
will pay you service fees calculated as provided in section II (A)(4)(b)
above.
4. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(a) above.
b. After March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(b) above.
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(c) above.
C. CLASS C SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as provided in our Agreement, we will pay you initial commissions on
your sales of Class C Shares of the Keystone America and the Evergreen Funds
at the rate of 0.75% of the aggregate Offering Price of such Shares sold in
each eligible sale.
We will also pay you commissions based on the average daily net asset value
of Shares of such Funds you have sold which have been on the books of the
Funds for a minimum of 14 months from the date of purchase (plus any
reinvested distributions attributable to such Shares), which have been issued
and outstanding on the books of such Funds during the calendar quarter and
which are registered in the names of customers for whom you are dealer of
record ("Eligible Shares"). Such commissions will be calculated quarterly at
the rate of 0.1875% per quarter of the average daily net asset value of all
such Eligible Shares (approximately 0.75% annually) during such quarter. Such
commissions will be paid by the twentieth day of the month before the end of
the respective quarter. Such commissions will continue to be paid to you
quarterly so long as aggregate payments do not exceed applicable NASD
limitations and other governing regulations.
2. SERVICE FEES
We will pay you a full year's service fee in advance on your sales of Class
C Shares of such Funds at the rate of 0.25% of the aggregate net asset value
of such Shares.
We will pay you service fees based on the average daily net asset value of
Shares of such Funds you have sold which have been on the books of the Funds
for a minimum of 14 months from the date of purchase (plus any reinvested
distributions attributable to such Shares), which have been issued and
outstanding during the respective quarter and which are registered in the
names of customers for whom you are the dealer of record ("Eligible Shares").
Such service fees will be calculated quarterly at the rate of 0.0625% per
quarter of the average daily net asset value of all such Eligible Shares
(approximately 0.25% annually); provided, however, that in any calendar
quarter in which total service fees earned by you on Eligible Shares of Funds
(except Keystone Liquid Trust Class A Shares) are less than $50.00 in the
aggregate, no service fees will be paid to you nor will such amounts be
carried over for payment in a future quarter. Service fees will be paid by the
twentieth day of the month before the end of the respective quarter. Service
fees other than those paid in advance will only be paid by us to the extent
that such amounts have been paid to us by the Funds.
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and Keystone Fund for Total Return (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated February 12, 1987 as amended September 1, 1988, January 1, 1989 and
February 8, 1990 (the "Custodian Contract") governing the terms and conditions
under which the Custodian maintains custody of the securities and other assets
of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule 17f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed as a sealed instrument in its name and behalf by its duly authorized
representative this 20th day of March, 1996.
KEYSTONE FUND FOR TOTAL RETURN
By: /s/ Rosemary D. Van Antwerp
Title: Senior Vice President and
Secretary
STATE STREET BANK AND TRUST COMPANY
By: /s/ illegible
Title: Executive Vice President
FORM OF MARKETING SERVICES AGREEMENT
AGREEMENT made this ____ day of December 1996 by and between Evergreen
Keystone Distributor, Inc., a Delaware corporation (the "Principal
Underwriter"), and Evergreen Keystone Investment Services, Inc. ("Marketing
Services Agent").
WHEREAS, the Keystone Fund for Total Return (the "Fund"), has adopted
one or more Plans of Distribution (each a "Plan", or collectively the "Plans")
with respect to certain Classes of shares of the Fund and to the extent
applicable certain Classes of shares of its separate investment series (the
"Shares"), pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act") which Plans authorize the Fund to enter into agreements
regarding the distribution of such Shares set forth on Exhibit A; and
WHEREAS, the Fund has entered into a principal underwriting agreement
with the Principal Underwriter pursuant to which the Principal Underwriter has
agreed to facilitate the distribution of the Shares; and
WHEREAS, the Fund has authorized the Principal Underwriter under the
terms of the principal underwriting agreement to enter into a marketing services
agreement with the Marketing Services Agent pursuant to which the Principal
Underwriter has agreed to facilitate the distribution of the Shares;
NOW, THEREFORE, in consideration of the agreements hereinafter
contained, it is agreed as follows:
1. Services as Marketing Services Agent.
1.1. The Marketing Services Agent shall assist the Principal
Underwriter in promoting Shares of the Fund and will undertake such advertising
and marketing services as it believes reasonable in connection therewith. In the
event that the Fund establishes additional investment series with respect to
which it has retained the Principal Underwriter to act as principal underwriter
for one or more Classes hereunder, the Principal Underwriter shall promptly
notify the Marketing Services Agent in writing. If the Marketing Services Agent
is willing to render such services it shall notify the Principal Underwriter in
writing whereupon the applicable Class or Classes of shares of such investment
series shall become "Shares" hereunder.
1.2. All activities by the Marketing Services Agent and its agents and
employees as the Marketing Services Agent shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and regulations
made or adopted pursuant to the 1940 Act by the Securities and Exchange
Commission (the "Commission") or any securities association registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act").
1.3. In assisting the Principal Underwriter in promoting shares of the
Fund and undertaking any advertising and marketing services on behalf of the
Fund, the Marketing Services Agent shall use its best efforts in all respects
duly to conform with the requirements of all Federal and state laws
1
<PAGE>
relating to the sale of such securities. Neither the Marketing Services Agent,
Principal Underwriter, any selected dealer or any other person is authorized by
the Fund to give any information or to make any representations, other than
those contained in the Fund's registration statement (the "Registration
Statement") or related prospectus and statement of additional information
("Prospectus" and "Statement of Additional Information") and any sales
literature specifically approved by the Fund.
2. Duties of the Principal Underwriter.
2.1. The Principal Underwriter shall furnish from time to time, for use
in connection with the sale of Shares such information with respect to the
Shares as the Marketing Services Agent may reasonably request; and the Principal
Underwriter warrants that any such information shall be true and correct.
3. Representations of the Principal Underwriter.
3.1. The Principal Underwriter represents to the Marketing Services
Agent that it is a broker-dealer registered with the Commission, is a member of
the National Association of Securities Dealers, Inc. ("NASD") and that the Fund
is registered under the 1940 Act and that the Shares have been registered under
the Securities Act of 1933, as amended (the "Securities Act").
3.2 That the principal underwriting agreement between the Fund and the
Principal Underwriter has been duly approved and continues in full force and
effect.
4. Indemnification.
4.1. The Marketing Services Agent agrees to indemnify and hold harmless
the Principal Underwriter and each of its directors, officers, employees, agents
and each person, if any, who controls the Principal Underwriter within the
meaning of the Securities Act against any losses, claims, damages or liabilities
to which the Principal Underwriter may become subject, insofar as such losses,
claims, damages, liabilities, or expense (or actions in respect thereof) (i)
arise out of or are based upon the actions of the Marketing Services Agent or
(ii) result from a breach of a material provision of this Agreement by the
Marketing Services Agent. The Marketing Services Agent will reimburse any legal
or other expenses reasonably incurred by the Principal Underwriter or any such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Marketing
Services Agent will not be liable for indemnification hereunder to the extent
that any such loss, claim, damage or liability arises out of or is based upon
the gross negligence or willful misconduct of the Principal Underwriter, its
respective directors, officers, employees, agents or any controlling person
herein defined in performing their obligations under this Agreement.
(b) The Principal Underwriter agrees to indemnify and hold harmless the
Marketing Services Agent, and each of its directors, officers, employees, agents
and each person, if any, who controls the Marketing Services Agent within the
meaning of the 1933 Act against any losses, claims, damages or liabilities to
which the Marketing Services Agent, or any such director, officer, employee,
agent or
2
<PAGE>
controlling person may become subject, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) (i) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement ^ or sales literature of the Fund
prepared or approved in writing by the Principal Underwriter or arise out of, or
are based upon, the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) result from a breach by it of a material provision of
this Agreement. The Principal Underwriter will reimburse any legal or other
expenses reasonably incurred by the Marketing Services Agent, or any such
director, officer, employee, agent, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Principal Underwriter will not be liable for
indemnification hereunder to the extent that any such loss, claim, damage or
liability arises out of, or is based upon, the gross negligence or willful
misconduct of the Marketing Services Agent, or its respective directors,
officers, employees, agents or any controlling person herein defined in the
performance of their obligations under this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of an action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under this Section 4. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 4 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
5. Amendments to Registration Statement and Other Material Events.
5.1. The Principal Underwriter agrees to advise the Marketing Services
Agent as soon as reasonably practical by a notice in writing delivered to the
Marketing Services Agent: (a) of any request or action taken by the Commission
which is material to the Marketing Services Agent's obligations or rights
hereunder or (b) any material fact of which the Principal Underwriter becomes
aware which affects the Marketing Services Agent's obligations or rights
hereunder.
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
6. Compensation of Marketing Services Agent.
6.1. (a) As promptly as possible after the first Business Day (as
defined in the Prospectus) of each month this Agreement is in effect, the
Principal Underwriter shall compensate the Marketing Services Agent for its
services rendered during the previous month (but not prior to the commencement
date of this Agreement); by making payment to the Marketing Services Agent in
the
3
<PAGE>
amounts set forth on Exhibit A annexed hereto with respect to each Class of
Shares of the Fund or, if applicable, each of its separate investment series to
which this Agreement relates. In connection therewith the Principal Underwriter
hereby agrees that it is obligated under this Agreement to comply with Paragraph
7 of the principal underwriting agreement. The compensation by the Principal
Underwriter of the Marketing Services Agent is authorized pursuant to the Plan
or Plans adopted by the Fund pursuant to Rule 12b-l under the 1940 Act.
(b) Under this Agreement, the Marketing Services Agent shall: (i) incur
the expense of obtaining such support services, telephone facilities and
shareholder services as may reasonably be required in connection with its duties
hereunder; (ii) formulate and implement marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (iii) prepare, print and
distribute sales literature; (iv) prepare, print and distribute Prospectuses of
the Series and reports for recipients other than existing shareholders of the
Series; and (v) provide to the Fund such information, analyses and opinions with
respect to marketing and promotional activities as the Fund may, from time to
time, reasonably request.
(c) The Marketing Services Agent shall prepare and deliver reports to
the Principal Underwriter on a regular, at least monthly, basis, showing the
distribution expenditures incurred by the Principal Underwriter in connection
with its services rendered pursuant to this Agreement and the Plan and the
purposes therefor, as well as any supplemental reports to the Fund's Board, from
time to time, as the Principal Underwriter may reasonably request.
7. Confidentiality, Non-Exclusive Agency.
7.1. The Marketing Services Agent agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the
Principal Underwriter all records and other information relative to the or, if
applicable, each of its separate investment series, and its prior, present or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and in connection with
the financing described in Paragraph 7 (f) to obtain approval in writing by the
Principal Underwriter, which approval shall not be unreasonably withheld and may
not be withheld where the Marketing Services Agent may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities.
7.2. Nothing contained in this Agreement shall prevent the Marketing
Services Agent, or any affiliated person of the Marketing Services Agent, from
performing services similar to those to be performed hereunder for any other
person, firm, or corporation or for its or their own accounts or for the
accounts of others.
8. Term.
8.1. This Agreement shall continue until December __, 1998 and
thereafter for successive annual periods, provided such continuance is
specifically approved with respect to the Fund or, if applicable, each of its
separate investment series at least annually by vote cast in person at a meeting
4
<PAGE>
called for the purpose of voting on such approval by (i) a vote of the majority
of the members of the Fund's Board and (ii) a vote of a majority of the members
who are not " interested persons" of the Fund, as that term is defined in the ^
1940 Act or who do not have any direct or indirect financial interest in the
Fund's Distribution Plan or any related agreements, voting separately. This
Agreement is terminable at any time, with respect to the Fund or, if applicable,
each of its separate investment series, without penalty, (a) on not less than 60
days' written notice by vote of a majority of the Independent Trustees, or by
vote of the holders of a majority of the outstanding voting securities of the
Fund or, if applicable, each of its separate investment series, or (b) upon not
less than 60 days' written notice by the Marketing Services Agent. This
Agreement may remain in effect with respect to a separate investment series even
if it has been terminated in accordance with this paragraph with respect to one
or more other separate investment series of the Fund. This Agreement will also
terminate automatically in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities",
"interested persons", and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
9. Miscellaneous.
9.1. This Agreement shall be governed by the laws of the State
of New York.
9.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their constructions or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the __th day of December,
1996.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: By:
Title: Title:
5
<PAGE>
EXHIBIT A
To Marketing Services Agreement between Evergreen Funds Distributor, Inc.
and KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
SERIES AND CLASSES COVERED BY THIS AGREEMENT:
KEYSTONE FUND FOR TOTAL RETURN
CLASS B[-2] SHARES
Marketing Services Fees
The Principal Underwriter agrees to pay the Marketing Servicing Agent a
fee at the rate of up to .75 of 1% of average daily net assets of the shares of
each Class set forth above, provided however that the payment of such fee shall:
(i) be subject and subordinate to the obligation of the Fund to make payments to
the Principal Underwriter pursuant to the provisions of the Distribution
Agreement dated ___________, 1996 between the Fund and its Principal
Underwriter, Evergreen Keystone Funds Distributor Inc.; (ii) be subject and
subordinate to the obligation of the Fund to make payments to any entity with
respect to shares sold prior to December 1, 1996; and (ii) not result in an
aggregate fee being paid to the Marketing Service Agent and Principal
Underwriter that would exceed .75 of 1% of the Fund's average daily net assets
on an annual basis or otherwise exceed the limit imposed on asset based and
deferred sales charges under subsection (d) of Section 26 of Article III of the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to
the Distribution Agreement between the parties dated December __, 1996 to be
executed by their officers designated below as of the __th day of December,
1996.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: _____________________________ By:____________________________
Title: Title:
6
FORM OF SUB-ADMINISTRATOR AGREEMENT
This Sub-Administrator Agreement is made as of this 1st day of
January, 1997 between Keystone Investment Management Company, a Delaware
corporation (herein called "KIMCO"), and BISYS Fund Services, Inc., a Delaware
limited liability corporation (herein called "BISYS").
WHEREAS, KIMCO has been appointed as investment adviser to
certain open-end management investment companies, or to one or more separate
investment series thereof, listed on Schedule A, as the same may be amended from
time to time to reflect additions or deletions of such companies or series,
which are registered under the Investment Company Act of 1940 (the "Funds");
WHEREAS, in its capacity as investment adviser to the Funds,
KIMCO has the obligation to provide, or engage others to provide, certain
administrative services to the Funds; and
WHEREAS, KIMCO desires to retain BISYS as Sub-Administrator to
the Funds for the purpose of providing the Funds with personnel to act as
officers of the Funds and to provide certain administrative services in addition
to those provided by KIMCO ("Sub-Administrative Services"), and BISYS is willing
to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Sub-Administrator. KIMCO hereby appoints BISYS as
Sub-Administrator for the Funds on the terms and conditions set forth in this
Agreement and BISYS hereby accepts such appointment and agrees to perform
the services and duties set forth in Section 2 of this Agreement in
consideration of the compensation provided for in Section 4 hereof.
2. Services and Duties. As Sub-Administrator, and subject to the supervision and
control of KIMCO and the Trustees or Directors of the Funds, BISYS will
hereafter provide facilities, equipment and personnel to carry out the following
Sub-Administrative services to assist in the operation of the business and
affairs of the Funds:
(a) provide individuals reasonably acceptable to the Funds for
nomination, appointment or election as officers of the Funds and who
will be responsible for the management of certain of each Fund's
affairs as determined from time to time by the Trustees or Directors of
the Funds;
(b) review filings with the Securities and Exchange Commission and
state securities authorities that have been prepared on behalf of the
Funds by the administrator and take such actions as may be reasonably
requested by the administrator to effect such filings;
(c) verify, authorize and transmit to the custodian, transfer agent and
dividend disbursing agent of each Fund all necessary instructions for
the disbursement of cash, issuance of
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<PAGE>
shares, tender and receipt of portfolio securities, payment of expenses
and payment of dividends; and
(d) advise the Trustees or Directors of the Funds on matters
concerning the Funds and their affairs.
BISYS may, in addition, agree in writing to perform additional
Sub-Administrative Services for the Funds. Sub-Administrative Services shall not
include investment advisory services or any duties, functions, or services to be
performed for the Funds by their distributor, custodian or transfer agent
pursuant to their agreements with the Funds.
3. Expenses. BISYS shall be responsible for expenses incurred in providing
office space, equipment and personnel as may be necessary or convenient to
provide the Sub-Administrative Services to the Funds. KIMCO and/or the Funds
shall be responsible for all other expenses incurred by BISYS on behalf of
the Funds pursuant to this Agreement at the direction of KIMCO, including
without limitation postage and courier expenses, printing expenses, registration
fees, filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees or Directors who are not Furman Selz
employees, and trade association dues.
4. Compensation. For the Sub-Administrative Services provided, KIMCO hereby
agrees to pay and BISYS hereby agrees to accept as full compensation for
its services rendered hereunder a sub-administrative fee,calculated daily and
payable monthly at an annual rate based on the aggregate average daily net
assets of the Funds, or separate series thereof, set forth on Schedule A and
determined in accordance with the table below.
Aggregate Daily Net Assets of Funds For
Which KIMCO, Evergreen Asset Management
Sub-Administrative Corp., First Union National Bank of North
Fee as a % of Carolina or any Affiliates Thereof Serve as
Average Annual Investment Adviser or Administrator And For
Daily Net Assets Which BISYS Serves as Sub-Administrator
.0100% on the first $7 billion
.0075% on the next $3 billion
.0050% on the next $15 billion
.0040% on assets in excess of $25 billion
5. Indemnification and Limitation of Liability of BISYS. The duties of
BISYS shall be limited to those expressly set forth herein or later agreed
to in writing by Furman Selz, and no implied duties are assumed by or may be
asserted against BISYS hereunder. BISYS shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable law which
cannot be waived or
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<PAGE>
modified hereby. (As used in this Section, the term "BISYS" shall include
partners, officers, employees and other agents of BISYS as well as Furman
Selz itself)
So long as BISYS Selz acts in good faith and with due diligence and
without negligence, KIMCO shall indemnify BISYS and hold it harmless from any
and all actions, suits and claims, and from any and all losses, damages, costs,
charges, reasonable counsel fees and disbursements, payments, expenses and
liabilities (including reasonable investigation expenses) arising directly or
indirectly out of BISYS' actions taken or nonactions with respect to the
performance of services hereunder. The indemnity and defense provisions set
forth herein shall survive the termination of this Agreement for a period of
three years.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case KIMCO may be asked to indemnify or hold Furman
Selz harmless, KIMCO shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that Furman
Selz will use all reasonable care to identify and notify KIMCO promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification against KIMCO.
KIMCO shall be entitled to participate at its own expense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity provision. If KIMCO elects to assume the defense of any such
claim, the defense shall be conducted by counsel chosen by KIMCO and
satisfactory to BISYS, whose approval shall not be unreasonably withheld.
In the event that KIMCO elects to assume the defense of any suit and retain
counsel, BISYS shall bear the fees and expenses of any additional counsel
retained by it. If KIMCO does not elect to assume the defense of a suit, it will
reimburse Furman Selz for the reasonable fees and expenses of any counsel
retained by BISYS.
BISYS may apply to KIMCO at any time for instructions and may
consult counsel for KIMCO or its own counsel and with accountants and other
experts with respect to any matter arising in connection with BISYS'
duties, and BISYS shall not be liable or accountable for any action taken
or omitted by it in good faith in accordance with such instruction or with the
opinion of such counsel, accountants or other experts.
Any person, even though also an officer, director, partner, employee or
agent of Furman Selz, who may be or become an officer, trustee, employee or
agent of the Funds, shall be deemed, when rendering services to a Fund or acting
on any business of a Fund (other than services or business in connection with
the duties of BISYS hereunder) to be rendering such services to or acting
solely for the Fund and not as an officer, director, partner, employee or agent
or one under the control or direction of BISYS even though paid by BISYS.
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
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<PAGE>
6. Duration and Termination.
(a) The initial term of this Agreement (the "Initial Term") shall
commence on the date this Agreement is executed by both parties, shall continue
until April 30, 1998, and shall continue in effect for a Fund from year to year
thereafter, provided it is approved, at least annually, by a vote of a majority
of Directors/Trustees of the Funds, including a majority of the disinterested
Directors/Trustees. Notwithstanding the foregoing, this Agreement shall only
become effective if (i) Keystone Investments, the parent of KIMCO, has
previously been acquired by First Union National Bank of North Carolina, and
(ii) the Funds have appointed Evergreen Funds Distributor, Inc. as their
Principal Underwriter. In the event of any breach of this Agreement by either
party, the non-breaching party shall notify the breaching party in writing of
such breach and upon receipt of such notice, the breaching party shall have 45
days to remedy the breach except in the case of a breach resulting from fraud or
other acts which materially and adversely affects the operations or financial
position of the Funds. In the event any material breach is not remedied within
such time period, the nonbreaching party may immediately terminate this
Agreement.
Notwithstanding the foregoing, after such termination for so long as
BISYS, with the written consent of KIMCO, in fact continues to perform any
one or more of the services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in full force and
effect. Compensation due BISYS and unpaid by KIMCO upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
Furman Selz shall be entitled to collect from KIMCO, in addition to the
compensation described herein, all costs reasonably incurred in connection with
Furman Selz's activities in effecting such termination, including without
limitation, the delivery to the Funds and/or their designees of each Fund's
property, records, instruments and documents, or any copies thereof. To the
extent that Furman Selz may retain in its possession copies of any Fund
documents or records subsequent to such termination which copies had not been
requested by or on behalf of a Fund in connection with the termination process
described above, BISYS will provide such Fund with reasonable access to
such copies; provided, however, that, in exchange therefor, KIMCO shall
reimburse BISYS for all costs reasonably incurred in connection therewith.
(b) Subject to (c) below, this Agreement may be terminated at any time,
without payment of any penalty, on sixty (60) day's prior written notice by
KIMCO, or by BISYS and, with respect to one or more of the Funds a vote of
a majority of such Fund's or Funds' Directors/Trustees.
(c) If, during the first six months this Agreement is in effect it is
terminated for a Fund or Funds in accordance with (b) above, for any reason
other than a material breach of this Agreement, the merger of a Fund or Funds
for which KIMCO, Evergreen Asset Management Corp., First Union National Bank of
North Carolina or any affiliates thereof act as investment adviser, or any other
event that leads to the termination of the existence of a Fund or Funds, and
BISYS is replaced as sub-administrator, then KIMCO shall make a one-time
cash payment to BISYS equal to the unpaid balance due BISYS for the
first six-months this Agreement in effect, assuming for
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<PAGE>
purposes of calculation of the payment that the asset level of each Fund on the
date BISYS is replaced will remain constant for the balance of such term.
Once this Agreement has been in effect for more than six months from the
commencement date, this paragraph (c) shall be null, void and of no further
effect.
7. Amendment. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. Notices. Notices of any kind to be given to KIMCO hereunder by BISYS
shall be in writing and shall be duly given if delivered to KIMCO at the
following address: Keystone Investment Management Company, 200 Berkeley Street,
Boston, Massachusetts 02116 ATT: General Counsel. Notices of any kind to be
given to Furman Selz hereunder by EAMC or the Funds shall be in writing and
shall be duly given if delivered to BISYS at 3435 Stelzer Road, Columbus,
Ohio 43219 Attention: George O. Martinez, Senior Vice President.
9. Limitation of Liability. BISYS is hereby expressly put on notice of the
limitations of liability as set forth in the Declarations of Trust of the Funds
that are Massachusetts business trusts or series thereof and agrees that the
obligations pursuant to this Agreement of a particular Fund be limited solely to
the assets of that particular Fund, and BISYS shall not seek satisfaction
of any such obligation from the assets of any other Fund, the shareholders of
any Fund, the Trustees, officers, employees or agents of any Fund, or any of
them.
10. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. Subject to the provisions of Section 5 hereof, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by New York law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By______________________________________
its:____________________________________
Attest:________________________
BISYS FUND SERVICES, INC.
By______________________________________
its_____________________________________
Attest:________________________
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<PAGE>
SCHEDULE A
SUB-ADMINISTRATOR AGREEMENT
Keystone America Hartwell Emerging Growth Fund ("Emerging Growth")
Keystone Balanced Fund II ("Balanced Fund")
Keystone Capital Preservation and
Income Fund ("Capital Preservation and Income")
Keystone Emerging Markets Fund ("Emerging Markets")
Keystone Fund For Total Return ("Total Return")
Keystone Fund of the Americas ("Fund of the Americas")
Keystone Global Opportunities Fund ("GlobalOpportunities")
Keystone Global Resources and Development Fund ("GlobalResources")
Keystone Government Securities Fund ("Government Securities")
Keystone Intermediate Term Bond Fund ("Intermediate Term")
Keystone Liquid Trust("Liquid Trust") Keystone Omega Fund ("Omega")
Keystone Small Company Growth Fund II ("Small Company Growth")
Keystone State Tax Free Fund ("State Tax Free")
- Florida Tax Free Fund ("Florida Tax Free")
- Massachusetts Tax Free Fund ("Massachusetts Tax Free")
- Pennsylvania Tax Free Fund ("Pennsylvania Tax Free")
- New York Insured Tax Free Fund ("New York Insured")
Keystone State Tax Free Fund-Series II ("State Tax Free II")
- California Insured Tax Free Fund ("California Insured")
- Missouri Tax Free Fund ("Missouri Tax Free")
Keystone Strategic Income Fund ("Strategic Income")
Keystone Tax Free Income Fund ("Tax Free Income")
Keystone Quality Bond Fund (B-1) ("B-1") Keystone
Diversified Bond Fund (B-2) ("B-2")
Keystone High Income Bond Fund (B-4) ("B-4")
Keystone Balanced Fund (K-1) ("K-1")
Keystone Strategic Growth Fund (K-2)("K-2")
Keystone Growth and Income Fund (S-1) ("S-1")
Keystone Mid-Cap Growth Fund (S-3) ("S-3")
Keystone Small Company Growth Fund (S-4) ("S-4")
Keystone Institutional Adjustable Rate Fund ("Adjustable Rate")
Keystone Institutional Trust ("Institutional")
Keystone International Fund Inc. ("International")
Keystone Precious Metals Holdings, Inc. ("Precious Metals")
Keystone Tax Free Fund ("Tax Free")
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
7
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT made this ____ day of December, 1996 by and between each of
the parties listed on Exhibit A attached hereto and made a part hereof, each for
itself and not jointly (each a "Fund"), and Evergreen Keystone Investment
Services, Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest of the Fund
sold prior to December 11, 1996 ("Shares") as an independent contractor upon the
terms and conditions hereinafter set forth. Except as the Fund may from time to
time agree, Principal Underwriter will act as agent for the Fund and not as
principal.
2. Having assigned all rights to commission payments for Shares sold on
or after December 1, 1996 but before December 11, 1996 to Evergreen Keystone
Distributor, Inc., Principal Underwriter will not be entitled to commissions on
such Shares. Principal Underwriter shall be entitled to receive commission
payments for sales of the Class A and C shares (as set forth on Exhibit B
attached hereto and made a part hereof) with respect to all Class A and C shares
sold prior to December 1, 1996 and outstanding as of the opening of business on
such date ("Pre-Acquisition Shares") and to receive contingent deferred sales
charges on such Pre-Acquisition Shares as set forth in the then current
prospectus and/or statement of additional information of the Fund. For purposes
of this Principal Underwriting Agreement, Pre-Acquisition Shares shall be such
shares which are defined in Schedule I attached hereto as Distributor Shares
calculated as though the Distributor Last Sale Cut-Off Date, as such term is
defined in Schedule I, was November 30, 1996. Principal Underwriter may reallow
all or a part of such commissions to such brokers, dealers or other persons as
Principal Underwriter may determine.
3. Principal Underwriter shall not make any representations concerning
the Shares except those contained in the then current prospectus and/or
statement of additional information covering the Shares and in printed
information approved by the Fund as information supplemental to such prospectus
and statement of additional information.
4. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
5. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement, pros
pectus or statement of additional information (including amendments and
supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
6. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
7. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plan, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plan and the purpose for which such expenditures
were made.
8. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plans of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of any Rule 12b-1 Trustees or by a vote of
a majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. This Agreement shall be construed in accordance with the laws
of The Commonwealth of Massachusetts.
10. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND-SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
each for itself and not jointly
By:
George S. Bissell
Chairman
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
By:________________________________
Rosemary D. Van Antwerp
Senior Vice President
<PAGE>
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
_______________________
AGREEMENT made this ____ day of December 1996 by and between
_______________________, a Massachusetts business trust, ("Fund"), and
Evergreen Keystone Investment Services, Inc., a Delaware corporation
(the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-1 Shares and to promote distribution of the B-1 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-1 Shares
to them. No such broker, dealer or other person shall have any authority to act
as agent for the Fund; such broker, dealer or other person shall act only as
principal in the sale of B-1 Shares.
3. Sales of B-1 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-1 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-1 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter contingent deferred sales charges ("CDSCs") (as defined in
Section 14 hereof) as set forth in the Fund's current prospectus and statement
of additional information, and as required by Section 14 hereof. The Principal
Underwriter shall also receive payments consisting of shareholder service fees
("Service Fees") at the rate of .25% per annum of the average daily net asset
value of the Class B-1 Shares. The Principal Underwriter may allow all or a part
of said Distribution Fees and CDSCs received by it (not paid to others as
hereinafter provided) to such brokers, dealers or other persons as Principal
Underwriter may determine.
5. Payment to the Fund for B-1 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-1 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-1 Shares any representations concerning the
B-1 Shares except those contained in the then current prospectus and/or
statement of additional information covering the Shares and in printed
information approved by the Fund as information supplemental to such prospectus
and statement of additional information. Copies of the then current prospectus
and statement of additional information and any such printed supplemental
information will be supplied by the Fund to the Principal Underwriter in
reasonable quantities upon request.
7. The Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc. (formerly Rules of
Fair Practice) (as defined in the Purchase and Sale Agreement, dated as of May
31, 1995 (the "Purchase Agreement"), between the Principal Underwriter,
Citibank, N.A. and Citicorp North America, Inc., as agent (the "Business Conduct
Rules")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material
fact contained in the Fund's registration statement, prospectus
or statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement,
prospectus or statement of additional information necessary to
make the statements therein not misleading, provided, however,
that insofar as losses, claims, damages, liabilities or expenses
arise out of or are based upon any such untrue statement or
omission or alleged untrue statement or omission made in reliance
and in conformity with information furnished to the Fund by the
Principal Underwriter for use in the Fund's registration
statement, prospectus or statement of additional information,
such indemnification is not applicable. In no case shall the Fund
indemnify the Principal Underwriter or its controlling person as
to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers
and Directors or any controlling person would otherwise be
subject to liability by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its duties or by reason
of the reckless disregard of its obligations and duties under
this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter
or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information
(including amendments and supplements thereto), or any omission
or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished or confirmed in writing to the Fund by
the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-1 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-1 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-1
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-1 Shares
for sale under the so-called "blue sky" laws of any state, the preparation and
printing of prospectuses, statements of additional information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of prospectuses and
statements of additional information to holders of B-1 Shares, and the direct
expenses of the issue of B-1 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide
to the Board of Trustees or Directors (together herein called the "Directors")
of the Fund in connection with sales of B-1 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purposes
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons," as defined in the 1940 Act, of any such party and who have no direct
or indirect financial interest in the operation of the Fund's Rule 12b-1 plan
for Class B-1 Shares or in any agreements related to the plan at least annually
in accordance with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons," as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's Allocable Portion of
Distribution Fees (as hereinafter defined) and its Allocable Portion of CDSCs
(as hereinafter defined) provided for hereunder and/or rights related to such
Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant to the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-1 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the "Irrevocable Payment Instruction")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Business Conduct Rules as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto) in accordance with Schedule I hereto. The Fund agrees to cause its
transfer agent to maintain the records and arrange for the payments on behalf of
the Fund at the times and in the amounts and to the accounts required by
Schedule I hereto, as the same may be amended from time to time. It is
acknowledged and agreed that by virtue of the operation of Schedule I hereto,
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-1 Shares shall be
the Distribution Fees attributable to B-1 Shares which are Distributor Shares
(as defined in Schedule I hereto), and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the contingent deferred sales charges payable upon redemption thereof as
set forth in the then current prospectus and/or statement of additional
information of the Fund ("CDSCs") and to pay over to the Principal Underwriter
the Principal Underwriter's Allocable Portion of said CDSCs paid in respect of
Shares which shall be equal to the portion thereof allocable to Distributor
Shares (as defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby, notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
payment of such Distribution Fees. The obligation and the method of computing
such payment shall not be changed or terminated except to the extent required by
any change in applicable law, including, without limitation, the 1940 Act, the
Rules promulgated thereunder by the Securities and Exchange Commission and the
Business Conduct Rules, in each case enacted or promulgated after June 1, 1995,
or in connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-1 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-1 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) June 1, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee"), and any such assignment shall be effective as to the
Fund upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Business
Conduct Rules, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-1 Shares, except as provided
in the Fund's prospectus or statement of additional information, without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
[FUND]
By:_____________________________
Title:
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:_____________________________
Title:
18508
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE FUND FOR TOTAL RETURN
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter
defined) and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter
defined) of each Fund (as hereinafter defined) shall be allocated between
Distributor Shares (as hereinafter defined) and Post-distributor Shares (as
hereinafter defined) of such Fund in accordance with the rules set forth in
clauses (B) and (C). Clause (B) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account (as
hereinafter defined) in maintaining records relating to Distributor Shares and
Post-distributor Shares. Clause (C) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account in
determining what portion of the Asset Based Sales Charge (as hereinafter
defined) payable in respect of each class of Shares of such Fund and what
portion of the CDSC (as hereinafter defined) payable by the holders of Shares of
such Fund is attributable to Distributor Shares and Post-distributor Shares,
respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall
be used with the meaning assigned to them in the Agreement, except that for
purposes of the following rules the following definitions are also applicable:
"AGREEMENT" shall mean the Principal Underwriting Agreement for
Class B-2 Shares of the Instant Fund dated as of May 31, 1995 and the successor
Agreement dated December 11, 1996 between the Instant Fund and the Distributor.
"ASSET BASED SALES CHARGE" shall have the meaning set forth in
Section 26(b)(8)(C) of the Rules of Fair Practice it being understood that for
purposes of this Exhibit I such term does not include the Service Fee.
"BUSINESS DAY" shall mean any day on which the banks and the New
York Stock Exchange are not authorized or required to close in New York City.
"CAPITAL GAIN DIVIDEND" shall mean, in respect of any Share of
any Fund, a Dividend in respect of such Share which is designated by such Fund
as being a "capital gain dividend" as such term is defined in Section 852 of the
Internal Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent
deferred sales charge payable, either directly or by withholding from the
proceeds of the redemption of the Shares of such Fund, by the shareholders of
such Fund on any redemption of Shares of such Fund in accordance with the
Prospectus relating to such Fund.
"COMMISSION SHARE" shall mean, in respect of any Fund, a Share of
such Fund issued prior to Deceember 11, 1996 under circumstances where a CDSC
would be payable upon the redemption of such Share if such CDSC is not waived or
shall have not otherwise expired.
"DATE OF ORIGINAL PURCHASE" shall mean, in respect of any
Commission Share of any Fund, the date on which such Commission Share was first
issued by such Fund; PROVIDED, that if such Share is a Commission Share and such
Fund issued the Commission Share (or portion thereof) in question in connection
with a Free Exchange for a Commission Share (or portion thereof) of another
Fund, the Date of Original Purchase for the Commission Share (or portion
thereof) in question shall be the date on which the Commission Share (or portion
thereof) of the other Fund was first issued by such other Fund (unless such
Commission Share (or portion thereof) was also issued by such other Fund in a
Free Exchange, in which case this proviso shall apply to that Free Exchange and
this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"DISTRIBUTOR" shall mean Keystone Investment Distributors
Company, its successors and assigns.
"DISTRIBUTOR'S ACCOUNT" shall mean the account of the
Distributor, account no. 9903-584-2, ABA No. 011 0000 28, entitled "General
Account" maintained with State Street Bank & Trust Company or such other account
as the Distributor may designate in a notice to the Transfer Agent.
"DISTRIBUTOR INCEPTION DATE" shall mean, in respect of any Fund,
the date identified as the date Shares of such Fund are first sold by the
Distributor.
"DISTRIBUTOR LAST SALE CUT-OFF DATE" shall mean, in respect of
any Fund, the date identified as the last sale of a Commission Share during the
period the Distributor served as principal underwriter under the Agreement.
"DISTRIBUTOR SHARES" shall mean, in respect of any Fund, all
Shares of such Fund the Month of Original Purchase of which occurs on or after
the Inception Date for such Fund and on or prior to the Distributor Last Sale
Cut-off Date in respect of such Fund.
"DIVIDEND" shall mean, in respect of any Share of any Fund, any
dividend or other distribution by such Fund in respect of such Share.
"FREE EXCHANGE" shall mean any exchange of a Commission Share (or
portion thereof) of one Fund (the "Redeeming Fund") for a Share (or portion
thereof) of another Fund (the "Issuing Fund"), under any arrangement which
defers the exchanging Shareholder's obligation to pay the CDSC in respect of the
Commission Share (or portion thereof) of the Redeeming Fund so exchanged until
the later redemption of the Share (or portion thereof) of the Issuing Fund
received in such exchange.
"FREE SHARE" shall mean, in respect of any Fund, each Share of
such Fund issued prior to December 11, 1996 other than a Commission Share,
including, without limitation: (i) Shares issued in connection with the
automatic reinvestment of Capital Gain Dividends or Other Dividends by such
Fund, (ii) Special Free Shares issued by such Fund and (iii) Shares (or portion
thereof) issued by such Fund in connection with an exchange whereby a Free Share
(or portion thereof) of another Fund is redeemed and the Net Asset Value of such
redeemed Free Share (or portion thereof) is invested in such Shares (or portion
thereof) of such Fund.
"FUND" shall mean each of the regulated investment companies or
series or portfolios of regulated investment companies identified in Schedule II
to the Irrevocable Payment Instruction, as the same may be amended from time to
time in accordance with the terms thereof.
"INSTANT FUND" shall mean __________________________________.
"ML OMNIBUS ACCOUNT" shall mean, in respect of any Fund, the
Omnibus Account maintained by Merrill Lynch, Pierce, Fenner & Smith as
subtransfer agent.
"MONTH OF ORIGINAL PURCHASE" shall mean, in respect of any Share
of any Fund, the calendar month in which such Share was first issued by such
Fund; PROVIDED, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); PROVIDED,
FURTHER, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; PROVIDED, FURTHER, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and PROVIDED,
FINALLY, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"OMNIBUS ACCOUNT" shall mean any Shareholder Account the record
owner of which is a registered broker-dealer which has agreed with the Transfer
Agent to provide sub-transfer agent functions relating to each Sub-shareholder
Account within such Shareholder Account as contemplated by this Schedule I in
respect of each of the Funds.
"OMNIBUS ASSET BASED SALES CHARGE SETTLEMENT DATE" shall mean, in
respect of each Omnibus Account, the Business Day next following the twentieth
day of each calendar month for the calendar month immediately preceding such
date so long as the record owner is able to allocate the Asset Based Sales
Charge accruing in respect of Shares of any Fund as contemplated by this
Schedule I no more frequently than monthly; PROVIDED, that at such time as the
record owner of such Omnibus Account is able to provide information sufficient
to allocate the Asset Based Sales Charge accruing in respect of such Shares of
such Fund owned of record by such Omnibus Account as contemplated by this
Schedule I on a weekly or daily basis, the Omnibus Asset Based Sales Charge
Settlement Date shall be a weekly date as in the case of the Omnibus CDSC
Settlement Date or a daily date as in the case of Asset Based Sales Charges
accruing in respect of Shareholder Accounts other than Omnibus Accounts, as the
case may be.
"OMNIBUS CDSC SETTLEMENT DATE" shall mean, in respect of each
Omnibus Account, the third Business Day of each calendar week for the calendar
week immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
PROVIDED, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"ORIGINAL PURCHASE AMOUNT" shall mean, in respect of any
Commission Share of any Fund, the amount paid (i.e., the Net Asset Value thereof
on such date), on the Date of Original Purchase in respect of such Commission
Share, by such Shareholder Account or Sub-shareholder Account for such
Commission Share; PROVIDED, that if such Fund issued the Commission Share (or
portion thereof) in question in connection with a Free Exchange for a Commission
Share (or portion thereof) of another Fund, the Original Purchase Amount for the
Commission Share (or portion thereof) in question shall be the Original Purchase
Amount in respect of such Commission Share (or portion thereof) of such other
Fund (unless such Commission Share (or portion thereof) was also issued by such
other Fund in a Free Exchange, in which case this proviso shall apply to that
Free Exchange and this application shall be repeated until one reaches a
Commission Share (or portion thereof) which was issued by a Fund other than in a
Free Exchange).
"OTHER DIVIDEND" shall mean in respect of any Share, any Dividend
paid in respect of such Share other than a Capital Gain Dividend.
"POST-DISTRIBUTOR SHARES" shall mean, in respect of any Fund, all
Shares of such Fund the Month of Original Purchase of which occurs after the
Distributor Last Sale Cut-off Date for such Fund.
"PROGRAM AGENT" shall mean Citicorp North America, Inc., as
Program Agent under the Purchase Agreement, and its successors and assigns in
such capacity.
"PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement dated as of May 31, 1995, among Keystone Investment Distributors
Company, as Seller, Citibank, N.A., as Purchaser, and Citicorp North America,
Inc., as Program Agent.
"SHARE" shall mean in respect of any Fund any share of the
classes of shares specified in Schedule II to the Irrevocable Payment
Instruction opposite the name of such Fund, as the same may be amended from time
to time by notice from the Distributor and the Program Agent to the Fund and the
Transfer Agent; PROVIDED, that such term shall include, after the Distributor
Last Sale Cut-off Date, a share of a new class of shares of such Fund: (i) with
respect to each record owner of Shares which is not treated in the records of
each Transfer Agent and Sub-transfer Agent for such Fund as an entirely separate
and distinct class of shares from the classes of shares specified Schedule II to
the Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"SHAREHOLDER ACCOUNT" shall have the meaning set forth in clause
(B)(1) hereof.
"SPECIAL FREE SHARE" shall mean, in respect of any Fund, a Share
(other than a Commission Share) issued by such Fund other than in connection
with the automatic reinvestment of Dividends and other than in connection with
an exchange whereby a Free Share (or portion thereof) of another Fund is
redeemed and the Net Asset Value of such redeemed Share (or portion thereof) is
invested in a Share (or portion thereof) of such Fund.
"SUB-SHAREHOLDER ACCOUNT" shall have the meaning set forth in
clause (B)(1) hereof.
"SUB-TRANSFER AGENT" shall mean, in respect of each Omnibus
Account, the record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND
AND THE RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall
cause each record owner of each Omnibus Account to maintain Sub-shareholder
Accounts, each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The
Transfer Agent shall maintain a separate account (a "Shareholder Account") for
each record owner of Shares of each Fund. Each Shareholder Account (other than
Omnibus Accounts) will represent a record owner of Shares of such Fund, the
records of which will be kept in accordance with this Schedule I. In the case of
an Omnibus Account, the Transfer Agent shall require that the record owner of
the Omnibus Account maintain a separate account (a "Sub-shareholder Account")
for each record owner of Shares which are reflected in the Omnibus Account, the
records of which will be kept in accordance with this Schedule I. Each such
Shareholder Account and Sub-shareholder Account shall relate solely to Shares of
such Fund and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than
an Omnibus Account), the Transfer Agent shall maintain daily records of each
Commission Share of such Fund which records shall identify each Commission Share
of such Fund reflected in such Shareholder Account by the Month of Original
Purchase of such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that
the Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; PROVIDED, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records
of each Shareholder Account (other than an Omnibus Account) in respect of any
Fund so as to identify each Free Share (including each Special Free Share)
reflected in such Shareholder Account by the Month of Original Purchase of such
Free Share. In addition, the Transfer Agent shall require that each Shareholder
Account (other than an Omnibus Account) have in effect separate elections
relating to reinvestment of Capital Gain Dividends and relating to reinvestment
of Other Dividends in respect of any Fund. Either such Shareholder Account shall
have elected to reinvest all Capital Gain Dividends or such Shareholder Account
shall have elected to have all Capital Gain Dividends distributed. Similarly,
either such Shareholder Account shall have elected to reinvest all Other
Dividends or such Shareholder Account shall have elected to have all Other
Dividends distributed.
The Transfer Agent shall require that the Sub-transfer Agent in
respect of each Omnibus Account maintain daily records for each Sub-shareholder
Account in the manner described in the immediately preceding paragraph for
Shareholder Accounts (other than Omnibus Accounts); PROVIDED, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be obligated to conform to the foregoing
requirements. Each Sub-shareholder Account shall also have in effect Dividend
reinvestment elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an
Omnibus Account shall identify each Free Share as either a Distributor Share or
a Post-distributor Share based upon the Month of Original Purchase of such Free
Share; PROVIDED, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor
Last Sale Cut-off Date for such Fund shall be identified as
Distributor Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to
the ML Omnibus Account during any calendar month (or portion
thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account identified as Distributor Shares
and outstanding as of the close of business in the last
day of the immediately preceding calendar month (or
portion thereof)
C = Total number of Commission Shares and Free Shares of
such Fund in the ML Omnibus Account and outstanding as of
the close of business on the last day of the immediately
preceding calendar month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to
the ML Omnibus Account during any calendar month (or portion
thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account identified as Post-distributor
Shares and outstanding as of the close of business in the
last day of the immediately preceding calendar month (or
portion thereof)
C = Total number of Commission Shares and Free Shares of
such Fund in the ML Omnibus Account and outstanding as of
the close of business on the last day of the immediately
preceding calendar month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A
Share of such Fund) from the ML Omnibus Account in any calendar
month (or portion thereof) after the Distributor Last Sale
Cut-off Date for such Fund shall be identified as Distributor
Shares in a number computed as follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or
not in connection with an exchange for Free Shares of
another Fund or in connection with the conversion of such
Shares into a class A share of such Fund) from the ML
Omnibus Account during such calendar month (or portion
thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Distributor Shares and outstanding as of the
close of business on the last day of the immediately
preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account in any calendar
month (or portion thereof) after the Distributor Last Sale
Cut-off Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or
not in connection with an exchange for Free Shares of
another Fund or in connection with the conversion of such
Shares into a class A share of such Fund) from the ML
Omnibus Account during such calendar month (or portion
thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Post-distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The
Transfer Agent shall maintain on a daily basis in respect of each Shareholder
Account (other than Omnibus Accounts) a Cost Accumulation Amount representing
the total of the Original Purchase Amounts paid by such Shareholder Account for
all Commission Shares reflected in such Shareholder Account as of the close of
business on each day. In addition, the Transfer Agent shall maintain on a daily
basis in respect of each Shareholder Account (other than Omnibus Accounts)
sufficient records to enable it to compute, as of the date of any actual or
deemed redemption or Free Exchange of a Commission Share reflected in such
Shareholder Account an amount (such amount an "Appreciation Amount") equal to
the excess, if any, of the Net Asset Value as of the close of business on such
day of the Commission Shares reflected in such Shareholder Account minus the
Cost Accumulation Amount as of the close of business on such day. In the event
that a Commission Share (or portion thereof) reflected in a Shareholder Account
is redeemed or under these rules is deemed to have been redeemed (whether in a
Free Exchange or otherwise), the Appreciation Amount for such Shareholder
Account shall be reduced, to the extent thereof, by the Net Asset Value of the
Commission Share (or portion thereof) redeemed, and if the Net Asset Value of
the Commission Share (or portion thereof) being redeemed equals or exceeds the
Appreciation Amount, the Cost Accumulation Amount will be reduced to the extent
thereof, by such excess. If the Appreciation Amount for such Shareholder Account
immediately prior to any redemption of a Commission Share (or portion thereof)
is equal to or greater than the Net Asset Value of such Commission Share (or
portion thereof) deemed to have been tendered for redemption, no CDSCs will be
payable in respect of such Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in
respect of each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; PROVIDED, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect
of any class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account
(other than an Omnibus Account) tenders a Share of a Fund for redemption (other
than in connection with an exchange of such Share for a Share of another Fund or
in connection with the conversion of such Share pursuant to a Conversion
Feature), such tendered Share will be deemed to be a Free Share if there are any
Free Shares reflected in such Shareholder Account immediately prior to such
tender. If there is more than one Free Share reflected in such Shareholder
Account immediately prior to such tender, such tendered Share will be deemed to
be the Free Share with the earliest Month of Original Purchase. If there are no
Free Shares reflected in such Shareholder Account immediately prior to such
tender, such tendered Share will be deemed to be the Commission Share with the
earliest Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account
tenders a Share for redemption (other than in connection with an Exchange of
such Share for a Share of another Fund or in connection with the conversion of
such Share pursuant to a Conversion Feature), the Transfer Agent shall require
that the record owner of each Omnibus Account supply the Transfer Agent
sufficient records to enable the Transfer Agent to apply the rules of the
preceding paragraph to such Sub-shareholder Account (as though such
Sub-shareholder Account were a Shareholder Account other than an Omnibus
Account); PROVIDED, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall not be required to conform
to the foregoing rules regarding Free Shares (and the Transfer Agent shall
account for such Free Shares as provided in (3) above) but shall apply the
foregoing rules to each Commission Share with respect to the Date of Original
Purchase of any Commission Share as though each such Date were a separate Month
of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder
Account (other than an Omnibus Account) tenders Shares of one Fund (the
"Redeeming Fund") for redemption where the proceeds of such redemption are to be
automatically reinvested in shares of another Fund (the "Issuing Fund") to
effect an exchange (whether or not pursuant to a Free Exchange) into Shares of
the Issuing Fund: (1) such Shareholder Account will be deemed to have tendered
Shares (or portions thereof) of the Redeeming Fund with each Month of Original
Purchase represented by Shares of the Redeeming Fund reflected in such
Shareholder Account immediately prior to such tender in the same proportion that
the number of Shares of the redeeming Fund with such Month of Original Purchase
reflected in such Shareholder immediately prior to such tender bore to the total
number of Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender, and on that basis the tendered Shares of the
Redeeming Fund will be identified as Distributor Shares or Post-distributor
Shares; (2) such Shareholder Account will be deemed to have tendered Commission
Shares (or portions thereof) and Free Shares (or portions thereof) of the
Redeeming Fund of each category (i.e., Distributor Shares or Post-distributor
Shares) in the same proportion that the number of Commission Shares or Free
Shares (as the case may be) of the Redeeming Fund in such category reflected in
such Shareholder Account bore to the total number of Shares of the Redeeming
Fund in such category reflected in such Shareholder Account immediately prior to
such tender, (3) the Shares (or portions thereof) of the Issuing Fund issued in
connection with such exchange will be deemed to have the same Months of Original
Purchase as the Shares (or portions thereof) of the Redeeming Fund so tendered
and will be categorized as Distributor Shares and Post-distributor Shares
accordingly, and (4) the Shares (or portions thereof) of each Category of the
Issuing Fund issued in connection with such exchange will be deemed to be
Commission Shares and Free Shares in the same proportion that the Shares of such
Category of the Redeeming Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an
Omnibus Account maintain records relating to each Sub-shareholder Account in
such Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); PROVIDED, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent
records maintained for each Shareholder Account (other than an Omnibus Account)
will treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an
Omnibus Account maintain records relating to each Sub-shareholder Account in
such Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG
DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the
amounts of Asset Based Sales Charges and CDSCs payable by each Fund in respect
of Shares between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as
relating to Distributor Shares or Post-distributor Shares depending upon the
Month of Original Purchase of the Commission Share the redemption of which gives
rise to the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply
the foregoing rule to each Sub-shareholder Account based on the records
maintained by such Sub-transfer Agent; PROVIDED, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall apply the foregoing rules to each Sub-shareholder Account with respect to
the Date of Original Purchase of any Commission Share as though each such date
were a separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES
CHARGES:
The Asset Based Sales Charges accruing in respect of each
Shareholder Account (other than an Omnibus Account) shall be allocated to each
Share reflected in such Shareholder Account as of the close of business on such
day on an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge
accrued in respect of such Shareholder
Account (other than an Omnibus Account) on
such day.
B. = Number of Distributor Shares reflected in
such Shareholder Account (other than an
Omnibus Account) on the close of business on
such day
C. = Total number of Distributor Shares and Post-
Distributor Shares reflected in such
Shareholder Account (other than an Omnibus
Account) and outstanding as of the close of
business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the
record owner of such Omnibus Account, allocate the Asset Based Sales Charge
accruing in respect of each Omnibus Account on each day among all
Sub-shareholder Accounts reflected in such Omnibus Account on an equal per share
basis based upon the total number of Distributor Shares and Post-distributor
Shares reflected in each such Sub-shareholder Account as of the close of
business on such day. In addition, the Transfer Agent shall apply the foregoing
rules to each Sub-shareholder Account (as though it were a Shareholder Account
other than an Omnibus Account), based on the records maintained by the record
owner, to allocate the Asset Based Sales Charge so allocated to any
Sub-shareholder Account among the Distributor Shares and Post-distributor Shares
reflected in each such Sub-shareholder Account in accordance with the rules set
forth in the preceding paragraph; PROVIDED, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capacity to apply
the rules of this Schedule I as applicable to Sub-shareholder Accounts other
than ML Omnibus Accounts, the Transfer Agent shall allocate the Asset Based
Sales Charge accruing in respect of Shares of any Fund in the ML Omnibus Account
during any calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A X ((B + C)/2)
((D + E)/2)
where:
A =Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B =Shares of such Fund in the ML Omnibus Account and identified
as Distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C =Shares of such Fund in the ML Omnibus Account and identified
as Distributor Shares and outstanding as of the close of business
on the last day of such calendar month (or portion thereof),
times Net Asset Value per Share as of such time
D =Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E =Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
((D + E)/2)
where:
A =Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B =Shares of such Fund in the ML Omnibus Account and identified
as Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C =Shares of such Fund in the ML Omnibus Account and identified
as Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D =Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E =Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall
be paid to the Distributor's Account, unless the Distributor
otherwise instructs the Fund in any irrevocable payment
instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules
shall be paid in accordance with direction received from any
future distributor of Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each
Fund shall cause the applicable Sub-transfer Agent to cause payment to be made
of the amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus
Account and allocable to Distributor Shares in accordance with the preceding
rules shall be paid to the Distributor's Account, unless the Distributor
otherwise instructs the Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus
Account and allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction received from any
future distributor of Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the
Transfer Agent for each Fund shall cause payment to be made of the amount of the
Asset Based Sales Charge accruing for the period to which such Omnibus Asset
Based Sales Charge Settlement Date relates in respect of the Shares of such Fund
owned of record by each Omnibus Account by two separate wire transfers directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of
such Omnibus Account and allocable to Distributor Shares shall be paid to the
Distributor's Collection Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in
respect of such Omnibus Account and allocable to Post-Distributor Shares shall
be paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
<PAGE>
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
-----------------------
AGREEMENT made this 11th day of December, 1996 by and between ________
_____________________, a Massachusetts business trust ("Fund"), and Evergreen
Keystone Investment Services Inc., a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-2 Shares and to promote distribution of the B-2 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-2 Shares
to them. No such broker, dealer or other person shall have any authority to act
as agent for the Fund; such broker, dealer or other person shall act only as
principal in the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund, and the Fund reserves the right in its sole discretion
to reject any order received. The Fund shall not be liable to anyone for failure
to accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter contingent deferred sales charges ("CDSCs") (as defined in
Section 14 hereof) as set forth in the Fund's current prospectus and statement
of additional information, and as required by Section 14 hereof. The Principal
Underwriter shall also receive payments consisting of shareholder service fees
("Service Fees") at the rate of .25% per annum of the average daily net asset
value of the Class B-2 Shares. The Principal Underwriter may allow all or a part
of said Distribution Fees and CDSCs received by it (not paid to others as
hereinafter provided) to such brokers, dealers or other persons as Principal
Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-2 Shares any representations concerning the
B-2 Shares except those contained in the then current prospectus and/or
statement of additional information covering the Shares and in printed
information approved by the Fund as information supplemental to such prospectus
and statement of additional information. Copies of the then current prospectus
and statement of additional information and any such printed supplemental
information will be supplied by the Fund to the Principal Underwriter in
reasonable quantities upon request.
7. The Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc. (formerly the
"Rules of Fair Practice") (as defined in the Purchase and Sale Agreement, dated
as of May 31, 1995 (the "Purchase Agreement"), between the Principal
Underwriter, Citibank, N.A. and Citicorp North America, Inc., as agent (the
"Business Conduct Rules")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material
fact contained in the Fund's registration statement, prospectus
or statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement,
prospectus or statement of additional information necessary to
make the statements therein not misleading, provided, however,
that insofar as losses, claims, damages, liabilities or expenses
arise out of or are based upon any such untrue statement or
omission or alleged untrue statement or omission made in reliance
and in conformity with information furnished to the Fund by the
Principal Underwriter for use in the Fund's registration
statement, prospectus or statement of additional information,
such indemnification is not applicable. In no case shall the Fund
indemnify the Principal Underwriter or its controlling person as
to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers
and Directors or any controlling person would otherwise be
subject to liability by reason of willful misfeasance, bad faith,
or gross negligence in the performance of its duties or by reason
of the reckless disregard of its obligations and duties under
this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter
or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information
(including amendments and supplements thereto), or any omission
or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished or confirmed in writing to the Fund by
the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-2 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-2 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-2
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares
for sale under the so-called "blue sky" laws of any state, the preparation and
printing of prospectuses, statements of additional information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of prospectuses and
statements of additional information to holders of B-2 Shares, and the direct
expenses of the issue of B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide
to the Board of Trustees or Directors (together herein called the "Directors")
of the Fund in connection with sales of B-2 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purposes
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons," as defined in the 1940 Act, of any such party and who have no direct
or indirect financial interest in the operation of the Fund's Rule 12b-1 plan
for Class B-2 Shares or in any agreements related to the plan at least annually
in accordance with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons," as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's Allocable Portion of
distribution fees (as hereinafter defined) and its Allocable Portion of CDSCs
(as hereinafter defined) provided for hereunder and/or rights related to such
Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant to the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the "Irrevocable Payment Instruction")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Business Conduct Rules as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto) in accordance with Schedule I hereto. The Fund agrees to cause its
transfer agent to maintain the records and arrange for the payments on behalf of
the Fund at the times and in the amounts and to the accounts required by
Schedule I hereto, as the same may be amended from time to time. It is
acknowledged and agreed that by virtue of the operation of Schedule I hereto,
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-2 Shares shall be
the Distribution Fees attributable to B-2 Shares which are Distributor Shares
(as defined in Schedule I hereto), and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the CDSCs payable upon redemption thereof as set forth in the then
current prospectus and/or statement of additional information of the Fund
("CDSCs") and to pay over to the Principal Underwriter the Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
payment of such Distribution Fees. The obligation and the method of computing
such payment shall not be changed or terminated except to the extent required by
any change in applicable law, including, without limitation, the 1940 Act, the
Rules promulgated thereunder by the Securities and Exchange Commission and the
Business Conduct Rules, in each case enacted or promulgated after May 31, 1995,
or in connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) May 31, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee"), and any such assignment shall be effective as to the
Fund upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Business
Conduct Rules, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-2 Shares, except as provided
in the Fund's prospectus or statement of additional information, without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
[FUND NAME]
By:________________________________
Title:
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:________________________________
Title:
17976
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE FUND FOR TOTAL RETURN
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter
defined) and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter
defined) of each Fund (as hereinafter defined) shall be allocated between
Distributor Shares (as hereinafter defined) and Post-distributor Shares (as
hereinafter defined) of such Fund in accordance with the rules set forth in
clauses (B) and (C). Clause (B) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account (as
hereinafter defined) in maintaining records relating to Distributor Shares and
Post-distributor Shares. Clause (C) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account in
determining what portion of the Asset Based Sales Charge (as hereinafter
defined) payable in respect of each class of Shares of such Fund and what
portion of the CDSC (as hereinafter defined) payable by the holders of Shares of
such Fund is attributable to Distributor Shares and Post-distributor Shares,
respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall
be used with the meaning assigned to them in the Agreement, except that for
purposes of the following rules the following definitions are also applicable:
"AGREEMENT" shall mean the Principal Underwriting Agreement for
Class B-2 Shares of the Instant Fund dated as of May 31, 1995 and the successor
Agreement dated December 11, 1996 between the Instant Fund and the Distributor.
"ASSET BASED SALES CHARGE" shall have the meaning set forth in
Section 26(b)(8)(C) of the Rules of Fair Practice it being understood that for
purposes of this Exhibit I such term does not include the Service Fee.
"BUSINESS DAY" shall mean any day on which the banks and the New
York Stock Exchange are not authorized or required to close in New York City.
"CAPITAL GAIN DIVIDEND" shall mean, in respect of any Share of
any Fund, a Dividend in respect of such Share which is designated by such Fund
as being a "capital gain dividend" as such term is defined in Section 852 of the
Internal Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent
deferred sales charge payable, either directly or by withholding from the
proceeds of the redemption of the Shares of such Fund, by the shareholders of
such Fund on any redemption of Shares of such Fund in accordance with the
Prospectus relating to such Fund.
"COMMISSION SHARE" shall mean, in respect of any Fund, a Share of
such Fund issued prior to Deceember 11, 1996 under circumstances where a CDSC
would be payable upon the redemption of such Share if such CDSC is not waived or
shall have not otherwise expired.
"DATE OF ORIGINAL PURCHASE" shall mean, in respect of any
Commission Share of any Fund, the date on which such Commission Share was first
issued by such Fund; PROVIDED, that if such Share is a Commission Share and such
Fund issued the Commission Share (or portion thereof) in question in connection
with a Free Exchange for a Commission Share (or portion thereof) of another
Fund, the Date of Original Purchase for the Commission Share (or portion
thereof) in question shall be the date on which the Commission Share (or portion
thereof) of the other Fund was first issued by such other Fund (unless such
Commission Share (or portion thereof) was also issued by such other Fund in a
Free Exchange, in which case this proviso shall apply to that Free Exchange and
this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"DISTRIBUTOR" shall mean Keystone Investment Distributors
Company, its successors and assigns.
"DISTRIBUTOR'S ACCOUNT" shall mean the account of the
Distributor, account no. 9903-584-2, ABA No. 011 0000 28, entitled
"General Account" maintained with State Street Bank & Trust Company or
such other account as the Distributor may designate in a notice to the
Transfer Agent.
"DISTRIBUTOR INCEPTION DATE" shall mean, in respect of any Fund,
the date identified as the date Shares of such Fund are first sold by the
Distributor.
"DISTRIBUTOR LAST SALE CUT-OFF DATE" shall mean, in respect of
any Fund, the date identified as the last sale of a Commission Share during the
period the Distributor served as principal underwriter under the Agreement.
"DISTRIBUTOR SHARES" shall mean, in respect of any Fund, all
Shares of such Fund the Month of Original Purchase of which occurs on or after
the Inception Date for such Fund and on or prior to the Distributor Last Sale
Cut-off Date in respect of such Fund.
"DIVIDEND" shall mean, in respect of any Share of any Fund, any
dividend or other distribution by such Fund in respect of such Share.
"FREE EXCHANGE" shall mean any exchange of a Commission Share (or
portion thereof) of one Fund (the "Redeeming Fund") for a Share (or portion
thereof) of another Fund (the "Issuing Fund"), under any arrangement which
defers the exchanging Shareholder's obligation to pay the CDSC in respect of the
Commission Share (or portion thereof) of the Redeeming Fund so exchanged until
the later redemption of the Share (or portion thereof) of the Issuing Fund
received in such exchange.
"FREE SHARE" shall mean, in respect of any Fund, each Share of
such Fund issued prior to December 11, 1996 other than a Commission Share,
including, without limitation: (i) Shares issued in connection with the
automatic reinvestment of Capital Gain Dividends or Other Dividends by such
Fund, (ii) Special Free Shares issued by such Fund and (iii) Shares (or portion
thereof) issued by such Fund in connection with an exchange whereby a Free Share
(or portion thereof) of another Fund is redeemed and the Net Asset Value of such
redeemed Free Share (or portion thereof) is invested in such Shares (or portion
thereof) of such Fund.
"FUND" shall mean each of the regulated investment companies or
series or portfolios of regulated investment companies identified in Schedule II
to the Irrevocable Payment Instruction, as the same may be amended from time to
time in accordance with the terms thereof.
"INSTANT FUND" shall mean ___________________________________.
"ML OMNIBUS ACCOUNT" shall mean, in respect of any Fund, the
Omnibus Account maintained by Merrill Lynch, Pierce, Fenner & Smith as
subtransfer agent.
"MONTH OF ORIGINAL PURCHASE" shall mean, in respect of any Share
of any Fund, the calendar month in which such Share was first issued by such
Fund; PROVIDED, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); PROVIDED,
FURTHER, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; PROVIDED, FURTHER, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and PROVIDED,
FINALLY, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"OMNIBUS ACCOUNT" shall mean any Shareholder Account the record
owner of which is a registered broker-dealer which has agreed with the Transfer
Agent to provide sub-transfer agent functions relating to each Sub-shareholder
Account within such Shareholder Account as contemplated by this Schedule I in
respect of each of the Funds.
"OMNIBUS ASSET BASED SALES CHARGE SETTLEMENT DATE" shall mean, in
respect of each Omnibus Account, the Business Day next following the twentieth
day of each calendar month for the calendar month immediately preceding such
date so long as the record owner is able to allocate the Asset Based Sales
Charge accruing in respect of Shares of any Fund as contemplated by this
Schedule I no more frequently than monthly; PROVIDED, that at such time as the
record owner of such Omnibus Account is able to provide information sufficient
to allocate the Asset Based Sales Charge accruing in respect of such Shares of
such Fund owned of record by such Omnibus Account as contemplated by this
Schedule I on a weekly or daily basis, the Omnibus Asset Based Sales Charge
Settlement Date shall be a weekly date as in the case of the Omnibus CDSC
Settlement Date or a daily date as in the case of Asset Based Sales Charges
accruing in respect of Shareholder Accounts other than Omnibus Accounts, as the
case may be.
"OMNIBUS CDSC SETTLEMENT DATE" shall mean, in respect of each
Omnibus Account, the third Business Day of each calendar week for the calendar
week immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
PROVIDED, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"ORIGINAL PURCHASE AMOUNT" shall mean, in respect of any
Commission Share of any Fund, the amount paid (i.e., the Net Asset Value thereof
on such date), on the Date of Original Purchase in respect of such Commission
Share, by such Shareholder Account or Sub-shareholder Account for such
Commission Share; PROVIDED, that if such Fund issued the Commission Share (or
portion thereof) in question in connection with a Free Exchange for a Commission
Share (or portion thereof) of another Fund, the Original Purchase Amount for the
Commission Share (or portion thereof) in question shall be the Original Purchase
Amount in respect of such Commission Share (or portion thereof) of such other
Fund (unless such Commission Share (or portion thereof) was also issued by such
other Fund in a Free Exchange, in which case this proviso shall apply to that
Free Exchange and this application shall be repeated until one reaches a
Commission Share (or portion thereof) which was issued by a Fund other than in a
Free Exchange).
"OTHER DIVIDEND" shall mean in respect of any Share, any Dividend
paid in respect of such Share other than a Capital Gain Dividend.
"POST-DISTRIBUTOR SHARES" shall mean, in respect of any Fund, all
Shares of such Fund the Month of Original Purchase of which occurs after the
Distributor Last Sale Cut-off Date for such Fund.
"PROGRAM AGENT" shall mean Citicorp North America, Inc., as
Program Agent under the Purchase Agreement, and its successors and assigns in
such capacity.
"PURCHASE AGREEMENT" shall mean that certain Purchase and Sale
Agreement dated as of May 31, 1995, among Keystone Investment Distributors
Company, as Seller, Citibank, N.A., as Purchaser, and Citicorp North America,
Inc., as Program Agent.
"SHARE" shall mean in respect of any Fund any share of the
classes of shares specified in Schedule II to the Irrevocable Payment
Instruction opposite the name of such Fund, as the same may be amended from time
to time by notice from the Distributor and the Program Agent to the Fund and the
Transfer Agent; PROVIDED, that such term shall include, after the Distributor
Last Sale Cut-off Date, a share of a new class of shares of such Fund: (i) with
respect to each record owner of Shares which is not treated in the records of
each Transfer Agent and Sub-transfer Agent for such Fund as an entirely separate
and distinct class of shares from the classes of shares specified Schedule II to
the Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"SHAREHOLDER ACCOUNT" shall have the meaning set forth in clause
(B)(1) hereof.
"SPECIAL FREE SHARE" shall mean, in respect of any Fund, a Share
(other than a Commission Share) issued by such Fund other than in connection
with the automatic reinvestment of Dividends and other than in connection with
an exchange whereby a Free Share (or portion thereof) of another Fund is
redeemed and the Net Asset Value of such redeemed Share (or portion thereof) is
invested in a Share (or portion thereof) of such Fund.
"SUB-SHAREHOLDER ACCOUNT" shall have the meaning set forth in
clause (B)(1) hereof.
"SUB-TRANSFER AGENT" shall mean, in respect of each Omnibus
Account, the record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND
AND THE RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall
cause each record owner of each Omnibus Account to maintain Sub-shareholder
Accounts, each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The
Transfer Agent shall maintain a separate account (a "Shareholder Account") for
each record owner of Shares of each Fund. Each Shareholder Account (other than
Omnibus Accounts) will represent a record owner of Shares of such Fund, the
records of which will be kept in accordance with this Schedule I. In the case of
an Omnibus Account, the Transfer Agent shall require that the record owner of
the Omnibus Account maintain a separate account (a "Sub-shareholder Account")
for each record owner of Shares which are reflected in the Omnibus Account, the
records of which will be kept in accordance with this Schedule I. Each such
Shareholder Account and Sub-shareholder Account shall relate solely to Shares of
such Fund and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than
an Omnibus Account), the Transfer Agent shall maintain daily records of each
Commission Share of such Fund which records shall identify each Commission Share
of such Fund reflected in such Shareholder Account by the Month of Original
Purchase of such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that
the Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; PROVIDED, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records
of each Shareholder Account (other than an Omnibus Account) in respect of any
Fund so as to identify each Free Share (including each Special Free Share)
reflected in such Shareholder Account by the Month of Original Purchase of such
Free Share. In addition, the Transfer Agent shall require that each Shareholder
Account (other than an Omnibus Account) have in effect separate elections
relating to reinvestment of Capital Gain Dividends and relating to reinvestment
of Other Dividends in respect of any Fund. Either such Shareholder Account shall
have elected to reinvest all Capital Gain Dividends or such Shareholder Account
shall have elected to have all Capital Gain Dividends distributed. Similarly,
either such Shareholder Account shall have elected to reinvest all Other
Dividends or such Shareholder Account shall have elected to have all Other
Dividends distributed.
The Transfer Agent shall require that the Sub-transfer Agent in
respect of each Omnibus Account maintain daily records for each Sub-shareholder
Account in the manner described in the immediately preceding paragraph for
Shareholder Accounts (other than Omnibus Accounts); PROVIDED, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be obligated to conform to the foregoing
requirements. Each Sub-shareholder Account shall also have in effect Dividend
reinvestment elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an
Omnibus Account shall identify each Free Share as either a Distributor Share or
a Post-distributor Share based upon the Month of Original Purchase of such Free
Share; PROVIDED, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor
Last Sale Cut-off Date for such Fund shall be identified as
Distributor Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to
the ML Omnibus Account during any calendar month (or portion
thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account identified as Distributor Shares
and outstanding as of the close of business in the last
day of the immediately preceding calendar month (or
portion thereof)
C = Total number of Commission Shares and Free Shares of
such Fund in the ML Omnibus Account and outstanding as of
the close of business on the last day of the immediately
preceding calendar month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to
the ML Omnibus Account during any calendar month (or portion
thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account identified as Post-distributor
Shares and outstanding as of the close of business in the
last day of the immediately preceding calendar month (or
portion thereof)
C = Total number of Commission Shares and Free Shares of
such Fund in the ML Omnibus Account and outstanding as of
the close of business on the last day of the immediately
preceding calendar month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A
Share of such Fund) from the ML Omnibus Account in any calendar
month (or portion thereof) after the Distributor Last Sale
Cut-off Date for such Fund shall be identified as Distributor
Shares in a number computed as follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or
not in connection with an exchange for Free Shares of
another Fund or in connection with the conversion of such
Shares into a class A share of such Fund) from the ML
Omnibus Account during such calendar month (or portion
thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Distributor Shares and outstanding as of the
close of business on the last day of the immediately
preceding
calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account in any calendar
month (or portion thereof) after the Distributor Last Sale
Cut-off Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or
not in connection with an exchange for Free Shares of
another Fund or in connection with the conversion of such
Shares into a class A share of such Fund) from the ML
Omnibus Account during such calendar month (or portion
thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Post-distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding
calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The
Transfer Agent shall maintain on a daily basis in respect of each Shareholder
Account (other than Omnibus Accounts) a Cost Accumulation Amount representing
the total of the Original Purchase Amounts paid by such Shareholder Account for
all Commission Shares reflected in such Shareholder Account as of the close of
business on each day. In addition, the Transfer Agent shall maintain on a daily
basis in respect of each Shareholder Account (other than Omnibus Accounts)
sufficient records to enable it to compute, as of the date of any actual or
deemed redemption or Free Exchange of a Commission Share reflected in such
Shareholder Account an amount (such amount an "Appreciation Amount") equal to
the excess, if any, of the Net Asset Value as of the close of business on such
day of the Commission Shares reflected in such Shareholder Account minus the
Cost Accumulation Amount as of the close of business on such day. In the event
that a Commission Share (or portion thereof) reflected in a Shareholder Account
is redeemed or under these rules is deemed to have been redeemed (whether in a
Free Exchange or otherwise), the Appreciation Amount for such Shareholder
Account shall be reduced, to the extent thereof, by the Net Asset Value of the
Commission Share (or portion thereof) redeemed, and if the Net Asset Value of
the Commission Share (or portion thereof) being redeemed equals or exceeds the
Appreciation Amount, the Cost Accumulation Amount will be reduced to the extent
thereof, by such excess. If the Appreciation Amount for such Shareholder Account
immediately prior to any redemption of a Commission Share (or portion thereof)
is equal to or greater than the Net Asset Value of such Commission Share (or
portion thereof) deemed to have been tendered for redemption, no CDSCs will be
payable in respect of such Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in
respect of each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; PROVIDED, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect
of any class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account
(other than an Omnibus Account) tenders a Share of a Fund for redemption (other
than in connection with an exchange of such Share for a Share of another Fund or
in connection with the conversion of such Share pursuant to a Conversion
Feature), such tendered Share will be deemed to be a Free Share if there are any
Free Shares reflected in such Shareholder Account immediately prior to such
tender. If there is more than one Free Share reflected in such Shareholder
Account immediately prior to such tender, such tendered Share will be deemed to
be the Free Share with the earliest Month of Original Purchase. If there are no
Free Shares reflected in such Shareholder Account immediately prior to such
tender, such tendered Share will be deemed to be the Commission Share with the
earliest Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account
tenders a Share for redemption (other than in connection with an Exchange of
such Share for a Share of another Fund or in connection with the conversion of
such Share pursuant to a Conversion Feature), the Transfer Agent shall require
that the record owner of each Omnibus Account supply the Transfer Agent
sufficient records to enable the Transfer Agent to apply the rules of the
preceding paragraph to such Sub-shareholder Account (as though such
Sub-shareholder Account were a Shareholder Account other than an Omnibus
Account); PROVIDED, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall not be required to conform
to the foregoing rules regarding Free Shares (and the Transfer Agent shall
account for such Free Shares as provided in (3) above) but shall apply the
foregoing rules to each Commission Share with respect to the Date of Original
Purchase of any Commission Share as though each such Date were a separate Month
of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder
Account (other than an Omnibus Account) tenders Shares of one Fund (the
"Redeeming Fund") for redemption where the proceeds of such redemption are to be
automatically reinvested in shares of another Fund (the "Issuing Fund") to
effect an exchange (whether or not pursuant to a Free Exchange) into Shares of
the Issuing Fund: (1) such Shareholder Account will be deemed to have tendered
Shares (or portions thereof) of the Redeeming Fund with each Month of Original
Purchase represented by Shares of the Redeeming Fund reflected in such
Shareholder Account immediately prior to such tender in the same proportion that
the number of Shares of the redeeming Fund with such Month of Original Purchase
reflected in such Shareholder immediately prior to such tender bore to the total
number of Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender, and on that basis the tendered Shares of the
Redeeming Fund will be identified as Distributor Shares or Post-distributor
Shares; (2) such Shareholder Account will be deemed to have tendered Commission
Shares (or portions thereof) and Free Shares (or portions thereof) of the
Redeeming Fund of each category (i.e., Distributor Shares or Post-distributor
Shares) in the same proportion that the number of Commission Shares or Free
Shares (as the case may be) of the Redeeming Fund in such category reflected in
such Shareholder Account bore to the total number of Shares of the Redeeming
Fund in such category reflected in such Shareholder Account immediately prior to
such tender, (3) the Shares (or portions thereof) of the Issuing Fund issued in
connection with such exchange will be deemed to have the same Months of Original
Purchase as the Shares (or portions thereof) of the Redeeming Fund so tendered
and will be categorized as Distributor Shares and Post-distributor Shares
accordingly, and (4) the Shares (or portions thereof) of each Category of the
Issuing Fund issued in connection with such exchange will be deemed to be
Commission Shares and Free Shares in the same proportion that the Shares of such
Category of the Redeeming Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an
Omnibus Account maintain records relating to each Sub-shareholder Account in
such Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); PROVIDED, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent
records maintained for each Shareholder Account (other than an Omnibus Account)
will treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an
Omnibus Account maintain records relating to each Sub-shareholder Account in
such Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG
DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the
amounts of Asset Based Sales Charges and CDSCs payable by each Fund in respect
of Shares between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as
relating to Distributor Shares or Post-distributor Shares depending upon the
Month of Original Purchase of the Commission Share the redemption of which gives
rise to the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply
the foregoing rule to each Sub-shareholder Account based on the records
maintained by such Sub-transfer Agent; PROVIDED, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall apply the foregoing rules to each Sub-shareholder Account with respect to
the Date of Original Purchase of any Commission Share as though each such date
were a separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES
CHARGES:
The Asset Based Sales Charges accruing in respect of each
Shareholder Account (other than an Omnibus Account) shall be allocated to each
Share reflected in such Shareholder Account as of the close of business on such
day on an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in
respect of such Shareholder Account (other than an
Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such
Shareholder Account (other than an Omnibus Account)
on the close of business on such day
C. = Total number of Distributor Shares and Post-
Distributor Shares reflected in such Shareholder
Account (other than an Omnibus Account) and
outstanding as of the close of business on such
day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the
record owner of such Omnibus Account, allocate the Asset Based Sales Charge
accruing in respect of each Omnibus Account on each day among all
Sub-shareholder Accounts reflected in such Omnibus Account on an equal per share
basis based upon the total number of Distributor Shares and Post-distributor
Shares reflected in each such Sub-shareholder Account as of the close of
business on such day. In addition, the Transfer Agent shall apply the foregoing
rules to each Sub-shareholder Account (as though it were a Shareholder Account
other than an Omnibus Account), based on the records maintained by the record
owner, to allocate the Asset Based Sales Charge so allocated to any
Sub-shareholder Account among the Distributor Shares and Post-distributor Shares
reflected in each such Sub-shareholder Account in accordance with the rules set
forth in the preceding paragraph; PROVIDED, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capacity to apply
the rules of this Schedule I as applicable to Sub-shareholder Accounts other
than ML Omnibus Accounts, the Transfer Agent shall allocate the Asset Based
Sales Charge accruing in respect of Shares of any Fund in the ML Omnibus Account
during any calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A X ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during
such calendar month (or portion thereof) in respect of
Shares of such Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of the
close of business on the last day of the immediately
preceding calendar month (or portion thereof), times Net
Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of the
close of business on the last day of such calendar month (or
portion thereof), times Net Asset Value per Share as of such
time
D = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the
last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such
time.
E = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the
last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during
such calendar month (or portion thereof) in respect of
Shares of such Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding as of
the close of business on the last day of the immediately
preceding calendar month (or portion thereof), times Net
Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding as of
the close of business on the last day of such calendar month
(or portion thereof), times Net Asset Value per Share as of
such time
D = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the
last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such
time.
E = Total number of Shares of such Fund in the ML Omnibus
Account outstanding as of the close of business on the last
day of such calendar month, times Net Asset Value per Share
as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall
be paid to the Distributor's Account, unless the Distributor
otherwise instructs the Fund in any irrevocable payment
instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules
shall be paid in accordance with direction received from any
future distributor of Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each
Fund shall cause the applicable Sub-transfer Agent to cause payment to be made
of the amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such
Omnibus Account and allocable to Distributor Shares in accordance with the
preceding rules shall be paid to the Distributor's Account, unless the
Distributor otherwise instructs the Fund in any irrevocable payment instruction;
and
2. The CDSCs accruing in respect of such
Omnibus Account and allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction received from any
future distributor of Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the
Transfer Agent for each Fund shall cause payment to be made of the amount of the
Asset Based Sales Charge accruing for the period to which such Omnibus Asset
Based Sales Charge Settlement Date relates in respect of the Shares of such Fund
owned of record by each Omnibus Account by two separate wire transfers directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of
such Omnibus Account and allocable to Distributor Shares shall be paid to the
Distributor's Collection Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of
such Omnibus Account and allocable to Post-Distributor Shares shall be paid in
accordance with direction received from any future distributor of Shares of the
Instant Fund.
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser, Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
