<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION APRIL 1, 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. 21 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21 [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
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
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.
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 21
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 21 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)
<PAGE>
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
<PAGE>
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
<PAGE>
PROSPECTUS April 1, 1997
EVERGREEN(SM) KEYSTONE GROWTH AND INCOME FUNDS (Evergreen Logo
appears here)
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 SAI 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) is a Service Mark of Evergreen Keystone Investment Services,
Inc.
Copyright 1995 and 1997, Evergreen Keystone Investment Services, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 6
DESCRIPTION OF THE FUNDS 15
Investment Objectives and Policies 15
Investment Practices and Restrictions 19
Options, Futures and Derivatives 21
Special Risk Considerations 24
MANAGEMENT OF THE FUNDS 26
Investment Advisers 26
Portfolio Managers 27
Sub-Adviser 27
Administrator 28
Sub-Administrator 28
Distribution Plans and Agreements 28
PURCHASE AND REDEMPTION OF SHARES 29
How to Buy Shares 29
How to Redeem Shares 33
Exchange Privilege 34
Shareholder Services 35
Effect of Banking Laws 36
OTHER INFORMATION 36
Dividends, Distributions and Taxes 36
General Information 37
</TABLE>
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.
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.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in each Class A, Class B and Class C Shares of the
Funds. For further information see "Purchase and Redemption of Fund Shares" and
"General Information -- Other Classes of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.75% None None
(as a % of offering price)
Sales Charge on Dividend Reinvestments None None None
Contingent Deferred Sales Charge (as a % of None 5% during the first year, 4% during the 1% during the
original purchase price or redemption second year, 3% during the third and fourth first year and
proceeds, whichever is lower) years, 2% during the fifth year, 1% during 0% thereafter
the sixth year and 0% after the sixth year
Redemption Fee None None None
Exchange Fee None None None
</TABLE>
The following tables show for each Fund the estimated annual operating
expenses (as a percentage of average net assets) attributable to each Class of
Shares, together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment in each Class for the periods specified assuming
(i) a 5% annual return, and (ii) redemption at the end of each period and,
additionally for Class B and 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).
EVERGREEN UTILITY FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming
Assuming Redemption at End of no
ANNUAL OPERATING EXPENSES** Period Redemption
Class A Class B Class C Class A Class B Class C Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .50% .50% .50%
After 1 Year $ 59 $ 69 $ 29 $ 19
12b-1 Fees* .25% .75% .75%
After 3 Years $ 82 $ 89 $ 59 $ 59
Shareholder Service Fees -- .25% .25%
After 5 Years $ 107 $ 122 $ 102 $ 102
Other Expenses .39% .39% .39%
After 10 Years $ 180 $ 192 $ 221 $ 192
Total 1.14% 1.89% 1.89%
<CAPTION>
Class C
<S> <C>
$ 19
12b-1 Fees*
$ 59
Shareholder Service Fees
$ 102
Other Expenses
$ 221
Total
<CAPTION>
Management Fees
</TABLE>
EVERGREEN GROWTH & INCOME FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption at End of Assuming no
ANNUAL OPERATING EXPENSES Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 1.00% 1.00% 1.00%
After 1 Year $ 61 $ 72 $ 32 $ 22 $ 22
12b-1 Fees* .25% .75% .75%
After 3 Years $ 90 $ 98 $ 68 $ 68 $ 68
Shareholder Service
Fees -- .25% .25% After 5 Years $ 121 $ 136 $ 116 $ 116 $ 116
After 10 Years $ 209 $ 221 $ 249 $ 221 $ 249
Other Expenses .27% .27% .27%
Total 1.41% 2.16% 2.16%
</TABLE>
3
<PAGE>
EVERGREEN VALUE FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption at End of Assuming no
ANNUAL OPERATING EXPENSES Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .50% .50% .50%
After 1 Year $ 56 $ 67 $ 27 $ 17 $ 17
12b-1 Fees* .25% .75% .75%
After 3 Years $ 75 $ 82 $ 52 $ 52 $ 52
Shareholder Service
Fees -- .25% .25% After 5 Years $ 96 $ 110 $ 90 $ 90 $ 90
After 10 Years $ 154 $ 167 $ 197 $ 167 $ 197
Other Expenses .16% .16% .16%
Total .91% 1.66% 1.66%
</TABLE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption at End of Assuming no
ANNUAL OPERATING EXPENSES*** Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 1.00% 1.00% 1.00%
After 1 Year $ 70 $ 81 $ 41 $ 31 $ 31
12b-1 Fees* .25% .75% .75%
After 3 Years $ 116 $ 125 $ 95 $ 95 $ 95
Shareholder Service
Fees -- .25% .25% After 5 Years $ 166 $ 181 $ 161 $ 161 $ 161
After 10 Years $ 300 $ 313 $ 338 $ 313 $ 338
Other Expenses*** 1.07% 1.07% 1.07%
Total 2.32% 3.07% 3.07%
</TABLE>
EVERGREEN INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption at End of Assuming No
ANNUAL OPERATING EXPENSES Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .98% .98% .98%
After 1 Year $ 61 $ 72 $ 32 $ 22 $ 22
12b-1 Fees* .25% .75% .75%
After 3 Years $ 91 $ 99 $ 69 $ 69 $ 69
Shareholder Service
Fees -- .25% .25% After 5 Years $ 122 $ 137 $ 117 $ 117 $ 117
After 10 Years $ 212 $ 224 $ 252 $ 224 $ 252
Other Expenses .21% .21% .21%
Total 1.44% 2.19% 2.19%
</TABLE>
KEYSTONE FUND FOR TOTAL RETURN
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption at Assuming no
ANNUAL OPERATING EXPENSES End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .65% .65% .65%
After 1 Year $ 61 $ 72 $ 32 $ 22 $ 22
12b-1 Fees* .25% 1.00% 1.00%
After 3 Years $ 90 $ 98 $ 68 $ 68 $ 68
Other Expenses .51% .53% .52%
After 5 Years $ 121 $ 137 $ 116 $ 117 $ 116
After 10 Years $ 209 $ 223 $ 250 $ 223 $ 250
Total**** 1.41% 2.18% 2.17%
</TABLE>
*Class A Shares can pay up to .75 of 1% of average net assets as a 12b-1
Fee. For the forseeable future, the Class A Shares 12b-1 Fees will be limited to
.25 of 1% of average net assets. For Class B and Class C Shares, a portion of
the 12b-1 Fees equivalent to .25 of 1% of average net assets will be shareholder
servicing-related. Distribution-related 12b-1 Fees will be limited to .75 of 1%
of average net assets as permitted under the rules of the National Association
of Securities Dealers, Inc.
**The estimated annual operating expenses and examples do not reflect fee
waivers and expense reimbursements for the year ended December 31, 1996. Actual
expenses for the year then ended were 0.37%, 1.62% and 1.63% for Class A, Class
B and Class C, respectively.
***The estimated annual operating expenses and examples do not reflect
fee waivers and expense reimbursements for the current fiscal period. Currently,
the investment adviser is voluntarily waiving its fee. Estimated annual
operating expenses, net of fee waivers, is 1.32% for Class A Shares and 2.07%
for Class B and C Shares. The Fund's investment adviser may, at its own
discretion, discontinue these waivers at any time.
****Expense ratios are for the year ended November 30, 1996. The expense
ratio includes indirectly paid expenses for the year ended November 30, 1996.
Excluding indirectly paid expenses, the expenses, the expense ratios for the
Fund's Class A, B and C shares would have been 1.39%, 2.16% and 2.15%,
respectively. Effective December 1, 1995, Keystone voluntarily limited the
annual expenses of the Fund's Class A shares to 1.50% of such class's average
daily net assets. Keystone intends to continue this expenses of the Fund's Class
A shares to
4
<PAGE>
1.50% of such class's average daily net assets. Keystone intends to continue
this expense limitation on a calendar month-by-month basis and may modify or
terminate it in the future.
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 period. Such amounts 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 sales charges
permitted under the rules of the National Association of Securities Dealers,
Inc.
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.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the five most recent fiscal years or the life of
the Fund if shorter has been audited by the respective Fund's independent
auditors as follows: for EVERGREEN UTILITY FUND by KPMG Peat Marwick LLP; for
EVERGREEN GROWTH AND INCOME FUND for the year ended December 31, 1996 by KPMG
Peat Marwick LLP, and for the period January 3, 1995 through December 31, 1995
by other auditors; for EVERGREEN VALUE FUND by KPMG Peat Marwick LLP; for
EVERGREEN SMALL CAP EQUITY INCOME FUND for the year ended December 31, 1996 by
KPMG Peat Marwick LLP and for the period January 3, 1995 through December 31,
1995 by other auditors, for KEYSTONE FUND FOR TOTAL RETURN by KPMG Peat Marwick
LLP; and for EVERGREEN INCOME AND GROWTH FUND by Price Waterhouse LLP. A report
of KPMG Peat Marwick LLP, Price Waterhouse LLP or other auditors, as the case
may be, on the audited information with respect to each Fund is incorporated by
reference in the Funds' Statement of Additional Information. The following
information for each Fund should be read in conjunction with the financial
statements and related notes which are incorporated by reference in the
Funds' Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN UTILITY FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
JANUARY 4, JANUARY 4,
1994* 1994*
YEAR ENDED THROUGH YEAR ENDED THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning
of period................. $10.80 $9.00 $10.00 $10.81 $9.00 $10.00 $10.82 $9.01
Income (loss) from
investment operations:
Net investment income..... .41 .44 .45 .33 .37 .39 .33 .37
Net realized and
unrealized gain (loss)
on investments.......... .05 2.25 (1.01) .05 2.26 (1.01) .04 2.26
Total from investment
operations............ .46 2.69 (.56) .38 2.63 (.62) .37 2.63
Less distributions to
shareholders from:
Net investment income..... (.41) (.44) (.44) (.33) (.37) (.38) (.33) (.37)
Net realized gain on
investments............. (.28) (.45) -- (.28) (.45) -- (.28) (.45)
Total distributions..... (.69) (.89) (.44) (.61) (.82) (.38) (.61) (.82)
Net asset value, end of
period.................... $10.57 $10.80 $9.00 $10.58 $10.81 $9.00 $10.58 $10.82
TOTAL RETURN+.............. 4.4% 30.7% (5.6%) 3.6% 29.9% (6.2%) 3.5% 29.8%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)........... $96,243 $107,872 $4,190 $38,511 $35,662 $28,792 $396 $246
Ratios to average net
assets:
Expenses**................ .87% .79% .53%++ 1.62% 1.53% 1.27%++ 1.63% 1.54%
Net investment income**... 3.87% 4.51% 5.07%++ 3.12% 3.78% 4.19%++ 3.13% 3.76%
Portfolio turnover rate.... 59% 88% 23% 59% 88% 23% 59% 88%
Average commission rate
paid per share............ $.0605 N/A N/A $.0605 N/A N/A $.0605 N/A
<CAPTION>
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
PER SHARE DATA:
Net asset value, beginning
of period................. $9.33
Income (loss) from
investment operations:
Net investment income..... .12
Net realized and
unrealized gain (loss)
on investments.......... (.33)
Total from investment
operations............ (.21)
Less distributions to
shareholders from:
Net investment income..... (.11)
Net realized gain on
investments............. --
Total distributions..... (.11)
Net asset value, end of
period.................... $9.01
TOTAL RETURN+.............. (2.2%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)........... $128
Ratios to average net
assets:
Expenses**................ 1.94%++
Net investment income**... 3.96%++
Portfolio turnover rate.... 23%
Average commission rate
paid per share............ N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets would have been
the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
JANUARY 4, JANUARY 4,
1994* 1994*
YEAR ENDED THROUGH YEAR ENDED THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses................. 1.15% 1.18% 1.43% 1.89% 1.93% 2.11% 1.90% 1.93%
Net investment income.... 3.59% 4.12% 4.17% 2.85% 3.37% 3.35% 2.86% 3.37%
<CAPTION>
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C>
Expenses................. 2.78%
Net investment income.... 3.12%
</TABLE>
6
<PAGE>
EVERGREEN GROWTH AND INCOME FUND -- CLASS A, B AND C SHARES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
JANUARY 3, JANUARY 3, JANUARY 3,
YEAR 1995* YEAR 1995* YEAR 1995*
ENDED THROUGH ENDED THROUGH ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period...................... $18.63 $14.48 $18.59 $14.48 $18.58 $14.48
Income from investment
operations:
Net investment income........ .12 .13 .00** .05 .00** .06
Net realized and unrealized
gain on investments......... 4.26 4.64 4.20 4.61 4.21 4.60
Total from investment
operations................ 4.38 4.77 4.20 4.66 4.21 4.66
Less distributions to
shareholders from:
Net investment income........ (.13) (.14) (.01) (.07) (.01) (.08)
Net realized gain on
investments................. (.35) (.48) (.35) (.48) (.35) (.48)
Total distributions........ (.48) (.62) (.36) (.55) (.36) (.56)
Net asset value, end of
period...................... $22.53 $18.63 $22.43 $18.59 $22.43 $18.58
TOTAL RETURN+................. 23.5% 33.0% 22.6% 32.2% 22.6% 32.2%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)................... $85 $19 $245 $46 $10 $2
Ratios to average net assets:
Expenses..................... 1.41% 1.55%++# 2.17% 2.24%++# 2.17% 2.15%++#
Net investment income
(loss)...................... .70% .99%++# (.06%) .30%++# (.06%) .35%++#
Portfolio turnover rate....... 14% 17% 14% 17% 14% 17%
Average commission rate paid
per share................... $.0566 N/A $.0566 N/A $.0566 N/A
</TABLE>
* Commencement of class operations.
** Less than one cent per share.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of operating expenses and net investment income (loss) to average net assets,
exclusive of any applicable state expense limitations, would have been the
following:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
JANUARY 3, JANUARY 3, JANUARY 3,
1995* 1995* 1995*
THROUGH THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1995
<S> <C> <C> <C>
Expenses...................................................................... 1.64% 2.26% 4.94%
Net investment income (loss).................................................. .90% .28% (2.44%)
</TABLE>
7
<PAGE>
EVERGREEN VALUE FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
NINE YEAR
MONTHS ENDED
ENDED MARCH
YEAR ENDED DECEMBER 31, DECEMBER 31, 31,
1996 1995 1994 1993 1992 1991 1990* 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period............................................. $20.45 $16.62 $17.63 $17.11 $17.08 $14.61 $15.12 $14.45
Income (loss) from investment
operations:
Net investment income.............................. .38 .55 .52 .47 .44 .46 .36 .54
Net realized and unrealized gain (loss) on
investments...................................... 3.49 4.69 (.20) 1.10 .89 3.17 (.44) 1.70
Total from investment operations................... 3.87 5.24 .32 1.57 1.33 3.63 (.08) 2.24
Less distributions to shareholders from:
Net investment income.............................. (.41) (.51) (.51) (.47) (.43) (.43) (.36) (.57)
Net realized gain on investments................... (3.32) (.90) (.82) (.58) (.87) (.73) (.02) (1.00)
In excess of net investment income................. (.02) -- -- -- -- -- (.05) --
Total distributions................................ (3.75) (1.41) (1.33) (1.05) (1.30) (1.16) (.43) (1.57)
Net asset value, end of
period............................................. $20.57 $20.45 $16.62 $17.63 $17.11 $17.08 $14.61 $15.12
TOTAL RETURN+....................................... 18.9% 31.8% 1.9% 9.3% 8.0% 25.1% (.5%) 15.5%
RATIOS &
SUPPLEMENTAL DATA:
Net assets, end of period
(in millions)...................................... $328 $292 $189 $190 $169 $136 $105 $96
Ratios to average net assets:
Expenses........................................... .91% .90% .93% .99% 1.01%# .96%# 1.39%++ 1.55%
Net investment income.............................. 1.77% 2.78% 2.96% 2.63% 2.37%# 2.78%# 3.28%++ 3.42%
Portfolio turnover rate............................. 91% 53% 70% 46% 56% 69% 13% 11%
Average commission rate per share................... $.0588 -- -- -- -- -- -- --
<CAPTION>
1989 1988
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period............................................. $12.83 $14.66
Income (loss) from investment
operations:
Net investment income.............................. .36 .26
Net realized and unrealized gain (loss) on
investments...................................... 2.11 (1.30)
Total from investment operations................... 2.47 (1.04)
Less distributions to shareholders from:
Net investment income.............................. (.38) (.26)
Net realized gain on investments................... (.47) (.53)
In excess of net investment income................. -- --
Total distributions................................ (.85) (.79)
Net asset value, end of
period............................................. $14.45 $12.83
TOTAL RETURN+....................................... 19.7% (7.1%)
RATIOS &
SUPPLEMENTAL DATA:
Net assets, end of period
(in millions)...................................... $83 $22
Ratios to average net assets:
Expenses........................................... 1.71% 1.74%
Net investment income.............................. 2.72% 1.92%
Portfolio turnover rate............................. 24% 24%
Average commission rate per share................... -- --
</TABLE>
* The Fund changed its fiscal year end from March 31 to December 31.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge is not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets would have been
the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1992 1991
<S> <C> <C>
Expenses........................................................................... 1.02% 1.05%
Net investment income.............................................................. 2.36% 2.69%
</TABLE>
8
<PAGE>
EVERGREEN VALUE FUND -- CLASS B AND C SHARES
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
FEBRUARY 2,
1993*
YEAR ENDED THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1996 1995
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period.......................... $20.45 $16.62 $17.63 $17.24 $20.44 $16.61
Income (loss) from investment
operations:
Net investment income........... .22 .39 .42 .35 .22 .39
Net realized and unrealized gain
(loss) on investments......... 3.50 4.70 (.20) 1.01 3.50 4.70
Total from investment
operations.................. 3.72 5.09 .22 1.36 3.72 5.09
Less distributions to
shareholders from:
Net investment income........... (.25) (.36) (.41) (.35 ) (.26 ) (.36 )
Net realized gain on
investments................... (3.32) (.90) (.82) (.58 ) (3.32 ) (.90 )
Distributions in excess of net
investment income............. -- -- -- (.04 ) -- --
Distributions in excess of net
realized gain on
investments................... (.02) -- -- -- (.02 ) --
Total distributions........... (3.59) (1.26) (1.23) (.97 ) (3.60 ) (1.26 )
Net asset value, end of
period........................ $20.58 $20.45 $16.62 $17.63 $20.56 $20.44
TOTAL RETURN+.................... 18.1% 30.9% 1.3% 8.0% 18.1% 30.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)................. $197,411 $141,072 $104,297 $59,953 $1,458 $811
Ratios to average net assets:
Expenses........................ 1.66% 1.65% 1.53% 1.48% ++ 1.67% 1.65%
Net investment income........... 1.01% 2.04% 2.36% 2.09% ++ 1.00% 2.03%
Portfolio turnover rate.......... 91% 53% 70% 46% 91% 53%
Average commission rate paid
per share....................... $.0588 N/A N/A N/A $.0588 N/A
<CAPTION>
SEPTEMBER 2,
1994*
THROUGH
DECEMBER 31,
1994
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period.......................... $18.28
Income (loss) from investment
operations:
Net investment income........... .19
Net realized and unrealized gain
(loss) on investments......... (.81 )
Total from investment
operations.................. (.62 )
Less distributions to
shareholders from:
Net investment income........... (.19 )
Net realized gain on
investments................... (.82 )
Distributions in excess of net
investment income............. (.04 )
Distributions in excess of net
realized gain on
investments................... --
Total distributions........... (1.05 )
Net asset value, end of
period........................ $16.61
TOTAL RETURN+.................... (3.4% )
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)................. $485
Ratios to average net assets:
Expenses........................ 1.68% ++
Net investment income........... 2.16% ++
Portfolio turnover rate.......... 70%
Average commission rate paid
per share....................... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charges are not
reflected.
++ Annualized.
9
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND -- CLASS A, B AND C SHARES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 3, JANUARY 3, SHARES
YEAR 1995* YEAR 1995* YEAR
ENDED THROUGH ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of
period........................ $11.57 $9.64 $11.57 $9.64 $11.56
Income (loss) from investment
operations:
Net investment income......... .34 .34 .27 .28 .28
Net realized and unrealized
gain (loss) on
investments................. 2.13 2.45 2.11 2.43 2.10
Total from investment
operations................ 2.47 2.79 2.38 2.71 2.38
Less distributions to
shareholders from:
Net investment income......... (.34) (.37) (.26) (.29) (.25)
Net realized gains on
investments................. (.60) (.49) (.60) (.49) (.60)
Total distributions......... (.94) (.86) (.86) (.78) (.85)
Net asset value, end of
period........................ $13.10 $11.57 $13.09 $11.57 $13.09
TOTAL RETURN+.................. 22.0% 29.5% 21.1% 28.7% 21.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)............... $336 $216 $692 $266 $56
Ratios to average net assets:
Expenses**.................... 1.75% 1.75%++ 2.50% 2.50%++ 2.50%
Net investment income**....... 3.08% 3.39%++ 2.39% 2.67%++ 2.33%
Portfolio turnover rate........ 50% 48% 50% 48% 50%
Average commission rate paid
per share..................... $.0635 N/A $.0635 N/A $.0635
<CAPTION>
JANUARY 24,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
PER SHARE DATA:
Net asset value, beginning of
period........................ $9.74
Income (loss) from investment
operations:
Net investment income......... .28
Net realized and unrealized
gain (loss) on
investments................. 2.33
Total from investment
operations................ 2.61
Less distributions to
shareholders from:
Net investment income......... (.30)
Net realized gains on
investments................. (.49)
Total distributions......... (.79)
Net asset value, end of
period........................ $11.56
TOTAL RETURN+.................. 27.3%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted)............... $24
Ratios to average net assets:
Expenses**.................... 2.50%++
Net investment income**....... 2.63%++
Portfolio turnover rate........ 48%
Average commission rate paid
per share..................... N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment loss to average net assets,
exclusive of any applicable state expense limitations, would have been the
following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 3, JANUARY 3, SHARES
YEAR 1995* YEAR 1995* YEAR
ENDED THROUGH ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Expenses................... 5.03% 24.45% 5.72% 20.90% 5.77%
Net investment income
(loss)................... (.19%) (19.30%) (.83%) (15.72%) (.94%)
<CAPTION>
JANUARY 24,
1995*
THROUGH
DECEMBER 31,
1995
<S> <C>
Expenses................... 187.29%
Net investment income
(loss)................... (182.16%)
</TABLE>
10
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of year..... $13.83 $11.75 $12.31 $12.06 $11.45 $10.29 $10.89 $9.41 $8.59
Income from investment
operations
Net investment
income.............. 0.26 0.25 0.24 0.21 0.23 0.34 0.41 0.42 0.46
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
related
transactions........ 3.83 2.80 (0.56) 1.31 1.19 1.38 (0.61) 2.01 0.89
Total from investment
operations.......... 4.09 3.05 (0.32) 1.52 1.42 1.72 (0.20) 2.43 1.35
Less distributions from
Net investment
income................ (0.26) (0.25) (0.24) (0.21) (0.23) (0.35) (0.40) (0.42) (0.53)
In excess of net
investment income..... 0.00 (0.07) 0.00 (0.03) (0.05) (0.05) 0.00 0.00 0.00
Net realized gain on
investments........... (0.33) (0.65) 0.00 (1.03) (0.53) (0.16) 0.00 (0.53) 0.00
Total distributions.... (0.59) (0.97) (0.24) (1.27) (0.81) (0.56) (0.40) (0.95) (0.53)
Net asset value end of
year.................. $17.33 $13.83 $11.75 $12.31 $12.06 $11.45 $10.29 $10.89 $9.41
TOTAL RETURN (a)....... 29.83% 26.57% (2.65%) 12.67% 12.56% 16.70% (1.85%) 26.17% 15.98%
RATIOS/SUPPLEMENTAL
DATA
Ratios to average net
assets:
Total expenses......... 1.41%(b) 1.69%(b) 1.59% 1.85% 1.85% 1.88% 2.00%(c) 2.00%(c) 1.47%(c)
Net investment
income................ 1.66% 1.94% 1.93% 1.63% 1.87% 2.98% 3.85% 3.94% 4.87%
Portfolio turnover
rate.................. 41% 77% 57% 92% 66% 43% 51% 50% 64%
Average commissions
rate paid............. $0.0037 N/A N/A N/A N/A N/A N/A N/A N/A
Net assets end of year
(thousands)........... $40,487 $27,037 $23,162 $26,367 $23,607 $22,974 $22,080 $22,764 $20,735
<CAPTION>
FEBRUARY 13,
1987
(COMMENCEMENT OF
OPERATIONS) TO
NOVEMBER 30,
1987
<S> <C>
Net asset value
beginning of year..... $10.00
Income from investment
operations
Net investment
income.............. 0.30
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
related
transactions........ (1.47)
Total from investment
operations.......... (1.17)
Less distributions from
Net investment
income................ (0.24)
In excess of net
investment income..... 0.00
Net realized gain on
investments........... 0.00
Total distributions.... (0.24)
Net asset value end of
year.................. $8.59
TOTAL RETURN (a)....... (11.94%)
RATIOS/SUPPLEMENTAL
DATA
Ratios to average net
assets:
Total expenses......... 1.00%(c)(d)
Net investment
income................ 4.94%(d)
Portfolio turnover
rate.................. 16%
Average commissions
rate paid............. N/A
Net assets end of year
(thousands)........... $7,672
</TABLE>
(a) Excluding applicable sales charges.
(b) The expense ratios include indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 1.39% and 1.67% for the
years ended November 30, 1996 and 1995, respectively.
(c) Figure is net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the ratio
of total expenses to average net assets would have been 2.41%, 2.48%, 2.92%,
and 4.77% (on an annualized basis), respectively, for the years ended 1990,
1989, 1988 and the period from February 13, 1987 (Commencement of
Operations) to November 30, 1987.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
11
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN -- CLASS B SHARES
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED NOVEMBER 30, PUBLIC OFFERING) TO
1996 1995 1994 NOVEMBER 30, 1993
<S> <C> <C> <C> <C>
Net asset value beginning of year................................. $13.84 $11.77 $12.32 $12.65
Income from investment operations
Net investment income........................................... 0.15 0.15 0.15 0.10
Net realized and unrealized gain (loss) on investments and
foreign currency related transactions........................ 3.80 2.82 (0.56) 0.74
Total from investment operations................................ 3.95 2.97 (0.41) 0.84
Less distributions from
Net investment income........................................... (0.15) (0.15) (0.14) (0.10)
In excess of net investment income.............................. 0.00 (0.10) 0.00 (0.04)
Net realized gain on investments................................ (0.33) (0.65) 0.00 (1.03)
Total distributions............................................. (0.48) (0.90) (0.14) (1.17)
Net asset value end of year....................................... $17.31 $13.84 $11.77 $12.32
TOTAL RETURN (a).................................................. 28.73% 25.59% (3.36%) 6.68%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses.................................................... 2.18%(b) 2.47%(b) 2.31% 2.64%(c)
Net investment income............................................. 0.88% 1.06% 1.27% 0.84%(c)
Portfolio turnover rate........................................... 41% 77% 57% 92%
Average commissions rate paid..................................... $0.0037 N/A N/A N/A
Net assets end of year (thousands)................................ $43,526 $20,605 $ 7,314 $4,283
</TABLE>
(a) Excluding applicable sales charges.
(b) The expense ratios include indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 2.16% and 2.46% for the
years ended November 30, 1996 and 1995, respectively.
(c) Annualized for the period February 1, 1993 (Date of Initial Public Offering)
to November 30, 1993.
12
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN -- CLASS C SHARES
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
PUBLIC OFFERING)
YEAR ENDED NOVEMBER 30, TO
1996 1995 1994 NOVEMBER 30, 1993
<S> <C> <C> <C> <C>
Net asset value beginning of year...................................... $13.85 $11.78 $12.33 $12.65
Income from investment operations
Net investment income................................................ 0.14 0.16 0.15 0.10
Net realized and unrealized gain (loss) on investments and foreign
currency related transactions..................................... 3.81 2.81 (0.56) 0.75
Total from investment operations..................................... 3.95 2.97 (0.41) 0.85
Less distributions from
Net investment income................................................ (0.15) (0.16) (0.14) (0.10)
In excess of net investment income................................... 0.00 (0.09) 0.00 (0.04)
Net realized gain on investments..................................... (0.33) (0.65) 0.00 (1.03)
Total distributions.................................................. (0.48) (0.90) (0.14) (1.17)
Net asset value end of year............................................ $17.32 $13.85 $11.78 $12.33
TOTAL RETURN (a)....................................................... 28.71% 25.57% (3.36%) 6.76%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses......................................................... 2.17%(b) 2.47%(b) 2.34% 2.64%(c)
Net investment income.................................................. 0.89% 1.16% 1.21% 0.83%(c)
Portfolio turnover rate................................................ 41% 77% 57% 92%
Average commissions rate paid.......................................... $0.0037 N/A N/A N/A
Net assets, end of year (thousands).................................... $14,562 $9,503 $5,968 $ 5,030
</TABLE>
(a) Excluding applicable sales charges.
(b) The expense ratios include indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 2.15% and 2.44% for the
years ended November 30, 1996 and 1995, respectively.
(c) Annualized for the period February 1, 1993 (Date of Initial Public Offering)
to November 30, 1993.
13
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
CLASS A, B AND C SHARES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C
JANUARY 3, JANUARY 3, SHARES
YEAR YEAR 1995* YEAR YEAR 1995* YEAR
ENDED ENDED THROUGH ENDED ENDED THROUGH ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1997 1996 1995 1997 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of
period........... $20.15 $17.28 $17.09 $20.08 $17.28 $17.09 $20.08
Income from
investment
operations:
Net investment
income......... 1.02 1.01 .02 .89 .91 .02 .87
Net realized and
unrealized gain
on
investments.... 1.67 2.94 .17 1.64 2.87 .17 1.66
Total from
investment
operations... 2.69 3.95 .19 2.53 3.78 .19 2.53
Less distributions
to shareholders
from:
Net investment
income......... (1.05) (1.08) -- (.92) (.98) -- (.92)
Net asset value,
end of period.... $21.79 $20.15 $17.28 $21.69 $20.08 $17.28 $21.69
TOTAL RETURN+..... 19.8% 23.4% 1.1% 13.0% 22.4% 1.1% 12.9%
RATIOS &
SUPPLEMENTAL
DATA:
Net assets, end of
period (000's
omitted)......... $9,678 $4,412 $119 $35,323 $14,750 $599 $982
Ratios to average
net assets:
Expenses......... 1.44% 1.36%# 1.45%++ 2.19% 2.11%# 2.23%++ 2.19%
Average
commission
dividends per
share.......... $.0491 -- -- $.0491 -- -- $.0491
Interest
expense........ .05% -- -- .03% -- -- .03%
Net investment
income......... 4.93% 5.39%# 4.09%++ 4.17% 4.69%# 3.23%++ 4.15%
Portfolio turnover
rate............. 168% 138% 151% 168% 138% 151% 168%
<CAPTION>
JANUARY 3,
YEAR 1995*
ENDED THROUGH
JANUARY 31, JANUARY 31,
1996 1995
<S> <C> <C>
PER SHARE DATA:
Net asset value,
beginning of
period........... $17.27 $17.09
Income from
investment
operations:
Net investment
income......... .90 .01
Net realized and
unrealized gain
on
investments.... 2.89 .17
Total from
investment
operations... 3.79 .18
Less distributions
to shareholders
from:
Net investment
income......... (.98) --
Net asset value,
end of period.... $20.08 $17.27
TOTAL RETURN+..... 22.4% 1.1%
RATIOS &
SUPPLEMENTAL
DATA:
Net assets, end of
period (000's
omitted)......... $523 $24
Ratios to average
net assets:
Expenses......... 2.11%# 2.22%++
Average
commission
dividends per
share.......... -- --
Interest
expense........ -- --
Net investment
income......... 4.67%# 2.68%++
Portfolio turnover
rate............. 138% 151%
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of operating expenses and net investment income (loss) to average net assets,
exclusive of any applicable state expense limitations, would have been the
following:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1996
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
<S> <C> <C> <C>
Expenses............................................................... 2.50% 2.25% 13.03%
Net investment income (loss)........................................... 4.25% 4.55% (6.25% )
</TABLE>
14
<PAGE>
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 -- Lower Rated
Securities".
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
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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 78.5%, 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. Securities rated Baa or BBB may have speculative
charachteristics. Changes in economic conditions are more likely to weaken the
capacity of the issuers of such bonds to make the interest and principal
payments than would be the case with higher rated bonds. However, like higher
rated bonds, these securities may be considered investment grade. For a
description of such ratings see the Statement of Additional Information.
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.
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
netgains from a covered call options writing program, are expected to fluctuate
over time because of varying general economic and market conditions.
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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). 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. As of January 31, 1995, 1996 and 1997,
approximately 91%, 91% and 93%, 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). 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 79%, respectively, of the Fund's portfolio consisted of investments in
utility companies. See "Special Risk Considerations".
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
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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" 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 89.5% 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 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.
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 96% 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
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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 the ability of the issuers of such bonds to make 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.
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 or exchangeable 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 investment 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, rated in any category 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
Considerations".
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. government.
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 from banks 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
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amounts up to one-third of its assets for the aformentioned purposes as well as
for leverage. See "Special Risk Considerations". 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 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, as amended, 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
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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 they agree to sell portfolio
securities to financial institutions such as banks and broker-dealers, and to
repurchase them at a mutually agreed upon date and price, 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.
KEYSTONE FUND FOR TOTAL RETURN may enter into reverse repurchase agreements in
amounts up to one-third 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 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 commitments prior to settlement
if the Funds' investment advisers deem 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. EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND, EVERGREEN SMALL CAP
EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may also 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 call 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. The Funds, other than
EVERGREEN VALUE FUND and KEYSTONE FUND FOR TOTAL RETURN, do not currently intend
to write covered put options, but may do so in the future.
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; a put option gives the holder the right to sell the
underlying security to the writer at a stated 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 put and call options. A Fund realizes income from the premium paid
to it in exchange for writing a put or call option. Once it has written a call
option on a portfolio security and until the expiration of such option, a
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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. By writing a put option, a Fund might become obligated to purchase the
underlying security for more than its current market price upon exercise. A Fund
will only write "covered" options traded on recognized securities exchanges. An
option will be deemed covered when a Fund either (i) owns the security (or
securities convertible into such security) on which the call option has been
written in an amount sufficient to satisfy the obligations arising under a call
option, or (ii) in the case of both 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 such options. A "closing purchase transaction" may be entered into
with respect to an 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 their 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, EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND
FOR TOTAL RETURN may purchase and sell various financial instruments
("Derivative Instrument") 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 a 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
22
<PAGE>
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 in anticipation that the securities underlying the 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 Fund 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 the
Fund's 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 the Fund's 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 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 may 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
23
<PAGE>
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 and EVERGREEN
VALUE 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, EVERGREEN VALUE 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 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
24
<PAGE>
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
25
<PAGE>
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 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.
MANAGEMENT OF THE FUNDS
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
succeeded 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
26
<PAGE>
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 acts 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
$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, 1997 and November 30, 1996 in the case of
EVERGREEN INCOME AND GROWTH FUND and KEYSTONE FUND FOR TOTAL RETURN,
respectively) 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.
PORTFOLIO MANAGERS
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 Senior 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.
27
<PAGE>
ADMINISTRATOR
Evergreen Utility Fund and Evergreen Value Fund. EKIS serves as
administrator to EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND. As
administrator, and subject to the supervision and control of the
Trustees/Directors of the Funds, EKIS provides the Funds with facilities,
equipment and personnel. For its services as administrator, EKIS is entitled to
receive a fee based on the aggregate average daily net assets of the Funds at a
rate based on the total assets of all mutual funds advised by CMG, EAMC or
Keystone. The administration fee is calculated in accordance with the following
schedule.
<TABLE>
<CAPTION>
Aggregate Average Daily Net Assets of Mutual Funds for
Which Any Affiliate of FUNB Serves as Investment
Administrative Fee Adviser
<S> <C>
0.060% on the first $7 billion
0.0425% on the next $3 billion
0.035% on the next $5 billion
0.025% on the next $10 billion
0.019% on the next $5 billion
0.014% on assets in excess of $30 billion
</TABLE>
Evergreen Growth and Income Fund, Evergreen Income and Growth Fund,
Evergreen Small Cap Equity Income Fund and Keystone Fund for Total Return. EKIS
also provides facilities equipment and personnel to EVERGREEN GROWTH AND INCOME
FUND, EVERGREEN INCOME AND GROWTH FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND
and KEYSTONE FUND FOR TOTAL RETURN on behalf of each Fund's investment adviser.
KEYSTONE FUND FOR TOTAL RETURN may reimburse EKIS for its costs in providing
such services.
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), distributor for the Evergreen Keystone group of
mutual funds, serves as sub-administrator to the Funds for its services, BISYS
is entitled to receive a fee from EKIS calculated on the aggregate average daily
net assets of the Funds at a rate based on the total assets of all mutual funds
administered by EKIS for which FUNB affiliates also serve as investment adviser.
The sub-administrator fee is calculated in accordance with the following
schedule:
<TABLE>
<CAPTION>
Aggregate Average Daily Net Assets of Mutual Funds
Administered by Bisys for which any affiliate of
Sub-Administrative Fee FUNB serves as Investment Adviser
<S> <C>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
</TABLE>
The total assets of the mutual funds for which FUNB affiliates also serve
as investment advisers were approximately $29.2 billion as of February 28, 1997.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. Each Fund's Class A, Class B and Class C shares pays
for the expenses associated with the distribution of its shares according to a
distribution plan that it has adopted pursuant to Rule 12b-1 under the 1940 Act
(each, a "Plan" or collectively the "Plans"). Under the Plans, each Fund may
incur distribution-related and shareholder servicing-related expenses at the
following rates:
<TABLE>
<CAPTION>
Maximum Annual Rate as a % of
Fund's Average Daily Net Assets
Class of Shares Attributable to the Class
<S> <C>
Class A 0.75%, currently limited to 0.25%
Class B 1.00%
Class C 1.00%
</TABLE>
28
<PAGE>
Of the amount that each Class may pay under its respective distribution
plan, up to 0.25% may constitute a service fee to be used to compensate
organizations, which may include each Fund's investment adviser or their
affiliates, for personal services rendered to shareholders and/or the
maintenance of shareholder accounts. The Funds may not pay any distribution or
services fees during any fiscal period in excess of the amounts set forth above.
Distribution Agreements. Each Fund has also entered into a distribution
agreement (each a "Distribution Agreement" or collectively the "Distribution
Agreements") with EKD. Pursuant to the Distribution Agreements, each Fund will
compensate EKD for its services as distributor at the following rates:
<TABLE>
<CAPTION>
Maximum Annual Rate as a % of
Fund's Average Daily Net
Assets
Class of Shares Attributable to the Class
<S> <C>
Class A 0.25%
Class B 1.00%
Class C 1.00%
</TABLE>
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 Fund, 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. FUNB or its affiliates
may finance the payments made by EKD to compensate broker-dealers or other
persons for distributing shares of the Fund.
In the case of KEYSTONE FUND FOR TOTAL RETURN THE COMPENSATION PAID TO
EKD UNDER ITS DISTRIBUTION AGREEMENT IS ONLY WITH RESPECT TO SHARES OF THE FUND
SOLD ON OR AFTER DECEMBER 1, 1996. IN CONSIDERATION OF THE SERVICES RENDERED BY
THE DISTRIBUTOR OF THE CLASS B AND CLASS C SHARES OF KEYSTONE FUND FOR TOTAL
RETURN sold prior to December 1, 1996, namely EKIS, the Fund's board has
determined to continue the payments called for under the distribution agreements
in effect between the Fund and EKIS with respect to the assets of the Fund
represented by such shares. It is anticipated that in the case of the Class B
shares payments will be made to EKIS until the shares convert to Class A shares
or are redeemed (see "Class B Shares -- Deferred Sales Charge Alternative",
below), and in the case of Class C shares payments will be made for a period of
months, or until they are redeemed.
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 the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee to
6.25% of cumulative gross sales of shares of that class, plus interest on the
unpaid amount at the prime rate plus 1% per annum.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You may purchase shares of any of the Funds through broker-dealers, banks
or other financial intermediaries, or directly through EKD. In addition, you may
purchase shares of any of the Funds by mailing to
29
<PAGE>
that Fund, c/o Evergreen Keystone Service Company ("EKSC"), P.O. Box 2121,
Boston, Massachusetts 02106-2121, a completed account application and a check
payable to the Fund. You may also telephone 1-800-343-2898 to obtain the number
of an account to which you can wire or electronically transfer funds and then
send in a completed account application. The minimum initial investment is
$1,000, which may be waived in certain situations. Subsequent investments in any
amount may be made by check, by wiring Federal funds, by direct deposit or by an
electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the 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").
Class A Shares-Front-End Sales Charge Alternative. You may purchase Class A
shares of each Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 of Class A shares without a
front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12- month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
Initial Sales Charge
<TABLE>
<CAPTION>
As a % of the Net As a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 4.99% 4.75% 4.25%
$ 50,000 - $ 99,999 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%
Amounts between
$1,000,000 - $2,999,999 None None 1.00%, plus
For amounts between
$3,000,000 - $4,999,999 None None .50%, plus
For amounts of
$5,000,000 and over None None .25%
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and registered
investment advisers; (b) investment advisers, consultants or financial planners
who place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; (c) clients
of investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; 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; current and retired employees of FUNB and its affiliates,
EKD and any broker-dealer with whom EKD has entered into an agreement to sell
shares of the Funds, and members of the immediate families of such employees;
and upon the initial purchase of an Evergreen Keystone 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 the Funds.
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 make 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
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<PAGE>
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 0.50% 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 customers of
such banks 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 0.25% 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 Concurrent Purchases, Rights of Accumulation, Letter of Intent,
Privilege for Certain Retirement Plans and Reinstatement Privilege. 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 may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC (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 month of purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
Redemption Timing CDSC Imposed
<S> <C>
Month of purchase and the first
twelve-month period following the month of
purchase................................... 5.00%
Second twelve-month period following the
month of purchase.......................... 4.00%
Third twelve-month period following the
month of purchase.......................... 3.00%
Fourth twelve-month period following the
month of purchase.......................... 3.00%
Fifth twelve-month period following the
month of purchase.......................... 2.00%
Sixth twelve-month period following the
month of purchase.......................... 1.00%
</TABLE>
No CDSC is imposed on amounts redeemed thereafter.
The CDSC is deducted from the amount of the redemption and is paid to EKD or its
predecessor. Class B shares are subject to higher distribution and/or
shareholder service fees than Class A shares for a period of seven years after
the month of purchase (after which it is expected that they will convert to
Class A shares without imposition of a front-end sales charge or exchange fee).
The higher fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares. The maximum amount of Class B Shares that may be purchased is
$250,000. See the Statement of Additional Information for further details.
Class C Shares -- Level-Load Alternative. Class C shares are only offered
through broker-dealers who have special distribution agreements with EKD. You
may purchase Class C shares at net asset value 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 1.00% CDSC, if you redeem shares during the
month of purchase and the 12-month period following the month of purchase. No
CDSC is imposed on amounts redeemed thereafter. Class C shares incur higher
distribution and/or shareholder service fees than Class A shares and, unlike
Class B shares, do not convert to any other class of shares of a 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. The
maximum amount of Class C shares that may be purchased is $500,000. No CDSC will
be imposed on Class C shares purchased by institutional investors, and through
employee benefit and savings plans eligible for the exemption from front-end
sales charges described under "Class A Shares-Front End Sales Charge
Alternative", above.
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<PAGE>
Broker-dealers and other financial intermediaries whose clients have purchased
Class C shares may receive a trailing commission equal to 0.75% of the average
daily value of such shares on an annual basis held by their clients more than
one year from the date of purchase. The payment of trailing commissions will
commence immediately with respect to shares eligible for exemption from the CDSC
normally applicable to Class C shares.
CONTINGENT DEFERRED SALES CHARGE
Shares obtained from dividend or distribution reinvestment are not subject to a
CDSC. Any CDSC imposed upon the redemption of Class A, Class B or Class C shares
is a percentage of the lesser of (1) the net asset value of the shares redeemed
or (2) the net asset value at the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event of (1)
death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of
accounts having an aggregate net asset value of less than $1.00; (5) automatic
withdrawals under the Systematic Withdrawal Plan of up to 1.00% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; or (8) withdrawals consisting of returns
of excess contributions or excess deferral amounts made to a retirement plan
participant.
The Funds may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a CDSC to certain Directors, Trustees,
officers and employees of the Funds, Keystone, FUNB, EAMC, EKD and certain of
their affiliates, and to members of the immediate families of such persons, to
registered representatives of firms with dealer agreements with EKD, and to a
bank or trust company acting as a trustee for a single account. See the SAI for
more information.
How The Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees believe would accurately reflect fair value.
Non-dollar denominated securities will be valued as of the close of the Exchange
at the closing price of such securities in their principal trading markets.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year. Consult your financial intermediary for further information. The
compensation received by dealers and agents may differ depending on whether they
sell Class A, Class B or Class C shares. There is no size limit on purchases of
Class A shares.
In addition to the discount or commission paid to broker-dealers, EKD may
from time to time pay to broker-dealers additional cash or other incentives that
are conditioned upon the sale of a specified minimum dollar amount of shares of
a Fund and/or other Evergreen Keystone 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 broker-dealer
and their immediate family members to urban or resort locations within or
outside the United States. Such a dealer may elect to receive cash incentives of
equivalent amount in lieu of such payments. EKD may also limit the availability
of such incentives to certain specified dealers. EKD from time to time sponsors
promotions involving First Union Brokerage Services, Inc. ("FUBS"), an affiliate
of each Fund's investment adviser, and select broker-dealers, pursuant to which
incentives are paid, including gift certificates and payments in amounts up to
1% of the dollar amount of shares of a Fund sold. Awards may also be made based
on the opening of a minimum number of accounts. Such promotions are not being
made available to all broker-dealers. Certain broker-dealers may also
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<PAGE>
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 Keystone 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 for cash,
(at their net redemption value) on any day the Exchange is open, either directly
by writing to the Fund, c/o EKSC, or through your financial intermediary. The
amount you will receive is based on the net asset value adjusted for fractions
of a cent (less any applicable CDSC 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 10 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. (Eastern time).
Redeeming Shares Directly By Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC; the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and EKSC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and EKSC's policies.
Shareholders may withdraw amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
EKSC'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 received after 4:00 p.m.
(Eastern time) will be processed using the net asset value determined on the
next business day. Such redemption requests must include the shareholder's
account name, as registered with a Fund, and the account number. During periods
of drastic economic or market changes, shareholders may experience difficulty in
effecting telephone redemptions. If you cannot reach the Fund by telephone, you
should follow the procedures for redeeming by mail or through a broker-dealer as
set forth herein. The telephone redemption service is not made available to
shareholders automatically. Shareholders wishing to use the telephone redemption
service must complete the appropriate sections on the Share Purchase Application
and choose how the redemption proceeds are to be paid. Redemption proceeds will
either (i) be mailed by check to the shareholder at the address in which the
account is registered or (ii) be wired to an account with the same registration
as the shareholder's account in a Fund at a designated commercial bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction,
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<PAGE>
you will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. Each Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, neither the Funds, EKSC, nor EKD assumes
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over Evergreen Keystone Express Line or by telephone are genuine.
Neither the Funds, EKSC, nor the EKD will be liable when following instructions
received over Evergreen Keystone Express Line or by telephone that EKSC
reasonably believes are genuine.
EVERGREEN KEYSTONE EXPRESS LINE. Evergreen Keystone Express Line offers you
specific fund account information and price and yield quotations as well as the
ability to do account transactions, including investments, exchanges and
redemptions. You may access Evergreen Keystone Express Line by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
GENERAL. The sale of shares is a taxable transaction for Federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission so orders. The Funds reserve the
right to close an account that through redemption has fallen below $1,000 and
has remained so for thirty days. Shareholders will receive sixty days' written
notice to increase the account value to at least $1,000 before the account is
closed. The Funds have elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which each Fund is obligated to redeem shares solely in cash, up to
the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day
period for any one shareholder. 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 Keystone mutual funds through your
financial intermediary, by calling or writing to EKSC or by using Evergreen
Keystone Express Line as described below. Once an exchange request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Exchanges will be made on the basis of the relative net asset values of the
shares exchanged next determined after an exchange request is received. An
exchange that represents an initial investment in another Evergreen Keystone
mutual fund is subject to the minimum investment and suitability requirements of
each Fund.
Each of the Evergreen Keystone 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
order must comply with the requirement for a redemption or repurchase order and
must specify the dollar value or number of shares to be exchanged. An exchange
is treated for Federal income tax purposes as a redemption and purchase of
shares and may result in the realization of a capital gain or loss. Shareholders
are limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event Class B or Class C shares are
exchanged for Class B or Class C shares, respectively, of other Evergreen
Keystone mutual funds. If you redeem shares, the CDSC applicable to the Class B
or Class C shares of the Evergreen or Keystone 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
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<PAGE>
intermediary is responsible for furnishing all necessary documentation to a Fund
and may charge you for this service.
EXCHANGES BY TELEPHONE AND MAIL. Exchange requests received by the Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach EKSC by telephone. If you wish to use the telephone
exchange service you should indicate this on the 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 EKSC if it is
believed advisable to do so. Procedures for exchanging Fund shares by telephone
may be modified or terminated at any time. Written requests for exchanges should
follow the same procedures outlined for written redemption requests in the
section entitled "How to Redeem Shares"; however, no signature guarantee is
required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, EKSC
or the toll-free number on the front page of this Prospectus. Some services are
described in more detail in the 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. You may open a Systematic Investment Plan in the EVERGREEN FUND
and EVERGREEN AGGRESSIVE GROWTH 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 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Shares purchased under the Systematic Investment Plan or Telephone Investment
Plan may not be redeemed for ten days from the date of investment.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Share Purchase
Application. Under this plan, you may receive (or designate a third party to
receive) a monthly or quarterly fixed-withdrawal payment in a stated amount of
at least $75 and may be as much as 1.0% per month or 3.0% per quarter of the
total net asset value of the Fund shares in your account when the Plan was
opened. Fund shares will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. Any applicable Class B CDSC will be
waived with respect to redemptions occurring under a Systematic Withdrawal Plan
during a calendar year to the extent that such redemptions do not exceed 10% of
(i) the initial value of the account plus (ii) the value, at the time of
purchase, of any subsequent investments. Excessive withdrawals may decrease or
deplete the value of your account. Moreover, because of the effect of the
applicable sales charge, a Class A investor should not make continuous purchases
of a Fund's shares while participating in a Systematic Withdrawal Plan.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and the
other Evergreen Keystone 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." EAMC, Keystone or CMG may provide compensation to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen Keystone 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 a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
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<PAGE>
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen Keystone mutual fund.
This results in more shares being purchased when the selected Fund's net asset
value is relatively low and fewer shares being purchased when the Fund's net
asset value is relatively high and may result in a lower average cost per share
than a less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen Keystone mutual fund. You should designate on the
application (1) the dollar amount of each monthly or quarterly investment you
wish to make and (2) the Fund in which the investment is to be made. Thereafter,
on the first day of the designated month, an amount equal to the specified
monthly or quarterly investment will automatically be redeemed from your initial
account and invested in shares of the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases, and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent. See the Statement of Additional Information.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen Keystone mutual fund shares you own
automatically invested to purchase the same class of shares of any other
Evergreen Keystone mutual fund. You may select this service on your application
and indicate the Evergreen Keystone mutual fund(s) into which distributions are
to be invested. The value of shares purchased will be ineligible for Rights of
Accumulation and Letters of Intent. See the Statement of Additional Information.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to you, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Reduction Plans
(SARSEPs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans; Keogh
Plans; Corporate Profit-Sharing Plans; and Money Purchase Plans. For details,
including fees and application forms, call toll free 1-800-247-4075 or write to
EKSC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. 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.
OTHER INFORMATION
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
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<PAGE>
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. A shareholder who
acquires Class A shares of a Fund and sells or otherwise disposes of such shares
within ninety days of acquisition may not be allowed to include certain sales
charges incurred in acquiring such shares for purposes of calculating gain or
loss realized upon a sale or exchange of shares of the Fund.
The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of " Additional Tax Information" contained in the Statement of
Additional Information. In addition, you should consult your own tax adviser as
to the tax consequences of investments in the Funds, including the application
of state and local taxes which may be different from Federal income tax
consequences described above.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the 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.
37
<PAGE>
EVERGREEN UTILITY FUND is a 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 , 1986.
The Funds do not intend to hold annual shareholder meetings; shareholder
meetings will be held only when required by applicable law. Shareholders have
available certain procedures for the removal of Trustees. A shareholder in each
Class of a Fund will be entitled to his or her share of all dividends and
distributions from a Fund's assets, based upon the relative value of such shares
to those of other Classes of the Fund and, upon redeeming shares, will receive
the then current net asset value of the Class of shares of the Fund represented
by the redeemed shares less any applicable CDSC. Each Trust named above is
empowered to establish, without shareholder approval, additional investment
series, which may have different investment objectives, and additional Classes
of shares for any existing or future series. If an additional series or Class
were established in a Fund, each share of the series or Class would normally be
entitled to one vote for all purposes. Generally, shares of each series and
Class would vote together as a single Class on matters, such as the election of
Trustees, that affect each series and Class in substantially the same manner.
Class A, Class B, Class C and Class Y shares have identical voting, dividend,
liquidation and other rights, except that each Class bears, to the extent
applicable, its own distribution, shareholder service and transfer agency
expenses as well as any other expenses applicable only to a specific Class. Each
Class of shares votes separately with respect to Rule 12b-1 distribution plans
and other matters for which separate class voting is appropriate under
applicable law. Shares are entitled to dividends as determined by the Trustees
and, in liquidation of a Fund, are entitled to receive the net assets of the
Fund.
Custodian, 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
Service 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, 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, Keystone 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 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 and dividend income it earned from its
38
<PAGE>
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 indicative of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen Keystone mutual funds, products, and services, which may
include: retirement investing; brokerage products, and services, the effects of
periodic investment plans and dollar cost averaging; saving for college; and
charitable giving. In addition, the information provided to investors may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques. 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 Keystone 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 shall 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.
39
<PAGE>
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
Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
KEYSTONE FUND FOR TOTAL RETURN
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts
02205-9827
TRANSFER AGENT
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
FOR THE EVERGREEN FUNDS
Evergreen Keystone Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121
FOR THE KEYSTONE FUND
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C.
20036
INDEPENDENT ACCOUNTANTS
EVERGREEN UTILITY FUND, EVERGREEN GROWTH AND INCOME FUND, EVERGREEN VALUE
FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND, KEYSTONE FUND FOR TOTAL RETURN
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
EVERGREEN INCOME AND GROWTH FUND
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 120 Clove Road, Little Falls, New Jersey
07424
42430 536115REV01
*******************************************************************************
<PAGE>
PROSPECTUS April 1, 1997
EVERGREENSM KEYSTONE GROWTH AND INCOME FUNDS (Evergreen logo appears here)
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 SAI 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
EVERGREENSM is a Service Mark of Evergreen Keystone Investment Services,
Inc.
Copyright 1995 and 1997, Evergreen Keystone Investment Services, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS 11
Investment Objectives and Policies 11
Investment Practices and Restrictions 15
Options, Futures and Derivatives 17
Special Risk Considerations 20
MANAGEMENT OF THE FUNDS 22
Investment Advisers 22
Portfolio Managers 23
Sub-Adviser 23
Administrator 24
Sub-Administrator 24
Distribution Plans and Agreements 24
PURCHASE AND REDEMPTION OF SHARES 26
How to Buy Shares 26
How to Redeem Shares 26
Exchange Privilege 28
Shareholder Services 28
Effect of Banking Laws 29
OTHER INFORMATION 30
Dividends, Distributions and Taxes 30
General Information 31
</TABLE>
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.
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.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in the Class Y Shares of the Funds. For further
information see "Purchase and Redemption of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
Exchange Fee (only applies after 4 exchanges per year) $5.00
</TABLE>
The following table shows for the Fund the estimated annual operating
expenses (as a percentage of average net assets) attributable to Class Y Shares,
together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment for the periods specified assuming (i) a 5%
annual return and (ii) redemption at the end of each period.
EVERGREEN GROWTH & INCOME FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Management Fees 1.00%
After 1 Year $ 12
12b-1 Fees --
After 3 Years $ 37
Other Expenses 0.16%
After 5 Years $ 64
After 10 Years $ 141
Total 1.16%
</TABLE>
EVERGREEN VALUE FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Management Fees .50%
After 1 Year $ 7
12b-1 Fees --
After 3 Years $ 21
Other Expenses .16%
After 5 Years $ 37
After 10 Years $ 82
Total .66%
</TABLE>
EVERGREEN INCOME AND GROWTH FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES EXAMPLE
<S> <C> <C> <C>
Management Fees 1.00%
After 1 Year $ 12
12b-1 Fees --
After 3 Years $ 37
Other Expenses .18%
After 5 Years $ 65
After 10 Years $ 143
Total 1.18%
</TABLE>
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's Y Class for the most recent fiscal period. THE EXAMPLES SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN.
ACTUAL EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a
more complete description of the various costs and expenses borne by the Funds
see "Management of the Funds".
3
<PAGE>
EVERGREEN UTILITY FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES * EXAMPLE
<S> <C> <C> <C>
Management Fees .50%
After 1 Year $ 9
12b-1 Fees --
After 3 Years $ 28
Other Expenses 0.39%
After 5 Years $ 49
After 10 Years $ 110
Total 0.89%
</TABLE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES ** EXAMPLE
<S> <C> <C> <C>
Management Fees 1.00%
After 1 Year $ 21
12b-1 Fees --
After 3 Years $ 65
Other Expenses 1.07%
After 5 Years $ 111
After 10 Years $ 240
Total 2.07%
</TABLE>
KEYSTONE FUND FOR TOTAL RETURN
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES * EXAMPLE
<S> <C> <C> <C>
Management Fees 0.65%
After 1 Year $ 12
12b-1 Fees --
After 3 Years $ 37
Other Expenses 0.51%
Total 1.16%
</TABLE>
*The estimated annual operating expenses and examples do not reflect fee
waivers and expense reimbursements for the year ended December 31, 1996. Actual
expenses for Class Y Shares for the year then ended were as follows:
<TABLE>
<S> <C>
Evergreen Utility Fund.......................................................................... .61%
</TABLE>
**The estimated annual operating expenses and examples do not reflect fee
waivers and expense reimbursements for the most recent fiscal period. Currently,
the investment adviser is voluntarily waiving its fee. Estimated annual
operating expenses, net of fee waivers, is 1.07% for Class Y shares. The funds
investment adviser may, at its own discretion, discontinue these waivers at any
time.
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1Class Y shares are only available to certain investors through broker-dealers
who have entered into special distribution agreements with Evergreen Keystone
Distributor, Inc., the Fund's principal underwriter. See "How to Buy Shares."
2Expense ratio is for the Fund's fiscal year ending November 30, 1996. Total
Fund Operating Expenses include indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio for Class Y shares is expected to be 1.14%.
The Fund also offers Class A, B and C shares which have different expenses and
sales charges.
3The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be greater
or less than 5%.
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 voluntary waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in each Class of
Shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are estimated amounts based on the experience
of each Fund for the year ended December 31, 1995. Such amounts 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".
4
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the five most recent fiscal years or the life of
the Fund if shorter for EVERGREEN UTILITY FUND has been audited by KPMG Peat
Marwick LLP, the Fund's independent auditors, for EVERGREEN TAX STRATEGIC
FOUNDATION FUND has been audited by Price Waterhouse LLP, the Fund's independent
auditors and for EVERGREEN SMALL CAP EQUITY INCOME FUND has been audited by
Ernst & Young LLP, the 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.
5
<PAGE>
EVERGREEN UTILITY FUND -- Y SHARES
<TABLE>
<CAPTION>
CLASS Y SHARES
FEBRUARY 28,
1994*
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period..................................................... $10.82 $9.00 $9.51
Income (loss) from investment operations:
Net investment income.................................................................. .44 .47 .37
Net realized and unrealized gain (loss) on investments................................. .03 2.27 (.50)
Total from investment operations.................................................... .47 2.74 (.13)
Less distributions to shareholders from:
Net investment income.................................................................. (.45) (.47) (.37)
In excess of net investment income..................................................... -- -- (.01)
Net realized gain on investments....................................................... (.28) (.45) --
Total distributions................................................................. (.71) (.92) (.38)
Net asset value, end of period........................................................... $10.58 $10.82 $9.00
TOTAL RETURN+............................................................................ 4.5% 31.3% (1.6%)
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................................ $2,000 $7,791 $5,201
Ratios to average net assets:
Expenses**............................................................................. .61% 54% .40%++
Net investment income**................................................................ 4.01% 4.76% 4.93%++
Portfolio turnover rate.................................................................. 39% 88% 23%
Average commission rate paid per share................................................... $.0605 N/A N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment income to average net assets would have been
the following:
<TABLE>
<CAPTION>
CLASS Y SHARES
FEBRUARY 28,
1994*
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995 1994
<S> <C> <C> <C>
Expenses............................................................................... .89% .93% 1.24%
Net investment income.................................................................. 3.73% 4.37% 4.09%
</TABLE>
6
<PAGE>
EVERGREEN GROWTH & INCOME FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
CLASS Y SHARES
1996 1995
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period.......................................................... $18.64 $14.52
Income from investment operations:
Net investment income........................................................................ .18 .18
Net realized and unrealized gain on investments.............................................. 4.25 4.59
Total from investment operations........................................................... 4.43 4.77
Less distributions to shareholders from:
Net investment income........................................................................ (.17) (.17)
Net realized gain on investments............................................................. (.35) (.48)
Total distributions........................................................................ (.52) (.65)
Net asset value, end of period................................................................ $22.55 $18.64
TOTAL RETURN+................................................................................. 23.8% 32.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (in millions)...................................................... $442 $141
Ratios to average net assets:
Expenses..................................................................................... 1.16% 1.27%
Net investment income (loss)................................................................. .93% 1.11%
Portfolio turnover rate....................................................................... 14% 17%
Average commission rate paid per share........................................................ $.0566 --
</TABLE>
* Commencement of class operations.
** Less than one cent per share.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of operating expenses and net investment income (loss) to average net assets,
exclusive of any applicable state expense limitations, would have been the
following:
<TABLE>
<CAPTION>
CLASS Y
SHARES
<S> <C>
Expenses..............................................................................
Net investment income (loss)..........................................................
</TABLE>
7
<PAGE>
EVERGREEN VALUE FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
CLASS Y SHARES
1996 1995 1994
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period..................................................... $20.45 $16.61 $17.63
Income (loss) from investment operations:
Net investment income.................................................................. .44 .57 .56
Net realized and unrealized gain (loss) on investments................................. 3.49 4.72 (.20)
Total from investment operations.................................................... 3.93 5.29 .36
Less distributions to shareholders from:
Net investment income.................................................................. (.47) (.55) (.56)
Net realized gain on investments....................................................... (3.32) (.90) (.82)
Distributions in excess of net investment income....................................... -- -- --
Distributions in excess of net realized gain on investments............................ (.02)
Total distributions................................................................. (3.81) (1.45) (1.38)
Net asset value, end of period......................................................... $20.57 $20.45 $16.61
TOTAL RETURN+............................................................................ 19.2% 32.2% 2.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................................ $996 $760,733 $507,028
Ratios to average net assets:
Expenses............................................................................... .66% .65% .68%
Net investment income.................................................................. 2.02% 3.02% 3.21%
Portfolio turnover rate.................................................................. 91% 53% 70%
Average commission rate paid per share................................................... $.0588 -- --
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charges are not
reflected.
++ Annualized.
8
<PAGE>
EVERGREEN SMALL CAP EQUITY INCOME FUND
<TABLE>
<CAPTION>
CLASS Y SHARES
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period..................................................................... $11.58 $9.70
Income (loss) from investment operations:
Net investment income.................................................................................. .38 .38
Net realized and unrealized gain (loss) on investments................................................. 2.13 2.38
Total from investment operations.................................................................... 2.51 2.76
Less distributions to shareholders from:
Net investment income.................................................................................. (.37) (.38)
Net realized gains on investments...................................................................... (.60) (.50)
Total distributions................................................................................. (.97) (.88)
Net asset value, end of period........................................................................... $13.12 $11.58
TOTAL RETURN+............................................................................................ 22.4% 29.1%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)................................................................ $8,592 $4,806
Ratios to average net assets:
Expenses**............................................................................................. 1.50% 1.50%
Net investment income**................................................................................ 3.36% 3.56%
Portfolio turnover rate.................................................................................. 50% 48%
Average commission rate paid per share................................................................... $.0635 N/A
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of expenses and net investment loss to average net assets, exclusive of any
applicable state expense limitations, would have been the following:
<TABLE>
<CAPTION>
CLASS Y SHARES
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
Expenses......................................................................... 4.75% 4.34%
Net investment income (loss)..................................................... .11% .72%
</TABLE>
9
<PAGE>
EVERGREEN INCOME AND GROWTH FUND
(FORMERLY EVERGREEN TOTAL RETURN FUND)
CLASS Y SHARES
<TABLE>
<CAPTION>
CLASS Y SHARES
JANUARY 3,
YEAR YEAR 1995*
ENDED ENDED THROUGH
JANUARY 31, JANUARY 31, JANUARY 31,
1997 1996 1996
<S> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period................................................ $20.16 $17.28 $18.29
Income from investment operations:
Net investment income............................................................. 1.08 1.10 .87
Net realized and unrealized gain on investments................................... 1.66 2.87 (.55)
Total from investment operations............................................... 2.74 3.97 .32
Less distributions to shareholders from:
Net investment income............................................................. (1.09) (1.09) (1.08)
Net asset value, end of period...................................................... $21.81 $20.16 $17.28
TOTAL RETURN+....................................................................... 14.1% 23.5% 1.9%
RATIOS & SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted)........................................... $858 $914 $942
Ratios to average net assets:
Expenses.......................................................................... 1.18% 1.19% 1.24%
Net investment income............................................................. 5.14% 5.70% 5.70%++
Portfolio turnover rate............................................................. 168% 138% 151%
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge or contingent deferred
sales charges are not reflected.
++ Annualized.
# Net of expense waivers and reimbursements. If the Fund had borne all expenses
that were assumed or waived by the investment adviser, the annualized ratios
of operating expenses and net investment income (loss) to average net assets,
exclusive of any applicable state expense limitations, would have been the
following:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1996
CLASS Y
SHARES
<S> <C>
Expenses...........................................................................
Net investment income (loss).......................................................
</TABLE>
10
<PAGE>
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 -- Lower Rated
Securities".
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
11
<PAGE>
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 78.5%, 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. Securities rated Baa or BBB may have speculative
charachteristics. Changes in economic conditions are more likely to weaken the
capacity of the issuers of such bonds to make the interest and principal
payments than would be the case with higher rated bonds. However, like higher
rated bonds, these securities may be considered investment grade. For a
description of such ratings see the Statement of Additional Information.
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.
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
netgains from a covered call options writing program, are expected to fluctuate
over time because of varying general economic and market conditions.
12
<PAGE>
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). 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. As of January 31, 1995, 1996 and 1997,
approximately 91%, 91% and 93%, 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). 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 79%, respectively, of the Fund's portfolio consisted of investments in
utility companies. See "Special Risk Considerations".
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
13
<PAGE>
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" 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 89.5% 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 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.
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 96% 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
14
<PAGE>
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 the ability of the issuers of such bonds to make 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.
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 or exchangeable 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 investment 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, rated in any category 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
Considerations".
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. government.
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 from banks 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
15
<PAGE>
amounts up to one-third of its assets for the aformentioned purposes as well as
for leverage. See "Special Risk Considerations". 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 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, as amended, 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
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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 they agree to sell portfolio
securities to financial institutions such as banks and broker-dealers, and to
repurchase them at a mutually agreed upon date and price, 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.
KEYSTONE FUND FOR TOTAL RETURN may enter into reverse repurchase agreements in
amounts up to one-third 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 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 commitments prior to settlement
if the Funds' investment advisers deem 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. EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND, EVERGREEN SMALL CAP
EQUITY INCOME FUND and KEYSTONE FUND FOR TOTAL RETURN may also 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 call 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. The Funds, other than
EVERGREEN VALUE FUND and KEYSTONE FUND FOR TOTAL RETURN, do not currently intend
to write covered put options, but may do so in the future.
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; a put option gives the holder the right to sell the
underlying security to the writer at a stated 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 put and call options. A Fund realizes income from the premium paid
to it in exchange for writing a put or call option. Once it has written a call
option on a portfolio security and until the expiration of such option, a
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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. By writing a put option, a Fund might become obligated to purchase the
underlying security for more than its current market price upon exercise. A Fund
will only write "covered" options traded on recognized securities exchanges. An
option will be deemed covered when a Fund either (i) owns the security (or
securities convertible into such security) on which the call option has been
written in an amount sufficient to satisfy the obligations arising under a call
option, or (ii) in the case of both 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 such options. A "closing purchase transaction" may be entered into
with respect to an 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 their 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, EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND
FOR TOTAL RETURN may purchase and sell various financial instruments
("Derivative Instrument") 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 a 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
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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 in anticipation that the securities underlying the 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 Fund 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 the
Fund's 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 the Fund's 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 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 may 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
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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 and EVERGREEN
VALUE 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, EVERGREEN VALUE 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 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
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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
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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 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.
MANAGEMENT OF THE FUNDS
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
succeeded 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
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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 acts 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
$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, 1997 and November 30, 1996 in the case of
EVERGREEN INCOME AND GROWTH FUND and KEYSTONE FUND FOR TOTAL RETURN,
respectively) 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.
PORTFOLIO MANAGERS
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 Senior 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.
23
<PAGE>
ADMINISTRATOR
Evergreen Utility Fund and Evergreen Value Fund. EKIS serves as
administrator to EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND. As
administrator, and subject to the supervision and control of the
Trustees/Directors of the Funds, EKIS provides the Funds with facilities,
equipment and personnel. For its services as administrator, EKIS is entitled to
receive a fee based on the aggregate average daily net assets of the Funds at a
rate based on the total assets of all mutual funds advised by CMG, EAMC or
Keystone. The administration fee is calculated in accordance with the following
schedule.
<TABLE>
<CAPTION>
Aggregate Average Daily Net Assets of Mutual Funds for
Which Any Affiliate of FUNB Serves as Investment
Administrative Fee Adviser
<S> <C>
0.060% on the first $7 billion
0.0425% on the next $3 billion
0.035% on the next $5 billion
0.025% on the next $10 billion
0.019% on the next $5 billion
0.014% on assets in excess of $30 billion
</TABLE>
Evergreen Growth and Income Fund, Evergreen Income and Growth Fund,
Evergreen Small Cap Equity Income Fund and Keystone Fund for Total Return. EKIS
also provides facilities equipment and personnel to EVERGREEN GROWTH AND INCOME
FUND, EVERGREEN INCOME AND GROWTH FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND
and KEYSTONE FUND FOR TOTAL RETURN on behalf of each Fund's investment adviser.
KEYSTONE FUND FOR TOTAL RETURN may reimburse EKIS for its costs in providing
such services.
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), distributor for the Evergreen Keystone group of
mutual funds, serves as sub-administrator to the Funds for its services, BISYS
is entitled to receive a fee from EKIS calculated on the aggregate average daily
net assets of the Funds at a rate based on the total assets of all mutual funds
administered by EKIS for which FUNB affiliates also serve as investment adviser.
The sub-administrator fee is calculated in accordance with the following
schedule:
<TABLE>
<CAPTION>
Aggregate Average Daily Net Assets of Mutual Funds
Administered by Bisys for which any affiliate of
Sub-Administrative Fee FUNB serves as Investment Adviser
<S> <C>
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
</TABLE>
The total assets of the mutual funds for which FUNB affiliates also serve
as investment advisers were approximately $29.2 billion as of February 28, 1997.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. Each Fund's Class A, Class B and Class C shares pays
for the expenses associated with the distribution of its shares according to a
distribution plan that it has adopted pursuant to Rule 12b-1 under the 1940 Act
(each, a "Plan" or collectively the "Plans"). Under the Plans, each Fund may
incur distribution-related and shareholder servicing-related expenses at the
following rates:
<TABLE>
<CAPTION>
Maximum Annual Rate as a % of
Fund's Average Daily Net Assets
Class of Shares Attributable to the Class
<S> <C>
Class A 0.75%, currently limited to 0.25%
Class B 1.00%
Class C 1.00%
</TABLE>
24
<PAGE>
Of the amount that each Class may pay under its respective distribution
plan, up to 0.25% may constitute a service fee to be used to compensate
organizations, which may include each Fund's investment adviser or their
affiliates, for personal services rendered to shareholders and/or the
maintenance of shareholder accounts. The Funds may not pay any distribution or
services fees during any fiscal period in excess of the amounts set forth above.
Distribution Agreements. Each Fund has also entered into a distribution
agreement (each a "Distribution Agreement" or collectively the "Distribution
Agreements") with EKD. Pursuant to the Distribution Agreements, each Fund will
compensate EKD for its services as distributor at the following rates:
<TABLE>
<CAPTION>
Maximum Annual Rate as a % of
Fund's Average Daily Net
Assets
Class of Shares Attributable to the Class
<S> <C>
Class A 0.25%
Class B 1.00%
Class C 1.00%
</TABLE>
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 Fund, 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. FUNB or its affiliates
may finance the payments made by EKD to compensate broker-dealers or other
persons for distributing shares of the Fund.
In the case of KEYSTONE FUND FOR TOTAL RETURN THE COMPENSATION PAID TO
EKD UNDER ITS DISTRIBUTION AGREEMENT IS ONLY WITH RESPECT TO SHARES OF THE FUND
SOLD ON OR AFTER DECEMBER 1, 1996. IN CONSIDERATION OF THE SERVICES RENDERED BY
THE DISTRIBUTOR OF THE CLASS B AND CLASS C SHARES OF KEYSTONE FUND FOR TOTAL
RETURN sold prior to December 1, 1996, namely EKIS, the Fund's board has
determined to continue the payments called for under the distribution agreements
in effect between the Fund and EKIS with respect to the assets of the Fund
represented by such shares. It is anticipated that in the case of the Class B
shares payments will be made to EKIS until the shares convert to Class A shares
or are redeemed (see "Class B Shares -- Deferred Sales Charge Alternative",
below), and in the case of Class C shares payments will be made for a period of
months, or until they are redeemed.
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 the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee to
6.25% of cumulative gross sales of shares of that class, plus interest on the
unpaid amount at the prime rate plus 1% per annum.
25
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Class Y shares are offered at net asset value without a front-end sales
charge or a contingent deferred sales load. Class Y shares are only offered to
(1) persons who at or prior to December 31, 1994, owned shares in a mutual fund
advised by EAMC, (2) certain institutional investors and (3) investment advisory
clients of CMG, EAMC or their affiliates.
Eligible investors may purchase Class Y shares of any of the Funds
through broker-dealers, banks or other financial intermediaries, or directly
through EKD. In addition, you may purchase Class Y shares of any of the Funds by
mailing to that Fund, c/o Evergreen Keystone Service Company ("EKSC"), P.O. Box
2121, Boston, Massachusetts 02106-2121, a completed account application and a
check payable to the Fund. You may also telephone 1-800-343-2898 to obtain the
number of an account to which you can wire or electronically transfer funds and
then send in a completed account application. The minimum initial investment is
$1,000, which may be waived in certain situations. Subsequent investments in any
amount may be made by check, by wiring Federal funds, by direct deposit or by an
electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the Share Purchase Application and SAI for more information.
Only Class Y shares are offered through this Prospectus (see "General
Information" -- "Other Classes of Shares").
How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that Class by the number of outstanding shares of that
Class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. Eastern time).
The securities in a Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees or Directors believe would accurately reflect
fair value. Non-dollar denominated securities will be valued as of the close of
the Exchange at the closing price of such securities in their principal trading
markets.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or its investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen Keystone 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 Class Y shares in a Fund to the Fund
for cash, (at their net redemption value) on any day the Exchange is open,
either directly by writing to the Fund, c/o EKSC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, a Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service. Certain financial intermediaries may require that you give
instructions earlier than 4:00 p.m. (Eastern time).
26
<PAGE>
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC; the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and EKSC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and EKSC's policies.
Shareholders may withdraw amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m.(Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
EKSC'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 received after 4:00 p.m.
(Eastern time) will be processed using the net asset value determined on the
next business day. Such redemption requests must include the shareholder's
account name, as registered with a Fund, and the account number. During periods
of drastic economic or market changes, shareholders may experience difficulty in
effecting telephone redemptions. If you cannot reach the Fund by telephone, you
should follow the procedures for redeeming by mail or through a broker-dealer as
set forth herein. The telephone redemption service is not made available to
shareholders automatically. Shareholders wishing to use the telephone redemption
service must complete the appropriate sections on the Share Purchase Application
and choose how the redemption proceeds are to be paid. Redemption proceeds will
either (i) be mailed by check to the shareholder at the address in which the
account is registered or (ii) be wired to an account with the same registration
as the shareholder's account in a Fund at a designated commercial bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, neither the Funds, EKSC, nor EKD assumes
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over Evergreen Keystone Express Line or by telephone are genuine.
Neither the Funds, EKSC, nor the EKD will be liable when following instructions
received over Evergreen Keystone Express Line or by telephone that EKSC
reasonably believes are genuine.
Evergreen Keystone Express Line. Evergreen Keystone Express Line offers you
specific fund account information and price and yield quotations as well as the
ability to do account transactions, including investments, exchanges and
redemptions. You may access Evergreen Keystone Express Line by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for Federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission so orders. The Funds reserve the
right to close an account that through redemption has fallen below $1,000 and
has remained so for thirty days. Shareholders will receive sixty days' written
notice to increase the account value to at least $1,000 before the account is
closed. The Funds have elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which each Fund is obligated to redeem shares solely in cash, up to
the lesser of $250,000 or 1% of a Fund's total net assets during any ninety day
period for any one shareholder. See the SAI for further details.
27
<PAGE>
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your Class Y shares for
shares of the same Class in the other Evergreen Keystone mutual funds through
your financial intermediary, by calling or writing to EKSC or by using Evergreen
Keystone Express Line as described below. Once an exchange request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Exchanges will be made on the basis of the relative net asset values of the
shares exchanged next determined after an exchange request is received. An
exchange that represents an initial investment in another Evergreen Keystone
mutual fund is subject to the minimum investment and suitability requirements of
each Fund.
Each of the Evergreen Keystone 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
order must comply with the requirement for a redemption or repurchase order and
must specify the dollar value or number of shares to be exchanged. An exchange
is treated for Federal income tax purposes as a redemption and purchase of
shares and may result in the realization of a capital gain or loss. Shareholders
are limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges by Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (Eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach EKSC by telephone. If you wish to use the telephone
exchange service you should indicate this on the 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 EKSC if it is
believed advisable to do so. Procedures for exchanging Fund shares by telephone
may be modified or terminated at any time. Written requests for exchanges should
follow the same procedures outlined for written redemption requests in the
section entitled "How to Redeem Shares"; however, no signature guarantee is
required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, EKSC
or the toll-free number on the front page of this Prospectus. Some services are
described in more detail in the 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. You may open a Systematic Investment Plan in the EVERGREEN FUND
and EVERGREEN AGGRESSIVE GROWTH 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 4:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Shares purchased under the Systematic Investment Plan or Telephone Investment
Plan may not be redeemed for ten days from the date of investment.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Share Purchase
Application. Under this plan, you may receive (or designate a third party to
receive) a monthly or quarterly fixed-withdrawal payment in a stated amount of
at least $75 and may be as much as 1.0% per month or 3.0% per quarter of the
total net asset value of the Fund shares in your account when the Plan was
opened. Fund
28
<PAGE>
shares will be redeemed as necessary to meet withdrawal payments. All
participants must elect to have their dividends and capital gain distributions
reinvested automatically.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen Keystone mutual fund.
This results in more shares being purchased when the selected Fund's net asset
value is relatively low and fewer shares being purchased when the Fund's net
asset value is relatively high and may result in a lower average cost per share
than a less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen Keystone mutual fund. You should designate on the
application (1) the dollar amount of each monthly or quarterly investment you
wish to make and (2) the Fund in which the investment is to be made. Thereafter,
on the first day of the designated month, an amount equal to the specified
monthly or quarterly investment will automatically be redeemed from your initial
account and invested in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Class Y Evergreen Keystone mutual fund shares you own
automatically invested to purchase the same class of shares of any other
Evergreen Keystone mutual fund. You may select this service on your application
and indicate the Evergreen Keystone mutual fund(s) into which distributions are
to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to you, including Individual Retirement Accounts (IRAs); Rollover IRAs;
Simplified Employee Pension Plans (SEPs); Salary Reduction Plans (SARSEPs); Tax
Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans; Keogh Plans; Corporate
Profit-Sharing Plans; and Money Purchase Plans. For details, including fees and
application forms, call toll free 1-800-247-4075 or write to EKSC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. 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.
29
<PAGE>
OTHER INFORMATION
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. A shareholder who
acquires Class A shares of a Fund and sells or otherwise disposes of such shares
within ninety days of acquisition may not be allowed to include certain sales
charges incurred in acquiring such shares for purposes of calculating gain or
loss realized upon a sale or exchange of shares of the Fund.
The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of " Additional Tax Information" contained in the Statement of
Additional Information. In addition, you should consult your own tax adviser as
to the tax consequences of investments in the Funds, including the application
of state and local taxes which may be different from Federal income tax
consequences described above.
30
<PAGE>
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 UTILITY FUND is a 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 , 1986.
The Funds do not intend to hold annual shareholder meetings; shareholder
meetings will be held only when required by applicable law. Shareholders have
available certain procedures for the removal of Trustees. A shareholder in each
Class of a Fund will be entitled to his or her share of all dividends and
distributions from a Fund's assets, based upon the relative value of such shares
to those of other Classes of the Fund and, upon redeeming shares, will receive
the then current net asset value of the Class of shares of the Fund represented
by the redeemed shares less any applicable CDSC. Each Trust named above is
empowered to establish, without shareholder approval, additional investment
series, which may have different investment objectives, and additional Classes
of shares for any existing or future series. If an additional series or Class
were established in a Fund, each share of the series or Class would normally be
entitled to one vote for all purposes. Generally, shares of each series and
Class would vote together as a single Class on matters, such as the election of
Trustees, that affect each series and Class in substantially the same manner.
Class A, Class B, Class C and Class Y shares have identical voting, dividend,
liquidation and other rights, except that each Class bears, to the extent
applicable, its own distribution, shareholder service and transfer agency
expenses as well as any other expenses applicable only to a specific Class. Each
Class of shares votes separately with respect to Rule 12b-1 distribution plans
and other matters for which separate class voting is appropriate under
applicable law. Shares are entitled to dividends as determined by the Trustees
and, in liquidation of a Fund, are entitled to receive the net assets of the
Fund.
Custodian, 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
Service 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, 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, Keystone 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 prescribed by the
Securities and Exchange Commission ("SEC"), the average
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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 and dividend 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 indicative of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen Keystone mutual funds, products, and services, which may
include: retirement investing; brokerage products, and services, the effects of
periodic investment plans and dollar cost averaging; saving for college; and
charitable giving. In addition, the information provided to investors may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques. 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 Keystone 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 shall 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.
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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
Keystone Investment Management Company, 200 Berkeley Street, Boston
Massachusetts 02116-5034
KEYSTONE FUND FOR TOTAL RETURN
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts
02205-9827
TRANSFER AGENT
State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827
FOR THE EVERGREEN FUNDS
Evergreen Keystone Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121
FOR THE KEYSTONE FUND
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C.
20036
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
EVERGREEN UTILITY FUND, EVERGREEN GROWTH AND INCOME FUND, EVERGREEN VALUE
FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND, KEYSTONE FUND FOR TOTAL RETURN
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
EVERGREEN INCOME AND GROWTH FUND
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 120 Clove Road, Little Falls, New Jersey
07424
42430 536115REV01
*******************************************************************************
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. Total Return does not intend to invest more than 5%
of its net assets in when-issued or delayed delivery transactions.
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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 objective, 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.
11
<PAGE>
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, Value or Total Return 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 real estate, except that it may
purchase and sell securities secured by real estate and securities of companies
which invest in real estate.
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
12
<PAGE>
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.
13
<PAGE>
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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<PAGE>
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 (and with respect to Total Return,
including 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
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affect the validity of those Municipal Securities or the tax-free nature of the
interest thereon.
MANAGEMENT
The Evergreen Keystone Funds consist of seventy-three mutual funds. Each
mutual fund is, or is a series of, a registered, open-end management company.
The Trustees and executive officers of each mutual fund, their age, address
and principal occupations during the past five years are set forth below:
TRUSTEES
JAMESS. 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 seventy-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-three of the
investment companies (excluded are those established within the Evergreen
Variable Trust).
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL Trustee. Real
estate developer and construction consultant since 1980; President of Centrum
Equities since 1987 and Centrum Properties, Inc. since 1980.
FOSTER BAM (70), Greenwich Plaza, Greenwich, CT Trustee. Partner in the law firm
of Cummings and Lockwood since 1968.
Messrs. Ashkin and Bam are Trustees of forty-two of the investment companies
(excluded are those established within the Evergreen Variable Trust and
Evergreen Investment Trust).
FREDERICK AMLING (69)
<PAGE>
Trustee. Professor, Finance Department, George Washington University;
President, Amling & Company (investment advice); Member, Board of Advisers,
Credito Emilano (banking); and former Economics and Financial Consultant,
Riggs National Bank.
CHARLES A. AUSTIN III (61)
Trustee. Investment Counselor to Appleton Partners, Inc.; former Managing
Director, Seaward Management Corporation (investment advice); and former
Director, Executive Vice President and Treasurer, State Street Research &
Management Company (investment advice).
GEORGE S. BISSELL* (67) Chairman of the Keystone group of mutual Funds, and
Trustee. Director of Keystone Investments Inc.; 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 (69) Trustee. Director and former Executive Vice
President, National Alliance of Business; former Vice President,
Educational Testing Services; former Dean, School of Business, Adelphi
University; and former Executive Director, Coalition of Essential Schools,
Brown University.
CHARLES F. CHAPIN (67)
Trustee. Former Group Vice President, Textron Corp.; and former Director,
Peoples Bank (Charlotte, NC).
K. DUN GIFFORD (57)
Trustee. Chairman of the Board, Director, and Executive Vice President, The
London Harness Company; Managing Partner, Roscommon Capital Corp.; Trustee,
Cambridge College; Chairman Emeritus and Director, American Institute of
Food and Wine; Chief Executive Officer, Gifford Gifts of Fine Foods;
Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments Inc. and Keystone Investment Management
Company.
LEROY KEITH, JR. (57) Trustee. Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio
Fund, and The Phoenix Big Edge Series Fund; and former President,
Morehouse College.
F. RAY KEYSER, JR. (69)
Trustee and Advisor to the Boards of Trustees of the Evergreen Funds.
Counsel, Keyser, Crowley & Meub, P.C.; Member, Governor's (VT) Council of
Economic Advisers; Chairman of the Board and Director, Central Vermont
Public Service Corporation and Hitchcock Clinic; Director, Vermont Yankee
Nuclear Power Corporation, Vermont Electric Power Company, Inc., Grand Trunk
Corporation, Central Vermont Railway, Inc., S.K.I. Ltd., Sherburne
Corporation, Union Mutual Fire Insurance Company, New England Guaranty
Insurance Company, Inc., and the Investment Company Institute; former
Governor of Vermont.
DAVIDM. RICHARDSON (55) Trustee. Executive Vice President, DHR
International, Inc. (executive recruitment); former Senior Vice
President, Boyden International Inc. (executive recruitment); and
Director, Commerce and Industry Association of New Jersey, 411
International, Inc., and J&M Cumming Paper Co.
<PAGE>
RICHARD J. SHIMA (57)
Trustee and Advisor to the Boards of Trustees of the Evergreen Funds.
Chairman, Environmental Warranty, Inc., and Consultant, Drake Beam Morin,
Inc. (executive outplacement); Director of Connecticut Natural Gas
Corporation, Trust Company of Connecticut, Hartford Hospital, Old State
House Association, and Enhance Financial Services, Inc.; Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Kingswood- Oxford School and
Greater Hartford YMCA; former Director, Executive Vice President, and Vice
Chairman of The Travelers Corporation.
ANDREW J. SIMONS (57) Trustee. Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; former President, Nassau County Bar
Association; former Associate Dean and Professor of Law, St. John's
University School of Law.
Messrs. Amling, Austin, Bissell, Campbell, Chapin, Gifford, Keith, Keyser,
Richardson, Shima and Simons are Trustees or Directors of the thirty-one funds
in the Keystone group of mutual 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, as well as 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 O. MARTINEZ (37), 3435 Stelzer Road, Columbus, OH Secretary. Senior
Vice President/Director of Administration and Regulatory Services,
BISYS Fund Services since April 1995. Vice President/Assistant General
Counsel, Alliance Capital Management from 1988 to 1995.
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* Messrs. Pettit and Bissell may both 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 The BISYS Group,
Inc.("BICYS") Services, except for Mr. Pileggi, who is a consultant to BISYS.
BISYS 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:
<PAGE>
Name of Trust/Fund Annual Retainer Meeting Fee
Income and Growth $ 5,500 $ 300
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** -0- -0-
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* The annual retainer and meeting fee paid by Evergreen Investment Trust to each
Trustee are allocated among its fourteen series based on assets.
** See Item No. 7 below.
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) Each member of the Audit Committee of the Evergreen group of mutual funds is
paid an annual retainer of $500.
(3) Each non-affiliated Trustee of the Evergreen group of mutual funds is paid a
fee of $500 for each special telephonic meeting in which he participates,
regardless of the number of Funds for which the meeting is called.
(4) Each non-affiliated Trustee of the Keystone group of mutual funds is paid a
fee of $300 for each special telephonic meeting in which he participates,
regardless of the number of Funds for which the meeting is called.
(5) Each non-affiliated Trustee of the Evergreen group of mutual funds 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) The members of the Advisory Committee to the Boards of Trustees of the
Evergreen Funds are paid an annual retainer of $17,500 and a fee of $2,200 for
each meeting of the Boards of Directors or Trustees of the Evergreen Funds
attended.
<PAGE>
(7) Each non-affiliated Trustee of the Keystone group of mutual funds is paid an
annual retainer of $30,000, and a fee of $1,200 for each meeting attended, which
fees are charged to the Funds as follows:
Annual Meeting
Retainer Fee
Keystone Global Opportunities Fund $ 500 $ 20
Keystone Global Resources and Development Fund $2,000 $ 80
Keystone Omega Fund $2,000 $ 80
Keystone Small Company Growth Fund II $ 500 $ 20
Keystone Strategic Income Fund $2,000 $ 80
Keystone Tax Free Income Fund $ 500 $ 20
Keystone Quality Bond Fund (B-1) $2,000 $ 80
Keystone Diversified Bond Fund (B-2) $2,500 $ 100
Keystone High Income Bond Fund (B-4) $2,500 $ 100
Keystone Balanced Fund (K-1) $3,000 $ 120
Keystone Strategic Growth Fund (K-2) $2,000 $ 80
Keystone Growth and Income Fund (S-1) $ 500 $ 20
Keystone Mid-Cap Growth Fund (S-3) $ 500 $ 20
Keystone Small Company Growth Fund (S-4) $3,000 $ 120
Keystone International Fund Inc. $ 500 $ 20
Keystone Precious Metals Holdings, Inc. $ 500 $ 20
Keystone Tax Free Fund $5,500 $ 220
(8)Each non-affiliated Trustee of the Keystone group of mutual funds is paid a
fee of $600 for attendance at each Committee meeting held on the same day as a
regular meeting.
(9) Each non-affiliated Trustee of the Keystone group of mutual funds is paid a
fee of $1,200 for attendance at each Committee meeting held on a non-meeting
day.
(10) 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 annual
retainer fees that are payable to regular Trustees, and one-half of the meeting
fees for each meeting attended.
<PAGE>
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
Evergreen Evergreen Evergreen Evergreen Evergreen Keystone
Income Growth American Foundation Investment Fund for
and Growth and Incmome Retirement Trust Trust Total
Name of Fund Fund Trust Return
Trustee
20
<PAGE>
L.B. Ashkin 7,249 1,121 2,020 1,861 0 0
F. Bam 6,949 1,021 1,820 1,661 0 0
J.S. Howell 7,410 1,187 2,031 2,055 26,007 0
G.M. McDonnell 6,834 966 1,811 1,496 22,355 0
T.L. McVerry 7,238 1,111 2,018 1,839 24,902 0
W.W. Pettit 7,071 1,029 2,005 1,597 23,504 0
R.A. Salton 7,071 1,029 2,005 1,597 23,804 0
M.S. Scofield 7,071 1,029 2,005 1,597 23,804 0
F.Amling 0 0 0 0 0 0
C.A. Austin 0 0 0 0 0 0
G.S. Bissell 0 0 0 0 0 0
E.D. Campbell 0 0 0 0 0 0
C.F. Chapin 0 0 0 0 0 0
K.D. Gifford 0 0 0 0 0 0
L. Keith 0 0 0 0 0 0
F.R. Keyser 0 0 0 0 0 0
D.M. Richardson 0 0 0 0 0 0
R.J. Shima 0 0 0 0 0 0
A.J. Simons 0 0 0 0 0 0
R.J. Jeffries 3,239 409 802 594 0 0
- -------------------------------------
Total
Compensation
From Trusts
and Fund
Complex Paid
To Trustees
L.B. Ashkin 33,000
F. Bam 30,300
J.S. Howell 66,000
G.M. McDonnell 53,300
T.L. McVerry 59,500
W.W. Pettit 57,000
R.A. Salton 61,000
M.S. Scofield 61,000
F.Amling 42,600
C.A. Austin 42,600
G.S. Bissell 0
E.D. Campbell 40,800
C.F. Chapin 40,800
K.D. Gifford 38,400
L. Keith 40,200
F.R. Keyser 42,600
D.M. Richardson 42,600
R.J. Shima 39,600
A.J. Simons 40,800
R.J. Jeffries 13,050
As of the date of this Statement of Additional Information, the officers
and Trustees of the Trusts owed as a group less than 10% of the outstanding
Class A, Class B, Class C or Class Y shares of any of the Funds.
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
- ---------------- ---------- ------------- ------------
Merrill Lynch Balanced/C 7,370 24.09%/.01%
Trade House Account - AID
Private Client Group
Attn Book Entry
301 S. Tryon Street
Charlotte, NC 28288-0001
21
<PAGE>
Fubs & Co. Febo Balanced/C 2,937 9.60%/0%
FUNB NC F B O Goldston S. Bldg.
Supply Loan Acct.
Attn: Frank Pierce *Loan Account*
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Balanced/C 2,179 7.12%/0%
First Union National Bank-FL F/B/O
Leroy Selby, Jr. *Loan Account*
Attn: Carol Moening
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Balanced/Y 32,905,313 55.34%/46.29%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Balanced/Y 26,468,493 44.51%/37.23%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
22
<PAGE>
Fubs & Co. Febo Income and Growth/C 5,161 11.39%/.01%
T. James Bell Jr.
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union Natl. Bank-FL C/F Income and Growth/C 2,397 5.29%/0%
Fred W. Cookson IRA
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Income and Growth/C 2,542 5.61%/0%
Last Stop Inc.
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Merrill Lynch Growth and Income/C 144,946 24.72%/.37%
Trade House Account - AID
Private Client Group
Attn: Book Entry
301 S. Tryon Street
Charlotte, NC 28288-0001
23
<PAGE>
First Union National Bank/EB/INT Growth and Income/Y 3,832,484 18.51%/9.67%
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 11,135,655 53.80%/28.11%
Reinvest Account
Attn. Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor
CMG 1151
Charlotte, NC 28202-1911
24
<PAGE>
Fubs & Co. Febo American Retirement/C 15,584 12.70%/.18%
Adron G. Hollowell Trust
Robert E. Bryan JR. Trustee
U/A/D 9/23/63
C/O First Union National Bank
301 S Tryon Street
Charlotte, NC 28288-0001
Charles Schwab & Co. Inc. American Retirement/Y 510,226 18.77%/5.73%
Special Custody Account for the
Exclusive Benefit of Customers
Reinvest Account Mut Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
First Union National Bank/EB/INT American Retirement/Y 222,747 8.20%/2.50%
Reinvest Account
Attn. Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor
CMG 1151
Charlotte, NC 28202-1911
FUNB NC CUST for the IRA of Small Cap/A 2,768 8.49%/.17%
Charletta B. Phillips
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
FUNB NC CUST for the IRA of Small Cap/A 2,768 8.49%/.17%
NR Phillips
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
25
<PAGE>
BHC Securities, Inc. Small Cap/A 2,619 8.03%/.17%
FAO 35532803
ATTN: Mutual Funds
One Commerce Square
2005 Market Street Suite 1200
Philadelphia PA 19103-7042
BHC Securities, Inc. Small Cap/A 1,793 5.50%/.12%
FAO 35501632
ATTN: Mutual Funds Dept.
One Commerce Square
2005 Market Street Suite 1200
Philadelphia PA 19103-7042
First Union Natl.Bank GA C/F Small Cap/B 7,356 8.86%/.47%
Lawrence Pelowski-IRA Roll
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
26
<PAGE>
Merrill Lynch Small Cap/C 1,728 9.85%/.11%
Trade House Account AID
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville FL 32246-6484
William B. Read University Small Cap/C 1,531 8.72%/.10%
William B. Read III Thomas W. Read &
Sally R. Rouston NKD Own
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Roland J. Dupuy Jr. SEP Prop Small Cap/C 1,495 8.52%/.10%
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Rhona B. Miller Small Cap/C 1,912 10.90%/.12%
C/O First Union National Bank
301 S Tryon Street
Charlotte, NC 28288-0001
Dupuy Dufour PSRP & Trust Small Cap/C 2,240 12.77%/1.14%
Don P Dufour & Harvey J. Dupuy
U/A/D 1/180
C/O First Union National Bank
301 S Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Small Cap/C 891 5.08%/.01%
John Ellis Gibson
C/O First Union National Bank
301 S Tryon Street
Charlotte, NC 28288-0001
Nola Maddox Falcone Small Cap/Y 133,937 9.42%/ 8.61%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Stephen A. Lieber Small Cap/Y 122,609 8.62%/ 7.88%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
First Union National Bank/EB Small Cap/Y 617,153 43.40%/39.68%
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 76,632 5.39%/ 4.93%
Reinvest Account
Attn: Trust Operations Fund
401 S. Tryon Street
3rd Floor CMG 11
Charlotte, NC 28202-1911
Citibank NA Small Capy/Y 185,518 13.05%/11.93%
Delta Airlines Master Trust
308235
c/o Lieber & Co.
2500 Westchester Ave.
Purchase, NY 10577
Charles Schwab & Co. Inc. Foundation/A 1,032,516 7.63%/1.02%
Special Custody Account For the
Exclusive Benefit of Customers
Reinvest Account MUT Funds Dept
27
<PAGE>
101 Montgomery St.
San Francisco, CA 94104-4122
Merrill Lynch Foundation/C 350,345 20.52%/.34%
Trade House Account AID
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville FL 32246-6484
Charles Schwab & Co. Inc. Foundation/Y 3,482,596 7.03%/3.42%
Special Custody Account for
the Eclusive Benefit of Cusotmers
101 Montgomery Street
San Francisco, CA 94104-4122
First Union National Bank/EB Foundation/Y 4,592,905 9.27%/ 4.52%
Cash Account
Attn: Trust Operations Fund
401 S. Tryon Street
3rd Floor CMG 11
Charlotte, NC 28202-1911
First Union National Bank/EB/INT Foundation/Y 15,824,132 31.94%/15.56%
Reinvest Account
Attn: Trust Operations Fund
401 S. Tryon Street
3rd Floor CMG 11
Charlotte, NC 28202-1911
Mac & Co. Foundation/Y 6,620,154 13.36%/6.51%
Aetna Retirement Services
Central Valuation Unit
Attn: Mutual Funds Operations
P.O. Box 320
Pittsburgh, PA 15230-0320
Fubs & Co. Febo Tax Strategic /A 77,975 7.81%/1.27%
Ray D. Russenberger
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Merrill Lynch Tax Strategic /C 125,500 35.59%/2.05%
Trade House Account AID
Private Client Group
Attn: Book Entry
4800 Deer Lake Dr. East 3rd Fl.
Jacksonville FL 32246-6484
Fubs & Co. Febo Tax Strategic /C 21,678 6.15%/.35%
Hossein Golabchi and
Margot R. Golabachi
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Tax Strategic /C 76,731 21.76%/1.25%
Brenda Dykgraaf
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Nola Maddox Falcone Tax Strategic /Y 102,130 9.29%/1.67%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
28
<PAGE>
Constance E. Lieber Tax Strategic /Y 59,814 5.44%/ .97%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Stephen A. Lieber Tax Strategic/Y 518,372 47.13%/ 8.45%
C/O Lieber & Co.
2500 Westchester Avenue
Purchase, NY 10577
Fubs & Co. Febo Utility/C 6,268 18.42%/.05%
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 3,692 10.85%/.03%
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 1,179 5.17%/.01%
Evelyn L. Smith
Creg Smith
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Utility/C 2,040 6.00%/.02%
Max Ray and
Jeralyne Ray
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Utility/C 2,140 6.29%/.01%
Thomas McKinney and
Lottie McKinney
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Utility/Y 93,556 49.88%/.75%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Utility/Y 79,811 42.55%/ .64%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
29
<PAGE>
First Union National Bank- Value/C 6,387 8.58%/0%
Clara Caudill
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Value/Y 15,617,664 32.59%/21.10%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank Value/Y 31,793,001 66.34%/42.96%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon Street
Charlotte, NC 28288-0001
Keystone Investments Keys Tot Return/A 228,248,118 9.12%
Savings & Investment Trust
NYL Benefits Services Co. Inc.
Attn: Defined Contributions Dept
846 University Ave.
Norwood, MA 02062-2641
MLPF&S for the sole benefit Key Tot Return/A 132,989,000 5.31%
of its customers
Attn: Fund Admin
4800 Deer Lake Dr. E, 3rd Floor
Jacksonville, FL 32246-6484
MLPF&S for the sole benefit Key Tot Return/B 368,928,000 9.61%
of its customers
Attn: Fund Admin
4800 Deer Lake Dr. E, 3rd Floor
Jacksonville, FL 32246-6484
SSN/TIN: 866168037 Key Tot Return/C 134,654,925 21.50%
Lavedna Ellingson
Douglas Ellingson TTEES
Lavedna Ellingson Martial Trust
U/A DTD 5-1-86
8510 McClintock
Tempe, AZ 85284-2527
MLPF&S for the sole benefit Key Tot Return/C 120,950,000 19.31%
of its customers
Attn: Fund Admin
4800 Deer Lake Dr. E, 3rd Floor
Jacksonville, FL 32246-6484
- - ---------------------------------
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 44.61% of the shares of Evergreen Small Cap Equity
Income Fund, 37.78% of Evergreen Growth and Income Fund, 83.52% of Evergreen
Balanced Fund and 64.06% of Evergreen Value Fund, First Union may be deemed
to "control" these Funds as that Term is defined in the 1940 Act.
30
<PAGE>
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 Delaware corporation, with offices at
200 Berkeley Street, Boston, Massachusetts. Keystone is an indirectly owned
subsidiary of 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
31
<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 $4,765,912 $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 $8,893,554 $9,343,195 $8,542,289
========== =========== ===========
Expense
Reimbursement 0 $ 53,576
FOUNDATION Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $11,140,780 $5,387,186 $2,551,768
========== ========== ========
Expense
Reimbursement 0 11,064
SMALL CAP Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $63,333 $45,397 $29,075
--------- -------- --------
Waiver ($63,333) ($45,397) ($29,075)
Net Advisory Fee 0 $ 0 $ 0
========= ========= =========
Expense
Reimbursement $133,406 $164,584 $63,704
--------- ------- -------
32
<PAGE>
UTILITY Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $725,733 $456,021 $153,458
--------- --------- ----------
Waiver ($396,483) ($299,028) ($152,038)
Net Advisory Fee 329,300 $156,993 $ 1,420
========= =========
Expense
Reinbursement 0 $ 51,894 $106,957
-------- -------- ---------
GROWTH AND INCOME Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $5,287,338 $1,332,685 $684,891
======== ======== ========
Expense
Reimbursement (5,000) $ 38,106
--------- --------
AMERICAN Year Ended Year Ended Year Ended
RETIREMENT 12/31/96 12/31/95 12/31/94
Advisory Fee $549,949 $297,242 $292,628
======== ======== ========
Waiver ($24,841)
Net Advisory Fee $525,108
Expense
Reimbursement ($3,400) $ 76,464
--------- --------
TAX STRATEGIC Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $354,958 $140,386 $ 65,915
------- ------ --------
Waiver ($90,551) ($96,975) ($65,915)
Net Advisory Fee $264,407 $ 43,411 $ 0
========== ========= =========
Expense
Reimbursement ($11,339) $ 85,543 $ 3,777
-------- ------ ------
VALUE Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Advisory Fee $6,950,730 $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 448,266 300,290 242,315
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.
Keystone has voluntarily agreed to limit Total Return's 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 March
11, 1997
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 March 11, 1997.
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 (the "Independent Trustees"), 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.
34
<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 $459,486,
respectively; Utility $39,330 and $70,215, respectively; and Value $323,050 and
$670,060, respectively. 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:
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.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 $29.2
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, Class B Class and Class C shares and are charged as
class expenses, as accrued. The distribution fees attributable to the Class B
shares and Class C shares are designed to permit an investor to purchase such
shares through broker-dealers without the assessment of a front-end sales
charge, and, in the case of Class C shares, without the assessment of a
contingent deferred sales charge after the first year following 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, Class B or Class 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
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Class and, in either case, by a majority of the Independent Trustees of the
Trust who have no direct or indirect financial interest in the operation
of the Plan or any agreement related thereto.
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 Independent 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
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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 Plan 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 $18,106 on behalf of its Class A shares, $126,
$46,636 and $63,108, respectively on behalf of its Class B shares, and $7,
$1,516 and $6,382, 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 $122,222, respectively, on behalf of its Class A shares,
$159,114 and $934,314, respectively, on behalf of its Class B shares, and $6,902
and $36,055, 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 $14,426, respectively, on behal of its Class A shares, $9,137
and $199,829, respectively, on behalf of its Class B shares, and $187 and
$5,713, 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 $618, respectively, on behalf of its Class A shares, $1,298 and
$3,199, respectively, on behalf of its Class B shares, and $111 and $267,
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 $414,289, respectively on behalf of its Class A shares,
$972,541 and $3,487,899, respectively, on behalf of its Class B shares, and
$37,823 and $152,488, 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 $16,426, respectively, on behalf of its Class A shares, $21,725
and $131,282, respectively, on behalf of its Class B shares, and $1,292 and
$16,493, respectively, on behalf of its Class C shares.
TOTAL RETURN. For the fiscal years ended November 30, 1994, 1995 and 1996,
$44,889, $101,222 and $194,754, respectivley, on behalf of its Class B shares,
and $36,580, $60,201 and $84,551, respectivley, 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
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$63,108, respectively, on behalf of its Class B shares, and $3, $505 and
$2,127, 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 $311,235 on behalf of its
Class B shares, and $2,301 and $12,018, 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 $66,610, respectively, on behalf of its Class B shares, and
$62 and $1,904, 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 $1,066, respectively, on behalf of its Class B shares, and $37
and $89, 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 $1,162,633, respectively, on behalf of its Class B shares,
and $12,608 and $50,829, 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 $43,761, respectively, on behalf of its Class B shares, and
$431 and $5,498, respectively, on behalf of its Class C shares.
TOTAL RETURN. For the fiscal years ended November 30, 1994, 1995 and 1996,
$61,955, $61,454 and $74,762, respectivley, on behalf of its Class A shares,
$14,587, $33,741, and $64,919, respectivley, on behalf of Class B shares, and
$20,893, $20,066, and $28,183, respectivley, 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 $107,023, respectively, on behalf of Class A shares, and $670,202,
$784,084 and $810,803, 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 $1,883,
respectively, on behalf of Class C shares.
VALUE. For the fiscal years ended December 31, 1994, 1995 and 1996, $473,347,
$603,896 and $767,254, respectively, on behalf of Class A shares, and $621,330,
$916,221 and $1,255,600, 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 $8,706,
respectively, on behalf of Class C shares.
UTILITY. For the fiscal years ended December 31, 1994, 1995 and 1996, $9,658,
$133,582 and $252,753, respectively, on behalf of Class A shares, and $169,007,
$234,357 and $283,875, 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
$2,843, 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 $270,267, respectively, on behalf of Class B shares, and $103, $604
and $628, respectively, on behalf of Class C shares.
UTILITY. For the fiscal years ended December 31, 1994, 1995 and 1996, $24,141,
$78,119 and $94,625, respectively, on behalf of Class B shares, and $77, $424
and $948, respectively, on behalf of Class C shares.
VALUE. For the fiscal years ended December 31, 1994, 1995 and 1996, $83,225,
$305,407 and $418,533, respectively, on behalf of Class B shares, and $239,
$1,599 and $2,902, 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 securities 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 Investment 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 $3,529,313 $3,255,068 $3,755,606
Commissions
Dollar Amount and % $2,835,293 $2,982,640 $3,465,900
paid to Lieber 80% 92% 92%
% of Transactions
Effected by Lieber 47% 90% 97%
FOUNDATION Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $689,724 $393,121 $282,250
Commissions
Dollar Amount and % $680,252 $380,226 $ 276,985
paid to Lieber 99% 98% 98%
% of Transactions
Effected by Lieber 96% 97% 98%
SMALL CAP Year Ended Year Ended Period Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $14,647 $5,968 $ 3,998
Commissions
Dollar Amount and % $13,246 $4,863 $ 3,618
paid to Lieber 90% 81% 90%
% of Transactions
Effected by Lieber 87% 77% 90%
GROWTH AND INCOME Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $519,064 $210,923 $80,871
Commissions
Dollar Amount and % $429,888 $160,659 $71,721
paid to Lieber 83% 76% 89%
% of Transactions
Effected by Lieber 78% 74% 88%
AMERICAN RETIREMENT Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $55,581 $57,216 $203,922
Commissions
Dollar Amount and % $51,579 $53,276 $202,838
paid to Lieber 93% 93% 99%
% of Transactions
Effected by Lieber 89% 82% 99%
TAX STRATEGIC Year Ended Year Ended Period Ended
12/31/96 12/31/95 12/31/94
Total Brokerage $51,273 $37,374 $24,872
Commissions
Dollar Amount and % $50,033 $35,954 $24,072
paid to Lieber 98% 96% 97%
% of Transactions
Effected by Lieber 97% 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 $522,227, $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 $323,978, $272,806 and $66,294, respectively, in commissions on
brokerage transactions. For the fiscal years ended December 31, 1996, 1995 and
1994, Value paid $3,164,292, $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 $227,013, $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 Plan fee)
and, to the extent applicable, transfer agency fees and the fact that Class Y
shares bear no additional distribution, shareholder service or transfer agency
related fees. While it is expected that, in the event each Class of shares of a
Fund realizes net investment income or does not realize a net operating loss for
a period, the per share net asset values of the four Classes will tend to
converge immediately after the payment of dividends, which dividends will differ
by approximately the amount of the expense accrual differential among the
Classes, there is no assurance that this will be the case. In the event one or
more Classes of a Fund experiences a net operating loss for any fiscal period,
the net asset value per share of such Class or Classes will remain lower than
that of Classes that incurred lower expenses for the period.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York.
Furthermore, trading takes place in various foreign markets on days
which are not business days in New York and on which the Fund's net asset value
is not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the Exchange
will not be reflected in a Fund's calculation of net asset value unless the
Trustees deem that the particular event would materially affect net asset value,
in which case an adjustment will be made. Securities transactions
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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 Plan fee, (III) Class A shares bear
the expense of the front-end sales charge and Class B and Class C shares bear
the expense of the deferred sales charge, (IV) Class B shares and Class C shares
each bear the expense of a higher Rule 12b-1 distribution services fee and
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 Plan fee) is paid which relates to a specific
Class and other matters for which separate Class voting is appropriate under
applicable law, provided that, if the Fund submits to a simultaneous vote of
Class A, Class B and Class C shareholders an amendment to the Rule 12b-1 Plan
that would materially increase the amount to be paid thereunder with respect to
the Class A shares, the Class A shareholders and the Class B and Class C
shareholders will vote separately by Class, and (VI) only the Class B shares are
subject to a conversion feature. Each Class has different exchange privileges
and certain different shareholder service options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent applicable, shareholder service) 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 $250,000 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 Plan fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares. However, because
front-end sales charges are deducted at the time of purchase, investors
purchasing Class A shares would not have all their funds invested initially and,
therefore, would initially own fewer shares. Investors not qualifying for
reduced front-end sales charges who expect to maintain their investment for an
extended period of time might consider purchasing Class A shares because the
accumulated continuing distribution (and, to the extent applicable, Shareholder
Service Plan) charges on Class B shares or Class C shares may exceed the
front-end sales charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration against the fact
that, because of such front-end sales charges, not all their funds will be
invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution services (and, to the extent applicable, Shareholder Service Plan)
fees and, in the case of Class B shares, being subject to a contingent deferred
sales charge for a six-year period. For example, based on current fees and
expenses, an investor subject to the 4.75% front-end sales charge imposed 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 $21.79 $1.09 1/31/97 $22.88
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 $10.57 $.53 12/31/96 $11.10
Value $20.57 $1.03 12/31/96 $21.60
Total Return $17.33 $1.06 11/30/96 $18.39
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 Year Ended Period Ended
Year Ended
12/31/96 7/8/95 to 1/1/95 to 7/7/95
12/31/95
BALANCED
Commissions Received $77,026 $15,844 $11,841
Commissions Retained $ 9,150 $ 1,731 $ 1,303
VALUE
Commissions Received $522,573 $58,797 $56,058
Commissions Retained $ 56,609 $ 6,615 $ 6,001
UTILITY
Commissions Received $74,988 $15,692 $20,958
Commissions Retained $ 7,857 $ 1,727 $ 2,228
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 $187,403 $ 98,890 $4,585
Commissions Retained $ 20,208 $ 10,733 ---
Year Ended Year Ended
GROWTH AND INCOME 12/31/96 12/31/95
Commissions Received $1,473,258 $ 326,249
Commissions Retained $ 158,858 $ 37,300
AMERICAN RETIREMENT
Commissions Received $ 317,718 $ 42,447
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Commissions Retained $ 20,024 $ 7,397
SMALL CAP
Commissions Received $ 3,568 $ 778
Commissions Retained $ 304 $ 284
FOUNDATION
Commissions Received $2,418,388 $1,604,275
Commissions Retained $ 57,736 $ 178,885
TAX STRATEGIC
Commissions Received $ 199,131 $ 28,976
Commissions Retained $ 25,078 $ 3,266
With respect to Total Return, the following commissions were paid to and
amounts were retained by Keystone Investment Distributors Comapany, which prior
to December 1, 1996, was the distributor for Total Return.
Year Ended Year Ended Year Ended
TOTAL RETURN 11/30/96 11/30/95 11/30/94
Commissions Received $355,043 $190,327 $106,144
Commissions Retained ($595,877) ($243,621) ($ 90,031)
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, Class B or Class C
shares of the Fund or any other Evergreen Keystone Fund made not more than 90
days prior to the date that the investor signs a Statement of Intention;
however, the 13-month period during which the 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
Keystone Funds available to their participants. Investments made by such
employee benefit plans may be exempt from any applicable front-end sales charges
if they meet the criteria set forth in the Prospectus under "Class A
Shares-Front End Sales Charge Alternative". The Advisers may provide
compensation to organizations providing administrative and recordkeeping
services to plans which make shares of the Evergreen Keystone Funds available to
their participants.
Reinstatement Privilege. A Class A shareholder who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are reinvested in shares
of the Fund. The reinstatement privilege may be used by the shareholder only
once, irrespective of the number of shares redeemed or repurchased, except that
the privilege may be used without limit in connection with transactions whose
sole purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
Information.
Sales at Net Asset Value. In addition to the categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset
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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 Plan fee (and, with respect to Balanced, Utility and Value, the
Shareholder Service Plan fee) enables the Fund to sell the Class B shares
without a sales charge being deducted at the time of purchase. The higher
distribution services fee (and, with respect to Balanced, Utility and Value, the
Shareholder Service Plan fee) incurred by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within six years of purchase will be subject to a contingent deferred sales
charge at the rates set forth in the Prospectus charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
contingent deferred sales charge will be assessed on shares derived from
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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 seven years or Class B shares acquired pursuant to
reinvestment of dividends or distributions and third of Class B shares held
longest during the seven-year period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a
contingent deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or (ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
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 Plan fee) imposed on Class
B shares. Such conversion will be on the basis of the relative net asset values
of the two classes, without the imposition of any sales load, fee or other
charge. The purpose of the conversion feature is to reduce the distribution
services fee paid by holders of Class B shares that have been outstanding long
enough for the Distributor to have been compensated for the expenses associated
with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee (and, with respect to
Balanced, Utility and Value, Shareholder Service Plan fee) and transfer agency
costs with respect to Class B shares does not result in the dividends or
distributions payable with respect to other Classes of a Fund's shares being
deemed "preferential dividends" under the Code, and (ii) the conversion of
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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 Plan fee) for an indefinite period which may extend beyond the period
ending seven years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level load sales charge alternative purchase Class C
shares at the public offering price equal to the net asset value per share of
the Class C shares on the date of purchase without the imposition of a front-end
sales charge. However, you will pay a 1.0% contingent deferred sales charge if
you redeem shares during the first year after 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 Plan 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 Plan fee) than Class A shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares.
Class Y Shares
Class Y shares are not offered to the general public and are available
only to (i) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS (See also "Other
Information - General Information"
in each Fund's Prospectus)
Capitalization and Organization
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 no par value. All shares of these Funds have equal rights and privileges.
Each share is entitled to one vote, to participate equally in dividends and
distributions declared by the Funds and on liquidation to their proportionate
share of the assets remaining after satisfaction of outstanding liabilities.
Shares of these Funds are fully paid, nonassessable and fully transferable when
issued and have no pre-emptive, conversion or exchange rights. Fractional shares
have proportionally the same rights, including voting rights, as are provided
for a full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his or her earlier death,
incapacity, resignation or removal. Shareholders can remove a Trustee upon a
vote of two-thirds of the outstanding shares of beneficial interest of the
Trust. Vacancies will be filled by a majority of the remaining Trustees, subject
to the 1940 Act. As a result, normally no annual or regular meetings of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders
of more than 50% of the shares voting for the election of Trustees can elect
100% of the Trustees if they choose to do so and in such event the holders of
the remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more 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"), 3435 Stelzer Road, Columbus, Ohio 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.
KPMG Peat Marwick LLP has been selected to be the independent auditors of
Growth and Income, American Retirement, Small Cap, Balanced, Utility, Value,
Total Return, Foundation and Tax Strategic.
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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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 8.4% 9.5% 7.7%
Class B 8.0% 10.0% 8.1%
Class C 11.9% 10.3% 8.1%
Class Y 14.1% 10.7% 8.3%
GROWTH AND INCOME 1 Year 5 Years 10 Years
Ended Ended Ended
12/31/96 12/31/96 12/31/96
Class A 17.6% 15.6% 14.0%
Class B 17.6% 16.2% 14.4%
Class C 21.6% 16.5% 14.4%
Class Y 23.8% 16.9% 14.6%
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 7.1% 10.6% 10.2%
Class B 6.5% 11.1% 10.6%
Class C 10.6% 11.4% 10.6%
Class Y 12.6% 11.8% 10.8%
From
SMALL CAP 1 Year 10/1/93
Ended (inception)
12/31/96 to 12/31/96
Class A 16.2% 13.8%
Class B 16.1% 14.3%
Class C 20.1% 15.0%
Class Y 22.4% 15.7%
FOUNDATION 1 Year 5 Years From 1/2/90
Ended Ended (inception)
12/31/96 12/31/96 to 12/31/96
Class A 6.0% 13.5% 15.5%
Class B 5.5% 14.0% 16.0%
Class C 9.4% 14.2% 16.0%
Class Y 11.5% 14.7% 16.3%
TAX STRATEGIC 1 Year From 11/02/93
Ended (inception) to
12/31/96 12/31/96
Class A 9.9% 13.5%
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Class B 9.7% 14.1%
Class C 13.5% 14.8%
Class Y 15.8% 15.5%
BALANCED 1 Year
Ended From inception*
12/31/96 to 12/31/96
Class A 6.1% 10.4%
Class B 5.7% 9.6%
Class C 9.3% 13.1%
Class Y 11.7% 11.9%
UTILITY 1 Year From inception**
Ended to 12/31/96
12/31/96
Class A -.6% 7.1%
Class B -1.3% 7.2%
Class C 2.5% 12.4%
Class Y 4.5% 11.2%
VALUE 1 Year 5 Years
Ended Ended From inception***
12/31/96 12/31/96 to 12/31/96
Class A 13.3% 12.4% 13.4%
Class B 13.1% -- 14.1%
Class C 17.1% -- 18.8%
Class Y 19.2% 13.8% 15.7%
1 Year 5 Years
Ended Ended From inception***
11/30/96 11/30/96 to 11/30/96
TOTAL RETURN
Class A 24.4% 13.8% 11.4%
Class B 24.7% __ 13.7%
Class C 28.7% __ 14.3%
Total Return commenced offering Class Y shares effective December 15, 1996.
* 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.
****Inception date: Class A-February 13, 1987; Class B and C-February 1, 1993.
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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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/cd)+ 1]
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, except Total Return, for the thirty-day period
ended December 31, 1996
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(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 3.32% Class A 2.28%
Class B 2.76% Class B 1.64%
Class C 2.76% Class C 1.62%
Class Y 3.73% Class Y 2.64%
Growth and Income Balanced
Class A .54% Class A 3.75%
Class B -.17% Class B 3.12%
Class C -.17% Class C 3.15%
Class Y .81% Class Y 4.21%
American Retirement Utility
Class A 3.03% Class A 3.70%
Class B 2.46% Class B 3.13%
Class C 2.44% Class C 3.13%
Class Y 3.43% Class Y 4.14%
Small Cap Value
Class A 2.13% Class A 1.43%
Class B 1.50% Class B .66%
Class C 1.51% Class C .66%
Class Y 2.48% Class Y 1.78%
Foundation
Class A 2.83%
Class B 2.23%
Class C 2.24%
Class Y 3.22%
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
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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) or KPMG Peat Marwick LLP (in the case of Growth and Income, American
Retirement, Small Cap, Balanced, Utility, Foundation, Tax Strategic, 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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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.
66
<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
67
<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.
Phoenix, 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
68
<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.
69
<PAGE>
Phoenix, 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
Schedule of Investments November 30, 1996
Financial Highlights
Class A Shares For each of the years in the nine-year
period ended November 30, 1996 and the
period from February 13, 1987
(Commencement of Operations) to
November 30, 1987
Class B and C Shares For the each of the years in the
three-year period ended
November 30, 1996, and the period from
February 1, 1993, (Date of Initial
Public Offering) to November 30, 1993
Statement of Assets and Liabilities November 30, 1996
Statement of Operations Year ended Novmeber 30, 1996
Statements of Changes in Net Assets For each of the years in the two-year
period ended November 30, 1996
Notes to Financial Statements
Independent Auditors' Report December 27, 1996
<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) Principal Underwriting Agreement between Registrant and EKD
with respect to Class B-2 shares ("Class B-2 Underwriting Agreement").(4)
(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.(5)
(11) Consent of Independent Auditors.(3)
(12) Not applicable.
(13) Subscription Agreements, as amended. (4, 6)
(14) Model plans used in the establishment of retirement plans. (7)
(15) Class A, Class B, and Class C Distribution Plans. (8)
(16) Performance Calculations(3)
(17) Financial Data Schedules(3)
(18) Multiple Class Plan. (9)
(19) Powers of Attorney. (3)
- -----------------------
(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 with Post-Effective Amendment No. 20 ("Post-Effective Amendment No.
20") to the Registration Statement and incorporated by reference herein.
(3) Filed herewith.
(4) Filed with Pre-Effective Amendment No. 1 to the Registration Statement and
incorporated by reference herein.
(5) Filed with 24f-2 Notice on January 29, 1997 and incorporated by reference
herein.
(6) Filed with the Registration Statement and incorporated by reference herein.
(7) 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.
(8) Filed with Post-Effective Amendment No. 18 ("Post-Effective Amendment No.
18") to the Registration Statement and incorporated by reference herein.
(9) Filed with Post-Effective Amendment No. 19 ("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 February 28, 1997
-------------- ------------------------------
Shares of Beneficial
Interest, without par
value
Class A - 2,589
Class B - 3,367
Class C - 1,054
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 was filed with Post-Effective
Amendment No. 20 and incorporated by reference herein.
Provisions for the indemnification of EKD are contained in Section 9 of
the Class B-2 Underwriting Agreement, a copy of which was filed with Post-
Effective Amendment No. 20 and incororated by reference herein.
Provisions for the indemnification of EKIS are contained in Section 5 of
the Class A and C Continuation Agreement, a copy 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 Senior Vice President
Elfner, III the Board, First Union Keystone, Inc.
Chief Executive Keystone Asset Corporation
Officer President and Director:
Keystone Trust Company
Director or Trustee:
Evergreen Keystone Investment Services, Inc
Evergreen Keystone Service Company
Boston Children's Services Associates
Middlesex School
Middlebury College
Formerly:
Chairman of the Board,
Chief Executive Officer,
President and Director:
Keystone Management, Inc.
Keystone Software, Inc.
Keystone Capital Corporation
Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Fiduciary Investment Company, Inc.
Formerly Chairman of the Board and Director:
Keystone Fixed Income Advisers, Inc.
Keystone Institutional Company, Inc.
Philip M. Byrne Senior Vice Formerly:
President President and Director:
Keystone Institutional Company, Inc.
Formerly Senior Vice President:
Keystone Investments, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Senior Vice Formerly Senior Vice President,
Godfrey President, Chief Financial Officer and Treasurer:
Chief Financial First Union Keystone, Inc.
Officer and Treasurer Evergreen Keystone Investment Services, Inc.
Formerly:
Treasurer:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Treasurer and Director:
Hartwell Keystone Advisers, Inc.
Rosemary D. Senior Vice
Van Antwerp President,
General Counsel Senior Vice President:
and Secretary Evergreen Keystone Service Company
Senior Vice President and Secretary:
Evergreen Keystone Investment Services, Inc.
Formerly:
Senior Vice President, General Counsel and Secretary:
Keystone Investments, Inc.
Senior Vice President and General Counsel:
Keystone Institutional Company, Inc.
Senior Vice President, General Counsel and Director:
Fiduciary Investment Company, Inc.
Senior Vice President, General Counsel, Director and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Senior Vice President and Secretary:
Hartwell Keystone Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income Advisers, Inc.
J. Kevin Kenely Vice President Vice President:
Evergreen Keystone Investment Services, Inc.
Formerly:
Controller
Keystone Investments, Inc.
Keystone Investment Management Company
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Vice President:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Keystone Investments, Inc.
John D. Rogol Vice President Vice President and
Controller:
Evergreen Keystone Investment Services, Inc.
Treasurer and Vice President:
Evergreen Keystone Service Company
Controller:
Keystone Asset Corporation
Formerly:
Controller:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Formerly Vice President and Controller:
Keystone Investments, Inc.
John Addeo Vice President None
Andrew Baldassarre Vice President None
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 Hutchings Sr. Vice President None
Walter T. Senior Vice None
McCormick President
George F. Wilkins Senior Vice None
President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Dana E. Erikson Vice President None
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. Medvedeff Vice President None
Stanley M. Niksa Vice President None
Jonathan A. Noonan Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
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. Womble Vice President None
Walter Zagrobski Vice President None
</TABLE>
<PAGE>
Item 29. Principal Underwriter
Evergreen Keystone Distributor, Inc.
The Director and principal executive officers are:
Director Michael C. Petrycki
Officers Robert A. Hering President
Michael C. Petrycki Vice President
Lawrence Wagner VP, Chief Financial Officer
Steven D. Blecher VP, Treasurer, Secretary
Elizabeth Q. Solazzo Assistant Secretary
Evergreen Keystone Distributor, Inc. acts as Distributor for the
following registered investment companies or separate series thereof:
Evergreen Trust
Evergreen Fund
Evergreen Aggressive Growth Fund
Evergreen Equity Trust:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Total Return Fund
The Evergreen American Retirement Trust:
The Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
The Evergreen Foundation Trust:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
The Evergreen Municipal Trust:
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Florida High Income Municipal Bond Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Money Market Trust
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen Investment Trust
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund
Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund(formerly Evergreen Fixed Income)
Evergreen U.S. Government Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
The Evergreen Lexicon Fund:
Evergreen Intermediate-Term Government Securities Fund
Evergreen Intermediate-Term Bond Fund
Evergreen Tax Free Trust:
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax Free Income Fund
Evergreen Variable Trust:
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Balanced Fund II
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Fund of the Americas
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
Keystone Intermediate Term Bond Fund
Keystone International Fund Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund
Keystone New York Tax Free Fund
Keystone Pennsylvania Tax Free Fund
Keystone Massachusetts Tax Free Fund
Keystone Florida Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Missouri Tax Free Fund
Keystone California Tax Free Fund
Keystone Strategic Income Fund
Keystone Tax Free Fund
Keystone Tax Free Income Fund
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
First Union Keystone, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
State Street Bank 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 certifies that it meets all of the
requirements for effectiveness of this Amendment to its Registration Staement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized in the City of Boston, and The Commonwealth
of Massachusetts, on the 1st day of April, 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 1st day of April, 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. McDonnell Andrew J. Simons*
Trustee Trustee Trustee
/s/ Edwin D. Campbell
- ------------------------- -------------------------
Edwin D. Campbell* Thomas L. McVerry
Trustee Trustee
</TABLE>
*By:/s/ Rosemary D. Van Antwerp
- -----------------------------
Rosemary D. Van Antwerp**
Attorney-in-Fact
** Rosemary D. Van Antwerp, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
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) Continuation Agreements (3)
10 Opinion and Consent of Counsel(5)
11 Consent of Independent Auditors(3)
13 Subscription Agreements, as amended(4, 6)
14 Model Retirement Plans(7)
15 Class A, B and C Distribution Plans(8)
16 Performance Calculations(3)
17 Financial Data Schedules(3)
18 Multiple Class Plan(9)
19 Powers of Attorney(3)
- -----------------
1 Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement.
2 Incorporated herein by reference to Post-Effective Amendment No. 20 to the
Registration Statement.
3 Filed herewith.
4 Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement.
5 Incorporated by reference to Rule 24f-2 Notice filed January 29, 1997.
6 Incorporated herein by reference to the Registration Statement.
7 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).
8 Incorporated herein by reference to Post-Effective Amendment No. 18 to the
Registration Statement.
9 Incorporated herein by reference to Post-Effective Amendment No. 19 to the
Registration Statement.
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT made this 11th day of December, 1996 by and between each of
the parties listed on Exhibit A attached hereto and made a part hereof, each for
itself and not jointly (each a "Fund"), and Evergreen Keystone Investment
Services, Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest of the Fund
sold prior to December 11, 1996 ("Shares") as an independent contractor upon the
terms and conditions hereinafter set forth. Except as the Fund may from time to
time agree, Principal Underwriter will act as agent for the Fund and not as
principal.
2. Having assigned all rights to commission payments for Shares sold on
or after December 1, 1996 but before December 11, 1996 to Evergreen Keystone
Distributor, Inc., Principal Underwriter will not be entitled to commissions on
such Shares. Principal Underwriter shall be entitled to receive commission
payments for sales of the Class A and C shares (as set forth on Exhibit B
attached hereto and made a part hereof) with respect to all Class A and C shares
sold prior to December 1, 1996 and outstanding as of the opening of business on
such date ("Pre-Acquisition Shares") and to receive contingent deferred sales
charges on such Pre-Acquisition Shares as set forth in the then current
prospectus and/or statement of additional information of the Fund. For purposes
of this Principal Underwriting Agreement, Pre-Acquisition Shares shall be such
shares which are defined in Schedule I attached hereto as Distributor Shares
calculated as though the Distributor Last Sale Cut-Off Date, as such term is
defined in Schedule I, was November 30, 1996. Principal Underwriter may reallow
all or a part of such commissions to such brokers, dealers or other persons as
Principal Underwriter may determine.
3. Principal Underwriter shall not make any representations concerning
the Shares except those contained in the then current prospectus and/or
statement of additional information covering the Shares and in printed
information approved by the Fund as information supplemental to such prospectus
and statement of additional information.
4. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
5. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement, pros
pectus or statement of additional information (including amendments and
supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
6. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
7. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plan, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plan and the purpose for which such expenditures
were made.
8. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plans of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of any Rule 12b-1 Trustees or by a vote of
a majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. This Agreement shall be construed in accordance with the laws
of The Commonwealth of Massachusetts.
10. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND-SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
each for itself and not jointly
By:/s/ George S. Bissell
________________________________
George S. Bissell
Chairman
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
By:/s/ Rosemary D. Van Antwerp
________________________________
Rosemary D. Van Antwerp
Senior Vice President
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 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 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.
KEYSTONE FUND FOR TOTAL RETURN
By:/s/George S. Bissell
Title: Chairman
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:/s/ Rosemary D. Van Antwerp
Title: Senior Vice President
<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 Keystone Fund for Total Return.
"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
KEYSTONE FUND FOR TOTAL RETURN
AGREEMENT made this 11th day of December, 1996 by and between Keytone
Fund for Total Return, 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.
KEYSTONE FUND FOR TOTAL RETURN
By:/s/ George S. Bissell
Title:Chairman
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:/s/ Rosemary D. Van Antwerp
Title:Senior Vice President
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 Keystone Fund for Total Return.
"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.
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Utility Fund
Evergreen Growth and Income Fund
Evergreen Value Fund
Evergreen Small Cap Equity Income Fund
Keystone Fund for Total Return
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen American Retirement Fund
Evergreen Balanced Fund
We consent to:
1) the use of our report dated February 19, 1997 for Evergreen Utility Fund,
Evergreen Growth and Income Fund, Evergreen Value Fund and Evergreen
Small Cap Equity Income Fund incorporated by reference herein;
2) the use of our report dated December 27, 1996 for Keystone Fund for Total
Return incorporated by reference herein;
3) the use of our report dated February 19, 1997 for Evergreen Foundation
Fund, Evergreen Tax Strategic Foundation Fund, Evergreen American
Retirement Fund and Evergreen Balanced Fund; and
4) the reference to our firm under the caption "FINANCIAL HIGHLIGHTS" in the
prospectus for the Evergreen Growth and Income Funds.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
April 1, 1997
<TABLE>
<CAPTION>
KAFFTR CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Nov-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD 19.69% 22.37% 50.77% 14.67%
no load 6.44% 26.99% 29.83% 59.97% 16.95%
Beg dates 31-Oct-96 29-Dec-95 30-Nov-95 30-Nov-93 30-Nov-93
Beg Value (LOAD) 29,848 25,017 24,469 19,859 19,859
Beg Value (no load) 28,132 23,579 23,062 18,718 18,718
End Value 29,942 29,942 29,942 29,942 29,942
TIME 3
INCEPTION DATE 14-Apr-87
</TABLE>
<TABLE>
<CAPTION>
KAFFTR CLASS A FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
29-Nov-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
4.75% LOAD 91.19% 13.84% 182.21% 11.37%
no load 102.86% 15.20% 199.42% 12.06%
Beg dates 29-Nov-91 29-Nov-91 14-Apr-87 14-Apr-87
Beg Value (LOAD) 15,661 15,661 10,610 10,610
Beg Value (no load) 14,760 14,760 10,000 10,000
End Value 29,942 29,942 29,942 29,942
TIME 5 9.6305555556
INCEPTION DATE
</TABLE>
<TABLE>
<CAPTION>
KAFFTR-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Nov-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 20.91% 24.73% 53.24% 15.29%
W/O CDSC 6.40% 25.91% 28.73% 56.24% 16.04%
Beg dates 31-Oct-96 29-Dec-95 30-Nov-95 30-Nov-93 30-Nov-93
Beg Value (no load) 15,665 13,238 12,948 10,668 10,668
End Value (W/O CDSC) 16,668 16,668 16,668 16,668 16,668
End Value (with cdsc) 16,006 16,150 16,348 16,348
beg nav 16.61 14.15 13.84 12.32 12.32
end nav 17.31 17.31 17.31 17.31 17.31
shares originally purchased 943.12 935.55 935.55 865.95 865.95
5% cdsc thru 31-Jan-94
TIME 4% cdsc thru 31-Jan-95 3
</TABLE>
<TABLE>
<CAPTION>
KAFFTR-B FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
29-Nov-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
cdsc 63.68% 13.72% NA NA
W/O CDSC 66.68% 14.26% NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 16,668 16,668 16,668 16,668
End Value (with cdsc) 16,368 16368.2604989 16,668 16668.260499
beg nav 12.65 12.65 12.65 12.65
end nav 17.31 17.31 17.31 17.31
shares originally purchased 790.51 790.51 790.51 790.51
TIME 3.8333333333
</TABLE>
<TABLE>
<CAPTION>
KAFFTR-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Nov-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 24.98% 28.71% 56.20% 16.03%
W/O CDSC 6.40% 25.98% 28.71% 56.20% 16.03%
Beg dates 31-Oct-96 29-Dec-95 30-Nov-95 30-Nov-93 30-Nov-93
Beg Value (no load) 15,673 13,237 12,956 10,676 10,676
End Value (W/O CDSC) 16,676 16,676 16,676 16,676 16,676
End Value (with cdsc) 16,544 16,676 16,676 16,676
beg nav 16.62 14.15 13.85 12.33 12.33
end nav 17.32 17.32 17.32 17.32 17.32
shares originally purchased 943.03 935.46 935.46 865.89 865.89
TIME 3
INCEPTION DATE 01-Feb-93 1% cdsc effect. 01-Jan-96
</TABLE>
<TABLE>
<CAPTION>
KAFFTR-C FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
29-Nov-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 66.76% 14.27% NA NA
W/O CDSC 66.76% 14.27% NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 16,676 16,676 16,676 16,676
End Value (with cdsc) 16,676 16675.984626 16,676 16675.984626
beg nav 12.65 12.65 12.65 12.65
end nav 17.32 17.32 17.32 17.32
shares originally purchased 790.51 790.51 790.51 790.51
TIME 3.8333333333 3.8333333333
INCEPTION DATE 31-Dec-96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE FUND FOR TOTAL RETURN CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 71,613,540
<INVESTMENTS-AT-VALUE> 99,089,166
<RECEIVABLES> 740,186
<ASSETS-OTHER> 948
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,830,300
<PAYABLE-FOR-SECURITIES> 969,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285,299
<TOTAL-LIABILITIES> 1,255,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,353,133
<SHARES-COMMON-STOCK> 2,336,578
<SHARES-COMMON-PRIOR> 1,954,342
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (69,402)
<ACCUMULATED-NET-GAINS> 673,306
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,530,250
<NET-ASSETS> 40,487,287
<DIVIDEND-INCOME> 830,805
<INTEREST-INCOME> 132,994
<OTHER-INCOME> 0
<EXPENSES-NET> (440,304)
<NET-INVESTMENT-INCOME> 523,495
<REALIZED-GAINS-CURRENT> 890,603
<APPREC-INCREASE-CURRENT> 7,156,818
<NET-CHANGE-FROM-OPS> 8,570,916
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (539,949)
<DISTRIBUTIONS-OF-GAINS> (754,551)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 756,854
<NUMBER-OF-SHARES-REDEEMED> (446,563)
<SHARES-REINVESTED> 71,945
<NET-CHANGE-IN-ASSETS> 13,450,678
<ACCUMULATED-NII-PRIOR> 4,218
<ACCUMULATED-GAINS-PRIOR> 535,884
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (205,586)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (440,304)
<AVERAGE-NET-ASSETS> 31,568,804
<PER-SHARE-NAV-BEGIN> 13.83
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 3.83
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.33)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.33
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> KEYSTONE FUND FOR TOTAL RETURN CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 71,613,540
<INVESTMENTS-AT-VALUE> 99,089,166
<RECEIVABLES> 740,186
<ASSETS-OTHER> 948
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,830,300
<PAYABLE-FOR-SECURITIES> 969,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285,299
<TOTAL-LIABILITIES> 1,255,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,776,499
<SHARES-COMMON-STOCK> 2,514,299
<SHARES-COMMON-PRIOR> 1,488,364
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (123,694)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (438,995)
<ACCUM-APPREC-OR-DEPREC> 8,312,347
<NET-ASSETS> 43,526,157
<DIVIDEND-INCOME> 680,414
<INTEREST-INCOME> 109,219
<OTHER-INCOME> 0
<EXPENSES-NET> (560,463)
<NET-INVESTMENT-INCOME> 229,170
<REALIZED-GAINS-CURRENT> 706,250
<APPREC-INCREASE-CURRENT> 6,381,720
<NET-CHANGE-FROM-OPS> 7,317,140
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (273,356)
<DISTRIBUTIONS-OF-GAINS> (808,105)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,503,008
<NUMBER-OF-SHARES-REDEEMED> (534,970)
<SHARES-REINVESTED> 57,897
<NET-CHANGE-IN-ASSETS> 22,920,776
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (32,523)
<OVERDIST-NET-GAINS-PRIOR> (338,267)
<GROSS-ADVISORY-FEES> (169,301)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (560,463)
<AVERAGE-NET-ASSETS> 25,945,049
<PER-SHARE-NAV-BEGIN> 13.84
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 3.80
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.33)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.31
<EXPENSE-RATIO> 2.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> KEYSTONE FUND FOR TOTAL RETURN CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 71,613,540
<INVESTMENTS-AT-VALUE> 99,089,166
<RECEIVABLES> 740,186
<ASSETS-OTHER> 948
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,830,300
<PAYABLE-FOR-SECURITIES> 969,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285,299
<TOTAL-LIABILITIES> 1,255,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,189,999
<SHARES-COMMON-STOCK> 840,991
<SHARES-COMMON-PRIOR> 686,261
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (40,004)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (234,311)
<ACCUM-APPREC-OR-DEPREC> 3,646,081
<NET-ASSETS> 14,561,765
<DIVIDEND-INCOME> 295,901
<INTEREST-INCOME> 47,441
<OTHER-INCOME> 0
<EXPENSES-NET> (242,569)
<NET-INVESTMENT-INCOME> 100,773
<REALIZED-GAINS-CURRENT> 316,577
<APPREC-INCREASE-CURRENT> 2,545,987
<NET-CHANGE-FROM-OPS> 2,963,337
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (112,998)
<DISTRIBUTIONS-OF-GAINS> (270,058)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 398,635
<NUMBER-OF-SHARES-REDEEMED> (265,577)
<SHARES-REINVESTED> 21,672
<NET-CHANGE-IN-ASSETS> 5,059,135
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (7,377)
<OVERDIST-NET-GAINS-PRIOR> (281,319)
<GROSS-ADVISORY-FEES> (73,379)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (242,569)
<AVERAGE-NET-ASSETS> 11,265,814
<PER-SHARE-NAV-BEGIN> 13.85
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 3.81
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.33)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.32
<EXPENSE-RATIO> 2.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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
