<PAGE>
File Nos. 33-38946
and 811-6278
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. 9 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10 X
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:(617) 210-3200
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) of Rule 485.
___ on [date] pursuant to paragraph (b).
___ 60 days after filing pursuant to paragraph (a)(1).
___ on [date] pursuant to paragraph (a)(1).
___ 75 days after filing pursuant to paragraph (a)(2).
___ on [date] pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph(a)(i)
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of its securities under the
Securities Act of 1933. A Rule 24f-2 Notice for Registrant's most recent fiscal
period ended June 30, 1997 was filed on August 29, 1997.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price ** Fee
- --------------------------------------------------------------------------
Shares
Without 2,962,799 $9.90 $29,331,710 0
Par Value
- --------------------------------------------------------------------------
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on August 26, 1997.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 2,962,799 shares of the
Fund were redeemed during its fiscal period ended June 30, 1997. Of such
shares, all are being used for a reduction pursuant to Rule 24f-2(c).
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 9
TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 9 to Registration
Statement No. 33-38946 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
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 and SIGNATURES PAGES
Numbers of Holders of Securities
Indemnification
Business and Other Connections with Investment Manager
Principal Underwriter
Locations of Accounts and Records
Management Services
Undertakings
Signatures
Exhibits (Including Powers of Attorney)
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Expense Information
3 Performance Information
Financial Highlights
4 Cover Page
Description of the Funds
Investment Objectives and Policies
Investment PRactices and Restrictions
General Information
5 Management of the Funds
General Information
5a Not Applicable
6 Description of the Funds
Dividends, Distributions and Taxes
General Information
Shareholder Services
7 How to Buy Shares
Distribution Plans
Shareholder Sevices
8 How to Redeem Shares
How to Buy Shares
9 Not applicable
<PAGE>
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 General Information About the Funds
13 Investment Objectives and Policies
Investment Restrictions
Brokerage
Appendix
14 Management
15 Management
16 Distribution Plans
Investment Advisers
17 Allocation of Brokerage
18 General Inforamtion About the Funds
19 Net Asset Value
Distribution Plans
Purchase of Shares
20 Additional Tax Information
21 General Inforamtion About the Funds
22 Performance Information
23 Financial Statements
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
PART A
PROSPECTUS
<PAGE>
PROSPECTUS September 3, 1997
EVERGREEN(SM) KEYSTONE SHORT AND (Logo of
INTERMEDIATE TERM BOND FUNDS Pine Tree)
EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Keystone Short and Intermediate Term Bond Funds (the
"Funds") are designed to provide investors with a selection of investment
alternatives which seek to provide a high level of current income. This
Prospectus provides information regarding the Class A, Class B and Class C
shares offered by the Funds. Each Fund is, or is a series of, an open-end,
diversified, management investment company. This Prospectus sets forth concise
information about the Funds that a prospective investor should know before
investing. The address of the Funds is 200 Berkeley Street, Boston,
Massachusetts 02116.
A Statement of Additional Information for the Funds dated
September 3, 1997, as supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated by reference herein. The
Statement of Additional Information provides information regarding certain
matters discussed in this Prospectus and other matters which may be of interest
to investors, and may be obtained without charge by calling the Funds at
(800) 343-2898. There can be no assurance that the investment objective of any
Fund will be achieved. Investors are advised to read this Prospectus carefully.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY, AND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN(SM) is a Service Mark of Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 14
Investment Practices and Restrictions 17
MANAGEMENT OF THE FUNDS
Investment Advisers 22
Portfolio Managers 23
Administrator 23
Sub-Administrator 24
Distribution Plans 24
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 25
How to Redeem Shares 28
Exchange Privilege 29
Shareholder Services 30
Effect of Banking Laws 31
OTHER INFORMATION
Dividends, Distributions and Taxes 31
General Information 32
OVERVIEW OF THE FUNDS
The following is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The Capital Management Group ("CMG") of First Union National Bank
("FUNB") serves as investment adviser to EVERGREEN SHORT-INTERMEDIATE BOND FUND,
EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND. FUNB is a subsidiary of First Union Corporation ("First
Union"), the sixth largest bank holding company in the United States.
Keystone Investment Management Company ("Keystone") is investment adviser
to KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE TERM
BOND FUND. Keystone is a subsidiary of FUNB.
EVERGREEN SHORT-INTERMEDIATE BOND FUND seeks to provide a high level of
current income by investing in a broad range of investment grade debt
securities, with capital growth as a secondary objective.
EVERGREEN INTERMEDIATE-TERM BOND FUND seeks to maximize current yield
consistent with the preservation of capital.
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND seeks to preserve
principal value and maintain a high degree of liquidity while providing current
income.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND seeks a high level of
current income consistent with low volatility of principal.
KEYSTONE INTERMEDIATE TERM BOND FUND seeks current income by investing
primarily in investment quality debt securities.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in each Class A, Class B and Class C Shares of a
Fund. For further information see "Purchase and Redemption of Shares" and
"General Information -- Other Classes of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as 3.25% None None
a % of offering price)
Maximum Contingent Deferred Sales Charge (as a None(1) 5.00%(2) 1.00%
% of original purchase price or redemption
proceeds, whichever is lower)
</TABLE>
The tables and examples below are designed to help you understand the
various costs and expenses that you will bear, directly or indirectly, when you
invest in the fund. Shareholder transaction expenses are fees paid directly from
your account when you buy or sell shares of the fund. Annual Fund Operating
Expenses are paid out of the fund's assets and include management, distribution
and other fees. The tables below show the fund's estimated annual Fund operating
expenses as a percentage of the fund's net assets for the fiscal period ended
June 30, 1997. The fund's example shows what you would pay if you invested
$1,000 over periods indicated. The examples assume that you reinvest all of your
dividends and that the fund's average annual return was 5.00%. THE EXAMPLES ARE
FOR ILLUSTRATION PURPOSES ONLY AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR ANNUAL RETURN. THE FUND'S ACTUAL EXPENSES AND RETURNS
WILL VARY. For a more complete description of the various costs and expenses
borne by the fund see "Management of the Funds."
EVERGREEN SHORT-INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .50% .50% .50% After 1 Year $ 40 $ 66 $ 26 $ 16 $ 16
12b-1 Fees3 .10% 1.00% 1.00% After 3 Years $ 55 $ 81 $ 51 $ 51 $ 51
Other Expenses .12% .12% .12% After 5 Years $ 71 $108 $ 88 $ 88 $ 88
Total .72% 1.62% 1.62% After 10 Years $119 $156 $192 $156 $192
</TABLE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 41 $ 68 $ 28 $ 18 $ 18
12b-1 Fees3 .05% 1.00% 1.00% After 3 Years $ 59 $ 87 $ 57 $ 57 $ 57
Other Expenses .20% .21% .20% After 5 Years $ 78 $118 $ 97 $ 98 $ 97
Total .85% 1.81% 1.80% After 10 Years $134 $175 $212 $175 $212
</TABLE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 41 $ 68 $ 28 $ 18 $ 18
12b-1 Fees3 .05% 1.00% 1.00% After 3 Years $ 59 $ 87 $ 57 $ 57 $ 57
Other Expenses .21% .21% .21% After 5 Years $ 79 $118 $ 98 $ 98 $ 98
Total .86% 1.81% 1.81% After 10 Years $135 $175 $213 $175 $213
</TABLE>
3
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .48% .48% .48% After 1 Year $ 42 $ 67 $ 27 $ 17 $ 17
12b-1 Fees3 .25% 1.00% 1.00% After 3 Years $ 61 $ 83 $ 53 $ 53 $ 53
Other Expenses .19% .19% .19% After 5 Years $ 82 $111 $ 91 $ 91 $ 91
Total 0.92% 1.67% 1.67% After 10 Years $142 $168 $198 $168 $198
</TABLE>
KEYSTONE INTERMEDIATE TERM BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES* at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .64% .64% .64% After 1 Year $ 44 $ 69 $ 29 $ 19 $ 19
12b-1 Fees3 .23% 1.00% 1.00% After 3 Years $ 67 $ 89 $ 59 $ 59 $ 59
Other Expenses .25% .23% .23% After 5 Years $ 92 $121 $101 $101 $101
Total 1.12% 1.87% 1.87% After 10 Years $164 $190 $219 $190 $219
</TABLE>
(1) Investments or $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5.00% to 1.00% of
amounts redeemed within six years after the month of purchase. No sales
charge is imposed on redemption made thereafter. See "Shareholder
Information" for more information.
(3) Long-term shareholders may pay more than the economic equivalent front-end
sales charges permitted by the National Association of Securities Dealers,
Inc. See "Shareholder Information" for more information. Class A Shares can
pay up to 0.75% of average assets as a 12b-1 fee for EVERGREEN
SHORT-INTERMEDIATE BOND FUND, KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
and KEYSTONE INTERMEDIATE TERM BOND FUND and 0.50% of average assets for
EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND. For the foreseeable future, the Class A shares
12b-1 fees will be limited to 0.10% of average net assets for EVERGREEN
SHORT-INTERMEDIATE BOND FUND and 0.25% of average net assets for EVERGREEN
INTERMEDIATE-TERM BOND FUND, EVERGREEN INTERMEDIATE-TERM GOVERNMENT FUND,
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE TERM
BOND FUND. For the fiscal periods ended June 30, 1997, Class A 12b-1 fees
were limited to 0.05% of average net assets for EVERGREEN INTERMEDIATE-TERM
BOND FUND, EVERGREEN INTERMEDIATE-TERM GOVERNMENT FUND and 0.10% for
EVERGREEN SHORT-INTERMEDIATE BOND FUND.
*The annual operating expenses and examples reflect fee waivers and expense
reimbursements. Actual expenses for Class A, Class B and Class C for the most
recent fiscal period ended were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
EVERGREEN SHORT-INTERMEDIATE BOND FUND Not Applicable
EVERGREEN INTERMEDIATE-TERM BOND FUND 1.04% 1.81% 1.80%
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND .94% 1.89% 1.90%
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND 1.47% 2.23% 2.23%
KEYSTONE INTERMEDIATE TERM BOND FUND 1.58% 2.35% 2.35%
</TABLE>
From time to time, each Fund's investment adviser may, at its discretion,
reduce or waive its fees or reimburse the Funds for certain of their expenses in
order to reduce their expense ratios. Each Fund's investment adviser may cease
these waivers and reimbursements at any time.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for EVERGREEN SHORT-INTERMEDIATE BOND FUND, KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE TERM BOND FUND
has been audited by KPMG Peat Marwick LLP, each Fund's independent auditors. For
EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND, the information in the tables for the fiscal year ended June
30, 1997 and the ten month period ended June 30,1996, has been audited by KPMG
Peat Marwick LLP. Information for the fiscal periods prior to June 30, 1996 has
been audited by other auditors. A report of KPMG Peat Marwick LLP on the audited
information with respect to each Fund is incorporated by reference into the
Fund's Statement of Additional Information. The following information for each
Fund should be read in conjunction with the financial statements and related
notes which are incorporated by reference into the Fund's Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN SHORT-INTERMEDIATE BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
NINE
SIX MONTHS MONTHS YEAR
ENDED YEAR ENDED ENDED ENDED
YEAR ENDED JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1996 1995(C) 1994 1993 1992 1991 1990(D) 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING
OF PERIOD.............. $9.82 $10.02 $9.52 $10.42 $10.41 $10.54 $9.99 $9.72 $9.50
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... 0.63 0.63 0.32 0.65 0.65 0.71 0.73 0.55 0.79
Net realized and
unrealized gain (loss)
on investments......... 0.02 (0.19) 0.50 (0.91) 0.19 (0.06) 0.60 0.24 0.20
Total from investment
operations............. 0.65 0.44 0.82 (0.26) 0.84 0.65 1.33 0.79 0.99
LESS DISTRIBUTIONS FROM:
Net investment income.... (0.64) (0.64) (0.32) (0.64) (0.65) (0.67) (0.70) (0.52) (0.77)
Net realized gains....... 0 0 0 0 (0.18) (0.11) (0.07) 0 0
In excess of net
investment income...... 0 0 0 0 0 0 (0.01) 0 0
Total distributions...... (0.64) (.64) (.32) (.64) (.83) (.78) (.78) (.52) (.77)
NET ASSET VALUE END OF
PERIOD................. $9.83 $9.82 $10.02 $9.52 $10.42 $10.41 $10.54 $9.99 $9.72
Total return(b).......... 6.77% 4.45% 8.77% (2.57%) 8.29% 6.39% 13.74% 8.31% 10.51%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET
ASSETS:
Total expenses......... 0.72% 0.79% 0.77%(a) 0.75% 0.93% 0.90% 0.80% 1.01%(a) 1.00%
Total expenses
excluding indirectly
paid expenses 0.72% -- -- -- -- -- -- -- --
Total expenses
excluding waivers and
reimbursements -- -- -- -- -- -- 0.89% 1.82%(a) 1.50%
Net investment
income............... 6.37% 6.35% 6.58%(a) 6.46% 6.15% 6.79% 7.30% 7.53%(a) 7.57%
Portfolio turnover
rate................... 45% 76% 34% 48% 73% 66% 53% 27% 32%
Net assets end of period
(thousands)............ $17,703 $18,630 $18,898 $19,127 $22,865 $21,488 $17,680 $11,765 $6,496
<CAPTION>
JANUARY 28,
1989
(COMMENCE-
MENT OF
CLASS
OPERATIONS)
THROUGH
MARCH 31,
1989
<S> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING
OF PERIOD.............. $9.70
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... 0.10
Net realized and
unrealized gain (loss)
on investments......... (0.14)
Total from investment
operations............. (0.04)
LESS DISTRIBUTIONS FROM:
Net investment income.... (0.16)
Net realized gains....... 0
In excess of net
investment income...... 0
Total distributions...... (.16)
NET ASSET VALUE END OF
PERIOD................. $9.50
Total return(b).......... (0.31%)
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET
ASSETS:
Total expenses......... 1.78%(a)
Total expenses
excluding indirectly
paid expenses --
Total expenses
excluding waivers and
reimbursements --
Net investment
income............... 6.10%(a)
Portfolio turnover
rate................... 18%
Net assets end of period
(thousands)............ $11,580
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
(d) The Fund changed its fiscal year end from March 31 to December 31.
5
<PAGE>
EVERGREEN SHORT-INTERMEDIATE BOND FUND -- CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
JANUARY 25,
1993
(COMMENCE-
MENT OF
CLASS
SIX MONTHS OPERATIONS) SIX MONTHS
YEAR ENDED ENDED YEAR ENDED THROUGH YEAR ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1997 1996 1995(C) 1994 1993 1997 1996 1995(C)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD....................... $ 9.84 $10.04 $9.54 $10.44 $10.57 $9.84 $10.05 $9.55
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.54 0.55 0.28 0.58 0.58 0.54 0.55 0.26
Net realized and unrealized
gain (loss) on investments... 0.01 (0.19) 0.50 (0.92) 0.05 0.01 (0.20) 0.50
Total from investment
operations................... 0.55 0.36 0.78 (0.34) 0.63 0.55 0.35 0.76
LESS DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income.......... (0.54) (0.56) (0.28) (0.56) (0.58) (0.54) (0.56) (0.26)
Net realized gains on
investments.................. 0 0 0 0 (0.18) 0 -- --
Total distributions............ (0.54) (0.56) (0.28) (0.56) (0.76) (0.54) (0.56) (0.26)
NET ASSET VALUE END OF
PERIOD....................... $9.85 $9.84 $10.04 $9.54 $10.44 $9.85 $9.84 $10.05
Total return (b)............... 5.78% 3.62% 8.31% (3.33%) 6.08% 5.77% 3.51% 8.23%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Total expenses............... 1.62% 1.69% 1.67%(a) 1.50% 1.57%(a) 1.62% 1.69% 1.67%(a)
Total expenses excluding
indirectly paid expenses... 1.62% -- -- -- -- 1.62% -- --
Net investment income........ 5.48% 5.45% 5.68%(a) 5.75% 5.42%(a) 5.47% 5.46% 5.69%(a)
Portfolio turnover rate........ 45% 76% 34% 48% 73% 45% 76% 34%
NET ASSETS END OF PERIOD
(THOUSANDS).................. $22,237 $21,006 $17,366 $17,625 $8,876 $1,029 $1,155 $527
<CAPTION>
SEPTEMBER 6,
1994
(COMMENCE-
MENT OF
CLASS
OPERATIONS)
THROUGH
DECEMBER 31,
1994
<S> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD....................... $9.85
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.18
Net realized and unrealized
gain (loss) on investments... (0.30)
Total from investment
operations................... (0.12)
LESS DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income.......... (0.18)
Net realized gains on
investments.................. --
Total distributions............ (0.18)
NET ASSET VALUE END OF
PERIOD....................... $9.55
Total return (b)............... (1.27%)
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Total expenses............... 1.65%(a)
Total expenses excluding
indirectly paid expenses... --
Net investment income........ 5.87%(a)
Portfolio turnover rate........ 48%
NET ASSETS END OF PERIOD
(THOUSANDS).................. $512
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from December 31 to June 30.
6
<PAGE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
CLASS A SHARES
MAY 2, CLASS B SHARES CLASS C SHARES
1995 JANUARY 30, APRIL 29,
(COMMENCE- 1996 1996
MENT OF (COMMENCE- (COMMENCE-
TEN CLASS MENT OF CLASS MENT OF CLASS
YEAR MONTHS OPERATIONS) YEAR OPERATIONS) YEAR OPERATIONS)
ENDED ENDED THROUGH ENDED THROUGH ENDED THROUGH
JUNE 30, JUNE 30, AUGUST 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996(C) 1995 1997 1996(C) 1997 1996(C)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD........ $10.10 $10.30 $9.98 $10.10 $10.68 $10.10 $10.15
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................... 0.60 0.48 0.18 0.50 0.20 0.51 0.08
Net realized and unrealized gain (loss) on
investments.............................. 0.08 (0.20) 0.33 0.08 (0.58) 0.07 (0.05)
Total from investment operations........... 0.68 0.28 0.51 0.58 (0.38) 0.58 0.03
LESS DISTRIBUTIONS FROM:
Net investment income...................... (0.59) (0.48) (0.19) (0.49) (0.20) (0.49) (0.08)
Net realized gains on investments.......... 0 0 0 0 0 0 0
Tax basis return of capital................ (0.02) 0 0 (0.02) 0 (0.02) 0
Total distributions........................ (0.61) (0.48) (0.19) (0.51) (0.20) (0.51) (0.08)
NET ASSET VALUE END OF PERIOD.............. $10.17 $10.10 $10.30 $10.17 $10.10 $10.17 $10.10
Total return (b)........................... 6.88% 2.72% 5.17% 5.91% (3.52%) 5.91% 0.33%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Total expenses........................... 0.85% 0.82%(a) 0.80%(a) 1.81% 1.80%(a) 1.80% 1.80%(a)
Total expenses excluding indirectly paid
expenses............................... 0.85% -- -- 1.81% -- 1.80% --
Total expenses excluding waivers and
reimbursements......................... 1.04% 1.10%(a) 1.38%(a) 1.81% 1.89%(a) 1.80% 1.88%(a)
Net investment income.................... 5.92% 6.30%(a) 5.53%(a) 5.00% 5.18%(a) 4.97% 5.30%(a)
Portfolio turnover rate.................... 86% 52% 73% 86% 52% 86% 52%
NET ASSETS END OF PERIOD (THOUSANDS)....... $3,038 $2,943 $160 $1,013 $402 $29 $25
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from August 31 to June 30.
7
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
MAY 2, 1995 FEBRUARY 9, APRIL 10
(COMMENCE- 1996 1996
MENT OF (COMMENCE- (COMMENCE-
CLASS MENT OF CLASS MENT OF CLASS
YEAR TEN MONTHS OPERATIONS) YEAR OPERATIONS) YEAR OPERATIONS)
ENDED ENDED THROUGH ENDED THROUGH ENDED THROUGH
JUNE 30, JUNE 30, AUGUST 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996(C) 1995 1997 1996(C) 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD.... $9.99 $10.15 $9.95 $9.99 $10.38 $9.99 $10.01
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.55 0.46 0.19 0.45 0.18 0.40 0.11
Net realized and unrealized gain (loss)
on investments....................... 0.03 (0.16) 0.20 0.04 (0.39) 0.09 (0.02)
Total from investment operations....... 0.58 0.30 0.39 0.49 (0.21) 0.49 0.09
LESS DISTRIBUTIONS FROM:
Net investment income.................. (0.55) (0.46) (0.19) (0.46) (0.18) (0.46) (0.11)
Total distributions.................... (0.55) (0.46) (0.19) (0.46) (0.18) (0.46) (0.11)
NET ASSET VALUE END OF PERIOD.......... $10.02 $9.99 $10.15 $10.02 $9.99 $10.02 $9.99
Total return (b)....................... 6.00% 3.00% 3.90% 5.03% (1.99%) 5.03% 0.89%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................... 0.86% 0.81%(a) 0.80%(a) 1.81% 1.80%(a) 1.81% 1.80%(a)
Total expenses excluding indirectly
paid expenses...................... 0.86% -- -- 1.81% -- 1.81% --
Total expenses excluding waivers and
reimbursements..................... 0.94% 1.06%(a) 1.34%(a) 1.89% 1.91%(a) 1.90% 1.91%(a)
Net investment income................ 5.47% 5.49%(a) 5.42%(a) 4.53% 4.62%(a) 4.53% 4.47%(a)
Portfolio turnover rate................ 68% 28% 45% 68% 28% 68% 28%
NET ASSETS END OF PERIOD (THOUSANDS)... $571 $497 $9 $742 $359 $12 $32
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) The Fund changed its fiscal year end from August 31 to June 30.
8
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
DECEMBER 30, 1994
(COMMENCEMENT OF
NINE MONTHS YEAR ENDED CLASS OPERATIONS)
ENDED SEPTEMBER 30, THROUGH
JUNE 30, 1997 (D) 1996 (C) SEPTEMBER 30, 1995
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD................................. $ 9.74 $ 9.68 $ 9.51
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................... 0.46 0.61 0.46
Net realized and unrealized gain on investments..................... 0.03 0.01 0.14
Total from investment operations.................................... 0.49 0.62 0.60
LESS DISTRIBUTIONS FROM:
Net investment income............................................... (0.42) (0.53) (0.42)
In excess of net investment income.................................. (0.01) 0 (0.01)
Tax basis return of capital......................................... 0 (0.03) 0
Total distributions................................................. (0.43) (0.56) (0.43)
NET ASSET VALUE END OF PERIOD....................................... $ 9.80 $ 9.74 $ 9.68
Total return (b).................................................... 5.12% 6.56% 6.36%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................... 0.92%(a) 0.91% 0.86%(a)
Total expenses excluding indirectly paid expenses................. 0.90%(a) 0.90% 0.82%(a)
Total expenses excluding waivers and reimbursements............... 1.47%(a) 1.33% 1.27%(a)
Net investment income............................................. 6.24%(a) 6.31% 6.37%(a)
Portfolio turnover rate............................................. 52% 74% 67%
NET ASSETS END OF PERIOD (THOUSANDS)................................ $15,751 $22,684 $ 19,293
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
9
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
JULY 1, 1991
(COMMENCEMENT OF
NINE MONTHS CLASS OPERATIONS)
ENDED YEAR ENDED SEPTEMBER 30, THROUGH
JUNE 30, 1997 (D) 1996 (C) 1995 1994 1993 1992 SEPTEMBER 30, 1991
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF
PERIOD....................... $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.39 0.55 0.52 0.47 0.45 0.58 0.18
Net realized and unrealized
gain (loss) on investments... 0.04 0.01 0.03 (0.41) (0.05) (0.21) 0.06
Total from investment
operations................... 0.43 0.56 0.55 0.06 0.40 0.37 0.24
LESS DISTRIBUTIONS FROM:
Net investment income.......... (0.36) (0.46) (0.48) (0.34) (0.37) (0.55) (0.18)
In excess of net investment
income....................... (0.01) 0 (0.01) (0.01) 0 0 0
Tax basis return of capital.... 0 (0.03) 0 0 0 0 0
Total distributions............ (0.37) (0.49) (0.49) (0.35) (0.37) (0.55) (0.18)
NET ASSET VALUE END OF
PERIOD....................... $ 9.81 $ 9.75 $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06
Total return (b)............... 4.53% 5.90% 5.81% 0.58% 4.16% 3.71% 2.43%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses............... 1.67%(a) 1.63% 1.53% 1.50% 1.50% 1.36% 1.19%(a)
Total expenses excluding
indirectly paid expenses... 1.65%(a) 1.62% 1.50% -- -- -- --
Total expenses excluding
waivers and
reimbursements............. 2.23%(a) 2.09% 2.09% 1.93% 1.94% 2.03% 3.19%(a)
Net investment income........ 5.52%(a) 5.63% 5.46% 4.05% 4.44% 5.50% 6.42%(a)
Portfolio turnover rate........ 52% 74% 67% 34% 60% 41% 2%
NET ASSETS END OF PERIOD
(THOUSANDS).................. $32,694 $ 44,096 $62,998 $95,761 $144,725 $186,742 $ 25,769
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
10
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND -- CLASS C SHARES
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(COMMENCEMENT OF
NINE MONTHS YEAR ENDED CLASS OPERATIONS)
ENDED SEPTEMBER 30, THROUGH
JUNE 30, 1997 (D) 1996 (C) 1995 1994 SEPTEMBER 30, 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD..................... $ 9.74 $ 9.67 $ 9.60 $ 9.90 $ 9.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.40 0.54 0.52 0.40 0.23
Net realized and unrealized gain (loss) on
investments........................................... 0.03 0.02 0.04 (0.35) 0.09
Total from investment operations........................ 0.43 0.56 0.56 0.05 0.32
LESS DISTRIBUTIONS FROM:
Net investment income................................... (0.36) (0.46) (0.48) (0.34) (0.24)
In excess of net investment income...................... (0.01) 0 (0.01) (0.01) 0
Tax basis return of capital............................. 0 (0.03) 0 0 0
Total distributions..................................... (0.37) (0.49) (0.49) (0.35) (0.24)
NET ASSET VALUE END OF PERIOD........................... $ 9.80 $ 9.74 $ 9.67 $ 9.60 $ 9.90
Total return (b)........................................ 4.53% 5.91% 5.93% 0.48% 3.28%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses........................................ 1.67%(a) 1.64% 1.53% 1.50% 1.50%(a)
Total expenses excluding indirectly paid expenses..... 1.65%(a) 1.62% 1.50% -- --
Total expenses excluding waivers and reimbursements... 2.23%(a) 2.09% 2.08% 1.94% 1.67%(a)
Net investment income................................. 5.53%(a) 5.60% 5.51% 4.08% 2.91%(a)
Portfolio turnover rate................................. 52% 74% 67% 34% 60%
NET ASSETS END OF PERIOD (THOUSANDS).................... $ 4,105 $4,152 $2,755 $2,874 $2,077
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from September 30 to June 30.
11
<PAGE>
KEYSTONE INTERMEDIATE TERM BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY 31,
JUNE 30, 1997 (E) 1996 1995 1994 (C) 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD............................... $ 8.73 $ 8.88 $ 8.84 $ 9.46 $ 9.23
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................. 0.54 0.59 0.63 0.57 0.70
Net realized and unrealized gain (loss) on investments, closed
futures contracts and foreign currency related transactions..... 0.18 (0.16) 0.02 (0.59 ) 0.18
Total from investment operations.................................. 0.72 0.43 0.65 (0.02 ) 0.88
LESS DISTRIBUTIONS FROM:
Net investment income............................................. (0.52) (0.58) (0.57) (0.57 ) (0.65)
In excess of net investment income................................ 0 0 (0.04) (0.02 ) 0
Tax basis return of capital....................................... 0 0 0 (0.01 ) 0
Total distributions............................................... (0.52) (0.58) (0.61) (0.60 ) (0.65)
NET ASSET VALUE END OF PERIOD..................................... $ 8.93 $ 8.73 $ 8.88 $ 8.84 $ 9.46
Total return (b).................................................. 8.40% 4.95% 7.76% (0.29%) 9.88%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.................................................. 1.12%(a) 1.10% 1.00% 1.00% 1.52%
Total expenses excluding indirectly paid expenses............... 1.10%(a) 1.08% -- -- --
Total expenses excluding waivers and reimbursements............. 1.58%(a) 1.54% 1.48% 1.80% 1.99%
Net investment income........................................... 6.43%(a) 6.57% 7.13% 6.81% 7.48%
Portfolio turnover rate........................................... 179% 231% 149% 280% 160%
NET ASSETS END OF PERIOD (THOUSANDS).............................. $10,341 $12,958 $14,558 $16,036 $18,032
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 13, 1987
(COMMENCEMENT
OF OPERATIONS)
YEAR ENDED JULY 31, THROUGH
1992 1991 1990 1989 1988 JULY 31, 1987
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD.................... $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................. 0.71 0.72 0.67 0.69 0.72 0.17
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions......................................... 0.60 0.05 (0.45) 0.10 (0.45) (0.42)
Total from investment operations....................... 1.31 0.77 0.22 0.79 0.27 (0.25)
LESS DISTRIBUTIONS FROM:
Net investment income.................................. (0.71) (0.72) (0.70) (0.73) (0.83) (0.14)
In excess of net investment income..................... (0.01) (0.01) (0.03) 0 0 0
Tax basis return of capital............................ 0 0 0 0 0 0
Total distributions.................................... (0.72) (0.73) (0.73) (0.73) (0.83) (0.14)
NET ASSET VALUE END OF PERIOD.......................... $ 9.23 $ 8.64 $ 8.60 $ 9.11 $ 9.05 $ 9.61
Total return (b)....................................... 15.65% 9.42% 2.71% 9.13% 2.95% (2.50%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses....................................... 1.88% 2.00% 2.00% 1.92% 1.30% 1.00%(d)
Total expenses excluding indirectly paid expenses.... -- -- -- -- -- --
Total expenses excluding waivers and
reimbursements..................................... 1.88% 2.06% 2.33% 2.19% 2.65% 12.47%(d)
Net investment income................................ 7.85% 8.42% 7.90% 7.88% 7.48% 6.86%(d)
Portfolio turnover rate................................ 90% 76% 107% 148% 208% 14%
NET ASSETS END OF PERIOD (THOUSANDS)................... $19,288 $20,227 $23,694 $30,337 $38,615 $ 1,679
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to July 31, 1987.
(e) The Fund changed its fiscal year end from July 31 to June 30.
12
<PAGE>
KEYSTONE INTERMEDIATE TERM BOND FUND -- CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
CLASS B SHARES
FEBRUARY 1, 1993
(DATE OF INITIAL
ELEVEN MONTHS PUBLIC OFFERING)
ENDED YEAR ENDED JULY 31, THROUGH
JUNE 30, 1997 (D) 1996 1995 1994 (C) JULY 31, 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD...................... $ 8.74 $ 8.89 $ 8.85 $ 9.47 $ 9.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................... 0.47 0.52 0.56 0.49 0.29
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions........................................... 0.20 (0.16) 0.02 (0.58) 0.12
Total from investment operations......................... 0.67 0.36 0.58 (0.09) 0.41
LESS DISTRIBUTIONS FROM:
Net investment income.................................... (0.46) (0.51) (0.51) (0.49) (0.29)
In excess of net investment income....................... 0 0 (0.03) (0.03) 0
Tax basis return of capital.............................. 0 0 0 (0.01) 0
Total distributions...................................... (0.46) (0.51) (0.54) (0.53) (0.29)
NET ASSET VALUE END OF PERIOD............................ $ 8.95 $ 8.74 $ 8.89 $ 8.85 $ 9.47
Total return (b)......................................... 7.81% 4.10% 6.87% (1.05%) 4.42%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses......................................... 1.87%(a) 1.85% 1.75% 1.75% 1.76%(a)
Total expenses excluding indirectly paid expenses...... 1.85%(a) 1.83% -- -- --
Total expenses excluding waivers and reimbursements.... 2.35%(a) 2.32% 2.21% 2.36% 2.71%(a)
Net investment income.................................. 5.68%(a) 5.82% 6.38% 5.48% 5.67%(a)
Portfolio turnover rate.................................. 179% 231% 149% 280% 160%
NET ASSETS END OF PERIOD (THOUSANDS)..................... $11,368 $16,034 $17,985 $ 17,819 $8,159
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
<TABLE>
<CAPTION>
CLASS C SHARES
FEBRUARY 1, 1993
(DATE OF INITIAL
ELEVEN MONTHS PUBLIC OFFERING)
ENDED YEAR ENDED JULY 31, THROUGH
JUNE 30, 1997 (D) 1996 1995 1994 (C) JULY 31, 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD....................... $ 8.74 $ 8.89 $ 8.85 $ 9.46 $ 9.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.46 0.52 0.55 0.49 0.29
Net realized and unrealized gain (loss) on investments,
closed futures contracts and foreign currency related
transactions............................................ 0.20 (0.16) 0.03 (0.57) 0.11
Total from investment operations.......................... 0.66 0.36 0.58 (0.08) 0.40
LESS DISTRIBUTIONS FROM:
Net investment income..................................... (0.46) (0.51) (0.51) (0.49) (0.29)
In excess of net investment income........................ 0 0 (0.03) (0.03) 0
Tax basis return of capital............................... 0 0 0 (0.01) 0
Total distributions....................................... (0.46) (0.51) (0.54) (0.53) (0.29)
NET ASSET VALUE END OF PERIOD............................. $ 8.94 $ 8.74 $ 8.89 $ 8.85 $ 9.46
Total return (b).......................................... 7.70% 4.10% 6.87% (0.95%) 4.31%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses.......................................... 1.87%(a) 1.85% 1.75% 1.75% 1.77%(a)
Total expenses excluding indirectly paid expenses....... 1.85%(a) 1.83% -- -- --
Total expenses excluding waivers and reimbursements..... 2.35%(a) 2.31% 2.23% 2.37% 2.61%(a)
Net investment income................................... 5.68%(a) 5.82% 6.37% 5.44% 5.61%(a)
Portfolio turnover rate................................... 179% 231% 149% 280% 160%
NET ASSETS END OF PERIOD (THOUSANDS)...................... $ 7,259 $9,084 $10,185 $ 13,086 $7,522
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
(c) Calculation based on average shares outstanding.
(d) The Fund changed its fiscal year end from July 31 to June 30.
13
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Fund are stated below.
Each Fund's investment objective cannot be changed without shareholder approval.
While there is no assurance that each Fund's objective will be achieved, the
Funds will endeavor to do so by following the investment policies detailed
below. Unless otherwise indicated, the investment policies of a Fund may be
changed by the Boards of Trustees (the "Trustees") of Evergreen Investment
Trust, The Evergreen Lexicon Fund, KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
and KEYSTONE INTERMEDIATE TERM BOND FUND (each a "Trust" or, collectively, the
"Trusts"), as the case may be, without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective. In addition to the investment policies detailed below, each
Fund may employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions".
EVERGREEN SHORT-INTERMEDIATE BOND FUND
The objective of EVERGREEN SHORT-INTERMEDIATE BOND FUND is to attain a
high level of current income, with capital growth as a secondary objective. The
Fund invests in a broad range of investment grade debt securities. The Fund is
suitable for conservative investors who want attractive income and permits them
to participate in a broad portfolio of fixed income securities rather than
purchasing a single issue. While the Fund may invest in securities rated BBB by
Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service
("Moody's"), the investment adviser currently intends to limit the Fund's
investments to securities rated A or higher by Moody's or S&P, or which, if
unrated, are considered to be of comparable quality by the Fund's investment
adviser. A description of the rating categories is contained in an Appendix to
the Statement of Additional Information.
Debt securities may include fixed, adjustable rate, zero coupon, or
stripped securities, debentures, notes, U.S. government securities, and debt
securities convertible into, or exchangeable for, preferred or common stock.
Debt securities may also include mortgage-backed and asset-backed securities
(see "Investment Practices and Restrictions", below). The duration of the
securities will not exceed 10 years. The Fund intends to maintain a dollar-
weighted average maturity of 5 years or less.
In normal market conditions the Fund may invest up to 20% of its assets
in money market instruments consisting of: (1) high grade commercial paper,
including master demand notes; (2) obligations of banks or savings and loan
associations having at least $1 billion in deposits, including certificates of
deposit and bankers' acceptances; (3) A-rated or better corporate obligations;
(4) obligations issued or guaranteed by the U.S. government or by any agency or
instrumentality of the U.S. government; and (5) repurchase agreements
collateralized by any security listed above.
The types of U.S. government securities in which the Fund may invest
include: direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and notes, bonds, and discount notes of U.S. government
agencies or instrumentalities, such as the Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation ("FHLMC"); Federal National Mortgage Association ("FNMA");
Government National Mortgage Association ("GNMA"); Student Loan Marketing
Association; Tennessee Valley Authority; Export-Import Bank of the United
States; Commodity Credit Corporation; Federal Financing Bank; and National
Credit Union Administration (collectively, "U.S. government securities"). Some
U.S. government agency obligations are backed by the full faith and credit of
the U.S. Treasury. Others in which the Fund may invest are supported by: the
issuer's right to borrow an amount limited to a specific line of credit from the
U.S. Treasury; discretionary authority of the U.S. government to purchase
certain obligations of an agency or instrumentality; or the credit of the agency
or instrumentality.
The Fund may also invest up to 20% of its assets in foreign securities or
U.S. securities traded in foreign markets in order to provide further
diversification. The Fund may also invest in preferred stock; units which are
debt securities with stock or warrants attached; and obligations denominated in
foreign currencies. In making these
14
<PAGE>
decisions, the Fund's investment adviser will consider such factors as the
condition and growth potential of various economies and securities markets,
currency and taxation considerations and other pertinent financial, social,
national and political factors. (See "Investment Practices and
Restrictions" -- "Foreign Investments").
EVERGREEN INTERMEDIATE-TERM BOND FUND
The investment objective of the EVERGREEN INTERMEDIATE-TERM BOND FUND is
to maximize current yield consistent with the preservation of capital.
The Fund invests in U.S. Treasury obligations; obligations issued or
guaranteed as to principal and interest by agencies and instrumentalities of the
U.S. government; receipts evidencing separately traded principal and interest
components of U.S. government obligations; corporate bonds and debentures rated,
at the time of purchase, A or better by S&P or Moody's or, if unrated determined
to be of comparable quality by the investment adviser; mortgage-backed
securities and asset-backed securities rated, at the time of purchase, at least
AA by S&P or Aa by Moody's, commercial paper rated A-1 or better by Moody's or
P-1 or better by S&P or, if unrated, determined to be of comparable quality at
the time of investment as determined by the investment adviser; short-term bank
obligations including certificates of deposit; time deposits and bankers'
acceptances of U.S. commercial banks or savings and loan institutions with
assets of at least $1 billion as of the end of their most recent fiscal year;
U.S. dollar denominated securities of the government of Canada and its
provincial and local governments; U.S. dollar denominated securities issued or
guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities; U.S. dollar denominated obligations of supranational
entities; and repurchase agreements involving any of the foregoing securities;
and U.S. dollar denominated securities of other foreign issuers. A description
of the rating categories is contained in the Statement of Additional
Information.
The Fund will maintain an average weighted maturity of approximately five
to fifteen years, although under normal conditions the investment adviser
expects the Fund to maintain an average weighted maturity of five to ten years.
The investment adviser may vary the average maturity substantially in
anticipation of a change in the interest rate environment.
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
The investment objective of EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND is to preserve principal value and maintain a high degree of
liquidity while providing current income.
The Fund invests exclusively in U.S. Treasury obligations, obligations
issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government, receipts evidencing separately traded
principal and interest components of U.S. government obligations, obligations of
supranational entities and repurchase agreements involving any of such
obligations. No more than 35% of the Fund's assets may be invested in receipts,
obligations of supranational entities and repurchase agreements involving such
securities.
The Fund will maintain an average weighted remaining maturity of
approximately three to ten years, although under normal conditions the
investment adviser expects to maintain an average maturity of three to six
years. No remaining maturity will exceed ten years. The investment adviser may
vary the average maturity substantially in anticipation of a change in the
interest rate environment.
The U.S. government obligations that the Fund may acquire include
securities representing an interest in a pool of mortgage loans that are issued
or guaranteed by a U.S. government agency. The primary issuers of these
mortgage-backed securities are GNMA, FNMA and FHLMC. The only agency which may
actually guarantee principal or interest is the GNMA. Mortgage-backed securities
are in most cases "pass through" instruments through which the holder receives a
share of all interest and principal payments from the mortgages underlying the
certificates. The mortgages backing these securities include conventional
thirty-year fixed rate mortgages. However, due to scheduled and unscheduled
principal payments on the underlying loans, these securities have a shorter
average maturity and, therefore, less principal volatility than comparable
bonds. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Fund will reinvest the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
For purposes of complying with the Fund's investment policy of acquiring
securities with remaining maturity of ten years or less, the investment adviser
will use the expected life of a mortgage-backed security.
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KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
The investment objective of KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
is to seek a high level of current income consistent with low volatility of
principal.
Under ordinary circumstances, the Fund invests at least 65% of its assets
in loan pool securities ("Loan Pool(s)") or in mortgage securities or other
securities collateralized by, or representing an interest in, a pool of
mortgages (collectively, "Mortgage Securities") that have interest rates that
reset at periodic intervals and are issued or guaranteed by the U.S. government,
its agencies or instrumentalities.
The Fund does not attempt to maintain a constant price per share.
However, the Fund does follow a strategy that seeks to minimize changes in its
net asset value per share by investing primarily in adjustable-rate securities,
whose interest rates are periodically reset when market rates change. The
average dollar weighted reset period of adjustable-rate securities held by the
Fund will not exceed one year. The Fund seeks to provide a relatively stable net
asset value while providing high current income relative to high quality,
short-term investment alternatives.
Keystone believes that, by investing primarily in Mortgage Securities and
Loan Pools with adjustable rates of interest that are issued or guaranteed by
the U.S. government, its agencies or instrumentalities, the Fund will achieve a
less volatile net asset value per share than is characteristic of mutual funds
that invest primarily in U.S. government securities paying a fixed-rate of
interest.
Unlike fixed rate mortgages and loans, adjustable-rate mortgage
securities ("ARMS") and adjustable-rate Loan Pools ("AR Loan Pools") allow the
Fund to participate in increases in interest rates through periodic adjustments
in the coupons of the underlying mortgages or loans, resulting in both higher
current yields and lower price fluctuations in the Fund's net asset value per
share. The Fund is also affected by decreases in interest rates through periodic
decreases in the coupons of the underlying mortgages or loans resulting in lower
income to the Fund. This downward adjustment results in lower price fluctuations
in the net asset value per share in a decreasing interest rate environment. As
the interest rates on the mortgages or loans underlying the Fund's investments
are reset periodically, coupons of portfolio securities will gradually align
themselves to reflect changes in market rates and should cause the net asset
value per share of the Fund to fluctuate less dramatically than it would if the
Fund invested in more traditional long-term, fixed-rate mortgages.
The portion of the Fund that is not invested in ARMS and AR Loan Pools is
intended to add incremental yield from changes in market rates without
materially increasing the volatility of the net asset value per share. As a
result, the overall impact on the Fund of this portion of the Fund's portfolio
is expected to be neutral in terms or price risk.
The Fund may invest in GNMA, FNMA and FHLMC fixed-rate Mortgage
Securities. The expected price behavior of fixed-rate GNMA, FNMA and FHLMC
Mortgage Securities is like that of other fixed rate debt securities in that
their principal value rises as market interest rates fall and declines as market
interest rates rise. (See "Investment Practices and Restrictions -- Risks of
Asset-Backed Securities").
The Fund may also invest in fixed-rate and adjustable-rate collateralized
mortgage obligations ("CMO's"), including CMOs with rates that move inversely to
market rates that are issued by and guaranteed as to principal and interest by
the U.S. government, its agencies or instrumentalities. The principal
governmental issuer of CMOs is FNMA. In addition, FHLMC issues a significant
number of CMOs. The Fund will not invest in CMOs that are issued by private
issuers. CMOs are debt obligations collateralized by Mortgage Securities in
which the payment of the principal and interest is supported by the credit of,
or guaranteed by, the U.S. government or an agency or instrumentality of the
U.S. government. The secondary market for such CMOs is actively traded.
KEYSTONE INTERMEDIATE TERM BOND FUND
The Fund seeks current income by investing primarily in a broad range of
investment quality debt securities. As a secondary objective, the Fund seeks to
protect capital. Where appropriate the Fund will take advantage of opportunities
to realize capital appreciation.
The Fund seeks current income by normally investing at least 80% of its
assets in debt securities including U.S. Treasury bills, notes and bonds;
mortgage-backed securities issued by the U.S. government, its agencies or
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instrumentalities; mortgage-backed securities issued by private issuers;
corporate debt securities; and commercial paper.
Under ordinary circumstances, the Fund expects to invest at least 65% of
its assets in bonds and debentures. In addition, the Fund will only invest its
assets in securities that, at the time of investment, are rated within the four
highest grades by S&P (AAA, AA, A and BBB), by Moody's (Aaa, Aa, A and Baa) or
by Fitch Investors Service, L.P. ("Fitch") (AAA, AA, A and BBB), or, if not
rated or rated under a different system, are of comparable quality to
obligations so rated, as determined by Keystone. Any split-rated bond in which
the Fund invests will be rated at least the minimum rating by both Moody's and
S&P. The Fund's investments are expected to have a minimum average rating of A
by Moody's, S&P or Fitch.
The Fund currently expects that the dollar weighted average maturity of
its investments will range from 3 to 7 years. However, the Fund may invest in
securities with remaining maturities of ten years or less.
The Fund's debt securities may include fixed and adjustable-rate or
stripped bonds, debentures, notes, equipment trust certificates and debt
securities convertible into, or exchangeable for, preferred or common stock. The
Fund may also invest in units, which are debt securities with stock or warrants
to buy stock attached, and preferred stock. The Fund will not invest in
securities judged to be speculative or of poor quality, but may invest in
investment grade securities as described above.
Bonds which are rated BBB or BAA are considered to be medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. Such bonds lack outstanding investment characteristics and may have
speculative characteristics. Keystone will dispose of any bond whose rating is
reduced below BAA by Moody's, BBB by S&P or BBB by Fitch.
When the Fund buys securities, it will consider the ratings of Moody's
S&P and Fitch assigned to various debt securities as well as many other factors,
including the preservation of capital, the potential for realizing capital
appreciation, maturity and yield to maturity. The Fund will adjust its
investments in particular securities or in types of debt securities in response
to its appraisal of changing economic conditions and trends. The Fund may sell
one security and purchase another security of comparable quality and maturity to
take advantage of what it believes to be short-term differentials in market
values or yield disparities.
INVESTMENT PRACTICES AND RESTRICTIONS
Risk Factors. Bond prices move inversely to interest rates, i.e. as interest
rates decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
obligations in which each Fund may invest may be variable or floating rate
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. government securities if, in the opinion of each Fund's
investment adviser, market conditions warrant a temporary defensive investment
strategy.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND may invest up to 35% of its
assets under ordinary circumstances and, when in Keystone's opinion market
conditions warrant, up to 100% of its assets for temporary defensive purposes in
the following instruments: obligations of the U.S. government, its agencies or
instrumentalities, including the Federal Home Loan Banks, FNMA, GNMA, Bank for
Cooperatives (including Central Bank for Cooperatives), Federal Land Banks,
Federal Intermediate Credit Banks, Tennessee Valley Authority, Export-Import
Bank of the United States, Commodity Credit Corporation, Federal Financing Bank,
The Student Loan Marketing Association, FHLMC, Small Business Administration or
the National Credit Union Administration.
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KEYSTONE INTERMEDIATE TERM BOND FUND may invest up to 20% of its total
assets under ordinary circumstances and, when in Keystone's opinion market
conditions warrant, up to 100% of its assets for temporary defensive purposes in
the following types of money market instruments: (1) commercial paper, including
master demand notes, that at the date of investment is rated A-1, the highest
grade by S&P, Prime-1, the highest grade by Moody's or, if not rated by such
services, is issued by a company which at the date of investment has an
outstanding issue rated A or better by S&P or Moody's; (2) obligations,
including certificates of deposit and banker's acceptances, of banks or savings
and loan associations having at least $1 billion in assets that are members of
the Federal Deposit Insurance Corporation including U.S. branches of foreign
banks and foreign branches of U.S. banks; (3) corporate obligations which at the
date of investment are rated A or better by S&P or Moody's and (4) obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
Downgrades. If any security invested in by any of the Funds loses its rating or
has its rating reduced after the Fund has purchased it, the Fund is not required
to sell or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Funds may invest in repurchase agreements. Repurchase
agreements are agreements by which a Fund purchases a security (usually U.S.
government securities) for cash and obtains a simultaneous commitment from the
seller (usually a bank or broker/dealer) to repurchase the security at an
agreed-upon price and specified future date. The repurchase price reflects an
agreed-upon interest rate for the time period of the agreement. The Fund's risk
is the inability of the seller to pay the agreed-upon price on the delivery
date. However, this risk is tempered by the ability of the Fund to sell the
security in the open market in the case of a default. In such a case, a Fund may
incur costs in disposing of the security which would increase Fund expenses. The
Fund's investment adviser will monitor the creditworthiness of the firms with
which the Funds enter into repurchase agreements.
EVERGREEN SHORT-INTERMEDIATE BOND FUND, KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND and KEYSTONE INTERMEDIATE TERM BOND FUND may also enter into reverse
repurchase agreements. Under a reverse repurchase agreement, a Fund would sell
securities and agree to repurchase them at a mutually agreed upon date and
price. The Funds intend to enter into reverse repurchase agreements to avoid
otherwise having to sell securities during unfavorable market conditions in
order to meet redemptions. At the time a Fund enters into a reverse repurchase
agreement, it will establish a segregated account with the Fund's custodian
containing liquid assets having a value not less than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
such value is maintained. Reverse repurchase agreements involve the risk that
the market value of the securities that a Fund is obligated to repurchase may
decline below the repurchase price.
When-Issued And Delayed Delivery Transactions. EVERGREEN SHORT-INTERMEDIATE BOND
FUND, EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND may purchase securities and KEYSTONE INTERMEDIATE
TERM BOND FUND may purchase securities and currencies on a when-issued or
delayed delivery basis. KEYSTONE CAPITAL PRESERVATION AND INCOME FUND may
purchase and sell securities or rights to interest payments on a when-issued or
delayed delivery basis. These transactions are arrangements in which a Fund
purchases securities or currencies with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause a
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, a Fund may pay more or less than the market value of the securities
on the settlement date. The Funds may dispose of a commitment prior to
settlement if the investment adviser deems it appropriate to do so. In addition,
the Funds may enter into transactions to sell their purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Funds may realize
short-term profits or losses upon the sale of such commitments. KEYSTONE
INTERMEDIATE TERM BOND FUND may also purchase or sell securities on a forward
commitment basis.
Lending Of Portfolio Securities. In order to generate additional income, a Fund
may lend up to 15% of its portfolio securities on a short-term or long-term
basis to broker/dealers, banks, or other institutional borrowers of securities.
The Funds will only enter into loan arrangements with creditworthy borrowers and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100% of the value of the securities loaned. There is the risk that
when lending portfolio securities, the securities may not be available to a Fund
on a timely basis and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price. In addition, in the event that a
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borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
Options And Futures. EVERGREEN SHORT-INTERMEDIATE BOND FUND and KEYSTONE
INTERMEDIATE TERM BOND FUND may engage in options and futures transactions.
Options and futures transactions are intended to enable a Fund to manage market,
interest rate or exchange rate risk, and the Funds do not use these transactions
for speculation or leverage.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may attempt to hedge all or a
portion of its portfolio through the purchase of both put and call options on
its portfolio securities and listed put options on financial futures contracts
for portfolio securities. The Fund may also write covered call options on its
portfolio securities to attempt to increase current income. The Fund will
maintain its positions in securities, option rights, and segregated cash subject
to puts and calls until the options are exercised, closed, or have expired. An
option position may be closed out only on an exchange which provides a secondary
market for an option of the same series. The Fund may purchase listed put
options on financial futures contracts. These options will be used only to
protect portfolio securities against decreases in value resulting from market
factors such as an anticipated increase in interest rates.
EVERGREEN SHORT-INTERMEDIATE BOND FUND and KEYSTONE INTERMEDIATE TERM
BOND FUND may write (i.e., sell) covered call and put options. By writing a call
option, a Fund becomes obligated during the term of the option to deliver the
securities underlying the option upon payment of the exercise price. By writing
a put option, a Fund becomes obligated during the term of the option to purchase
the securities underlying the option at the exercise price if the option is
exercised. EVERGREEN SHORT-INTERMEDIATE BOND FUND also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Funds may only write "covered" options. This means that so long as a Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. A Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Funds receive a premium from writing a
call or put option which they retain whether or not the option is exercised. By
writing a call option, the Funds might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Funds might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
KEYSTONE INTERMEDIATE TERM BOND FUND may purchase call and put options to
close out existing positions.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may also enter into currency and
other financial futures contracts and write options on such contracts. The Fund
intends to enter into such contracts and related options for hedging purposes.
The Fund will enter into futures on securities, currencies, or index-based
futures contracts in order to hedge against changes in interest or exchange
rates or securities prices. A futures contract on securities or currencies is an
agreement to buy or sell securities or currencies during a designated month at
whatever price exists at that time. A futures contract on a securities index
does not involve the actual delivery of securities, but merely requires the
payment of a cash settlement based on changes in the securities index. The Fund
does not make payment or deliver securities upon entering into a futures
contract. Instead, it deposits a margin deposit, which is adjusted to reflect
changes in the value of the contract and which remains in effect until the
contract is terminated. KEYSTONE INTERMEDIATE TERM BOND FUND may enter into
currency and other financial futures contracts and related options transactions.
The Fund may also employ new investment techniques with respect to options and
futures contracts and related options. KEYSTONE CAPITAL PRESERVATION AND INCOME
FUND may, upon thirty days' prior notice to shareholders enter into interest
rate swap contracts, financial futures contracts and related options
transactions. The Fund may employ new investment techniques related to any of
its investment policies.
EVERGREEN SHORT-INTERMEDIATE BOND FUND may enter into closing purchase
and sale transactions in order to terminate a futures contract and may buy or
sell put and call options for the purpose of closing out their options
positions. The Fund's ability to enter into closing transactions depends on the
development and
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maintenance of a liquid secondary market. There is no assurance that a liquid
secondary market will exist for any particular contract or at any particular
time. As a result, there can be no assurance that the Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the contract and to complete the contract according to its terms, in
which case the Fund would continue to bear market risk on the transaction.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If a Fund would enter into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. A Fund
would "go long" (agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.
Risk Characteristics Of Options And Futures. Although options and futures
transactions are intended to enable the Funds to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Funds use of them can result in poorer performance (i.e., the Funds' returns may
be reduced). The Funds attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Funds use financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Funds' portfolios. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, the Funds' investment advisers could
be incorrect in their expectations and forecasts about the direction or extent
of market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Funds' investment advisers correctly predict
interest rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Funds may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although the Funds'
investment advisers will consider liquidity before entering into financial
futures contracts or options on financial futures contracts transactions, there
is no assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Funds' ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If a Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to the Fund could be significant.
Zero-Coupon And Stripped Securities. EVERGREEN SHORT-INTERMEDIATE BOND FUND,
EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND may invest in zero-coupon and stripped securities. Zero-coupon
securities in which the Funds may invest are debt obligations which are
generally issued at a discount and payable in full at maturity, and which do not
provide for current payments of interest prior to maturity. Zero-coupon
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of the Funds may fluctuate
over a greater range than shares of other mutual funds investing in securities
making current distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment banking firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and
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notes themselves are held in book-entry form at the Federal Reserve Bank or, in
the case of bearer securities (i.e., unregistered securities which are owned
ostensibly by the bearer or holder thereof), in trust on behalf of the owners
thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities". Under the
STRIPS program, the Funds will be able to have their beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidence
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Foreign Investments. EVERGREEN SHORT-INTERMEDIATE BOND FUND and KEYSTONE
INTERMEDIATE TERM BOND FUND may invest in foreign securities or securities
denominated in or indexed to foreign currencies and EVERGREEN INTERMEDIATE-TERM
BOND FUND may invest in U.S. dollar denominated securities of foreign issuers.
In addition, EVERGREEN SHORT-INTERMEDIATE BOND FUND may invest in foreign
currencies. These may involve additional risks. Specifically, they may be
affected by the strength of foreign currencies relative to the U.S. dollar, or
by political or economic developments in foreign countries. Accounting
procedures and government supervision may be less stringent than those
applicable to U.S. companies. There may be less publicly available information
about a foreign company than about a U.S. company. Foreign markets may be less
liquid or more volatile than U.S. markets and may offer less protection to
investors. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Foreign securities may be subject to foreign taxes, which may
reduce yield, and may be less marketable than comparable U.S. securities. All
these factors are considered by the investment adviser before making any of
these types of investments.
Risk Characteristics Of Asset-Backed Securities. The Funds may invest in
asset-backed securities. Asset-backed securities are created by the grouping of
certain governmental, government-related and private loans, receivables and
other lender assets into pools. Interests in these pools are sold as individual
securities. Payments from the asset pools may be divided into several different
tranches of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which may
be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Funds receive from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as CMOs,
prepayments may be allocated to one tranche of securities ahead of other
tranches, in order to reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Funds to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Funds which would be taxed as ordinary
income when distributed to the shareholders. The credit
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characteristics of asset-backed securities also differ in a number of respects
from those of traditional debt securities. The credit quality of most
asset-backed securities depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.
Derivatives. KEYSTONE INTERMEDIATE TERM BOND FUND may also invest in certain
other types of derivative instruments, including interest rate swaps, equity
swaps, index swaps, currency swaps and caps and floors, in addition to forwards,
futures, options, mortgage-backed securities and other asset-backed securities
as mentioned above. These vehicles can also be combined to create more complex
products called hybrid derivatives or structured securities.
The market value of derivatives or structured securities may vary
depending upon the manner in which the investments have been structured and may
fluctuate much more rapidly and to a much greater extent. As a result, the value
of such investments may change at a rate in excess of the rate at which
traditional fixed income securities change and, depending on the structure of
the derivative, would change in a manner opposite to the change in the market
value of a traditional fixed income security.
Borrowing. As a matter of fundamental policy, the Funds may not borrow money
except as a temporary measure to facilitate redemption requests or for
extraordinary or emergency purposes. The proceeds from borrowings may be used to
facilitate redemption requests which might otherwise require the untimely
disposition of portfolio securities. The specific limits applicable to borrowing
by each Fund are set forth in the Statement of Additional Information.
Restricted and Illiquid Securities. The Funds may invest in securities which are
subject to restrictions on resale under federal securities law. EVERGREEN
SHORT-INTERMEDIATE BOND FUND may invest up to 10% of its net assets and
EVERGREEN U.S. GOVERNMENT FUND may invest up to 10% of its total assets in such
securities. This restriction is not applicable to commercial paper issued under
Section 4(2) of the Securities Act of 1933. EVERGREEN SHORT-INTERMEDIATE BOND
FUND, EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND may invest up to 10% of their net assets in illiquid
securities. KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE
INTERMEDIATE TERM BOND FUND may also invest up to 15% of its net assets in
illiquid securities. Illiquid securities include certain restricted securities
not determined by the Trustees to be liquid, non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days after
notice.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust
under which the Fund is organized. CMG serves as investment adviser to EVERGREEN
SHORT-INTERMEDIATE BOND FUND, EVERGREEN INTERMEDIATE-TERM BOND FUND and
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND. Keystone serves as
investment adviser to KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE
INTERMEDIATE TERM BOND FUND. Keystone has provided advisory and management
services to investment companies, including certain of the Evergreen Keystone
funds and private accounts since it was organized in 1932.
FUNB is a subsidiary of First Union. First Union and FUNB are located at
201 South College Street, Charlotte, North Carolina 28288. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.
CMG manages the investments and supervises the daily business affairs of
the Funds for which it serves as investment adviser. As compensation therefor,
CMG is entitled to receive an annual fee equal to 0.50% of the average daily net
assets of EVERGREEN SHORT-INTERMEDIATE BOND FUND and 0.60% of the average daily
net assets of EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND. Keystone manages the investments
and supervises the daily business affairs of the Funds for which it serves as
investment adviser, subject to the authority of the Trustees. As payment for its
services, Keystone is entitled to receive from KEYSTONE CAPITAL PRESERVATION
FUND and from KEYSTONE INTERMEDIATE TERM BOND
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<PAGE>
FUND a fee at the annual rate of 2.0% of gross dividend and interest income of
each Fund plus 0.50% of the first $100,000,000, plus 0.45% of the next
$100,000,000, plus 0.40% of the next $100,000,000, plus 0.35% of the next
$100,000,000, plus 0.30% of the next $100,000,000, plus 0.25% of amounts over
$500,000,000. The total annualized operating expenses of each Fund for the
fiscal period ended June 30, 1997, expressed as a percentage of average net
assets on an annual basis, are set forth in the section entitled "Financial
Highlights".
PORTFOLIO MANAGERS
Thomas L. Ellis, a Vice President of FUNB, has been the portfolio manager
of EVERGREEN SHORT-INTERMEDIATE BOND FUND since its inception in 1988. Prior to
joining FUNB in 1985, Mr. Ellis had seventeen years investment management and
sales experience, including eleven years marketing short and medium-term
obligations to institutional investors, and three years as head trader of First
Boston Corporation.
Bruce Besecker, a Vice President of FUNB, has been the portfolio manager
of EVERGREEN INTERMEDIATE-TERM BOND FUND since its inception in 1991. Prior to
joining FUNB, Mr. Besecker was a Vice President in the Fixed Income Unit of the
Financial Management Department of First Fidelity, N.A. ("First Fidelity").
The portfolio manager of EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND since its inception in 1991 has been Robert Cheshire. Mr.
Cheshire is a Vice President of FUNB and was formerly a Vice President in the
Institutional Asset Management Group of First Fidelity.
Christopher P. Conkey is the portfolio manager of KEYSTONE INTERMEDIATE
TERM BOND FUND. He is Chief Investment Officer of Fixed Income and Head of the
High Grade Bond Team for Keystone. Mr. Conkey, who joined Keystone in 1988,
manages a variety of high quality bond funds. He is a member of Keystone's
Investment Policy Committee and is responsible for directing the strategy
creation process for all high grade products. Mr. Conkey has 14 years of
investment experience.
Gary Pzegeo has been the portfolio manager of KEYSTONE CAPITAL
PRESERVATION AND INCOME FUND since 1997. Mr. Pzegeo is a Keystone Vice President
and Portfolio Manager in the Fixed Income group. Mr. Pzegeo joined Keystone in
1990 and has experience as a Senior Cash Manager, Senior Research Associate and
Analyst.
ADMINISTRATOR
Evergreen Keystone Investment Services, Inc. ("EKIS") serves as
administrator to EVERGREEN SHORT-INTERMEDIATE BOND FUND, EVERGREEN
INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND. EKIS provides facilities, equipment and personnel to the Funds
and is entitled to receive a fee based on the aggregate average daily net assets
of the mutual funds for which FUNB affiliates serve as investment adviser.
EKIS's fee is calculated in accordance with the following schedule:
Administration Fee
------------------
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
EKIS also provides facilities, equipment and personnel to KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE TERM BOND FUND on
behalf of Keystone.
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<PAGE>
SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS"), an affiliate of Evergreen Keystone
Distributor, Inc. ("EKD"), the Funds' distributor, serves as sub-administrator
to the Funds and is entitled to receive a fee calculated on the aggregate
average daily net assets of all the mutual funds for which FUNB affiliates serve
as investment adviser. BISYS's fee is calculated in accordance with the
following schedule:
Sub-Administration Fee
----------------------
0.0100% on the first $7 billion
0.0075% on the next $3 billion
0.0050% on the next $15 billion
0.0040% on assets in excess of $25 billion
DISTRIBUTION PLANS
Distribution Plans. Each Fund's Class A, Class B and Class C shares pay for the
expenses associated with the distribution of its shares according to a
distribution plan that it has adopted pursuant to Rule 12b-1 under the 1940 Act
(each a "Plan" or collectively the "Plans"). Under the Plans, each Fund may
incur distribution-related and shareholder servicing-related expenses which are
based upon the following maximum annual rates:
Share Class % of Class's average daily net assets
- ----------- -------------------------------------
Class A shares 0.75%, currently limited to 0.25% for
KEYSTONE CAPITAL PRESERVATION FUND
and KEYSTONE INTERMEDIATE TERM BOND
FUND and 0.10% for EVERGREEN
SHORT-INTERMEDIATE BOND FUND
0.50% currently limited to 0.25% for
EVERGREEN INTERMEDIATE-TERM BOND
FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each Class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include each Fund's investment adviser or their affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Funds may not pay any distribution or services fees during any
fiscal period in excess of the amounts set forth above.
EVERGREEN SHORT-INTERMEDIATE TERM BOND FUND has a shareholder service
plan ("Service Plan") in addition to the Plan adopted with respect to its Class
B shares. The Service Plan permits the fund to incur a fee of up to 0.25% of
Class B aggregate average daily net assets for ongoing personal services and/or
the maintenance of shareholder accounts. Plan and Service Plan payments to
financial intermediaries will not exceed 0.25% of the aggregate average daily
net assets attributable to each Class of shares of the Fund.
The Plans are in compliance with the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee to
6.25% of cumulative gross sales of shares of that class, plus interest on the
unpaid amount at the prime rate plus 1% per annum.
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<PAGE>
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You may purchase shares of each Fund through broker-dealers, banks or
other financial intermediaries or directly through EKD. In addition, you may
purchase shares of a Fund by mailing to each Fund, c/o Evergreen Keystone
Service Company ("EKSC"), P.O. Box 2121, Boston, Massachusetts 02106-2121, a
completed account application and a check payable to the Fund. You may also
telephone 1-800-343-2898 to obtain the number of an account to which you can
wire or electronically transfer funds and then send in a completed account
application. The minimum initial investment is $1,000, which may be waived in
certain situations. Subsequent investments in any amount may be made by check,
by wiring Federal funds, by direct deposit or by an electronic funds transfer
("EFT").
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. Share certificates are
not issued. See the Application for more information. Only Class A, Class B and
Class C shares are offered through this Prospectus (see "General
Information" -- "Other Classes of Shares").
Class A Shares-Front-End Sales Charge Alternative. You may purchase Class A
shares of each Fund at net asset value plus an initial sales charge on purchases
under $1,000,000. You may purchase $1,000,000 or more of Class A shares without
a front-end sales charge, however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1.0% of the purchase price or the redemption value will
be imposed on shares redeemed during the month of purchase and the 12-month
period following the month of purchase. The schedule of charges for Class A
shares is as follows:
Initial Sales Charge
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $ 50,000 3.36% 3.25% 2.75%
$ 50,000 - $ 99,000 3.09% 3.00% 2.75%
$ 100,000 - $ 249,999 2.56% 2.50% 2.25%
$ 250,000 - $ 499,999 2.04% 2.00% 1.75%
$ 500,000 - $ 999,999 1.52% 1.50% 1.25%
</TABLE>
Investment of $1 million or more -- Investments of $1 million or more are
available without a front-end sales charge. There is, however, a CDSC of 1.00%
on any shares redeemed during the month of purchase and the 12-month period
following the month of purchase.
Qualifying Plan -- Certain plans that are sponsored by an organization
having 100 or more eligible employees or tax sheltered annuity plans sponsored
by a public educational entity having 5,000 or more eligible employees. See the
SAI for more information.
No front-end sales charges are imposed on Class A shares purchased by (a)
institutional investors, which may include bank trust departments and registered
investment advisers; (b) investment advisers, consultants or financial planners
who place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; (c) clients
of investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; (d) institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; (e) shareholders of record on October 12, 1990 in any series
of Evergreen Investment Trust in existence on that date, and the members of
their immediate families; (f) current and retired employees of FUNB and its
affiliates,
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<PAGE>
EKD and any broker-dealer with whom EKD has entered into an agreement to sell
shares of the Funds, and members of the immediate families of such employees;
(g) and upon the initial purchase of an Evergreen Keystone fund by investors
reinvesting the proceeds from a redemption within the preceding thirty days of
shares of other mutual funds, provided such shares were initially purchased with
a front-end sales charge or subject to a CDSC. Certain broker-dealers or other
financial institutions may impose a fee on transactions in shares of the Funds.
When Class A shares are sold, EKD will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EKD may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Funds. Certain
purchases of Class A shares may qualify for reduced sales charges in accordance
with a Fund's concurrent purchases, Rights of Accumulation, Letter of Intent,
certain Retirement Plans and Reinstatement Privilege. Consult the Application
for additional information concerning these reduced sales charges. Consult the
Application for additional information concerning these reduced sales charges.
Class B Shares-Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC will vary according to the number of years from the month of
purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase............................... 5.00%
Second twelve-month period following the month of purchase........................................................ 4.00%
Third twelve-month period following the month of purchase......................................................... 3.00%
Fourth twelve-month period following the month of purchase........................................................ 3.00%
Fifth twelve-month period following the month of purchase......................................................... 2.00%
Sixth twelve-month period following the month of purchase......................................................... 1.00%
No CDSC is imposed on amounts redeemed therafter.
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to EKD
or its predecessor. Class B shares are subject to higher distribution and/or
shareholder service fees than Class A shares for a period of seven years after
the month of purchase (after which it is expected that they will convert to
Class A shares). The higher fees mean a higher expense ratio, so Class B shares
pay correspondingly lower dividends and may have a lower net asset value than
Class A shares. The Funds will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the calendar
month in which the shareholder's purchase order was accepted, Class B shares
will automatically convert to Class A shares and will no longer be subject to a
higher distribution services fee imposed on Class B shares. Such conversion will
be on the basis of the relative net asset values of the two Classes, without the
imposition of any sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares.
Class C Shares. Class C shares are offered only through broker-dealers who have
special distribution agreements with EKD. Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions, each Fund
imposes a CDSC of 1.00% on shares redeemed during the month of purchase and the
12-month period following the month of purchase. No CDSC is imposed on amounts
redeemed thereafter. If imposed, the CDSC is deducted from the redemption
proceeds otherwise payable to you. The CDSC is retained by EKD or its
predecessor. See "Contingent Deferred Sales Charge and Waiver of Sales Charges"
below.
Contingent Deferred Sales Charge. Shares obtained from dividend or distribution
reinvestment are not subject to a CDSC. Any CDSC imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net asset value at the time of
purchase of such shares.
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<PAGE>
No CDSC is imposed on a redemption of shares of the Fund in the event of
(1) death or disability of the shareholder; (2) a lump-sum distribution from a
401(k) plan or other benefit plan qualified under the Employee Retirement Income
Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA plans if
the shareholder is at least 59 1/2 years old; (4) involuntary redemptions of
accounts having an aggregate net asset value of less than $1,000; (5) automatic
withdrawals under the Systematic Withdrawal Plan of up to 1.00% per month of the
shareholder's initial account balance; (6) withdrawals consisting of loan
proceeds to a retirement plan participant; (7) financial hardship withdrawals
made by a retirement plan participant; or (8) withdrawals consisting of returns
of excess contributions or excess deferral amounts made to a retirement plan
participant.
The Funds may also sell Class A, Class B or, if applicable, Class C
shares at net asset value without any initial sales charge or a CDSC to certain
Directors, Trustees, officers and employees of the Funds, FUNB, EKD and certain
of their affiliates, and to members of the immediate families of such persons,
to registered representatives of firms with dealer agreements with EKD, and to a
bank or trust company acting as a trustee for a single account.
How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is calculated by dividing the value of the amount the Fund's net assets
attributable to that Class by the number of outstanding shares of that Class.
Shares are valued each day the New York Stock Exchange (the "Exchange") is open
as of the close of regular trading (currently 4:00 p.m. Eastern time). The
securities in a Fund are valued at their current market value determined on the
basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees of each Trust under which each Fund operates
believe would accurately reflect fair value. Non-dollar denominated securities
will be valued as of the close of the Exchange at the closing price of such
securities in their principal trading market.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares because 100% of your purchase is
invested immediately and because such shares will convert to Class A shares,
which incur lower ongoing distribution and/or shareholder service fees, after
seven years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year. Consult your financial intermediary for further information. The
compensation received by dealers and agents may differ depending on whether they
sell Class A, Class B or Class C shares. There is no size limit on purchases of
Class A shares.
In addition to the discount or commission paid to dealers, EKD and EKIS
may from time to time pay to broker-dealers additional cash or other incentives
that are conditioned upon the sale of a specified minimum dollar amount of
shares of a Fund and/or other Evergreen Keystone funds. Such incentives will
take the form of payment for attendance at seminars, lunches, dinners, sporting
events or theater performances, or payment for travel, lodging and entertainment
incurred in connection with travel by persons associated with a broker-dealer
and their immediate family members to urban or resort locations within or
outside the United States. Such a broker-dealer may elect to receive cash
incentives of equivalent amount in lieu of such payments. EKD may also limit the
availability of such incentives to certain specified dealers. EKD from time to
time sponsors promotions involving First Union Brokerage Services, Inc.
("FUBS"), an affiliate of each Fund's investment adviser, and select broker-
dealers, pursuant to which incentives are paid, including gift certificates and
payments in amounts up to 1.0% of the dollar amount of shares of a Fund sold.
Awards may also be made based on the opening of a minimum number of accounts.
Such promotions are not being made available to all broker-dealers. Certain
broker-dealers may also receive payments from EKD or a Fund's investment adviser
over and above the usual trail commissions or shareholder servicing payments
applicable to a given Class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, a Fund may redeem
shares from an investor's account to reimburse the Fund or the Fund's investment
adviser for any loss. In addition, such investors may be prohibited or
restricted from making further purchases in any of the Evergreen mutual funds.
The Funds
27
<PAGE>
will not accept third party checks other than those payable directly to a
shareholder whose account has been in existence at least thirty days.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net redemption value on any
day the Exchange is open, either by writing to each Fund, c/o EKSC, or through
your financial intermediary. The amount you will receive is based on the net
asset value adjusted for fractions of a cent (less any applicable CDSC for Class
B or Class C shares) next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, a Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service. Certain financial intermediaries
may require that you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o EKSC, the registrar, transfer
agent and dividend-disbursing agent for each Fund. Stock power forms are
available from your financial intermediary, EKSC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. Each Fund and EKSC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Exchange Act of 1934 and EKSC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
Prospectus between the hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or
EKSC's offices are closed). The Exchange is closed on New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with a Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate sections on the
Application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (i) be mailed by check to the shareholder at the address in
which the account is registered or (ii) be wired to an account with the same
registration as the shareholder's account in a Fund at a designated commercial
bank.
In order to insure that instructions received by EKSC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. Each Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
Prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Funds, EKSC and EKD will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Keystone Express Line, or by
telephone. EKSC will employ reasonable procedures to confirm that instructions
received over the Evergreen
28
<PAGE>
Keystone Express Line or by telephone are genuine. The Funds, EKSC and EKD will
not be liable when following instructions received over the Evergreen Keystone
Express Line or by telephone that EKSC reasonably believes are genuine.
Evergreen Keystone Express Line. The Evergreen Keystone Express Line offers you
specific fund account information and price and yield quotations as well as the
ability to do account transactions, including investments, exchanges and
redemptions. You may access the Evergreen Keystone Express Line by dialing toll
free 1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a
week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Funds may temporarily suspend the right to redeem their shares
when (1) the Exchange is closed, other than customary weekend and holiday
closings; (2) trading on the Exchange is restricted; (3) an emergency exists and
the Funds cannot dispose of their investments or fairly determine their value;
or (4) the Securities and Exchange Commission ("SEC") so orders. The Funds
reserve the right to close an account that through redemption has fallen below
$1,000 and has remained so for thirty days. Shareholders will receive sixty
days' written notice to increase the account value to at least $1,000 before the
account is closed. The Funds have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash, up to the lesser of $250,000 or 1% of a Fund's total net assets, during
any ninety day period for any one shareholder.
EXCHANGE PRIVILEGE
How To Exchange Shares. You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Keystone funds through your financial
intermediary or by calling or writing to EKSC or by using the Evergreen Keystone
Express Line as described above. Once an exchange request has been telephoned or
mailed, it is irrevocable and may not be modified or canceled. Exchanges will be
made on the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange, which represents
an initial investment in another Evergreen Keystone fund is subject to the
minimum investment and suitability requirements of each Fund.
Each of the Evergreen Keystone funds has different investment objectives
and policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to shareholders and is only available
in states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event Class B or Class C shares are
exchanged for Class B or Class C shares, respectively, of other Evergreen
Keystone funds. If you redeem shares, the CDSC applicable to the Class B or
Class C shares of the Evergreen or Keystone fund originally purchased for cash
is applied. Also, Class B shares will continue to age following an exchange for
purposes of conversion to Class A shares and determining the amount of the
applicable CDSC.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges by Telephone and Mail. Exchange requests made after 4:00 p.m. (Eastern
time) will be processed using the net asset value determined on the next
business day. During periods of drastic economic or market changes, shareholders
may experience difficulty in effecting telephone exchanges. You should follow
the procedures outlined below for exchanges by mail if you are unable to reach
EKSC by telephone. If you wish to use the telephone exchange service you should
indicate this on the Application. As noted above, each Fund will employ
reasonable procedures to confirm that instructions for the redemption or
exchange of shares communicated by telephone are genuine. A telephone exchange
may be refused by a Fund or EKSC if it is believed advisable to do so.
Procedures for exchanging Fund shares by telephone may be modified or terminated
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at any time. Written requests for exchanges should follow the same procedures
outlined for written redemption requests in the section entitled "How to Redeem
Shares", however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more information
about these services or your account, contact your financial intermediary, EKSC
or the toll-free number on the front page of this Prospectus. Some services are
described in more detail in the Application.
Systematic Investment Plan. Under a Systematic Investment Plan you may invest as
little as $25 per month to purchase shares of a Fund with no minimum initial
investment required.
Telephone Investment Plan. You may invest not less than $100 or more than
$10,000 per investment into an existing account. Telephone investment requests
received by 4:00 p.m. (Eastern time) will be credited to a shareholder's account
the day the request is received. Shares purchased under the Funds Systematic
Investment Plan or Telephone Investment Plan may not be redeemed for ten days
from the date of investment.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the Application. Under
this plan, you may receive (or designate a third party to receive) payments in a
stated amount of at least $75, or a maximum of 1.0% per month or 3.0% per
quarter of the total net asset value of your account when the Plan was
established. Fund shares will be redeemed as necessary to meet withdrawal
payments. All participants must elect to have their dividends and capital gain
distributions reinvested automatically. Any applicable CDSC will be waived with
respect to redemptions occurring under a Systematic Withdrawal Plan during a
calendar year to the extent that such redemptions do not exceed 12% of (i) the
initial value of the account plus (ii) the value, at the time of purchase, of
any subsequent investments.
Excessive withdrawals may decrease or deplete the value of your account.
Moreover, because of the effect of the applicable sales charge, a Class A
investor should not make continuous purchases of a Fund's shares while
participating in a Systematic Withdrawal Plan.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and the
other Evergreen Keystone funds available to their participants. Investments made
by such employee benefit plans may be exempt from front-end sales charges if
they meet the criteria set forth under "Class A Shares-Front End Sales Charge
Alternative". Evergreen Asset, Keystone or CMG may provide compensation to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen Keystone funds available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of a
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen Keystone fund. This
results in more shares being purchased when the selected Fund's net asset value
is relatively low and fewer shares being purchased when the Fund's net asset
value is relatively high and may result in a lower average cost per share than a
less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in an Evergreen Keystone fund. You should designate on the Application
(i) the dollar amount of each monthly or quarterly investment you wish to make
and (ii) the Fund in which the investment is to be made. Thereafter, on the
first day of the designated month, an amount equal to the specified monthly or
quarterly investment will automatically be redeemed from your initial account
and invested in shares of the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a
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sales charge was not paid on the initial purchase, a sales charge will be
imposed at the time of subsequent purchases, and the value of shares purchased
will become eligible for Rights of Accumulation and Letters of Intent.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any class of Evergreen Keystone fund shares you own
automatically invested to purchase the same class of shares of any other
Evergreen Keystone fund. You may select this service on your Application and
indicate the Evergreen Keystone fund(s) into which distributions are to be
invested. The value of shares purchased will be ineligible for Rights of
Accumulation and Letters of Intent.
Tax Sheltered Retirement Plans. The Funds have various retirement plans
available to eligible investors, including Individual Retirement Accounts
(IRAs); Rollover IRAs; Simplified Employee Pension Plans (SEPs); Savings
Incentive Match Plan for Employees (SIMPLEs); Tax Sheltered Annuity; 403(b)(7)
Plans; 401(k) Plans; Keogh Plans; Profit-Sharing Plans; and Money Purchase
Pension Plans. For details, including fees and application forms, call toll free
1-800-247-4075 or write to EKSC.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone,
since it is a subsidiary of FUNB, and CMG are subject to and in compliance with
the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in CMG or Keystone being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of a
Fund by its customers. If CMG or Keystone were prevented from continuing to
provide the services called for under the investment advisory agreement, it is
expected that the Trustees would identify, and call upon each Fund's
shareholders to approve, a new investment adviser. If this were to occur, it is
not anticipated that the shareholders of any Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Income dividends are declared and paid monthly for EVERGREEN
SHORT-INTERMEDIATE TERM BOND FUND, EVERGREEN INTERMEDIATE-TERM BOND FUND and
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND. Income dividends are
declared daily and paid monthly for KEYSTONE CAPITAL PRESERVATION AND INCOME
FUND and KEYSTONE INTERMEDIATE TERM BOND FUND. Distributions of any net realized
capital gains of the Funds will be made at least annually. Dividends and
distributions generally are taxable in the year in which they are paid, except
any dividends paid in January that were declared in the previous calendar
quarter will be treated as paid in December of the previous year. Income
dividends and capital gain distributions are automatically reinvested in
additional shares of the Fund making the distribution at the net asset value per
share at the close of business on the record date, unless the shareholder has
made a written request for payment in cash.
Each Fund has qualified and intends to continue to qualify to be treated
as a regulated investment company under the Code. While so qualified, it is
expected that each Fund will not be required to pay any Federal income taxes on
that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Funds,
to the extent they do not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements. Most shareholders of the Funds normally will
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have to pay Federal income taxes and any state or local taxes on the dividends
and distributions they receive from a Fund whether such dividends and
distributions are made in cash or in additional shares. Questions on how any
distributions will be taxed to the investor should be directed to the investor's
own tax adviser.
A Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States Federal income tax may be entitled, subject to certain
rules and limitations, to claim a Federal income tax credit or deduction for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional details. A Fund's transactions in options, futures and forward
contracts may be subject to special tax rules. These rules can affect the
amount, timing and characteristics of distributions to shareholders.
Each Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions, if any, and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, you must certify on the Application, or on a separate
form supplied by the Funds' transfer agent, that your social security or
taxpayer identification number is correct and that you are not currently subject
to backup withholding or are exempt from backup withholding. A shareholder who
acquires Class A shares of a Fund and sells or otherwise disposes of such shares
within ninety days of acquisition may not be allowed to include certain sales
charges incurred in acquiring such shares for purposes of calculating gain and
loss realized upon a sale or exchange of shares of the Fund.
The foregoing discussion of Federal income tax consequences is based on
tax laws and regulations in effect on the date of this Prospectus, and is
subject to change by legislative or administrative action. As the foregoing
discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the Statement of
Additional Information. In addition, you should consult your own tax adviser as
to the tax consequences of investments in the Funds, including the application
of state and local taxes which may be different from Federal income tax
consequences described above.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, a Fund may consider sales of its shares as a factor in the selection
of dealers to enter into portfolio transactions with the Fund.
Organization. EVERGREEN SHORT-INTERMEDIATE BOND FUND is a separate investment
series of Evergreen Investment Trust, which is a Massachusetts business trust
organized in 1984. EVERGREEN INTERMEDIATE-TERM BOND FUND and EVERGREEN
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND are separate investment series of
The Evergreen Lexicon Fund, which is a Massachusetts business trust organized in
1991. KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and KEYSTONE INTERMEDIATE
TERM BOND FUND are each Massachusetts business trusts, organized in 1990 and
1986, respectively. The Funds do not intend to hold annual shareholder meetings;
shareholder meetings will be held only when required by applicable law.
Shareholders have available certain procedures for the removal of Trustees.
Each Trust named above is empowered to establish, without shareholder
approval, additional investment series, which may have different investment
objectives, and additional Classes of shares for any existing or future series.
If an additional series or Class were established in a Fund, each share of the
series or Class would normally be entitled to one vote for all purposes.
Generally, shares of each series and Class would vote together as a single Class
on matters, such as the election of Trustees, that affect each series and Class
in substantially the same manner. Class A, Class B, Class C and Class Y shares
have identical voting, dividend, liquidation and other rights, except that each
Class bears, to the extent applicable, its own distribution and transfer agency
expenses as well as any other expenses applicable only to a specific Class. Each
Class of shares votes separately with respect to Rule 12b-1 distribution plans
and other matters for which separate Class voting is appropriate under
applicable law. Shares are entitled to dividends as determined by the Trustees
and, in liquidation of a Fund, are entitled to receive the net assets of the
Fund.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as each Fund's custodian.
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Registrar, Transfer Agent and Dividend Disbursing Agent. EKSC, P.O. Box 2121,
Boston, Massachusetts 02106-2121, acts as registrar, transfer agent and
dividend-disbursing agent for each of the Funds.
Principal Underwriter. EKD, an affiliate of BISYS, located at 125 W. 55th
Street, New York, New York 10019, is the principal underwriter of the Funds.
BISYS also acts as sub-administrator to the Funds.
Other Classes of Shares. EVERGREEN SHORT-INTERMEDIATE BOND FUND, EVERGREEN
INTERMEDIATE-TERM BOND FUND and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND currently offer four classes of shares, Class A, Class B, Class
C and Class Y, and may in the future offer additional classes. Class Y shares
are not offered by this Prospectus and are only available to (i) all
shareholders of record in one or more of the Funds for which Evergreen Asset
served as investment adviser as of December 30, 1994, (ii) certain institutional
investors and (iii) investment advisory clients of CMG, Evergreen Asset,
Keystone or their affiliates. KEYSTONE CAPITAL PRESERVATION AND INCOME FUND and
KEYSTONE INTERMEDIATE TERM BOND FUND currently offer Class A, Class B and Class
C shares. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing-related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares.
Performance Information. A Fund's performance may be quoted in advertising in
terms of yield or total return. Both types of performance are based on SEC
formulas and are not intended to indicate future performance.
Yield is a way of showing the rate of income a Fund earns on its
investments as a percentage of the Fund's share price. A Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, a Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Funds' financial statements. To calculate yield, a Fund takes
the interest income it earned from its portfolio of investments (as defined by
the SEC formula) for a 30-day period (net of expenses), divides it by the
average number of shares entitled to receive dividends, and expresses the result
as an annualized percentage rate based on a Fund's share price at the end of the
30-day period. This yield does not reflect gains or losses from selling
securities.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all the
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in the Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss.
Comparative performance information may also be used from time to time in
advertising or marketing a Fund's shares, including data from Lipper Analytical
Services, Inc. and Morningstar, Inc. and other industry publications. A Fund may
also advertise in items of sales literature an "actual distribution rate" which
is computed by dividing the total ordinary income distributed (which may include
the excess of short-term capital gains over losses) to shareholders for the
latest twelve month period by the maximum public offering price per share on the
last day of the period. Investors should be aware that past performance may not
be reflective of future results.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen Keystone funds, products, and services, which may include:
retirement investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the information provided to investors may quote financial
or business publications and periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques.
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The materials may also reprint, and use as advertising and sales literature,
articles from EVERGREEN KEYSTONE EVENTS, a quarterly magazine provided free of
charge to Evergreen Keystone fund shareholders.
Liability Under Massachusetts Law. Under Massachusetts law, Trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declaration of Trust under which each
Fund operates provides that no Trustee or shareholder will be personally liable
for the obligations of the Trust and that every written contract made by the
Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act of 1933, as amended. Copies of the
Registration Statements may be obtained at a reasonable charge from the SEC or
may be examined, without charge, at the offices of the SEC in Washington, D.C.
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<TABLE>
<S> <C>
INVESTMENT ADVISER
Capital Management Group of First Union National Bank, 201 South College Street, Charlotte, North Carolina 28288
EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
Keystone Investment Management Company
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
CUSTODIAN
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts 02205-9827
TRANSFER AGENT
Evergreen Keystone Service Company, Box 2121, Boston, Massachusetts 02106-2121
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
DISTRIBUTOR
Evergreen Keystone Distributor, Inc., 125 W. 55th Street, New York, New York 10019
541692
</TABLE>
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
September 3, 1997
EVERGREEN KEYSTONE SHORT AND INTERMEDIATE TERM BOND FUNDS
200 Berkeley Street, Boston, Massachusetts 02116
800-343-2898
Evergreen Short-Intermediate Bond Fund ("Short-Intermediate")
Evergreen Intermediate-Term Bond Fund ("Evergreen Intermediate")
Evergreen Intermediate-Term
Government Securities Fund ("Intermediate Government")
Keystone Capital Preservation and Income Fund ("Capital Preservation")
Keystone Intermediate Term Bond Fund ("Keystone Intermediate")
This Statement of Additional Information pertains to all classes of
shares of the Funds listed above. It is not a prospectus and should be read in
conjunction with the Prospectus dated September 3, 1997, as supplemented from
time to time, for the Fund in which you are making or contemplating an
investment. The Evergreen Keystone Short and Intermediate Term Bond Funds are
offered through two separate Prospectuses: one offering Class A, Class B and
Class C shares of Short-Intermediate, Evergreen Intermediate, Intermediate
Government, Capital Preservation and Keystone Intermediate, and a separate
prospectus offering Class Y shares of Short-Intermediate, Evergreen Intermediate
and Intermediate Government. Copies of each Prospectus may be obtained without
charge by calling the number listed above.
TABLE OF CONTENTS
Investment Objectives and Policies...............................3
Investment Restrictions.........................................15
Certain Risk Considerations.....................................20
Management......................................................20
Investment Advisers.............................................29
Distribution Plans..............................................33
Allocation of Brokerage.........................................35
Additional Tax Information......................................37
Net Asset Value.................................................39
Purchase of Shares..............................................40
General Information about the Funds.............................51
Performance Information.........................................53
Financial Statements............................................57
Appendix A......................................................59
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INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds Investment Objectives and Policies" in
each Fund's Prospectus)
The investment objective of each Fund and a description of the securities
in which each Fund may invest is set forth under "Description of the Funds
Investment Objectives and Policies" in the relevant Prospectus. The investment
objectives of each Fund are fundamental and cannot be changed without the
approval of shareholders. The following expands the discussion in the Prospectus
regarding certain investments of each Fund.
Types of Investments
United States ("U.S.") Government Obligations (All Funds)
The types of U.S. government obligations in which the Funds may invest
generally include obligations issued or guaranteed by U.S. government agencies
or instrumentalities.
These securities are backed by:
(1)the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
(2)the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive
financial support from the U.S. government are:
(i)Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association;
(vi) Government National Mortgage Association; and
vii) Student Loan Marketing Association
GNMA Securities. The Funds may invest in securities issued by the Government
National Mortgage Association ("GNMA"), a wholly-owned U.S. government
corporation, which guarantees the timely payment of principal and interest, but
not premiums paid to purchase these instruments. The market value and interest
yield of these instruments can vary due to market interest rate fluctuations and
early prepayments of underlying mortgages. These securities represent ownership
in a pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly scheduled
payments of principal and interest. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price to its par value, which may result in a loss.
Mortgage-Backed or Asset-Backed Securities. Short-Intermediate, Evergreen
Intermediate, and Keystone Intermediate may invest in mortgage-backed securities
and asset-backed securities. Capital Preservation may invest in mortgage-backed
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Two principal types of mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or
are credited with their pro rata portion of the scheduled payments of interest
and principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Funds may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, each Fund's Adviser (as
hereinafter defined) considers the financial strength of the guarantor or other
provider of credit support, the type and extent of credit enhancement provided
as well as the documentation and structure of the issue itself and the credit
support.
Restricted and Illiquid Securities (All Funds)
The ability of the Board of Trustees of Evergreen Investment Trust, in
the case of Short-Intermediate, The Evergreen Lexicon Trust, in the case of
Evergreen Intermediate and Intermediate Government, Capital Preservation and
Keystone Intermediate ("Trustees") to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for sale under the
Rule. The Funds which invest in Rule 144A securities believe that the Staff of
the SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under the Rule) for determination by the
Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
Variable or Floating Rate Instruments
Certain of the investments of Evergreen Intermediate, Intermediate
Government, Capital Preservation and Keystone Intermediate may include variable
or floating rate instruments which may involve a demand feature and may include
variable amount master demand notes which may or may not be backed by bank
letters of credit. Variable or floating rate instruments bear interest at a rate
which varies with changes in market rates. The holder of an instrument with a
demand feature may tender the instrument back to the issuer at par prior to
maturity. A variable amount master demand note is issued pursuant to a written
agreement between the issuer and the holder, its amount may be increased by the
holder or decreased by the holder or issuer, it is payable on demand, and the
rate of interest varies based upon an agreed formula. The quality of the
underlying credit must, in the opinion of each Fund's Adviser, be equivalent to
the long-term bond or commercial paper ratings applicable to permitted
investments for each Fund. The Adviser will monitor, on an ongoing basis, the
earning power, cash flow, and liquidity ratios of the issuers of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
When-Issued and Delayed Delivery Securities (All Funds)
The Funds may enter into securities transactions on a when-issued
basis. These transactions involve the purchase of debt obligations on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of commitment to purchase. The Funds will only make
commitments to purchase obligations on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery. Capital Preservation
and Keystone Intermediate do not intend to invest more than 5% of their assets
in when issued or delayed delivery transactions.
Segregated accounts will be established with the custodian, and Short-
Intermediate, Evergreen Intermediate and Intermediate Government will maintain
liquid assets in an amount at least equal in value to a Fund's commitments to
purchase when-issued securities. If the value of these assets declines, a Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause segregation of more than 20%, of the
total value of their assets.
Lending of Portfolio Securities (All Funds)
The Funds may lend securities pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. government or its agencies,
or any combination of cash and such securities, as collateral equal at all times
to 100% of the market value of the securities lent. The collateral received when
a Fund lends portfolio securities must be valued daily and, should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to the lending Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Fund or the
borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. A Fund
does not have the right to vote securities on loan, but would terminate the loan
and regain the right to vote if that were considered important with respect to
the investment. Any loan may be terminated by either party upon reasonable
notice to the other party. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by the Adviser to be of good
standing and when, in the judgment of the Adviser, the consideration which can
be earned currently from such securities loans justifies the attendant risk.
Such loans will not be made if, as a result, the aggregate amount of all
outstanding securities loans for Evergreen Intermediate and Intermediate
Government exceed one-third of the value of a Fund's total assets taken at fair
market value. Loans of securities by Short-Intermediate, Capital Preservation
and Keystone Intermediate are limited to 15% of each Fund's total assets.
Reverse Repurchase Agreements
Short-Intermediate, Capital Preservation and Keystone Intermediate may
also enter into reverse repurchase agreements. These transactions are similar to
borrowing cash. In a reverse repurchase agreement, a Fund transfers possession
of a portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market value
in cash, and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Options and Futures Transactions
Options in which Short-Intermediate trades must be listed on national
securities exchanges.
Purchasing Put and Call Options on Financial Futures Contracts
Short-Intermediate may purchase listed put and call options on
financial futures contracts for U.S. Government securities. Keystone
Intermediate may enter into currency and other financial futures contracts and
related options transactions for hedging purposes and not for speculation.
Unlike entering directly into a futures contract, which requires the purchaser
to buy a financial instrument on a set date at an undetermined price, the
purchase of a put option on a futures contract entitles (but does not obligate)
its purchaser to decide on or before a future date whether to assume a short
position at the specified price.
A Fund may purchase put and call options on futures to protect
portfolio securities against decreases in value resulting from an anticipated
increase in market interest rates. Generally, if the hedged portfolio securities
decrease in value during the term of an option, the related futures contracts
will also decrease in value and the put option will increase in value. In such
an event, a Fund will normally close out its option by selling an identical put
option. If the hedge is successful, the proceeds received by the Fund upon the
sale of the put option plus the realized decrease in value of the hedged
securities.
Alternately, a Fund may exercise its put option to close out the
position. To do so, it would enter into a futures contract of the type
underlying the option. If the Fund neither closes out nor exercises an option,
the option will expire on the date provided in the option contract, and the
premium paid for the contract will be lost.
Purchasing Options
Short-Intermediate may purchase both put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which a Fund holds or will be purchasing against decreases or
increases in value. A Fund may purchase call and put options for the purpose of
offsetting previously written call and put options of the same series. If the
Fund is unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised.
Keystone Intermediate may purchase call and put options to close out
existing positions.
Short-Intermediate intends to purchase put and call options on currency
and other financial futures contracts for hedging purposes. A put option
purchased by the Fund would give it the right to assume a position as the seller
of a futures contract. A call option purchased by the Fund would give it the
right to assume a position as the purchaser of a futures contract. The purchase
of an option on a futures contract requires the Fund to pay a premium. In
exchange for the premium, the Fund becomes entitled to exercise the benefits,
if any, provided by the futures contract, but is not required to take any action
under the contract. If the option cannot be exercised profitably before it
expires, the Fund's loss will be limited to the amount of the premium and any
transaction costs.
Short-Intermediate currently does not intend to invest more than 5% of
its net assets in options transactions.
Short-Intermediate may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for related
options would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases futures contracts, an amount of cash and cash equivalents, equal
to the underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with the Fund's
custodian (or the broker, if legally permitted) to collateralize the position
and thereby insure that the purchase of such futures contracts is unleveraged.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, a Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, a Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by a Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, a Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Derivatives - Keystone Intermediate Only
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes. Each of these uses entails greater risk than if
derivatives were used solely for hedging purposes. The Fund uses futures
contracts and related options for hedging purposes. Derivatives are a valuable
tool which, when used properly, can provide significant benefit to Fund
shareholders. Keystone Investment Management Company ("Keystone") is not an
aggressive user of derivatives with respect to the Fund. However, the Fund may
take positions in those derivatives that are within its investment policies if,
in Keystone's judgement, this represents an effective response to current or
anticipated market conditions. Keystone's use of derivatives is subject to
continuous risk assessment and control from the standpoint of the Fund's
investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options,
futures, forwards and swaps -- from which virtually any type of derivative
transaction can be created.
Debt instruments that incorporate one or more of these building blocks for
the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities." An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued in
connection with the restructuring of certain foreign obligations. The term
"derivative" is also sometimes used to describe securities involving rights to a
portion of the cash flows from an underlying pool of mortgages or other assets
from which payments are passed through to the owner of, or that collateralize,
the securities.
While the judicious use of derivatives by experienced investment managers
such as Keystone can be beneficial, derivatives also involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in the Fund.
o Market Risk -- This is the general risk attendant to all investments
that the value of a particular investment will decline or otherwise
change in a way detrimental to the Fund's interest.
o Management Risk -- Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of a
derivative requires an understanding not only of the underlying
instrument, but also of the derivative itself, without the benefit of
observing the performance of the derivative under all possible market
conditions. In particular, the use and complexity of derivatives
require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess
the risk that a derivative adds to the Fund's portfolio and the ability
to forecast price, interest rate or currency exchange rate movements
correctly.
o Credit Risk -- This is the risk that a loss may be sustained by the
Fund as a result of the failure of another party to a derivative
(usually referred to as a "counterparty") to comply with the terms of
the derivative contract. The credit risk for exchange traded
derivatives is generally less than for privately negotiated
derivatives, since the clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee
of performance. This guarantee is supported by a daily payment system
(i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there
is no similar clearing agency guarantee. Therefore, the Fund considers
the creditworthiness of each counterparty to a privately negotiated
derivative in evaluating potential credit risk.
o Liquidity Risk -- Liquidity risk exists when a particular instrument
is difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
o Leverage Risk -- Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
o Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are
complex and often valued subjectively. Improper valuations can result
in increased cash payment requirements to counter parties or a loss of
value to a Fund. Derivatives do not always perfectly or even highly
correlate or track the value of the assets, rates or indices they are
designed to closely track. Consequently, the Fund's use of derivatives
may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
Writing Put and Call Options - Short-Intermediate and Keystone Intermediate Only
A Fund may write (i.e., sell) covered call and put options. By writing
a call option, the Fund becomes obligated during the term of the option to
deliver the securities underlying the option upon payment of the exercise price.
By writing a put option, the Fund becomes obligated during the term of the
option to purchase the securities underlying the option at the exercise price if
the option is exercised. Short-Intermediate also may write straddles
(combinations of covered puts and calls on the same underlying security).
The Funds may only write "covered" options. This means that so long as a
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
the Fund has written options against all of its securities which are available
for writing options, the Fund may be unable to write additional options unless
it sells a portion of its portfolio holdings to obtain new securities against
which it can write options. If this were to occur, higher portfolio turnover and
correspondingly greater brokerage commissions and other transaction costs may
result. However, each Fund does not expect that this will occur.
Each Fund will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of the put option, it
deposits and maintains with its custodian in a segregated account liquid assets
having a value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through
a receipt of premiums, a greater current return than would be realized on the
underlying securities alone. A Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, a Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
Section 4(2) Commercial Paper
Short-Intermediate may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2)of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Fund, who agrees that it is purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be in
an exempt transaction. Section 4(2)commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Fund's Adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Fund does not intend to subject such paper to
the limitation applicable to restricted securities.
Repurchase Agreements (All Funds)
Certain of the investments of the Funds may include agreements which
are agreements by which a person (e.g., a Fund) obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or recognized securities dealer) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
A Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Trustees.
Foreign Securities
Short-Intermediate may invest up to 20% of its assets in foreign
securities or U.S. securities traded in foreign markets and Evergreen
Intermediate may invest in U.S. dollar denominated obligations or securities of
foreign issuers. Keystone Intermediate may invest in foreign securities and in
securities denominated in foreign currencies. Permissible investments may
consist of obligations of foreign branches of U.S. banks and of foreign banks,
including European certificates of deposit, European time deposits, Canadian
time deposits and Yankee certificates of deposit, and investments in Canadian
commercial paper, foreign securities and Europaper. These instruments may
subject the Fund to investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
Foreign Currency Transactions
As one way of managing exchange rate risk, Short-Intermediate and
Keystone Intermediate may enter into forward currency exchange contracts
(agreements to purchase or sell currencies at a specified price and date). The
exchange rate for the transaction (the amount of currency the Fund will deliver
and receive when the contract is completed) is fixed when a Fund enters into the
contract. A Fund usually will enter into these contracts to stabilize the U.S.
dollar value of a security it has agreed to buy or sell. A Fund intends to use
these contracts to hedge the U.S. dollar value of a security it already owns,
particularly if the Fund expects a decrease in the value of the currency in
which the foreign security is denominated. Although the Fund will attempt to
benefit from using forward contracts, the success of its hedging strategy will
depend on the Adviser's ability to predict accurately the future exchange rates
between foreign currencies and the U.S. dollar. The value of a Fund's
investments denominated in foreign currencies will depend on the relative
strengths of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the U.S. dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by a Fund. A Fund
may also purchase and sell options related to foreign currencies in connection
with hedging strategies.
Short-Intermediate will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the Fund's assets
denominated in that currency, but as consistent with its other investment
policies, is not otherwise limited in its ability to use this strategy.
Interest Rate Transactions - Swaps, Caps and Floors
Capital Preservation and Keystone Intermediate
If a Fund enters into interest rate swap, cap or floor transactions, it
expects to do so primarily for hedging purposes, which may include preserving a
return or spread on a particular investment or portion of its portfolio or
protecting against an increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use these transactions
in a speculative manner.
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a contractually-based principal
("notional") amount from the party selling the interest rate cap or floor. The
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to a Fund from
interest rate transactions is limited to the net amount of interest payments
that the Fund is contractually obligated to make.
Other Investments
The Funds are not prohibited from investing in obligations of banks
which are clients of the Distributor (as herein after defined). However, the
purchase of shares of the Funds by such banks or by their customers will not be
a consideration in determining which bank obligations the Funds will purchase.
The Funds will not purchase obligations of its Adviser or its affiliates.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by each Fund's
Adviser without shareholder approval, subject to review and approval by the
Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1.....Concentration of Assets in Any One Issuer
Diversification of Investments
With respect to 75% of the value of its assets, a Fund will not purchase
securities of any one issuer (other than cash, cash items or securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities) if as a
result more than 5% of the value of its total assets would be invested in the
securities of the issuer. Evergreen Intermediate and Intermediate Government
will not acquire more than 10% of the outstanding voting securities of any one
issuer.
2.....Purchase of Securities on Margin
......No Fund will purchase securities on margin, except that each Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions.
A deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options transactions is
not considered the purchase of a security on margin.
3.....Unseasoned Issuers
......Neither Short-Intermediate*, Capital Preservation or Keystone Intermediate
may invest more than 5% of its total assets in securities of unseasoned issuers
that have been in continuous operation for less than three years, including
operating periods of their predecessors.
4.....Underwriting
......Short-Intermediate, Evergreen Intermediate and Intermediate Government
will not underwrite any issue of securities except as they may be deemed an
underwriter under the Securities Act of 1933 in connection with the sale of
securities in accordance with their investment objectives, policies and
limitations.
......Capital Preservation and Keystone Intermediate will not underwrite
securities of other issuers, except that each Fund may purchase securities from
the issuer or others and dispose of such securities in a manner consistent with
its investment objective.
5.....Interests in Oil, Gas or Other Mineral Exploration or Development
Programs.
Short-Intermediate*, Evergreen Intermediate and Intermediate Government
will not purchase interests in oil, gas or other mineral exploration or
development programs or eases, although each Fund may purchase the securities of
other issuers which invest in or sponsor such programs.
6.....Concentration in Any One Industry
......Short-Intermediate will not invest more than 25% of the value of its total
assets in any one industry except the Fund may invest more than 25% of its total
assets in securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities.
......Keystone Intermediate may not purchase any security (other than U.S.
government securities) of any issuer if as a result more than 25% of its total
assets would be invested in a single industry; except that (a) there is no
restriction with respect to obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities' (b) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; (c)
the industry classification of utilities will be determined according to their
services (for example, gas, gas transmission, electric and telephone will each
be considered a separate industry; and (d) the industry classification of
medically related industries will be determined according to their services (for
example, management, hospital supply, medical equipment and pharmaceuticals will
each be considered a separate industry).
7.....Warrants
......Short-Intermediate*, Evergreen Intermediate* and Intermediate Government*
will not invest more than 5% of their assets in warrants, including those
acquired in units or attached to other securities. For purposes of this
restriction, warrants acquired by the Funds in units or attached to securities
may be deemed to be without value.
8.....Ownership by Trustees/Officers
None of Short-Intermediate*, Evergreen Intermediate or Intermediate
Government may purchase or retain the securities of any issuer if (i) one or
more officers or Trustees of a Fund or its investment adviser individually
owns or would own, directly or beneficially, more than 1/2 of 1% of the
securities of such issuer, and (ii) in the aggregate, such persons own or would
own, directly or beneficially, more than 5% of such securities.
9.....Short Sales
......Short-Intermediate, Capital Preservation and Keystone Intermediate will
not make short sales of securities or maintain a short position, unless at all
times when a short position is open it owns an equal amount of such securities
or of securities which, without payment of any further consideration are
convertible into or exchangeable for securities of the same issue as, and equal
in amount to, the securities sold short.
The use of short sales will allow a Fund to retain certain bonds in its
portfolio longer than it would without such sales. To the extent that the Fund
receives the current income produced by such bonds for a longer period than it
might otherwise, the Fund's investment objective is furthered.
......Evergreen Intermediate and Intermediate Government will not sell any
securities short.
10....Lending of Funds and Securities
......Short-Intermediate will not lend portfolio securities valued at more than
15% of its total assets to broker-dealers.
......Capital Preservation and Keystone Intermediate may not make loans, except
that a Fund may (a) purchase or hold debt securities consistent with its
investment objective, (b) lend portfolio securities valued at not more than 15%
of its total assets to broker-dealers and (c) enter into repurchase agreements.
......Evergreen Intermediate and Intermediate Government may not make loans,
except that (a) a Fund may purchase or hold debt instruments in accordance with
its investment objective and policies; (b) a Fund may enter into repurchase
agreements, and (c) the Funds may engage in securities lending as described in
the Prospectus and in this Statement of Additional Information.
11....Commodities
......Short-Intermediate will not purchase or sell commodities or commodity
contracts; however, the Fund may enter into futures contracts on financial
instruments or currency and sell or buy options on such contracts. Evergreen
Intermediate and Intermediate Government may not purchase commodities or
commodities contracts. However, subject to their permitted investments, any Fund
may invest in companies which invest in commodities and commodities contracts.
......Capital Preservation and Keystone Intermediate may not purchase or sell
commodities or commodity contracts.
12....Real Estate
......Short-Intermediate may not buy or sell real estate although the Fund may
invest in securities of companies whose business involves the purchase or sale
of real estate or in securities which are secured by real estate or interests in
real estate.
......Evergreen Intermediate and Intermediate Government may not purchase or
sell real estate, real estate limited partnership interests, and interests in a
pool of securities that are secured by interests in real estate. However,
subject to their permitted investments, any Fund may invest in companies which
invest in real estate.
......Capital Preservation and Keystone Intermediate may not purchase or sell
real estate, except that each Fund may purchase and sell securities secured by
real estate and securities of companies which invest in real estate, and may
engage in financial futures contracts and related options transactions.
13....Borrowing, Senior Securities, Reverse Repurchase Agreements
......Evergreen Intermediate and Intermediate Government will not borrow money
except as a temporary measure for extraordinary or emergency purposes in an
amount up to one-third of the value of total assets, including the amounts
borrowed. Any borrowing will be done from a bank and to the extent such
borrowing exceeds 5% of the value of a Fund's total assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any time
fall below 300%, the Fund shall within three days thereafter or such longer
period as the Securities and Exchange Commission (the "SEC") may prescribe by
rules and regulations, reduce the amount of its borrowings to such an extent
that the asset coverage of such borrowings shall be at least 300%. This
borrowing provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate heavy redemption requests if they should
occur and is not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such borrowings will
reduce income.
Short-Intermediate may borrow only in amounts not in excess of 5% of
the value of its total assets in order to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The entry by Short-Intermediate into futures contracts shall be
deemed a borrowing. Any such borrowings need not be collateralized.
Short-Intermediate will not purchase any securities while borrowings in excess
of 5% of the value of their total assets are outstanding.
......Capital Preservation and Keystone Intermediate will not borrow money or
enter into reverse repurchase agreements, except that each Fund may enter into
reverse repurchase agreements or borrow money from banks for temporary or
emergency purposes in aggregate amounts of up to one-third of the value of each
Fund's net assets; provided that, while borrowings from banks (not including
reverse repurchase agreements) exceed 5% of the Fund's net assets, any such
excess borrowings will be repaid before additional investments are made.
......Capital Preservation and Keystone Intermediate may not issue senior
securities; the purchase or sale of securities on a "when issued" basis or
collateral arrangement with respect to the writing of options on securities are
not deemed to be the issuance of a senior security.
14....Pledging Assets
......No Fund will mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. In these cases, Short-Intermediate may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of borrowing and Evergreen
Intermediate and Intermediate Government may do so in amounts up to 10% of their
total assets. Margin deposits for the purchase and sale of financial futures
contracts and related options and segregation or collateral arrangements made in
connection with options activities are not deemed to be a pledge.
......Capital Preservation and Keystone Intermediate may not pledge more than
15% of each Fund's net assets to secure indebtedness; the purchase or sale of
securities on a "when issued" basis or collateral arrangement with respect to
the writing of options on securities are not deemed to be a pledge of assets.
15....Investing in Securities of Other Investment Companies
......Short-Intermediate will purchase securities of investment companies only
in open-market transactions involving customary broker's commissions. Evergreen
Intermediate and Intermediate Government may only purchase securities of other
investment companies which are money market funds and CMOs and REMICs deemed to
be investment companies.
In each case the Funds will only make such purchases to the extent
permitted by the Investment Company Act of 1940 (the "1940 Act") and the rules
and regulations thereunder. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation or acquisition of assets. It
should be noted that investment companies incur certain expenses such as
management fees and therefore any investment by a Fund in shares of another
investment company would be subject to such duplicate expenses.
It is the position of the SEC's Staff that certain nongovernmental issuers
of CMOs and REMICs constitute investment companies pursuant to the 1940 Act and
either (a) investments in such instruments are subject to the limitations set
forth above or (b) the issuers of such instruments have received orders from the
SEC exempting such instruments from the definition of investment company.
......Capital Preservation and Keystone Intermediate may not purchase securities
of other investment companies, except as part of a merger, consolidation,
purchase of assets or similar transaction.
16....Restricted Securities
......Short-Intermediate will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the Securities Act of 1933.
17....Illiquid Securities
......Short-Intermediate, Evergreen Intermediate* and Intermediate Government*
will not invest more than 10% of their net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven days
after notice and certain securities determined by the Trustees not to be liquid.
18....Options
......Evergreen Intermediate and Intermediate Government may not write or
purchase puts, calls, options or combinations thereof.
19....Control
......Evergreen Intermediate and Intermediate Government may not invest in
companies for the purpose of exercising control.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
The Funds did not borrow money, sell securities short, invest in
reverse repurchase agreements in excess of 5% of the value of their net assets,
or invest more than 5% of their net assets in the securities of other investment
companies in the last fiscal year, and have no present intent to do so during
the coming year.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan association, having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment, to be
"cash items".
CERTAIN RISK CONSIDERATIONS
There can be no assurance that a Fund will achieve its investment
objectives and an investment in the Fund involves certain risks which are
described under "Description of the Funds - Investment Objectives and Policies"
in the Prospectus.
MANAGEMENT
The Evergreen Keystone funds consist of sixty-six mutual funds. Each
mutual fund is, or is a series of, a registered, open-end management company.
Trustees and executive officers of each mutual fund, their ages, and
their principal occupations during the last five years are shown below.
JAMES S. HOWELL (72), 4124 Crossgate Road, Charlotte, NC-Chairman of the
Evergreen group of mutual funds and Trustee. Retired Vice President of Lance
Inc. (food manufacturing); Chairman of the Distribution Comm. Foundation for the
Carolinas from 1989 to 1993.
RUSSELL A. SALTON, III, M.D. (49), 205 Regency Executive Park, Charlotte, NC
- -Trustee. Medical Director, U.S. Healthcare of Charlotte, North Carolina since
1996; President, Primary Physician Care from 1990 to 1996.
MICHAEL S. SCOFIELD (53), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee.
Attorney, Law Offices of Michael S. Scofield since 1969.
Messrs. Howell, Salton and Scofield are Trustees of all Evergreen Keystone
mutual funds.
GERALD M. MCDONNELL (57), 821 Regency Drive, Charlotte, NC -Trustee. Sales
Representative with Nucor-Yamoto Inc. (steel producer) since 1988.
THOMAS L. McVERRY (58), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of
Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from
1988 to 1990; Vice President of Rexham Industries, Inc. (diversified
manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham
Corporation from 1979 to 1990.
WILLIAM WALT PETTIT (41), Holcomb and Pettit, P.A., 227 West Trade St.,
Charlotte, NC- Trustee. Partner in the law firm Holcomb and Pettit, P.A. since
1990.
Messrs. McDonnell, McVerry and Pettit are Trustees of all Evergreen Keystone
mutual funds, except those established within the Evergreen Variable Trust.
LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL- Trustee. Real
estate developer and construction consultant since 1980; President of Centrum
Equities since 1987 and Centrum Properties, Inc. since 1980.
FOSTER BAM (70), Greenwich Plaza, Greenwich, CT- Trustee. Partner in the law
firm of Cummings and Lockwood since 1968.
Messrs. Ashkin and Bam are Trustees of all Evergreen Keystone mutual funds,
except those established within the Evergreen Variable Trust and Evergreen
Investment Trust.
FREDERICK AMLING (69) Trustee. Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member, Board of
Advisers, Credito Emilano (banking); and former Economics and Financial
Consultant, Riggs National Bank.
CHARLES A. AUSTIN III (61) Trustee. Investment Counselor to Appleton
Partners, Inc.; former Managing Director, Seaward Management Corporation
(investment advice); and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment advice).
GEORGE S. BISSELL* (67) Chairman of the Keystone group of mutual funds, and
Trustee. Chairman of the Board and Trustee of Anatolia College; Trustee of
University Hospital (and Chairman of its Investment Committee); former Director
and Chairman of the Board of Hartwell Keystone; and former Chairman of the Board
and Chief Executive Officer of Keystone Investments, Inc..
EDWIN D. CAMPBELL (69) Trustee. Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; former Dean, School of Business, Adelphi University; and former
Executive Director, Coalition of Essential Schools, Brown University.
CHARLES F. CHAPIN (67) Trustee. Former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, NC).
K. DUN GIFFORD (57) Trustee. Chairman of the Board, Director, and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments, Inc. and Keystone Investment Management Company.
LEROY KEITH, JR. (57) Trustee. Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund, and
The Phoenix Big Edge Series Fund; and former President, Morehouse College.
F. RAY KEYSER, JR. (69) Trustee and Advisor to the Boards of Trustees of the
Evergreen group of mutual funds. Counsel, Keyser, Crowley & Meub, P.C.; Member,
Governor's (VT) Council of Economic Advisers; Chairman of the Board and
Director, Central Vermont Public Service Corporation and Hitchcock Clinic;
Director, Vermont Yankee Nuclear Power Corporation, Vermont Electric Power
Company, Inc., Grand Trunk Corporation, Central Vermont Railway, Inc., S.K.I.
Ltd., Sherburne Corporation, Union Mutual Fire Insurance Company, New England
Guaranty Insurance Company, Inc., and the Investment Company Institute; former
Governor of Vermont.
DAVID M. RICHARDSON (55) Trustee. Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director, Commerce and Industry Association of
New Jersey, 411 International, Inc., and J&M Cumming Paper Co.
RICHARD J. SHIMA (57) Trustee and Advisor to the Boards of Trustees of the
Evergreen group of mutual funds. Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director of
Connecticut Natural Gas Corporation, Trust Company of Connecticut, Hartford
Hospital, Old State House Association, and Enhance Financial Services, Inc.;
Chairman, Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-
Oxford School and Greater Hartford YMCA; former Director, Executive Vice
President, and Vice Chairman of The Travelers Corporation.
ANDREW J. SIMONS (57) Trustee. Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; former President, Nassau County Bar Association;
former Associate Dean and Professor of Law, St. John's University School of Law.
Messrs. Amling, Austin, Bissell, Campbell, Chapin, Gifford, Keith, Keyser,
Richardson, Shima and Simons are Trustees or Directors of the twenty-five funds
in the Keystone group of mutual funds. Their addresses are 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, Fl Trustee
Emeritus. Corporate consultant since 1967.
Mr. Jeffries has been serving as a Trustee Emeritus of eleven Evergreen Keystone
Mutual Funds since January 1, 1996 (excluded are Evergreen Variable Trust,
Evergreen Investment Trust, as well as the Keystone group of mutual funds).
EXECUTIVE OFFICERS
JOHN J. PILEGGI (37), 230 Park Avenue, Suite 910, New York, NY- President and
Treasurer. Consultant to BISYS Fund Services since 1996. Senior Managing
Director, Furman Selz LLC since 1992, Managing Director from 1984 to 1992.
GEORGE O. MARTINEZ (37), 3435 Stelzer Road, Columbus, OH-Secretary. Senior Vice
President/Director of Administration and Regulatory Services, BISYS Fund
Services since April 1995. Vice President/Assistant General Counsel, Alliance
Capital Management from 1988 to 1995.
* This Trustee may be considered an "interested person" of the Funds within the
meaning of the 1940 Act.
For the fiscal period ended June 30, 1997, Trustees of the Funds
received $9,451 and $175,376 in retainers and fees from The Evergreen Lexicon
Fund and Evergreen Investment Trust, respectively. For the year ending June 30,
1997, fees paid to Independent Trustees on a fund complex wide basis were
approximately $1,110,975.
The officers of the Trusts are all officers and/or employees of The BISYS Group,
Inc. ("BISYS Group"), except for Mr. Pileggi, who is a consultant to The BISYS
Group. The BISYS Group is an affiliate of Evergreen Keystone Distributor, Inc.
("EKD"), the distributor of each Class of shares of each Fund.
No officer or Trustee of the Trusts owned more than 1.0% of any Class
of shares of any of the Funds as of August 31, 1997.
Set forth below for each of the Trustees receiving in excess of $60,000
for the fiscal period of July 1, 1996 through June 30, 1997 is the aggregate
compensation paid to such Trustee by the Evergreen Keystone funds:
Total Compensation
From Fund Complex
Name Paid To Trustee
James S. Howell $93,800
Gerald M. McDonnell 80,000
Thomas L. McVerry 85,000
William Walt Pettit 82,500
Russell A Salton, III M.D. 87,000
Michael S. Scofield 88,200
Set forth below is information with respect to each person, who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of August 31, 1997.
<TABLE>
<S> <C> <C> <C>
Name of % of
Name and Address Fund/Class No. of Shares Class
- ---------------- ---------- ------------- ----------
FUBS & Co. FEBO Short-Intermediate/A 104,641 5.77%
Ronald L. Spector
D/B/A River Walk
1800 Second Street, Suite 808
Sarasota, FL 34236-5904
FUBS & Co. FEBO Short-Intermediate/C 11,335 10.90%
Dreamland Skating Rink Inc
PO Drawer 13207
Pensacola, FL 32591-3207
MLPF&S for sole benefit Short-Intermediate/C 10,680 10.27%
of its customersAttn: Fund Administration
4800 Deer Lake Dr. E 3rd Fl.
Jacksonville, FL 32246-6484
Florida Osteopathic Short-Intermediate/C 10,373 9.98%
Medical Assoc.
2007 Apalachee Pky
Tallahassee, FL 32301-4847
FUBS & Co. FEBO Short-Intermediate/C 6,963 6.70%
Rachel W. Fort and Edward C Fort
2737 Stockton St.
Winston Salem, NC 27127
FUBS & Co. FEBO Short-Intermediate/C 5,573 5.36%
Victor Wozniak and
Vermell Wozniak Dreamland Trst
PO Drawer 13207
Pensacola, FL 32591-3207
FUBS & Co. FEBO Short-Intermediate/C 5,402 5.20%
Emmaus Lutheran Church
2500 So. Volusia Ave.
Orange City, FL 32763-9124
PaineWebber for the Short-Intermediate/C 5,199 5.00%
benefit of Robert Bowen &
Mona Carpenter-Bowen
Jt Ten Wros
1686 Massachusetts Ave.
Lunenburg, MA 01462-1843
First Union National Bank Short-Intermediate/Y 18,345,872 49.60%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Short-Intermediate/Y 18,249,273 49.33%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
FUBS & Co. FEBO Evergreen Intermediate/B 9,843 8.56%
Veronica B. Birdsong
1255 B Road
Loxahatchee, FL 33470-4248
First Union Natl Bank-FL Evergreen Intermediate/B 15,110 13.15%
C/F Lurene N. Roser IRA
5200 N. Ocean Dr. Apt. 17D
Singer Island, FL 33404-2618
FUBS & Co. FEBO Evergreen Intermediate/B 9,745 8.48%
Frances E. Clyma Rev Trust
Frances E. Clyma and
Robert L. Mastin Co-Tttees
U/A/D 01/25/96
Palm Beach Garde, FL 33410
FUBS & Co. FEBO Evergreen Intermediate/B 7,907 6.88%
Mary Louise Chatman
Flora Louise Chatman Wages POA
9532 Ft. Foote Road
Ft. Washington, MD 20744-5753
Margaret S. Collins Evergreen Intermediate/C 2,106 73.72%
1106 Lothian Drive
Tallahassee, FL 32312-2836
Peter M. Kopp and Evergreen Intermediate/C 495 17.33%
Mary Jean Kopp JtWros
C/O OC International
5801 North Union Blvd.
Colorado Springs, CO 80918
FUBS & Co. FEBO Evergreen Intermeidate/C 246 8.60%
Chris J. Thigpen
4497 Pineland Dr.
Evans, GA 30809-3233
First Union National Bank Evergreen Intermediate/Y 10,131,742 64.61%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Evergreen Intermediate/Y 5,508,432 35.13%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
First Union Bank-CT C/F Inc Intermediate Government/A 8,663 15.09%
F/B/O Zeno Chicarilli PSP
Attn: Zeno Chicarilli
2 Cobblefield Lane
Guilford, CT 06437-2384
FUBS & Co. FEBO Intermediate Government/A 7,023 12.24%
Upper Saucon Volunteer Fire
Department #1
C/O Joseph Hoffstetter
4888 Lanark Rd.
Center Valley, PA 18034-8605
NJ State Fireman's Assoc. Intermediate Government/A 5,258 9.20%
Of Morris Township
11 Catalpa Rd.
Morristown, NJ 07960-6132
Ignaz Keglovits & Intermediate Government/A 4,755 8.28%
Mary Keglovits Jtten
15 North 9th Street
Coplay, PA 18037-1527
Doris Mack Intermediate Government/A 4,412 7.69%
8 Mountain View Dr.
Chester, NJ 07930-3104
FUBS & Co. FEBO Intermediate Government/A 3,051 5.32%
Alice T. Brophy
30 Rosedale Ave.
Madison, NJ 07940-2146
FUBS & Co. FEBO Intermediate Government/B 10,160 17.29%
Joseph Kacsur
7040 Woodside Oak Circle
Sarasota, FL 34231-5565
FUBS & Co. FEBO Intermediate Government/B 9,921 16.88%
Carmela M. Woodruff
1 College Lane Apt 86
Brevard, NC 28712
FUBS & Co. FEBO Intermediate Government/B 9,833 16.73%
Frances E. Clyma Rev Trust
Frances E. Clyma and
Robert L Mastin Co-Ttees
U/A/D 01/25/96
Palm Beach Garde, FL 33410
FUBS & Co. FEBO Intermediate Government/B 3,444 5.86%
First Union Natl Bank/TN F/B/O
Geri McNamara Loan Account
Attn: Tracy Brown
600 S. Main St.
Goodlettsville, TN 37072-1701
First Union Natl Bank-TN C/F Intermediate Government/B 3,392 5.77%
William E. Bass Sr. IRA
102 Grace Drive
Goodlettsville, TN 37072-3537
FUBS & Co. FEBO Intermediate Government/B 3,193 5.43%
Loretta Bukowski and
Helen Bukowski
8860 Taft Street
Pembroke Pines, FL 33024-4635
FUBS & Co. FEBO Intermediate Government/B 3,182 5.47%
Howard J. Carroll
4019 N. Chesterbrook Road
Arlington, VA 22207-4635
Donaldson Lufkin Jenrette Intermediate Government/C 10,753 89.85%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S for sole benefit Intermediate Government/C 1,185 9.90%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
First Union National Bank Intermediate Government/Y 6,111,264 85.32%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
First Union National Bank Intermediate Government/Y 1,018,405 14.22%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S Tryon St.
Charlotte, NC 28288-0002
Smith Barney Inc. Capital Preservation/A 243,272 14.78%
00154924733
388 Greenwich Street
New York, NY 10013
MLPF&S for the sole benefit Capital Preservation/A 287,313 16.24%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
Gary W. Grant & Capital Preservation/A 112,183 6.81%
Eva Grant Jt/Wros
10906 Wickline
Houston, TX 77024
MLPF&S for the sole benefit Capital Preservation/B 420,391 13.24%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
MLPF&S for sole benefit Capital Preservation/C 80,684 19.86%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
St. Ann's Catholic Church Capital Preservation/C 20,673 5.09%
Attn: Fr Peter McKenna
PO Box 256
La Vernia, TX 78121-0256
MLPF&S for the sole benefit Keystone Intermediate/A 251,460 22.38%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette Keystone Intermediate/A 64,213 5.71%
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S for the sole benefit Keystone Intermediate/B 167,500 13.80%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
MLPF&S for sole benefit Keystone Intermediate/C 206,121 28.80%
of its customers
Attn: Fund Administration
4800 Deer Lake Dr. E 3rd Floor
Jacksonville, FL 32246-6484
NFSC FEBO #BNG-522228 Keystone Intermediate/C 36,285 5.07%
Ctr for the Advancement of HLT
Rena Convissor
k2000 Florida Ave. NW
Suite 210
Washington, DC 20009-1231
</TABLE>
INVESTMENT ADVISERS
(See also "Management of the Funds" in each Fund's Prospectus) The
investment adviser of Short-Intermediate, Evergreen Intermediate and
Intermediate Government is First Union National Bank ("FUNB"), located at 201
South College Street, Charlotte, North Carolina 28288 which, in turn, is a
subsidiary of First Union Corporation ("First Union"), a bank holding company
headquartered in Charlotte, North Carolina. FUNB provides investment advisory
services to the Funds through its Capital Management Group ("CMG"). Keystone
Investment Management Company ("Keystone"), a subsidiary of FUNB located at 200
Berkeley Street, Boston, Massachusetts 02116, is investment adviser to Capital
Preservation and Keystone Intermediate.
Under their respective Investment Advisory Agreements with each Fund, CMG
and Keystone (each an "Adviser" and, collectively, the "Advisers") have agreed
to furnish reports, statistical and research services and recommendations with
respect to each Fund's portfolio of investments. In addition, each Adviser
provides office facilities to the Funds and performs a variety of administrative
services. Each Fund pays the cost of all of its other expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining their
registration under the Securities Act of 1933, as amended, and the 1940 Act,
printing prospectuses (for existing shareholders) as they are updated, state
qualifications, mailings, brokerage, custodian and stock transfer charges,
printing, legal and auditing expenses, expenses of shareholder meetings and
reports to shareholders. Notwithstanding the foregoing, the Adviser will pay the
costs of printing and distributing prospectuses used for prospective
shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
three most recent fiscal periods reflected in its registration statement are set
forth below. Prior to December 11, 1997, Keystone Management Inc., ("Keystone
Management") provided investment management services to Keystone Intermediate.
Keystone, the Fund's investment adviser, was entitled to a certain percentage of
the fee paid by the Fund to Keystone Management, and was paid by Keystone
Management. Total dollar amounts paid by the Fund to Keystone Management, the
Fund's former investment manager, for investment management and administrative
services rendered, are inclusive of the amounts paid to by Keystone Management
to Keystone for investment advisory services are shown:
<TABLE>
<S> <C> <C> <C>
Six Months
SHORT-INTERMEDIATE Year Ended Year Ended Ended
06/30/97 6/30/96 6/30/95
--------- -------- --------
Advisory Fee $1,998,063 $1,951,949 $961,697
========= ========= =========
Ten Months
EVERGREEN Year Ended Ended Year Ended
INTERMEDIATE 06/30/97 6/30/96 8/31/95
---------- ---------- ---------
Advisory Fee $987,044 $600,081 $544,577
Waiver ( 0) ( 64,983) (128,003)
-------- -------- --------
Net Advisory Fee $987,044 $535,098 $416,574
========= ========= =========
Ten Months
INTERMEDIATE Year Ended Ended Year Ended
GOVERNMENT 06/30/97 06/30/96 8/31/95
---------- -------- --------
Advisory Fee $546,941 $506,065 $634,185
Waiver ( 73,557) (61,160) (144,507)
--------- --------- --------
Net Advisory Fee $473,384 $444,905 $489,678
========= ========= =========
Nine Months
CAPITAL Ended Year Ended Year Ended
PRESERVATION 06/30/97 09/30/96 09/30/95
---------- -------- --------
Advisory Fee $284,977 $493,147 $605,247
Waiver/Reimb. (245,255) (341,016) (503,005)
---------- -------- --------
Net Advisory Fee $ 39,722 $152,131 $102,242
========== ========= =========
Eleven Months
KEYSTONE Ended Year Ended Year Ended
INTERMEDIATE 06/30/97 07/31/96 07/31/95
Advisory Fee $202,102 $273,644 $291,834
Waiver/Reimb. (145,636) (191,096) (207,571)
-------- -------- --------
Net Advisory Fee $ 56,466 $ 82,548 $ 84,263
======== ========= ========
</TABLE>
Expense Limitations
Keystone voluntarily limits the annual expenses, excluding indirectly
paid expenses, of Class A, Class B and Class C shares to 0.90%, 1.65% and 1.65%
of average net class assets, respectively, for Capital Preservation and to
1.10%, 1.85% and 1.85% of average net class assets, respectively, for Keystone
Intermediate. Keystone intends to continue the foregoing expense limitations on
a calendar month-by-month basis. Keystone will periodically evaluate the
foregoing expense limitations and may modify or terminate them in the future.
The Investment Advisory Agreements are terminable, without the payment
of any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of the
Trust's Trustees or by the Adviser. The Investment Advisory Agreements will
automatically terminate in the event of their assignment. Each Investment
Advisory Agreement provides in substance that the Adviser shall not be liable
for any action or failure to act in accordance with its duties thereunder in the
absence of wilful misfeasance, bad faith or gross negligence on the part of the
Adviser or of reckless disregard of its obligations thereunder. Each Investment
Advisory Agreement continues for two years from its effective date and will
continue from year to year with respect to each Fund provided that such
continuance is approved annually by a vote of a majority of the Trustees
including a majority of those Trustees who are not parties thereto or
"interested persons" of any such party cast in person at a meeting duly called
for the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities of each Fund.
Certain other clients of the Adviser may have investment objectives and
policies similar to those of the Funds. An Adviser may, from time to time, make
recommendations which result in the purchase or sale of a particular security by
its other clients simultaneously with a Fund. If transactions on behalf of more
than one client during the same period increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price or quantity. It is the policy of the Advisers to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by each Adviser to the accounts involved, including the Funds. When two or more
clients of an Adviser (including one or more of the Funds) are purchasing or
selling the same security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
Although the investment objectives of the Funds are not the same, and
their investment decisions are made independently of each other, they rely upon
the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to
permit purchase and sales transactions to be effected between each Fund and the
other registered investment companies for which Evergreen Asset Management
Corp., a subsidiary of FUNB ("Evergreen Asset"), Keystone or FUNB act as
investment adviser or between the Fund and any advisory clients of Evergreen
Asset, Keystone, FUNB or their affiliates. Each Fund may from time to time
engage in such transactions but only in accordance with these procedures and if
they are equitable to each participant and consistent with each participant's
investment objectives.
Prior to July 1, 1995, Federated Administrative Services, a subsidiary of
Federated Investors, provided legal, accounting and other administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust.
Prior to January 19, 1996, SEI Financial Management Company acted as
administrator for Evergreen Intermediate and Intermediate Government. For the
ten months ended June 30, 1996, and the fiscal year ended August 31, 1995
Evergreen Intermediate incurred $97,364 and $154,291, respectively, in
administrative service costs. For ten months ended June 30, 1996 and the fiscal
year ended August 31, 1995 Government incurred $91,283 and $179,686,
respectively, in administrative service costs.
Commencing July 8, 1995, in the case of Evergreen Investment Trust, and on
January 19, 1996, in the case of The Evergreen Lexicon Fund, Evergreen Asset
began providing administrative services to each of the portfolios of the Trusts
for a fee based on the average daily net assets of each Fund administered by
Evergreen Asset for which FUNB affiliates also served as investment adviser,
calculated daily and payable monthly at the following annual rates: .050% on the
first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion;
.020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets
in excess of $30 billion.
At present, Evergreen Keystone Investment Services ("EKIS") serves as
administrator to Short-Intermediate, Evergreen Intermediate and Intermediate
Government subject to the supervision and control of the Trustees of each Trust.
As administrator, EKIS provides facilities, equipment and personnel to the Funds
and is entitled to receive a fee based on the average daily net assets of all
mutual funds for which CMG, Keystone or Evergeen Asset serve as investment
adviser, calculated in accordance with the following schedule:.050% on the first
$7 billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on
the next $10 billion; .015% on the next $5 billion; and .010% on assets in
excess of $30 billion.
EKIS also provides administrative services to Capital Preservation and
Keystone Intermediate on behalf of their investment adviser.
Prior to January 1, 1997, Furman Selz LLC, an affiliate of Evergreen
Keystone Distributor, Inc. (formerly Evergreen Funds Distributor, Inc.,
distributor for the Evergreen Keystone funds (the "Distributor"), served as
sub-administrator to Short-Intermediate, Evergreen Intermediate and Intermediate
Government and was entitled to receive a fee from each Fund calculated on the
average daily net assets of each Fund at a rate based on the total assets of the
mutual funds administered by Evergreen Asset for which FUNB affiliates also
served as investment adviser, calculated in accordance with the following
schedule: .0100% of the first $7 billion; .0075% on the next $3 billion; .0050%
on the next $15 billion; and .0040% on assets in excess of $25 billion.
BISYS Fund Services ("BISYS"), an affiliate of EKD, now serves as
sub-administrator to each Fund and is entitled to receive a fee from each Fund
calculated daily and payable monthly at an annual rate based on the aggregate
average daily net assets of the mutual funds for which FUNB, Evergreen Asset,
Keystone or any affiliate of First Union serves as investment adviser,
calculated in accordance with the following schedule: .0100% of the first $7
billion; .0075% on the next $3 billion; .0050% on the next $15 billion; and
.0040% on assets in excess of $25 billion. The total assets of mutual funds for
which Evergreen Asset, FUNB or Keystone serve as investment adviser as of June
30, 1997 were approximately $30.5 billion.
For the fiscal years ended June 30, 1997 and 1996, and the fiscal
period ended June 30, 1995, Short-Intermediate incurred $167,636, $205,938 and
$159,002, respectively, in administrative service costs.
For the fiscal year ended June 30, 1997, the fiscal period ended June
30, 1996 and the fiscal year ended August 31, 1995, Evergreen Intermediate
incurred $69,536, $97,364 and $154,291, respectively, in administrative service
costs.
For the fiscal year ended June 30, 1997, the fiscal period ended June
30, 1996 and the fiscal year ended August 31, 1995, Intermediate Government
incurred $38,083, $91,283 and $179,686, respectively, in administrative service
costs.
For the fiscal period ended June 30, 1997, and the fiscal years ended
September 30, 1996 and 1995, Capital Preservation incurred $34,481, $24,176 and
$17,744 in administrative service costs.
For the fiscal period ended June 30, 1997, and the fiscal years ended
July 31, 1996 and 1995, Keystone Intermediate incurred $11,267, $23,963 and
$17,790 in administrative service costs.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A, Class B and Class C shares and are charged as class
expenses, as accrued. The distribution fees attributable to the Class B shares
and Class C shares are designed to permit an investor to purchase such shares
through broker-dealers without the assessment of a front-end sales charge, and,
in the case of Class C shares, without the assessment of a contingent deferred
sales charge after the first year following the month of purchase, while at the
same time permitting the Distributor to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and function of the
combined contingent deferred sales charge and distribution services fee on the
Class B shares and the Class C shares are the same as those of the front-end
sales charge and distribution fee with respect to the Class A shares in that in
each case the sales charge and/or distribution fee provide for the financing of
the distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (each
a "Plan" and collectively, the "Plans"), the Treasurer of each Fund reports the
amounts expended under the Plans and the purposes for which such expenditures
were made to the Trustees of each Trust for their review on a quarterly basis.
Also, each Plan provides that the selection and nomination of the Independent
Trustees are committed to the discretion of such disinterested Trustees then in
office.
Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of each Trust or by vote
of the holders of a majority of the outstanding voting securities of that Class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.
In addition to the Plans, Short-Intermediate, Evergreen Intermediate
and Intermediate Government have adopted Shareholder Services Plans whereby
shareholder servicing agents may receive fees from each Fund for providing
services which include, but are not limited to, distributing prospectuses and
other information, providing shareholder assistance, and communicating or
facilitating purchases and redemptions of Class B and Class C shares of a Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of a Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class. Any Plan, Shareholder Service Plan or
Distribution Agreement may be terminated (i) by a Fund without penalty at any
time by a majority vote of the holders of the outstanding voting securities of
the Fund, voting separately by Class or by a majority vote of the Independent
Trustees, or (ii) by the Distributor. To terminate any Distribution Agreement,
any party must give the other parties 60 days' written notice; to terminate a
Plan only, the Fund need give no notice to the Distributor. Any Distribution
Agreement will terminate automatically in the event of its assignment.
The Funds incurred the following Distribution Plan and, where
applicable, Shareholder Services Plan fees:
Distribution Fees:
Short-Intermediate. For the fiscal year ended June 30, 1997 $18,961, $222,264
and $10,470 on behalf of Class A, Class B and Class C shares.
Evergreen Intermediate. For the fiscal year ended June 30, 1997 $6,972, $7,180
and $255 on behalf of Class A, Class B and Class C shares.
Intermediate Government. For the fiscal year ended June 30, 1997 $2,047, $6,442
and $242 on behalf of Class A, Class B and Class C shares.
Capital Preservation. For the fiscal period ended June 30, 1997 $28,581,
$285,293 and $32,267 on behalf of Class A, Class B and Class C shares.
Keystone Intermediate. For the fiscal period ended June 30, 1997 $24,268,
$129,648 and $74,834 on behalf of Class A, Class B and Class C shares.
Shareholder Services Fees:
Short-Intermediate. For the fiscal years ended June 30, 1997 and 1996, $55,566
and $47,700, respectively, on behalf of Class B shares; and $2,618 and $2,221,
respectively, on behalf on Class C shares.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of the
Adviser. In general, the same individuals perform the same functions for the
other funds managed by the Adviser. A Fund will not effect any brokerage
transactions with any broker or dealer affiliated directly or indirectly with
the Adviser unless such transactions are fair and reasonable, under the
circumstances, to the Fund's shareholders. Circumstances that may indicate that
such transactions are fair or reasonable include the frequency of such
transactions, the selection process and the commissions payable in connection
with such transactions.
A portion of any transactions in equity securities for each Fund will
occur on domestic stock exchanges. Transactions on stock exchanges involve the
payment of brokerage commissions. In transactions on stock exchanges in the
United States, these commissions are negotiated, whereas on many foreign stock
exchanges these commissions are fixed. In the case of securities traded in the
foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market maker, although the Fund may place an over-the-counter order with a
broker-dealer if a better price (including commission) and execution are
available.
It is anticipated that most of each Fund's purchase and sale transactions
involving fixed income securities will be with the issuer or an underwriter or
with major dealers in such securities acting as principals. Such transactions
are normally on a net basis and generally do not involve payment of brokerage
commissions. However, the cost of securities purchased from an underwriter
usually includes a commission paid by the issuer to the underwriter. Purchases
or sales from dealers will normally reflect the spread between bid and ask
prices.
In selecting firms to effect securities transactions, the primary
consideration of each Fund shall be prompt execution at the most favorable
price. A Fund will also consider such factors as the price of the securities and
the size and difficulty of execution of the order. If these objectives may be
met with more than one firm, the Fund will also consider the availability of
statistical and investment data and economic facts and opinions helpful to the
Fund. The extent of receipt of such services would tend to reduce the expenses
of the Adviser or its affiliates.
For the fiscal period ending June 30, 1997, none of the Funds paid
commissions to affiliated brokers.
None of the Funds, with the exception of Keystone Intermediate, paid
brokerage commissions for each of their three most recent fiscal periods.
Keystone Intermediate paid no brokerage commissions for the fiscal periods ended
June 30, 1997 and July 31, 1996. For the fiscal year ended July 31, 1995, the
Fund paid $34,700 in brokerage commissions.
ADDITIONAL TAX INFORMATION
(See also "Other Information - Dividends, Distributions,
and Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a regulated investment company, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
securities or foreign currencies and other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such securities; (b) derive less than 30% of its gross income from the sale
or other disposition of securities, options, futures or forward contracts (other
than those on foreign currencies), or foreign currencies (or options, futures or
forward contracts thereon) that are not directly related to the RIC's principal
business of investing in securities (or options and futures with respect
thereto) held for less than three months this provision is repealed; and (c)
diversify its holdings so that, at the end of each quarter of its taxable year,
(i) at least 50% of the market value of the Fund's total assets is represented
by cash, U.S. government securities and other securities limited in respect of
any one issuer, to an amount not greater than 5% of the Fund's total assets and
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. government securities and securities of other regulated
investment companies). By so qualifying, a Fund is not subject to Federal income
tax if it timely distributes its investment company taxable income and any net
realized capital gains. A 4% nondeductible excise tax will be imposed on a Fund
to the extent it does not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any). Any dividends received by a Fund from domestic
corporations will constitute a portion of the Fund's gross investment income. It
is anticipated that this portion of the dividends paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction for corporations. Shareholders will be informed of the amounts of
dividends which so qualify.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders (who are not exempt from tax) as ordinary income.
Such distributions are not eligible for the dividends-received deduction. Any
loss recognized upon the sale of shares of a Fund held by a
shareholder for six months or less will be treated as a long-term capital loss
to the extent that the shareholder received a long-term capital gain
distribution with respect to such shares.
Distributions by each Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the
forthcoming distribution. Those purchasing just prior to a distribution will
then receive what is in effect a return of capital upon the distribution which
will nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gain or loss
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Long term capital gains on assets held
for more than 18 months are taxable at a maximum rate of 28%; such gains on
assets held for more than 18 months are taxable at a maximum rate of 20%.
Generally, any loss realized on a sale or exchange will be disallowed to the
extent shares disposed of are replaced within a period of sixty-one days
beginning thirty days before and ending thirty days after the shares are
disposed of. Any loss realized by a shareholder on the sale of shares of the
Fund held by the shareholder for six months or less will be treated for tax
purposes as a long-term capital loss to the extent of any distributions of net
capital gains received by the shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported by
each shareholder on his or her Federal income tax return. Shareholders electing
to receive distributions in the form of additional shares will have a cost basis
for Federal income tax purposes in each share so received equal to the net asset
value of a share of a Fund on the reinvestment date. Each shareholder should
consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% Federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisers regarding specific questions
relating to Federal, state and local tax consequences of investing in shares of
a Fund. Each shareholder who is not a U.S. person should consult his or her tax
adviser regarding the U.S. and foreign tax consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
NET ASSET VALUE
The following information supplements that set forth in each Prospectus
under the subheading "How to Buy Shares - How the Funds Value Their Shares" in
the Section entitled "Purchase and Redemption of Shares".
The public offering price of shares of a Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge
"Alternative". On each Fund business day on which a purchase or redemption order
is received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any weekday,
exclusive of national holidays on which the Exchange is closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic
or foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked price and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
The respective per share net asset values of the Class A, Class B,
Class C and Class Y shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class Band
Class C shares may be lower than the per share net asset value of the Class A
shares (and, in turn, that of Class A shares may be lower than Class Y shares)as
a result of the greater daily expense accruals, relative to Class A and Class Y
shares, of Class B and Class C shares relating to distribution services fees
(and, with respect to Short-Intermediate, Evergreen Intermediate and
Intermediate Government) Shareholder Service Plan fee and, to the extent
applicable, transfer agency fees and the fact that Class Y shares bear no
additional distribution, shareholder service or transfer agency related fees.
While it is expected that, in the event each Class of shares of a Fund realizes
net investment income or does not realize a net operating loss for a period, the
per share net asset values of the four classes will tend to converge immediately
after the payment of dividends, which dividends will differ by approximately the
amount of the expense accrual differential among the Classes, there is no
assurance that this will be the case. In the event one or more Classes of a Fund
experiences a net operating loss for any fiscal period, the net asset value per
share of such Class or Classes will remain lower than that of Classes that
incurred lower expenses for the period.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York.
In addition, European or Far Eastern securities trading generally or in
a particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not business days in New York and on which the Fund's net asset value is not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the Exchange will
not be reflected in a Fund's calculation of net asset value unless the Trustees
deem that the particular event would materially affect net asset value, in which
case an adjustment will be made. Securities transactions are accounted for on
the trade date, the date the order to buy or sell is executed. Dividend income
and other distributions are recorded on the ex-dividend date, except certain
dividends and distributions from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date.
PURCHASE OF SHARES
The following information supplements that set forth in each Fund's
Prospectus under the heading "Purchase and Redemption of Shares - How To Buy
Shares."
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), with a contingent deferred
sales charge (the "deferred sales charge alternative"), or without any front-end
sales charge, but with a contingent deferred sales charge imposed only during
the first year after the month of purchase (the "level-load alternative"), as
described below. Class Y shares which, as described below, are not offered to
the general public, are offered without any front-end or contingent sales
charges. Shares of each Fund are offered on a continuous basis through (i)
investment dealers that are members of the National Association of Securities
Dealers, Inc. and have entered into selected dealer agreements with the
Distributor ("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered into selected
agent agreements with the Distributor ("selected agents"), or (iii) the
Distributor. The minimum for initial investment is $1,000; there is no minimum
for subsequent investments. The subscriber may use the Application available
from the Distributor for his or her initial investment. Sales personnel of
selected dealers and agents distributing a Fund's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
through selected dealers or agents or directly through the Distributor. A Fund
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be executed
at the public offering price equal to the net asset value next determined (plus
for Class A shares, the applicable sales charges), as described below. Orders
received by the Distributor prior to the close of regular trading on the
Exchange on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the Exchange on that
day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m Eastern time.
If the selected dealer or agent fails to do so, the investor's right to that
day's closing price must be settled between the investor and the selected dealer
or agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of shares of a Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Application. Payment for shares
purchased by telephone can be made only by Electronic Funds Transfer from a bank
account maintained by the shareholder at a bank that is a member of the National
Automated Clearing House Association ("ACH"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a Fund business
day, the order to purchase shares is automatically placed the same Fund business
day for non-money market funds, and two days following the day the order is
received for money market funds, and the applicable public offering price will
be the public offering price determined as of the close of business on such
business day. Full and fractional shares are credited to a subscriber's account
in the amount of his or her subscription. As a convenience to the subscriber,
and to avoid unnecessary expense to a Fund, stock certificates representing
shares of a Fund are not issued. This facilitates later redemption and relieves
the shareholder of the responsibility for and inconvenience of lost or stolen
certificates.
Alternative Purchase Arrangements
Short-Intermediate, Evergreen Intermediate and Intermediate Government
issue four classes of shares: (i) Class A shares, which are sold to investors
choosing the front-end sales charge alternative; (ii) Class B shares, which are
sold to investors choosing the deferred sales charge alternative; (iii) Class C
shares, which are sold to investors choosing the level-load sales charge
alternative; and (iv) Class Y shares, which are offered only to (a) persons who
at or prior to December 30, 1994 owned shares in a mutual fund advised by
Evergreen Asset, (b) certain investment advisory clients of the Advisers and
their affiliates, and (c) institutional investors. Capital Preservation and
Keystone Intermediate offer Class A, Class B and Class C shares. Each class of
shares each represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that (i)
only Class A, Class B and Class C shares are subject to a Rule 12b-1
distribution fee, (ii) Class B and Class C shares of Short- Intermediate,
Evergreen Intermediate and Intermediate Government are subject to a Shareholder
Service Plan fee, (iii) Class A shares bear the expense of the front-end sales
charge and Class B and Class C shares bear the expense of the deferred sales
charge, (iv) Class B shares and Class C shares each bear the expense of a higher
Rule 12b-1 distribution services fee and, where applicable, Shareholder Service
Plan fee than Class A shares and, in the case of Class B shares, higher transfer
agency costs, (v) with the exception of Class Y shares, each Class of each Fund
has exclusive voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services (and, to the extent applicable,
Shareholder Service Plan fee) is paid which relates to a specific Class and
other matters for which separate Class voting is appropriate under applicable
law, provided that, if the Fund submits to a simultaneous vote of Class A, Class
B and Class C shareholders an amendment to the Rule 12b-1 Plan that would
materially increase the amount to be paid thereunder with respect to the Class A
shares, the Class A shareholders and the Class B and Class C shareholders will
vote separately by Class, and (vi) only the Class B shares are subject to a
conversion feature. Each Class has different exchange privileges and certain
different shareholder service options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent applicable, Shareholder Service Plan) fee and contingent deferred sales
charges on Class B shares prior to conversion, or the accumulated distribution
services (and, to the extent applicable, Shareholder Service Plan) fee on Class
C shares, would be less than the front-end sales charge and accumulated
distribution services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher return of Class A
shares. Class B and Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at the lowest applicable sales
charge. For this reason, the Distributor will reject any order (except orders
for Class B shares from certain retirement plans) for more than $2,500,000 for
Class B or Class C shares.
Class A shares are subject to a lower distribution services fee and no
Shareholder Service Plan fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares. However, because
front-end sales charges are deducted at the time of purchase, investors
purchasing Class A shares would not have all their funds invested initially and,
therefore, would initially own fewer shares. Investors not qualifying for
reduced front-end sales charges who expect to maintain their investment for an
extended period of time might consider purchasing Class A shares because the
accumulated continuing distribution (and, to the extent applicable, Shareholder
Service Plan) charges on Class B shares or Class C shares may exceed the
front-end sales charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration against the fact
that, because of such front-end sales charges, not all their funds will be
invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution services (and, to the extent applicable, Shareholder Service Plan)
fees and, in the case of Class B shares, being subject to a contingent deferred
sales charge for a six-year period. For example, based on current fees and
expenses, an investor subject to the 4.75% front-end sales charge imposed on
Class A shares of the Funds would have to hold his or her investment
approximately seven years for the Class B and Class C distribution services
(and, to the extent applicable, Shareholder Service Plan) fees, to exceed the
front-end sales charge plus the accumulated distribution services fee of Class A
shares. In this example, an investor intending to maintain his or her investment
for a longer period might consider purchasing Class A shares. This example does
not take into account the time value of money, which further reduces the impact
of the Class B and Class C distribution services (and, to the extent applicable,
Shareholder Service Plan) fees on the investment, fluctuations in net asset
value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the six year period during
which Class B shares are subject to a contingent deferred sales charge may find
it more advantageous to purchase Class C shares if available through their
broker-dealers.
With respect to each Fund, the Trustees have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. On an ongoing basis, the Trustees, pursuant to their
fiduciary duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.
Front-End Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any sales charges.
The Fund receives the entire net asset value of its Class A shares sold to
investors. The Distributor's commission is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission
"re-allowed" to selected dealers and agents. The Distributor will reallow
discounts to selected dealers and agents in the amounts indicated in the table
in the Prospectus. In this regard, the Distributor may elect to reallow the
entire sales charge to selected dealers and agents for all sales with respect to
which orders are placed with the Distributor.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,00 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of each Fund for at the end of each Fund's latest fiscal
period.
<TABLE>
<S> <C> <C> <C> <C>
Date Net Asset Per Share Offering
Value Sales Price
Charge Per Share
Short- 6/30/97 9.83 0.33 10.16
Intermediate
Evergreen 6/30/97 10.17 0.34 10.51
Intermediate
Intermediate 6/30/97 10.02 0.34 10.36
Government
Capital 6/30/97 9.80 0.33 10.13
Preservation
Keystone 6/30/97 8.93 0.30 9.23
Intermediate
</TABLE>
With respect to Short-Intermediate, the following commissions were paid
to and amounts were retained by Federated Securities Corp. through July 7, 1995
which until such date was the principal underwriter of portfolios of Evergreen
Investment Trust. For the period from July 8, 1995 through June 30, 1997,
commissions were paid to and amounts were retained by the current Distributor as
noted below:
Six Months
SHORT- Year Ended Year Ended Ended
INTERMEDIATE 06/30/97 06/30/96 06/3/95
Commissions
Received 52,484 $74,999 $39,906
Commissions 6,833 9,560 1,334
Retained
With respect to Evergreen Intermediate and Intermediate Government, the
following commissions were paid to and amounts were retained by Federated
Securities Corp. through July 7, 1995 which until such date was the principal
underwriter of portfolios of The Evergreen Lexicon Fund. For the period from
July 8, 1995 through June 30, 1997, commissions were paid to and amounts were
retained by the current Distributor as noted below:
Six Months
Year Ended Year Ended Ended
06/30/97 06/30/96 06/3/95
EVERGREEN
INTERMEDIATE
Commissions 3,201 --- ---
Received
Commissions 504 --- ---
Retained
Six Months
INTERMEDIATE Year Ended Year Ended Ended
GOVERNMENT 06/30/97 06/30/96 06/3/95
Commissions 522 --- ---
Received
Commissions 77 --- ---
Retained
With respect to Capital Preservation and Keystone Intermediate, the
following commissions were paid to and amounts were retained by EKIS which prior
to December 1, 1996, was the distributor for Capital Preservation and Keystone
Intermediate. Since that date, commissions have been paid to and amounts
retained by the current Distributor as noted below:
Period
CAPITAL Ended Year Ended Year Ended
PRESERVATION 06/30/97 09/30/96 09/30/95
Commissions $305,542 $490,274 $750,634
Received
Commissions 244,211 397,085 630,122
Retained
Period
KEYSTONE Ended Year Ended Year Ended
INTERMEDIATE 06/30/97 07/31/96 07/31/95
Commissions $236,373 $300,084 $330,026
Received
Commissions 166,717 86,191 131,149
Retained
Investors choosing the front-end sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more Evergreen
Keystone funds (other than the money market funds) into a single "purchase," if
the resulting "purchase" totals at least $100,000. The term "purchase" refers
to: (i) a single purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an individual,
his or her spouse and their children under the age of 21 years purchasing shares
for his, her or their own account(s); (ii) a single purchase by a trustee or
other fiduciary purchasing shares for a single trust, estate or single fiduciary
account although more than one beneficiary is involved; or (iii) a single
purchase by an organization exempt from federal income tax under Section 501
(c)(3) or (13) of the Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Code. The term "purchase"
also includes purchases by any "company," as the term is defined in the 1940
Act, but does not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other than the
purchase of shares of a Fund or shares of other registered investment companies
at a discount. The term "purchase" does not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein are
credit card holders of a company, policy holders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
A "purchase" may also include shares, purchased at the same time through a
single selected dealer or agent, of any Evergreen Keystone Fund.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the previous
day) of (a) all Class A shares of the Fund held by the
investor and(b) all such shares of any other Evergreen
Keystone fund held by the investor; and
(iii) the net asset value of all shares described in paragraph; and
(iv) shares owned by another shareholder eligible to combine his or
her purchase with that of the investor into a single
"purchase" (see above).
For example, if an investor owned Class A, B or C shares of an
Evergreen Keystone fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of a Fund worth an additional
$100,000, the sales charge for the $100,000 purchase, in the case of the Funds,
would be at the 2.50% rate applicable to a single $300,000 purchase of shares of
the Fund, rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on a purchase through a selected dealer or agent,
the investor or selected dealer or agent must provide the Distributor with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
Letter of Intent. Class A investors may also obtain the reduced sales
charges shown in the Prospectus by means of a written Letter of Intent, which
expresses the investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares of the Fund or any other Evergreen
Keystone fund. Each purchase of shares under a Letter of Intent will be made at
the public offering price or prices applicable at the time of such purchase to a
single transaction of the dollar amount indicated in the Letter of Intent. At
the investor's option, a Letter of Intent may include purchases of Class A
shares of the Fund or any other Evergreen Keystone fund made not more than 90
days prior to the date that the investor signs a Statement of Intention;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the Evergreen Keystone funds under a single Letter
of Intent. For example, if at the time an investor signs a Letter of Intent to
invest at least $100,000 in Class A shares of the Fund, the investor and the
investor's spouse each purchase shares of the Fund worth $20,000 (for a total of
$40,000), it will only be necessary to invest a total of $60,000 during the
following 13 months in Class A shares of the Fund or any other Evergreen
Keystone fund, to qualify for the 3.75% sales charge applicable to purchases in
any Evergreen Keystone Equity or Long-Term Bond Fund on the total amount being
invested (the sales charge applicable to an investment of $100,000).
The Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the Letter
of Intent and qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of the 13-month
period. The difference in sales charge will be used to purchase additional
shares of the Fund subject to the rate of sales charge applicable to the actual
amount of the aggregate purchases.
Investors wishing to enter into a Letter of Intent in conjunction with
their initial investment in Class A shares of a Fund should complete the
appropriate portion of the Application while current Class A shareholders
desiring to do so can obtain a form of Letter of Intent by contacting a Fund at
the address or telephone number shown on the cover of this Statement of
Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain
qualified and non-qualified benefit and savings plans may make shares of the
Evergreen Keystone funds available to their participants. Investments made by
such employee benefit plans may be exempt from any applicable front-end sales
charges if they meet the criteria set forth in the Prospectus under "Class A
Shares-Front End Sales Charge Alternative." The Advisers may provide
compensation to organizations providing administrative and record keeping
services to plans which make shares of the Evergreen Keystone Funds available to
their participants.
Reinstatement Privilege. A Class A shareholder who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are reinvested in shares
of the Fund. The reinstatement privilege may be used by the shareholder only
once, irrespective of the number of shares redeemed or repurchased, except that
the privilege may be used without limit in connection with transactions whose
sole purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
Information.
Sales at Net Asset Value. In addition to the categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset
value, i.e., without any sales charge, to: (i) certain investment advisory
clients of the Advisers or their affiliates; (ii) officers and present or former
Trustees of the Trusts; present or former trustees of other investment companies
managed by the Advisers; officers, directors and present or retired full-time
employees of the Advisers, the Distributor, and their affiliates; officers,
directors and present and full-time employees of selected dealers or agents; or
the spouse, sibling, direct ancestor or direct descendant (collectively
"relatives") of any such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or relative; or the
estate of any such person or relative, if such shares are purchased for
investment purposes (such shares may not be resold except to the Fund); (iii)
certain employee benefit plans for employees of the Advisers, the Distributor
and their affiliates; (iv) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer and approved by the
Distributor, pursuant to which such persons pay an asset-based fee to such
broker-dealer, or its affiliate or agent, for service in the nature of
investment advisory or administrative services. These provisions are intended to
provide additional job-related incentives to persons who serve the Funds or work
for companies associated with the Funds and selected dealers and agents of the
Funds. Since these persons are in a position to have a basic understanding of
the nature of an investment company as well as a general familiarity with the
Fund, sales to these persons, as compared to sales in the normal channels of
distribution, require substantially less sales effort. Similarly, these
provisions extend the privilege of purchasing shares at net asset value to
certain classes of institutional investors who, because of their investment
sophistication, can be expected to require significantly less than normal sales
effort on the part of the Funds and the Distributor.
Deferred Sales Charge Alternatives--Class B and Class C Shares
Investors choosing the deferred sales charge alternative purchase Class
B shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without a front-end
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used by the Distributor to defray the expenses of the
Distributor related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to selected dealers and agents for selling Class B shares. The
combination of the contingent deferred sales charge and the distribution
services fee (and, with respect to Short-Intermediate, Evergreen Intermediate
and Intermediate Government, the Shareholder Service Plan fee) enables the Fund
to sell the Class B shares without a sales charge being deducted at the time of
purchase. The higher distribution services fee (and, as applicable, the
Shareholder Service Plan fee) incurred by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed
within six years of purchase will be subject to a contingent deferred sales
charge at the rates set forth in the Prospectus charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
contingent deferred sales charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The amount of the
contingent deferred sales charge, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares.
In determining the contingent deferred sales charge applicable to a
redemption, it will be assumed that the redemption is first of any Class A
shares or Class C shares in the shareholder's Fund account, second of Class B
shares held for over six years or Class B shares acquired pursuant to
reinvestment of dividends or distributions and third of Class B shares held
longest during the six-year period.
To illustrate, assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 Class B shares, 10
Class B shares will not be subject to charge because of dividend reinvestment.
With respect to the remaining 40 Class B shares, the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, of the $600 of the shares redeemed $400 of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the applicable rate in the second year after purchase for a
contingent deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or (ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
Conversion Feature. At the end of the period ending seven years after
the end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee (and, with respect to
Short-Intermediate, Evergreen Intermediate and Intermediate Government, the
Shareholder Service Plan fee) imposed on Class B shares. Such conversion will be
on the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through
the reinvestment of dividends and distributions paid in respect of Class B
shares in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee (and, with respect to
Short-Intermediate, Evergreen Intermediate and Intermediate Government,
Shareholder Service Plan fee) and transfer agency costs with respect to Class B
shares does not result in the dividends or distributions payable with respect to
other Classes of a Fund's shares being deemed "preferential dividends" under the
Code, and (ii) the conversion of Class B shares to Class A shares does not
constitute a taxable event under federal income tax law. The conversion of Class
B shares to Class A shares may be suspended if such an opinion is no longer
available at the time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might continue to be
subject to the higher distribution services fee (and, as applicable, the
Shareholder Service Plan fee) for an indefinite period which may extend beyond
the period ending seven years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level-load sales charge alternative purchase
Class C shares at the public offering price equal to the net asset value per
share of the Class C shares on the date of purchase without the imposition of a
front-end sales charge. However, you will pay a 1.0% contingent deferred sales
charge if you redeem shares during the first year after the month of purchase.
No charge is imposed in connection with redemptions made more than one year
after the month of purchase. Class C shares are sold without a front-end sales
charge so that the Fund will receive the full amount of the investor's purchase
payment and after the first year without a contingent deferred sales charge so
that the investor will receive as proceeds upon redemption the entire net asset
value of his or her Class C shares. The Class C distribution services fee (and,
with respect to Short-Intermediate, Evergreen Intermediate and Intermediate
Government, Shareholder Service Plan fee) enables the Fund to sell Class C
shares without either a front-end or contingent deferred sales charge. However,
unlike Class B shares, Class C shares do not convert to any other Class shares
of the Fund. Class C shares incur higher distribution services fees (and, with
respect to Short-Intermediate, Evergreen Intermediate and Intermediate
Government, Shareholder Service Plan fee) than Class A shares, and will thus
have a higher expense ratio and pay correspondingly lower dividends than Class A
shares.
Class Y Shares
Class Y shares are not offered to the general public and are available
only to (i) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1 distribution expenses and are not subject to
any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "Other Information - General Information" in each Fund's Prospectus)
Capitalization and Organization
Short-Intermediate is a separate series of Evergreen Investment Trust, a
Massachusetts business trust. Evergreen Intermediate and Intermediate Government
are each separate series of The Evergreen Lexicon Fund, a Massachusetts business
trust. Capital Preservation and Keystone Intermediate are each a Massachusetts
business trust. The Trusts are governed by separate Boards of Trustees.
Short-Intermediate, Evergreen Intermediate and Intermediate Government may
issue an unlimited number of shares of beneficial interest with a $0.0001 par
value. Capital Preservation and Keystone Intermediate may issue an unlimited
number of shares with no par value. All shares of the Funds have equal rights
and privileges. Each share is entitled to one vote, to participate equally in
dividends and distributions declared by the Funds and on liquidation to their
proportionate share of the assets remaining after satisfaction of outstanding
liabilities. Shares of these Funds are fully paid, nonassessable and fully
transferable when issued and have no pre-emptive, conversion or exchange rights.
Fractional shares have proportionally the same rights, including voting rights,
as are provided for a full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his or her earlier death,
incapacity, resignation or removal. Shareholders can remove a Trustee upon a
vote of two-thirds of the outstanding shares of beneficial interest of
the Trust. Vacancies will be filled by a majority of the remaining Trustees,
subject to the 1940 Act. As a result, normally no annual or regular meetings of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of Trustees can elect 100%
of the Trustees if they choose to do so and in such event the holders of the
remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more Funds. Any issuance of shares of another series or class would be governed
by the 1940 Act and the law of the Commonwealth of Massachusetts. If shares of
another series of the Trust were issued in connection with the creation of
additional investment portfolios, each share of the newly created portfolio
would normally be entitled to one vote for all purposes. Generally, shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees, that affected all portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in the same investment portfolio. Except for
the different distribution related and other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of each Fund. The rights of the holders of
shares of a series of a Fund may not be modified except by the vote of a
majority of the outstanding shares of such series.
Distributor
EKD (the "Distributor"), 125 W. 55th Street, New York, New York 10019,
serves as each Fund's principal underwriter, and as such may solicit orders from
the public to purchase shares of any Fund. The Distributor is not obligated to
sell any specific amount of shares and will purchase shares for resale only
against orders for shares. Under the agreement between the Fund and the
Distributor, the Fund has agreed to indemnify the Distributor, in the absence of
its willful misfeasance, bad faith, gross negligence or reckless disregard of
its obligations thereunder, against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended.
EKD replaces EKIS as Distributor of Capital Preservation and Keystone
Intermediate. EKIS may no longer act as principal underwriter of such Funds due
to regulatory restrictions imposed by the Glass-Steagall Act upon national banks
such as FUNB and their affiliates, that prohibit such entities from acting as
the underwriters of mutual fund shares. While EKIS may no longer act as
principal underwriter of the Funds as discussed above, EKIS may continue to
receive compensation from Capital Preservation and Keystone Intermediate or EKD
in respect of underwriting and distribution services performed prior to the
termination of EKIS as principal underwriter. In addition, EKIS may also be
compensated by EKD for the provision of certain marketing support services to
EKD at an annual rate of up to 0.75% of the average daily net assets of a Fund,
subject to certain restrictions.
Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the
Funds.
Independent Auditors
KPMG Peat Marwick LLP has been selected to be the independent auditors of
the Funds.
PERFORMANCE INFORMATION
Total Return
From time to time a Fund may advertise its "total return". Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the Securities
and Exchange Commission, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to the value of such
investment at the end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares of the Fund are
assumed to have been reinvested when paid and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been paid. The Fund
will include performance data for Class A, Class B, Class C and Class Y shares
in any advertisement or information including performance data of the Fund.
With respect to Evergreen Intermediate and Intermediate Government,
Class B and Class C shares were not being offered as of August 31, 1995. The
average annual compounded total return for each Class of shares offered by the
Funds for the most recently completed one, five and ten year fiscal periods is
set forth in the table below.
<TABLE>
<S> <C> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years From
Ended Ended Ended Ended Inception*
6/30/97 6/30/97 6/30/97 6/30/97 to 6/30/97
SHORT-INTERMEDIATE
Class A 3.30% 5.62% 5.05% N/A 7.14%
Class B 0.78% 4.98% N/A N/A 4.17%
Class C 4.77% N/A N/A N/A 5.73%
Class Y 6.88% 6.92% 5.92% N/A 7.01%
EVERGREEN
INTERMEDIATE
Class A 3.41% N/A N/A N/A 5.24%
Class B 0.91% N/A N/A N/A (1.15%)
Class C 4.91% N/A N/A N/A 5.31%
Class Y 6.97% 7.18% 6.60% N/A 7.13%
INTERMEDIATE
GOVERNMENT
Class A 2.55% N/A N/A N/A 4.38%
Class B 0.03% N/A N/A N/A (0.66%)
Class C 4.03% N/A N/A N/A 4.85%
Class Y 6.08% 6.19% 5.38% N/A 5.82%
CAPITAL
PRESERVATION
Class A 3.26% N/A N/A N/A 5.84%
Class B 1.04% 4.59% 3.80% N/A 4.51%
Class C 5.05% 5.54% N/A N/A 4.55%
KEYSTONE
INTERMEDIATE
Class A 5.30% 6.34% 5.89% 6.56% N/A
Class B 3.17% 5.82% N/A N/A 4.61%
Class C 7.06% 6.67% N/A N/A 4.96%
- -------------------------------------------------------------------------------------------------------------------
* INCEPTION DATE
SHORT-INTERMEDIATE Class A January 3, 1989
Class B January 25, 1993
Class C September 6, 1994
Class Y January 4, 1991
EVERGREEN INTERMEDIATE Class A May 2, 1995
Class B January 30, 1996
Class C April 29, 1996
Class Y November 1, 1996
INTERMEDIATE GOVERNMENT Class A May 2, 1995
Class B February 9, 1996
Class C April 10, 1996
Class Y November 1, 1991
CAPITAL PRESERVATION Class A December 30, 1994
Class B July 1, 1991
Class C February 1, 1993
KEYSTONE INTERMEDIATE Class A February 13, 1987
Class B February 1, 1993
Class C February 1, 1993
</TABLE>
A Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is
useful in reviewing a Fund's performance but such information may not provide a
basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions.
YIELD CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the Securities and
Exchange Commission's yield formula) for a given 30-day or one month period, net
of expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. The formula for
calculating yield is as follows:
6
YIELD = 2[(a-b+1) -1]
-------------------
cd
Where a = Interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
Income is calculated for purposes of yield quotations in accordance
with standardized methods applicable to all stock and bond funds. Gains and
losses generally are excluded from the calculation. Income calculated for
purposes of determining a Fund's yield differs from income as determined for
other accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
The yield of each Fund for the thirty-day period ended June 30, 1997
for each Class of shares offered by the Funds is set forth in the table below:
SHORT-INTERMEDIATE EVERGREEN INTERMEDIATE
Class A - 5.99% Class A - 5.57%
Class B - 5.29% Class B - 4.81%
Class C - 5.28% Class C - 4.83%
Class Y - 6.30% Class Y - 5.82%
INTERMEDIATE GOVERNMENT CAPITAL PRESERVATION
Class A - 5.25% Class A - 5.81%
Class B - 4.44% Class B - 5.22%
Class C - 4.17% Class C - 5.25%
Class Y - 5.49%
KEYSTONE INTERMEDIATE
Class A - 5.82%
Class B - 5.25%
Class C - 5.26%
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
GENERAL
From time to time, a Fund may quote its performance in advertising
and other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Lehman
Brothers Intermediate Government Bond Index, or any other commonly quoted index
of common stock and bond prices. The Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average and the Lehman Brothers Intermediate
Government Bond Index are unmanaged indices of selected common stock and bond
prices. A Fund's performance may also be compared to those of other mutual funds
having similar objectives. This comparative performance would be expressed as a
ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's
broker or to each Adviser at the address or telephone number shown on the front
cover of this Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the Registration
Statement filed by the Trusts with the SEC under the Securities Act of 1933.
Copies of the Registration Statement may be obtained at a reasonable charge from
the SEC or may be examined, without charge, at the offices of the SEC in
Washington, D.C.
FINANCIAL STATEMENTS
Each Fund's financial statements for the fiscal period ended June 30, 1997
and the report thereon of KPMG Peat Marwick LLP, are incorporated by reference
herein from the Funds' Annual Report, as filed with the SEC pursuant to Section
30(d) of the 1940 Act and Rule 30d-1 thereunder.
You may obtain a copy of the Funds' Annual Report without charge by
writing to EKSC, P.O. Box 2121, Boston, Massachusetts 02106-2121, or by calling
EKSC toll free at 1-800-343-2898.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND, MUNICIPAL NOTE AND COMMERCIAL
PAPER RATINGS
APPENDIX "A"
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Service. A Standard & Poor's corporate
or municipal bond rating is a current assessment of the credit worthiness
of an obligor with respect to a specific obligation. This assessment of credit
worthiness may take into consideration obligers such as guarantors, insurers or
lessees. The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform any audit in connection
with the ratings and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay interest and
repay any principal.
AA - Debt rated AA also qualifies as high quality debt
obligations. Capacity to pay interest and repay principal is very strong and in
the majority of instances they differ from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB - rating.
B - Debt rated B has greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods; it will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate and municipal issues. The ratings
measure the credit worthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
Moody's Investors Service. A brief description of the applicable rating
symbols Moody's Investors Service, Inc. and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds
and issue so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible
risk factors; AA -- high credit quality, with strong protection factors and
modest risk, which may vary very slightly from time to time because of economic
conditions; A-- average credit quality with adequate protection factors, but
with greater and more variable risk factors in periods of economic stress. The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.
Fitch Investors Service L.P.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those rating
categories.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
o Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.) Note rating symbols
are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for state and
municipal short-term obligations will be designated Moody's Investment Grade
(MIG). This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
are uppermost in importance in short-term borrowing, while various factors of
major importance in bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
o MIG 2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security
elements are accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
Moody's Investors Service: Commercial paper rated "Prime" carries the
smallest degree of investment risk. The modifiers 1, 2, and 3 are used to denote
relative strength within this highest classification.
Standard & Poor's Ratings Service: "A" is the highest commercial paper
rating category utilized by Standard & Poor's Ratings Group which uses the
numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
Duff & Phelps, Inc.: Duff 1 is the highest commercial paper rating
category utilized by Duff & Phelps which uses + or - to denote relative strength
within this classification. Duff 2 represents good certainty of timely payment,
with minimal risk factors. Duff 3 represents satisfactory protection factors,
with risk factors larger and subject to more variation.
Fitch Investors Service L.P.: F-1+ -- denotes exceptionally strong
credit quality given to issues regarded as having strongest degree of assurance
for timely payment; F-1 -- very strong, with only slightly less degree of
assurance for timely payment than F-1+; F-2 -- good credit quality, carrying a
satisfactory degree of assurance for timely payment.
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a) Financial Statements
The following financial statements are hereby incorporated by reference from
Registrant's Annual Report:
Schedule of Investments June 30, 1997
Financial Highlights
Class A Shares For the nine-month period ended
June 30, 1997, the year ended
September 30, 1996, and the period
from December 30, 1994 (Commencement
of Class Operations) to September
30, 1995
Class B Shares For the nine-month period ended
June 30, 1997, each of the years in
the five-year period ended September
30, 1996, and the period from July
1, 1991 (Commencement of Class
Operations) to September 30, 1991
Class C Shares For the nine-month period ended
June 30, 1997, each of the years in
the three-year period ended
September 30, 1996, and the period
from February 1, 1993 (Commencement
of Class Operations) to
September 30, 1993
Statement of Assets and Liabilities June 30, 1997
Statements of Operations For the nine-month period ended June
30, 1997 and the year ended
September 30, 1996
Statements of Changes in Net Assets For the nine-month period ended June
30, 1997 and each of the years in
the two-year period ended September
30, 1996
Notes to Financial Statements
Independent Auditors' Report August 8, 1997
<PAGE>
Item (24)(b). Exhibits
1. Registrant's Declaration of Trust, as amended (the "Declaration of
Trust")(1)
2. Registrant's By-Laws(1)
A copy of an Amendment to Registrant's By-Laws(2)
3. Not applicable
4. (a) The Declaration of Trust, Articles III, V, VI and VIII(1)
(b) Registrant's By-Laws, as amended, Article 2, Section 2.5(1)
5. Investment Advisory and Management Agreement between Registrant and
Keystone Investment Management Company (the "Advisory Agreement")(2)
6. (a) Principal Underwriting Agreements between Registrant and Evergreen
Keystone Distributor, Inc. (the "Underwriting Agreements")(3)
(b) Form of Dealer Agreement used by EKD(3)
7. Not applicable
8. Custodian, Fund Accounting and Recordkeeping Agreement between Registrant
and State Street Bank and Trust Company (1)
9. (a) Form of Marketing Services Agreement between EKD and Evergreen
Keystone Investment SERvices, Inc. ("EKIS")(the "Marketing Services
Agreement")
(b) For of Sub-Administrator Agreement between KIMCO and BISYS Fund
Services (the "Sub-Administrator Agreement")(3)
(c) Principal Underwriting Agreements with EKIS, Registrant's former
principal underwriter (each a "Continuation Agreement")
10. Opinion and consent of counsel(3)
11. Independent Auditors' Consent(3)
12. Not applicable
13. Subscription Agreement between Registrant and Keystone Investment
Management Company(4)
14. Model plans used in the establishment of retirement plans in connection
with which the Registrant offers its securities(4)
15. Registrant's Class A, Class B and Class C Distribution Plans(1)
16. Schedules for computation of total return and current yield quotations(3)
17. Financial Data Schedules(3)
18. Not applicable
19. Powers of Attorney(2)
- ------------------------
(1) Filed with Post-Effective Amendment No. 6 ("Post-Effective Amendment No.
6") to Registration Statement 811-6278/33-38946 (the "Registration
Statement") and incorporated by reference herein.
(2) Filed with Post-Effective Amendment No. 7 ("Post-Effective Amendment No.
7") and incorporated by reference herein.
(3) Filed herewith.
(4) Filed with the Registration Statement and incorporated by reference herein.
(5) Filed with Post-Effective Amendment No. 66 to Registration Statement No.
2-10527/811-96 and incorporated by reference herein.
<PAGE>
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of August 31, 1997
-------------- ----------------------------
Shares of Beneficial
Interest, without par
value
Class A 601
Class B 1,466
Class C 185
Item 27. Indemnification
Provisions for the indemnification of the 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. 6 and incorporated by
reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, Registrant's principal underwriter, are contained in Sections 9 of the
Principal Underwriting Agreementsy, copies of which were filed with
Post-Effective Amendment No. 6 and are incorporated by reference herein.
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 was filed with Post-Effective Amendment No.
6 and is incorporated by reference herein.
Item 28. Businesses and Other Connections of Investment Adviser
The following table lists 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 table
lists, for at least the past two fiscal years, (i) any other organizations
(excluding investment advisory clients) with which the officer and/or director
has had or has substantial involvement; and (ii) positions held with such
organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
<S> <C> <C>
Albert H. Chairman of Senior Vice President
Elfner, III* the Board, First Union Keystone, Inc.
Chief Executive Keystone Asset Corporation
Officer President and Director:
Keystone Trust Company
Director or Trustee:
Evergreen Keystone Investment Services, Inc
Evergreen Keystone Service Company
Boston Children's Services Associates
Middlesex School
Middlebury College
Formerly:
Chairman of the Board,
Chief Executive Officer,
President and Director:
Keystone Management, Inc.
Keystone Software, Inc.
Keystone Capital Corporation
Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Fiduciary Investment Company, Inc.
Formerly Chairman of the Board and Director:
Keystone Fixed Income Advisers, Inc.
Keystone Institutional Company, Inc.
Herbert L. Senior Vice None
Bishop, Jr.* President
Donald C. Dates* Senior Vice None
President
Gilman Gunn* Senior Vice None
President,
Chief Investment
Officer
Edward F. Senior Vice Formerly Senior Vice President,
Godfrey* President, Chief Financial Officer and Treasurer:
Chief Operating First Union Keystone, Inc.
Officer Evergreen Keystone Investment Services, Inc.
Formerly:
Treasurer:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Treasurer and Director:
Hartwell Keystone Advisers, Inc.
Rosemary D. Senior Vice Senior Vice President:
Van Antwerp* President, Evergreen Keystone Service Company
Secretary 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.
Christopher P. Senior Vice None
Conkey* President, Chief
Investment Officer
J. Gary Craven* Senior Vice None
President
Richard Cryan* Senior Vice None
President
Maureen E. Senior Vice None
Cullinane* President
Betsy Hutchings* Senior Vice None
President
Walter T. Senior Vice None
McCormick* President
James F. Angelos** Vice President, None
Chief Compliance
Officer
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*
Patrick T. Bannigan** Vice President None
Liu-Er Chen* Vice President None
George E. Dlugos* Vice President None
Antonio T. Docal* Vice President None
Dana E. Erikson* Vice President None
Gordon M. Forrester* Vice President None
Thomas L. Holman* Vice President None
George J. Kimball* Vice President None
JoAnn L. Lyndon* Vice President None
Craig Lewis* Vice President None
John C. Vice President None
Madden, Jr.*
Eleanor H. Marsh* Vice President None
James D. Medvedeff* Vice President None
Stanley M. Niksa* Vice President None
Jonathan A. Noonan* Vice President None
Robert E. O'Brien* Vice President None
Margery C. Parker* Vice President None
William H. Parsons* Vice President None
Joyce W. Petkovich* Vice President None
Gary E. Pzegeo* Vice President None
Harlen R. Sanderling* Vice President None
Thomas W. Trickett* Vice President None
Kathy K. Wang* Vice President None
Judith A. Warners* Vice President None
Peter Willis* Vice President None
Walter Zagrobski* Vice President None
</TABLE>
*Located at Keystone Investment Management Company, 200 Berkeley Street,
Boston, Massachusetts 02116.
**Located at First Union National Bank, 301 South College Street,
Charlotte, North Carolina 28288
Item 29. Principal Underwriters
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 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
Evergreen Latin America 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
Evergreen VA Strategic Income Fund
Evergreen VA Aggressive Growth 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 Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
Keystone Intermediate Term Bond Fund
Keystone International Fund Inc.
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
Keystone Investment Management Company
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 02277
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, the Registrant hereby undertakes to
furnish each person to whom a copy of the Registrant's prospectus is
delivered with a copy of the Registrant's 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 statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, and in The
Commonwealth of Massachusetts, on the 3rd day of September, 1997.
KEYSTONE CAPITAL PRESERVATION
AND INCOME FUND
By: /s/ George S. Bissell
----------------------------
George S. Bissell
Chairman
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 3rd day of September, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ George S. Bissell /s/ Charles F. Chapin
- ------------------------ ------------------------- -------------------------
George S. Bissell Charles F. Chapin* William Walt Pettit
Chairman of the Board of Trustees Trustee Trustee
and Chief Executive Officer
/s/ John J. Pileggi /s/ K. Dun Gifford /s/ David M. Richardson
- ------------------------- ------------------------- -------------------------
John J. Pileggi K. Dun Gifford* David M. Richardson*
President 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/ 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 incorporated by reference
to Post-Effective Amendment No. 7.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- ------
1 Declaration of Trust(1)
2 By-Laws(1)
Amendment to By-Laws(2)
5 Advisory Agreement(1)
6(a) Underwriting Agreements(3)
(b) Dealers Agreement(3)
8 Custodian, Fund Accounting and
Recordkeeping Agreement(1)
9(a) Form of Marketing Services Agreement(3)
(b) Form of Sub-Administrator Agreement(3)
(c) Continuation Agreements
10 Opinion and Consent of Counsel(3)
11 Independent Auditors' Consent(3)
13 Subscription Agreement(4)
14 Model Retirement Plans(5)
15 Class A, B and C Distribution Plans(1)
16 Performance Data Schedules(3)
17 Financial Data Schedule (filed as
Exhibit 27) (3)
19 Powers of Attorney(2)
- ----------------------------------
(1) Incorporated by reference herein to Post-Effective Amendment No. 6
to the Registration Statement.
(2) Incorporated by reference herein to Post-Effective Amendment No. 7
(3) Filed herewith.
(4) Incorporated by reference to the Registration Statement.
(5) Incorporated by reference herein to Post-Effective Amendment No. 66
to Registration Statement No. 2-10527/811-96.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 11th day of December, 1996, by and between KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND, a Massachusetts business trust (the
"Fund"), and KEYSTONE INVESTMENT MANAGEMENT COMPANY, a Delaware corporation (the
"Adviser").
WHEREAS, the Fund and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the Fund.
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the Fund
in conformity with the Fund's investment objectives and restrictions as may be
set forth from time to time in the Fund's then current prospectus and statement
of additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Fund, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. The Adviser shall place all orders for the purchase and sale of portfolio
securities for the account of the Fund with broker-dealers selected by the
Adviser. In executing portfolio transactions and selecting broker-dealers, the
Adviser will use its best efforts to seek best execution on behalf of the Fund.
In assessing the best execution available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In evaluating
the best execution available, and in selecting the broker-dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are used in Section 28(e) of the Securities Exchange
Act of 1934 (the "1934 Act") provided to the Fund and/or other accounts over
which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office space
in the offices of the Adviser or in such other place as may be agreed upon by
the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Adviser's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Adviser assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Adviser or with its affiliates, or with any adviser retained by the
Adviser, and of all officers of the Fund as such, and (2) all expenses of the
Adviser incurred in connection with its services hereunder. The Fund assumes and
shall pay all other expenses of the Fund, including, without limitation: (1) all
charges and expenses of any custodian or depository appointed by the Fund for
the safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Trustees of the Fund who are not affiliated with the Adviser or any of its
affiliates, or with any adviser retained by the Adviser; (5) all brokers' fees,
expenses and commissions and issue and transfer taxes chargeable to the Fund in
connection with transactions involving securities and other property to which
the Fund is a party; (6) all costs and expenses of distribution of its shares
incurred pursuant to a Plan of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"); (7) all taxes and trust fees
payable by the Fund to Federal, state or other governmental agencies; (8) all
costs of certificates representing shares of the Fund; (9) all fees and expenses
involved in registering and maintaining registrations of the Fund and of its
shares with the Securities and Exchange Commission (the "Commission") and
registering or qualifying its shares under state or other securities laws,
including, without limitation, the preparation and printing of registration
statements, prospectuses and statements of additional information for filing
with the Commission and other authorities; (10) expenses of preparing, printing
and mailing prospectuses and statements of additional information to
shareholders of the Fund; (11) all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing notices, reports and proxy
materials to shareholders of the Fund; (12) all charges and expenses of legal
counsel for the Fund and for Trustees of the Fund in connection with legal
matters relating to the Fund, including, without limitation, legal services
rendered in connection with the Fund's existence, trust and financial structure
and relations with its shareholders, registrations and qualifications of
securities under Federal, state and other laws, issues of securities, expenses
which the Fund has herein assumed, whether customary or not, and extraordinary
matters, including, without limitation, any litigation involving the Fund, its
Trustees, officers, employees or agents; (13) all charges and expenses of filing
annual and other reports with the Commission and other authorities; and (14) all
extraordinary expenses and charges of the Fund. In the event that the Adviser
provides any of these services or pays any of these expenses, the Fund will
promptly reimburse the Adviser therefor.
The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. As compensation for the Adviser's services to the Fund during the period
of this Agreement, the Fund will pay to the Adviser a fee at the annual rate of:
AGGREGATE NET ASSET VALUE
MANAGEMENT FEE OF THE SHARES OF THE FUND
- --------------------------------------------------------------------------------
2.0% of gross dividend and interest income plus
0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000
- --------------------------------------------------------------------------------
computed as of the close of business on each business day.
A pro rata portion of the Fund's fee shall be payable in arrears at the end
of each day or calendar month as the Adviser may from time to time specify to
the Fund. If and when this Agreement terminates, any compensation payable
hereunder for the period ending with the date of such termination shall be
payable upon such termination. Amounts payable hereunder shall be promptly paid
when due.
5. The Adviser may enter into an agreement to retain, at its own expense, a
firm or firms ("SubAdviser") to provide the Fund all of the services to be
provided by the Adviser hereunder, if such agreement is approved as required by
law. Such agreement may delegate to such SubAdviser all of Adviser's rights,
obligations and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from the Adviser's willful misfeasance,
bad faith, gross negligence or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
Director, partner, employee, or agent of the Adviser, who may be or become an
officer, Trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund (other than services
or business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Fund and not as an officer, Director,
partner, employee, or agent or one under the control or direction of the Adviser
even though paid by it. The Fund agrees to indemnify and hold the Adviser
harmless from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state and foreign securities and blue
sky laws, as amended from time to time) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which the Adviser takes or does or omits to take or do
hereunder provided that the Adviser shall not be indemnified against any
liability to the Fund or to its shareholders (or any expenses incident to such
liability) arising out of a breach of fiduciary duty with respect to the receipt
of compensation for services, willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties, or from
reckless disregard by it of its obligations and duties under this Agreement.
7. The Fund shall cause its books and accounts to be audited at least once
each year by a reputable independent public accountant or organization of public
accountants who shall render a report to the Fund.
8. Subject to and in accordance with the Declaration of Trust of the Fund,
the Articles of Incorporation of the Adviser and the governing documents of any
SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Fund or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of Keystone Investments, Inc. or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of Keystone Investments, Inc. are or may be interested in the Fund or any
Adviser as Trustees, Directors, officers, shareholders or otherwise; that the
Adviser (or any such successor) is or may be interested in the Fund or any
SubAdviser as shareholder, or otherwise; and that the effect of any such adverse
interests shall be governed by said Declaration of Trust of the Fund, Articles
of Incorporation of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect after December 10, 1998, only so
long as (1) such continuance is specifically approved at least annually by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund, and (2) such renewal has been approved by the
vote of a majority of Trustees of the Fund who are not interested persons, as
that term is defined in the 1940 Act, of the Adviser or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund; and on sixty days' written notice to the Fund,
this Agreement may be terminated at any time without the payment of any penalty
by the Adviser. This Agreement shall automatically terminate upon its assignment
(as that term is defined in the 1940 Act). Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed postage prepaid, to the
other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution by the Fund shall have
been first approved by the vote of the holders of a majority of the outstanding
voting securities of the Fund and by the vote of a majority of Trustees of the
Fund who are not interested persons (as that term is defined in the 1940 Act) of
the Adviser, any predecessor of the Adviser, or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval. A "majority of the
outstanding voting securities of the Fund" shall have, for all purposes of this
Agreement, the meaning provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period other
than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND
By: --------------------------------------
Name: GEORGE S. BISSELL
Title: Chairman of the Board
KEYSTONE INVESTMENT MANAGEMENT
COMPANY
By: --------------------------------------
Name: ROSEMARY D. VAN ANTWERP
Title: Senior Vice President
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT effective this 1st day of January 1997 by and between each
of the parties listed on Exhibit A attached hereto and made a part hereof, each
for itself and not jointly (each a "Fund"), and Evergreen Keystone Distributor,
Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest of the Fund
("Shares") as an independent contractor upon the terms and conditions
hereinafter set forth. Except as the Fund may from time to time agree, Principal
Underwriter will act as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such broker,
dealer or other person shall have any authority to act as agent for the Fund;
such broker, dealer or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund,
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value, and Principal Underwriter shall be entitled to receive commission
payments for sales of the Class A and C Shares (as set forth on Exhibit B
attached hereto and made a part hereof) sold on or after December 11, 1996 and
as set forth in the then current prospectus and/or statement of additional
information of the Fund and to receive the sales charges, including contingent
deferred sales charges, as set forth in the then current prospectus and/or
statement of additional information of the Fund for Shares sold on or after
December 11, 1996. In accordance with the assignment made between Evergreen
Keystone Investment Services, Inc. ("EKIS") and Principal Underwriter dated
December 11, 1996, Principal Underwriter is to be entitled to receive commission
payments for sales of the Class A and C Shares sold on or after December 1, 1996
but before December 11, 1996 by EKIS as set forth in the then current prospectus
and/or statement of additional information of the Fund and to receive the sales
charges, including contingent deferred sales charges, as set forth in the then
current prospectus and/or statement of additional information of the Fund for
Shares sold on or after December 1, 1996 but before December 11, 1996. For
purposes of this Principal Underwriting Agreement, all Shares sold after
December 1, 1996 and for which the Principal Underwriter may receive commissions
and contingent deferred sales charges shall be deemed "Post-Acquisition Shares."
The determination of which shares of the Fund are Post-Acquisition Shares shall
be made in accordance with Schedule I attached to the Principal Underwriting
Agreement between each Fund which is a party to this Agreement and EKIS dated
December 11, 1996 and shall be the same as the "Post-distributor Shares" defined
therein, calculated as though the Distributor Last Sale Cut-Off Date, as such
term is defined in Schedule I, was November 30, 1996. Principal Underwriter may
reallow all or a part of such commissions and the sales charges to such brokers,
dealers or other persons as Principal Underwriter may determine.
5. The payment provisions of this Agreement shall be applicable to the
extent necessary to enable the Fund to comply with the obligation of the Fund to
pay Principal Underwriter in accordance with this Agreement in respect of Class
C Shares and shall remain in effect so long as any payments are required to be
made by the Fund pursuant to the irrevocable payment instruction under the
Master Sale Agreement between Principal Underwriter and Mutual Fund Funding
1994-1 dated as of December 6, 1996 (the "Master Sale Agreement").
6. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within ten (10) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
7. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information will be supplied by the Fund to Principal Underwriter in
reasonable quantities upon request.
8. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
9. The Fund appoints Principal Underwriter as its agent to accept orders
for redemptions and repurchases of Shares at values and in the manner determined
in accordance with the then current prospectus and/or statement of additional
information of the Fund.
10. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a material
fact contained in the Fund's registration statement, pros pectus or
statement of additional information (including amendments and
supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the reckless
disregard of its obligations and duties under this Agreement.
11. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged omission
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or
omission was made in reliance upon information furnished or confirmed in
writing to the Fund by the Principal Underwriter.
12. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund and the direct expenses of the issue of
Shares.
13. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plans, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plans and the purposes for which such
expenditures were made.
14. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plans of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of any Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
15. This Agreement shall be construed in accordance with the laws
of The Commonwealth of Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against, the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION
AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES
AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
each for itself and not jointly
By:/s/George S. Bissell
----------------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By:/s/ J. David Huber
-----------------------------
J. David Huber, President
<PAGE>
EXHIBIT A
TO
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN
KEYSTONE AMERICA FUND FAMILY
AND
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
DATED
JANUARY 1, 1997
KEYSTONE BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND-SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
<PAGE>
EXHIBIT B
TO
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN
KEYSTONE AMERICA FUND FAMILY
AND
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
DATED
JANUARY 1, 1997
SCHEDULE OF COMMISSIONS
Class A Shares Up to 0.25% annually of the average
daily net asset value of Class A shares
of a Fund
Class C Shares Up to 1.00% annually of the average
daily net asset value of Class C shares
of a Fund, consisting of commissions at
the annual rate of 0.75% of the average
daily net asset value of a Fund and
service fees of 0.25% of the average
daily net asset value of a Fund
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE STATE TAX FREE FUND
AGREEMENT made effective this 1ST DAY OF jANUARY 1997 by and between
Keystone State Tax Free Fund, a Massachusetts business trust, ("Fund"),and
Evergreen Keystone Distributor, Inc., a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund'"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act'"), Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Principal Underwriter and
the Fund may from time to time agree, the Principal Underwriter will act as
agent for the Fund and not as principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-2 Shares and to promote distribution of the B-2 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-2 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the Prospectus and/or
Statement of Additional Information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net
asset value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
Evergreen Keystone Investment Services Company ("EKISC") by other classes of
Shares of the Fund to the extent required in order to comply with Section 14
hereof, and shall pay over to the Principal Underwriter CDSCs (as defined in
Section 14 hereof) as set forth in the Fund's current Prospectus and Statement
of Additional Information, and as required by Section 14 hereof. The Principal
Underwriter shall also receive payments consisting of shareholder service fees
("Service Fees") at the rate of .25% per annum of the average daily net asset
value of the Class B-2 Shares. The Principal Underwriter may allow all or a part
of said Distribution Fees and CDSCs received by it (not paid to others as
hereinafter provided) to such brokers, dealers or other persons as Principal
Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three Business
Days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If
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<PAGE>
such payment is not received within such period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale
or solicitation of a sale of the B-2 Shares any representations concerning the
B-2 Shares except those contained in the then current Prospectus and/or
Statement of Additional Information covering the Shares and in printed
information approved by the Fund as information supplemental to such Prospectus
and Statement of Additional Information. Copies of the then current Prospectus
and Statement of Additional Information and any such printed supplemental
information will be supplied by the Fund to the Principal Underwriter in
reasonable quantities upon request.
7. The Principal Underwriter agrees to comply with the National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) (the "Business Conduct Rules") or any successor rule (which succeeds the
Rules of Fair Practice of the NASD defined in the Purchase and Sale Agreement,
dated as of May 31, 1995 (the "Citibank Purchase Agreement"), between Evergreen
Keystone Investment Services Company (formerly Keystone Investment Distributors
Company), Citibank, N.A. and Citicorp North America, Inc., as agent).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current Prospectus and/or Statement of
Additional Information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon:
a. any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
Prospectus or Statement of Additional Information (including amendments
and supplements thereto); or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, Prospectus
or Statement of Additional Information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, Prospectus or Statement of Additional
Information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
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2
<PAGE>
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, Prospectus or Statement of Additional Information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-2 Shares for sale under the
so-called "blue sky'" laws of any state or for registering B-2 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-2
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares
for sale under the so called "blue sky" laws of any state, the preparation and
printing of Prospectuses, Statements of Additional Information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of Prospectuses and
Statements of Additional Information to holders of B-2 Shares, and the direct
expenses of the issue of B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund,
provide to the Board of Trustees or Directors (together herein called the
"Directors") of the Fund in connection with sales of B-2 Shares not less than
quarterly a written report of the amounts received from the Fund therefor and
the purpose for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the 1940 Act, of any such party and who have no direct
or indirect financial interest in the operation of the Fund's Rule 12b-l plan
for Class B-2 Shares or in any agreements related to the plan at least annually
in accordance with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any
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3
<PAGE>
agreement related to the plan or by a vote of a majority of the outstanding
voting securities of Class B-2 on not more than sixty days written notice to any
other party to the Agreement; and shall terminate automatically in the event of
its assignment (as defined in the 1940 Act), which shall not include assignment
of the Principal Underwriter's Allocable Portion of Distribution Fees (as
hereinafter defined) and Allocable Portion of CDSCs provided for hereunder
and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of B-2 Shares and also permit the Fund to pay, pursuant to the Principal
Underwriting Agreement dated as of December 11, 1996, between the Fund and EKISC
in respect of Class B-2 Shares, the Allocable Portion of Distribution Fees due
EKISC in respect of B-2 Shares and, pursuant to the Principal Underwriting
Agreement dated as of December 11, 1996 between the Fund and EKISC in respect of
Class B-1 Shares, the Allocable Portion of Distribution Fees due EKISC in
respect of B-1 Shares (together the "EKISC Underwriting Agreements"), and shall
remain in effect so long as any payments are required to be made by the Fund
pursuant to the irrevocable payment instructions pursuant to the Citibank
Purchase Agreement and the Master Sale Agreement between the Principal
Underwriter and Mutual Fund Funding 1994-1 dated as of December 6, 1996 (the
"Master Sale Agreement") (the "Irrevocable Payment Instructions")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Business Conduct Rules as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall mean the portion of the Asset Based
Sales Charge allocable to Distributor Shares (as defined in Schedule I hereto to
this Agreement) in accordance with Schedule I hereto. The Fund agrees to cause
its transfer agent (the "Transfer Agent") to maintain the records and arrange
for the payments on behalf of the Fund at the times and in the amounts and to
the accounts required by Schedule I hereto, as the same may be amended from time
to time. It is acknowledged and agreed that by virtue of the operation of
Schedule I hereto the Principal Underwriter's Allocable Portion of Distribution
Fees paid by the Fund in respect of Shares, may, to the extent provided in
Schedule I hereto, take into account Distribution Fees payable by the Fund in
respect of other existing and future classes and/or subclasses of shares of the
Fund which would be treated as "Shares" under Schedule I hereto. The Fund will
limit amounts paid to any subsequent principal underwriters of Shares to the
portion of the Asset Based Sales Charge paid in respect of Shares which is
allocable to Post-distributor Shares (as defined in Schedule I hereto) in
accordance with Schedule I hereto. The Fund's payments to the Principal
Underwriter in consideration of its services in connection with the sale of B-2
Shares shall be the Distribution Fees attributable to B-2 Shares which are
Distributor Shares (as defined in Schedule I hereto) and all other amounts
constituting the Principal Underwriter's Allocable Portion of Distribution Fees
shall be the Distribution Fees related to the sale of other Shares which are
Distributor Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the contingent deferred sales charges payable upon redemption thereof as
set forth in the then current Prospectus and/or Statement of Additional
Information of the Fund ("CDSCs") and to pay over to the Principal Underwriter
the Principal
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<PAGE>
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall mean the portion thereof allocable to Distributor Shares (as defined in
Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Business Conduct Rules, in each case enacted or promulgated
after December 1, 1996, or in connection with a Complete Termination (as
hereinafter defined). For the purposes of this Section 14.5, "Complete
Termination" means a termination of the Fund's Rule 12b-l plan for B-2 Shares
involving the cessation of payments of the Distribution Fees, and the cessation
of payments of distribution fees pursuant to every other Rule 12b-1 plan of the
Fund for every existing or future B-Class-of-Shares (as hereinafter defined) and
the Fund's discontinuance of the offering of every existing or future B-Class-of
Shares, which conditions shall be deemed satisfied when they are first complied
with hereafter and so long thereafter as they are complied with prior to the
date upon which all of the B-2 Shares which are Distributor Shares pursuant to
Schedule I hereto shall have been redeemed or converted. For purposes of this
Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of Shares
of the Fund, the B-2 Class of Shares of the Fund and each other class of shares
of the Fund hereafter issued which would be treated as Shares under Schedule I
hereto or which has substantially similar economic characteristics to the B-1 or
B-2 Classes of Shares taking into account the total sales charge, CDSC or other
similar charges borne directly or indirectly by the holder of the shares of such
class. The parties agree that the existing C Class of Shares of the Fund does
not have substantially similar economic characteristics to the B-1 or B-2
Classes of Shares taking into account the total sales charge, CDSC or other
similar charges borne directly or indirectly by the holder of such shares. For
purposes of clarity the parties to this agreement hereby state that they intend
that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares and will not be considered
to be a B-Class-of-Shares if it has
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5
<PAGE>
economic characteristics substantially similar to the economic characteristics
of the existing C Class of shares of the Fund taking into account the total
sales charge, CDSC or other similar charges borne directly or indirectly by the
holder of such shares.
14.6 The Principal Underwriter may assign, sell or otherwise transfer
any part of its Allocable Portions and obligations of the Fund related thereto
(but not the Principal Underwriter's obligations to the Fund provided for in
this Agreement, provided, however, the Principal Underwriter may delegate and
subcontract certain functions to other broker-dealers so long as it remains
employed by the Fund) to any person (an "Assignee") and any such assignment
shall be effective as to the Fund upon written notice to the Fund by the
Principal Underwriter. In connection therewith the Fund shall pay all or any
amounts in respect of its Allocable Portions directly to the Assignee thereof as
directed in a writing by the Principal Underwriter in the Irrevocable Payment
Instruction, as the same may be amended from time to time with the consent of
the Fund, and the Fund shall be without liability to any person if it pays such
amounts when and as so directed, except for underpayments of amounts actually
due, without any amount payable as consequential or other damages due to such
underpayment and without interest except to the extent that delay in payment of
Distribution Fees and CDSCs results in an increase in the maximum Sales Charge
allowable under the Business Conduct Rules, which increases daily at a rate of
prime plus one percent per annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-2 Shares, except as provided
in the Fund's Prospectus or Statement of Additional Information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
14.8 Notwithstanding anything contained herein in this Agreement to the
contrary, the Fund shall comply with its obligations under the EKISC
Underwriting Agreements and the attached Schedule I and any replacement
Agreement, provided that such replacement agreement does not increase the
Allocable Portion currently payable to EKISC, to pay to EKISC its Allocable
Portion (as defined in the EKISC Underwriting Agreement) of the Distribution
Fees (as defined in the EKISC Underwriting Agreement) in respect of Class B-2
Shares as required therein and to comply with its obligations under the
Irrevocable Payment Instructions (as defined in the Citibank Purchase Agreement,
as defined therein).
15. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
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6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
[KEYSTONE FUND] EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By: /s/ George S. Bissell By:/s/ J. David Huber
Title: Title: President
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<PAGE>
EXHIBIT A TO PRINCIPAL UNDERWRITING AGREEMENT
DATED January 1, 1997 BETWEEN
KEYSTONE [FUND NAME] AND EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Keystone [FUND NAME] Fund (the "Fund") and Evergreen
Keystone Distributor, Inc. ("EKDI") agree that the Collection Rights of
EKDI, as such term is defined in the Principal Underwriting Agreement
dated as of December 11, 1996 between the Fund and EKDI (the
"Agreement"), paid by the Fund pursuant to the Agreement with respect
to Distributor Shares, as that term is defined in Schedule I to the
Agreement, sold on or after December 1, 1996 will be utilized by EKDI
as follows:
(a) to the extent that the total amount of Collection Rights recieved
by EKDI with respect to Distributor Shares of all Funds, as that term
is defined in Schedule I, does not exceed 4.25% (except that in the
case of Keystone Capital Preservation Fund, the amount shall be 3%) of
the aggregate net asset value at the time of sale of the Distributor
Shares sold on or after December 1, 1996, plus any interest and other
fees, costs and expenses that may be paid in accordance with the
financing of commissions paid to selling brokers regarding such
Distributor Shares of such Funds (the "Brokers Commission and
Expenses"), the entire amount of the Collection Rights with respect to
such Distributor Shares may only be used by the Principal Underwriter
for payment of the Brokers Commission and Expenses and may not be used
for any other purpose.
(b) to the extent that there is no longer any unrecovered Brokers
Commission and Expenses with respect to the Distributor Shares sold on
or after December 1, 1996 (including shares purchased in connection
with the reinvestment of dividends on such Distributor Shares as
determined in accordance with Sechedule I ) as provided in (a), above,
the Fund will pay the Principal Underwriter a fee in an amount up to
the remaining Collection Rights attributable to such Shares to
compensate Evergreen Keystone Investment Services, Inc., as marketing
services agent for the Principal Underwriter (the "Marketing Services
Agent").
The foregoing calculations shall be the responsibility of the Transfer
Agent and Administrator and not the resonsibility of the Principal Underwriter.
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<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
RELATING TO CLASS B-2 SHARES
OF
KEYSTONE [FUND NAME]
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts in respect of Asset Based Sales Charges (as hereinafter
defined) and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter
defined) of each Fund (as hereinafter defined) shall be allocated between
Distributor Shares (as hereinafter defined) and Post-distributor Shares (as
hereinafter defined) of such Fund in accordance with the rules set forth in
clauses (B) and (C). Clause (B) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account (as
hereinafter defined) in maintaining records relating to Distributor Shares and
Post- distributor Shares. Clause (C) sets forth the rules to be followed by the
Transfer Agent for each Fund and the record owner of each Omnibus Account in
determining what portion of the Asset Based Sales Charge (as hereinafter
defined) payable in respect of each class of Shares of such Fund and what
portion of the CDSC (as hereinafter defined) payable by the holders of Shares of
such Fund is attributable to Distributor Shares and Post-distributor Shares,
respectively.
Notwithstanding anything herein to the contrary, no amounts relating
to the EKISC Allocable Portion (as defined in the EKISC Underwriting Agreements)
shall be allocated hereunder and no Shares attributable to EKISC pursuant to the
EKISC Underwriting Agreements shall constitute Distributor Shares or
Post-distributor Shares or otherwise be allocated to any person or entity except
as contemplated by the EKISC Underwriting Agreements and the Irrevocable Payment
Instructions.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class
B-2 Shares of the Instant Fund dated as of December 11, 1996 between the Instant
Fund and the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) or any successor rule (the "Business Conduct Rules) it being understood that
for purposes of this Schedule I such term does not include the Service Fee.
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<PAGE>
"Business Day" shall mean any day on which the banks and The New York
Stock Exchange are not authorized or required to close in New York City or the
State of North Carolina.
"Capital Gain Dividend" shall mean, in respect of any Share of any
Fund, a Dividend in respect of such Share which is designated by such Fund as
being a "capital gain dividend" as such term is defined in Section 852 of the
Internal Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred
sales charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such
Fund issued under circumstances where a CDSC would be payable upon the
redemption of such Share if such CDSC is not waived or shall have not otherwise
expired.
"Date of Original Purchase" shall mean, in respect of any Commission
Share of any Fund, the date on which such Commission Share was first issued by
such Fund; provided, that if such Share is a Commission Share and such Fund
issued the Commission Share (or portion thereof) in question in connection with
a Free Exchange for a Commission Share (or portion thereof) of another Fund, the
Date of Original Purchase for the Commission Share (or portion thereof) in
question shall be the date on which the Commission Share (or portion thereof) of
the other Fund was first issued by such other Fund (unless such Commission Share
(or portion thereof) was also issued by such other Fund in a Free Exchange, in
which case this proviso shall apply to that Free Exchange and this application
shall be repeated until one reaches a Commission Share (or portion thereof)
which was issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Evergreen Keystone Distributor, Inc.,
its successors and assigns.
"Distributor's Account" shall mean the account designated in the
Irrevocable Payment Instructions of the Distributor.
"Distributor Inception Date" shall mean, in respect of any Fund and
solely for the purpose of making the calculations contained herein, December 1,
1996.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any
Fund, the date identified as the last sale of a Commission Share during the
period the Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs on or after the
Distributor Inception Date and on or prior to the Distributor Last Sale Cut-off
Date in respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any
dividend or other distribution by such Fund in respect of such Share.
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<PAGE>
"Free Exchange" shall mean any exchange of a Commission Share (or
portion thereof) of one Fund (the "Redeeming Fund") for a Share (or portion
thereof) of another Fund (the "Issuing Fund"), under any arrangement which
defers the exchanging Shareholder's obligation to pay the CDSC in respect of the
Commission Share (or portion thereof) of the Redeeming Fund so exchanged until
the later redemption of the Share (or portion thereof) of the Issuing Fund
received in such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such
Fund other than a Commission Share, including, without limitation: (i) Shares
issued in connection with the automatic reinvestment of Capital Gain Dividends
or Other Dividends by such Fund; (ii) Special Free Shares issued by such Fund;
and (iii) Shares (or portion thereof) issued by such Fund in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Free Share (or portion thereof) is
invested in such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series
or portfolios of regulated investment companies identified in Exhibit J to the
Master Sale Agreement, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone [FUND NAME] Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be The Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such
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11
<PAGE>
Distributor Last Sale Cutoff Date; and (iii) the period of time commencing on
the day immediately following the Distributor Last Sale Cutoff Date in respect
of such Fund to and including the last day of the calendar month in which such
Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner
of which is a registered broker-dealer which has agreed with the Transfer Agent
to provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in
respect of each Omnibus Account, the Business Day next following the twentieth
day of each calendar month for the calendar month immediately preceding such
date so long as the record owner is able to allocate the Asset Based Sales
Charge accruing in respect of Shares of any Fund as contemplated by this
Schedule I no more frequently than monthly; provided, that at such time as the
record owner of such Omnibus Account is able to provide information sufficient
to allocate the Asset Based Sales Charge accruing in respect of such Shares of
such Fund owned of record by such Omnibus Account as contemplated by this
Schedule I on a weekly or daily basis, the Omnibus Asset Based Sales Charge
Settlement Date shall be a weekly date as in the case of the Omnibus CDSC
Settlement Date or a daily date as in the case of Asset Based Sales Charges
accruing in respect of Shareholder Accounts other than Omnibus Accounts, as the
case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission
Share of any Fund, the amount paid (i.e., the Net Asset Value thereof on such
date), on the Date of Original Purchase in respect of such Commission Share, by
such Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid
in respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all
Shares of such Fund the Month of Original Purchase of which occurs after the
Distributor Last Sale Cut-off Date for such Fund.
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<PAGE>
"Buyer" shall mean Mutual Fund Funding, as Buyer under the Master Sale
Agreement, and its successors and assigns in such capacity.
"Master Sale Agreement" shall mean that certain Master Sale Agreement
dated as of December 6, 1996 between Evergreen Keystone Distributors, Inc., as
Seller, and Mutual Fund Funding, as Buyer.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Exhibit G to the Master Sale Agreement under the designation
"Keystone America Funds", as the same may be amended from time to time by notice
from the Distributor and the Buyer to the Fund and the Transfer Agent; provided,
that such term shall include, after the Distributor Last Sale Cut-off Date, a
share of a new class of shares of such Fund: (i) with respect to each record
owner of Shares which is not treated in the records of each Transfer Agent and
Sub-transfer Agent for such Fund as an entirely separate and distinct class of
shares from the classes of shares specified Exhibit G to the Master Sale
Agreement or (ii) the shares of which class may be exchanged for shares of
another Fund of the classes of shares specified in Exhibit G to the Master Sale
Agreement under the designation "Keystone America Funds" of any class existing
on or prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on
which can be reinvested in shares of the classes specified on Exhibit G to the
Master Sale Agreement under the automatic dividend reinvestment options; or (iv)
which is otherwise treated as though it were of the same class as the class of
shares specified on Schedule II to the Irrevocable Payment Instruction.
"Shareholder Account" shall have the meaning set forth in
clause (B)(l) hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in
clause (B)(1) hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account,
the record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND
AND THE RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) Shareholder Accounts and Sub-shareholder Accounts. The Transfer
Agent shall maintain a separate account (a "Shareholder Account") for each
record owner of Shares of each Fund. Each Shareholder Account (other than
Omnibus Accounts) will represent a record owner of Shares of such Fund, the
records of which will be kept in accordance with this Schedule I. In the case of
an Omnibus Account, the Transfer Agent shall require that the record owner of
the Omnibus Account maintain a separate account (a "Sub-shareholder Account")
for each record owner of Shares which are reflected in the Omnibus Account, the
records of which will be kept in accordance with this Schedule I.
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<PAGE>
Each such Shareholder Account and Sub-shareholder Account shall relate solely to
Shares of such Fund and shall not relate to any other class of shares of such
Fund.
(2) Commission Shares. For each Shareholder Account (other than an
Omnibus Account), the Transfer Agent shall maintain daily records of each
Commission Share of such Fund which records shall identify each Commission Share
of such Fund reflected in such Shareholder Account by the Month of Original
Purchase of such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) Free Shares. The Transfer Agent shall maintain daily records of
each Shareholder Account (other than an Omnibus Account) in respect of any Fund
so as to identify each Free Share (including each Special Free Share) reflected
in such Shareholder Account by the Month of Original Purchase of such Free
Share. In addition, the Transfer Agent shall require that each Shareholder
Account (other than an Omnibus Account) have in effect separate elections
relating to reinvestment of Capital Gain Dividends and relating to reinvestment
of Other Dividends in respect of any Fund. Either such Shareholder Account shall
have elected to reinvest all Capital Gain Dividends or such Shareholder Account
shall have elected to have all Capital Gain Dividends distributed. Similarly,
either such Shareholder Account shall have elected to reinvest all Other
Dividends or such Shareholder Account shall have elected to have all Other
Dividends distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect
of each Omnibus Account maintain daily records for each Sub-shareholder Account
in the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the
Distributor Last Sale Cutoff Date for such Fund shall be
identified as Distributor Shares.
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<PAGE>
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cutoff Date
for such Fund shall be identified as Distributor Shares in a
number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of
business in the last day of the immediately preceding
calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund)
to the ML Omnibus Account during any calendar month (or
portion thereof) after the Distributor Last Sale Cutoff Date
for such Fund shall be identified as Post-distributor Shares
in a number computed as follows:
(A * (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus
Account during such calendar month (or portion
thereof)
B = Number of Commission Shares and Free Shares of such
Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the
close of business in the last day of the immediately
preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares
of such Fund in the ML Omnibus Account and
outstanding as of the close of business on the last
day of the immediately preceding calendar month (or
portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a Class
A Share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cut-off Date for such Fund shall be identified as
Distributor Shares in a number computed as follows:
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<PAGE>
A * (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or
in connection with the conversion of such Shares into a class
A share of such Fund) from the ML Omnibus Account in any
calendar month (or portion thereof) after the Distributor Last
Sale Cutoff Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A * (B/C)
where:
A = Free Shares of such Fund which are redeemed
(whether or not in connection with an exchange for
Free Shares of another Fund or in connection with the
conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last to day of the immediately
preceding calendar month.
(4) Appreciation Amount and Cost Accumulation Amount. The Transfer
Agent shall maintain on a daily basis in respect of each Shareholder Account
(other than Omnibus Accounts) a Cost Accumulation Amount representing the total
of the Original Purchase Amounts paid by such Shareholder Account for all
Commission Shares reflected in such Shareholder Account as of the close of
business on each day. In addition, the Transfer Agent shall maintain on a daily
basis in respect of each Shareholder Account (other than Omnibus Accounts)
sufficient records to enable it to compute, as of the date of any actual or
deemed redemption or Free Exchange of a Commission Share reflected in such
Shareholder
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<PAGE>
Account an amount (such amount an
"Appreciation Amount") equal to the excess, if any, of the Net Asset Value as of
the close of business on such day of the Commission Shares reflected in such
Shareholder Account minus the Cost Accumulation Amount as of the close of
business on such day. In the event that a Commission Share (or portion thereof)
reflected in a Shareholder Account is redeemed or under these rules is deemed to
have been redeemed (whether in a Free Exchange or otherwise), the Appreciation
Amount for such Shareholder Account shall be reduced, to the extent thereof, by
the Net Asset Value of the Commission Share (or portion thereof) redeemed, and
if the Net Asset Value of the Commission Share (or portion thereof) being
redeemed equals or exceeds the Appreciation Amount, the Cost Accumulation Amount
will be reduced to the extent thereof, by such excess. If the Appreciation
Amount for such Shareholder Account immediately prior to any redemption of a
Commission Share (or portion thereof) is equal to or greater than the Net Asset
Value of such Commission Share (or portion thereof) deemed to have been tendered
for redemption, no CDSCs will be payable in respect of such Commission Share (or
portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect
of each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account); provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) Identification of Redeemed Shares. If a Shareholder Account
(other than an Omnibus Account) tenders a Share of a Fund for redemption (other
than in connection with an exchange of such Share for
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<PAGE>
a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), such tendered Share will be deemed to be a
Free Share if there are any Free Shares reflected in such Shareholder Account
immediately prior to such tender. If there is more than one Free Share reflected
in such Shareholder Account immediately prior to such tender, such tendered
Share will be deemed to be the Free Share with the earliest Month of Original
Purchase. If there are no Free Shares reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Commission Share with the earliest Month of Original Purchase reflected in such
Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(6) Identification of Exchanged Shares. When a Shareholder Account
(other than an Omnibus Account) tenders Shares of one Fund (the "Redeeming
Fund") for redemption where the proceeds of such redemption are to be
automatically reinvested in shares of another Fund (the "Issuing Fund") to
effect an exchange (whether or not pursuant to a Free Exchange) into Shares of
the Issuing Fund: (1) such Shareholder Account will be deemed to have tendered
Shares (or portions thereof) of the Redeeming Fund with each Month of Original
Purchase represented by Shares of the redeeming Fund reflected in such
Shareholder Account immediately prior to such tender in the same proportion that
the number of Shares of the redeeming Fund with such Month of Original Purchase
reflected in such Shareholder immediately prior to such tender bore to the total
number of Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender, and on that basis the tendered Shares of the
Redeeming Fund will be identified as Distributor Shares or Post-distributor
Shares; (2) such Shareholder Account will be deemed to have tendered Commission
Shares (or portions thereof) and Free Shares (or portions thereof) of the
Redeeming Fund of each category (i.e., Distributor Shares or Post-distributor
Shares) in the same proportion that the number of Commission Shares or Free
Shares (as the case may be) of the Redeeming Fund in such category reflected in
such Shareholder Account bore to the total number of Shares of the Redeeming
Fund in such category reflected in such Shareholder Account immediately prior to
such tender, (3) the Shares (or portions thereof) of the Issuing Fund issued in
connection with such exchange will be deemed to have the same Months of Original
Purchase as the Shares (or portions thereof) of the Redeeming Fund so tendered
and will be categorized as Distributor Shares and Post-distributor Shares
accordingly, and (4) the Shares (or portions thereof) of each Category of the
Issuing Fund issued in connection with such exchange will be deemed to be
Commission Shares and Free Shares in the same proportion that the Shares of such
Category of the Redeeming Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
18
<PAGE>
upon the Date of Original Purchase) to determine which Commission Shares (or
portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(7) Identification of Converted Shares. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a Class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a Class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCs AMONG
DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the
amounts of Asset Based Sales Charges and CDSCs payable by each Fund in respect
of Shares between Distributor Shares and Post-distributor Shares:
(1) Receivables Constituting CDSCs: CDSCs will be treated as relating
to Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) Receivables Constituting Asset Based Sales Charges:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A * (B/C)
where:
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
19
<PAGE>
A = Total amount of Asset Based Sales Charge accrued in respect
of such Shareholder Account (other than an Omnibus Account) on
such day.
B = Number of Distributor Shares reflected in such Shareholder
Account (other than an Omnibus Account) on the close of
business on such day
C = Total number of Distributor Shares and Post-distributor
Shares reflected in such Shareholder Account (other than an
Omnibus Account) and outstanding as of the close of business
on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Buyer.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A * ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as
of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as
of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
20
<PAGE>
D = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month (or portion thereof), times Net Asset
Value per Share as of such time.
E = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of such calendar month (or
portion thereof), times Net Asset Value per Share as
of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed as follows:
A * ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
D = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding
calendar month (or portion thereof), times Net Asset
Value per Share as of such time.
E = Total number of Shares of such Fund in the ML
Omnibus Account and outstanding as of the close of
business on the last day of such calendar month (or
portion thereof), times Net Asset Value per Share as
of such time.
(3) Payments on behalf of each Fund.
On the close of business on each day, or to the extent the parties agree less
frequently, the Transfer Agent shall cause payment to be made of the amount of
the Asset Based Sales Charge and CDSCs accruing on such day in respect of the
Shares of such Fund owned of record by Shareholder Accounts (other than Omnibus
Accounts) by two separate wire transfers, directly from accounts of such Fund as
follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect
of Shareholder Accounts other than Omnibus Accounts and
allocable to Distributor Shares in accordance with the
preceding rules shall be paid to the Distributor's Account,
unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
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21
<PAGE>
2. The Asset Based Sales Charges and CDSCs accruing in respect
of Shareholder Accounts other than Omnibus Accounts and
allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction
received from any future distributor of Shares of the Instant
Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and
allocable to Distributor Shares in accordance with the
preceding rules shall he paid to the Distributor's Account,
unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and
allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction
received from any future distributor of Shares of the Instant
Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer
Agent for each Fund shall cause payment to be made of the amount of the Asset
Based Sales Charge accruing for the period to which such Omnibus Asset Based
Sales Charge Settlement Date relates in respect of the Shares of such Fund owned
of record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such
Omnibus Account and allocable to Distributor Shares shall be
paid to the Distributor's Collection Account, unless the
Distributor otherwise instructs the Fund in any irrevocable
payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such
Omnibus Account and allocable to Post-Distributor Shares shall
be paid in accordance with direction received from any future
distributor of Shares of the Instant Fund.
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22
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
230 PARK AVENUE
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
To Whom It May Concern:
You currently have a dealer agreement ("Agreement") with Evergreen
Keystone Distributor, Inc. ("Company"). Effective January 1, 1997 the
Agreement is amended and restated in its entirety as set forth below.
The Company, principal underwriter, invites you to participate in the
distribution of shares, including separate classes of shares, ("Shares") of
the Keystone Fund Family, the Keystone America Fund Family, the Evergreen Fund
Family and to the extent applicable their separate investment series
(collectively "Funds" and each individually a "Fund") designated by us which
are currently or hereafter underwritten by the Company, subject to the
following terms:
1. You will offer and sell Shares of the Funds at the public offering price
with respect to the applicable class described in the then current prospectus
and/or statement of additional information ("Prospectus") of the Fund whose
Shares you offer. You will offer Shares only on a forward pricing basis, i.e.
orders for the purchase, repurchase or exchange of Shares accepted by you
prior to the close of the New York Stock Exchange and placed with us the same
day prior to the close of our business day, 5:00 p.m. Eastern Time, shall be
confirmed at the closing price for that business day. You agree to place
orders for Shares only with us and at such closing price. In the event of a
difference between verbal and written price confirmation, the written
confirmations shall be considered final. Prices of a Fund's Shares are
computed by and are subject to withdrawal by each Fund in accordance with its
Prospectus. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others
to place orders on your behalf. This Agreement on your part runs to us and the
respective Fund and is for the benefit and enforceable by each.
2. In the distribution and sale of Shares, you shall not have authority to act
as agent for the Fund, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not
to accept any specific order for the purchase or exchange of Shares.
3. In addition to the distribution services provided by you with respect to a
Fund you may be asked to render administrative, account maintenance and other
services as necessary or desirable for shareholders of such Fund ("Shareholder
Services").
4. Notwithstanding anything else contained in this Agreement or in any other
agreement between us, the Company hereby acknowledges and agrees that any
information received from you concerning your customer in the course of this
arrangement is confidential. Except as requested by the customer or as
required by law and except for the respective Fund, its officers, directors,
employees, agents or service providers, the Company will not provide nor
permit access to such information by any person or entity, including any First
Union Corporation bank or First Union Brokerage Services, Inc.
5. So long as this Agreement remains in effect, we will pay you commissions on
sales of Shares of the Funds and service fees for Shareholder Services, in
accordance with the Schedule of Commissions and Service Fees ("Schedule")
attached hereto and made a part hereof, which Schedule may be modified from
time to time or rescinded by us, in either case without prior notice. You have
no vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on Shares
previously sold by you or by any person who is not a broker or dealer actually
engaged in the investment banking or securities business. You will receive
commissions in accordance with the attached Schedule on all purchase
transactions in shareholder accounts (excluding reinvestment of income
dividends and capital gains distributions) for which you are designated as
Dealer of Record except where we determine that any such purchase was made
with the proceeds of a redemption or repurchase of Shares of the same Fund or
another Fund, whether or not the transaction constitutes the exercise of the
exchange privilege. Commissions will be paid to you twice a month. You will
receive service fees for shareholder accounts for which you are designated
Dealer of Record as provided in the Schedule. You hereby represent that
receipt of such service fees by you will be disclosed to your customers.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your agent shall cease upon the termination of this
Agreement or upon the shareholder's instruction to transfer his or her account
to another Dealer of Record.
6. Payment for all Shares purchased from us shall be made to the Company and
shall be received by the Company within three business days after the
acceptance of your order or such shorter time as may be required by law. If
such payment is not received by us, we reserve the right, without prior
notice, forthwith to cancel the sale, or, at our option, to sell such Shares
back to the respective Fund in which case we may hold you responsible for any
loss, including loss of profit, suffered by us or by such Fund resulting from
your failure to make payment as aforesaid.
7. You agree to purchase Shares of the Funds only from us or from your
customers. If you purchase Shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your
customers, or for your own bonafide investment without a view to resale. If
you purchase Shares from your customers, you agree to pay such customers the
applicable net asset value per Share less any contingent deferred sales charge
("CDSC") that would be applicable under the Prospectus ("repurchase price").
8. You will sell Shares only (a) to your customers at the prices described in
paragraph 2 above; or (b) to us as agent for a Fund at the repurchase
price. In such a sale to us, you may act either as principal for your own
account or as agent for your customer. If you act as principal for your own
account in purchasing Shares for resale to us, you agree to pay your
customer not less nor more than the repurchase price which you receive from
us. If you act as agent for your customer in selling Shares to us, you
agree not to charge your customer more than a fair commission for handling
the transaction. You shall not withhold placing with us orders received
from your customers so as to profit yourself as a result of such
withholding.
10. We will not accept from you any conditional orders for Shares.
11. If any Shares sold to you under the terms of this Agreement are
repurchased by a Fund, or are tendered for redemption, within seven business
days after the date of our confirmation of the original purchase by you, it is
agreed that you shall forfeit your right to any commissions on such sales even
though the shareholder may be charged a CDSC by the Fund.
We will notify you of any such repurchase or redemption within the next
ten business days after the date on which the certificate or written request
for redemption is delivered to us or to the Fund, and you shall forthwith
refund to us the full amount of any commission you received on such sale. We
agree, in the event of any such repurchase or redemption, to refund to the
Fund any commission we retained on such sale and, upon receipt from you of the
commissions paid to you, to pay such commissions forthwith to the Fund.
12. Shares sold to you hereunder shall not be issued until payment has been
received by the Fund concerned. If transfer instructions are not received from
you within 15 days after our acceptance of your order, the Company reserves
the right to instruct the transfer agent for the Fund concerned to register
Shares sold to you in your name and notify you of such. You agree to hold
harmless and indemnify the Company, the Fund and its transfer agent for any
loss or expense resulting from such registration.
13. You agree to comply with any compliance standards that may be furnished to
you by us regarding when each class of Shares of a Fund may appropriately be
sold to particular customers.
14. No person is authorized to make any representations concerning Shares of a
Fund except those contained in the Prospectus and in sales literature issued
by us supplemental to such Prospectus. In purchasing Shares from us you shall
rely solely on the representations contained in the appropriate Prospectus and
in such sales literature. We will furnish additional copies of such
Prospectuses and sales literature and other releases and information issued by
us in reasonable quantities upon request. You agree that you will in all
respects duly conform with all laws and regulations applicable to the sales of
Shares of the Funds and will indemnify and hold harmless the Funds, their
directors and trustees and the Company from any damage or expenses on account
of any wrongful act by you, your representatives, agents or sub-agents in
connection with any orders or solicitation or orders of Shares of the Funds by
you, your representatives, agents or sub-agents.
15. Each party hereto represents that it is (1) a member of the National
Association of Securities Dealers, Inc., and agrees to notify the other should
it cease to be a member of such Association and agrees to the automatic
termination of this Agreement at that time or (2) excluded from the definition
of broker-dealer under the Securities Exchange Act of 1934. It is further
agreed that all rules or regulations of the Association now in effect or
hereafter adopted, including its Business Conduct Rule 2830(d), which are
binding upon underwriters and dealers in the distribution of the securities of
open-end investment companies, shall be deemed to be a part of this Agreement
to the same extent as if set forth in full herein.
16. You will not offer the Funds for sale in any State where they are not
qualified for sale under the blue sky laws and regulations of such State or
where you are not qualified to act as a dealer except for States in which they
are exempt from qualification.
17. This Agreement supersedes and cancels any prior agreement with respect to
the sales of Shares of any of the Funds underwritten by the Company. The
Agreement may be amended by us at any time upon written notice to you.
18. This amendment to the Agreement shall be effective on January 1, 1997 and
all sales hereunder are to be made, and title to Shares of the Funds shall
pass in The Commonwealth of Massachusetts. This Agreement shall be interpreted
in accordance with the laws of The Commonwealth of Massachusetts.
19. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the
addressed specified by you.
20. Either part may terminate this Agreement at any time by written notice to
the other party.
- --------------------------- EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Dealer or Broker Name
- --------------------------- /s/ Robert A. Hering
Address
ROBERT A. HERING, President
<PAGE>
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC. ROBERT A. HERING
230 PARK AVENUE President
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
Dear Financial Professional:
This Schedule of Commissions and Service Fees ("Schedule") supersedes any
previous Schedules, is hereby made part of our dealer agreement ("Agreement")
with you effective January 1, 1997 and will remain in effect until modified or
rescinded by us. Capitalized terms used in this Schedule and not defined
herein have the same meaning as such terms have in the Agreement. All
commission rates and service fee rates set forth in this Schedule may be
modified by us from time to time without prior notice.
I. KEYSTONE FUNDS
KEYSTONE QUALITY BOND FUND (B-1) KEYSTONE MID-CAP GROWTH FUND (S-3)
KEYSTONE DIVERSIFIED BOND FUND (B-2) KEYSTONE SMALL COMPANY GROWTH FUND (S-4)
KEYSTONE HIGH INCOME BOND FUND (B-4) KEYSTONE INTERNATIONAL FUND INC.
KEYSTONE BALANCED FUND (K-1) KEYSTONE PRECIOUS METALS HOLDINGS, INC.
KEYSTONE STRATEGIC GROWTH FUND (K-2) KEYSTONE TAX FREE FUND
KEYSTONE GROWTH AND INCOME FUND (S-1) (COLLECTIVELY "KEYSTONE FUNDS")
1. COMMISSIONS FOR THE KEYSTONE FUNDS (OTHER THAN KEYSTONE PRECIOUS METALS
HOLDINGS, INC.)
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Shares of such Keystone Funds rtds d such er tv amrr
rdKeystone Fundat the rate of 4.0% of the aggregate public offering price of
such Shares as described in the Fund's Prospectus ("Offering Price") when sold
in an eligible sale.
2. COMMISSIONS FOR KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Except as otherwise provided for in our Agreement, we will pay you
commissions on your sale of Shares of Keystone Precious Metals Holdings, Inc.
as the rate of the Offering Price when sold in an eligible sale as follows:
AMOUNT OF PURCHASE COMMISSION AMOUNT OF PURCHASE COMMISSION
Less than $100,000 4% $250,000-$499,999 1%
$100,000-$249,999 2% $500,000 and above 0.5%
3. SERVICE FEES
We will pay you service fees based on the aggregate net asset value of
Shares of the Keystone Funds (other than Keystone Precious Metals Holdings,
Inc.) you have sold on or after June 1, 1983 and of Keystone Precious Metals
Holdings, Inc. you have sold on or after November 19, 1984, which remain
issued and outstanding on the books of such Funds on the fifteenth day of the
third month of each calendar quarter (March 15, June 15, September 15 and
December 15, each hereinafter a "Service Fee Record Date") and which are
registered in the names of customers for whom you are dealer of record
("Eligible Shares"). Such service fees will be calculated quarterly at the
rate of 0.0625% per quarter of the aggregate net asset value of all such
Eligible Shares (approximately 0.25% annually) on the Service Fee Record Date;
provided, however, that in any calendar quarter in which service fees earned
by you on Eligible Shares of all Funds (except Keystone Liquid Trust Class A
Shares) are less than $50.00 in the aggregate, no service fees will be paid to
you nor will such amounts be carried over for payment in a future quarter.
Service fees will be payable within five business days after the Service Fee
Record Date. Service fees will only be paid by us to the extent that such
amounts have been paid to us by the Funds.
4. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
<TABLE>
<CAPTION>
II. KEYSTONE AMERICA FUNDS AND EVERGREEN FUNDS
KEYSTONE AMERICA FUNDS
<S> <C>
KEYSTONE GOVERNMENT SECURITIES FUND KEYSTONE OMEGA FUND
KEYSTONE STATE TAX FREE FUND KEYSTONE SMALL COMPANY GROWTH FUND - II
KEYSTONE STATE TAX FREE FUND - SERIES II KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE STRATEGIC INCOME FUND KEYSTONE BALANCED FUND - II
KEYSTONE TAX FREE INCOME FUND (COLLECTIVELY "KEYSTONE EQUITY AND LONG TERM INCOME FUNDS")
KEYSTONE WORLD BOND FUND KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND OF THE AMERICAS KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE GLOBAL OPPORTUNITIES FUND (COLLECTIVELY "KEYSTONE INTERMEDIATE INCOME FUNDS")
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. KEYSTONE LIQUID TRUST
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
EVERGREEN FUNDS
EVERGREEN U.S. GOVERNMENT FUND EVERGREEN AMERICAN RETIREMENT FUND
EVERGREEN HIGH GRADE TAX FREE FUND EVERGREEN FOUNDATION FUND
EVERGREEN FLORIDA MUNICIPAL BOND FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND
EVERGREEN GEORGIA MUNICIPAL BOND FUND EVERGREEN UTILITY FUND
EVERGREEN NEW JERSEY MUNICIPAL BOND FUND EVERGREEN TOTAL RETURN FUND
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (COLLECTIVELY "EVERGREEN EQUITY AND LONG TERM INCOME FUNDS")
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND EVERGREEN MONEY MARKET FUND
EVERGREEN FUND EVERGREEN TAX EXEMPT MONEY MARKET FUND
EVERGREEN U.S. REAL ESTATE EQUITY FUND EVERGREEN TREASURY MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND EVERGREEN PENNSYLVANIA TAX FREE MONEY MARKET FUND
EVERGREEN AGGRESSIVE GROWTH FUND (COLLECTIVELY "EVERGREEN MONEY MARKET FUNDS")
EVERGREEN INTERNATIONAL EQUITY FUND EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN GLOBAL LEADERS FUND EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN EMERGING MARKETS FUND EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN BALANCED FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
EVERGREEN GROWTH & INCOME FUND (COLLECTIVELY "EVERGREEN INTERMEDIATE INCOME AND
EVERGREEN VALUE FUND MONEY MARKET FUNDS")
</TABLE>
A. CLASS A SHARES
1. COMMISSIONS
Except as otherwise provided in our Agreement, in paragraph 2 below or in
connection with certain types of purchases at net asset value which are
described in the Prospectuses for the Keystone America Funds and the Evergreen
Funds, we will pay you commissions on your sales of Shares of such Funds in
accordance with the following sales charge schedules* on sales where we
receive a commission from the shareholder:
KEYSTONE AMERICA AND EVERGREEN EQUITY AND LONG TERM INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 4.75% 4.25%
$50,000-$99,999 4.50% 4.25%
$100,000-$249,999 3.75% 3.25%
$250,000-$499,999 2.50% 2.00%
$500,000-$999,999 2.00% 1.75%
Over $1,000,000 None See paragraph 2
KEYSTONE AMERICA AND EVERGREEN INTERMEDIATE INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 3.25% 2.75%
$50,000-$99,999 3.00% 2.75%
$100,000-$249,999 2.50% 2.25%
$250,000-$499,999 2.00% 1.75%
$500,000-$999,999 1.50% 1.25%
Over $1,000,000 None See paragraph 2
KEYSTONE LIQUID TRUST AND EVERGREEN MONEY MARKET FUNDS
No sales charge for any amount of purchase.
2. COMMISSIONS FOR CERTAIN TYPES OF PURCHASES
With respect to (a) purchases of Class A Shares in the amount of $1 million
or more and/or (b) purchases of Class A Shares made by a corporate or certain
other qualified retirement plan or a non-qualified deferred compensation plan
or a Title I tax sheltered annuity or TSA Plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan"), (each such
purchase a "NAV Purchase"), we will pay you commissions as follows:
<TABLE>
<CAPTION>
a. Purchases described in 2(a) above
AMOUNT OF COMMISSION AS A PERCENTAGE
PURCHASE OF OFFERING PRICE
<S> <C>
$1,000,000-$2,999,999 1.00% of the first $2,999,999, plus
$3,000,000-$4,999,999 0.50% of the next $2,000,000, plus
$5,000,000 0.25% of amounts equal to or over $5,000,000
b. Purchases described in 2(b) above .50% of amount of purchase (subject to recapture
upon early redemption)
</TABLE>
* These sales charge schedules apply to purchases made at one time or pursuant
to Rights of Accumulation or Letters of Intent. Any purchase which is made
pursuant to Rights of Accumulation or Letter of Intent is subject to the
terms described in the Prospectus(es) for the Fund(s) whose Shares are being
purchased.
3. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of up to the entire sales charge to certain
dealers. Such incentives may, at our discretion, be limited to dealers who
allow their individual selling representatives to participate in such
additional commissions.
4. SERVICE FEES FOR EVERGREEN FUNDS (OTHER THAN EVERGREEN MONEY MARKET FUNDS)
AND KEYSTONE AMERICA FUNDS (OTHER THAN KEYSTONE STATE TAX FREE FUND,
KEYSTONE STATE TAX FREE FUND - SERIES II, KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND AND KEYSTONE LIQUID TRUST)
a. Keystone America Funds Only. Until March 31, 1997, we will pay you
service fees based on the aggregate net asset value of Shares of such Funds
you have sold which remain issued and outstanding on the books of such Funds
on the fifteenth day of the third month of each calendar quarter (March 15,
June 15, September 15 and December 15, each hereinafter a "Service Fee Record
Date") and which are registered in the names of customers for whom you are
dealer of record ("Eligible Shares"). Such service fees will be calculated
quarterly at the rate of 0.0625% per quarter of the aggregate net asset value
of all such Eligible Shares (approximately 0.25% annually) on the Service Fee
Record Date; provided, however, that in any calendar quarter in which total
service fees earned by you on Eligible Shares of all Keystone Funds (except
Keystone Liquid Trust Class A Shares) are less than $50.00 in the aggregate,
no service fees will be paid to you nor will such amounts be carried over for
payment in a future quarter. Service fees will be paid within five days after
the Service Fee Record Date. Service fees will only be paid by us to the
extent that such amounts have been paid to us by the Funds.
b. Evergreen Funds and Keystone America Funds (after March 31, 1997). We
will pay you service fees based on the average daily net asset value of Shares
of such Funds you have sold which are issued and outstanding on the books of
such Funds during each calendar quarter and which are registered in the names
of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0625% per quarter
of the daily average net asset value of all such Eligible Shares
(approximately 0.25% annually) during such quarter; provided, however, that in
any calendar quarter in which total service fees earned by you on Eligible
Shares of all Funds (except Keystone Liquid Trust Class A Shares) are less
than $50.00 in the aggregate, no service fees will be paid to you nor will
such amounts be carried over for payment in a future quarter. Service fees
will be paid by the twentieth day of the month before the end of the
respective quarter. Service fees will only be paid by us to the extent that
such amounts have been paid to us by the Funds.
5. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees based on the aggregate
net asset value of Shares of such Funds you have sold which remain issued and
outstanding on the books of the Funds on the fifteenth day of the third month
of each calendar quarter (March 15, June 15, September 15 and December 15,
each hereinafter a "Service Fee Record Date") and which are registered in the
names of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0375% per quarter
of the aggregate net asset value of all such Eligible Shares (approximately
0.15% annually) on the Service Fee Record Date; provided, however, that in any
calendar quarter in which total service fees earned by you on Eligible Shares
of all Funds (except Keystone Liquid Trust Class A Shares) are less than
$50.00 in the aggregate, no service fees will be paid to you nor will such
amounts be carried over for payment in a future quarter. Service fees will be
paid within five days after the Service Fee Record Date. Service fees will
only be paid by us to the extent that such amounts have been paid to us by the
Funds.
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that the quarterly rate will be 0.0375%
(approximately 0.15% annually).
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(b) above on Shares sold on or after July 1, 1997.
6. SERVICE FEES FOR KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(a) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
7. SERVICE FEES FOR KEYSTONE LIQUID TRUST
We will pay you service fees based on the aggregate net asset value of all
Shares of such Fund you have sold which remain issued and outstanding on the
books on the Fund on the fifteenth day of the third month of each calendar
quarter (March 15, June 15, September 15 and December 15, each hereinafter a
"Service Fee Record Date") and which are registered in the names of customers
for whom you are dealer of record ("Eligible Shares"). Such service fees will
be calculated at the rates set forth below and based on the aggregate net
asset value of all such Eligible Shares on the Service Fee Record Date;
provided, however, that no such service fees will be paid to you for any
quarter if the aggregate net asset value of such Eligible Shares on the last
business day of the quarter is less than $2 million; and provided further,
however, that service fees will only be paid to us to the extent that such
amounts have been paid to us by the Fund. Service fees will be paid within 5
days after the Service Fee Record Date. The quarterly rates at which such
service fees are payable and the net asset value to which such rates will be
applied are set forth below:
ANNUAL QUARTERLY AGGREGATE NET ASSET
RATE PAYMENT RATE VALUE OF SHARES
0.00000% 0.00000% of the first $1,999,999, plus
0.15000% 0.03750% of the next $8,000,000, plus
0.20000% 0.05000% of the next $15,000,000, plus
0.25000% 0.06250% of the next $25,000,000, plus
0.30000% 0.07500% of amounts over $50,000,000
8. SERVICE FEES FOR EVERGREEN MONEY MARKET FUNDS
We will pay you service fees calculated as provided in section II (A)(4)(b)
except that the quarterly rate will be 0.075% (approximately 0.30% annually.)
<PAGE>
B. CLASS B SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Class B Shares of the Keystone America Funds and the
Evergreen Funds at the rate of 4.00% of the aggregate Offering Price of such
Shares, when sold in an eligible sale.
2. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions, to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
3. SERVICE FEES FOR EVERGREEN FUNDS AND KEYSTONE AMERICA FUNDS (OTHER THAN
KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE FUND - SERIES II)
a. Keystone America Funds - Until March 31, 1997, we will pay you service
fees calculated as provided in section II (A)(4)(a) above.
b. Evergreen Funds and Keystone America Funds (after March 31. 1997). We
will pay you service fees calculated as provided in section II (A)(4)(b)
above.
4. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(a) above.
b. After March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(b) above.
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(c) above.
C. CLASS C SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as provided in our Agreement, we will pay you initial commissions on
your sales of Class C Shares of the Keystone America and the Evergreen Funds
at the rate of 0.75% of the aggregate Offering Price of such Shares sold in
each eligible sale.
We will also pay you commissions based on the average daily net asset value
of Shares of such Funds you have sold which have been on the books of the
Funds for a minimum of 14 months from the date of purchase (plus any
reinvested distributions attributable to such Shares), which have been issued
and outstanding on the books of such Funds during the calendar quarter and
which are registered in the names of customers for whom you are dealer of
record ("Eligible Shares"). Such commissions will be calculated quarterly at
the rate of 0.1875% per quarter of the average daily net asset value of all
such Eligible Shares (approximately 0.75% annually) during such quarter. Such
commissions will be paid by the twentieth day of the month before the end of
the respective quarter. Such commissions will continue to be paid to you
quarterly so long as aggregate payments do not exceed applicable NASD
limitations and other governing regulations.
2. SERVICE FEES
We will pay you a full year's service fee in advance on your sales of Class
C Shares of such Funds at the rate of 0.25% of the aggregate net asset value
of such Shares.
We will pay you service fees based on the average daily net asset value of
Shares of such Funds you have sold which have been on the books of the Funds
for a minimum of 14 months from the date of purchase (plus any reinvested
distributions attributable to such Shares), which have been issued and
outstanding during the respective quarter and which are registered in the
names of customers for whom you are the dealer of record ("Eligible Shares").
Such service fees will be calculated quarterly at the rate of 0.0625% per
quarter of the average daily net asset value of all such Eligible Shares
(approximately 0.25% annually); provided, however, that in any calendar
quarter in which total service fees earned by you on Eligible Shares of Funds
(except Keystone Liquid Trust Class A Shares) are less than $50.00 in the
aggregate, no service fees will be paid to you nor will such amounts be
carried over for payment in a future quarter. Service fees will be paid by the
twentieth day of the month before the end of the respective quarter. Service
fees other than those paid in advance will only be paid by us to the extent
that such amounts have been paid to us by the Funds.
FORM OF MARKETING SERVICES AGREEMENT
AGREEMENT made this __th day of December 1996 by and between Evergreen
Keystone Distributor, Inc., a Delaware corporation (the "Principal
Underwriter"), and Evergreen Keystone Investment Services, Inc. ("Marketing
Services Agent").
WHEREAS, the Keystone ________ Fund (the "Fund"), has adopted one or
more Plans of Distribution (each a "Plan", or collectively the "Plans") with
respect to certain Classes of shares of the Fund and to the extent applicable
certain Classes of shares of its separate investment series (the "Shares"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act") which Plans authorize the Fund to enter into agreements regarding
the distribution of such Shares set forth on Exhibit A; and
WHEREAS, the Fund has entered into a principal underwriting agreement
with the Principal Underwriter pursuant to which the Principal Underwriter has
agreed to facilitate the distribution of the Shares; and
WHEREAS, the Fund has authorized the Principal Underwriter under the
terms of the principal underwriting agreement to enter into a marketing services
agreement with the Marketing Services Agent pursuant to which the Principal
Underwriter has agreed to facilitate the distribution of the Shares;
NOW, THEREFORE, in consideration of the agreements hereinafter
contained, it is agreed as follows:
1. Services as Marketing Services Agent.
1.1. The Marketing Services Agent shall assist the Principal
Underwriter in promoting Shares of the Fund and will undertake such advertising
and marketing services as it believes reasonable in connection therewith. In the
event that the Fund establishes additional investment series with respect to
which it has retained the Principal Underwriter to act as principal underwriter
for one or more Classes hereunder, the Principal Underwriter shall promptly
notify the Marketing Services Agent in writing. If the Marketing Services Agent
is willing to render such services it shall notify the Principal Underwriter in
writing whereupon the applicable Class or Classes of shares of such investment
series shall become "Shares" hereunder.
1.2. All activities by the Marketing Services Agent and its agents and
employees as the Marketing Services Agent shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and regulations
made or adopted pursuant to the 1940 Act by the Securities and Exchange
Commission (the "Commission") or any securities association registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act").
1.3. In assisting the Principal Underwriter in promoting shares of the
Fund and undertaking any advertising and marketing services on behalf of the
Fund, the Marketing Services Agent shall use its best efforts in all respects
duly to conform with the requirements of all Federal and state laws
1
<PAGE>
relating to the sale of such securities. Neither the Marketing Services Agent,
Principal Underwriter, any selected dealer or any other person is authorized by
the Fund to give any information or to make any representations, other than
those contained in the Fund's registration statement (the "Registration
Statement") or related prospectus and statement of additional information
("Prospectus" and "Statement of Additional Information") and any sales
literature specifically approved by the Fund.
2. Duties of the Principal Underwriter.
2.1. The Principal Underwriter shall furnish from time to time, for use
in connection with the sale of Shares such information with respect to the
Shares as the Marketing Services Agent may reasonably request; and the Principal
Underwriter warrants that any such information shall be true and correct.
3. Representations of the Principal Underwriter.
3.1. The Principal Underwriter represents to the Marketing Services
Agent that it is a broker-dealer registered with the ^ Commission, is a member
of the National Association of Securities Dealers, Inc. ("NASD") and that the
Fund is registered under the 1940 Act and that the Shares have been registered
under the Securities Act of 1933, as amended (the "Securities Act").
3.2 That the principal underwriting agreement between the Fund and the
Principal Underwriter has been duly approved and continues in full force and
effect.
4. Indemnification.
4.1. The Marketing Services Agent agrees to indemnify and hold harmless
the Principal Underwriter and each of its directors, officers, employees, agents
and each person, if any, who controls the Principal Underwriter within the
meaning of the Securities Act ^ against any losses, claims, damages or
liabilities to which the Principal Underwriter ^ may become subject, insofar as
such losses, claims, damages, ^ liabilities, or expense (or actions in respect
thereof) (i) arise out of or are based upon the actions of the Marketing
Services Agent or (ii) result from a breach of a material provision of this
Agreement by the Marketing Services Agent. The Marketing Services Agent will
reimburse any legal or other expenses reasonably incurred by the Principal
Underwriter or any such ^ controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Marketing Services Agent will not be liable for indemnification
hereunder to the extent that any such loss, claim, damage or liability arises
out of or is based upon the gross negligence or willful misconduct of the
Principal Underwriter, its respective directors, officers, employees, agents or
any controlling person herein defined in performing their obligations under this
Agreement.
(b) The Principal Underwriter agrees to indemnify and hold harmless the
Marketing Services Agent, and each of its directors, officers, employees, agents
and each person, if any, who controls the Marketing Services Agent within the
meaning of the 1933 Act against any losses, claims, damages or liabilities to
which the Marketing Services Agent, or any such director, officer, employee,
agent or
2
<PAGE>
controlling person may become subject, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) (i) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement ^ or sales literature of the Fund
prepared or approved in writing by the Principal Underwriter or arise out of, or
are based upon, the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) result from a breach by it of a material provision of
this Agreement. The Principal Underwriter will reimburse any legal or other
expenses reasonably incurred by the Marketing Services Agent, or any such
director, officer, employee, agent, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Principal Underwriter will not be liable for
indemnification hereunder to the extent that any such loss, claim, damage or
liability arises out of, or is based upon, the gross negligence or willful
misconduct of the Marketing Services Agent, or its respective directors,
officers, employees, agents or any controlling person herein defined in the
performance of their obligations under this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of an action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under this Section 4. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 4 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
5. Amendments to Registration Statement and Other Material Events.
5.1. The Principal Underwriter agrees to advise the Marketing Services
Agent as soon as reasonably practical by a notice in writing delivered to the
Marketing Services Agent: (a) of any request or action taken by the Commission
which is material to the Marketing Services Agent's obligations or rights
hereunder or (b) any material fact of which the Principal Underwriter becomes
aware which affects the Marketing Services Agent's obligations or rights
hereunder.
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
6. Compensation of Marketing Services Agent.
6.1. (a) As promptly as possible after the first Business Day (as
defined in the Prospectus) of each month this Agreement is in effect, the
Principal Underwriter shall compensate the Marketing Services Agent for its
services rendered during the previous month (but not prior to the commencement
date of this Agreement); by making payment to the Marketing Services Agent in
the
3
<PAGE>
amounts set forth on Exhibit A annexed hereto with respect to each Class of
Shares of the Fund or, if applicable, each of its separate investment series to
which this Agreement relates. In connection therewith the Principal Underwriter
hereby agrees that it is obligated under this Agreement to comply with Paragraph
7 of the principal underwriting agreement. The compensation by the Principal
Underwriter of the Marketing Services Agent is authorized pursuant to the Plan
or Plans adopted by the Fund pursuant to Rule 12b-l under the 1940 Act.
(b) Under this Agreement, the Marketing Services Agent shall: (i) incur
the expense of obtaining such support services, telephone facilities and
shareholder services as may reasonably be required in connection with its duties
hereunder; (ii) formulate and implement marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (iii) prepare, print and
distribute sales literature; (iv) prepare, print and distribute Prospectuses of
the Series and reports for recipients other than existing shareholders of the
Series; and (v) provide to the Fund such information, analyses and opinions with
respect to marketing and promotional activities as the Fund may, from time to
time, reasonably request.
(c) The Marketing Services Agent shall prepare and deliver reports to
the Principal Underwriter on a regular, at least monthly, basis, showing the
distribution expenditures incurred by the Principal Underwriter in connection
with its services rendered pursuant to this Agreement and the Plan and the
purposes therefor, as well as any supplemental reports to the Fund's Board, from
time to time, as the Principal Underwriter may reasonably request.
7. Confidentiality, Non-Exclusive Agency.
7.1. The Marketing Services Agent agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the
Principal Underwriter all records and other information relative to the or, if
applicable, each of its separate investment series, and its prior, present or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and in connection with
the financing described in Paragraph 7 (f) to obtain approval in writing by the
Principal Underwriter, which approval shall not be unreasonably withheld and may
not be withheld where the Marketing Services Agent may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities.
7.2. Nothing contained in this Agreement shall prevent the Marketing
Services Agent, or any affiliated person of the Marketing Services Agent, from
performing services similar to those to be performed hereunder for any other
person, firm, or corporation or for its or their own accounts or for the
accounts of others.
8. Term.
8.1. This Agreement shall continue until December __, 1998 and
thereafter for successive annual periods, provided such continuance is
specifically approved with respect to the Fund or, if applicable, each of its
separate investment series at least annually by vote cast in person at a meeting
4
<PAGE>
called for the purpose of voting on such approval by (i) a vote of the majority
of the members of the Fund's Board and (ii) a vote of a majority of the members
who are not " interested persons" of the Fund, as that term is defined in the ^
1940 Act or who do not have any direct or indirect financial interest in the
Fund's Distribution Plan or any related agreements, voting separately. This
Agreement is terminable at any time, with respect to the Fund or, if applicable,
each of its separate investment series, without penalty, (a) on not less than 60
days' written notice by vote of a majority of the Independent Trustees, or by
vote of the holders of a majority of the outstanding voting securities of the
Fund or, if applicable, each of its separate investment series, or (b) upon not
less than 60 days' written notice by the Marketing Services Agent. This
Agreement may remain in effect with respect to a separate investment series even
if it has been terminated in accordance with this paragraph with respect to one
or more other separate investment series of the Fund. This Agreement will also
terminate automatically in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities",
"interested persons", and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
9. Miscellaneous.
9.1. This Agreement shall be governed by the laws of the State
of New York.
9.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their constructions or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the __th day of December,
1996.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: _____________________________ By:____________________________
Title: Title:
5
<PAGE>
EXHIBIT A
To Marketing Services Agreement between Evergreen Funds Distributor, Inc.
and KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
SERIES AND CLASSES COVERED BY THIS AGREEMENT:
[KEYSTONE][EVERGREEN] _________ FUND
CLASS B[-2] SHARES
Marketing Services Fees
The Principal Underwriter agrees to pay the Marketing Servicing Agent a fee
at the rate of up to .75 of 1% of average daily net assets of the shares of each
Class set forth above, provided however that the payment of such fee shall: (i)
be subject and subordinate to the obligation of the Fund to make payments to the
Principal Underwriter pursuant to the provisions of the Distribution Agreement
dated ___________, 1996 between the Fund and its Principal Underwriter,
Evergreen Keystone Funds Distributor Inc.; (ii) be subject and subordinate to
the obligation of the Fund to make payments to any entity with respect to shares
sold prior to December 1, 1996; and (ii) not result in an aggregate fee being
paid to the Marketing Service Agent and Principal Underwriter that would exceed
.75 of 1% of the Fund's average daily net assets on an annual basis or otherwise
exceed the limit imposed on asset based and deferred sales charges under
subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to
the Distribution Agreement between the parties dated December __, 1996 to be
executed by their officers designated below as of the __th day of December,
1996.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: _____________________________ By:____________________________
Title: Title:
6
FORM OF SUB-ADMINISTRATOR AGREEMENT
This Sub-Administrator Agreement is made as of this 1st day of
January, 1997 between Keystone Investment Management Company, a Delaware
corporation (herein called "KIMCO"), and BISYS Fund Services Limited Partnership
DBA as BISYS Fund Services, an Ohio Limited Partnership (herein called "BISYS").
WHEREAS, KIMCO has been appointed as investment adviser to
certain open-end management investment companies, or to one or more separate
investment series thereof, listed on Schedule A, as the same may be amended from
time to time to reflect additions or deletions of such companies or series,
which are registered under the Investment Company Act of 1940 (the "Funds");
WHEREAS, in its capacity as investment adviser to the Funds,
KIMCO has the obligation to provide, or engage others to provide, certain
administrative services to the Funds; and
WHEREAS, KIMCO desires to retain BISYS as Sub-Administrator to
the Funds for the purpose of providing the Funds with personnel to act as
officers of the Funds and to provide certain administrative services in addition
to those provided by KIMCO ("Sub-Administrative Services"), and BISYS is willing
to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Sub-Administrator. KIMCO hereby appoints BISYS as
Sub-Administrator for the Funds on the terms and conditions set forth in this
Agreement and BISYS hereby accepts such appointment and agrees to perform
the services and duties set forth in Section 2 of this Agreement in
consideration of the compensation provided for in Section 4 hereof.
2. Services and Duties. As Sub-Administrator, and subject to the supervision and
control of KIMCO and the Trustees or Directors of the Funds, BISYS will
hereafter provide facilities, equipment and personnel to carry out the following
Sub-Administrative services to assist in the operation of the business and
affairs of the Funds:
(a) provide individuals reasonably acceptable to the Funds for
nomination, appointment or election as officers of the Funds and who
will be responsible for the management of certain of each Fund's
affairs as determined from time to time by the Trustees or Directors of
the Funds;
(b) review filings with the Securities and Exchange Commission and
state securities authorities that have been prepared on behalf of the
Funds by the administrator and take such actions as may be reasonably
requested by the administrator to effect such filings;
(c) verify, authorize and transmit to the custodian, transfer agent and
dividend disbursing agent of each Fund all necessary instructions for
the disbursement of cash, issuance of shares, tender and receipt of
portfolio securities, payment of expenses and payment of dividends; and
(d) advise the Trustees or Directors of the Funds on matters
concerning the Funds and their affairs.
BISYS may, in addition, agree in writing to perform additional
Sub-Administrative Services for the Funds. Sub-Administrative Services shall not
include investment advisory services or any duties, functions, or services to be
performed for the Funds by their distributor, custodian or transfer agent
pursuant to their agreements with the Funds.
3. Expenses. BISYS shall be responsible for expenses incurred in providing
office space, equipment and personnel as may be necessary or convenient to
provide the Sub-Administrative Services to the Funds. KIMCO and/or the Funds
shall be responsible for all other expenses incurred by BISYS on behalf of the
Funds pursuant to this Agreement at the direction of KIMCO, including without
limitation postage and courier expenses, printing expenses, registration fees,
filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees or Directors who are not BISYS employees, and
trade association dues.
4. Compensation. For the Sub-Administrative Services provided, KIMCO hereby
agrees to pay and BISYS hereby agrees to accept as full compensation for
its services rendered hereunder a sub-administrative fee,calculated daily and
payable monthly at an annual rate based on the aggregate average daily net
assets of the Funds, or separate series thereof, set forth on Schedule A and
determined in accordance with the table below.
Aggregate Daily Net Assets of Funds For
Which KIMCO, Evergreen Asset Management
Sub-Administrative Corp., First Union National Bank of North
Fee as a % of Carolina or any Affiliates Thereof Serve as
Average Annual Investment Adviser or Administrator And For
Daily Net Assets Which BISYS Serves as Sub-Administrator
.0100% on the first $7 billion
.0075% on the next $3 billion
.0050% on the next $15 billion
.0040% on assets in excess of $25 billion
5. Indemnification and Limitation of Liability of BISYS. The duties of BISYS
shall be limited to those expressly set forth herein or later agreed to in
writing by BISYS, and no implied duties are assumed by or may be asserted
against BISYS hereunder. BISYS shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
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<PAGE>
modified hereby. (As used in this Section, the term "BISYS" shall include
partners, officers, employees and other agents of BISYS as well as BISYS itself)
So long as BISYS acts in good faith and with due diligence and without
negligence, KIMCO shall indemnify BISYS and hold it harmless from any and all
actions, suits and claims, and from any and all losses, damages, costs, charges,
reasonable counsel fees and disbursements, payments, expenses and liabilities
(including reasonable investigation expenses) arising directly or indirectly out
of BISYS' actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
survive the termination of this Agreement for a period of three years.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case KIMCO may be asked to indemnify or hold Furman
Selz harmless, KIMCO shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that Furman
Selz will use all reasonable care to identify and notify KIMCO promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification against KIMCO.
KIMCO shall be entitled to participate at its own expense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity provision. If KIMCO elects to assume the defense of any such
claim, the defense shall be conducted by counsel chosen by KIMCO and
satisfactory to BISYS, whose approval shall not be unreasonably withheld. In the
event that KIMCO elects to assume the defense of any suit and retain counsel,
BISYS shall bear the fees and expenses of any additional counsel retained by it.
If KIMCO does not elect to assume the defense of a suit, it will reimburse BISYS
for the reasonable fees and expenses of any counsel retained by BISYS.
BISYS may apply to KIMCO at any time for instructions and may consult
counsel for KIMCO or its own counsel and with accountants and other experts with
respect to any matter arising in connection with BISYS' duties, and BISYS shall
not be liable or accountable for any action taken or omitted by it in good faith
in accordance with such instruction or with the opinion of such counsel,
accountants or other experts.
Any person, even though also an officer, director, partner, employee or
agent of BISYS, who may be or become an officer, trustee, employee or agent of
the Funds, shall be deemed, when rendering services to a Fund or acting on any
business of a Fund (other than services or business in connection with the
duties of BISYS hereunder) to be rendering such services to or acting solely for
the Fund and not as an officer, director, partner, employee or agent or one
under the control or direction of BISYS even though paid by BISYS.
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
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<PAGE>
6. Duration and Termination.
(a) The initial term of this Agreement (the "Initial Term") shall
commence on the date this Agreement is executed by both parties, shall continue
until April 30, 1998, and shall continue in effect for a Fund from year to year
thereafter, provided it is approved, at least annually, by a vote of a majority
of Directors/Trustees of the Funds, including a majority of the disinterested
Directors/Trustees. Notwithstanding the foregoing, this Agreement shall only
become effective if (i) Keystone Investments, the parent of KIMCO, has
previously been acquired by First Union National Bank of North Carolina, and
(ii) the Funds have appointed Evergreen Funds Distributor, Inc. as their
Principal Underwriter. In the event of any breach of this Agreement by either
party, the non-breaching party shall notify the breaching party in writing of
such breach and upon receipt of such notice, the breaching party shall have 45
days to remedy the breach except in the case of a breach resulting from fraud or
other acts which materially and adversely affects the operations or financial
position of the Funds. In the event any material breach is not remedied within
such time period, the nonbreaching party may immediately terminate this
Agreement.
Notwithstanding the foregoing, after such termination for so long as
BISYS, with the written consent of KIMCO, in fact continues to perform any one
or more of the services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in full force and
effect. Compensation due BISYS and unpaid by KIMCO upon such termination shall
be immediately due and payable upon and notwithstanding such termination. BISYS
shall be entitled to collect from KIMCO, in addition to the compensation
described herein, all costs reasonably incurred in connection with BISYS's
activities in effecting such termination, including without limitation, the
delivery to the Funds and/or their designees of each Fund's property, records,
instruments and documents, or any copies thereof. To the extent that BISYS may
retain in its possession copies of any Fund documents or records subsequent to
such termination which copies had not been requested by or on behalf of a Fund
in connection with the termination process described above, BISYS will provide
such Fund with reasonable access to such copies; provided, however, that, in
exchange therefor, KIMCO shall reimburse BISYS for all costs reasonably incurred
in connection therewith.
(b) Subject to (c) below, this Agreement may be terminated at any time,
without payment of any penalty, on sixty (60) day's prior written notice by
KIMCO, or by BISYS and, with respect to one or more of the Funds a vote of
a majority of such Fund's or Funds' Directors/Trustees.
(c) If, during the first six months this Agreement is in effect it is
terminated for a Fund or Funds in accordance with (b) above, for any reason
other than a material breach of this Agreement, the merger of a Fund or Funds
for which KIMCO, Evergreen Asset Management Corp., First Union National Bank of
North Carolina or any affiliates thereof act as investment adviser, or any other
event that leads to the termination of the existence of a Fund or Funds, and
BISYS is replaced as sub-administrator, then KIMCO shall make a one-time
cash payment to BISYS equal to the unpaid balance due BISYS for the
first six-months this Agreement in effect, assuming for
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
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<PAGE>
purposes of calculation of the payment that the asset level of each Fund on the
date BISYS is replaced will remain constant for the balance of such term.
Once this Agreement has been in effect for more than six months from the
commencement date, this paragraph (c) shall be null, void and of no further
effect.
7. Amendment. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. Notices. Notices of any kind to be given to KIMCO hereunder by BISYS shall be
in writing and shall be duly given if delivered to KIMCO at the following
address: Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116 ATT: General Counsel. Notices of any kind to be given to
BISYS hereunder by EAMC or the Funds shall be in writing and shall be duly given
if delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219 Attention:
George O. Martinez, Senior Vice President.
9. Limitation of Liability. BISYS is hereby expressly put on notice of the
limitations of liability as set forth in the Declarations of Trust of the Funds
that are Massachusetts business trusts or series thereof and agrees that the
obligations pursuant to this Agreement of a particular Fund be limited solely to
the assets of that particular Fund, and BISYS shall not seek satisfaction of any
such obligation from the assets of any other Fund, the shareholders of any Fund,
the Trustees, officers, employees or agents of any Fund, or any of them.
10. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. Subject to the provisions of Section 5 hereof, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by New York law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By______________________________________
its:____________________________________
Attest:________________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
By______________________________________
its_____________________________________
Attest:________________________
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<PAGE>
SCHEDULE A
SUB-ADMINISTRATOR AGREEMENT
Keystone America Hartwell Emerging Growth Fund ("Emerging Growth")
Keystone Balanced Fund II ("Balanced Fund")
Keystone Capital Preservation and
Income Fund ("Capital Preservation and Income")
Keystone Emerging Markets Fund ("Emerging Markets")
Keystone Fund For Total Return ("Total Return")
Keystone Fund of the Americas ("Fund of the Americas")
Keystone Global Opportunities Fund ("GlobalOpportunities")
Keystone Global Resources and Development Fund ("GlobalResources")
Keystone Government Securities Fund ("Government Securities")
Keystone Intermediate Term Bond Fund ("Intermediate Term")
Keystone Liquid Trust("Liquid Trust") Keystone Omega Fund ("Omega")
Keystone Small Company Growth Fund II ("Small Company Growth")
Keystone State Tax Free Fund ("State Tax Free")
- Florida Tax Free Fund ("Florida Tax Free")
- Massachusetts Tax Free Fund ("Massachusetts Tax Free")
- Pennsylvania Tax Free Fund ("Pennsylvania Tax Free")
- New York Insured Tax Free Fund ("New York Insured")
Keystone State Tax Free Fund-Series II ("State Tax Free II")
- California Insured Tax Free Fund ("California Insured")
- Missouri Tax Free Fund ("Missouri Tax Free")
Keystone Strategic Income Fund ("Strategic Income")
Keystone Tax Free Income Fund ("Tax Free Income")
Keystone Quality Bond Fund (B-1) ("B-1") Keystone
Diversified Bond Fund (B-2) ("B-2")
Keystone High Income Bond Fund (B-4) ("B-4")
Keystone Balanced Fund (K-1) ("K-1")
Keystone Strategic Growth Fund (K-2)("K-2")
Keystone Growth and Income Fund (S-1) ("S-1")
Keystone Mid-Cap Growth Fund (S-3) ("S-3")
Keystone Small Company Growth Fund (S-4) ("S-4")
Keystone Institutional Adjustable Rate Fund ("Adjustable Rate")
Keystone Institutional Trust ("Institutional")
Keystone International Fund Inc. ("International")
Keystone Precious Metals Holdings, Inc. ("Precious Metals")
Keystone Tax Free Fund ("Tax Free")
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
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:
George S. Bissell
Chairman
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
By:________________________________
Rosemary D. Van Antwerp
Senior Vice President
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
AGREEMENT made this 11th day of December, 1996 by and between Keystone
Capital Preservation and Income Fund, a Massachusetts business trust, ("Fund"),
and Evergreen Keystone Investment Services, Inc., a Delaware corporation (the
"Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-1 Shares and to promote distribution of the B-1 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-1 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-1 Shares.
3. Sales of B-1 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares made prior to Deember 11, 1996. Fund
shall pay the Principal Underwriter Distribution Fees (as defined in Section 14
hereof), as commissions for the sale of B-1 Shares and other Shares, which shall
be paid in conjunction with distribution fees paid to the Principal Underwriter
by other classes of Shares of the Fund to the extent required in order to comply
with Section 14 hereof, and shall pay over to the Principal Underwriter CDSCs
(as defined in Section 14 hereof) as set forth in the Fund's current prospectus
and statement of additional information, and as required by Section 14 hereof.
The Principal Underwriter shall also receive payments consisting of shareholder
service fees ("Service Fees") at the rate of .25% per annum of the average daily
net asset value of the Class B-1 Shares outstanding prior to December
11, 1996. 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 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 the B-1
Shares any representations concerning the B-1 Shares except those contained in
the then current prospectus and/or statement of additional information covering
the Shares and in printed information approved by the Fund as information
supplemental to such prospectus and statement of additional information. [Copies
of the then current prospectus and statement of additional information and any
such printed supplemental information will be supplied by the Fund to the
Principal Underwriter in reasonable quantities upon request.]
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of December 11, 1996 (the "Purchase
Agreement"), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material
fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto) or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement,
prospectus or statement of additional information necessary to
make the statements therein not misleading, provided, however,
that insofar as losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission
made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no
case shall the Fund indemnify the Principal Underwriter or its
controlling person as to any amounts incurred for any
liability arising out of or based upon any action for which
the Principal Underwriter, its officers and Directors or any
controlling person would otherwise be subject to liability by
reason of willful misfeasance, bad faith, or gross negligence
in the performance of its duties or by reason of the reckless
disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's
registration statement, prospectus or statement of additional
information (including amendments and supplements thereto), or
any omission or alleged omission to state a 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.
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 not less than quarterly a written report of the amounts
received from the Fund hereunder and the purpose for which such expenditures by
the Fund were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the "1940 Act"), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-1 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do 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 Fund Shares sold prior to December 11, 1996, subject to the
limitation on the maximum aggregate amount of such fees under the Rules of Fair
Practice as applicable to such Distribution Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares sold prior to December 11, 1996 shall be
equal to the portion of the Asset Based Sales Charge allocable to Distributor
Shares (as defined in Schedule I hereto to this Agreement) in accordance with
Schedule I hereto. The Fund agrees to cause its transfer agent to maintain the
records and arrange for the payments on behalf of the Fund at the times and in
the amounts and to the accounts required by Schedule I hereto, as the same may
be amended from time to time. It is acknowledged and agreed that by virtue of
the operation of Schedule I hereto the Principal Underwriter's Allocable Portion
of Distribution Fees paid by the Fund in respect of Shares, may, to the extent
provided in Schedule I hereto, take into account Distribution Fees payable by
the Fund in respect of other existing 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 made prior to December 11, 1996 shall be the Distribution Fees
attributable to B-1 Shares sold prior to December 11, 1996 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
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Rules of Fair Practice, in each case enacted or promulgated
after June 1, 1995, or in connection with a Complete Termination (as hereinafter
defined). For the purposes of this Section 14.5, "Complete Termination" means a
termination of the Fund's Rule 12b-1 plan for B-2 Shares involving the cessation
of payments of the Distribution Fees, and the cessation of payments of
distribution fees pursuant to every other Rule 12b-1 plan of the Fund for every
existing or future B-Class-of-Shares (as hereinafter defined) and the Fund's
discontinuance of the offering of every existing or future B-Class-of- Shares,
which conditions shall be deemed satisfied when they are first complied with
hereafter and so long thereafter as they are complied with prior to the earlier
of (i) the date upon which all of the B-2 Shares which are Distributor Shares
pursuant to Schedule I hereto shall have been redeemed or converted or (ii) June
1, 2005. For purposes of this Section 14.5, the term B-Class- of-Shares means
each of the B-1 Class of Shares of the Fund, the B-2 Class of Shares of the Fund
and each other class of shares of the Fund hereafter issued which would be
treated as Shares under Schedule I hereto or which has substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such class. The parties agree that the
existing C Class of Shares of the Fund does not have substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
this agreement hereby state that they intend that a new installment load class
of shares which may be authorized by amendments to Rule 6(c)-10 under the 1940
Act will be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing B-1 or B-2 Classes of Shares taking into account the total sale charge,
CDSC or other similar charges borne directly or indirectly by the holder of such
shares and will not be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing C Class of shares of the Fund taking into account the total sales
charge, CDSC or other similar charges borne directly or indirectly by the holder
of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-1 Shares, except as provided
in the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
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 CAPITAL PRESERVATION AND INCOME FUND
By:/s/ George S. Bissell
Title: Chairman
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:/s/ Rosemary D. Van Antwerp
Title: Senior Vice President
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
AGREEMENT made this 11th day of December, 1996 by and between Keystone
Capital Preservation and Income Fund, a Massachusetts business trust, ("Fund"),
and Evergreen Keystone Investment Services, Inc., a Delaware corporation (the
"Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred
to above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the "Fund"), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-1 Shares and to promote distribution of the B-2 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-2 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-2 Shares made prior to December 11, 1996. 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 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 outstanding prior to December 11, 1996.
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
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 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 Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of December 11, 1996 (the "Purchase
Agreement"), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
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, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's
registration statement, prospectus or statement of additional
information (including amendments and supplements thereto), or
any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished or
confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-2 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-2 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-2
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares
for sale under the so-called "blue sky" laws of any state, the preparation and
printing of prospectuses, statements of additional information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of prospectuses and
statements of additional information to holders of B-2 Shares, and the direct
expenses of the issue of B-2 Shares. 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 not less than quarterly
a written report of the amounts received from the Fund hereunder and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after one
year. This Agreement shall continue in effect after such term if its continuance
is specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the "1940 Act"), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-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 (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 Fund Shares sold prior to December 11, 1996, subject to the
limitation on the maximum aggregate amount of such fees under the Rules of Fair
Practice as applicable to such Distribution Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares sold prior to December 11, 1996 shall be
equal to the portion of the Asset Based Sales Charge allocable to Distributor
Shares (as defined in Schedule I hereto to this Agreement) in accordance with
Schedule I hereto. The Fund agrees to cause its transfer agent to maintain the
records and arrange for the payments on behalf of the Fund at the times and in
the amounts and to the accounts required by Schedule I hereto, as the same may
be amended from time to time. It is acknowledged and agreed that by virtue of
the operation of Schedule I hereto the Principal Underwriter's Allocable Portion
of Distribution Fees paid by the Fund in respect of Shares, may, to the extent
provided in Schedule I hereto, take into account Distribution Fees payable by
the Fund in respect of other existing 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 made prior to December 11, 1996 shall be the Distribution Fees
attributable to B-2 Shares sold prior to December 11, 1996 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
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Rules of Fair Practice, in each case enacted or promulgated
after June 1, 1995, or in connection with a Complete Termination (as hereinafter
defined). For the purposes of this Section 14.5, "Complete Termination" means a
termination of the Fund's Rule 12b-1 plan for B-2 Shares involving the cessation
of payments of the Distribution Fees, and the cessation of payments of
distribution fees pursuant to every other Rule 12b-1 plan of the Fund for every
existing or future B-Class-of-Shares (as hereinafter defined) and the Fund's
discontinuance of the offering of every existing or future B-Class-of- Shares,
which conditions shall be deemed satisfied when they are first complied with
hereafter and so long thereafter as they are complied with prior to the earlier
of (i) the date upon which all of the B-2 Shares which are Distributor Shares
pursuant to Schedule I hereto shall have been redeemed or converted or (ii) June
1, 2005. For purposes of this Section 14.5, the term B-Class- of-Shares means
each of the B-2 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-2 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-2 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-2 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 Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and
year first written above.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
By:/s/ George Bissell
___________________________
Title: Chairman
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:/s/ Rosemary D. Van Antwerp
_____________________________
Title: Senior Vice President
September 4, 1997
Keystone Capital Preservation and Income Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am Senior Counsel to Keystone Investment Management Company,
investment adviser to Keystone Capital Preservation Fund (the "Fund"). You have
asked for my opinion with respect to the proposed issuance of 2,962,799
additional shares of the Fund.
To my knowledge, a Prospectus is on file with the Securities and
Exchange Commission (the "Commission") as part of Post-Effective Amendment No. 8
to the Fund's Registration Statement, which covers the public offering and sale
of the Fund shares currently registered with the Commission.
In my opinion, such additional shares, if issued and sold in accordance
with the Fund's Declaration of Trust ("Declaration of Trust") and offering
Prospectus, will be legally issued, fully paid, and nonassessable by the Fund,
entitling the holders thereof to the rights set forth in the Declaration of
Trust and subject to the limitations set forth therein.
My opinion is based upon my examination of the Fund's Declaration of
Trust and By-Laws; a review of the minutes of the Fund's Board of Trustees
authorizing the issuance of such additional shares; and the Fund's Prospectus.
In my examination of such documents, I have assumed the genuineness of all
signatures and the conformity of copies to originals.
I hereby consent to the use of this opinion in connection with
Post-Effective Amendment No. 9 to the Fund's Registration Statement, which
covers the registration of such additional
shares.
Very truly yours,
/s/Rosemary D. Van Antwerp
Rosemary D. Van Antwerp
Senior Counsel
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Capital Preservation and Income Fund
The Evergreen Lexicon Fund
Keystone Intermediate Term Bond Fund
Evergreen Investment Trust
We consent to the use of our reports dated August 8, 1997 incorporated
by reference herein and to the reference to our firm under the caption
"FINANCIAL HIGHLIGHTS" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
September 4, 1997
- ----------------------------------------------------------------------------
Keystone Am. Cap Pres Inc.
A
PRICING DATE 06/30/97
..........
30 DAY YTM 5.81243%
..........
<TABLE>
<CAPTION>
...........................................................................................
PRICE ST VARIABLE LONG TERM GAIN/ TOTAL DIV
DATE INCOME INCOME LOSS INCOME FACTOR
...........................................................................................
<S> <C> <C> <C> <C> <C>
1 06/01/97 213.80 10,647.72 10,861.52 28.61162590
2 06/02/97 198.76 10,647.70 10,846.46 28.61153500
3 06/03/97 205.70 10,647.71 10,853.41 28.70468150
4 06/04/97 197.30 10,647.78 10,845.08 28.69724510
5 06/05/97 189.96 10,647.61 10,837.57 28.64599940
6 06/06/97 168.90 10,647.71 10,816.61 28.71414030
7 06/07/97 168.90 10,647.71 10,816.61 28.71414030
8 06/08/97 168.90 10,647.71 10,816.61 28.71414030
9 06/09/97 164.21 10,647.82 10,812.03 28.73587910
10 06/10/97 162.30 10,647.63 10,809.93 28.73578550
11 06/11/97 39.93 10,375.94 10,415.87 29.16900720
12 06/12/97 38.69 10,623.05 10,661.74 29.17939670
13 06/13/97 31.15 10,623.01 10,654.16 29.17363580
14 06/14/97 31.15 10,623.01 10,654.16 29.17363580
15 06/15/97 31.15 10,623.01 10,654.16 29.17363580
16 06/16/97 133.65 10,672.77 10,806.42 29.31336590
17 06/17/97 116.29 9,633.93 9,750.22 29.36603010
18 06/18/97 93.50 10,564.74 10,658.24 29.43686930
19 06/19/97 89.43 10,564.84 10,654.27 29.41959220
20 06/20/97 94.20 10,872.77 10,966.97 29.49301010
21 06/21/97 94.20 10,872.77 10,966.97 29.49301010
22 06/22/97 94.20 10,872.77 10,966.97 29.49301010
23 06/23/97 79.14 10,606.71 10,685.85 29.53347400
24 06/24/97 69.85 10,640.88 10,710.73 29.52374410
25 06/25/97 123.51 9,754.86 9,878.37 29.57421300
26 06/26/97 133.16 10,603.83 10,736.99 29.70263510
27 06/27/97 119.46 10,603.77 10,723.23 29.72968290
28 06/28/97 119.46 10,603.77 10,723.23 29.72968290
29 06/29/97 119.46 10,603.77 10,723.23 29.72968290
30 06/30/97 124.48 10,603.99 -20,559.42 -9,830.95 29.74073870
3614.79 317421.29
</TABLE>
TOTAL INCOME FOR PERIOD 87,623.24
TOTAL EXPENSES FOR PERIOD 10,907.17
AVERAGE SHARES OUTSTANDING 1,582,337.22
LAST PRICE DURING PERIOD 10.13
<TABLE>
<CAPTION>
.......................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
.......................................................................................
<S> <C> <C> <C> <C> <C> <C>
3,107.66 387.30 1,570,066.475 10.12 3,107.66 387.30 1,570,066.475
3,103.34 381.39 1,574,776.234 10.12 6,211.00 768.69 3,144,842.709
3,115.44 382.75 1,581,362.414 10.12 9,326.44 1,151.44 4,726,205.123
3,112.24 380.80 1,579,472.731 10.12 12,438.68 1,532.24 6,305,677.854
3,104.53 380.33 1,576,047.589 10.12 15,543.21 1,912.57 7,881,725.443
3,105.90 380.61 1,576,085.576 10.13 18,649.11 2,293.18 9,457,811.019
3,105.90 380.61 1,576,085.576 10.13 21,755.01 2,673.79 11,033,896.595
3,105.90 380.61 1,576,085.576 10.13 24,860.91 3,054.40 12,609,982.171
3,106.93 380.74 1,575,981.636 10.13 27,967.84 3,435.14 14,185,963.807
3,106.32 380.65 1,575,819.557 10.13 31,074.16 3,815.79 15,761,783.364
3,038.21 380.66 1,575,351.523 10.13 34,112.37 4,196.45 17,337,134.887
3,111.03 381.38 1,575,014.788 10.13 37,223.40 4,577.83 18,912,149.675
3,108.21 381.28 1,573,349.295 10.13 40,331.61 4,959.11 20,485,498.970
3,108.21 381.28 1,573,349.295 10.13 43,439.82 5,340.39 22,058,848.265
3,108.21 381.28 1,573,349.295 10.13 46,548.03 5,721.67 23,632,197.560
3,167.73 382.76 1,583,268.295 10.14 49,715.76 6,104.43 25,215,465.855
2,863.25 382.63 1,583,275.259 10.14 52,579.01 6,487.06 26,798,741.114
3,137.45 383.29 1,582,922.618 10.14 55,716.46 6,870.35 28,381,663.732
3,134.44 383.33 1,581,604.719 10.14 58,850.90 7,253.68 29,963,268.451
3,234.49 383.81 1,586,701.559 10.14 62,085.39 7,637.49 31,549,970.010
3,234.49 383.81 1,586,701.559 10.14 65,319.88 8,021.30 33,136,671.569
3,234.49 383.81 1,586,701.559 10.14 68,554.37 8,405.11 34,723,373.128
3,155.90 383.84 1,585,628.414 10.14 71,710.27 8,788.95 36,309,001.542
3,162.21 383.85 1,588,828.282 10.14 74,872.48 9,172.80 37,897,829.824
2,921.45 363.04 1,588,279.611 10.13 77,793.93 9,535.84 39,486,109.435
3,189.17 274.15 1,597,250.049 10.13 80,983.10 9,809.99 41,083,359.484
3,187.98 274.34 1,596,702.717 10.13 84,171.08 10,084.33 42,680,062.201
3,187.98 274.34 1,596,702.717 10.13 87,359.06 10,358.67 44,276,764.918
3,187.98 274.34 1,596,702.717 10.13 90,547.04 10,633.01 45,873,467.635
-2,923.80 274.16 1,596,648.907 10.13 87,623.24 10,907.17 47,470,116.542
87623.24 10907.17
</TABLE>
B
PRICING DATE 06/30/97
...........
30 DAY YTM 5.21791%
...........
<TABLE>
<CAPTION>
.............................................................................................
PRICE ST VARIABLE LONG TERM OID TOTAL DIV
DATE INCOME INCOME INCOME INCOME FACTOR
.............................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 06/01/97 213.80 0.00 10,647.72 0.00 10,861.52 62.43588310
2 06/02/97 198.76 0.00 10,647.70 0.00 10,846.46 62.44059140
3 06/03/97 205.70 0.00 10,647.71 0.00 10,853.41 62.35700010
4 06/04/97 197.30 0.00 10,647.78 0.00 10,845.08 62.36180840
5 06/05/97 189.96 0.00 10,647.61 0.00 10,837.57 62.40250820
6 06/06/97 168.90 0.00 10,647.71 0.00 10,816.61 62.31329060
7 06/07/97 168.90 0.00 10,647.71 0.00 10,816.61 62.31329060
8 06/08/97 168.90 0.00 10,647.71 0.00 10,816.61 62.31329060
9 06/09/97 164.21 0.00 10,647.82 0.00 10,812.03 62.28133160
10 06/10/97 162.30 0.00 10,647.63 0.00 10,809.93 62.28079650
11 06/11/97 39.93 0.00 10,375.94 0.00 10,415.87 63.11508010
12 06/12/97 38.69 0.00 10,623.05 0.00 10,661.74 63.10030780
13 06/13/97 31.15 0.00 10,623.01 0.00 10,654.16 63.12432500
14 06/14/97 31.15 0.00 10,623.01 0.00 10,654.16 63.12432500
15 06/15/97 31.15 0.00 10,623.01 0.00 10,654.16 63.12432500
16 06/16/97 133.65 0.00 10,672.77 0.00 10,806.42 62.99555960
17 06/17/97 116.29 0.00 9,633.93 0.00 9,750.22 63.07919430
18 06/18/97 93.50 0.00 10,564.74 0.00 10,658.24 62.98847460
19 06/19/97 89.43 0.00 10,564.84 0.00 10,654.27 63.00388940
20 06/20/97 94.20 0.00 10,872.77 0.00 10,966.97 62.93437450
21 06/21/97 94.20 0.00 10,872.77 0.00 10,966.97 62.93437450
22 06/22/97 94.20 0.00 10,872.77 0.00 10,966.97 62.93437450
23 06/23/97 79.14 0.00 10,606.71 0.00 10,685.85 62.87792200
24 06/24/97 69.85 0.00 10,640.88 0.00 10,710.73 62.65041400
25 06/25/97 123.51 0.00 9,754.86 0.00 9,878.37 62.63217800
26 06/26/97 133.16 0.00 10,603.83 0.00 10,736.99 62.51387360
27 06/27/97 119.46 0.00 10,603.77 0.00 10,723.23 62.47706750
28 06/28/97 119.46 0.00 10,603.77 0.00 10,723.23 62.47706750
29 06/29/97 119.46 0.00 10,603.77 0.00 10,723.23 62.47706750
30 06/30/97 124.48 0.00 10,603.99 -20,559.42 -9,830.95 62.47884520
</TABLE>
TOTAL INCOME FOR PERIOD 188,387.57
TOTAL EXPENSES FOR PERIOD 45,153.22
AVERAGE SHARES OUTSTANDING 3,394,181.18
LAST PRICE DURING PERIOD 9.81
<TABLE>
<CAPTION>
.........................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
.........................................................................................
<S> <C> <C> <C> <C> <C> <C>
6,781.49 1,515.97 3,423,255.189 9.80 6,781.49 1,515.97 3,423,255.189
6,772.59 1,516.13 3,433,795.432 9.80 13,554.08 3,032.10 6,857,050.621
6,767.86 1,521.21 3,432,367.363 9.80 20,321.94 4,553.31 10,289,417.984
6,763.19 1,519.55 3,429,422.366 9.80 27,085.13 6,072.86 13,718,840.350
6,762.92 1,515.72 3,430,344.589 9.80 33,848.05 7,588.58 17,149,184.939
6,740.19 1,517.60 3,417,393.753 9.81 40,588.24 9,106.18 20,566,578.692
6,740.19 1,517.60 3,417,393.753 9.81 47,328.43 10,623.78 23,983,972.445
6,740.19 1,517.60 3,417,393.753 9.81 54,068.62 12,141.38 27,401,366.198
6,733.88 1,515.25 3,412,829.651 9.80 60,802.50 13,656.63 30,814,195.849
6,732.51 1,512.36 3,412,463.330 9.81 67,535.01 15,168.99 34,226,659.179
6,573.98 1,512.05 3,405,802.106 9.80 74,108.99 16,681.04 37,632,461.285
6,727.59 1,507.99 3,403,078.520 9.81 80,836.58 18,189.03 41,035,539.805
6,725.37 1,507.69 3,401,440.117 9.81 87,561.95 19,696.72 44,436,979.922
6,725.37 1,507.69 3,401,440.117 9.81 94,287.32 21,204.41 47,838,420.039
6,725.37 1,507.69 3,401,440.117 9.81 101,012.69 22,712.10 51,239,860.156
6,807.56 1,507.76 3,399,619.691 9.82 107,820.25 24,219.86 54,639,479.847
6,150.36 1,504.51 3,398,041.280 9.82 113,970.61 25,724.37 58,037,521.127
6,713.46 1,502.35 3,384,234.942 9.82 120,684.07 27,226.72 61,421,756.069
6,712.60 1,502.45 3,384,234.942 9.82 127,396.67 28,729.17 64,805,991.011
6,901.99 1,499.25 3,382,952.608 9.82 134,298.66 30,228.42 68,188,943.619
6,901.99 1,499.25 3,382,952.608 9.82 141,200.65 31,727.67 71,571,896.227
6,901.99 1,499.25 3,382,952.608 9.82 148,102.64 33,226.92 74,954,848.835
6,719.04 1,497.06 3,373,004.659 9.81 154,821.68 34,723.98 78,327,853.494
6,710.32 1,494.18 3,368,691.899 9.82 161,532.00 36,218.16 81,696,545.393
6,187.04 1,493.92 3,360,799.686 9.81 167,719.04 37,712.08 85,057,345.079
6,712.11 1,489.35 3,358,813.520 9.81 174,431.15 39,201.43 88,416,158.599
6,699.56 1,488.52 3,352,635.932 9.81 181,130.71 40,689.95 91,768,794.531
6,699.56 1,488.52 3,352,635.932 9.81 187,830.27 42,178.47 95,121,430.463
6,699.56 1,488.52 3,352,635.932 9.81 194,529.83 43,666.99 98,474,066.395
-6,142.26 1,486.23 3,351,369.100 9.81 188,387.57 45,153.22 101,825,435.495
188387.57 45153.22
</TABLE>
C
PRICING DATE 06/30/97
...........
30 DAY YTM 5.24672%
...........
<TABLE>
<CAPTION>
.................................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM OID TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR
.................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 06/01/97 213.80 0.00 10,647.72 0.00 10,861.52 8.95249100
2 06/02/97 198.76 0.00 10,647.70 0.00 10,846.46 8.94787360
3 06/03/97 205.70 0.00 10,647.71 0.00 10,853.41 8.93831840
4 06/04/97 197.30 0.00 10,647.78 0.00 10,845.08 8.94094650
5 06/05/97 189.96 0.00 10,647.61 0.00 10,837.57 8.95149240
6 06/06/97 168.90 0.00 10,647.71 0.00 10,816.61 8.97256920
7 06/07/97 168.90 0.00 10,647.71 0.00 10,816.61 8.97256920
8 06/08/97 168.90 0.00 10,647.71 0.00 10,816.61 8.97256920
9 06/09/97 164.21 0.00 10,647.82 0.00 10,812.03 8.98278930
10 06/10/97 162.30 0.00 10,647.63 0.00 10,809.93 8.98341800
11 06/11/97 39.93 0.00 10,375.94 0.00 10,415.87 7.71591270
12 06/12/97 38.69 0.00 10,623.05 0.00 10,661.74 7.72029550
13 06/13/97 31.15 0.00 10,623.01 0.00 10,654.16 7.70203920
14 06/14/97 31.15 0.00 10,623.01 0.00 10,654.16 7.70203920
15 06/15/97 31.15 0.00 10,623.01 0.00 10,654.16 7.70203920
16 06/16/97 133.65 0.00 10,672.77 0.00 10,806.42 7.69107450
17 06/17/97 116.29 0.00 9,633.93 0.00 9,750.22 7.56933990
18 06/18/97 93.50 0.00 10,564.74 0.00 10,658.24 7.57465610
19 06/19/97 89.43 0.00 10,564.84 0.00 10,654.27 7.57651840
20 06/20/97 94.20 0.00 10,872.77 0.00 10,966.97 7.57261540
21 06/21/97 94.20 0.00 10,872.77 0.00 10,966.97 7.57261540
22 06/22/97 94.20 0.00 10,872.77 0.00 10,966.97 7.57261540
23 06/23/97 79.14 0.00 10,606.71 0.00 10,685.85 7.58860390
24 06/24/97 69.85 0.00 10,640.88 0.00 10,710.73 7.82584190
25 06/25/97 123.51 0.00 9,754.86 0.00 9,878.37 7.79360900
26 06/26/97 133.16 0.00 10,603.83 0.00 10,736.99 7.78349130
27 06/27/97 119.46 0.00 10,603.77 0.00 10,723.23 7.79324960
28 06/28/97 119.46 0.00 10,603.77 0.00 10,723.23 7.79324960
29 06/29/97 119.46 0.00 10,603.77 0.00 10,723.23 7.79324960
30 06/30/97 124.48 0.00 10,603.99 -20,559.42 -9,830.95 7.78041620
</TABLE>
TOTAL INCOME FOR PERIOD 24,467.33
TOTAL EXPENSES FOR PERIOD 5,814.31
AVERAGE SHARES OUTSTANDING 440,062.05
LAST PRICE DURING PERIOD 9.80
<TABLE>
<CAPTION>
........................................................................................
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
.......................................................................................
<S> <C> <C> <C> <C> <C> <C>
972.38 217.52 491,263.518 9.79 972.38 217.52 491,263.518
970.53 217.48 492,484.599 9.79 1,942.91 435.00 983,748.117
970.11 217.92 492,413.129 9.79 2,913.02 652.92 1,476,161.246
969.65 217.89 492,097.807 9.79 3,882.67 870.81 1,968,259.053
970.12 217.88 492,489.807 9.79 4,852.79 1,088.69 2,460,748.860
970.53 218.06 492,489.807 9.80 5,823.32 1,306.75 2,953,238.667
970.53 218.06 492,489.807 9.80 6,793.85 1,524.81 3,445,728.474
970.53 218.06 492,489.807 9.80 7,764.38 1,742.87 3,938,218.281
971.22 218.13 492,644.780 9.80 8,735.60 1,961.00 4,430,863.061
971.10 184.54 492,644.780 9.80 9,706.70 2,145.54 4,923,507.841
803.68 184.56 416,727.773 9.80 10,510.38 2,330.10 5,340,235.614
823.12 184.59 416,727.773 9.80 11,333.50 2,514.69 5,756,963.387
820.59 184.45 415,384.292 9.80 12,154.09 2,699.14 6,172,347.679
820.59 184.45 415,384.292 9.80 12,974.68 2,883.59 6,587,731.971
820.59 184.45 415,384.292 9.80 13,795.27 3,068.04 7,003,116.263
831.13 184.40 415,418.269 9.81 14,626.40 3,252.44 7,418,534.532
738.03 182.41 407,326.341 9.81 15,364.43 3,434.85 7,825,860.873
807.33 180.67 407,326.341 9.81 16,171.76 3,615.52 8,233,187.214
807.22 180.75 407,326.341 9.81 16,978.98 3,796.27 8,640,513.555
830.49 180.64 407,411.341 9.81 17,809.47 3,976.91 9,047,924.896
830.49 180.64 407,411.341 9.81 18,639.96 4,157.55 9,455,336.237
830.49 180.64 407,411.341 9.81 19,470.45 4,338.19 9,862,747.578
810.91 180.72 407,436.825 9.81 20,281.36 4,518.91 10,270,184.403
838.20 182.96 421,160.533 9.81 21,119.56 4,701.87 10,691,344.936
769.88 185.07 418,562.533 9.80 21,889.44 4,886.94 11,109,907.469
835.71 185.46 418,562.533 9.80 22,725.15 5,072.40 11,528,470.002
835.69 185.52 418,562.533 9.80 23,560.84 5,257.92 11,947,032.535
835.69 185.52 418,562.533 9.80 24,396.53 5,443.44 12,365,595.068
835.69 185.52 418,562.533 9.80 25,232.22 5,628.96 12,784,157.601
-764.89 185.35 417,703.850 9.80 24,467.33 5,814.31 13,201,861.451
24467.33 5814.31
</TABLE>
D
PRICING DATE 06/30/97
..........
30 DAY YTM #DIV/0!
..........
<TABLE>
<CAPTION>
...............................................................................................
PRICE ST FIXED ZERO COUPO LONG TERM TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME FACTOR
...............................................................................................
<S> <C> <C> <C> <C> <C> <C>
1 06/01/97 213.80 0.00 10,647.70.00 0.000.00 10,861.52 0.00000000
2 06/02/97 198.76 0.00 10,647.70.00 0.000.00 10,846.46 0.00000000
3 06/03/97 205.70 0.00 10,647.70.00 0.000.00 10,853.41 0.00000000
4 06/04/97 197.30 0.00 10,647.70.00 0.000.00 10,845.08 0.00000000
5 06/05/97 189.96 0.00 10,647.60.00 0.000.00 10,837.57 0.00000000
6 06/06/97 168.90 0.00 10,647.70.00 0.000.00 10,816.61 0.00000000
7 06/07/97 168.90 0.00 10,647.70.00 0.000.00 10,816.61 0.00000000
8 06/08/97 168.90 0.00 10,647.70.00 0.000.00 10,816.61 0.00000000
9 06/09/97 164.21 0.00 10,647.80.00 0.000.00 10,812.03 0.00000000
10 06/10/97 162.30 0.00 10,647.60.00 0.000.00 10,809.93 0.00000000
11 06/11/97 39.93 0.00 10,375.90.00 0.000.00 10,415.87 0.00000000
12 06/12/97 38.69 0.00 10,623.00.00 0.000.00 10,661.74 0.00000000
13 06/13/97 31.15 0.00 10,623.00.00 0.000.00 10,654.16 0.00000000
14 06/14/97 31.15 0.00 10,623.00.00 0.000.00 10,654.16 0.00000000
15 06/15/97 31.15 0.00 10,623.00.00 0.000.00 10,654.16 0.00000000
16 06/16/97 133.65 0.00 10,672.70.00 0.000.00 10,806.42 0.00000000
17 06/17/97 116.29 0.00 9,633.90.00 0.000.00 9,750.22 0.00000000
18 06/18/97 93.50 0.00 10,564.70.00 0.000.00 10,658.24 0.00000000
19 06/19/97 89.43 0.00 10,564.80.00 0.000.00 10,654.27 0.00000000
20 06/20/97 94.20 0.00 10,872.70.00 0.000.00 10,966.97 0.00000000
21 06/21/97 94.20 0.00 10,872.70.00 0.000.00 10,966.97 0.00000000
22 06/22/97 94.20 0.00 10,872.70.00 0.000.00 10,966.97 0.00000000
23 06/23/97 79.14 0.00 10,606.70.00 0.000.00 10,685.85 0.00000000
24 06/24/97 69.85 0.00 10,640.80.00 0.000.00 10,710.73 0.00000000
25 06/25/97 123.51 0.00 9,754.80.00 0.000.00 9,878.37 0.00000000
26 06/26/97 133.16 0.00 10,603.80.00 0.000.00 10,736.99 0.00000000
27 06/27/97 119.46 0.00 10,603.70.00 0.000.00 10,723.23 0.00000000
28 06/28/97 119.46 0.00 10,603.70.00 0.000.00 10,723.23 0.00000000
29 06/29/97 119.46 0.00 10,603.70.00 0.000.00 10,723.23 0.00000000
30 06/30/97 124.48 0.00 10,603.90.0-20,559.420.00 -9,830.95 0.00000000
</TABLE>
<TABLE>
<CAPTION>
$967.50
A NAV A A
TIME ACCOUNT A AVERAGE A/C VALUE A AVERAGE
YEARS PERIOD VALUE CLASS ANNNUAL W/LOAD CLASS ANNNUAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30-Jun-97 BLANK 1,191.36 0.00% 967.50 -3.25% -3.25%
30-Sep-96 9 MO 1,133.35 5.12% 5.12% 1,017.04 1.70% 1.70%
31-Mar-97 QTR 1,168.42 1.96% 1.96% 986.49 -1.35% -1.35%
31-Dec-96 YTD 1,151.93 3.42% 3.42% 1,000.62 0.06% 0.06%
30-Jun-96 1 1,116.22 6.73% 6.73% 1,032.63 3.26% 3.26%
30-Jun-94 3 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
30-Jun-92 5 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
30-Jun-87 10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
30-Dec-9 INCEPT. 1,000.00 19.14% 7.24% 1,152.64 15.26% 5.84%
INCEPTION FACTOR: 2.5041
</TABLE>
<TABLE>
<CAPTION>
$1,000
B B NAV LEVEL VALUE OF VALUE OF B
TIME ACCOUNT B AVERAGE LOAD CLASS B CLASS B INIT. B AVERAGE
PERIOD VALUE CLASS ANNNUAL COMP INVESTMENT INVESTMENT CUMULATIVE ANNUAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BLANK 1,303.48 0.00%50.000 1,000.00 1,000.00 0.00%
9 MO 1,247.04 4.53% 4.53%50.000 1,045.25 1,006.15 -0.47% -0.47%
QTR 1,279.52 1.87% 1.87%50.000 1,018.72 1,005.12 -3.13% -3.13%
YTD 1,265.11 3.03% 3.03%50.000 1,030.32 1,004.09 -1.97% -1.97%
1 1,229.23 6.04% 6.04%50.000 1,060.40 1,008.22 1.04% 1.04%
3 1,110.22 17.41% 5.49%30.000 1,174.07 1,012.38 14.41% 4.59%
5 1,064.38 22.46% 4.14%19.600 1,224.64 980.02 20.50% 3.80%
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 30.35% 4.51% 0.000 1,303.48 981.00 30.35% 4.51%
INCEPTION FACTOR: 6.0055
</TABLE>
<TABLE>
<CAPTION>
$1,000
C C NAV LEVEL VALUE OF VALUE OF C
ACCOUNT C AVERAGE LOAD CLASS C CLASS C INIT. C AVERAGE
VALUE CLASS ANNNUAL COMP INVESTMENT INVESTMENT CUMULATIVE ANNUAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BLANK 1,216.99 0.00% 10.00 1,000.00 1,000.00 0.00%
9 MO 1,164.26 4.53% 4.53% 10.00 1,045.29 1,006.16 3.53% 3.53%
QTR 1,194.60 1.87% 1.87% 10.00 1,018.74 1,005.13 0.87% 0.87%
YTD 1,181.14 3.03% 3.03% 10.00 1,030.35 1,004.10 2.03% 2.03%
1 1,147.60 6.05% 6.05% 10.00 1,060.46 1,008.23 5.05% 5.05%
3 1,035.30 17.55% 5.54% 1,175.49 1,013.44 17.55% 5.54%
5 0.00 #VALUE! #VALUE! #VALUE! 979.02 #VALUE! #VALUE!
10 0.00 #VALUE! #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!
INCEPT. 1,000.00 21.70% 4.55% 0.00 1,216.99 997.96 21.70% 4.55%
INCEPTION FACTOR: 4.4137
</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 CAPITAL PRESERVATION FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 51,556,239
<INVESTMENTS-AT-VALUE> 52,098,247
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<NUMBER-OF-SHARES-REDEEMED> (1,318,046)
<SHARES-REINVESTED> 61,902
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (112,163)
<AVERAGE-NET-ASSETS> 16,768,462
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> (0.42)
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<RETURNS-OF-CAPITAL> (0.01)
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</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 CAPITAL PRESERVATION FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 51,556,239
<INVESTMENTS-AT-VALUE> 52,098,247
<RECEIVABLES> 882,248
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<TOTAL-ASSETS> 53,034,523
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<OTHER-ITEMS-LIABILITIES> 214,836
<TOTAL-LIABILITIES> 214,836
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,403,144
<SHARES-COMMON-STOCK> 3,360,676
<SHARES-COMMON-PRIOR> 4,522,486
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<OVERDISTRIBUTION-NII> (123,930)
<ACCUMULATED-NET-GAINS> (6,437,412)
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<ACCUM-APPREC-OR-DEPREC> 122,018
<NET-ASSETS> 32,963,820
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,046,533
<OTHER-INCOME> 0
<EXPENSES-NET> (470,794)
<NET-INVESTMENT-INCOME> 1,575,739
<REALIZED-GAINS-CURRENT> (63,734)
<APPREC-INCREASE-CURRENT> 179,826
<NET-CHANGE-FROM-OPS> 1,691,831
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,412,040)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (40,936)
<NUMBER-OF-SHARES-SOLD> 182,841
<NUMBER-OF-SHARES-REDEEMED> (1,459,187)
<SHARES-REINVESTED> 114,536
<NET-CHANGE-IN-ASSETS> (11,122,712)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (260,940)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (183,775)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (470,794)
<AVERAGE-NET-ASSETS> 38,187,093
<PER-SHARE-NAV-BEGIN> 9.75
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.36)
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<RETURNS-OF-CAPITAL> (0.01)
<PER-SHARE-NAV-END> 9.81
<EXPENSE-RATIO> 1.65
<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 CAPITAL PRESERVATION FUND CLASS C
<S> <C>
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
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<NUMBER-OF-SHARES-REDEEMED> (185,566)
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<NET-CHANGE-IN-ASSETS> (47,487)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 4,317,671
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<PER-SHARE-NAV-END> 9.80
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
