Evergreen Income & Growth Fund – ‘485APOS’ on 1/31/97

As of:  Friday, 1/31/97   ·   Accession #:  275346-97-6   ·   File #s:  2-61391, 811-02829

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485APOS
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                                                 Registration No.2-61391
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------

 FORM N-1A

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /x/

             Pre-Effective Amendment No.         / /

          Post-Effective Amendment No.26       /x/

and/or

REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /x/

                 Amendment No.26               /x/
(Check appropriate box or boxes)
--------------------

  EVERGREEN INCOME AND GROWTH FUND
  (formerly The Evergreen Total Return Fund)
(Exact name of registrant as specified in charter)

 2500 Westchester Avenue
Purchase, N.Y. 10577
(Address of Principal Executive Offices)

 (Registrant's Telephone Number, Including Area Code (914) 694-2020)

James P. Wallin, Esq. 
Evergreen Asset Management Corp.
 2500 Westchester Avenue, Purchase, N.Y. 10577
 (Name and address of Agent for Service)

It is proposed that this filing will become  effective  (check  appropriate box)
/ / Immediately  upon filing pursuant to paragraph (b) or                       
/ / on (date) pursuant to paragraph (b) or                                      
/X/ 60 days after filing pursuant to paragraph (a)(i) or                        
/ / on (date)  pursuant to paragraph  (a)(i) or                                 
/ / 75 days after filing pursuant to paragraph (a)(ii) or                       
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485                         

If appropriate, check the following box:                                        
/ / This  post-effective  amendment  designates  a  new  effective  date  for  a
previously filed  post-effective  amendment                   
/ / 60 days after filing pursuant to paragraph  (a)(i)                          
/ / on (date) pursuant to paragraph (a)(i)                                      

Registrant  has  registered an indefinite  number of shares under the Securities
Act of 1933  pursuant  to Rule 24f-2 under the  Investment  Company Act of 1940.
Registrant's  Rule 24f-2 notice for its fiscal year ended January 31, 1997, will
be filed on or about March 28, 1997.                                            

 CROSS REFERENCE SHEET
(as required by Rule 481(a))

N-1A Item No.                                       Location in Prospectus(es)  

Part A                                                                          

Item 1.   Cover Page                                Cover Page                  

Item 2.   Synopsis and Fee Table                    Overview of the Fund(s);    
                                           Expense Information

Item 3.   Condensed Financial Information           Financial Highlights        

Item 4.   General Description of Registrant         Cover Page; Description of  
                                              the Funds; General
                                       Information

Item 5.   Management of the Fund                    Management of the Fund(s);  
                                               General Information

Item 6.   Capital Stock and Other Securities        Dividends, Distributions and
                                          Taxes; General
                                       Information

Item 7.   Purchase of Securities Being Offered      Purchase and Redemption of  
                                  Shares

Item 8.   Redemption or Repurchase                  Purchase and Redemption of  
                                  Shares

Item 9.   Pending Legal Proceedings                 Not Applicable              

                                                Location in Statement of
Part B                                                Additional Information    

Item 10.  Cover Page                                Cover Page                  

Item 11.  Table of Contents                         Table of Contents           

Item 12.  General Information and History           Not Applicable              

Item 13.  Investment Objectives and Policies        Investment Objectives and   
                                               Policies;Investment
                                               Restrictions; Other
                                            Restrictions and
                                              Operating Policies

Item 14.  Management of the Fund                    Management                  

Item 15.  Control Persons and Principal             Management                  
Holders of Securities                                     

Item 16.  Investment Advisory and Other Services    Investment Adviser;         
                                          Purchase of Shares

Item 17.  Brokerage Allocation                      Allocation of Brokerage     

Item 18.  Capital Stock and Other Securities        Purchase of Shares          

Item 19.  Purchase, Redemption and Pricing of       Distribution Plans; Purchase
          Securities Being Offered                    of Shares; Net Asset Value

Item 20.  Tax Status                                Additional Tax Information  

Item 21.  Underwriters                              Distribution Plans; Purchase
                                     of Shares

Item 22.  Calculation of Performance Data           Performance Information     

Item 23.  Financial Statements                      Financial Statements        

Part C                                                                          

                Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration Statement.    

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******************************************************************************  

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EVERGREEN/KEYSTONE(SM) GROWTH AND INCOME FUNDS                                  
--------------------------------------------------------------------------------

PROSPECTUS                                             April 1, 1997            
                                                       (Evergreen Keystone logo)

EVERGREEN UTILITY FUND                                                          
EVERGREEN GROWTH AND INCOME FUND                                                
EVERGREEN VALUE FUND                                                            
EVERGREEN SMALL CAP EQUITY INCOME FUND                                          
EVERGREEN INCOME AND GROWTH FUND                                                
KEYSTONE FUND FOR TOTAL RETURN                                                  

CLASS A SHARES                                                                  
CLASS B SHARES                                                                  
CLASS C SHARES                                                                  

         The  Evergreen/Keystone  Growth and  Income  Funds  (the  "Funds")  are
designed to provide investors with a selection of investment  alternatives which
seek to provide  capital  growth,  income and  diversification.  This Prospectus
provides  information  regarding the Class A, Class B and Class C shares offered
by the  Funds.  Each  Fund is,  or is a series  of,  an  open-end,  diversified,
management  investment  company.  This Prospectus sets forth concise information
about the Funds that a prospective  investor should know before  investing.  The
address of the Evergreen Funds is 2500 Westchester  Avenue,  Purchase,  New York
10577.  The  address  of the  Keystone  Fund  is 200  Berkeley  Street,  Boston,
Massachusetts 02116.                                                            

         A "Statement of Additional Information" for the Funds and certain other
funds in the  Evergreen/Keystone  group of mutual  funds dated April 1, 1997 has
been filed with the Securities and Exchange  Commission and is  incorporated  by
reference herein. The Statement of Additional  Information  provides information
regarding  certain matters  discussed in this Prospectus and other matters which
may be of interest to investors,  and may be obtained  without charge by calling
the  Evergreen  Funds at (800)  807-2940.  There  can be no  assurance  that the
investment objective of any Fund will be achieved. Investors are advised to read
this Prospectus carefully.                                                      

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE 
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE 
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR 
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS 
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 

 KEEP THIS PROSPECTUS FOR FUTURE REFERENCE

EVERGREEN  (SM) and  EVERGREEN/KEYSTONE  (SM)  are  Service  Marks of  Evergreen
Keystone Investment  Services,  Inc. Copyright 1995 and 1997, Evergreen Keystone
Investment Services, Inc.                                                       

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     TABLE OF CONTENTS
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OVERVIEW OF THE FUNDS                                                           
EXPENSE INFORMATION                                                             
FINANCIAL HIGHLIGHTS                                                            
DESCRIPTION OF THE FUNDS                                                        
Investment Objectives and Policies                            
Investment Practices and Restrictions                         
Special Risk Considerations                                   

MANAGEMENT OF THE FUNDS                                                         
Investment Advisers                                           
Sub-Adviser                                                   
Distribution Plans and Agreements                             

PURCHASE AND REDEMPTION OF SHARES                                               
How to Buy Shares                                             
How to Redeem Shares                                          
Exchange Privilege                                            
Shareholder Services                                          
Effect of Banking Laws                                        

OTHER INFORMATION                                                               
Dividends, Distributions and Taxes                            
General Information                                           

--------------------------------------------------------------------------------

           OVERVIEW OF THE FUNDS
--------------------------------------------------------------------------------

     The  following  summary is qualified  in its entirety by the more  detailed
information contained elsewhere in this Prospectus and the information appearing
in the Statement of Additional  Information.  See "Description of the Funds" and
"Management of the Funds".  No Fund is responsible for the information  relating
to any other Fund contained in this Prospectus.                                 

         The investment  adviser to EVERGREEN GROWTH AND INCOME FUND,  EVERGREEN
SMALL CAP EQUITY INCOME FUND, and EVERGREEN  INCOME AND GROWTH FUND is Evergreen
Asset Management Corp. which, with its predecessors, has served as an investment
adviser to the Evergreen  mutual funds since 1971.  Evergreen  Asset  Management
Corp.  is a  wholly-owned  subsidiary  of  First  Union  National  Bank of North
Carolina,  which in turn is a subsidiary of First Union  Corporation,  the sixth
largest bank holding company in the United States.  The Capital Management Group
of First Union National Bank of North Carolina  serves as investment  adviser to
EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND. Keystone Investment  Management
Company, also an indirect  wholly-owned  subsidiary of First Union National Bank
of North Carolina,  serves as investment  adviser to the KEYSTONE FUND FOR TOTAL
RETURN.                                                                         

         EVERGREEN  UTILITY FUND seeks high current income and moderate  capital
appreciation.                                                                   

         EVERGREEN  GROWTH AND INCOME FUND seeks to achieve a return composed of
capital  appreciation  in the value of its shares and current  income.  The Fund
will attempt to meet its  objective by investing in the  securities of companies
which are undervalued in the marketplace  relative to those  companies'  assets,
breakup value, earnings, or potential earnings growth.                          

         EVERGREEN  VALUE FUND seeks  long-term  capital  growth,  with  current
income as a secondary objective.                                                

         EVERGREEN  SMALL CAP EQUITY INCOME FUND attempts to maximize the "total
return"  on its  portfolio  of  investments.  The Fund  invests  in  common  and
preferred stocks,  securities convertible into or exchangeable for common stocks
and fixed income  securities.  In attempting to achieve its objective,  the Fund
invests  primarily in companies  with total market  capitalization  of less than
$500 million.                                                                   

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         KEYSTONE FUND FOR TOTAL RETURN seeks total return from a combination of
capital growth and income.  The Fund will invest  principally in dividend paying
common stocks,  preferred stocks and securities  convertible into common stocks,
but may also invest in non-dividend  paying common stocks if, in the judgment of
the Fund's  investment  adviser,  that is  consistent its objectives.           

         EVERGREEN INCOME AND GROWTH FUND (formerly Evergreen Total Return Fund)
attempts to maximize  the "total  return" on its  portfolio of  investments.  It
invests primarily in common and preferred stocks, securities convertible into or
exchangeable for common stocks and fixed income securities.                     

         THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.                                                                       

--------------------------------------------------------------------------------

EXPENSE INFORMATION   
--------------------------------------------------------------------------------

         The table set forth below summarizes the shareholder  transaction costs
associated with an investment in each Class A, Class B and Class C Shares of the
Funds. For further  information see "Purchase and Redemption of Fund Shares" and
"General Information -- Other Classes of Shares".                               

[TO BE ADDED]                                                                   

         The following  tables show for each Fund the estimated annual operating
expenses (as a percentage of average net assets)  attributable  to each Class of
Shares,  together with examples of the  cumulative  effect of such expenses on a
hypothetical  $1,000 investment in each Class for the periods specified assuming
(i) a 5% annual  return,  and (ii)  redemption  at the end of each  period  and,
additionally for Class B and C, no redemption at the end of each period.        

         In the  following  examples (i) the expenses for Class A Shares  assume
deduction of the maximum  4.75% sales  charge at the time of purchase,  (ii) the
expenses for Class B Shares and Class C Shares  assume  deduction at the time of
redemption  (if  applicable)  of the maximum  contingent  deferred  sales charge
applicable  for that time  period,  and (iii)  the  expenses  for Class B Shares
reflects  the  conversion  to Class A Shares seven years after  purchase  (years
eight through ten, therefore, reflect Class A expenses).                        

[TO BE ADDED]                                                                   

         From  time  to  time,  each  Fund's  investment  adviser  may,  at  its
discretion, reduce or waive its fees or reimburse the Funds for certain of their
expenses in order to reduce their expense ratios. Each Fund's investment adviser
may cease these waivers and reimbursements at any time.                         

     The  purpose  of  the   foregoing   table  is  to  assist  an  investor  in
understanding  the various  costs and expenses that an investor in each Class of
Shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are estimated  amounts based on the experience
of each Fund for the most recent fiscal period. Such expenses have been restated
to reflect  current fee  arrangements.  THE EXAMPLES  SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN.  ACTUAL EXPENSES AND
ANNUAL  RETURN  MAY BE GREATER OR LESS THAN  THOSE  SHOWN.  For a more  complete
description of the various costs and expenses borne by the Funds see "Management
of the Funds". As a result of asset-based sales charges,  long-term shareholders
may pay more than the  economic  equivalent  of the  maximum  front-end  charges
permitted  under the rules of the National  Association  of Securities  Dealers,
Inc.                                                                            

--------------------------------------------------------------------------------

        FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

         The tables on the following  pages  present,  for each Fund,  financial
highlights  for a  share  outstanding  throughout  each  period  indicated.  The
information  in the tables for the five most recent  fiscal years or the life of
the Fund if  shorter,  for  EVERGREEN  UTILITY  FUND,  EVERGREEN  VALUE FUND and
KEYSTONE  FUND FOR TOTAL RETURN has been audited by KPMG Peat Marwick LLP,  each
Fund's independent  auditors,  the Fund's independent auditors and for EVERGREEN
SMALL CAP EQUITY  INCOME FUND,  EVERGREEN  GROWTH AND INCOME FUND and  EVERGREEN
INCOME AND GROWTH                                                               

                                                   3

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FUND has been audited by Ernst & Young LLP, each Fund's independent  auditors. A
report of KPMG Peat Marwick LLP, Price  Waterhouse LLP, or Ernst & Young LLP, as
the case  may be,  on the  audited  information  with  respect  to each  Fund is
incorporated by reference in the Fund's Statement of Additional Information. The
following  information  for each  Fund  should be read in  conjunction  with the
financial  statements and related notes which are  incorporated  by reference in
the Fund's Statement of Additional Information.                                 

         Further  information  about a Fund's  performance  is  contained in the
Fund's annual report to shareholders, which may be obtained without charge.     

[TO BE ADDED BY AMENDMENT]                                                      
--------------------------------------------------------------------------------

        DESCRIPTION OF THE FUNDS
--------------------------------------------------------------------------------

INVESTMENT OBJECTIVES AND POLICIES                                              

         Unless  otherwise  noted  in this  Prospectus,  the  Funds'  investment
policies are not fundamental and may be changed  without  shareholder  approval.
Each Fund's  investment  objective is fundamental and may not be changed without
shareholder approval.                                                           

         In addition to the investment  policies  detailed below,  each Fund may
employ  certain  additional   investment   strategies  which  are  discussed  in
"Investment Practices and Restrictions", below.                                 

EVERGREEN GROWTH AND INCOME FUND                                                

         The  investment  objective  of  EVERGREEN  GROWTH AND INCOME FUND is to
achieve a return composed of capital appreciation in the value of its shares and
current income.                                                                 

         The Fund seeks to achieve its investment  objective by investing in the
securities of companies  which are  undervalued in the  marketplace  relative to
those companies' assets,  breakup value,  earnings or potential earnings growth.
These companies are often found among those which have had a record of financial
success but are currently in disfavor in the  marketplace for reasons the Fund's
investment  adviser  perceives as temporary or erroneous.  Such investments when
successfully  timed  are  expected  to be the  means for  achieving  the  Fund's
investment  objective.  This inherently  contrarian approach may require greater
reliance upon the analytical and research  capabilities of the Fund's investment
adviser than an  investment  in certain  other equity  funds.  Consequently,  an
investment in the Fund may involve more risk than other equity  funds.  The Fund
should not be  considered  suitable for investors who are unable or unwilling to
assume  the risks of loss  inherent  in such a  program.  Nor should the Fund be
considered a balanced or complete investment program.                           

         The  Fund  will  use the  "value  timing"  approach  as a  process  for
purchasing  securities when events indicate that fundamental  investment  values
are being ignored in the marketplace.  Fundamental  investment value is based on
one or more of the following: assets -- tangible and intangible (examples of the
latter include brand names or licenses),  capitalization of earnings,  cash flow
or potential  earnings  growth.  A  discrepancy  between  market  valuation  and
fundamental  value often  arises due to the presence of  unrecognized  assets or
business  opportunities,  or as a result of incorrectly  perceived or short-term
negative factors. Changes in regulations,  basic economic or monetary shifts and
legal action  (including the initiation of bankruptcy  proceedings)  are some of
the  factors  that  create  these  capital  appreciation  opportunities.  If the
securities  in which the Fund invests never reach their  perceived  potential or
the  valuation of such  securities in the  marketplace  does not in fact reflect
significant  undervaluation,  there  may  be  little  or  no  appreciation  or a
depreciation in the value of such securities.                                   

         The  Fund  will  invest  primarily  in  common  stocks  and  securities
convertible  into or exchangeable  for common stock. It is anticipated  that the
Fund's  investments  in these  securities  will  contribute to the Fund's return
primarily  through capital  appreciation.  In addition,  the Fund will invest in
nonconvertible preferred stocks and debt securities.  It is anticipated that the
Fund's  investments in these  securities will also produce capital  appreciation
but the current income component of return will be a more significant  factor in
their selection. However, the Fund will invest in nonconvertible preferred stock
and debt  securities only if the anticipated  capital  appreciation  plus income
from such  investments  is equivalent to that  anticipated  from  investments in
equity or equity-related  securities.  The Fund may invest up to 5% of its total
assets in debt securities which are rated below investment grade, commonly known
as "junk bonds". Investments of this type are subject to greater risk of loss of
principal and interest. See "Special Risk Considerations".                      

                                                   4

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EVERGREEN SMALL CAP EQUITY INCOME FUND                                          

         The investment  objective of EVERGREEN  SMALL CAP EQUITY INCOME FUND is
to achieve a return consisting of current income and capital appreciation in the
value of its shares.  The  emphasis on current  income and capital  appreciation
will be relatively equal although,  over time,  changes in market conditions and
the level of  interest  rates may  cause the Fund to vary its  emphasis  between
these two  elements in its search for the optimum  return for its  shareholders.
The Fund seeks to achieve its investment objective through investments in common
stocks, preferred stocks, securities convertible into or exchangeable for common
stocks and fixed  income  securities.  Under  normal  conditions,  the Fund will
invest  at  least  65% of its  total  assets  in  equity  securities  (including
convertible  debt  securities) of companies that, at the time of purchase,  have
"total market  capitalization"  -- present market value per share  multiplied by
the total number of shares  outstanding  -- of less than $500 million.  The Fund
may invest up to 35% of its total assets in equity  securities of companies that
at the time of purchase  have a total market  capitalization  of $500 million or
more, and in excess of that percentage during temporary defensive periods. As of
December  31,  1994,  1995  and  1996,  approximately  64.5%,  69.9%  and  .  %,
respectively, of the Fund's portfolio consisted of equity securities.           

         To the extent that the Fund seeks capital appreciation, it expects that
its investments  will provide growth over the long-term.  Investments,  however,
may be made on occasion for the purpose of short-term  capital  appreciation  if
the  Fund  believes  that  such  investments  will  benefit  its   shareholders.
Purchasing  securities  for  short-term  trading is subject to certain rules and
involves  additional  brokerage  expenses.  The  Fund may  make  investments  in
securities regardless of whether or not such securities are traded on a national
securities  exchange.  The value of  portfolio  securities  and their yields are
expected to fluctuate over time because of varying  general  economic and market
conditions.                                                                     

         The Fund's  portfolio  will vary over time  depending upon the economic
outlook and market conditions.  The composition of its portfolio will be subject
to the  discretion  of the  Fund's  investment  adviser.  Ordinarily,  the  Fund
anticipates  that most of its portfolio  will consist of equity  securities  and
convertible debt securities.  A significant  portion of the equity  investments,
however,  will be income producing.  If in the judgment of the Fund's investment
adviser a  defensive  position  is  appropriate,  the Fund may take a  defensive
position and invest without limit in debt securities or government securities or
hold its assets in cash or cash  equivalents.  The  quality  standards  for debt
securities  include:  Obligations of banks and  commercial  paper rated no lower
than P-2 by Moody's Investor's Service  ("Moody's"),  A-2 by Standard and Poor's
Ratings Service, a division of McGraw-Hill  Companies,  Inc. ("S&P") or having a
comparable  rating  from  another  nationally   recognized   statistical  rating
organization  ("SRO");  and non-convertible  debt securities rated no lower than
Baa by  Moody's  or BBB by  S&P.  For a  description  of  such  ratings  see the
Statement of Additional Information.                                            

         The Fund may invest in real estate investment trusts ("Reits").  Equity
Reits invest  directly in real property while mortgage Reits invest in mortgages
on real property. The Fund does not intend to invest in Reits that are primarily
mortgage  Reits.  Equity Reits  usually  provide a high  current  yield plus the
opportunity of long-term price appreciation of real estate values.  Reits may be
subject to certain risks  associated  with the direct  ownership of real estate.
See "Special Risk Considerations".                                              

EVERGREEN INCOME AND GROWTH FUND                                                

         The investment  objective of EVERGREEN INCOME AND GROWTH FUND (formerly
Evergreen Total Return Fund)                                                    
is to achieve a return consisting of current income and capital  appreciation in
the value of its shares. The emphasis on current income and capital appreciation
will be relatively equal although,  over time, changes in the outlook for market
conditions  and the  level of  interest  rates  will  cause the Fund to vary its
emphasis between these two elements in its search for the optimum return for its
shareholders.  To the extent that the Fund is emphasizing current income, it may
purchase securities in anticipation of participating in dividends. This practice
may  result in a higher  rate of  portfolio  turnover  and may affect the Fund's
overall  return.  The Fund seeks to achieve  its  investment  objective  through
investments in common stocks,  preferred stocks,  securities convertible into or
exchangeable for common stocks and fixed income securities.  The Fund may invest
up to 20% of its total  assets  in the  securities  of  foreign  issuers  either
directly or in the form of ADRs,  European Depository Receipts ("EDRs") or other
securities  convertible  into securities of foreign  issuers.  See "Special Risk
Considerations", below. The Fund may also write covered call options.           

         To the extent that the Fund seeks capital appreciation, it expects that
its investments  will provide growth over the long-term.  Investments,  however,
may be made on occasion for the purpose of short-term  capital  appreciation  if
the Fund believes that such investments will benefit its shareholders.          

         The  Fund may make  investments  in  securities  (other  than  options)
regardless of whether or not such securities are traded on a national securities
exchange.  The  value of  portfolio  securities  and  their  yields,  as well as
opportunities to realize net                                                    

                                                   5

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gains from a covered call  options  writing  program,  are expected to fluctuate
over time because of varying general economic and market conditions.            

         The Fund's  portfolio  will vary over time  depending upon the economic
outlook and market conditions.  The composition of its portfolio will be largely
unrestricted  and subject to the  discretion of the Fund's  investment  adviser.
Ordinarily,  the Fund anticipates that  approximately  75% of its portfolio will
consist of equity  securities  and the other 25% of debt  securities  (including
convertible  debt   securities).   As  of  January  31,  1995,  1996  and  1997,
approximately 91%, 91% and __%, respectively,  of the Fund's portfolio consisted
of equity  securities.  The balance of the Fund's  portfolio  consisted  of debt
securities (including  convertible debt securities).  If, in the judgment of the
Fund's  investment  adviser,  the appreciation  potential for equity  securities
exceeds the return  available  from debt  securities or  government  securities,
investments in equity securities could exceed 75% of the Fund's portfolio.  Most
equity investments, however, will be income producing. The quality standards for
debt  securities  include:  Obligations of banks having total assets of at least
one billion  dollars  which are members of the FDIC;  commercial  paper rated no
lower than P-2 by Moody's or A-2 by S&P;  and  non-convertible  debt  securities
rated no lower than Baa by Moody's or BBB by Standard & Poor's. Securities rated
Baa or BBB may have speculative characteristics.  Changes in economic conditions
or other  circumstances  are more likely to weaken the ability of the issuers of
such bonds' to make principal and interest payments than is the case with higher
rated  bonds.  However,  like the  higher  rated  bonds,  these  securities  are
considered  investment  grade.  For a  description  of  such  ratings,  see  the
Statement of Additional Information. See "Special Risk Considerations".         

EVERGREEN UTILITY FUND                                                          

         The  investment  objective  of  EVERGREEN  UTILITY FUND is to achieve a
return consisting of high current income and moderate capital appreciation.  The
Fund invests primarily in a diversified  portfolio of equity and debt securities
of utility  companies  that produce,  transmit or  distribute  gas or electrical
energy, as well as those companies which provide communications facilities, such
as telephone and telegraph companies. As a matter of investment policy, the Fund
will invest at least 65% of the value of its total  assets in utility  companies
that derive 50% of their revenues from  utilities or assets  relating to utility
industries.  In addition,  the Fund may invest up to 35% of its assets in common
stock of non-utility companies. As of December 31, 1995 and 1996,  approximately
77.8% and ____%, respectively,  of the Fund's portfolio consisted of investments
in utility companies.                                                           

The Fund may invest in:                                       

         common and preferred stocks, bonds and convertible  preferred stocks of
         utility  companies  selected  by the Fund's  investment  adviser on the
         basis of  traditional  research  techniques,  including  assessment  of
         earnings and dividend  growth  prospects and of the risk and volatility
         of the individual company's industry.  However,  other factors, such as
         product position,  market share or profitability may also be considered
         by the Fund's investment adviser.  The Fund will only invest its assets
         in debt  securities  rated Baa or higher by Moody's or BBB or higher by
         S&P or which, if unrated, are considered to be of comparable quality by
the Fund's investment adviser;                                

         securities   which  are  either   issued  or  guaranteed  by  the  U.S.
         government, its agencies or instrumentalities. These securities include
         direct obligations of the U.S.  Treasury,  such as U.S. Treasury bills,
         notes and bonds; and notes, bonds and discount notes of U.S. government
         agencies or instrumentalities such as the Farm Credit System, including
         the  National  Bank for  Cooperatives,  Farm Credit Banks and Banks for
         Cooperatives,  Farmers  Home  Administration,  Federal Home Loan Banks,
         Federal  Home Loan  Mortgage  Corporation,  Federal  National  Mortgage
         Association,  Government  National Mortgage  Association,  Student Loan
         Marketing Association,  Tennessee Valley Authority,  Export-Import Bank
         of the United States,  Commodity Credit Corporation,  Federal Financing
         Bank and National Credit Union Administration. Some of these securities
         are supported by the full faith and credit of the U.S. government,  and
         others are supported only by the full faith and credit of the agency or
instrumentality;                                              

commercial paper, including master demand notes;              

         American  Depositary  Receipts  ("ADRs") of foreign companies traded on
         the New  York  or  American  Stock  Exchanges  or the  over-the-counter
market;                                                       

         foreign securities (either foreign or U.S. securities traded in foreign
        markets). The Fund may also invest in other obligations denominated in
      foreign currencies. In making these decisions, the Fund's investment
adviser will consider such factors as the condition and growth
     potential of various economies and securities markets, currency and
         taxation considerations and other pertinent financial, social, national
and political factors. (See "Special Risk Considerations"     

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         below.) The Fund will not invest more than 10% of its assets in foreign
securities;                                                   

obligations, including certificates of deposit and bankers'   
acceptances, of banks or savings and loan associations having 
        at least $1 billion in deposits and insured by the Bank Insurance Fund
      or the Savings Association Mortgage Fund, including U.S. branches of
foreign banks and foreign branches of U.S. banks; and         

securities of other investment companies.                     

         As of December  31,  1996  approximately  ___% of the Fund's  portfolio
consisted of equity securities.                                                 

         Bonds  rated  Baa  by  Moody's  or  BBB by  S&P  may  have  speculative
characteristics.  Changes in economic conditions or other circumstances are more
likely to weaken the ability of the issuers of such bonds' to make principal and
interest  payments  thanis the case with higher rated bonds.  However,  like the
higher rated bonds,  these  securities are considered  investment  grade.  For a
description of such ratings, see the Statement of Additional Information.       

EVERGREEN VALUE FUND                                                            

         The  investment  objective  of the  EVERGREEN  VALUE FUND is  long-term
capital appreciation with current income as a secondary objective.  Normally, at
least 75% of the Fund's  assets will be invested  in equity  securities  of U.S.
companies with prospects for earnings  growth and dividends.  As of December 31,
1994, 1995 and 1996 approximately 97%, 89% and __%, respectively,  of the Fund's
portfolio consisted of equity securities.                                       

The Fund's investments, in order of priority, consist of:     

          common and preferred stocks, bonds and convertible  preferred stock of
          U.S.  companies with a minimum market  capitalization  of $100 million
          which are listed on the New York or American Stock Exchanges or traded
          in over-the-counter  markets.  The primary  consideration is for those
          industries and companies with the potential for capital  appreciation;
income is a secondary consideration;                        

          ADRs of foreign  companies  traded on the New York or  American  Stock
Exchanges or the over-the-counter market;                   

          foreign  securities  (either  foreign  or U.S.  securities  traded  in
          foreign markets). The Fund may also invest in obligations  denominated
          in  foreign  currencies.   In  making  these  decisions,   the  Fund's
          investment  adviser will  consider  such factors as the  condition and
          growth potential of various economies and securities markets, currency
          and  taxation  implications  and other  pertinent  financial,  social,
        national and political factors. (See "Special Risk Considerations");

          convertible bonds rated no lower than BBB by S&P or Baa by Moody's or,
          if not rated,  determined  to be of  comparable  quality by the Fund's
investment adviser;                                         

money market instruments;                                   

          fixed rate notes and bonds and  adjustable  and variable rate notes of
          companies  whose common stock the Fund may acquire rated no lower than
          BBB by S&P or Baa by Moody's or which, if not rated,  determined to be
          of comparable  quality by the Fund's  investment  adviser (up to 5% of
total assets);                                              

          zero coupon bonds issued or  guaranteed  by the U.S.  government,  its
agencies or instrumentalities (up to 5% of total assets);   

          obligations,   including   certificates   of  deposit   and   bankers'
          acceptances, of banks or savings and loan associations having at least
          $1 billion in deposits and insured by the Bank  Insurance  Fund or the
          Savings Association Insurance Fund, including U.S. branches of foreign
banks and foreign branches of U.S. banks; and               

          prime commercial  paper,  including master demand notes rated no lower
than A-1 by S&P or Prime 1 by Moody's.                      

         Bonds  rated  BBB  by  S&P  or Baa  by  Moody's  may  have  speculative
characteristics.  Changes in economic conditions or other circumstances are more
likely to weaken such bonds' prospects for principal and interests payments than
higher rated bonds.  However,  like the higher rated bonds, these securities are
considered investment grade. For a description of such ratings see the Statement
of Additional Information.                                                      

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KEYSTONE FUND FOR TOTAL RETURN                                                  

     KEYSTONE  FUND FOR TOTAL RETURN seeks total  return from a  combination  of
capital growth and income.  Under ordinary  circumstances,  the Fund will invest
principally in dividend  paying common stocks,  preferred  stocks and securities
convertible into common stocks.  Non-dividend paying stocks may also be owned by
the  Fund  if,  in the  judgment  of the  Fund's  investment  adviser,  that  is
consistent with its  objectives.  The Fund may invest up to 50% of its assets in
securities of foreign issuers located in developed countries as well as emerging
markets  countries.  For this  purpose,  countries  with  emerging  markets  are
generally  those where the per capita income is in the low to middle ranges,  as
determined,  from time to time, by the International Bank for Reconstruction and
Development ("World Bank"). The Fund may invest up to 35% of its total assets in
debt  securities of U.S. and foreign  issuers,  including  secured and unsecured
debt  obligations,  having  any  assigned  rating by S&P or Moody's or which are
unrated.  The Fund may also invest in non-investment grade rated zero coupon and
payment-in-kind ("PIK") securities. See "Special Risk Consideration".           

         The  Fund may  invest  up to 35% of its  total  assets  under  ordinary
circumstances in the following types of money market instruments: (1) commercial
paper,  including master demand notes,  which at the date of investment is rated
A-1, the highest grade,  by S&P,  PRIME-1,  the highest grade, by Moody's or, if
not  rated  by such  services,  is  issued  by a  company  which  at the date of
investment  has an  outstanding  issue rated A or better by S&P or Moody's;  (2)
obligations,  including  certificates  of deposit and bankers'  acceptances,  of
banks or savings and loan  associations  having at least $1 billion in assets as
of the date of their  most  recently  published  financial  statements  that are
members of the Federal Deposit Insurance Corporation, including U.S. branches of
foreign banks and foreign branches of U.S. banks; (3) corporate obligations that
at the date of  investment  are  rated A or better  by S&P or  Moody's;  and (4)
obligations  issued or  guaranteed  by the U.S.  government  or by any agency or
instrumentality of the U.S.                                                     

INVESTMENT PRACTICES AND RESTRICTIONS                                           

Defensive  Investments.  The Funds may invest without limitation in high quality
money market  instruments,  such as notes,  certificates  of deposit or bankers'
acceptances,  or U.S.  government  securities  if, in the  opinion of the Funds'
investment advisers,  market conditions warrant a temporary defensive investment
strategy.  In addition,  KEYSTONE FUND FOR TOTAL RETURN may also make  temporary
investments  in debt  securities and high grade  preferred  stocks for defensive
purposes when it believes market conditions warrant.                            

Portfolio Turnover and Brokerage.  It is contemplated that Lieber & Company,  an
affiliate of Evergreen Asset Management Corp.  ("Evergreen  Asset") and a member
of the New York and American  Stock  Exchanges,  will to the extent  practicable
effect  substantially all of the portfolio  transactions for the EVERGREEN SMALL
CAP EQUITY INCOME FUND,  EVERGREEN  GROWTH AND INCOME FUND and EVERGREEN  INCOME
AND GROWTH FUND on those exchanges. The portfolio turnover rate experienced by a
Fund directly affects  brokerage  commissions and other  transaction costs which
the Fund must pay. A  portfolio  turnover  rate of 100% would  occur if all of a
Fund's  portfolio  securities were replaced in one year. It is anticipated  that
the annual portfolio  turnover rate for the EVERGREEN INCOME AND GROWTH FUND may
exceed 100%. A high rate of portfolio  turnover will increase  brokerage  costs.
The portfolio  turnover rate for each Fund is set forth in the tables  contained
in the section entitled "Financial Highlights".  See the Statement of Additional
Information for further information regarding the brokerage allocation practices
of the Funds.                                                                   

Borrowing. As a matter of fundamental policy, the Funds other than KEYSTONE FUND
FOR TOTAL  RETURN,  may not  borrow  money  except  as a  temporary  measure  to
facilitate  redemption requests or for extraordinary or emergency purposes.  The
proceeds from  borrowings  may be used to facilitate  redemption  requests which
might  otherwise  require the  untimely  disposition  of  portfolio  securities.
KEYSTONE  FUND FOR TOTAL  RETURN may borrow in  amounts up to  one-third  of its
assets for the aformentioned  purposes as well as leverage.  The specific limits
applicable  to  borrowing  by  each  Fund  are set  forth  in the  Statement  of
Additional Information.                                                         

Lending  of  Portfolio  Securities.  In order to  generate  income and to offset
expenses, the Funds may lend portfolio securities to brokers,  dealers and other
financial  institutions.   The  Funds'  investment  advisers  will  monitor  the
creditworthiness  of such  borrowers.  Loans of securities by the Funds,  if and
when made,  may not  exceed 30% of the value of the net assets of the  EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP
EQUITY  INCOME FUND,  15% of the value of the total assets of EVERGREEN  UTILITY
FUND and KEYSTONE  FUND FOR TOTAL RETURN and 5% of the value of the total assets
of EVERGREEN VALUE FUND, and must be collateralized  by cash or U.S.  government
securities  that are maintained at all times in an amount equal to at least 100%
of  the  current  market  value  of the  securities  loaned,  including  accrued
interest.  While such  securities  are on loan, the borrower will pay a Fund any
income  accruing  thereon,  and the  Fund may  invest  the  cash  collateral  in
portfolio securities, thereby increasing its return. Any gain or                

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loss in the market price of the loaned  securities  which occurs during the term
of the loan would affect a Fund and its investors.  A Fund has the right to call
a loan and obtain the  securities  loaned at any time on notice of not more than
five business days.                                                             
A Fund may pay reasonable fees in connection with such loans.                   

         There  is  the  risk  that  when  lending  portfolio  securities,   the
securities  may not be  available  to a Fund on a timely basis and the Fund may,
therefore,  lose the opportunity to sell the securities at a desirable price. In
addition,  in the event that a borrower of securities  would file for bankruptcy
or become insolvent,  disposition of the securities may be delayed pending court
action.                                                                         

Short  Sales.  The  EVERGREEN  INCOME AND GROWTH FUND and  EVERGREEN  GROWTH AND
INCOME FUND may,  as a defensive  strategy,  make short sales of  securities.  A
short sale occurs when a seller sells a security and makes delivery to the buyer
by borrowing the security. Short sales of a security are generally made in cases
where the seller  expects  the  market  value of the  security  to  decline.  To
complete  a short  sale,  the seller  must  replace  the  security  borrowed  by
purchasing it at the market price at the time of  replacement,  or by delivering
securities from the seller's own position to the lender. In the event the market
value of a security sold short were to increase, the seller would realize a loss
to the extent  that the cost of  purchasing  the  security  for  delivery to the
lender were greater than the proceeds  from the short sale. In the event a short
sale is completed by delivery of  securities to the lender from the seller's own
position,  the seller would forego any gain that would  otherwise be realized on
such securities.                                                                

Illiquid or Restricted  Securities.  EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
INCOME AND GROWTH  FUND,  EVERGREEN  UTILITY  FUND and  KEYSTONE  FUND FOR TOTAL
RETURN may invest up to 15% of their net assets,  and EVERGREEN SMALL CAP EQUITY
INCOME FUND and  EVERGREEN  VALUE FUND may invest up to 10% of their net assets,
in illiquid  securities and other securities  which are not readily  marketable,
including non-negotiable time deposits, certain restricted securities not deemed
by the Trustees to be liquid and repurchase  agreements with  maturities  longer
than seven days.  Securities eligible for resale pursuant to Rule 144A under the
Securities  Act of 1933,  which have been  determined to be liquid,  will not be
considered  by the Funds'  investment  advisers  to be  illiquid  or not readily
marketable  and,  therefore,  are not subject to the  aforementioned  15% or 10%
limits. The inability of a Fund to dispose of illiquid or not readily marketable
investments  readily or at a reasonable price could impair the Fund's ability to
raise cash for  redemptions  or other  purposes.  The  liquidity  of  securities
purchased by a Fund which are eligible for resale  pursuant to Rule 144A will be
monitored by the Funds' investment advisers on an ongoing basis,  subject to the
oversight of the Trustees.  In the event that such a security is deemed to be no
longer liquid,  a Fund's holdings will be reviewed to determine what action,  if
any, is required to ensure that the  retention of such  security does not result
in a Fund having more than 15% or 10%of its net assets, as applicable,  invested
in illiquid or not readily marketable securities.                               

Repurchase  Agreements and Reverse  Repurchase  Agreements.  The Funds may enter
into  repurchase  agreements  with member banks of the Federal  Reserve  System,
including the Funds' custodian or primary dealers in U.S. Government securities.
A repurchase  agreement is an arrangement  pursuant to which a buyer purchases a
security  and  simultaneously  agrees to resell it to the vendor at a price that
results in an  agreed-upon  market  rate of return  which is  effective  for the
period of time  (which is  normally  one to seven  days,  but may be longer) the
buyer's money is invested in the security.  The  arrangement  results in a fixed
rate of return  that is not  subject to market  fluctuations  during the holding
period. A Fund requires  continued  maintenance of collateral with its custodian
in an  amount  at  least  equal  to  the  repurchase  price  (including  accrued
interest).  In the event a vendor defaults on its repurchase obligation,  a Fund
might  suffer  a loss to the  extent  that  the  proceeds  from  the sale of the
collateral  were less than the  repurchase  price.  If the  vendor  becomes  the
subject of  bankruptcy  proceedings,  a Fund  might be  delayed  in selling  the
collateral.  The Funds' investment  advisers will review and continually monitor
the  creditworthiness  of  each  institution  with  which a Fund  enters  into a
repurchase agreement to evaluate these risks.                                   

         EVERGREEN  UTILITY  FUND,  EVERGREEN  SMALL  CAP  EQUITY  INCOME  FUND,
EVERGREEN  VALUE FUND,  and  KEYSTONE  FUND FOR TOTAL RETURN may borrow money by
entering  into a  "reverse  repurchase  agreement"  by which it  agrees  to sell
portfolio securities to financial institutions such as banks and broker-dealers,
and to repurchase them at a mutually  agreed upon date and price,  for temporary
or  emergency  purposes.  At the time a Fund  enters  into a reverse  repurchase
agreement, it will place in a segregated custodial account cash, U.S. government
securities or liquid high grade debt  obligations  having a value at least equal
to the  repurchase  price  (including  accrued  interest) and will  subsequently
monitor the account to ensure that such equivalent value is maintained.  Reverse
repurchase  agreements  involve the risk that the market value of the securities
sold by the Fund may decline  below the  repurchase  price of those  securities.
Each  Fund,  other  than  KEYSTONE  FUND FOR TOTAL  RETURN,  will not enter into
reverse repurchase agreements exceeding 5% of the value of its total assets.    

When-Issued and Delayed Delivery Transactions. EVERGREEN UTILITY FUND, EVERGREEN
VALUE FUND and  KEYSTONE  FUND FOR TOTAL  RETURN may  purchase  securities  on a
when-issued or delayed delivery basis. These                                    
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transactions are arrangements in which a Fund purchases  securities with payment
and delivery scheduled for a future time. The seller's failure to complete these
transactions  may  cause  a Fund  to  miss a price  or  yield  considered  to be
advantageous.  Settlement dates may be a month or more after entering into these
transactions,  and the market values of the  securities  purchased may vary from
the purchase  prices.  Accordingly,  a Fund may pay more or less than the market
value of the  securities  on the  settlement  date.  The Funds may  dispose of a
commitment  prior  to  settlement  if the  Funds  investment  adviser  deems  it
appropriate to do so. In addition, the Funds may enter into transactions to sell
their  purchase  commitments  to third  parties  at  current  market  values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize  short-term profits or losses upon the sale of such
commitments.                                                                    

Fixed Income Securities -- Downgrades. If any security invested in by any of the
Funds loses its rating or has its rating  reduced  after the Fund has  purchased
it, the Fund is not required to sell or otherwise  dispose of the security,  but
may consider doing so.                                                          

OPTIONS, FUTURES and DERIVATIVES                                                

         In addition to making investments directly in securities, the Funds may
write  covered put and call options and hedge their  investments  by  purchasing
options.  In addition  EVERGREEN UTILITY FUND,  EVERGREEN VALUE FUND,  EVERGREEN
SMALL CAP EQUITY  INCOME FUND and  KEYSTONE  FUND FOR TOTAL RETURN may engage in
transactions in futures contracts and related options. The investment adviser to
the EVERGREEN  GROWTH AND INCOME FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND
does not  currently  intend to write  covered put options,  purchase  options or
engage in transactions in futures  contracts and related options,  but may do so
in the future. The Funds may engage in foreign currency exchange transactions to
protect against changes in future exchange rates.                               

Writing Options.  Each Fund may write covered call options,  and EVERGREEN VALUE
FUND and  KEYSTONE  FUND FOR TOTAL  RETURN may write  covered  put  options,  on
certain  portfolio  securities in an attempt to earn income and realize a higher
return on their portfolios.  A call option gives the purchaser of the option the
right to buy a security from the writer at the exercise price at any time during
the  option  period.  An option may not be written  if,  afterwards,  securities
comprising more than 5% of the market value of a Fund's equity  securities would
be subject to call options.  A Fund realizes  income from the premium paid to it
in exchange for writing the call option.  Once it has written a call option on a
portfolio  security and until the expiration of such option,  a Fund forgoes the
opportunity  to profit from  increases in the market  price of such  security in
excess  of the  exercise  price  of the call  option.  Should  the  price of the
security  on which a call has been  written  decline,  a Fund  bears the risk of
loss,  which would be offset to the extent the Fund has received premium income.
A Fund  will only  write  "covered"  options  traded  on  recognized  securities
exchanges. An option will be deemed covered when a Fund either owns the security
(or  securities  convertible  into such  security)  on which the option has been
written in an amount sufficient to satisfy the obligations  arising under a call
option;  or (ii) in the  case of call  and put  options,  the  Fund's  custodian
maintains cash or high-grade liquid debt securities  belonging to the Fund in an
amount not less that the amount  needed to satisfy the Fund's  obligations  with
respect to options  written on securities  it does not own. A "closing  purchase
transaction" may be entered into with respect to a call option written by a Fund
for the  purpose of closing  its  position.  The Fund will  realize a profit (or
loss) from such  transaction  if the cost of such  transaction is less (or more)
than the premium received from the writing of the option.  Because  increases in
the market price of a call option will generally reflect increases in the market
price of the  underlying  security,  any loss resulting from the repurchase of a
call option may be offset in whole or in part by unrealized  appreciation of the
underlying security owned by the Fund.                                          

Purchasing Put and Call Options on Securities. EVERGREEN VALUE FUND and KEYSTONE
FUND FOR TOTAL RETURN may purchase put options to protect its portfolio holdings
in an underlying  security against a decline in market value. This protection is
provided during the life of the put option since the Fund, as holder of the put,
is able to sell the underlying  security at the exercise price regardless of any
decline in the  underlying  security's  market price.  For the purchase of a put
option to be  profitable,  the  market  price of the  underlying  security  must
decline  sufficiently  below  the  exercise  price  to  cover  the  premium  and
transaction  costs.  By using put options in this  manner,  any profit which the
Fund might otherwise have realized on the underlying security will be reduced by
the premium paid for the put option and by transaction costs.                   

 A Fund may also purchase a call option to hedge against an increase in price of
a security that it intends to purchase.  This  protection is provided during the
life of the call option  since the Fund,  as holder of the call,  is able to buy
the underlying  security at the exercise price regardless of any increase in the
underlying  security's  market  price.  For the  purchase of a call option to be
profitable,  the market price of the underlying  security must rise sufficiently
above the exercise price to cover the premium and  transaction  costs.  By using
call options in this manner,  any profit which the Fund might have  realized had
it bought the underlying  security at the time it purchased the call option will
be reduced by the premium paid for the call option and by transaction costs.    

Futures, Options and Other Derivative Instruments. EVERGREEN UTILITY FUND,      
EVERGREEN VALUE FUND,                                                           

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EVERGREEN  SMALL CAP EQUITY  INCOME FUND and KEYSTONE  FUND FOR TOTAL RETURN may
purchase and sell various financial instruments  ("Derivative  Instruments) such
as financial  futures  contracts  (including  interest  rate,  index and foreign
currency futures  contracts),  options (such as options on securities,  indices,
foreign  currencies  and futures  contracts),  forward  currency  contracts  and
interest rate, equity index and currency swaps,  caps,  collars and floors.  The
index  Derivative  Instruments  EVERGREEN  UTILITY FUND,  EVERGREEN  VALUE FUND,
EVERGREEN  SMALL CAP EQUITY  INCOME FUND and KEYSTONE  FUND FOR TOTAL RETURN may
use may be based on indices of U.S. or foreign equity or debt securities.  These
Derivative Instruments may be used, for example, to preserve a return or spread,
to lock in unrealized  market value gains or losses, to facilitate or substitute
for the sale or purchase of securities, to manage the duration of securities, to
alter the exposure of a particular investment or portion of the Fund's portfolio
to  fluctuations in interest rates or currency rates, to uncap a capped security
or to convert a fixed rate  security into a variable rate security or a variable
rate security into a fixed rate security.                                       

         A Fund's  ability  to use these  instruments  may be  limited by market
conditions,  regulatory limits and tax considerations.  A Fund might not use any
of these strategies and there can be no assurance that any strategy that is used
will succeed.  See the Statement of Additional  Information for more information
regarding these instruments and the risks relating thereto.                     

Risks of Derivative Instruments.  The use of Derivative  instruments,  including
written put and call options,  involves special risks,  including:  (1) the lack
of, or imperfect,  correlation  between price movements of the Fund's current or
proposed portfolio  investments that are the subject of the transactions as well
as price movements of the Derivative  Instruments  involved in the  transaction;
(2) possible lack of a liquid  secondary  market for any  particular  Derivative
Instrument  at  a  particular  time;  (3)  the  need  for  additional  portfolio
management skills and techniques;  (4) losses due to unanticipated  market price
movements; (5) the fact that, while such strategies can reduce the risk of loss,
they can also reduce the  opportunity  for gain,  or even  result in losses,  by
offsetting  favorable  price movements in portfolio  investments;  (6) incorrect
forecasts  by a  Fund's  investment  adviser  concerning  interest  or  currency
exchange rates or direction of price  fluctuations of the investment that is the
subject of the transaction,  which may result in the strategy being ineffective;
(7) loss of  premiums  paid by the Fund on  options  it  purchases;  and (8) the
possible  inability  of the Fund to purchase  or sell a portfolio  security at a
time when it would otherwise be favorable for it to do so, or the need to sell a
portfolio  security at a  disadvantageous  time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with such transactions
and the possible inability of the Fund to close out or liquidate its positions. 

 A Fund's investment adviser may use Derivative  Instruments,  including written
put and call  options,  for  hedging  purposes  (i.e.  by  paying a  premium  or
foregoing the opportunity for profit in return for protection  against downturns
in markets  generally or the prices of individual  securities or currencies) and
also may use Derivative Instruments to try to enhance the return characteristics
of a Fund's portfolio of investments  (i.e. by receiving  premiums in connection
with the writing of options  and  thereby  accepting  the risk of  downturns  in
markets  generally or the prices of  individual  securities  or currencies or by
paying premiums with the hope that the underlying  Derivative  Instruments  will
appreciate).  The use of  Derivative  Instruments  for  hedging  purposes  or to
enhance a Fund's  return  characteristics  can increase  investment  risk.  If a
Fund's  investment  adviser  judges market  conditions  incorrectly or employs a
strategy  that  does not  correlate  well  with the  Fund's  investments,  these
techniques  could  result in a loss,  regardless  of  whether  the intent was to
reduce risk or increase return.  These techniques may increase the volatility of
a Fund and may involve a small  investment  of cash relative to the magnitude of
the risk assumed,  resulting in leverage.  In addition,  these  techniques could
result in a loss if the  counterparty  to the  transaction  does not  perform as
promised  or if there is not a liquid  secondary  market to close out a position
that the Fund has entered into.  Options and futures  transactions  may increase
portfolio turnover rates, which would result in greater commission  expenses and
transaction costs.                                                              

Foreign  Currency  Transactions.  To the extent a Funds may  invest in  non-U.S.
dollar denominated  securities,  it may enter into foreign currency transactions
to obtain the necessary currencies to settle securities  transactions.  Currency
transactions may be conducted either on a spot or cash basis at prevailing rates
or through forward foreign currency exchange  contracts  ("forward  contracts").
EVERGREEN  SMALL CAP EQUITY  INCOME FUND and KEYSTONE  FUND FOR TOTAL RETURN may
also enter into  forward  foreign  currency  exchange  contracts to protect Fund
assets  denominated in a foreign  currency  against  adverse  changes in foreign
currency  exchange  rates or exchange  control  regulations.  Such changes could
unfavorably  affect the value of Fund assets  which are  denominated  in foreign
currencies,  such as foreign  securities or funds deposited in foreign banks, as
measured in U.S. dollars.  The use of forward contracts for hedging purposes may
limit any potential gain that might result from a relative increase in the value
of such currencies and might, in certain cases,  result in losses to the Fund. A
forward  contract is an obligation to purchase or sell an amount of a particular
currency at a specific  price and on a future  date agreed upon by the  parties.
Generally,  no commission  charges or deposits are involved.  At the time a Fund
enters  into a forward  contract,  Fund  assets with a value equal to the Fund's
obligation  under the forward  contract are segregated and are maintained  until
the contract has been settled.  The Funds will not enter into a forward contract
with a term of more than one year. In addition to forward contracts entered into
for hedging  purposes,  EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND
FOR TOTAL  RETURN will  generally  enter into a forward  contract to provide the
proper currency to settle a securities                                          

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transaction  at the time the  transaction  occurs  ("trade  date").  The  period
between trade date and  settlement  date will vary between 24 hours and 60 days,
depending upon local custom.                                                    

Options on  Foreign  Currencies.  EVERGREEN  SMALL CAP  EQUITY  INCOME  FUND and
KEYSTONE FUND FOR TOTAL RETURN also purchase foreign currency put options. A put
option gives the holder, upon payment of a premium, the right to sell a currency
at the exercise  price until the  expiration  of the option and serves to ensure
against  adverse  currency price  movements in the underlying  portfolio  assets
denominated in that currency.  Exchange listed options on seven major currencies
are traded in the U.S. In addition,  several  major U.S.  investment  firms make
markets in unlisted options on foreign currencies.  Such unlisted options may be
available with respect to a wide range of foreign currencies than listed options
and may  have  more  flexible  terms.  Unlisted  foreign  currency  options  are
generally  less  liquid  than  listed  options  and  involve  the  credit  risks
associated  with the individual  issuer.  No more than 5% of a Fund's net assets
may be  represented  by  premiums  paid by the Fund with  respect  to options on
foreign currencies outstanding at any one time. Furthermore, the market value of
unlisted  options on foreign  currencies  will be included  with other  illiquid
assets held by the Fund for purposes of the 15% limit on such assets.  The Funds
may  write a call  option  on a  foreign  currency  only in  conjunction  with a
purchase of a put option on that currency. A call option written by a Fund gives
the purchaser,  upon payment of a premium, the right to purchase from the Fund a
currency at the exercise price until the expiration of the option.  Writing call
options  in this  manner is  designed  to reduce the cost of  downside  currency
protection but has the effect of limiting currency appreciation potential.      

SPECIAL RISK CONSIDERATIONS                                                     

         Fixed  Income  Investments.  Investments  by the Funds in fixed  income
securities  are subject to a number of risks.  For example,  changes in economic
conditions  could result in the weakening of the capacity of the issuers of such
securities to make principal and interest payments,  particularly in the case of
issuers of non-investment grade fixed income securities. In addition, the market
value of fixed-income  securities in a Fund's  portfolio can be expected to vary
inversely  to changes in  prevailing  interest  rates.  In the event  there is a
downgrading in the rating of a fixed income security held in a Fund's portfolio,
the Fund may continue to hold the security if such action is deemed to be in the
best interests of the Fund and its shareholders.                                

         Investment  in Small  Companies.  EVERGREEN  GROWTH AND INCOME FUND may
invest from time to time, and EVERGREEN SMALL CAP EQUITY INCOME FUND will invest
in securities of little-known, relatively small and special situation companies.
Investments in such companies may tend to be speculative and volatile. A lack of
management  depth in such companies could increase the risks associated with the
loss of key  personnel.  Also,  the  material  and  financial  resources of such
companies may be limited,  with the consequence that funds or external financing
necessary for growth may be unavailable.  Such companies may also be involved in
the  development or marketing of new products or services for which there are no
established  markets.  If projected  markets do not materialize or only regional
markets develop,  such companies may be adversely  affected or be subject to the
consequences  of local events.  Moreover,  such  companies may be  insignificant
factors in their  industries and may become subject to intense  competition from
larger companies.  Securities of small and special situation  companies in which
the Funds invest will frequently be traded only in the  over-the-counter  market
or on regional  stock  exchanges and will often be closely  held.  Securities of
this type may have limited liquidity and be subject to wide price  fluctuations.
As a result of the risk  factors  described  above,  the net asset value of each
Fund's shares can be expected to vary significantly.                            

Investment in Foreign  Securities.  EVERGREEN INCOME AND GROWTH FUND,  EVERGREEN
UTILITY  FUND  and  KEYSTONE  FUND  FOR  TOTAL  RETURN  may  invest  in  foreign
securities.  Investments in foreign securities require  consideration of certain
factors not normally  associated with investments in securities of U.S. issuers.
For example,  a change in the value of any foreign currency relative to the U.S.
dollar  will  result  in a  corresponding  change  in the U.S.  dollar  value of
securities denominated in that currency.  Accordingly,  a change in the value of
any foreign currency  relative to the U.S. dollar will result in a corresponding
change in the U.S. dollar value of the assets of the Fund  denominated or traded
in that currency.  If the value of a particular  foreign currency falls relative
to the U.S. dollar, the U.S. dollar value of the assets of a Fund denominated in
such currency will also fall. The performance of a Fund will be measured in U.S.
dollars.                                                                        

         Securities  markets of foreign  countries  generally are not subject to
the same degree of regulation  as the U.S.  markets and may be more volatile and
less liquid.  Lack of liquidity may affect a Fund's  ability to purchase or sell
large blocks of securities  and thus obtain the best price.  The lack of uniform
accounting  standards  and  practices  among  countries  impairs the validity of
direct  comparisons of valuation  measures (such as  price/earnings  ratios) for
securities  in  different  countries.  In  addition,  a  Fund  may  incur  costs
associated  with currency  hedging and the  conversion of foreign  currency into
U.S. dollars and may be adversely  affected by restrictions on the conversion or
transfer of foreign currency.  Other considerations include political and social
instability,   expropriation,   the  lack  of  available   information,   higher
transaction costs (including  brokerage  charges),  increased  custodian charges
associated with holding foreign securities and different  securities  settlement
practices. Settlement periods                                                   

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for foreign securities,  which are sometimes longer than those for securities of
U.S.  issuers,  may  affect  portfolio  liquidity.  These  different  settlement
practices may cause missed purchasing  opportunities and/or the loss of interest
on money market and debt  investments  pending  further equity or long-term debt
investments.  In addition,  foreign  securities  held by a Fund may be traded on
days that the Fund does not value its  portfolio  securities,  such as Saturdays
and customary business holidays, and, accordingly,  a Fund's net asset value may
be  significantly  affected on days when  shareholders do not have access to the
Fund.                                                                           

         Additionally,  accounting procedures and government  supervision may be
less  stringent  than those  applicable to U.S.  companies.  It may also be more
difficult to enforce  contractual  obligations  abroad than would be the case in
the  United  States  because  of  differences  in  the  legal  systems.  Foreign
securities may be subject to foreign taxes,  which may reduce yield,  and may be
less  marketable  than  comparable  U.S.  securities.   All  these  factors  are
considered by each Fund's investment adviser before making any of these types of
investments.                                                                    

         ADRs and EDRs and  other  securities  convertible  into  securities  of
foreign  issuers may not  necessarily be denominated in the same currency as the
securities  into which they may be  converted  but rather in the currency of the
market  in which  they are  traded.  ADRs are  receipts  typically  issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation.  EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement.  Generally ADRs, in
registered  form, are designed for use in United States  securities  markets and
EDRs, in bearer form, are designed for use in European securities markets.      

Investments Related to Real Estate.  EVERGREEN INCOME AND GROWTH FUND may invest
up to 15% of its net  assets and  EVERGREEN  SMALL CAP  EQUITY  INCOME  FUND may
invest  without  limit in  investments  related to real estate,  including  real
estate   investment  trust  ("REITS").   Risks  associated  with  investment  in
securities  of companies in the real estate  industry  include:  declines in the
value of real estate,  risks related to general and local  economic  conditions,
overbuilding  and  increased  competition,   increases  in  property  taxes  and
operating  expenses,  changes in zoning laws,  casualty or condemnation  losses,
variations  in rental  income,  changes in  neighborhood  values,  the appeal of
properties to tenants and increases in interest rates. In addition,  equity real
estate  investment  trusts  may be  affected  by  changes  in the  value  of the
underlying  property owned by the trusts,  while mortgage real estate investment
trusts may be affected by the quality of credit  extended.  Equity and  mortgage
real estate investment trusts are dependent upon management  skills,  may not be
diversified and are subject to the risks of financing projects.  Such trusts are
also  subject  to heavy  cash  flow  dependency,  defaults  by  borrowers,  self
liquidation and the possibility of failing to qualify for tax-free  pass-through
of income under the Internal  Revenue Code of 1986,  as amended (the "Code") and
to maintain  exemption from the Investment  Company Act of 1940, as amended (the
"1940 Act").  In the event an issuer of debt securities  collateralized  by real
estate  defaulted,  it is  conceivable  that a Fund  could  end up  holding  the
underlying real estate.                                                         

Lower-rated  Securities.  EVERGREEN GROWTH AND INCOME FUND and KEYSTONE FUND FOR
TOTAL RETURN may invest a portion of their assets in securities  rated below Baa
by Moody's  or BBB by S&P  (commonly  known as "junk  bonds").  Lower-rated  and
comparable  unrated securities  (collectively  referred to in this discussion as
"lower-rated   securities")   will  likely  have  some  quality  and  protective
characteristics   that,  in  the  judgment  of  the  rating  organization,   are
out-weighed  by  large   uncertainties   or  major  risk  exposures  to  adverse
conditions;  and are  predominantly  speculative  with  respect to the  issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation.                                                                     

         While the market values of lower-rated securities tend to react less to
fluctuations  in interest  rate levels  than the market  values of higher  rated
securities,  the market values of certain lower-rated securities also tend to be
more  sensitive to  individual  corporate  developments  and changes in economic
conditions than higher-rated  securities.  In addition,  lower-rated  securities
generally  present a higher  degree  of credit  risk.  Issuers  of lower-  rated
securities are often highly leveraged and may not have more traditional  methods
of  financing  available  to them so that their  ability  to service  their debt
obligations  during an economic  downturn or during sustained  periods of rising
interest rates may be impaired.  The risk of loss due to default by such issuers
is significantly greater because lower-rated  securities generally are unsecured
and frequently are subordinated to the prior payment of senior  indebtedness.  A
Fund may incur  additional  expenses  to the extent  that it is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings.  The  existence  of limited  markets for  lower-rated  securities  may
diminish a Fund's ability to obtain accurate  market  quotations for purposes of
valuing such  securities  and  calculating  its net asset value.  For additional
information about the possible risks of investing in junk bonds, see "Investment
Objectives   and  Policies  -  Junk  Bonds"  in  the   Statement  of  Additional
Information.                                                                    

Investments  in the Utility  Industry.  In view of the EVERGREEN  UTILITY FUND'S
investment concentration,  investors should be aware of certain risks associated
with the utility  industry in general.  These  include  difficulties  in earning
adequate returns on investments despite frequent rate increases, restrictions on
operations  and  increased  costs and  delays due to  governmental  regulations,
building or construction delays,  environmental  regulations,  difficulty of the
capital markets in absorbing utility debt                                       

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and equity securities, and difficulties in obtaining fuel at reasonable prices. 

Other  Investment  Restrictions.  Each Fund has  adopted  additional  investment
restrictions  that are set forth in the  Statement  of  Additional  Information.
Unless  otherwise  noted,  the restrictions and policies set forth above are not
fundamental and may be changed without shareholder  approval.  Shareholders will
be notified of any changes in policies that are not fundamental.                
--------------------------------------------------------------------------------

           MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------

INVESTMENT ADVISERS                                                             

         The  management of each Fund is supervised by the Trustees of the Trust
under which the Fund has been established ("Trustees"). Evergreen Asset has been
retained by EVERGREEN  INCOME AND GROWTH FUND,  EVERGREEN GROWTH AND INCOME FUND
and  EVERGREEN  SMALL CAP EQUITY INCOME FUND as  investment  adviser.  Evergreen
Asset succeeded on June 30, 1994 to the advisory  business of a corporation with
the same name,  but under  different  ownership,  which was  organized  in 1971.
Evergreen Asset, with its predecessors,  has served as investment adviser to the
Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned  subsidiary
of First  Union  National  Bank of  North  Carolina  ("FUNB").  The  address  of
Evergreen Asset is 2500 Westchester Avenue,  Purchase, New York 10577. FUNB is a
subsidiary of First Union  Corporation  ("First Union"),  the sixth largest bank
holding company in the United States.  Stephen A. Lieber and Nola Maddox Falcone
serve as the chief  investment  officers  of  Evergreen  Asset  and,  along with
Theodore J. Israel,  Jr., were the owners of Evergreen  Asset's  predecessor and
the former  general  partners of Lieber & Company  which,  as  described  below,
provides certain subadvisory  services to Evergreen Asset in connection with its
duties as investment  adviser to the Funds. The Capital Management Group of FUNB
("CMG")  serves as  investment  adviser to EVERGREEN  UTILITY FUND and EVERGREEN
VALUE FUND.                                                                     

         Keystone Investment  Management Company  ("Keystone") has been retained
by  KEYSTONE  FUND FOR TOTAL  RETURN to serve as  investment  adviser.  Keystone
succeded on December 11, 1996 to the advisory business of a corporation with the
same name, but under different ownership, which provided investment advisory and
management  services to investment  companies and private  accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of FUNB.               

         First Union is headquartered in Charlotte, North Carolina, and had $132
billion in  consolidated  assets as of February  29,  1997.  First Union and its
subsidiaries  provide a broad range of  financial  services to  individuals  and
businesses  throughout the United States.  CMG manages or otherwise oversees the
investment  of over $45 billion in assets  belonging to a wide range of clients,
including all the series of Evergreen  Investment Trust (formerly known as First
Union  Funds) the two series of The  Evergreen  Lexicon Fund  (formerly  The FFB
Lexicon Fund) and the two series of Evergreen  Tax Free Trust  (formerly the FFB
Funds Trust). First Union Brokerage Services, Inc., a wholly-owned subsidiary of
FUNB, is a registered  broker-dealer  that is  principally  engaged in providing
retail brokerage  services  consistent with its federal banking  authorizations.
First Union Capital Markets Corp., a wholly-owned  subsidiary of First Union, is
a registered broker-dealer principally engaged in providing, consistent with its
federal banking  authorizations,  private  placement,  securities  dealing,  and
underwriting services.                                                          

         As investment  adviser to EVERGREEN  INCOME AND GROWTH FUND,  EVERGREEN
GROWTH AND INCOME FUND and  EVERGREEN  SMALL CAP EQUITY  INCOME FUND,  Evergreen
Asset manages each Fund's investments,  provides various administrative services
and supervises each Fund's daily business  affairs,  subject to the authority of
the  Trustees.  Evergreen  Asset is entitled to receive  from each of  EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP
EQUITY  INCOME  FUND a fee equal to 1% of average  daily net assets on an annual
basis on the first $750 million in assets,  .9 of 1% of average daily net assets
on an annual basis on the next $250  million in assets,  and .8 of 1% of average
daily net assets on an annual basis on assets over $1 billion.  The fees paid by
EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN
SMALL  CAP  EQUITY  INCOME  FUND are  higher  than the rate  paid by most  other
investment companies.                                                           

         CMG manages  investments  and supervises the daily business  affairs of
EVERGREEN  UTILITY FUND and EVERGREEN VALUE FUND and, as compensation  therefor,
is  entitled  to receive  an annual fee equal to .50 of 1% of average  daily net
assets of each Fund.                                                            

          Keystone act as  investment  adviser to KEYSTONE FUND FOR TOTAL RETURN
and manages the Fund's investments, provides various administrative services and
supervises  the Fund's daily business  affairs,  subject to the authority of the
Trustees. As payment for its services,  Keystone is entitled to receive from the
KEYSTONE FUND FOR TOTAL RETURN a fee,  calculated  on an annual basis,  equal to
1.5% of Gross Dividend and Interest Income of the Fund plus 0.60% of the first  

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$100,000,000  of the aggregate  net asset value of the shares of the Fund,  plus
0.55% of the next $100,000,000,  plus 0.50% of the next $100,000,000, plus 0.45%
of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35% of the
next $500,000,000, plus 0.30% of amounts over $1,000,000,000, computed as of the
close of business each business day and paid daily.                             

         The total  annualized  operating  expenses  of each Fund for the fiscal
year ended  December 31, 1996 (January 31, 1996 in the case of EVERGREEN  INCOME
AND GROWTH FUND)  expressed  as a percentage  of average net assets on an annual
basis  are set  forth  in the  section  entitled  "Financial  Highlights".  Such
expenses reflect all voluntary  expense  reimbursements  which may be revised or
terminated at any time.                                                         

          Evergreen Asset serves as administrator to EVERGREEN  UTILITY FUND and
EVERGREEN VALUE FUND and is entitled to receive a fee based on the average daily
net  assets of these  Funds at a rate  based on the total  assets of the  mutual
funds  administered  by Evergreen  Asset for which CMG or  Evergreen  Asset also
serve as  investment  adviser,  calculated  in  accordance  with  the  following
schedule:  .050% of the first $7 billion; .035% on the next $3 billion; .030% on
the  next $5  billion;  .020%  on the  next  $10  billion;  .015% on the next $5
billion; and .010% on assets in excess of $30 billion.  BISYS Fund Services,  an
affiliate of Evergreen  Keystone  Distributor,  Inc.  (formerly  Evergreen Funds
Distributor,  Inc.), distributor for the Evergreen group of mutual funds, serves
as  sub-administrator  to EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND and is
entitled to receive a fee from each Fund  calculated  on the  average  daily net
assets of each  Fund at a rate  based on the total  assets of the  mutual  funds
administered by Evergreen Asset for which CMG,  Keystone or Evergreen Asset also
serve as  investment  adviser,  calculated  in  accordance  with  the  following
schedule:  .0100% of the first $7 billion; .0075% on the next $3 billion; .0050%
on the next $15  billion;  and  .0040% on assets in excess of $25  billion.  The
total assets of the mutual funds  administered by Evergreen Asset for which CMG,
Keystone or Evergreen Asset serve as investment  adviser were approximately $___
billion as of February 29, 199_.                                                

          The  portfolio  manager for  EVERGREEN  INCOME AND GROWTH FUND is Nola
Maddox  Falcone,  C.F.A.,  who is President  and Co-Chief  Executive  Officer of
Evergreen  Asset.  Ms. Falcone has served as the principal  manager of each Fund
since  1985  and  1993,  respectively.   The  portfolio  manager  for  EVERGREEN
FOUNDATION  FUND is Stephen A. Lieber,  who is Chairman  and Co-Chief  Executive
Officer of  Evergreen  Asset.  Mr.  Lieber has served as such  Fund's  principal
manager  since its  inception.  The portfolio  manager for EVERGREEN  GROWTH AND
INCOME  FUND is Edmund H.  Nicklin,  Jr.  C.F.A.  Mr.  Nicklin has served as the
Fund's principal manager since its inception.  Mrs. Falcone and Mr. Nicklin have
been associated  with Evergreen  Asset and its predecessor  since 1974 and 1982,
respectively.                                                                   

         The portfolio manager for EVERGREEN UTILITY FUND since its inception in
1991 is H. Bradley  Donovan,  who is an Assistant  Vice  President of FUNB.  Mr.
Donovan  joined FUNB in 1981 and has been with First Union since 1992.  Prior to
that Mr.  Donovan  had served as a portfolio  manager and equity  analyst at the
Bank of Boston.  EVERGREEN  VALUE FUND is currently being managed by experienced
members  of the CMG staff.  CMG has been  managing  trust  assets for over fifty
years.                                                                          

         Walter  McCormick has been the  Portfolio  Manager of KEYSTONE FUND FOR
TOTAL  RETURN since 1987.  Mr.  McCormick  is also a Vice  President  and Senior
Portfolio Manager of Keystone and has more than 25 years' investment experience.

SUB-ADVISER                                                                     

         Evergreen Asset has entered into sub-advisory  agreements with Lieber &
Company which provide that Lieber & Company's research department and staff will
furnish Evergreen Asset with information, investment recommendations, advice and
assistance,  and will be generally  available for consultation on the portfolios
of  EVERGREEN  INCOME  AND GROWTH  FUND,  EVERGREEN  GROWTH AND INCOME  FUND and
EVERGREEN  SMALL CAP EQUITY INCOME FUND.  Lieber & Company will be reimbursed by
Evergreen Asset in connection with the rendering of services on the basis of the
direct and indirect costs of performing  such  services.  There is no additional
charge to EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and
EVERGREEN  SMALL CAP EQUITY  INCOME FUND for the  services  provided by Lieber &
Company.  The address of Lieber & Company is 2500 Westchester Avenue,  Purchase,
New York 10577.                                                                 
Lieber & Company is an indirect, wholly-owned, subsidiary of First Union.       

DISTRIBUTION PLANS AND AGREEMENTS                                               

         Rule  12b-1  under the 1940 Act  permits an  investment  company to pay
expenses  associated  with the  distribution  of its shares in accordance with a
duly  adopted  plan.  Each Fund has adopted for each of its Class A, Class B and
Class C shares a Rule 12b-1 plan (each, a "Plan" or  collectively  the "Plans").
Under the Plans, each Fund may incur distribution-related and                   

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shareholder  servicing-related  expenses  which may not exceed an annual rate of
 .75 of 1% of the aggregate average daily net assets attributable to each Fund's
Class A shares, 1% of the aggregate average daily net assets attributable to the
Class B and Class C shares of EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH
AND INCOME FUND,  EVERGREEN  SMALL CAP EQUITY INCOME FUND, and KEYSTONE FUND FOR
TOTAL  RETURN  and  .75  of  1%  of  the  aggregate  average  daily  net  assets
attributable  to the Class B and Class C shares of  EVERGREEN  UTILITY  FUND and
EVERGREEN  VALUE FUND.  Payments under the Plans adopted with respect to Class A
shares are currently  voluntarily  limited to .25 of 1% of each Fund's aggregate
average daily net assets  attributable to Class A shares. The Plans provide that
a portion of the fee payable  thereunder may constitute a service fee to be used
for providing  ongoing  personal  services and/or the maintenance of shareholder
accounts. EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND have each, in addition
to the Plans  adopted with respect to their Class B and Class C shares,  adopted
shareholder  service plans ("Service Plans") relating to the Class B and Class C
shares which permit each Fund to incur a fee of up to .25 of 1% of the aggregate
average  daily net  assets  attributable  to the Class B and Class C shares  for
ongoing personal services and/or the maintenance of shareholder  accounts.  Such
service fee  payments to financial  intermediaries  for such  purposes,  whether
pursuant to a Plan or Service  Plan,  will not exceed .25 of 1% of the aggregate
average daily net assets attributable to each Class of shares of each Fund.     

         Each  Fund has  also  entered  into a  distribution  agreement  (each a
"Distribution  Agreement" or collectively the  "Distribution  Agreements")  with
Evergreen  Keystone  Distributor,  Inc.  ("EKD").  Pursuant to the  Distribution
Agreements,  each Fund will  compensate EKD for its services as distributor at a
rate  which may not  exceed an  annual  rate of .25 of 1% of a Fund's  aggregate
average daily net assets  attributable to Class A shares,  .75 of 1% of a Fund's
aggregate average daily net assets attributable to the Class B shares and .75 of
1% of a Fund's  aggregate  average daily net assets  attributable to the Class C
shares.  The Distribution  Agreements provide that EKD will use the distribution
fee received from a Fund for payments (i) to compensate  broker-dealers or other
persons for distributing  shares of the Funds,  including interest and principal
payments made in respect of amounts paid to broker-dealers or other persons that
have been financed (EKD may assign its rights to receive  compensation under the
Plans to secure such  financings),  (ii) to otherwise promote the sale of shares
of the Fund, and (iii) to compensate broker-dealers, depository institutions and
other  financial  intermediaries  for providing  administrative,  accounting and
other  services  with  respect  to the Fund's  shareholders.  The  financing  of
payments  made  by  EKD  to  compensate  broker-dealers  or  other  persons  for
distributing shares of the Funds may be provided by FUNB or its affiliates.  The
Funds may also make  payments  under  the  Plans  (and in the case of  EVERGREEN
UTILITY FUND and EVERGREEN VALUE FUND, the Service Plans),  in amounts up to .25
of 1% of a  Fund's  aggregate  average  daily  net  assets  on an  annual  basis
attributable to Class B and Class C shares, to compensate  organizations,  which
may include  EKD and each Fund's  investment  adviser or their  affiliates,  for
personal services rendered to shareholders and/or the maintenance of shareholder
accounts.                                                                       

         The Funds may not pay any  distribution  or  services  fees  during any
fiscal period in excess of the amounts set forth above. Since EKD's compensation
under the Distribution  Agreements is not directly tied to the expenses incurred
by EKD,  the  amount  of  compensation  received  by it under  the  Distribution
Agreements  during any year may be more or less than its actual expenses and may
result in a profit to EKD.  Distribution  expenses incurred by EKD in one fiscal
year that exceed the level of compensation paid to EKD for that year may be paid
from distribution fees received from a Fund in subsequent fiscal years.         

         The Plans are in compliance  with rules of the National  Association of
Securities  Dealers,  Inc. which effectively limit the annual  asset-based sales
charges and service  fees that a mutual fund may pay on a class of shares to .75
of 1% and .25 of 1%, respectively, of the average annual net assets attributable
to that class. The rules also limit the aggregate of all front-end, deferred and
asset-based  sales charges imposed with respect to a class of shares by a mutual
fund that  also  charges a service  fee to 6.25% of  cumulative  gross  sales of
shares of that class, plus interest at the prime rate plus 1% per annum.        
--------------------------------------------------------------------------------

         PURCHASE AND REDEMPTION OF SHARES
--------------------------------------------------------------------------------

HOW TO BUY SHARES                                                               

         You can  purchase  shares of any of the Funds  through  broker-dealers,
banks or other financial  intermediaries,  or directly  through EKD. The minimum
initial investment is $1,000,  which may be waived in certain situations.  There
is no minimum for subsequent investments. Investments of $25 or more are allowed
under the Systematic  Investment Program.  Share certificates are not issued. In
states where EKD is not registered as a broker-dealer shares of a Fund will only
be sold through other  broker-dealers  or other financial  institutions that are
registered.  See the Share  Purchase  Application  and  Statement of  Additional
Information for more  information.  Only Class A, Class B and Class C shares are
offered through this Prospectus (see "General  Information" -- "Other Classes of
Shares"). In addition, you may open an account for the purchase of shares of the
KEYSTONE                                                                        

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FUND FOR TOTAL  RETURN by mailing a completed  account  application  and a check
payable to the Fund to: KEYSTONE FUND FOR TOTAL RETURN,  c/o Evergreen  Keystone
Service Company, Inc., P.O. Box 2121, Boston,  Massachusetts  02106-2121, or you
may telephone 1-800-343-2898 to obtain the number of an account to which you can
wire  or   electronically   transfer  and  then  send  in  a  completed  account
application.  Subsequent  investments  in any  amount  may be made by check,  by
wiring Federal funds or by an electronic funds transfer ("EFT").                

Class A  Shares-Front-End  Sales Charge  Alternative.  You can purchase  Class A
shares at net asset  value  plus an  initial  sales  charge on  purchases  under
$1,000,000.  On purchases of  $1,000,000  or more, a contingent  deferred  sales
charge  ("CDSC")  equal to 1% of the lesser of the purchase  price or redemption
value will be imposed on shares  redeemed  during the first year after purchase.
The schedule of charges for Class A shares is as follows:                       

INITIAL SALES CHARGE                                                            

as a %       as a %               
of the Net   of the               
                 Amount       Offering    Commission to Dealer/Agent
Amount of Purchase     Invested     Price       as a % of Offering Price        

Less than   $50,000   4.99%        4.75%       4.25%                          
$50,000 -  $99,999   4.71%        4.50%       4.25%                         
$100,000 - $249,999   3.90%        3.75%       3.25%                          
$250,000 - $499,999   2.56%        2.50%       2.00%                          
$500,000 - $999,999   2.04%        2.00%       1.75%                          
Over     $1,000,000   None         None        1.00% on the first $2,999,999; 
                                            plus .50 of 1% on amounts of
                                                $3,000,000 and up to $4,999,999;
                                         plus .25 of 1% on amounts
                                   $5,000,000 and over

         No front-end sales charges are imposed on Class A shares  purchased by:
institutional investors, which may include bank trust departments and registered
investment advisers; investment advisers,  consultants or financial planners who
place  trades for their own  accounts or the  accounts of their  clients and who
charge such clients a management,  consulting, advisory or other fee; clients of
investment  advisers  or  financial  planners  who  place  trades  for their own
accounts if the  accounts  are linked to the master  account of such  investment
advisers or financial  planners on the books of the  broker-dealer  through whom
shares  are  purchased;  institutional  clients  of  broker-dealers,   including
retirement  and  deferred  compensation  plans and the trusts used to fund these
plans,  which place trades through an omnibus account  maintained with a Fund by
the  broker-dealer;  shareholders of record on October 12, 1990 in any series of
Evergreen  Investment  Trust in existence on that date, and the members of their
immediate  families;   employees  of  FUNB  and  its  affiliates,  EKD  and  any
broker-dealer  with whom EKD has entered into an agreement to sell shares of the
Funds,  and members of the immediate  families of such  employees;  and upon the
initial  purchase of an  Evergreen  mutual  fund by  investors  reinvesting  the
proceeds from a redemption  within the preceding  thirty days of shares of other
mutual funds,  provided such shares were  initially  purchased  with a front-end
sales charge or subject to a CDSC.  Certain  broker-dealers  or other  financial
institutions may impose a fee on transactions in shares of a Fund.              

         Class A shares may also be  purchased  at net asset value by  qualified
and  non-qualified  employee  benefit and savings plans which make shares of the
Funds  and  the  other  Evergreen/Keystone   mutual  funds  available  to  their
participants,  and  which:  (a) are  employee  benefit  plans  having  at  least
$1,000,000 in investable  assets, or 250 or more eligible  participants;  or (b)
are  non-qualified  benefit or profit  sharing  plans which are  sponsored by an
organization  which also makes the  Evergreen/Keystone  mutual  funds  available
through a qualified plan meeting the criteria specified under (a). In connection
with sales made to plans of the type  described in the  preceding  sentence that
are clients of  broker-dealers,  and which do not qualify for sales at net asset
value under the  conditions  set forth in the paragraph  above,  payments may be
made in an amount equal to .50 of 1% of the net asset value of shares purchased.
These  payments are subject to reclaim in the event  shares are redeemed  within
twelve months after purchase.                                                   

         When Class A shares are sold, EKD will normally retain a portion of the
applicable  sales  charge  and pay the  balance  to the  broker-dealer  or other
financial  intermediary through whom the sale was made. EKD may also pay fees to
banks  from  sales  charges  for  services  performed  on behalf  of the  bank's
customers in connection with the purchase of shares of the Funds. In addition to
compensation  paid at the time of sale,  entities  whose clients have  purchased
Class A shares  may  receive  a  trailing  commission  equal to .25 of 1% of the
average daily value on an annual basis of Class A shares held by their  clients.
Certain  purchases  of Class A shares may qualify for reduced  sales  charges in
accordance  with a  Fund's  Combined  Purchase  Privilege,  Cumulative  Quantity
Discount,  Statement of Intention,  Privilege for Certain  Retirement  Plans and
Reinstatement Privilege.                                                        

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Consult the Share Purchase  Application and Statement of Additional  Information
for additional information concerning these reduced sales charges.              

Class B  Shares-Deferred  Sales Charge  Alternative.  You can  purchase  Class B
shares at net asset value without an initial sales charge.  However, you may pay
a CDSC if you redeem shares  within six years after  purchase.  Shares  obtained
from  dividend or  distribution  reinvestment  are not subject to the CDSC.  The
amount of the CDSC  (expressed  as a percentage of the lesser of the current net
asset value or original  cost) will vary  according  to the number of years from
the purchase of Class B shares as set forth below.                              

Year Since                                                                      
Purchase                                    Contingent Deferred Sales Charge    

FIRST                                                5%                         
SECOND                                               4%                         
THIRD and FOURTH                                     3%                         
FIFTH                                                2%                         
SIXTH                                                1%                         

         The CDSC is deducted from the amount of the  redemption  and is paid to
EKD. The CDSC will be waived on  redemptions  of shares  following  the death or
disability  of a  shareholder,  to meet  distribution  requirements  for certain
qualified  retirement  plans or in the case of certain  redemptions made under a
Fund's  Systematic  Cash Withdrawal  Plan.  Class B shares are subject to higher
distribution and/or shareholder service fees than Class A shares for a period of
seven  years  (after  which it is  expected  that they will  convert  to Class A
shares).  The higher  fees mean a higher  expense  ratio,  so Class B shares pay
correspondingly  lower dividends and may have a lower net asset value than Class
A shares. See the Statement of Additional Information for further details.      

Class C  Shares  --  Level-Load  Alternative.  You can  purchase  Class C shares
without  any  initial  sales  charge  and,  therefore,  the full  amount of your
investment will be used to purchase Fund shares. However, you will pay a 1% CDSC
if you redeem shares during the first year after purchase.  Class C shares incur
higher  distribution  and/or  shareholder  service fees than Class A shares but,
unlike Class B shares,  do not convert to any other class of shares of the Fund.
The  higher  fees  mean  a  higher  expense   ratio,   so  Class  C  shares  pay
correspondingly  lower dividends and may have a lower net asset value than Class
A shares.  Shares  obtained from dividend or distribution  reinvestment  are not
subject to the CDSC.  The maximum amount of Class C shares that may be purchased
is $500,000.                                                                    

         With  respect  to Class B shares  and Class C  shares,  no CDSC will be
imposed on: (1) the portion of redemption proceeds  attributable to increases in
the value of the account due to increases in the net asset value per share,  (2)
shares acquired through  reinvestment of dividends and capital gains, (3) shares
held for more than  seven  years (in the case of Class B shares) or one year (in
the case of Class C shares) after the end of the calendar month of  acquisition,
(4) accounts following the death or disability of a shareholder,  or (5) minimum
required  distributions  to a shareholder  over the age of 70 1/2 from an IRA or
other retirement plan.                                                          

How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is  calculated  by  dividing  the value of the  amount of the  Fund's net
assets  attributable  to that Class by the number of outstanding  shares of that
Class.  Shares are valued each day the New York Stock Exchange (the  "Exchange")
is open as of the close of regular trading  (currently 4:00 p.m.  Eastern time).
The securities in a Fund are valued at their current market value  determined on
the basis of market quotations or, if such quotations are not readily available,
such other  methods as the Trustees of each Trust under which each Fund operates
believe would accurately reflect fair value.  Non-dollar  denominated securities
will be valued  as of the close of the  Exchange  at the  closing  price of such
securities in their principal trading market.                                   

General.  The  decision  as to which Class of shares is more  beneficial  to you
depends  on the amount of your  investment  and the length of time you will hold
it. If you are making a large  investment,  thus  qualifying for a reduced sales
charge,  you  might  consider  Class A  shares.  If you  are  making  a  smaller
investment,  you might  consider  Class B shares since 100% of your  purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing  distribution charges and/or shareholder service fees, after
seven years. If you are unsure of the time period of your investment,  you might
consider  Class C shares since there are no initial sales charges and,  although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year. Consult your financial intermediary for further information. The
compensation received by dealers and agents may differ depending on whether they
sell Class A, Class B or Class C shares.  The Funds will not normally accept any
purchase  of Class B shares in the  amount  of  $250,000  or more,  and will not
normally accept any                                                             

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purchase of Class C shares in the amount of $1,000,000 or more. There is no size
limit on purchases of Class A shares.                                           

         In addition to the  discount or  commission  paid to dealers,  EKD will
from time to time pay to dealers  additional  cash or other  incentives that are
conditioned  upon the sale of a specified  minimum  dollar amount of shares of a
Fund and/or other Evergreen mutual funds.  Such incentives will take the form of
payment for attendance at seminars, lunches, dinners, sporting events or theater
performances,  or payment for  travel,  lodging  and  entertainment  incurred in
connection  with travel by persons  associated with a dealer and their immediate
family members to urban or resort locations within or outside the United States.
Such a dealer may elect to receive cash incentives of equivalent  amount in lieu
of such  payments.  EKD may also limit the  availability  of such  incentives to
certain specified dealers.  EKD from time to time sponsors promotions  involving
First Union  Brokerage  Services,  Inc.  ("FUBS"),  an  affiliate of each Fund's
investment adviser, and other selected dealers, pursuant to which incentives are
paid, including gift certificates and payments in amounts up to 1% of the dollar
amount of shares of a Fund sold. Awards may also be made based on the opening of
a minimum  number of accounts.  Such  promotions are not being made available to
all dealers.  Certain  broker-dealers  may also receive  payments  from EKD or a
Fund's  investment  adviser  over and  above  the  usual  trail  commissions  or
shareholder servicing payments applicable to a given Class of shares.           

Additional Purchase Information.  As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor  will be  responsible  for any  loss a Fund  or the  Fund's  investment
adviser incurs. If such investor is an existing  shareholder,  a Fund may redeem
shares  from an  investor's  account  to  reimburse  the Fund or its  investment
adviser  for  any  loss.  In  addition,  such  investors  may be  prohibited  or
restricted from making further  purchases in any of the Evergreen  mutual funds.
The Funds will not accept third party checks other than those  payable  directly
to a shareholder whose account has been in existence at least thirty days.      

HOW TO REDEEM SHARES                                                            

         You may "redeem",  i.e. sell,  your shares in a Fund to the Fund on any
day  the  Exchange  is  open,   either   directly  or  through  your   financial
intermediary.  The  price you will  receive  is the net  asset  value  (less any
applicable  CDSC for Class B or Class C shares) next  calculated  after the Fund
receives  your request in proper form.  Proceeds  generally  will be sent to you
within seven days. However,  for shares recently purchased by check, a Fund will
not send  proceeds  until it is  reasonably  satisfied  that the  check has been
collected  (which may take up to fifteen  days).  Once a redemption  request has
been  telephoned  or  mailed,  it is  irrevocable  and  may not be  modified  or
canceled.                                                                       

Redeeming  Shares  Through  Your  Financial  Intermediary.  A Fund must  receive
instructions from your financial  intermediary before 4:00 p.m. Eastern time for
you to receive that day's net asset value (less any applicable  CDSC for Class B
or Class C shares).  Your financial  intermediary  is responsible for furnishing
all  necessary  documentation  to a Fund and may  charge  you for this  service.
Certain financial  intermediaries may require that you give instructions earlier
than 4:00 p.m.                                                                  

Redeeming  Shares  Directly  by Mail  or  Telephone.  Send a  signed  letter  of
instruction or stock power form ), in the case of all Funds except KEYSTONE FUND
FOR TOTAL RETURN, to State Street Bank and Trust Company ("State Street"),  and,
in the case of KEYSTONE  FUND FOR TOTAL  RETURN to  Evergreen/Keystone  Services
Company. Stock power forms are available from your financial intermediary, State
Street, and many commercial banks. Additional  documentation is required for the
sale of  shares  by  corporations,  financial  intermediaries,  fiduciaries  and
surviving  joint owners.  Signature  guarantees  are required for all redemption
requests  for shares with a value of more than  $50,000 or where the  redemption
proceeds  are to be mailed to an address  other  than that shown in the  account
registration.  A signature guarantee must be provided by a bank or trust company
(not a Notary  Public),  a member firm of a domestic  stock exchange or by other
financial institutions whose guarantees are acceptable to State Street.         

         Shareholders may withdraw amounts of $1,000 or more from their accounts
by calling the telephone number on the front page of this Prospectus between the
hours of 8:00 a.m. and 5:30 p.m.  (Eastern  time) each  business day (i.e.,  any
weekday  exclusive of days on which the Exchange or State  Street's  offices are
closed).  The Exchange is closed on New Year's Day, Presidents Day, Good Friday,
Memorial Day,  Independence Day, Labor Day,  Thanksgiving Day and Christmas Day.
Redemption  requests made after 4:00 p.m. (Eastern time) will be processed using
the net  asset  value  determined  on the next  business  day.  Such  redemption
requests must include the shareholder's account name, as registered with a Fund,
and the account  number.  During periods of drastic  economic or market changes,
shareholders  may  experience  difficulty  in effecting  telephone  redemptions.
Shareholders  who are unable to reach a Fund or State Street by telephone should
follow the procedures outlined above for redemption by mail.                    

         The telephone  redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share Purchase Application and choose how the redemption   

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proceeds are to be paid.  Redemption proceeds will either (i) be mailed by check
to the  shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the shareholder's account in a
Fund at a designated  commercial bank. State Street currently  deducts a $5 wire
charge  from all  redemption  proceeds  wired.  This charge is subject to change
without  notice.  A shareholder  who decides  later to use this  service,  or to
change instructions  already given, should fill out a Shareholder  Services Form
and send it to, in the case of all Funds except  KEYSTONE FUND FOR TOTAL RETURN,
State  Street  Bank and Trust  Company,  P.O.  Box 9021,  Boston,  Massachusetts
02205-9827 and,in the case of KEYSTONE FUND FOR TOTAL RETURN  Evergreen/Keystone
Services Company,  located at 200 Berkeley Street, Boston,  Massachusetts 02116,
with such shareholder's  signature  guaranteed by a bank or trust company (not a
Notary Public), a member firm of a domestic stock exchange or by other financial
institutions  whose  guarantees  are  acceptable to State  Street.  Shareholders
should allow  approximately  ten days for such form to be  processed.  The Funds
will employ reasonable procedures to verify that telephone requests are genuine.
These procedures include requiring some form of personal identification prior to
acting upon instructions and tape recording of conversations. If a Fund fails to
follow such  procedures,  it may be liable for any losses due to unauthorized or
fraudulent  instructions.  The Fund shall not be liable for following  telephone
instructions  reasonably  believed to be genuine.  Also,  each Fund reserves the
right to refuse a telephone  redemption  request, if it is believed advisable to
do so.  Financial  intermediaries  may  charge  a fee  for  handling  telephonic
requests.  The telephone redemption option may be suspended or terminated at any
time without notice.                                                            

General.  The redemption of shares is a taxable  transaction  for Federal income
tax purposes.  Under unusual  circumstances,  a Fund may suspend  redemptions or
postpone  payment  for up to seven  days or  longer,  as  permitted  by  Federal
securities  law.  The Funds  reserve the right to close an account  that through
redemption has remained below $1,000 for thirty days.  Shareholders will receive
sixty days'  written  notice to increase the account value before the account is
closed.  The Funds have  elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which each Fund is obligated to redeem  shares solely in cash, up to
the lesser of $250,000 or 1% of a Fund's total net assets  during any ninety day
period for any one shareholder.  See the Statement of Additional Information for
further details.                                                                

EXCHANGE PRIVILEGE                                                              

How To Exchange  Shares.  You may exchange some or all of your shares for shares
of the same Class in the other  Evergreen  mutual funds  through your  financial
intermediary,  or by  telephone or mail as described  below.  An exchange  which
represents an initial investment in another Evergreen mutual fund must amount to
at least $1,000.  Once an exchange request has been telephoned or mailed,  it is
irrevocable  and may not be modified or canceled.  Exchanges will be made on the
basis of the relative net asset value of the shares  exchanged  next  determined
after an  exchange  request  is  received.  Exchanges  are  subject  to  minimum
investment and suitability requirements.                                        

         Each of the Evergreen mutual funds has different investment  objectives
and policies.  For complete information,  a prospectus of the Fund into which an
exchange  will be made  should be read prior to the  exchange.  An  exchange  is
treated for Federal  income tax purposes as a redemption  and purchase of shares
and may result in the  realization of a capital gain or loss.  Shareholders  are
limited  to five  exchanges  per  calendar  year,  with a  maximum  of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon sixty days' notice to  shareholders  and is only available
in states in which shares of the fund being acquired may lawfully be sold.      

         No CDSC  will be  imposed  in the event  Class B or Class C shares  are
exchanged for Class B or Class C shares, respectively, of other Evergreen mutual
funds.  If you  redeem  shares,  the CDSC  applicable  to the Class B or Class C
shares of the Evergreen  mutual fund  originally  purchased for cash is applied.
Also,  Class B shares will continue to age following an exchange for purposes of
conversion to Class A shares and determining the amount of the applicable CDSC. 

Exchanges  Through Your  Financial  Intermediary.  A Fund must receive  exchange
instructions  from your financial  intermediary  before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value.  Your financial  intermediary  is
responsible for furnishing all necessary  documentation to a Fund and may charge
you for this service.                                                           

Exchanges by Telephone and Mail. You may exchange  shares with a value of $1,000
or more by telephone by calling the  telephone  number on the front page of this
Prospectus  (or  in  the  case  of  KEYSTONE  FUND  FOR  TOTAL  RETURN  call  1-
800-247-4075).  Exchange  requests made after 4:00 p.m.  (Eastern  time) will be
processed using the net asset value  determined on the next business day. During
periods of drastic  economic  or market  changes,  shareholders  may  experience
difficulty in effecting  telephone  exchanges.  You should follow the procedures
outlined  below for  exchanges  by mail if you are unable to reach the  transfer
agent by telephone. If you wish to use the telephone exchange service you should
indicate this on the Share Purchase Application.  As noted above, each Fund will
employ reasonable  procedures to confirm that instructions for the redemption or
exchange of shares  communicated by telephone are genuine.  A telephone exchange
may be refused by a Fund                                                        

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or the  transfer  agent if it is believed  advisable  to do so.  Procedures  for
exchanging  Fund shares by telephone  may be modified or terminated at any time.
Written  requests for exchanges  should follow the same procedures  outlined for
written  redemption  requests in the section  entitled  "How to Redeem  Shares",
however, no signature guarantee is required.                                    

SHAREHOLDER SERVICES                                                            

         The  Funds  offer  the  following   shareholder   services.   For  more
information  about  these  services  or your  account,  contact  your  financial
intermediary,  EKD or the toll-free  number on the front page of this Prospectus
(or in the case of KEYSTONE  FUND FOR TOTAL  RETURN call  1-800-247-4075).  Some
services are described in more detail in the Share Purchase Application.        

Systematic  Investment Plan. You may make monthly or quarterly  investments into
an existing  account  automatically in amounts of not less than $25 per month or
$75 per quarter.  Each Fund  reserves the right to close an account that through
liquidation or termination of the Systematic  Investment  Plan has not reached a
minimum balance of $1,000 ($250 for retirement accounts) within 24 months of the
initial investment.  You can open a Systematic  Investment Plan in the EVERGREEN
GROWTH AND  INCOME  FUND,  EVERGREEN  SMALL CAP EQUITY  INCOME  FUND,  EVERGREEN
UTILITY FUND and  EVERGREEN  VALUE FUND for a minimum of only $50 per month with
no initial investment required.                                                 

Telephone  Investment  Plan. You may make  investments  into an existing account
electronically  in  amounts  of not less  than  $100 or more  than  $10,000  per
investment.  Telephone  investment requests received by 3:00 p.m. (Eastern time)
will be credited  to a  shareholder's  account the day the request is  received.
Shares  purchased  under  a  Fund's  Systematic  Investment  Plan  or  Telephone
Investment Plan may not be redeemed for ten days from the date of investment.   

Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing  account  reaches that size,  you may  participate in the Funds
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase  Application.  Under this plan,  you may receive (or  designate a third
party to receive) a monthly or  quarterly  check in a stated  amount of not less
than $75. Fund shares will be redeemed as necessary to meet withdrawal payments.
All   participants   must  elect  to  have  their  dividends  and  capital  gain
distributions  reinvested  automatically.  Any  applicable  Class B CDSC will be
waived with respect to redemptions  occurring under a Systematic Cash Withdrawal
Plan during a calendar  year to the extent that such  redemptions  do not exceed
10% of (i) the initial value of the account plus (ii) the value,  at the time of
purchase, of any subsequent investments.                                        

Investments  Through Employee Benefit and Savings Plans.  Certain  qualified and
non-qualified  benefit  and  savings  plans may make shares of the Funds and the
other Evergreen mutual funds available to their  participants.  Investments made
by such  employee  benefit plans may be exempt from  front-end  sales charges if
they meet the criteria set forth under  "Class A  Shares-Front  End Sales Charge
Alternative".  Each  Fund's  investment  adviser  may  provide  compensation  to
organizations providing administrative and recordkeeping services to plans which
make shares of the Evergreen mutual funds available to their participants.      

Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically  reinvested in full and fractional shares of the
Funds at the net asset  value per share at the close of  business  on the record
date,  unless otherwise  requested by a shareholder in writing.  If the transfer
agent  does not  receive a  written  request  for  subsequent  dividends  and/or
distributions  to be paid in cash at least three full  business  days prior to a
given  record  date,  the  dividends  and/or  distributions  to  be  paid  to  a
shareholder  will  be  reinvested.   If  you  elect  to  receive  dividends  and
distributions in cash and the U.S. Postal Service cannot deliver the checks,  or
if the checks remain uncashed for six months, the checks will be reinvested into
your account at the then current net asset value.                               

Tax  Sheltered  Retirement  Plans.  You may open a pension  and  profit  sharing
account in any  Evergreen/Keystone  mutual fund  (except  those funds  having an
objective of providing tax free income) under the following prototype retirement
plans:  (i) Individual  Retirement  Accounts  ("IRAs") and Rollover  IRAs;  (ii)
Simplified  Employee  Pension  (SEP)  for  sole  proprietors,  partnerships  and
corporations;  and (iii)  Profit-Sharing  and Money  Purchase  Pension Plans for
corporations and their employees.                                               

EFFECT OF BANKING LAWS                                                          

         The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal  Reserve System  ("Member  Banks") or their
non-bank affiliates from sponsoring,  organizing,  controlling,  or distributing
the shares of registered open-end  investment  companies such as the Funds. Such
laws  and  regulations  also  prohibit  banks  from  issuing,   underwriting  or
distributing  securities in general.  However,  under the Glass-Steagall Act and
such other laws and regulations,                                                

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a Member Bank or an affiliate  thereof may act as investment  adviser,  transfer
agent or custodian to a registered  open-end investment company and may also act
as agent in connection with the purchase of shares of such an investment company
upon the order of its customer.  Evergreen  Asset and  Keystone,  since they are
subsidiaries  of  FUNB,  and CMG  are  subject  to and in  compliance  with  the
aforementioned laws and regulations.                                            

         Changes  to  applicable  laws and  regulations  or future  judicial  or
administrative  decisions  could result in CMG or  Evergreen  Asset and Keystone
being  prevented  from  continuing  to perform the services  required  under the
investment  advisory  contract  or from acting as agent in  connection  with the
purchase of shares of a Fund by its  customers.  If CMG or  Evergreen  Asset and
Keystone were prevented from continuing to provide the services called for under
the  investment  advisory  agreement,  it is expected  that the  Trustees  would
identify,  and call upon each Fund's  shareholders to approve,  a new investment
adviser.  If this were to occur, it is not anticipated  that the shareholders of
any Fund would suffer any adverse financial consequences.                       

--------------------------------------------------------------------------------

     OTHER INFORMATION
--------------------------------------------------------------------------------

DIVIDENDS, DISTRIBUTIONS AND TAXES                                              

         It is the  policy  of  each  Fund to  distribute  to  shareholders  its
investment  company  taxable  income,  if any,  quarterly  and any net  realized
capital  gains  annually  or more  frequently  as  required  as a  condition  of
continued qualification as a regulated investment company by the Code. Dividends
and  distributions  generally  are  taxable  in the year in which they are paid,
except any dividends paid in January that were declared in the previous calendar
quarter  may be  treated  as paid  in  December  of the  previous  year.  Income
dividends  and  capital  gain  distributions  are  automatically  reinvested  in
additional shares of the Fund making the distribution at the net asset value per
share at the close of business on the record date,  unless the  shareholder  has
made a written request for payment in cash.                                     

         Each Fund has  qualified  and  intends  to  continue  to  qualify to be
treated as a regulated investment company under the Code. While so qualified, it
is expected that each Fund will not be required to pay any Federal income tax on
that  portion of its  investment  company  taxable  income and any net  realized
capital  gains  it   distributes  to   shareholders.   The  Code  imposes  a  4%
nondeductible excise tax on regulated investment  companies,  such as the Funds,
to the extent they do not meet certain  distribution  requirements by the end of
each  calendar   year.   Each  Fund   anticipates   meeting  such   distribution
requirements.  Most  shareholders of the Funds normally will have to pay Federal
income tax and any state or local taxes on the dividends and distributions  they
receive from a Fund whether such dividends and distributions are made in cash or
in additional  shares.  Questions on how any distributions  will be taxed to the
investor should be directed to the investor's own tax adviser.                  

         Under current law, the highest  Federal  income tax rate  applicable to
net long-term  capital gains realized by individuals is 28%. The rate applicable
to corporations  is 35%.  Certain income from a Fund may qualify for a corporate
dividends-received  deduction of 70%.  Following the end of each calendar  year,
every  shareholder  of the Fund  will be sent  applicable  tax  information  and
information  regarding the dividends and capital gain  distributions made during
the calendar year.                                                              

         A Fund may be subject to foreign  withholding  taxes which would reduce
the yield on its  investments.  Tax treaties  between certain  countries and the
United States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States Federal income tax may be entitled,  subject to certain
rules and  limitations,  to claim a Federal  income tax credit or deduction  for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional  details. A Fund's  transactions in options,  futures and forward
contracts  may be  subject  to special  tax  rules.  These  rules can affect the
amount, timing and characteristics of distributions to shareholders.            

         Each Fund is  required by Federal  law to  withhold  31% of  reportable
payments  (which  may  include   dividends,   capital  gain   distributions  and
redemptions)  paid to  certain  shareholders.  In  order to  avoid  this  backup
withholding requirement,  you must certify on the Share Purchase Application, or
on a separate  form  supplied  by State  Street,  that your  social  security or
taxpayer identification number is correct and that you are not currently subject
to backup withholding or are exempt from backup withholding.                    

       The foregoing  discussion of Federal income tax  consequences is based on
tax laws and  regulations  in  effect  on the  date of this  Prospectus,  and is
subject to change by  legislative  or  administrative  action.  As the foregoing
discussion  is  for  general  information  only,  you  should  also  review  the
discussion  of  "Additional  Tax  Information"  contained  in the  Statement  of
Additional                                                                      

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Information.  In addition, you should consult your own tax adviser as to the tax
consequences of investments in the Funds, including the application of state and
local  taxes  which  may be  different  from  Federal  income  tax  consequences
described above.                                                                

GENERAL INFORMATION                                                             

Portfolio  Transactions.  Consistent  with  the  Rules of Fair  Practice  of the
National  Association of Securities  Dealers,  Inc., and subject to seeking best
price and execution,  a Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.        

Organization.  The EVERGREEN INCOME AND GROWTH FUND is a Massachusetts  business
trust organized in 1986, and was originally organized as Maryland corporation in
1978.  EVERGREEN  GROWTH  AND  INCOME  FUND is a  Massachusetts  business  trust
organized  in 1986.  The  EVERGREEN  SMALL CAP EQUITY  INCOME FUND is a separate
series of The Evergreen  American  Retirement  Trust, a  Massachusetts  business
trust  organized in 1987.  EVERGREEN  BALANCED FUND and EVERGREEN VALUE FUND are
separate  investment series of Evergreen  Investment Trust (formerly First Union
Funds),  a  Massachusetts  business trust  organized in 1984.  KEYSTONE FUND FOR
TOTAL RETURN is a Massachusetts business trust organized in October, 1986.      

The  Funds  do not  intend  to hold  annual  shareholder  meetings;  shareholder
meetings will be held only when required by applicable  law.  Shareholders  have
available certain procedures for the removal of Trustees.  A shareholder in each
Class  of a Fund  will be  entitled  to his or her  share of all  dividends  and
distributions from a Fund's assets, based upon the relative value of such shares
to those of other Classes of the Fund and, upon redeeming  shares,  will receive
the then current net asset value of the Class of shares of the Fund  represented
by the  redeemed  shares  less any  applicable  CDSC.  Each Trust named above is
empowered to establish,  without  shareholder  approval,  additional  investment
series, which may have different investment  objectives,  and additional Classes
of shares for any existing or future  series.  If an additional  series or Class
were  established in a Fund, each share of the series or Class would normally be
entitled  to one vote for all  purposes.  Generally,  shares of each  series and
Class would vote together as a single Class on matters,  such as the election of
Trustees,  that affect each series and Class in  substantially  the same manner.
Class A, B, C and Y shares have  identical  voting,  dividend,  liquidation  and
other rights,  except that each Class bears, to the extent  applicable,  its own
distribution,  shareholder  service and transfer  agency expenses as well as any
other expenses  applicable only to a specific Class.  Each Class of shares votes
separately with respect to Rule 12b-1  distribution  plans and other matters for
which separate  class voting is appropriate  under  applicable  law.  Shares are
entitled to dividends as  determined by the Trustees  and, in  liquidation  of a
Fund, are entitled to receive the net assets of the Fund.                       

Custodian, Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street
Bank and Trust Company, P.O. Box 9021, Boston,  Massachusetts 02205-9827 acts as
each Fund's  custodian  and , in the case of all Funds except  KEYSTONE FUND FOR
TOTAL RETURN,  registrar,  transfer agent and  dividend-disbursing  agent. State
Street is compensated for its services as transfer agent by a fee based upon the
number of  shareholder  accounts  maintained  for the Funds.  Evergreen/Keystone
Services Company,  located at 200 Berkeley Street, Boston,  Massachusetts 02116,
is a  wholly-owned  subsidiary of Keystone and serves as the transfer  agent and
dividend disbursing agent for KEYSTONE FUND FOR TOTAL RETURN,                   

Principal Underwriter.  EKD, an affiliate of BISYS Fund Services, located at 120
Clove Road, Little Falls, New Jersey 07424, is the principal  underwriter of the
Funds. BISYS Fund Services also provides certain sub-administrative  services to
Evergreen Asset and Keystone in connection  with its role as investment  adviser
to the Funds, including providing personnel to serve as officers of the Funds.  

Other Classes of Shares.  Each Fund, except KEYSTONE FUND FOR TOTAL RETURN which
does not offer Class Y shares, currently offers four classes of shares, Class A,
Class B, Class C and Class Y, and may in the future  offer  additional  classes.
Class Y shares are not offered by this  Prospectus and are only available to (i)
persons  who at or prior to December  31,  1994,  owned  shares in a mutual fund
advised by Evergreen  Asset,  (ii)  certain  institutional  investors  and (iii)
investment  advisory clients of CMG,  Evergreen Asset or their  affiliates.  The
dividends  payable  with  respect to Class A, Class B and Class C shares will be
less than those  payable with respect to Class Y shares due to the  distribution
and shareholder servicing related expenses borne by Class A, Class B and Class C
shares and the fact that such expenses are not borne by Class Y shares.         

Performance  Information.  From time to time,  the Funds may quote their  "total
return" or "yield" for a specified  period in  advertisements,  reports or other
communications to shareholders.  Total return and yield are computed  separately
for Class A,  Class B and Class C shares.  A Fund's  total  return for each such
period is computed by finding, through the use of a formula                     

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prescribed by the Securities and Exchange Commission ("SEC"), the average annual
compounded  rate of return over the period that would equate an assumed  initial
amount  invested to the value of the  investment  at the end of the period.  For
purposes of computing  total return,  dividends and capital gains  distributions
paid on shares of a Fund are assumed to have been  reinvested  when paid and the
maximum sales charges  applicable to purchases of a Fund's shares are assumed to
have been paid.  Yield is a way of showing  the rate of income the Fund earns on
its  investments as a percentage of the Fund's share price.  The Fund's yield is
calculated  according to accounting methods that are standardized by the SEC for
all stock and bond  funds.  Because  yield  accounting  methods  differ from the
method used for other  accounting  purposes,  the Fund's yield may not equal its
distribution  rate, the income paid to your account or the net investment income
reported in the Fund's financial statements.  To calculate yield, the Fund takes
the interest  income it earned from its portfolio of investments  (as defined by
the SEC  formula)  for a 30-day  period  (net of  expenses),  divides  it by the
average number of shares entitled to receive dividends, and expresses the result
as an annualized  percentage  rate based on the Fund's share price at the end of
the 30-day  period.  This yield does not reflect  gains or losses  from  selling
securities.                                                                     

         Performance  data for each  Class of  shares  will be  included  in any
advertisement  or  sales  literature  using  performance  data of a Fund.  These
advertisements may quote performance  rankings or ratings of a Fund by financial
publications or independent  organizations  such as Lipper Analytical  Services,
Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. A
Fund may also  advertise in items of sales  literature  an "actual  distribution
rate" which is computed by dividing the total ordinary income distributed (which
may include the excess of short-term  capital gains over losses) to shareholders
for the latest  twelve month  period by the maximum  public  offering  price per
share  on the last day of the  period.  Investors  should  be  aware  that  past
performance may not be reflective of future results.                            

         In  marketing a Fund's  shares,  information  may be  provided  that is
designed  to help  individuals  understand  their  investment  goals and explore
various  financial   strategies.   Such  information  may  include  publications
describing   general   principles  of  investing,   such  as  asset  allocation,
diversification,  risk tolerance,  and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other  Evergreen  mutual funds,  products,  and services,  which may include:
retirement investing;  brokerage products, and services, the effects of periodic
investment plans and dollar cost averaging;  saving for college;  and charitable
giving. In addition,  the information  provided to investors may quote financial
or  business  publications  and  periodicals,   including  model  portfolios  or
allocations,  as they  relate to fund  management,  investment  philosophy,  and
investment  techniques.  The materials may also reprint,  and use as advertising
and sales  literature,  articles from  EVERGREEN  EVENTS,  a quarterly  magazine
provided free of charge to Evergreen mutual fund shareholders.                  

Liability  Under  Massachusetts  Law.  Under  Massachusetts  law,  Trustees  and
shareholders  of a  business  trust  may,  in  certain  circumstances,  be  held
personally liable for its obligations. The Declarations of Trust under which the
Funds operate provide that no Trustee or shareholder  will be personally  liable
for the  obligations  of the Trust and that every  written  contract made by the
Trust  contain a provision to that effect.  If any Trustee or  shareholder  were
required to pay any  liability  of the Trust,  that person  would be entitled to
reimbursement from the general assets of the Trust.                             

Additional  Information.   This  Prospectus  and  the  Statement  of  Additional
Information, which has been incorporated by reference herein, do not contain all
the information  set forth in the  Registration  Statements  filed by the Trusts
with the SEC  under  the  Securities  Act of 1933.  Copies  of the  Registration
Statements  may be  obtained  at a  reasonable  charge  from  the  SEC or may be
examined, without charge, at the offices of the SEC in Washington, D.C.         

INVESTMENT ADVISERS                                                             

Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York   
10577                                                                           
    EVERGREEN GROWTH AND INCOME FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN INCOME AND GROWTH FUND                                    
Capital Management Group of First Union National Bank of North Carolina, 210    
South College Street, Charlotte, North Carolina, 28228                          
EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND                        

CUSTODIAN AND TRANSFER AGENT                                                
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts        
02205-9827                                                                  

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LEGAL COUNSEL                                                               
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,                    
Washington, D.C. 20036                                    

INDEPENDENT ACCOUNTANTS                                                     
  Price Waterhouse  LLP, 1177 Avenue of the Americas,  New York,  New York 10036
EVERGREEN FOUNDATION FUND                                           
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072   
    EVERGREEN TOTAL RETURN FUND, EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
AMERICAN RETIREMENT FUND                                                    
  KPMGPeat Marwick LLP, One Mellon Bank Center,  Pittsburgh,  Pennsylvania 15219
EVERGREEN BALANCED FUND, EVERGREEN VALUE FUND                       

DISTRIBUTOR                                                                     
Evergreen Keystone Distributor, Inc., 120 Clove Road,                   
Little Falls, New Jersey  07424                       

42430                                                              536115REV01  

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*    *    *    *    *    *    *    *    *    *    *    *    *    *    *    *    

--------------------------------------------------------------------------------

EVERGREEN/KEYSTONE(SM) GROWTH AND INCOME FUNDS                                  
--------------------------------------------------------------------------------

PROSPECTUS                                             April 1, 1997            
                                                       (Evergreen Keystone logo)

EVERGREEN UTILITY FUND                                                          
EVERGREEN GROWTH AND INCOME FUND                                                
EVERGREEN VALUE FUND                                                            
EVERGREEN SMALL CAP EQUITY INCOME FUND                                          
EVERGREEN INCOME AND GROWTH FUND                                                
KEYSTONE FUND FOR TOTAL RETURN                                                  

CLASS Y SHARES                                                                  

          The  Evergreen/Keystone  Growth and Income  Funds  (the  "Funds")  are
designed to provide investors with a selection of investment  alternatives which
seek to provide  capital  growth,  income and  diversification.  This Prospectus
provides  information  regarding the Class Y shares  offered by the Funds.  Each
Fund is, or is a series  of, an  open-end,  diversified,  management  investment
company.  This Prospectus sets forth concise  information about the Funds that a
prospective investor should know before investing.  The address of the Evergreen
Funds is 2500 Westchester Avenue,  Purchase,  New York 10577. The address of the
Keystone Fund is 200 Berkeley Street, Boston, Massachusetts 02116.              

         A "Statement of Additional Information" for the Funds and certain other
funds in the  Evergreen/Keystone  group of mutual  funds dated April 1, 1997 has
been filed with the Securities and Exchange  Commission and is  incorporated  by
reference herein. The Statement of Additional  Information  provides information
regarding  certain matters  discussed in this Prospectus and other matters which
may be of interest to investors,  and may be obtained  without charge by calling
the  Evergreen  Funds at (800)  807-2940.  There  can be no  assurance  that the
investment objective of any Fund will be achieved. Investors are advised to read
this Prospectus carefully.                                                      

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE 
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE SECURITIES HAVE 
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR 
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS 
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 

 KEEP THIS PROSPECTUS FOR FUTURE REFERENCE

EVERGREEN  (SM) and  EVERGREEN/KEYSTONE  (SM)  are  Service  Marks of  Evergreen
Keystone Investment  Services,  Inc. Copyright 1995 and 1997, Evergreen Keystone
Investment Services, Inc.                                                       

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--------------------------------------------------------------------------------

     TABLE OF CONTENTS
--------------------------------------------------------------------------------

OVERVIEW OF THE FUNDS                                                           
EXPENSE INFORMATION                                                             
FINANCIAL HIGHLIGHTS                                                            
DESCRIPTION OF THE FUNDS                                                        
Investment Objectives and Policies                            
Investment Practices and Restrictions                         
Special Risk Considerations                                   

MANAGEMENT OF THE FUNDS                                                         
Investment Advisers                                           
Sub-Adviser                                                   
Distribution Plans and Agreements                             

PURCHASE AND REDEMPTION OF SHARES                                               
How to Buy Shares                                             
How to Redeem Shares                                          
Exchange Privilege                                            
Shareholder Services                                          
Effect of Banking Laws                                        

OTHER INFORMATION                                                               
Dividends, Distributions and Taxes                            
General Information                                           

--------------------------------------------------------------------------------

           OVERVIEW OF THE FUNDS
--------------------------------------------------------------------------------

     The  following  summary is qualified  in its entirety by the more  detailed
information contained elsewhere in this Prospectus and the information appearing
in the Statement of Additional  Information.  See "Description of the Funds" and
"Management of the Funds".  No Fund is responsible for the information  relating
to any other Fund contained in this Prospectus.                                 

         The investment  adviser to EVERGREEN GROWTH AND INCOME FUND,  EVERGREEN
SMALL CAP EQUITY INCOME FUND, and EVERGREEN  INCOME AND GROWTH FUND is Evergreen
Asset Management Corp. which, with its predecessors, has served as an investment
adviser to the Evergreen  mutual funds since 1971.  Evergreen  Asset  Management
Corp.  is a  wholly-owned  subsidiary  of  First  Union  National  Bank of North
Carolina,  which in turn is a subsidiary of First Union  Corporation,  the sixth
largest bank holding company in the United States.  The Capital Management Group
of First Union National Bank of North Carolina  serves as investment  adviser to
EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND. Keystone Investment  Management
Company, also an indirect  wholly-owned  subsidiary of First Union National Bank
of North Carolina,  serves as investment  adviser to the KEYSTONE FUND FOR TOTAL
RETURN.                                                                         

         EVERGREEN  UTILITY FUND seeks high current income and moderate  capital
appreciation.                                                                   

         EVERGREEN  GROWTH AND INCOME FUND seeks to achieve a return composed of
capital  appreciation  in the value of its shares and current  income.  The Fund
will attempt to meet its  objective by investing in the  securities of companies
which are undervalued in the marketplace  relative to those  companies'  assets,
breakup value, earnings, or potential earnings growth.                          

         EVERGREEN  VALUE FUND seeks  long-term  capital  growth,  with  current
income as a secondary objective.                                                

         EVERGREEN  SMALL CAP EQUITY INCOME FUND attempts to maximize the "total
return"  on its  portfolio  of  investments.  The Fund  invests  in  common  and
preferred stocks,  securities convertible into or exchangeable for common stocks
and fixed income  securities.  In attempting to achieve its objective,  the Fund
invests  primarily in companies  with total market  capitalization  of less than
$500 million.                                                                   

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         KEYSTONE FUND FOR TOTAL RETURN seeks total return from a combination of
capital growth and income.  The Fund will invest  principally in dividend paying
common stocks,  preferred stocks and securities  convertible into common stocks,
but may also invest in non-dividend  paying common stocks if, in the judgment of
the Fund's  investment  adviser,  that is  consistent its objectives.           

         EVERGREEN INCOME AND GROWTH FUND (formerly Evergreen Total Return Fund)
attempts to maximize  the "total  return" on its  portfolio of  investments.  It
invests primarily in common and preferred stocks, securities convertible into or
exchangeable for common stocks and fixed income securities.                     

         THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.                                                                       

--------------------------------------------------------------------------------

EXPENSE INFORMATION   
--------------------------------------------------------------------------------

          The table set forth below summarizes the shareholder transaction costs
associated  with an investment in each Class Y Shares of the Funds.  For further
information   see  "Purchase  and   Redemption  of  Fund  Shares"  and  "General
Information -- Other Classes of Shares".                                        

[TO BE ADDED]                                                                   

[TO BE ADDED]                                                                   

         From  time  to  time,  each  Fund's  investment  adviser  may,  at  its
discretion, reduce or waive its fees or reimburse the Funds for certain of their
expenses in order to reduce their expense ratios. Each Fund's investment adviser
may cease these waivers and reimbursements at any time.                         

     The  purpose  of  the   foregoing   table  is  to  assist  an  investor  in
understanding  the various  costs and expenses that an investor in each Class of
Shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are estimated  amounts based on the experience
of each Fund for the most recent fiscal period. Such expenses have been restated
to reflect  current fee  arrangements.  THE EXAMPLES  SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN.  ACTUAL EXPENSES AND
ANNUAL  RETURN  MAY BE GREATER OR LESS THAN  THOSE  SHOWN.  For a more  complete
description of the various costs and expenses borne by the Funds see "Management
of the Funds". As a result of asset-based sales charges,  long-term shareholders
may pay more than the  economic  equivalent  of the  maximum  front-end  charges
permitted  under the rules of the National  Association  of Securities  Dealers,
Inc.                                                                            

--------------------------------------------------------------------------------

        FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

         The tables on the following  pages  present,  for each Fund,  financial
highlights  for a  share  outstanding  throughout  each  period  indicated.  The
information  in the tables for the five most recent  fiscal years or the life of
the Fund if  shorter,  for  EVERGREEN  UTILITY  FUND,  EVERGREEN  VALUE FUND and
KEYSTONE  FUND FOR TOTAL RETURN has been audited by KPMG Peat Marwick LLP,  each
Fund's independent  auditors,  the Fund's independent auditors and for EVERGREEN
SMALL CAP EQUITY  INCOME FUND,  EVERGREEN  GROWTH AND INCOME FUND and  EVERGREEN
INCOME AND GROWTH                                                               

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FUND has been audited by Ernst & Young LLP, each Fund's independent  auditors. A
report of KPMG Peat Marwick LLP, Price  Waterhouse LLP, or Ernst & Young LLP, as
the case  may be,  on the  audited  information  with  respect  to each  Fund is
incorporated by reference in the Fund's Statement of Additional Information. The
following  information  for each  Fund  should be read in  conjunction  with the
financial  statements and related notes which are  incorporated  by reference in
the Fund's Statement of Additional Information.                                 

         Further  information  about a Fund's  performance  is  contained in the
Fund's annual report to shareholders, which may be obtained without charge.     

[TO BE ADDED BY AMENDMENT]                                                      
--------------------------------------------------------------------------------

        DESCRIPTION OF THE FUNDS
--------------------------------------------------------------------------------

INVESTMENT OBJECTIVES AND POLICIES                                              

         Unless  otherwise  noted  in this  Prospectus,  the  Funds'  investment
policies are not fundamental and may be changed  without  shareholder  approval.
Each Fund's  investment  objective is fundamental and may not be changed without
shareholder approval.                                                           

         In addition to the investment  policies  detailed below,  each Fund may
employ  certain  additional   investment   strategies  which  are  discussed  in
"Investment Practices and Restrictions", below.                                 

EVERGREEN GROWTH AND INCOME FUND                                                

         The  investment  objective  of  EVERGREEN  GROWTH AND INCOME FUND is to
achieve a return composed of capital appreciation in the value of its shares and
current income.                                                                 

         The Fund seeks to achieve its investment  objective by investing in the
securities of companies  which are  undervalued in the  marketplace  relative to
those companies' assets,  breakup value,  earnings or potential earnings growth.
These companies are often found among those which have had a record of financial
success but are currently in disfavor in the  marketplace for reasons the Fund's
investment  adviser  perceives as temporary or erroneous.  Such investments when
successfully  timed  are  expected  to be the  means for  achieving  the  Fund's
investment  objective.  This inherently  contrarian approach may require greater
reliance upon the analytical and research  capabilities of the Fund's investment
adviser than an  investment  in certain  other equity  funds.  Consequently,  an
investment in the Fund may involve more risk than other equity  funds.  The Fund
should not be  considered  suitable for investors who are unable or unwilling to
assume  the risks of loss  inherent  in such a  program.  Nor should the Fund be
considered a balanced or complete investment program.                           

         The  Fund  will  use the  "value  timing"  approach  as a  process  for
purchasing  securities when events indicate that fundamental  investment  values
are being ignored in the marketplace.  Fundamental  investment value is based on
one or more of the following: assets -- tangible and intangible (examples of the
latter include brand names or licenses),  capitalization of earnings,  cash flow
or potential  earnings  growth.  A  discrepancy  between  market  valuation  and
fundamental  value often  arises due to the presence of  unrecognized  assets or
business  opportunities,  or as a result of incorrectly  perceived or short-term
negative factors. Changes in regulations,  basic economic or monetary shifts and
legal action  (including the initiation of bankruptcy  proceedings)  are some of
the  factors  that  create  these  capital  appreciation  opportunities.  If the
securities  in which the Fund invests never reach their  perceived  potential or
the  valuation of such  securities in the  marketplace  does not in fact reflect
significant  undervaluation,  there  may  be  little  or  no  appreciation  or a
depreciation in the value of such securities.                                   

         The  Fund  will  invest  primarily  in  common  stocks  and  securities
convertible  into or exchangeable  for common stock. It is anticipated  that the
Fund's  investments  in these  securities  will  contribute to the Fund's return
primarily  through capital  appreciation.  In addition,  the Fund will invest in
nonconvertible preferred stocks and debt securities.  It is anticipated that the
Fund's  investments in these  securities will also produce capital  appreciation
but the current income component of return will be a more significant  factor in
their selection. However, the Fund will invest in nonconvertible preferred stock
and debt  securities only if the anticipated  capital  appreciation  plus income
from such  investments  is equivalent to that  anticipated  from  investments in
equity or equity-related  securities.  The Fund may invest up to 5% of its total
assets in debt securities which are rated below investment grade, commonly known
as "junk bonds". Investments of this type are subject to greater risk of loss of
principal and interest. See "Special Risk Considerations".                      

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EVERGREEN SMALL CAP EQUITY INCOME FUND                                          

         The investment  objective of EVERGREEN  SMALL CAP EQUITY INCOME FUND is
to achieve a return consisting of current income and capital appreciation in the
value of its shares.  The  emphasis on current  income and capital  appreciation
will be relatively equal although,  over time,  changes in market conditions and
the level of  interest  rates may  cause the Fund to vary its  emphasis  between
these two  elements in its search for the optimum  return for its  shareholders.
The Fund seeks to achieve its investment objective through investments in common
stocks, preferred stocks, securities convertible into or exchangeable for common
stocks and fixed  income  securities.  Under  normal  conditions,  the Fund will
invest  at  least  65% of its  total  assets  in  equity  securities  (including
convertible  debt  securities) of companies that, at the time of purchase,  have
"total market  capitalization"  -- present market value per share  multiplied by
the total number of shares  outstanding  -- of less than $500 million.  The Fund
may invest up to 35% of its total assets in equity  securities of companies that
at the time of purchase  have a total market  capitalization  of $500 million or
more, and in excess of that percentage during temporary defensive periods. As of
December  31,  1994,  1995  and  1996,  approximately  64.5%,  69.9%  and  .  %,
respectively, of the Fund's portfolio consisted of equity securities.           

         To the extent that the Fund seeks capital appreciation, it expects that
its investments  will provide growth over the long-term.  Investments,  however,
may be made on occasion for the purpose of short-term  capital  appreciation  if
the  Fund  believes  that  such  investments  will  benefit  its   shareholders.
Purchasing  securities  for  short-term  trading is subject to certain rules and
involves  additional  brokerage  expenses.  The  Fund may  make  investments  in
securities regardless of whether or not such securities are traded on a national
securities  exchange.  The value of  portfolio  securities  and their yields are
expected to fluctuate over time because of varying  general  economic and market
conditions.                                                                     

         The Fund's  portfolio  will vary over time  depending upon the economic
outlook and market conditions.  The composition of its portfolio will be subject
to the  discretion  of the  Fund's  investment  adviser.  Ordinarily,  the  Fund
anticipates  that most of its portfolio  will consist of equity  securities  and
convertible debt securities.  A significant  portion of the equity  investments,
however,  will be income producing.  If in the judgment of the Fund's investment
adviser a  defensive  position  is  appropriate,  the Fund may take a  defensive
position and invest without limit in debt securities or government securities or
hold its assets in cash or cash  equivalents.  The  quality  standards  for debt
securities  include:  Obligations of banks and  commercial  paper rated no lower
than P-2 by Moody's Investor's Service  ("Moody's"),  A-2 by Standard and Poor's
Ratings Service, a division of McGraw-Hill  Companies,  Inc. ("S&P") or having a
comparable  rating  from  another  nationally   recognized   statistical  rating
organization  ("SRO");  and non-convertible  debt securities rated no lower than
Baa by  Moody's  or BBB by  S&P.  For a  description  of  such  ratings  see the
Statement of Additional Information.                                            

         The Fund may invest in real estate investment trusts ("Reits").  Equity
Reits invest  directly in real property while mortgage Reits invest in mortgages
on real property. The Fund does not intend to invest in Reits that are primarily
mortgage  Reits.  Equity Reits  usually  provide a high  current  yield plus the
opportunity of long-term price appreciation of real estate values.  Reits may be
subject to certain risks  associated  with the direct  ownership of real estate.
See "Special Risk Considerations".                                              

EVERGREEN INCOME AND GROWTH FUND                                                

         The investment  objective of EVERGREEN INCOME AND GROWTH FUND (formerly
Evergreen Total Return Fund)                                                    
is to achieve a return consisting of current income and capital  appreciation in
the value of its shares. The emphasis on current income and capital appreciation
will be relatively equal although,  over time, changes in the outlook for market
conditions  and the  level of  interest  rates  will  cause the Fund to vary its
emphasis between these two elements in its search for the optimum return for its
shareholders.  To the extent that the Fund is emphasizing current income, it may
purchase securities in anticipation of participating in dividends. This practice
may  result in a higher  rate of  portfolio  turnover  and may affect the Fund's
overall  return.  The Fund seeks to achieve  its  investment  objective  through
investments in common stocks,  preferred stocks,  securities convertible into or
exchangeable for common stocks and fixed income securities.  The Fund may invest
up to 20% of its total  assets  in the  securities  of  foreign  issuers  either
directly or in the form of ADRs,  European Depository Receipts ("EDRs") or other
securities  convertible  into securities of foreign  issuers.  See "Special Risk
Considerations", below. The Fund may also write covered call options.           

         To the extent that the Fund seeks capital appreciation, it expects that
its investments  will provide growth over the long-term.  Investments,  however,
may be made on occasion for the purpose of short-term  capital  appreciation  if
the Fund believes that such investments will benefit its shareholders.          

         The  Fund may make  investments  in  securities  (other  than  options)
regardless of whether or not such securities are traded on a national securities
exchange.  The  value of  portfolio  securities  and  their  yields,  as well as
opportunities to realize net                                                    

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gains from a covered call  options  writing  program,  are expected to fluctuate
over time because of varying general economic and market conditions.            

         The Fund's  portfolio  will vary over time  depending upon the economic
outlook and market conditions.  The composition of its portfolio will be largely
unrestricted  and subject to the  discretion of the Fund's  investment  adviser.
Ordinarily,  the Fund anticipates that  approximately  75% of its portfolio will
consist of equity  securities  and the other 25% of debt  securities  (including
convertible  debt   securities).   As  of  January  31,  1995,  1996  and  1997,
approximately 91%, 91% and __%, respectively,  of the Fund's portfolio consisted
of equity  securities.  The balance of the Fund's  portfolio  consisted  of debt
securities (including  convertible debt securities).  If, in the judgment of the
Fund's  investment  adviser,  the appreciation  potential for equity  securities
exceeds the return  available  from debt  securities or  government  securities,
investments in equity securities could exceed 75% of the Fund's portfolio.  Most
equity investments, however, will be income producing. The quality standards for
debt  securities  include:  Obligations of banks having total assets of at least
one billion  dollars  which are members of the FDIC;  commercial  paper rated no
lower than P-2 by Moody's or A-2 by S&P;  and  non-convertible  debt  securities
rated no lower than Baa by Moody's or BBB by Standard & Poor's. Securities rated
Baa or BBB may have speculative characteristics.  Changes in economic conditions
or other  circumstances  are more likely to weaken the ability of the issuers of
such bonds' to make principal and interest payments than is the case with higher
rated  bonds.  However,  like the  higher  rated  bonds,  these  securities  are
considered  investment  grade.  For a  description  of  such  ratings,  see  the
Statement of Additional Information. See "Special Risk Considerations".         

EVERGREEN UTILITY FUND                                                          

         The  investment  objective  of  EVERGREEN  UTILITY FUND is to achieve a
return consisting of high current income and moderate capital appreciation.  The
Fund invests primarily in a diversified  portfolio of equity and debt securities
of utility  companies  that produce,  transmit or  distribute  gas or electrical
energy, as well as those companies which provide communications facilities, such
as telephone and telegraph companies. As a matter of investment policy, the Fund
will invest at least 65% of the value of its total  assets in utility  companies
that derive 50% of their revenues from  utilities or assets  relating to utility
industries.  In addition,  the Fund may invest up to 35% of its assets in common
stock of non-utility companies. As of December 31, 1995 and 1996,  approximately
77.8% and ____%, respectively,  of the Fund's portfolio consisted of investments
in utility companies.                                                           

The Fund may invest in:                                       

         common and preferred stocks, bonds and convertible  preferred stocks of
         utility  companies  selected  by the Fund's  investment  adviser on the
         basis of  traditional  research  techniques,  including  assessment  of
         earnings and dividend  growth  prospects and of the risk and volatility
         of the individual company's industry.  However,  other factors, such as
         product position,  market share or profitability may also be considered
         by the Fund's investment adviser.  The Fund will only invest its assets
         in debt  securities  rated Baa or higher by Moody's or BBB or higher by
         S&P or which, if unrated, are considered to be of comparable quality by
the Fund's investment adviser;                                

         securities   which  are  either   issued  or  guaranteed  by  the  U.S.
         government, its agencies or instrumentalities. These securities include
         direct obligations of the U.S.  Treasury,  such as U.S. Treasury bills,
         notes and bonds; and notes, bonds and discount notes of U.S. government
         agencies or instrumentalities such as the Farm Credit System, including
         the  National  Bank for  Cooperatives,  Farm Credit Banks and Banks for
         Cooperatives,  Farmers  Home  Administration,  Federal Home Loan Banks,
         Federal  Home Loan  Mortgage  Corporation,  Federal  National  Mortgage
         Association,  Government  National Mortgage  Association,  Student Loan
         Marketing Association,  Tennessee Valley Authority,  Export-Import Bank
         of the United States,  Commodity Credit Corporation,  Federal Financing
         Bank and National Credit Union Administration. Some of these securities
         are supported by the full faith and credit of the U.S. government,  and
         others are supported only by the full faith and credit of the agency or
instrumentality;                                              

commercial paper, including master demand notes;              

         American  Depositary  Receipts  ("ADRs") of foreign companies traded on
         the New  York  or  American  Stock  Exchanges  or the  over-the-counter
market;                                                       

         foreign securities (either foreign or U.S. securities traded in foreign
        markets). The Fund may also invest in other obligations denominated in
      foreign currencies. In making these decisions, the Fund's investment
adviser will consider such factors as the condition and growth
     potential of various economies and securities markets, currency and
         taxation considerations and other pertinent financial, social, national
and political factors. (See "Special Risk Considerations"     

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         below.) The Fund will not invest more than 10% of its assets in foreign
securities;                                                   

obligations, including certificates of deposit and bankers'   
acceptances, of banks or savings and loan associations having 
        at least $1 billion in deposits and insured by the Bank Insurance Fund
      or the Savings Association Mortgage Fund, including U.S. branches of
foreign banks and foreign branches of U.S. banks; and         

securities of other investment companies.                     

         As of December  31,  1996  approximately  ___% of the Fund's  portfolio
consisted of equity securities.                                                 

         Bonds  rated  Baa  by  Moody's  or  BBB by  S&P  may  have  speculative
characteristics.  Changes in economic conditions or other circumstances are more
likely to weaken the ability of the issuers of such bonds' to make principal and
interest  payments  thanis the case with higher rated bonds.  However,  like the
higher rated bonds,  these  securities are considered  investment  grade.  For a
description of such ratings, see the Statement of Additional Information.       

EVERGREEN VALUE FUND                                                            

         The  investment  objective  of the  EVERGREEN  VALUE FUND is  long-term
capital appreciation with current income as a secondary objective.  Normally, at
least 75% of the Fund's  assets will be invested  in equity  securities  of U.S.
companies with prospects for earnings  growth and dividends.  As of December 31,
1994, 1995 and 1996 approximately 97%, 89% and __%, respectively,  of the Fund's
portfolio consisted of equity securities.                                       

The Fund's investments, in order of priority, consist of:     

          common and preferred stocks, bonds and convertible  preferred stock of
          U.S.  companies with a minimum market  capitalization  of $100 million
          which are listed on the New York or American Stock Exchanges or traded
          in over-the-counter  markets.  The primary  consideration is for those
          industries and companies with the potential for capital  appreciation;
income is a secondary consideration;                        

          ADRs of foreign  companies  traded on the New York or  American  Stock
Exchanges or the over-the-counter market;                   

          foreign  securities  (either  foreign  or U.S.  securities  traded  in
          foreign markets). The Fund may also invest in obligations  denominated
          in  foreign  currencies.   In  making  these  decisions,   the  Fund's
          investment  adviser will  consider  such factors as the  condition and
          growth potential of various economies and securities markets, currency
          and  taxation  implications  and other  pertinent  financial,  social,
        national and political factors. (See "Special Risk Considerations");

          convertible bonds rated no lower than BBB by S&P or Baa by Moody's or,
          if not rated,  determined  to be of  comparable  quality by the Fund's
investment adviser;                                         

money market instruments;                                   

          fixed rate notes and bonds and  adjustable  and variable rate notes of
          companies  whose common stock the Fund may acquire rated no lower than
          BBB by S&P or Baa by Moody's or which, if not rated,  determined to be
          of comparable  quality by the Fund's  investment  adviser (up to 5% of
total assets);                                              

          zero coupon bonds issued or  guaranteed  by the U.S.  government,  its
agencies or instrumentalities (up to 5% of total assets);   

          obligations,   including   certificates   of  deposit   and   bankers'
          acceptances, of banks or savings and loan associations having at least
          $1 billion in deposits and insured by the Bank  Insurance  Fund or the
          Savings Association Insurance Fund, including U.S. branches of foreign
banks and foreign branches of U.S. banks; and               

          prime commercial  paper,  including master demand notes rated no lower
than A-1 by S&P or Prime 1 by Moody's.                      

         Bonds  rated  BBB  by  S&P  or Baa  by  Moody's  may  have  speculative
characteristics.  Changes in economic conditions or other circumstances are more
likely to weaken such bonds' prospects for principal and interests payments than
higher rated bonds.  However,  like the higher rated bonds, these securities are
considered investment grade. For a description of such ratings see the Statement
of Additional Information.                                                      

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KEYSTONE FUND FOR TOTAL RETURN                                                  

         KEYSTONE FUND FOR TOTAL RETURN seeks total return from a combination of
capital growth and income.  Under ordinary  circumstances,  the Fund will invest
principally in dividend  paying common stocks,  preferred  stocks and securities
convertible  into common stocks.  Non-dividend  paying common stocks may also be
owned by the Fund if, in the judgment of the Fund's investment adviser,  that is
consistent  with or will enhance the Fund's  ability to achieve its  objectives.
The Fund may invest up to 50% of its  assets in  securities  of foreign  issuers
located in developed  countries as well as emerging markets countries.  For this
purpose,  countries  with  emerging  markets are  generally  those where the per
capita income is in the low to middle ranges, as determined,  from time to time,
by the International Bank for Reconstruction and Development ("World Bank"). The
Fund may invest up to 35% of its total  assets in debt  securities  of U.S.  and
foreign issuers,  including secured and unsecured debt  obligations,  having any
assigned rating by S&P or Moody's or which are unrated. The Fund may also invest
in  non-investment   grade  rated  zero  coupon  and   payment-in-kind   ("PIK")
securities. See "Special Risk Consideration".                                   

         The  Fund may  invest  up to 35% of its  total  assets  under  ordinary
circumstances in the following types of money market instruments: (1) commercial
paper,  including master demand notes,  which at the date of investment is rated
A-1, the highest grade,  by S&P,  PRIME-1,  the highest grade, by Moody's or, if
not  rated  by such  services,  is  issued  by a  company  which  at the date of
investment  has an  outstanding  issue rated A or better by S&P or Moody's;  (2)
obligations,  including  certificates  of deposit and bankers'  acceptances,  of
banks or savings and loan  associations  having at least $1 billion in assets as
of the date of their  most  recently  published  financial  statements  that are
members of the Federal Deposit Insurance Corporation, including U.S. branches of
foreign banks and foreign branches of U.S. banks; (3) corporate obligations that
at the date of  investment  are  rated A or better  by S&P or  Moody's;  and (4)
obligations  issued or  guaranteed  by the U.S.  government  or by any agency or
instrumentality of the U.S.                                                     

INVESTMENT PRACTICES AND RESTRICTIONS                                           

Defensive  Investments.  The Funds may invest without limitation in high quality
money market  instruments,  such as notes,  certificates  of deposit or bankers'
acceptances,  or U.S.  government  securities  if, in the  opinion of the Funds'
investment advisers,  market conditions warrant a temporary defensive investment
strategy.  In addition,  KEYSTONE FUND FOR TOTAL RETURN may also make  temporary
investments  in debt  securities and high grade  preferred  stocks for defensive
purposes when it believes market conditions warrant.                            

Portfolio Turnover and Brokerage.  It is contemplated that Lieber & Company,  an
affiliate of Evergreen Asset Management Corp.  ("Evergreen  Asset") and a member
of the New York and American  Stock  Exchanges,  will to the extent  practicable
effect  substantially all of the portfolio  transactions for the EVERGREEN SMALL
CAP EQUITY INCOME FUND,  EVERGREEN  GROWTH AND INCOME FUND and EVERGREEN  INCOME
AND GROWTH FUND on those exchanges. The portfolio turnover rate experienced by a
Fund directly affects  brokerage  commissions and other  transaction costs which
the Fund must pay. A  portfolio  turnover  rate of 100% would  occur if all of a
Fund's  portfolio  securities were replaced in one year. It is anticipated  that
the annual portfolio  turnover rate for the EVERGREEN INCOME AND GROWTH FUND may
exceed 100%. A high rate of portfolio  turnover will increase  brokerage  costs.
The portfolio  turnover rate for each Fund is set forth in the tables  contained
in the section entitled "Financial Highlights".  See the Statement of Additional
Information for further information regarding the brokerage allocation practices
of the Funds.                                                                   

Borrowing. As a matter of fundamental policy, the Funds other than KEYSTONE FUND
FOR TOTAL  RETURN,  may not  borrow  money  except  as a  temporary  measure  to
facilitate  redemption requests or for extraordinary or emergency purposes.  The
proceeds from  borrowings  may be used to facilitate  redemption  requests which
might  otherwise  require the  untimely  disposition  of  portfolio  securities.
KEYSTONE  FUND FOR TOTAL  RETURN may borrow in  amounts up to  one-third  of its
assets for the aformentioned  purposes as well as leverage.  The specific limits
applicable  to  borrowing  by  each  Fund  are set  forth  in the  Statement  of
Additional Information.                                                         

Lending  of  Portfolio  Securities.  In order to  generate  income and to offset
expenses, the Funds may lend portfolio securities to brokers,  dealers and other
financial  institutions.   The  Funds'  investment  advisers  will  monitor  the
creditworthiness  of such  borrowers.  Loans of securities by the Funds,  if and
when made,  may not  exceed 30% of the value of the net assets of the  EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP
EQUITY  INCOME FUND,  15% of the value of the total assets of EVERGREEN  UTILITY
FUND and KEYSTONE  FUND FOR TOTAL RETURN and 5% of the value of the total assets
of EVERGREEN VALUE FUND, and must be collateralized  by cash or U.S.  government
securities  that are maintained at all times in an amount equal to at least 100%
of  the  current  market  value  of the  securities  loaned,  including  accrued
interest.  While such  securities  are on loan, the borrower will pay a Fund any
income  accruing  thereon,  and the  Fund may  invest  the  cash  collateral  in
portfolio securities, thereby increasing its return. Any gain or                

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loss in the market price of the loaned  securities  which occurs during the term
of the loan would affect a Fund and its investors.  A Fund has the right to call
a loan and obtain the  securities  loaned at any time on notice of not more than
five business days.                                                             
A Fund may pay reasonable fees in connection with such loans.                   

         There  is  the  risk  that  when  lending  portfolio  securities,   the
securities  may not be  available  to a Fund on a timely basis and the Fund may,
therefore,  lose the opportunity to sell the securities at a desirable price. In
addition,  in the event that a borrower of securities  would file for bankruptcy
or become insolvent,  disposition of the securities may be delayed pending court
action.                                                                         

Short  Sales.  The  EVERGREEN  INCOME AND GROWTH FUND and  EVERGREEN  GROWTH AND
INCOME FUND may,  as a defensive  strategy,  make short sales of  securities.  A
short sale occurs when a seller sells a security and makes delivery to the buyer
by borrowing the security. Short sales of a security are generally made in cases
where the seller  expects  the  market  value of the  security  to  decline.  To
complete  a short  sale,  the seller  must  replace  the  security  borrowed  by
purchasing it at the market price at the time of  replacement,  or by delivering
securities from the seller's own position to the lender. In the event the market
value of a security sold short were to increase, the seller would realize a loss
to the extent  that the cost of  purchasing  the  security  for  delivery to the
lender were greater than the proceeds  from the short sale. In the event a short
sale is completed by delivery of  securities to the lender from the seller's own
position,  the seller would forego any gain that would  otherwise be realized on
such securities.                                                                

Illiquid or Restricted  Securities.  EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
INCOME AND GROWTH  FUND,  EVERGREEN  UTILITY  FUND and  KEYSTONE  FUND FOR TOTAL
RETURN may invest up to 15% of their net assets,  and EVERGREEN SMALL CAP EQUITY
INCOME FUND and  EVERGREEN  VALUE FUND may invest up to 10% of their net assets,
in illiquid  securities and other securities  which are not readily  marketable,
including non-negotiable time deposits, certain restricted securities not deemed
by the Trustees to be liquid and repurchase  agreements with  maturities  longer
than seven days.  Securities eligible for resale pursuant to Rule 144A under the
Securities  Act of 1933,  which have been  determined to be liquid,  will not be
considered  by the Funds'  investment  advisers  to be  illiquid  or not readily
marketable  and,  therefore,  are not subject to the  aforementioned  15% or 10%
limits. The inability of a Fund to dispose of illiquid or not readily marketable
investments  readily or at a reasonable price could impair the Fund's ability to
raise cash for  redemptions  or other  purposes.  The  liquidity  of  securities
purchased by a Fund which are eligible for resale  pursuant to Rule 144A will be
monitored by the Funds' investment advisers on an ongoing basis,  subject to the
oversight of the Trustees.  In the event that such a security is deemed to be no
longer liquid,  a Fund's holdings will be reviewed to determine what action,  if
any, is required to ensure that the  retention of such  security does not result
in a Fund having more than 15% or 10%of its net assets, as applicable,  invested
in illiquid or not readily marketable securities.                               

Repurchase  Agreements and Reverse  Repurchase  Agreements.  The Funds may enter
into  repurchase  agreements  with member banks of the Federal  Reserve  System,
including the Funds' custodian or primary dealers in U.S. Government securities.
A repurchase  agreement is an arrangement  pursuant to which a buyer purchases a
security  and  simultaneously  agrees to resell it to the vendor at a price that
results in an  agreed-upon  market  rate of return  which is  effective  for the
period of time  (which is  normally  one to seven  days,  but may be longer) the
buyer's money is invested in the security.  The  arrangement  results in a fixed
rate of return  that is not  subject to market  fluctuations  during the holding
period. A Fund requires  continued  maintenance of collateral with its custodian
in an  amount  at  least  equal  to  the  repurchase  price  (including  accrued
interest).  In the event a vendor defaults on its repurchase obligation,  a Fund
might  suffer  a loss to the  extent  that  the  proceeds  from  the sale of the
collateral  were less than the  repurchase  price.  If the  vendor  becomes  the
subject of  bankruptcy  proceedings,  a Fund  might be  delayed  in selling  the
collateral.  The Funds' investment  advisers will review and continually monitor
the  creditworthiness  of  each  institution  with  which a Fund  enters  into a
repurchase agreement to evaluate these risks.                                   

         EVERGREEN  UTILITY  FUND,  EVERGREEN  SMALL  CAP  EQUITY  INCOME  FUND,
EVERGREEN  VALUE FUND,  and  KEYSTONE  FUND FOR TOTAL RETURN may borrow money by
entering  into a  "reverse  repurchase  agreement"  by which it  agrees  to sell
portfolio securities to financial institutions such as banks and broker-dealers,
and to repurchase them at a mutually  agreed upon date and price,  for temporary
or  emergency  purposes.  At the time a Fund  enters  into a reverse  repurchase
agreement, it will place in a segregated custodial account cash, U.S. government
securities or liquid high grade debt  obligations  having a value at least equal
to the  repurchase  price  (including  accrued  interest) and will  subsequently
monitor the account to ensure that such equivalent value is maintained.  Reverse
repurchase  agreements  involve the risk that the market value of the securities
sold by the Fund may decline  below the  repurchase  price of those  securities.
Each  Fund,  other  than  KEYSTONE  FUND FOR TOTAL  RETURN,  will not enter into
reverse repurchase agreements exceeding 5% of the value of its total assets.    

When-Issued and Delayed Delivery Transactions. EVERGREEN UTILITY FUND, EVERGREEN
VALUE FUND and  KEYSTONE  FUND FOR TOTAL  RETURN may  purchase  securities  on a
when-issued or delayed delivery basis. These                                    
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transactions are arrangements in which a Fund purchases  securities with payment
and delivery scheduled for a future time. The seller's failure to complete these
transactions  may  cause  a Fund  to  miss a price  or  yield  considered  to be
advantageous.  Settlement dates may be a month or more after entering into these
transactions,  and the market values of the  securities  purchased may vary from
the purchase  prices.  Accordingly,  a Fund may pay more or less than the market
value of the  securities  on the  settlement  date.  The Funds may  dispose of a
commitment  prior  to  settlement  if the  Funds  investment  adviser  deems  it
appropriate to do so. In addition, the Funds may enter into transactions to sell
their  purchase  commitments  to third  parties  at  current  market  values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize  short-term profits or losses upon the sale of such
commitments.                                                                    

Fixed Income Securities -- Downgrades. If any security invested in by any of the
Funds loses its rating or has its rating  reduced  after the Fund has  purchased
it, the Fund is not required to sell or otherwise  dispose of the security,  but
may consider doing so.                                                          

OPTIONS, FUTURES and DERIVATIVES                                                

         In addition to making investments directly in securities, the Funds may
write  covered put and call options and hedge their  investments  by  purchasing
options.  In addition  EVERGREEN UTILITY FUND,  EVERGREEN VALUE FUND,  EVERGREEN
SMALL CAP EQUITY  INCOME FUND and  KEYSTONE  FUND FOR TOTAL RETURN may engage in
transactions in futures contracts and related options. The investment adviser to
the EVERGREEN  GROWTH AND INCOME FUND and EVERGREEN SMALL CAP EQUITY INCOME FUND
does not  currently  intend to write  covered put options,  purchase  options or
engage in transactions in futures  contracts and related options,  but may do so
in the future. The Funds may engage in foreign currency exchange transactions to
protect against changes in future exchange rates.                               

Writing Options.  Each Fund may write covered call options,  and EVERGREEN VALUE
FUND and  KEYSTONE  FUND FOR TOTAL  RETURN may write  covered  put  options,  on
certain  portfolio  securities in an attempt to earn income and realize a higher
return on their portfolios.  A call option gives the purchaser of the option the
right to buy a security from the writer at the exercise price at any time during
the  option  period.  An option may not be written  if,  afterwards,  securities
comprising more than 5% of the market value of a Fund's equity  securities would
be subject to call options.  A Fund realizes  income from the premium paid to it
in exchange for writing the call option.  Once it has written a call option on a
portfolio  security and until the expiration of such option,  a Fund forgoes the
opportunity  to profit from  increases in the market  price of such  security in
excess  of the  exercise  price  of the call  option.  Should  the  price of the
security  on which a call has been  written  decline,  a Fund  bears the risk of
loss,  which would be offset to the extent the Fund has received premium income.
A Fund  will only  write  "covered"  options  traded  on  recognized  securities
exchanges. An option will be deemed covered when a Fund either owns the security
(or  securities  convertible  into such  security)  on which the option has been
written in an amount sufficient to satisfy the obligations  arising under a call
option;  or (ii) in the  case of call  and put  options,  the  Fund's  custodian
maintains cash or high-grade liquid debt securities  belonging to the Fund in an
amount not less that the amount  needed to satisfy the Fund's  obligations  with
respect to options  written on securities  it does not own. A "closing  purchase
transaction" may be entered into with respect to a call option written by a Fund
for the  purpose of closing  its  position.  The Fund will  realize a profit (or
loss) from such  transaction  if the cost of such  transaction is less (or more)
than the premium received from the writing of the option.  Because  increases in
the market price of a call option will generally reflect increases in the market
price of the  underlying  security,  any loss resulting from the repurchase of a
call option may be offset in whole or in part by unrealized  appreciation of the
underlying security owned by the Fund.                                          

Purchasing Put and Call Options on Securities. EVERGREEN VALUE FUND and KEYSTONE
FUND FOR TOTAL RETURN may purchase put options to protect its portfolio holdings
in an underlying  security against a decline in market value. This protection is
provided during the life of the put option since the Fund, as holder of the put,
is able to sell the underlying  security at the exercise price regardless of any
decline in the  underlying  security's  market price.  For the purchase of a put
option to be  profitable,  the  market  price of the  underlying  security  must
decline  sufficiently  below  the  exercise  price  to  cover  the  premium  and
transaction  costs.  By using put options in this  manner,  any profit which the
Fund might otherwise have realized on the underlying security will be reduced by
the premium paid for the put option and by transaction costs.                   

 A Fund may also purchase a call option to hedge against an increase in price of
a security that it intends to purchase.  This  protection is provided during the
life of the call option  since the Fund,  as holder of the call,  is able to buy
the underlying  security at the exercise price regardless of any increase in the
underlying  security's  market  price.  For the  purchase of a call option to be
profitable,  the market price of the underlying  security must rise sufficiently
above the exercise price to cover the premium and  transaction  costs.  By using
call options in this manner,  any profit which the Fund might have  realized had
it bought the underlying  security at the time it purchased the call option will
be reduced by the premium paid for the call option and by transaction costs.    

Futures, Options and Other Derivative Instruments. EVERGREEN UTILITY FUND,      
EVERGREEN VALUE FUND,                                                           

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EVERGREEN  SMALL CAP EQUITY  INCOME FUND and KEYSTONE  FUND FOR TOTAL RETURN may
purchase and sell various financial instruments  ("Derivative  Instruments) such
as financial  futures  contracts  (including  interest  rate,  index and foreign
currency futures  contracts),  options (such as options on securities,  indices,
foreign  currencies  and futures  contracts),  forward  currency  contracts  and
interest rate, equity index and currency swaps,  caps,  collars and floors.  The
index  Derivative  Instruments  EVERGREEN  UTILITY FUND,  EVERGREEN  VALUE FUND,
EVERGREEN  SMALL CAP EQUITY  INCOME FUND and KEYSTONE  FUND FOR TOTAL RETURN may
use may be based on indices of U.S. or foreign equity or debt securities.  These
Derivative Instruments may be used, for example, to preserve a return or spread,
to lock in unrealized  market value gains or losses, to facilitate or substitute
for the sale or purchase of securities, to manage the duration of securities, to
alter the exposure of a particular investment or portion of the Fund's portfolio
to  fluctuations in interest rates or currency rates, to uncap a capped security
or to convert a fixed rate  security into a variable rate security or a variable
rate security into a fixed rate security.                                       

         A Fund's  ability  to use these  instruments  may be  limited by market
conditions,  regulatory limits and tax considerations.  A Fund might not use any
of these strategies and there can be no assurance that any strategy that is used
will succeed.  See the Statement of Additional  Information for more information
regarding these instruments and the risks relating thereto.                     

Risks of Derivative Instruments.  The use of Derivative  instruments,  including
written put and call options,  involves special risks,  including:  (1) the lack
of, or imperfect,  correlation  between price movements of the Fund's current or
proposed portfolio  investments that are the subject of the transactions as well
as price movements of the Derivative  Instruments  involved in the  transaction;
(2) possible lack of a liquid  secondary  market for any  particular  Derivative
Instrument  at  a  particular  time;  (3)  the  need  for  additional  portfolio
management skills and techniques;  (4) losses due to unanticipated  market price
movements; (5) the fact that, while such strategies can reduce the risk of loss,
they can also reduce the  opportunity  for gain,  or even  result in losses,  by
offsetting  favorable  price movements in portfolio  investments;  (6) incorrect
forecasts  by a  Fund's  investment  adviser  concerning  interest  or  currency
exchange rates or direction of price  fluctuations of the investment that is the
subject of the transaction,  which may result in the strategy being ineffective;
(7) loss of  premiums  paid by the Fund on  options  it  purchases;  and (8) the
possible  inability  of the Fund to purchase  or sell a portfolio  security at a
time when it would otherwise be favorable for it to do so, or the need to sell a
portfolio  security at a  disadvantageous  time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with such transactions
and the possible inability of the Fund to close out or liquidate its positions. 

 A Fund's investment adviser may use Derivative  Instruments,  including written
put and call  options,  for  hedging  purposes  (i.e.  by  paying a  premium  or
foregoing the opportunity for profit in return for protection  against downturns
in markets  generally or the prices of individual  securities or currencies) and
also may use Derivative Instruments to try to enhance the return characteristics
of a Fund's portfolio of investments  (i.e. by receiving  premiums in connection
with the writing of options  and  thereby  accepting  the risk of  downturns  in
markets  generally or the prices of  individual  securities  or currencies or by
paying premiums with the hope that the underlying  Derivative  Instruments  will
appreciate).  The use of  Derivative  Instruments  for  hedging  purposes  or to
enhance a Fund's  return  characteristics  can increase  investment  risk.  If a
Fund's  investment  adviser  judges market  conditions  incorrectly or employs a
strategy  that  does not  correlate  well  with the  Fund's  investments,  these
techniques  could  result in a loss,  regardless  of  whether  the intent was to
reduce risk or increase return.  These techniques may increase the volatility of
a Fund and may involve a small  investment  of cash relative to the magnitude of
the risk assumed,  resulting in leverage.  In addition,  these  techniques could
result in a loss if the  counterparty  to the  transaction  does not  perform as
promised  or if there is not a liquid  secondary  market to close out a position
that the Fund has entered into.  Options and futures  transactions  may increase
portfolio turnover rates, which would result in greater commission  expenses and
transaction costs.                                                              

Foreign  Currency  Transactions.  To the extent a Funds may  invest in  non-U.S.
dollar denominated  securities,  it may enter into foreign currency transactions
to obtain the necessary currencies to settle securities  transactions.  Currency
transactions may be conducted either on a spot or cash basis at prevailing rates
or through forward foreign currency exchange  contracts  ("forward  contracts").
EVERGREEN  SMALL CAP EQUITY  INCOME FUND and KEYSTONE  FUND FOR TOTAL RETURN may
also enter into  forward  foreign  currency  exchange  contracts to protect Fund
assets  denominated in a foreign  currency  against  adverse  changes in foreign
currency  exchange  rates or exchange  control  regulations.  Such changes could
unfavorably  affect the value of Fund assets  which are  denominated  in foreign
currencies,  such as foreign  securities or funds deposited in foreign banks, as
measured in U.S. dollars.  The use of forward contracts for hedging purposes may
limit any potential gain that might result from a relative increase in the value
of such currencies and might, in certain cases,  result in losses to the Fund. A
forward  contract is an obligation to purchase or sell an amount of a particular
currency at a specific  price and on a future  date agreed upon by the  parties.
Generally,  no commission  charges or deposits are involved.  At the time a Fund
enters  into a forward  contract,  Fund  assets with a value equal to the Fund's
obligation  under the forward  contract are segregated and are maintained  until
the contract has been settled.  The Funds will not enter into a forward contract
with a term of more than one year. In addition to forward contracts entered into
for hedging  purposes,  EVERGREEN SMALL CAP EQUITY INCOME FUND and KEYSTONE FUND
FOR TOTAL  RETURN will  generally  enter into a forward  contract to provide the
proper currency to settle a securities                                          

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transaction  at the time the  transaction  occurs  ("trade  date").  The  period
between trade date and  settlement  date will vary between 24 hours and 60 days,
depending upon local custom.                                                    

Options on  Foreign  Currencies.  EVERGREEN  SMALL CAP  EQUITY  INCOME  FUND and
KEYSTONE FUND FOR TOTAL RETURN also purchase foreign currency put options. A put
option gives the holder, upon payment of a premium, the right to sell a currency
at the exercise  price until the  expiration  of the option and serves to ensure
against  adverse  currency price  movements in the underlying  portfolio  assets
denominated in that currency.  Exchange listed options on seven major currencies
are traded in the U.S. In addition,  several  major U.S.  investment  firms make
markets in unlisted options on foreign currencies.  Such unlisted options may be
available with respect to a wide range of foreign currencies than listed options
and may  have  more  flexible  terms.  Unlisted  foreign  currency  options  are
generally  less  liquid  than  listed  options  and  involve  the  credit  risks
associated  with the individual  issuer.  No more than 5% of a Fund's net assets
may be  represented  by  premiums  paid by the Fund with  respect  to options on
foreign currencies outstanding at any one time. Furthermore, the market value of
unlisted  options on foreign  currencies  will be included  with other  illiquid
assets held by the Fund for purposes of the 15% limit on such assets.  The Funds
may  write a call  option  on a  foreign  currency  only in  conjunction  with a
purchase of a put option on that currency. A call option written by a Fund gives
the purchaser,  upon payment of a premium, the right to purchase from the Fund a
currency at the exercise price until the expiration of the option.  Writing call
options  in this  manner is  designed  to reduce the cost of  downside  currency
protection but has the effect of limiting currency appreciation potential.      

SPECIAL RISK CONSIDERATIONS                                                     

         Fixed  Income  Investments.  Investments  by the Funds in fixed  income
securities  are subject to a number of risks.  For example,  changes in economic
conditions  could result in the weakening of the capacity of the issuers of such
securities to make principal and interest payments,  particularly in the case of
issuers of non-investment grade fixed income securities. In addition, the market
value of fixed-income  securities in a Fund's  portfolio can be expected to vary
inversely  to changes in  prevailing  interest  rates.  In the event  there is a
downgrading in the rating of a fixed income security held in a Fund's portfolio,
the Fund may continue to hold the security if such action is deemed to be in the
best interests of the Fund and its shareholders.                                

         Investment  in Small  Companies.  EVERGREEN  GROWTH AND INCOME FUND may
invest from time to time, and EVERGREEN SMALL CAP EQUITY INCOME FUND will invest
in securities of little-known, relatively small and special situation companies.
Investments in such companies may tend to be speculative and volatile. A lack of
management  depth in such companies could increase the risks associated with the
loss of key  personnel.  Also,  the  material  and  financial  resources of such
companies may be limited,  with the consequence that funds or external financing
necessary for growth may be unavailable.  Such companies may also be involved in
the  development or marketing of new products or services for which there are no
established  markets.  If projected  markets do not materialize or only regional
markets develop,  such companies may be adversely  affected or be subject to the
consequences  of local events.  Moreover,  such  companies may be  insignificant
factors in their  industries and may become subject to intense  competition from
larger companies.  Securities of small and special situation  companies in which
the Funds invest will frequently be traded only in the  over-the-counter  market
or on regional  stock  exchanges and will often be closely  held.  Securities of
this type may have limited liquidity and be subject to wide price  fluctuations.
As a result of the risk  factors  described  above,  the net asset value of each
Fund's shares can be expected to vary significantly.                            

Investment in Foreign  Securities.  EVERGREEN INCOME AND GROWTH FUND,  EVERGREEN
UTILITY  FUND  and  KEYSTONE  FUND  FOR  TOTAL  RETURN  may  invest  in  foreign
securities.  Investments in foreign securities require  consideration of certain
factors not normally  associated with investments in securities of U.S. issuers.
For example,  a change in the value of any foreign currency relative to the U.S.
dollar  will  result  in a  corresponding  change  in the U.S.  dollar  value of
securities denominated in that currency.  Accordingly,  a change in the value of
any foreign currency  relative to the U.S. dollar will result in a corresponding
change in the U.S. dollar value of the assets of the Fund  denominated or traded
in that currency.  If the value of a particular  foreign currency falls relative
to the U.S. dollar, the U.S. dollar value of the assets of a Fund denominated in
such currency will also fall. The performance of a Fund will be measured in U.S.
dollars.                                                                        

         Securities  markets of foreign  countries  generally are not subject to
the same degree of regulation  as the U.S.  markets and may be more volatile and
less liquid.  Lack of liquidity may affect a Fund's  ability to purchase or sell
large blocks of securities  and thus obtain the best price.  The lack of uniform
accounting  standards  and  practices  among  countries  impairs the validity of
direct  comparisons of valuation  measures (such as  price/earnings  ratios) for
securities  in  different  countries.  In  addition,  a  Fund  may  incur  costs
associated  with currency  hedging and the  conversion of foreign  currency into
U.S. dollars and may be adversely  affected by restrictions on the conversion or
transfer of foreign currency.  Other considerations include political and social
instability,   expropriation,   the  lack  of  available   information,   higher
transaction costs (including  brokerage  charges),  increased  custodian charges
associated with holding foreign securities and different  securities  settlement
practices. Settlement periods                                                   

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for foreign securities,  which are sometimes longer than those for securities of
U.S.  issuers,  may  affect  portfolio  liquidity.  These  different  settlement
practices may cause missed purchasing  opportunities and/or the loss of interest
on money market and debt  investments  pending  further equity or long-term debt
investments.  In addition,  foreign  securities  held by a Fund may be traded on
days that the Fund does not value its  portfolio  securities,  such as Saturdays
and customary business holidays, and, accordingly,  a Fund's net asset value may
be  significantly  affected on days when  shareholders do not have access to the
Fund.                                                                           

         Additionally,  accounting procedures and government  supervision may be
less  stringent  than those  applicable to U.S.  companies.  It may also be more
difficult to enforce  contractual  obligations  abroad than would be the case in
the  United  States  because  of  differences  in  the  legal  systems.  Foreign
securities may be subject to foreign taxes,  which may reduce yield,  and may be
less  marketable  than  comparable  U.S.  securities.   All  these  factors  are
considered by each Fund's investment adviser before making any of these types of
investments.                                                                    

         ADRs and EDRs and  other  securities  convertible  into  securities  of
foreign  issuers may not  necessarily be denominated in the same currency as the
securities  into which they may be  converted  but rather in the currency of the
market  in which  they are  traded.  ADRs are  receipts  typically  issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation.  EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement.  Generally ADRs, in
registered  form, are designed for use in United States  securities  markets and
EDRs, in bearer form, are designed for use in European securities markets.      

Investments Related to Real Estate.  EVERGREEN INCOME AND GROWTH FUND may invest
up to 15% of its net  assets and  EVERGREEN  SMALL CAP  EQUITY  INCOME  FUND may
invest  without  limit in  investments  related to real estate,  including  real
estate   investment  trust  ("REITS").   Risks  associated  with  investment  in
securities  of companies in the real estate  industry  include:  declines in the
value of real estate,  risks related to general and local  economic  conditions,
overbuilding  and  increased  competition,   increases  in  property  taxes  and
operating  expenses,  changes in zoning laws,  casualty or condemnation  losses,
variations  in rental  income,  changes in  neighborhood  values,  the appeal of
properties to tenants and increases in interest rates. In addition,  equity real
estate  investment  trusts  may be  affected  by  changes  in the  value  of the
underlying  property owned by the trusts,  while mortgage real estate investment
trusts may be affected by the quality of credit  extended.  Equity and  mortgage
real estate investment trusts are dependent upon management  skills,  may not be
diversified and are subject to the risks of financing projects.  Such trusts are
also  subject  to heavy  cash  flow  dependency,  defaults  by  borrowers,  self
liquidation and the possibility of failing to qualify for tax-free  pass-through
of income under the Internal  Revenue Code of 1986,  as amended (the "Code") and
to maintain  exemption from the Investment  Company Act of 1940, as amended (the
"1940 Act").  In the event an issuer of debt securities  collateralized  by real
estate  defaulted,  it is  conceivable  that a Fund  could  end up  holding  the
underlying real estate.                                                         

Lower-rated  Securities.  EVERGREEN GROWTH AND INCOME FUND and KEYSTONE FUND FOR
TOTAL RETURN may invest a portion of their assets in securities  rated below Baa
by Moody's  or BBB by S&P  (commonly  known as "junk  bonds").  Lower-rated  and
comparable  unrated securities  (collectively  referred to in this discussion as
"lower-rated   securities")   will  likely  have  some  quality  and  protective
characteristics   that,  in  the  judgment  of  the  rating  organization,   are
out-weighed  by  large   uncertainties   or  major  risk  exposures  to  adverse
conditions;  and are  predominantly  speculative  with  respect to the  issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligation.                                                                     

         While the market values of lower-rated securities tend to react less to
fluctuations  in interest  rate levels  than the market  values of higher  rated
securities,  the market values of certain lower-rated securities also tend to be
more  sensitive to  individual  corporate  developments  and changes in economic
conditions than higher-rated  securities.  In addition,  lower-rated  securities
generally  present a higher  degree  of credit  risk.  Issuers  of lower-  rated
securities are often highly leveraged and may not have more traditional  methods
of  financing  available  to them so that their  ability  to service  their debt
obligations  during an economic  downturn or during sustained  periods of rising
interest rates may be impaired.  The risk of loss due to default by such issuers
is significantly greater because lower-rated  securities generally are unsecured
and frequently are subordinated to the prior payment of senior  indebtedness.  A
Fund may incur  additional  expenses  to the extent  that it is required to seek
recovery upon a default in the payment of principal or interest on its portfolio
holdings.  The  existence  of limited  markets for  lower-rated  securities  may
diminish a Fund's ability to obtain accurate  market  quotations for purposes of
valuing such  securities  and  calculating  its net asset value.  For additional
information about the possible risks of investing in junk bonds, see "Investment
Objectives   and  Policies  -  Junk  Bonds"  in  the   Statement  of  Additional
Information.                                                                    

Investments  in the Utility  Industry.  In view of the EVERGREEN  UTILITY FUND'S
investment concentration,  investors should be aware of certain risks associated
with the utility  industry in general.  These  include  difficulties  in earning
adequate returns on investments despite frequent rate increases, restrictions on
operations  and  increased  costs and  delays due to  governmental  regulations,
building or construction delays,  environmental  regulations,  difficulty of the
capital markets in absorbing utility debt                                       

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and equity securities, and difficulties in obtaining fuel at reasonable prices. 

Other  Investment  Restrictions.  Each Fund has  adopted  additional  investment
restrictions  that are set forth in the  Statement  of  Additional  Information.
Unless  otherwise  noted,  the restrictions and policies set forth above are not
fundamental and may be changed without shareholder  approval.  Shareholders will
be notified of any changes in policies that are not fundamental.                
--------------------------------------------------------------------------------

           MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------

INVESTMENT ADVISERS                                                             

         The  management of each Fund is supervised by the Trustees of the Trust
under which the Fund has been established ("Trustees"). Evergreen Asset has been
retained by EVERGREEN  INCOME AND GROWTH FUND,  EVERGREEN GROWTH AND INCOME FUND
and  EVERGREEN  SMALL CAP EQUITY INCOME FUND as  investment  adviser.  Evergreen
Asset succeeded on June 30, 1994 to the advisory  business of a corporation with
the same name,  but under  different  ownership,  which was  organized  in 1971.
Evergreen Asset, with its predecessors,  has served as investment adviser to the
Evergreen mutual funds since 1971. Evergreen Asset is a wholly-owned  subsidiary
of First  Union  National  Bank of  North  Carolina  ("FUNB").  The  address  of
Evergreen Asset is 2500 Westchester Avenue,  Purchase, New York 10577. FUNB is a
subsidiary of First Union  Corporation  ("First Union"),  the sixth largest bank
holding company in the United States.  Stephen A. Lieber and Nola Maddox Falcone
serve as the chief  investment  officers  of  Evergreen  Asset  and,  along with
Theodore J. Israel,  Jr., were the owners of Evergreen  Asset's  predecessor and
the former  general  partners of Lieber & Company  which,  as  described  below,
provides certain subadvisory  services to Evergreen Asset in connection with its
duties as investment  adviser to the Funds. The Capital Management Group of FUNB
("CMG")  serves as  investment  adviser to EVERGREEN  UTILITY FUND and EVERGREEN
VALUE FUND.                                                                     

         Keystone Investment  Management Company  ("Keystone") has been retained
by  KEYSTONE  FUND FOR TOTAL  RETURN to serve as  investment  adviser.  Keystone
succeded on December 11, 1996 to the advisory business of a corporation with the
same name, but under different ownership, which provided investment advisory and
management  services to investment  companies and private  accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of FUNB.               

         First Union is headquartered in Charlotte, North Carolina, and had $132
billion in  consolidated  assets as of February  29,  1997.  First Union and its
subsidiaries  provide a broad range of  financial  services to  individuals  and
businesses  throughout the United States.  CMG manages or otherwise oversees the
investment  of over $45 billion in assets  belonging to a wide range of clients,
including all the series of Evergreen  Investment Trust (formerly known as First
Union  Funds) the two series of The  Evergreen  Lexicon Fund  (formerly  The FFB
Lexicon Fund) and the two series of Evergreen  Tax Free Trust  (formerly the FFB
Funds Trust). First Union Brokerage Services, Inc., a wholly-owned subsidiary of
FUNB, is a registered  broker-dealer  that is  principally  engaged in providing
retail brokerage  services  consistent with its federal banking  authorizations.
First Union Capital Markets Corp., a wholly-owned  subsidiary of First Union, is
a registered broker-dealer principally engaged in providing, consistent with its
federal banking  authorizations,  private  placement,  securities  dealing,  and
underwriting services.                                                          

         As investment  adviser to EVERGREEN  INCOME AND GROWTH FUND,  EVERGREEN
GROWTH AND INCOME FUND and  EVERGREEN  SMALL CAP EQUITY  INCOME FUND,  Evergreen
Asset manages each Fund's investments,  provides various administrative services
and supervises each Fund's daily business  affairs,  subject to the authority of
the  Trustees.  Evergreen  Asset is entitled to receive  from each of  EVERGREEN
INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN SMALL CAP
EQUITY  INCOME  FUND a fee equal to 1% of average  daily net assets on an annual
basis on the first $750 million in assets,  .9 of 1% of average daily net assets
on an annual basis on the next $250  million in assets,  and .8 of 1% of average
daily net assets on an annual basis on assets over $1 billion.  The fees paid by
EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and EVERGREEN
SMALL  CAP  EQUITY  INCOME  FUND are  higher  than the rate  paid by most  other
investment companies.                                                           

         CMG manages  investments  and supervises the daily business  affairs of
EVERGREEN  UTILITY FUND and EVERGREEN VALUE FUND and, as compensation  therefor,
is  entitled  to receive  an annual fee equal to .50 of 1% of average  daily net
assets of each Fund.                                                            

          Keystone act as  investment  adviser to KEYSTONE FUND FOR TOTAL RETURN
and manages the Fund's investments, provides various administrative services and
supervises  the Fund's daily business  affairs,  subject to the authority of the
Trustees. As payment for its services,  Keystone is entitled to receive from the
KEYSTONE FUND FOR TOTAL RETURN a fee,  calculated  on an annual basis,  equal to
1.5% of Gross Dividend and Interest Income of the Fund plus 0.60% of the first  

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$100,000,000  of the aggregate  net asset value of the shares of the Fund,  plus
0.55% of the next $100,000,000,  plus 0.50% of the next $100,000,000, plus 0.45%
of the next $100,000,000, plus 0.40% of the next $100,000,000, plus 0.35% of the
next $500,000,000, plus 0.30% of amounts over $1,000,000,000, computed as of the
close of business each business day and paid daily.                             

         The total  annualized  operating  expenses  of each Fund for the fiscal
year ended  December 31, 1996 (January 31, 1996 in the case of EVERGREEN  INCOME
AND GROWTH FUND)  expressed  as a percentage  of average net assets on an annual
basis  are set  forth  in the  section  entitled  "Financial  Highlights".  Such
expenses reflect all voluntary  expense  reimbursements  which may be revised or
terminated at any time.                                                         

          Evergreen Asset serves as administrator to EVERGREEN  UTILITY FUND and
EVERGREEN VALUE FUND and is entitled to receive a fee based on the average daily
net  assets of these  Funds at a rate  based on the total  assets of the  mutual
funds  administered  by Evergreen  Asset for which CMG or  Evergreen  Asset also
serve as  investment  adviser,  calculated  in  accordance  with  the  following
schedule:  .050% of the first $7 billion; .035% on the next $3 billion; .030% on
the  next $5  billion;  .020%  on the  next  $10  billion;  .015% on the next $5
billion; and .010% on assets in excess of $30 billion.  BISYS Fund Services,  an
affiliate of Evergreen  Keystone  Distributor,  Inc.  (formerly  Evergreen Funds
Distributor,  Inc.), distributor for the Evergreen group of mutual funds, serves
as  sub-administrator  to EVERGREEN UTILITY FUND and EVERGREEN VALUE FUND and is
entitled to receive a fee from each Fund  calculated  on the  average  daily net
assets of each  Fund at a rate  based on the total  assets of the  mutual  funds
administered by Evergreen Asset for which CMG,  Keystone or Evergreen Asset also
serve as  investment  adviser,  calculated  in  accordance  with  the  following
schedule:  .0100% of the first $7 billion; .0075% on the next $3 billion; .0050%
on the next $15  billion;  and  .0040% on assets in excess of $25  billion.  The
total assets of the mutual funds  administered by Evergreen Asset for which CMG,
Keystone or Evergreen Asset serve as investment  adviser were approximately $___
billion as of February 29, 199_.                                                

          The  portfolio  manager for  EVERGREEN  INCOME AND GROWTH FUND is Nola
Maddox  Falcone,  C.F.A.,  who is President  and Co-Chief  Executive  Officer of
Evergreen  Asset.  Ms. Falcone has served as the principal  manager of each Fund
since  1985  and  1993,  respectively.   The  portfolio  manager  for  EVERGREEN
FOUNDATION  FUND is Stephen A. Lieber,  who is Chairman  and Co-Chief  Executive
Officer of  Evergreen  Asset.  Mr.  Lieber has served as such  Fund's  principal
manager  since its  inception.  The portfolio  manager for EVERGREEN  GROWTH AND
INCOME  FUND is Edmund H.  Nicklin,  Jr.  C.F.A.  Mr.  Nicklin has served as the
Fund's principal manager since its inception.  Mrs. Falcone and Mr. Nicklin have
been associated  with Evergreen  Asset and its predecessor  since 1974 and 1982,
respectively.                                                                   

         The portfolio manager for EVERGREEN UTILITY FUND since its inception in
1991 is H. Bradley  Donovan,  who is an Assistant  Vice  President of FUNB.  Mr.
Donovan  joined FUNB in 1981 and has been with First Union since 1992.  Prior to
that Mr.  Donovan  had served as a portfolio  manager and equity  analyst at the
Bank of Boston.  EVERGREEN  VALUE FUND is currently being managed by experienced
members  of the CMG staff.  CMG has been  managing  trust  assets for over fifty
years.                                                                          

       Walter McCormick has been the Portfolio  Manager of KEYSTONE FUND FOR
TOTAL  RETURN since 1987.  Mr.  McCormick  is also a Vice  President  and Senior
Portfolio Manager of Keystone and has more than 25 years' investment experience.

SUB-ADVISER                                                                     

          Evergreen Asset has entered into sub-advisory agreements with Lieber &
Company which provide that Lieber & Company's research department and staff will
furnish Evergreen Asset with information, investment recommendations, advice and
assistance,  and will be generally  available for consultation on the portfolios
of  EVERGREEN  INCOME  AND GROWTH  FUND,  EVERGREEN  GROWTH AND INCOME  FUND and
EVERGREEN  SMALL CAP EQUITY INCOME FUND.  Lieber & Company will be reimbursed by
Evergreen Asset in connection with the rendering of services on the basis of the
direct and indirect costs of performing  such  services.  There is no additional
charge to EVERGREEN INCOME AND GROWTH FUND, EVERGREEN GROWTH AND INCOME FUND and
EVERGREEN  SMALL CAP EQUITY  INCOME FUND for the  services  provided by Lieber &
Company.  The address of Lieber & Company is 2500 Westchester Avenue,  Purchase,
New York 10577.  Lieber & Company is an indirect,  wholly-owned,  subsidiary  of
First Union.                                                                    

--------------------------------------------------------------------------------

PURCHASE AND REDEMPTION OF SHARES     
--------------------------------------------------------------------------------

HOW TO BUY SHARES                                                               

         Eligible  investors may purchase Fund shares at net asset value by mail
or wire as described below. The Funds impose no sales charges on Class Y shares.
Class Y shares are the only class of shares  offered by this  Prospectus and are
only available to (i) all shareholders of record in one or more of the Evergreen
Funds as of December 30, 1994,  (ii) certain  institutional  investors and (iii)
investment  advisory  clients of the  Adviser  and its  affiliates.  The minimum
initial investment is $1,000,  which may be waived in certain situations.  There
is  no  minimum  for  subsequent  investments.  Investors  may  make  subsequent
investments  by  establishing  a  Systematic  Investment  Plan  or  a  Telephone
Investment Plan.                                                                

Purchases by Mail or Wire.  Each  investor  must  complete  the  enclosed  Share
Purchase  Application and mail it together with a check made payable to the Fund
whose shares are being purchased, to State Street Bank and Trust Company ("State
Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827. Checks not drawn on
U.S. banks will be subject to foreign  collection which will delay an investor's
investment date and will be subject to processing fees.                         

         When making subsequent  investments,  an investor should either enclose
the return remittance  portion of the statement,  or indicate on the face of the
check,  the name of the Fund in which an  investment  is to be made,  the  exact
title of the  account,  the  address,  and the  Fund  account  number.  Purchase
requests  should not be sent to a Fund in New York.  If they are,  the Fund must
forward them to State Street,  and the request will not be effective until State
Street receives them.                                                           

         Initial  investments  may  also be made  by wire by (i)  calling  State
Street at  800-423-2615  for an account number and (ii)  instructing  your bank,
which may charge a fee, to wire federal funds to State Street, as follows: State
Street  Bank  and  Trust  Company,  ABA  No.0110-0002-8,   Attn:  Custodian  and
Shareholder  Services.  The wire must include references to the Fund in which an
investment  is being  made,  account  registration,  and the account  number.  A
completed  Application  must also be sent to State  Street  indicating  that the
shares  have  been  purchased  by  wire,  giving  the date the wire was sent and
referencing  the account  number.  Subsequent  wire  investments  may be made by
existing  shareholders by following the  instructions  outlined above. It is not
necessary,  however,  for  existing  shareholders  to call for  another  account
number.                                                                         

How the Funds Value Their Shares. The net asset value of each Class of shares of
a Fund is  calculated  by  dividing  the value of the  amount of the  Fund's net
assets  attributable  to that Class by the number of outstanding  shares of that
Class.  Shares are valued each day the New York Stock Exchange (the  "Exchange")
is open as of the close of regular trading  (currently 4:00 p.m.  Eastern time).
The securities in a Fund are valued at their current market value  determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as a Fund's Trustees  believe would  accurately  reflect fair
market value.  Non-dollar  denominated securities will be valued as of the close
of the  Exchange  at the closing  price of such  securities  in their  principal
trading market.                                                                 

Additional Purchase Information.  As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the Adviser incurs.  If such
investor is an existing shareholder, a Fund may redeem shares from an investor's
account to reimburse  the Fund or the Adviser for any loss.  In  addition,  such
investors may be prohibited or restricted  from making further  purchases in any
of the Evergreen Funds.                                                         

         The Share Purchase  Application may not be used to invest in any of the
prototype retirement plans for which the Funds are an available investment.  For
information about the requirements to make such investments, including copies of
the necessary  application forms,  please call the telephone number set forth on
the cover page of this Prospectus. A Fund cannot accept investments specifying a
certain  price or date and reserves  the right to reject any  specific  purchase
order,  including  orders in connection  with exchanges from the other Evergreen
Funds.  Although  not  currently  anticipated,  each Fund  reserves the right to
suspend the offer of shares for a period of time.                               

         Shares  of each Fund are sold at the net  asset  value  per share  next
determined after a shareholder's order is received. Investments by federal funds
wire or by check  will be  effective  upon  receipt by State  Street.  Qualified
institutions may telephone orders for the purchase of Fund shares. Investors may
also purchase  shares  through a  broker/dealer,  which may charge a fee for the
service.                                                                        

HOW TO REDEEM SHARES                                                            

         You may "redeem",  i.e.,  sell your shares in a Fund to the Fund on any
day  the  Exchange  is  open,   either   directly  or  through  your   financial
intermediary.  The price you will receive is the net asset value next calculated
after the Fund receives your request in proper form.  Proceeds generally will be
sent to you within seven days. However,  for shares recently purchased by check,
a Fund will not send proceeds  until it is reasonably  satisfied  that the check
has been collected (which may take up to 15 days). Once a redemption request has
been  telephoned  or  mailed,  it is  irrevocable  and  may not be  modified  or
canceled.                                                                       

Redeeming  Shares  Directly  by Mail  or  Telephone.  Send a  signed  letter  of
instruction or stock power form to State Street which is the registrar, transfer
agent  and  dividend-disbursing  agent  for each  Fund.  Stock  power  forms are
available from your financial  intermediary,  State Street,  and many commercial
banks.  Additional   documentation  is  required  for  the  sale  of  shares  by
corporations, financial intermediaries,  fiduciaries and surviving joint owners.
Signature  guarantees are required for all redemption requests for shares with a
value of more than $10,000 or where the redemption  proceeds are to be mailed to
an address  other  than that  shown in the  account  registration.  A  signature
guarantee must be provided by a bank or trust company (not a Notary  Public),  a
member  firm of a domestic  stock  exchange or by other  financial  institutions
whose guarantees are acceptable to State Street.                                

         Shareholders may withdraw amounts of $1,000 or more from their accounts
by calling State Street  (800-423- 2615) between the hours of 9:00 a.m. and 4:00
p.m.  (Eastern time) each business day (i.e.,  any weekday  exclusive of days on
which the New York Stock Exchange or State Street's offices are closed). The New
York Stock  Exchange is closed on New Year's Day,  Presidents  Day, Good Friday,
Memorial Day,  Independence Day, Labor Day,  Thanksgiving Day and Christmas Day.
Redemption  requests made after 4:00 p.m. (Eastern time) will be processed using
the net  asset  value  determined  on the next  business  day.  Such  redemption
requests must include the shareholder's account name, as registered with a Fund,
and the account  number.  During periods of drastic  economic or market changes,
shareholders  may  experience  difficulty  in effecting  telephone  redemptions.
Shareholders  who are unable to reach a Fund or State Street by telephone should
follow the procedures outlined above for redemption by mail.                    

         The telephone  redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the enclosed Application and choose how the redemption proceeds
are to be paid.  Redemption  proceeds  will either (i) be mailed by check to the
shareholder  at the address in which the account is  registered or (ii) be wired
to an account with the same registration as the shareholder's  account in a Fund
at a designated commercial bank. State Street currently deducts a $5 wire charge
from all  redemption  proceeds  wired.  This charge is subject to change without
notice.  A  shareholder  who  decides  later to use this  service,  or to change
instructions already given, should fill out a Shareholder Services Form and send
it to State Street Bank and Trust Company, P.O. Box 9021, Boston,  Massachusetts
02205-9827,  with such  shareholder's  signature  guaranteed  by a bank or trust
company (not a Notary Public),  a member firm of a domestic stock exchange or by
other financial  institutions  whose  guarantees are acceptable to State Street.
Shareholders  should allow approximately ten days for such form to be processed.
The Funds will employ  reasonable  procedures to verify that telephone  requests
are  genuine.   These  procedures   include  requiring  some  form  of  personal
identification   prior  to  acting  upon  instructions  and  tape  recording  of
conversations. If the Fund fails to follow such procedures, it may be liable for
any losses due to unauthorized or fraudulent instructions. The Fund shall not be
liable for following telephone  instructions  reasonably believed to be genuine.
Also, the Fund reserves the right to refuse a telephone  redemption  request, if
it is believed advisable to do so. Financial intermediaries may charge a fee for
handling telephonic  requests.  The telephone redemption option may be suspended
or terminated at any time without notice.                                       

General.  The sale of shares is a taxable  transaction for Federal tax purposes.
Under unusual circumstances,  a Fund may suspend redemptions or postpone payment
for up to seven days or longer,  as  permitted  by Federal  securities  law. The
Funds reserve the right to close an account that through redemption has remained
below $1,000 for 30 days.  Shareholders  will receive 60 days' written notice to
increase the account value before the account is closed.  The Funds have elected
to be governed by Rule 18f-1 under the  Investment  Company Act of 1940 pursuant
to which  each Fund is  obligated  to redeem  shares  solely in cash,  up to the
lesser of  $250,000  or 1% of a Fund's  total net  assets  during any ninety day
period for any one shareholder.  See the Statement of Additional Information for
further details.                                                                

EXCHANGE PRIVILEGE                                                              

How To Exchange  Shares.  You may exchange some or all of your shares for shares
of the same Class in the other Evergreen Funds by telephone or mail as described
below. An exchange which represents an initial  investment in another  Evergreen
Fund  must  amount  to at  least  $1,000.  Once an  exchange  request  has  been
telephoned  or mailed,  it is  irrevocable  and may not be modified or canceled.
Exchanges  will be made on the basis of the  relative  net  asset  values of the
shares  exchanged  next  determined  after  an  exchange  request  is  received.
Exchanges are subject to minimum investment and suitability requirements.       

         Each of the Evergreen  Funds have different  investment  objectives and
policies.  For  complete  information,  a  prospectus  of the fund into which an
exchange will be made should be read prior to the exchange. An exchange is      

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treated for Federal  income tax purposes as a redemption  and purchase of shares
and may result in the realization of a capital gain or loss. Each Fund imposes a
fee of $5 per exchange on shareholders  who exchange in excess of four times per
calendar year.  This exchange  privilege may be modified or  discontinued at any
time by the Fund upon sixty days' notice to  shareholders  and is only available
in states in which shares of the fund being acquired may lawfully be sold.      

Exchanges by Telephone and Mail. You may exchange  shares with a value of $1,000
or more by telephone by calling State Street  (800-423-2615).  Exchange requests
made after 4:00 p.m.  (Eastern time) will be processed using the net asset value
determined  on the next  business  day.  During  periods of drastic  economic or
market changes,  shareholders may experience  difficulty in effecting  telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach  State  Street by  telephone.  If you wish to use the
telephone  exchange  service  you  should  indicate  this on the Share  Purchase
Application.  As noted above,  each Fund will employ  reasonable  procedures  to
confirm that instructions for the redemption or exchange of shares  communicated
by telephone are genuine. A telephone exchange may be refused by a Fund or State
Street if it is believed  advisable to do so.  Procedures  for  exchanging  Fund
shares by telephone may be modified or terminated at any time.  Written requests
for exchanges should follow the same procedures  outlined for written redemption
requests in the section entitled "How to Redeem Shares",  however,  no signature
guarantee is required.                                                          

SHAREHOLDER SERVICES                                                            

         The  Funds  offer  the  following   shareholder   services.   For  more
information  about  these  services  or your  account,  contact  your  financial
intermediary,  Evergreen Funds Distributor,  Inc.("EFD"), the distributor of the
Funds, or the toll-free  number for the Funds,  800-807-2940.  Some services are
described in more detail in the Share Purchase Application.                     

Systematic  Investment Plan. You may make monthly or quarterly  investments into
an existing account automatically in amounts of not less than $25.              

Telephone  Investment  Plan. You may make  investments  into an existing account
electronically  in  amounts  of not less  than  $100 or more  than  $10,000  per
investment.  Telephone  investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.    

Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing  account  reaches that size, you may  participate in the Fund's
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase  Application.  Under this plan,  you may receive (or  designate a third
party to receive) a monthly or  quarterly  check in a stated  amount of not less
than  $100.  Fund  shares  will be  redeemed  as  necessary  to meet  withdrawal
payments.  All participants  must elect to have their dividends and capital gain
distributions reinvested automatically.                                         

Retirement Plans. Eligible investors may invest in each Fund under the following
prototype  retirement  plans:  (i) Individual  Retirement  Account  (IRA);  (ii)
Simplified  Employee  Pension  (SEP)  for  sole  proprietors,  partnerships  and
corporations;  and (iii)  Profit-Sharing  and Money  Purchase  Pension Plans for
corporations and their employees.                                               

Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically  reinvested in full and fractional shares of the
Fund at the net asset  value per share at the close of  business  on the  record
date,  unless otherwise  requested by a shareholder in writing.  If the transfer
agent  does not  receive a  written  request  for  subsequent  dividends  and/or
distributions  to be paid in cash at least three full  business  days prior to a
given  record  date,  the  dividends  and/or  distributions  to  be  paid  to  a
shareholder  will  be  reinvested.   If  you  elect  to  receive  dividends  and
distributions in cash and the U.S. Postal Service cannot deliver the checks,  or
if the checks remain uncashed for six months, the checks will be reinvested into
your account at the then current net asset value.                               

--------------------------------------------------------------------------------

     OTHER INFORMATION
--------------------------------------------------------------------------------

DIVIDENDS, DISTRIBUTIONS AND TAXES                                              

         It is the  policy  of  each  Fund to  distribute  to  shareholders  its
investment  company  taxable  income,  if any,  quarterly  and any net  realized
capital  gains  annually  or more  frequently  as  required  as a  condition  of
continued qualification as a regulated investment company by the Code. Dividends
and  distributions  generally  are  taxable  in the year in which they are paid,
except any dividends paid in January that were declared in the previous calendar
quarter  may be  treated  as paid  in  December  of the  previous  year.  Income
dividends  and  capital  gain  distributions  are  automatically  reinvested  in
additional shares of the Fund making the distribution at the net asset value per
share at the close of business on the record date,  unless the  shareholder  has
made a written request for payment in cash.                                     

         Each Fund has  qualified  and  intends  to  continue  to  qualify to be
treated as a regulated investment company under the Code. While so qualified, it
is expected that each Fund will not be required to pay any Federal income tax on
that  portion of its  investment  company  taxable  income and any net  realized
capital  gains  it   distributes  to   shareholders.   The  Code  imposes  a  4%
nondeductible excise tax on regulated investment  companies,  such as the Funds,
to the extent they do not meet certain  distribution  requirements by the end of
each  calendar   year.   Each  Fund   anticipates   meeting  such   distribution
requirements.  Most  shareholders of the Funds normally will have to pay Federal
income tax and any state or local taxes on the dividends and distributions  they
receive from a Fund whether such dividends and distributions are made in cash or
in additional  shares.  Questions on how any distributions  will be taxed to the
investor should be directed to the investor's own tax adviser.                  

         Under current law, the highest  Federal  income tax rate  applicable to
net long-term  capital gains realized by individuals is 28%. The rate applicable
to corporations  is 35%.  Certain income from a Fund may qualify for a corporate
dividends-received  deduction of 70%.  Following the end of each calendar  year,
every  shareholder  of the Fund  will be sent  applicable  tax  information  and
information  regarding the dividends and capital gain  distributions made during
the calendar year.                                                              

         A Fund may be subject to foreign  withholding  taxes which would reduce
the yield on its  investments.  Tax treaties  between certain  countries and the
United States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States Federal income tax may be entitled,  subject to certain
rules and  limitations,  to claim a Federal  income tax credit or deduction  for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional  details. A Fund's  transactions in options,  futures and forward
contracts  may be  subject  to special  tax  rules.  These  rules can affect the
amount, timing and characteristics of distributions to shareholders.            

         Each Fund is  required by Federal  law to  withhold  31% of  reportable
payments  (which  may  include   dividends,   capital  gain   distributions  and
redemptions)  paid to  certain  shareholders.  In  order to  avoid  this  backup
withholding requirement,  you must certify on the Share Purchase Application, or
on a separate  form  supplied  by State  Street,  that your  social  security or
taxpayer identification number is correct and that you are not currently subject
to backup withholding or are exempt from backup withholding.                    

       The foregoing  discussion of Federal income tax  consequences is based on
tax laws and  regulations  in  effect  on the  date of this  Prospectus,  and is
subject to change by  legislative  or  administrative  action.  As the foregoing
discussion  is  for  general  information  only,  you  should  also  review  the
discussion  of  "Additional  Tax  Information"  contained  in the  Statement  of
Additional                                                                      

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Information.  In addition, you should consult your own tax adviser as to the tax
consequences of investments in the Funds, including the application of state and
local  taxes  which  may be  different  from  Federal  income  tax  consequences
described above.                                                                

GENERAL INFORMATION                                                             

Portfolio  Transactions.  Consistent  with  the  Rules of Fair  Practice  of the
National  Association of Securities  Dealers,  Inc., and subject to seeking best
price and execution,  a Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.        

Organization.  The EVERGREEN INCOME AND GROWTH FUND is a Massachusetts  business
trust organized in 1986, and was originally organized as Maryland corporation in
1978.  EVERGREEN  GROWTH  AND  INCOME  FUND is a  Massachusetts  business  trust
organized  in 1986.  The  EVERGREEN  SMALL CAP EQUITY  INCOME FUND is a separate
series of The Evergreen  American  Retirement  Trust, a  Massachusetts  business
trust  organized in 1987.  EVERGREEN  BALANCED FUND and EVERGREEN VALUE FUND are
separate  investment series of Evergreen  Investment Trust (formerly First Union
Funds),  a  Massachusetts  business trust  organized in 1984.  KEYSTONE FUND FOR
TOTAL RETURN is a Massachusetts business trust organized in October, 1986.      

The  Funds  do not  intend  to hold  annual  shareholder  meetings;  shareholder
meetings will be held only when required by applicable  law.  Shareholders  have
available certain procedures for the removal of Trustees.  A shareholder in each
Class  of a Fund  will be  entitled  to his or her  share of all  dividends  and
distributions from a Fund's assets, based upon the relative value of such shares
to those of other Classes of the Fund and, upon redeeming  shares,  will receive
the then current net asset value of the Class of shares of the Fund  represented
by the  redeemed  shares  less any  applicable  CDSC.  Each Trust named above is
empowered to establish,  without  shareholder  approval,  additional  investment
series, which may have different investment  objectives,  and additional Classes
of shares for any existing or future  series.  If an additional  series or Class
were  established in a Fund, each share of the series or Class would normally be
entitled  to one vote for all  purposes.  Generally,  shares of each  series and
Class would vote together as a single Class on matters,  such as the election of
Trustees,  that affect each series and Class in  substantially  the same manner.
Class A, B, C and Y shares have  identical  voting,  dividend,  liquidation  and
other rights,  except that each Class bears, to the extent  applicable,  its own
distribution,  shareholder  service and transfer  agency expenses as well as any
other expenses  applicable only to a specific Class.  Each Class of shares votes
separately with respect to Rule 12b-1  distribution  plans and other matters for
which separate  class voting is appropriate  under  applicable  law.  Shares are
entitled to dividends as  determined by the Trustees  and, in  liquidation  of a
Fund, are entitled to receive the net assets of the Fund.                       

Custodian, Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street
Bank and Trust Company, P.O. Box 9021, Boston,  Massachusetts 02205-9827 acts as
each Fund's  custodian  and , in the case of all Funds except  KEYSTONE FUND FOR
TOTAL RETURN,  registrar,  transfer agent and  dividend-disbursing  agent. State
Street is compensated for its services as transfer agent by a fee based upon the
number of  shareholder  accounts  maintained  for the Funds.  Evergreen/Keystone
Services Company,  located at 200 Berkeley Street, Boston,  Massachusetts 02116,
is a  wholly-owned  subsidiary of Keystone and serves as the transfer  agent and
dividend disbursing agent for KEYSTONE FUND FOR TOTAL RETURN,                   

Principal Underwriter.  EKD, an affiliate of BISYS Fund Services, located at 120
Clove Road, Little Falls, New Jersey 07424, is the principal  underwriter of the
Funds. BISYS Fund Services also provides certain sub-administrative  services to
Evergreen Asset and Keystone in connection  with its role as investment  adviser
to the Funds, including providing personnel to serve as officers of the Funds.  

Other Classes of Shares.  Each Fund, except KEYSTONE FUND FOR TOTAL RETURN which
does not offer Class Y shares, currently offers four classes of shares, Class A,
Class B, Class C and Class Y, and may in the future  offer  additional  classes.
Class Y shares are not offered by this  Prospectus and are only available to (i)
persons  who at or prior to December  31,  1994,  owned  shares in a mutual fund
advised by Evergreen  Asset,  (ii)  certain  institutional  investors  and (iii)
investment  advisory clients of CMG,  Evergreen Asset or their  affiliates.  The
dividends  payable  with  respect to Class A, Class B and Class C shares will be
less than those  payable with respect to Class Y shares due to the  distribution
and shareholder servicing related expenses borne by Class A, Class B and Class C
shares and the fact that such expenses are not borne by Class Y shares.         

Performance  Information.  From time to time,  the Funds may quote their  "total
return" or "yield" for a specified  period in  advertisements,  reports or other
communications to shareholders.  Total return and yield are computed  separately
for Class A,  Class B and Class C shares.  A Fund's  total  return for each such
period is computed by finding, through the use of a formula                     

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prescribed by the Securities and Exchange Commission ("SEC"), the average annual
compounded  rate of return over the period that would equate an assumed  initial
amount  invested to the value of the  investment  at the end of the period.  For
purposes of computing  total return,  dividends and capital gains  distributions
paid on shares of a Fund are assumed to have been  reinvested  when paid and the
maximum sales charges  applicable to purchases of a Fund's shares are assumed to
have been paid.  Yield is a way of showing  the rate of income the Fund earns on
its  investments as a percentage of the Fund's share price.  The Fund's yield is
calculated  according to accounting methods that are standardized by the SEC for
all stock and bond  funds.  Because  yield  accounting  methods  differ from the
method used for other  accounting  purposes,  the Fund's yield may not equal its
distribution  rate, the income paid to your account or the net investment income
reported in the Fund's financial statements.  To calculate yield, the Fund takes
the interest  income it earned from its portfolio of investments  (as defined by
the SEC  formula)  for a 30-day  period  (net of  expenses),  divides  it by the
average number of shares entitled to receive dividends, and expresses the result
as an annualized  percentage  rate based on the Fund's share price at the end of
the 30-day  period.  This yield does not reflect  gains or losses  from  selling
securities.                                                                     

         Performance  data for each  Class of  shares  will be  included  in any
advertisement  or  sales  literature  using  performance  data of a Fund.  These
advertisements may quote performance  rankings or ratings of a Fund by financial
publications or independent  organizations  such as Lipper Analytical  Services,
Inc. and Morningstar, Inc. or compare a Fund's performance to various indices. A
Fund may also  advertise in items of sales  literature  an "actual  distribution
rate" which is computed by dividing the total ordinary income distributed (which
may include the excess of short-term  capital gains over losses) to shareholders
for the latest  twelve month  period by the maximum  public  offering  price per
share  on the last day of the  period.  Investors  should  be  aware  that  past
performance may not be reflective of future results.                            

         In  marketing a Fund's  shares,  information  may be  provided  that is
designed  to help  individuals  understand  their  investment  goals and explore
various  financial   strategies.   Such  information  may  include  publications
describing   general   principles  of  investing,   such  as  asset  allocation,
diversification,  risk tolerance,  and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other  Evergreen  mutual funds,  products,  and services,  which may include:
retirement investing;  brokerage products, and services, the effects of periodic
investment plans and dollar cost averaging;  saving for college;  and charitable
giving. In addition,  the information  provided to investors may quote financial
or  business  publications  and  periodicals,   including  model  portfolios  or
allocations,  as they  relate to fund  management,  investment  philosophy,  and
investment  techniques.  The materials may also reprint,  and use as advertising
and sales  literature,  articles from  EVERGREEN  EVENTS,  a quarterly  magazine
provided free of charge to Evergreen mutual fund shareholders.                  

Liability  Under  Massachusetts  Law.  Under  Massachusetts  law,  Trustees  and
shareholders  of a  business  trust  may,  in  certain  circumstances,  be  held
personally liable for its obligations. The Declarations of Trust under which the
Funds operate provide that no Trustee or shareholder  will be personally  liable
for the  obligations  of the Trust and that every  written  contract made by the
Trust  contain a provision to that effect.  If any Trustee or  shareholder  were
required to pay any  liability  of the Trust,  that person  would be entitled to
reimbursement from the general assets of the Trust.                             

Additional  Information.   This  Prospectus  and  the  Statement  of  Additional
Information, which has been incorporated by reference herein, do not contain all
the information  set forth in the  Registration  Statements  filed by the Trusts
with the SEC  under  the  Securities  Act of 1933.  Copies  of the  Registration
Statements  may be  obtained  at a  reasonable  charge  from  the  SEC or may be
examined, without charge, at the offices of the SEC in Washington, D.C.         

INVESTMENT ADVISERS                                                             

Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York   
10577                                                                           
    EVERGREEN GROWTH AND INCOME FUND, EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN INCOME AND GROWTH FUND                                    
Capital Management Group of First Union National Bank of North Carolina, 210    
South College Street, Charlotte, North Carolina, 28228                          
EVERGREEN UTILITY FUND, EVERGREEN VALUE FUND                        

CUSTODIAN AND TRANSFER AGENT                                                
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts        
02205-9827                                                                  

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LEGAL COUNSEL                                                               
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,                    
Washington, D.C. 20036                                    

INDEPENDENT ACCOUNTANTS                                                     
  Price Waterhouse  LLP, 1177 Avenue of the Americas,  New York,  New York 10036
EVERGREEN FOUNDATION FUND                                           
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116-5072   
    EVERGREEN TOTAL RETURN FUND, EVERGREEN GROWTH AND INCOME FUND, EVERGREEN
AMERICAN RETIREMENT FUND                                                    
  KPMGPeat Marwick LLP, One Mellon Bank Center,  Pittsburgh,  Pennsylvania 15219
EVERGREEN BALANCED FUND, EVERGREEN VALUE FUND                       

DISTRIBUTOR                                                                     
Evergreen Keystone Distributor, Inc., 120 Clove Road,                   
Little Falls, New Jersey  07424                       

42430                                                              536115REV01  

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*    *    *    *    *    *    *    *    *    *    *    *    *    *    *    *    

 STATEMENT OF ADDITIONAL INFORMATION

 April 1, 1997

 THE EVERGREEN KEYSTONE GROWTH AND INCOME AND BALANCED FUNDS

 The Evergreen Funds
2500 Westchester Avenue, Purchase, New York 10577-2555
1-800-807-2940

The Keystone Funds
 200 Berkeley Street, Boston, Massachusetts 02116-5034
1-800-343-2898

Growth and Income Funds                                                         

Evergreen Growth and Income Fund ("Growth and Income")                          
Evergreen Income and Growth Fund (formerly Evergreen Total Return Fund)         
("Income and Growth")                                                   
Evergreen Small Cap Equity Income Fund ("Small Cap")                            
Evergreen Utility Fund ("Utility")                                              
Evergreen Value Fund ("Value")                                                  
Keystone Fund for Total Return ("Total Return")                                 

Balanced Funds                                                                  

Evergreen Foundation Fund ("Foundation")                                        
Evergreen Tax Strategic Foundation Fund ("Tax Strategic")                       
Evergreen American Retirement Fund ("American Retirement")                      
Evergreen Balanced Fund ("Balanced")                                            

This  Statement of Additional  Information  pertains to all classes of shares of
the Funds listed above. It is not a prospectus and should be read in conjunction
with the Prospectus dated April 1, 1997, for the Fund in which you are making or
contemplating  an  investment.  The  Evergreen  Keystone  Growth  and Income and
Balanced  Funds are offered  through four  separate  prospectuses:  one offering
Class A, Class B and Class C shares and a separate  prospectus  offering Class Y
shares of Growth and Income,  Income and Growth,  Small Cap,  Utilty,  Value and
Total  Return;  and one  offering  Class A,  Class B and  Class C  shares  and a
separate  prospectus  offering  Class Y shares  of  Foundation,  Tax  Strategic,
American Retirement and Balanced.                                               

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   TABLE OF CONTENTS

Investment Objectives and Policies.................................2            
Investment Restrictions............................................7            
Non-Fundamental Operating Policies................................15            
Certain Risk Considerations.......................................16            
Management........................................................17            
Investment Advisers...............................................29            
Distribution Plans................................................34            
Allocation of Brokerage...........................................38            
Additional Tax Information........................................41            
Net Asset Value...................................................43            
Purchase of Shares................................................45            
Performance Information...........................................59            
Financial Statements..............................................64            
Appendix A - Description of Bond, Municipal Note                                
and Commercial Paper Ratings.....................................64           

INVESTMENT OBJECTIVES AND POLICIES
 (See also "Description of the Funds - Investment Objectives
and Policies" in each  Fund's Prospectus)     

       The investment objective of each Fund and a description of the securities
in which  each  Fund may  invest is set forth  under  "Description  of the Funds
"Investment Objectives and Policies" in the relevant Prospectus.  The investment
objectives  are  fundamental  and  cannot be changed  without  the  approval  of
shareholders.  The  following  expands  upon the  discussion  in the  Prospectus
regarding certain investments of each Fund.                                     

U.S. Government Securities (All Funds)                                          

   The types of U.S. government securities in which the Funds may invest
generally include direct obligations of the U.S. Treasury such as U. S.         
Treasury bills, notes and bonds and obligations issued or guaranteed by U.S.    
government agencies or instrumentalities. These securities are backed by:       

(i)    the full faith and credit of the U.S. Treasury;                  

(ii)   the issuer's right to borrow from the U.S. Treasury;             

(iii)  the discretionary authority of the U.S. government to purchase   
  certain obligations of agencies or instrumentalities; or

   (iv)   the credit of the agency or instrumentality issuing the obligations.

    Examples of agencies and instrumentalities that may not always receive
financial support from the U.S. government are:                                 

  (i)    Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;     

(ii)   Farmers Home Administration;                                   

(iii)  Federal Home Loan Banks;                                       

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(iv)   Federal Home Loan Mortgage Corporation;                    

(v)    Federal National Mortgage Association; and                 

(vi)   Student Loan Marketing Association                         

Restricted and Illiquid Securities (All Funds)                                  

       Each Fund may invest in restricted and illiquid  securities.  The ability
of the Board of Trustees  ("Trustees")  to  determine  the  liquidity of certain
restricted  securities is permitted  under a Securities and Exchange  Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule").  The Rule is a  non-exclusive,  safe-harbor
for  certain  secondary  market  transactions  involving  securities  subject to
restrictions  on resale under  federal  securities  laws.  The Rule  provides an
exemption from  registration for resales of otherwise  restricted  securities to
qualified  institutional  buyers.  The Rule was expected to further  enhance the
liquidity of the  secondary  market for  securities  eligible for sale under the
Rule. The Funds which invest in Rule 144A  securities  believe that the Staff of
the SEC has left the question of  determining  the  liquidity of all  restricted
securities  (eligible  for  resale  under  the Rule)  for  determination  by the
Trustees.  The  Trustees  consider the  following  criteria in  determining  the
liquidity of certain restricted securities:                                     

(i)    the frequency of trades and quotes for the security;             

 (ii)   the number of dealers willing to purchase or sell the security and
the number of other potential buyers;                 

(iii)  dealer undertakings to make a market in the security; and        

   (iv)   the nature of the security and the nature of the marketplace trades.

       Restricted   securities   would   generally   be  acquired   either  from
institutional  investors  who  originally  acquired  the  securities  in private
placements or directly from the issuers of the securities in private placements.
Restricted securities and securities that are not readily marketable may sell at
a discount from the price they would bring if freely marketable.                

When-Issued and Delayed Delivery Securities                                     
(Balanced, Tax Strategic, Utility, Value and Total Return)                      

       Securities  puchased on a when-issued or delayed  delivery basis are made
to secure what is considered to be an advantageous price or yield for a Fund. No
fees or other  expenses,  other than normal  transaction  costs,  are  incurred.
However,  liquid assets of a Fund  sufficient to make payment for the securities
to be purchased are  segregated on the Fund's  records at the trade date.  These
assets are marked to market daily and are maintained  until the  transaction has
been  settled.  Balanced,  Utility  and  Value do not  intend to engage in when-
issued and  delayed  delivery  transactions  to an extent  that would  cause the
segregation  of more  than  20% of the  total  value  of  their  assets  and Tax
Strategic's commitment to purchase when-issued securities will not exceed 25% of
the Fund's total assets.                                                        

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Lending of Portfolio Securities (All Funds)                                     

       Each Fund may lend its  portfolio  securities  to generate  income and to
offset expenses.  The collateral received when a Fund lends portfolio securities
must be valued  daily  and,  should the  market  value of the loaned  securities
increase,  the borrower must furnish additional  collateral to the lending Fund.
During the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities.  Loans are subject to termination
at  the  option  of the  Fund  or  the  borrower.  A  Fund  may  pay  reasonable
administrative  and  custodial  fees  in  connection  with a loan  and may pay a
negotiated  portion of the interest earned on the cash or equivalent  collateral
to the  borrower  or  placing  broker.  A Fund  does not have the  right to vote
securities on loan, but would terminate the loan and regain the right to vote if
that were considered important with respect to the investment.                  

Reverse Repurchase Agreements                                                   
(Small Cap, Utility, Value, Tax Strategic, Balanced and Total Return)           

       Reverse repurchase agreements are similar to borrowing cash. In a reverse
repurchase  agreement,  a Fund transfers possession of a portfolio instrument to
another person,  such as a financial  institution,  broker, or dealer, in return
for a percentage of the instrument's  market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio  instrument
by remitting the original consideration plus interest at an agreed upon rate.   

       The use of  reverse  repurchase  agreements  may  enable  a Fund to avoid
selling  portfolio  instruments  at a  time  when a sale  may  be  deemed  to be
disadvantageous,  but the ability to enter into  reverse  repurchase  agreements
does  not  ensure  that  the  Fund  will  be  able to  avoid  selling  portfolio
instruments at a disadvantageous time.                                          

       When effecting reverse repurchase agreements, liquid assets of a Fund, in
a dollar amount  sufficient to make payment for the obligations to be purchased,
are  segregated at the trade date.  These  securities are marked to market daily
and maintained until the transaction is settled.                                

Options and Futures Transactions (All Funds)                                    

       Options  which  Balanced,  Utility  and  Value  trade  must be  listed on
national securities exchanges.                                                  

Purchasing Put and Call Options on Financial Futures Contracts                  

       Balanced,  Utility,  Value and Total  Return  may  purchase  put and call
options on financial futures contracts (in the case of Utility and Value limited
to options on  financial  futures  contracts  for U.S.  government  securities).
Unlike entering directly into a futures  contract,  which requires the purchaser
to buy a  financial  instrument  on a set  date at an  undetermined  price,  the
purchase of a put option on a futures contract  entitles (but does not obligate)
its  purchaser  to decide on or before a future  date  whether to assume a short
position at the specified price.                                                

       A Fund may purchase put and call options on futures to protect  portfolio
securities against decreases in value resulting from an anticipated  increase in
market interest rates. Generally, if the hedged portfolio securities decrease in
value  during the term of an option,  the related  futures  contracts  will also
decrease in value and the put option will increase in value. In such an event,  

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a Fund will normally close out its option by selling an identical put option. If
the hedge is successful,  the proceeds received by the Fund upon the sale of the
put option plus the  realized  gain  offsets the decrease in value of the hedged
securities.                                                                     

       Alternately,  a Fund  may  exercise  its  put  option  to  close  out the
position.  To do  so,  it  would  enter  into a  futures  contract  of the  type
underlying  the option.  If the Fund neither closes out nor exercises an option,
the option will expire on the date provided in the option contract, and only the
premium paid for the contract will be lost.                                     

Purchasing Options                                                              

       Balanced,  Utility, Value and Total Return may purchase both put and call
options on their portfolio securities.  These options will be used as a hedge to
attempt to protect  securities which a Fund holds or will be purchasing  against
decreases or increases  in value.  A Fund may purchase  call and put options for
the purpose of  offsetting  previously  written call and put options of the same
series.  If the Fund is unable to effect a  closing  purchase  transaction  with
respect to covered options it has written, the Fund will not be able to sell the
underlying  securities  or dispose of assets held in a segregated  account until
the options expire or are exercised.                                            

       Balanced, Utility, Value and Total Return intend to purchase put and call
options on currency and other financial  futures contracts for hedging purposes.
A put option purchased by a Fund would give it the right to assume a position as
the seller of a futures contract. A call option purchased by the Fund would give
it the right to assume a position as the  purchaser of a futures  contract.  The
purchase of an option on a futures contract  requires the Fund to pay a premium.
In exchange for the premium, the Fund becomes entitled to exercise the benefits,
if any, provided by the futures contract, but is not required to take any action
under the  contract.  If the option  cannot be  exercised  profitably  before it
expires,  the Fund's  loss will be limited to the amount of the  premium and any
transaction costs.                                                              

       Utility and Value currently do not intend to invest more than 5% of their
net assets in options transactions.  Total Return will not purchase a put option
if as a result of such  purchase,  more than 10% of its  total  assets  would be
invested in premiums for such option.                                           

"Margin" in Futures Transactions                                                

       Unlike the purchase or sale of a security, a Fund does not pay or receive
money  upon  the  purchase  or sale of a  futures  contract.  Rather,  a Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted).  The nature of initial
margin in futures  transactions  is different  from that of margin in securities
transactions  in that  futures  contract  initial  margin  does not  involve the
borrowing of funds by a Fund to finance the  transactions.  Initial margin is in
the nature of a performance  bond or good faith deposit on the contract which is
returned to the Fund upon  termination  of the futures  contract,  assuming  all
contractual obligations have been satisfied.                                    

       A  futures  contract  held  by a Fund is  valued  daily  at the  official
settlement  price of the exchange on which it is traded.  Each day the Fund pays
or receives cash, called "variation  margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is                

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instead  settlement  between the Fund and the broker of the amount one would owe
the other if the futures  contract  expired.  In  computing  its daily net asset
value, a Fund will  mark-to-market its open futures positions.  The Fund is also
required to deposit and  maintain  margin when it writes call options on futures
contracts.                                                                      

       Balanced  will not maintain  open  positions in futures  contracts it has
sold or call options it has written on futures  contracts if, in the  aggregate,
the value of the open  positions  (marked to market)  exceeds the current market
value of its securities  portfolio plus or minus the unrealized  gain or loss on
those open  positions,  adjusted for the  correlation of volatility  between the
hedged securities and the futures  contracts.  If this limitation is exceeded at
any time,  the Fund will take prompt action to close out a sufficient  number of
open  contracts  to bring its open  futures  and options  positions  within this
limitation.                                                                     

       Income and Growth and Growth and Income may write covered call options to
a limited extent on their portfolio securities ("covered options") in an attempt
to earn additional  income. A Fund will write only covered call option contracts
and will receive premium income from the writing of such  contracts.  Income and
Growth and Growth and Income may purchase call options to close out a previously
written call option.  In order to do so, the Fund will make a "closing  purchase
transaction" -- the purchase of a call option on the same security with the same
exercise  price and  expiration  date as the call option which it has previously
written.  A  Fund  will  realize  a  profit  or  loss  from a  closing  purchase
transaction  if the cost of the  transaction  is less or more  than the  premium
received  from the  writing of the  option.  If an option is  exercised,  a Fund
realizes a long-term or short-term  gain or loss from the sale of the underlying
security  and the proceeds of the sale are  increased by the premium  originally
received.                                                                       

Junk Bonds (Growth and Income and Total Return)                                 

       Consistent  with its strategy of investing in  "undervalued"  securities,
Growth and Income may invest in lower medium and low-quality bonds also known as
"junk  bonds" and may also  purchase  bonds in default if, in the opinion of the
Fund's  investment   adviser,   there  is  significant   potential  for  capital
appreciation.  Growth and Income,  however,  will not invest more than 5% of its
total assets in debt securities  which are rated below investment  grade.  These
bonds are  regarded  as  speculative  with  respect to the  issuer's  continuing
ability to meet  principal and interest  payments.  High yield bonds may be more
susceptible  to real or  perceived  adverse  economic and  competitive  industry
conditions than investment grade bonds. A projection of an economic downturn, or
higher  interest  rates,  for example,  could cause a decline in high yield bond
prices  because  such  events  could  lessen  the  ability  of highly  leveraged
companies to make principal and interest  payments on their debt securities.  In
addition,  the secondary  trading market for high yield bonds may be less liquid
than the market for higher grade bonds,  which can adversely  affect the ability
to dispose of such securities.                                                  

Variable and Floating Rate Securities (Foundation)                              

       Foundation may invest no more than 5% of its total assets, at the time of
the investment in question, in variable and floating rate securities.  The terms
of variable and floating  rate  instruments  provide for the interest rate to be
adjusted  according to a formula on certain  predetermined  dates.  Variable and
floating  rate  instruments  that are  repayable  on demand at a future date are
deemed to have a maturity equal to the time remaining until the principal will  

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be  received  on the  assumption  that the demand  feature is  exercised  on the
earliest  possible  date.  For the  purposes  of  evaluating  the  interest-rate
sensitivity of the Fund,  variable and floating rate  instruments  are deemed to
have a  maturity  equal to the  period  remaining  until the next  interest-rate
readjustment.  For the purposes of  evaluating  the credit risks of variable and
floating rate instruments, these instruments are deemed to have a maturity equal
to the time  remaining  until the  earliest  date the Fund is entitled to demand
repayment of principal.                                                         

     INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT RESTRICTIONS                                             

       Except  as  noted,  the  investment  restrictions  set  forth  below  are
fundamental  and may not be  changed  with  respect  to each  Fund  without  the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk  (*)  appears  after a Fund's  name,  the  relevant  policy is
non-fundamental  with  respect  to that Fund and may be  changed  by the  Fund's
investment adviser without shareholder approval,  subject to review and approval
by the Trustees. As used in this Statement of Additional  Information and in the
Prospectus,  "a majority of the outstanding voting securities of the Fund" means
the  lesser of (1) the  holders  of more than 50% of the  outstanding  shares of
beneficial  interest  of the Fund or (2) 67% of the shares  present if more than
50% of the shares are present at a meeting in person or by proxy.               

1.  Concentration of Assets in Any One Issuer                     

       Neither  Growth and Income nor Income and Growth may invest  more than 5%
of  their  net  assets,  at the  time  of the  investment  in  question,  in the
securities of any one issuer other than the U.S.  government and its agencies or
instrumentalities.                                                              

       American  Retirement may not invest more than 5% of its total assets,  at
the time of the  investment  in question,  in the  securities  of any one issuer
other than the U.S. government and its agencies or instrumentalities.           

       None of Balanced,  Foundation,  Small Cap, Utility, Value or Total Return
may invest more than 5% of its total  assets,  at the time of the  investment in
question, in the securities of any one issuer other than the U.S. government and
its  agencies  or  instrumentalities,  except  that up to 25% of the  value of a
Fund's total assets may be invested without regard to such 5% limitation.       

       Tax  Strategic  may not invest more than 5% of its total  assets,  at the
time of the  investment in question,  in the  securities of any one issuer other
than the U.S. government and its agencies or  instrumentalities,  except that up
to 25% of the value of the Fund's total assets may be invested without regard to
such 5% limitation.  For this purpose each  political  subdivision,  agency,  or
instrumentality  and each multi-state  agency of which a state is a member,  and
each public authority which issues  industrial  development bonds on behalf of a
private  entity,  will be  regarded  as a separate  issuer for  determining  the
diversification of the Fund's portfolio.                                        

2.  Ten Percent Limitation on Securities of Any One Issuer        

       None of American Retirement,  Foundation, Small Cap, Growth and Income or
Income and Growth may purchase  more than 10% of any class of  securities of any
one issuer other than the U.S. government and its agencies or instrumentalities.

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       Neither Value nor Utility may purchase  more than 10% of the  outstanding
voting securities of any one issuer.                                            

       Neither Tax Strategic* nor Total Return may not purchase more than 10% of
the voting  securities of any one issuer other than the U.S.  government and its
agencies or instrumentalities.                                                  

3.  Investment for Purposes of Control or Management              

       None of American Retirement,  Foundation,  Growth and Income, Small Cap*,
Tax Strategic*, Income and Growth, Utility*, Value or Total Return may invest in
companies for the purpose of exercising control or management.                  

4.  Purchase of Securities on Margin                              

       None of American  Retirement,  Balanced,  Foundation,  Growth and Income,
Small Cap*, Tax Strategic*,  Income and Growth,  Utility,  Value or Total Return
may  purchase  securities  on  margin,  except  that each Fund may  obtain  such
short-term  credits as may be necessary  for the  clearance of  transactions.  A
deposit or payment by a Fund of initial or variation  margin in connection  with
financial  futures  contracts or related options  transactions is not considered
the purchase of a security on margin.                                           

5.  Unseasoned Issuers                                            

       Neither  American  Retirement nor Foundation may invest in the securities
of unseasoned issuers that have been in continuous operation for less than three
years, including operating periods of their predecessors.                       

       None of Income and Growth,  Value*,  Utility* or Total  Return may invest
more than 5% of its total assets in securities  of unseasoned  issuers that have
been in  continuous  operation  for less than three years,  including  operating
periods of their predecessors.                                                  

       None of Growth and Income,  Small Cap* and Tax Strategic* may invest more
than 15% of its total  assets (10% of total net assets in the case of Growth and
Income)  in  securities  of  unseasoned  issuers  that have  been in  continuous
operation  for less than  three  years,  including  operating  periods  of their
predecessors.                                                                   

6.  Underwriting                                                  

       American  Retirement,  Foundation,  Growth and  Income,  Small  Cap,  Tax
Strategic, Income and Growth, Balanced, Utility, Value and Total Return will not
underwrite  any issue of securities  except as they may be deemed an underwriter
under the  Securities  Act of 1933 in connection  with the sale of securities in
accordance with their investment objectives, policies and limitations.          

   7.  Interests in Oil, Gas or Other Mineral Exploration or Development
Programs.                                                                       

       None of American  Retirement,  Foundation,  Growth and Income, Small Cap,
Tax Strategic or Income and Growth may purchase,  sell or invest in interests in
oil, gas or other mineral exploration or development programs.                  

       Neither  Balanced* nor Utility*  will  purchase  interests in oil, gas or
other mineral exploration or development programs or leases,  although each Fund
may                                                                             

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purchase the securities of other issuers which invest in or sponsor such        
programs.                                                                       

       Value  will  not  purchase   interests  in  oil,  gas  or  other  mineral
exploration  or  development  programs or leases,  although it may  purchase the
publicly traded securities of companies engaged in such activities.             

8.  Concentration in Any One Industry                             

       Neither  Growth and Income  nor  Income  and Growth may  concentrate  its
investments  in any one industry,  except that each Fund may invest up to 25% of
its total net assets in any one industry.                                       

       None of American Retirement,  Foundation, Small Cap and Tax Strategic may
invest 25% or more of its total assets in the  securities of issuers  conducting
their principal  business  activities in any one industry;  provided,  that this
limitation shall not apply (i) with respect to each Fund, to obligations  issued
or guaranteed by the U.S.  government or its agencies or  instrumentalities,  or
(ii) with respect to Tax  Strategic,  to municipal  securities.  For purposes of
this  restriction,   utility  companies,  gas,  electric,  water  and  telephone
companies will be considered separate industries.                               

       Balanced  and  Value  will not  invest  25% or more of the value of their
total  assets in any one industry  except  Balanced may invest more than 25% and
Value  may  invest  25% or more of its  total  assets  in  securities  issued or
guaranteed by the U.S. government, its agencies or instrumentalities.           

       Utility will not invest more than 25% of its total assets  (valued at the
time of  investment) in securities of companies  engaged  principally in any one
industry other than the utilities  industry,  except that this  restriction does
not apply to cash or cash items and securities issued or guaranteed by the U.S. 
government, its agencies or instrumentalities.                                  

       Total Return will not purchase any security  (other than U.S.  government
securities) of any issuer if as a result more than 25% of its total assets would
be invested in a single  industry;  except that (a) there is no restriction with
respect to obligations issued or guaranteed by the U.S. government, its agencies
or  instrumentalities;  (b) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily  related
to financing the activities of the parents;  (c) the industry  classification of
utilities will be determined according to their services (for example,  gas, gas
transmission,  electric  and  telephone  will  each  be  considered  a  separate
industry);  and (d) the industry  classification of medically related industries
will be  determined  according  to  their  services  (for  example,  management,
hospital supply, medical equipment and pharmaceuticals will each be considered a
separate industry).                                                             

9.  Warrants                                                      

       None of American Retirement,  Growth and Income, Income and Growth, Small
Cap*,  Foundation or Tax Strategic* may invest more than 5% of its net assets in
warrants  and, of this amount,  no more than 2% of each Fund's net assets may be
invested  in warrants  that are listed on neither the New York nor the  American
Stock Exchange.                                                                 

       Utility*  and Value*  will not invest more than 5% of their net assets in
warrants, including those acquired in units or attached to other securities.    

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For  purposes of this  restriction,  warrants  acquired by the Funds in units or
attached to securities may be deemed to be without value.                       

10.  Ownership by Trustees/Officers                               

       None of American Retirement,  Balanced*,  Foundation,  Growth and Income,
Small Cap*, Tax Strategic*,  Income and Growth,  Utility* or Value* may purchase
or retain the  securities  of any issuer if (i) one or more officers or Trustees
of a Fund or its investment adviser  individually owns or would own, directly or
beneficially,  more than 1/2 of 1% of the securities of such issuer, and (ii) in
the aggregate,  such persons own or would own,  directly or  beneficially,  more
than 5% of such securities.                                                     

       Portfolio  securities  of any Fund may not be  purchased  from or sold or
loaned to its  Adviser  or any  affiliate  thereof,  or any of their  Directors,
officers or employees.                                                          

11.  Short Sales                                                  

       Neither  American  Retirement  nor  Foundation  may make  short  sales of
securities  unless,  at the time of each such sale and thereafter  while a short
position  exists,  each Fund owns the securities sold or securities  convertible
into or carrying rights to acquire such securities.                             

       None of Growth and Income,  Tax Strategic* and Income and Growth may make
short sales of securities  unless,  at the time of each such sale and thereafter
while a short position  exists,  each Fund owns an equal amount of securities of
the same  issue or owns  securities  which,  without  payment by the Fund of any
consideration, are convertible into, or are exchangeable for, an equal amount of
securities of the same issue.                                                   

       Small Cap,* may not make short sales of securities unless, at the time of
each such sale and thereafter while a short position  exists,  each Fund owns an
equal amount of securities of the same issue or owns securities  which,  without
payment  by  the  Fund  of  any  consideration,  are  convertible  into,  or are
exchangeable  for, an equal amount of securities of the same issue (and provided
that  transactions in futures contracts and options are not deemed to constitute
selling securities short).                                                      

       Neither  Balanced nor Total Return will make short sales of securities or
maintain a short position,  unless at all times when a short position is open it
owns an equal amount of such securities or of securities which,  without payment
of any further consideration are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the  securities  sold short.  With
respect  to  Balanced,  the use of short  sales  will  allow  the Fund to retain
certain bonds in its portfolio  longer than it would without such sales.  To the
extent that the Fund  receives the current  income  produced by such bonds for a
longer  period  than it might  otherwise,  the Fund's  investment  objective  is
furthered.                                                                      

Utility and Value will not sell any securities short.             

12.  Lending of Funds and Securities                              

       Neither Small Cap nor Tax Strategic may lend its funds to other  persons,
except through the purchase of a portion of an issue of debt securities publicly
distributed or the entering into of repurchase agreements.                      

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       None of American Retirement, Foundation, Growth and Income and Income and
Growth may lend its funds to other  persons,  except  through the  purchase of a
portion of an issue of debt securities publicly distributed.                    

       None of Foundation,  Small Cap or Tax  Strategic,  may lend its portfolio
securities,  unless the borrower is a broker,  dealer or  financial  institution
that  pledges  and  maintains  collateral  with the Fund  consisting  of cash or
securities  issued or  guaranteed by the U.S.  government  having a value at all
times not less than 100% of the current  market value of the loaned  securities,
including  accrued  interest,  provided that the aggregate  amount of such loans
shall not exceed 30% of the Fund's total assets.                                

       Neither  American  Retirement or Growth and Income may lend its portfolio
securities,  unless the borrower is a broker,  dealer or  financial  institution
that  pledges  and  maintains  collateral  with the Fund  consisting  of cash or
securities  issued or  guaranteed by the U.S.  government  having a value at all
times  not less than 100% of the  value of the  loaned  securities  (100% of the
current  market  value for American  Retirement),  provided  that the  aggregate
amount of such loans shall not exceed 30% of the Fund's net assets.             

       Income  and  Growth  may not lend its  portfolio  securities,  unless the
borrower is a broker, dealer or financial institution that pledges and maintains
collateral  with the Fund  consisting  of cash,  letters of credit or securities
issued or guaranteed by the U.S. government having a value at all times not less
than 100% of the  current  market  value of the loaned  securities  (100% of the
value of the  loaned  securities  for  Income  and  Growth),  including  accrued
interest,  provided that the aggregate amount of such loans shall not exceed 30%
of the Fund's net assets.                                                       

       Balanced will not lend any of its assets except  portfolio  securities in
accordance with its investment objective, policies and limitations.             

       Utility will not lend any of its assets,  except portfolio  securities up
to 15% of the value of its total  assets.  This does not  prevent  the Fund from
purchasing  or  holding  corporate  or  government  bonds,  debentures,   notes,
certificates of  indebtedness or other debt securities of an issuer,  repurchase
agreements,  or other  transactions which are permitted by the Fund's investment
objectives and policies or the Declaration of Trust governing the Fund.         

       Value will not lend any of its assets except that it may purchase or hold
corporate or government bonds, debentures,  notes,  certificates of indebtedness
or  other  debt  securities  of  an  issuer,   repurchase  agreements  or  other
transactions  which  are  permitted  by the  Fund's  investment  objectives  and
policies  or the  Declaration  of Trust by which  the Fund is  governed  or lend
portfolio  securities  valued  at not  more  than  5% of  its  total  assets  to
broker-dealers.                                                                 

       Total  Return will not make loans,  except that the Fund may  purchase or
hold debt  securities  consistent with its investment  objecive,  lend portfolio
securities valued at not more than 15% of its total assets to broker-dealers and
enter into repurchase agreements.                                               

13.  Commodities                                                  

       Tax Strategic may not purchase, sell or invest in commodities,  commodity
contracts or financial futures contracts.                                       

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       Small Cap may not purchase, sell or invest in physical commodities unless
acquired as a result of ownership of securities or other  instruments  (but this
shall not  prevent  the Fund from  purchasing  or selling  options  and  futures
contracts  or from  investing  in  securities  or other  instruments  backed  by
physical commodities).                                                          

       None of American Retirement,  Foundation,  Growth and Income,  Income and
Growth may purchase, sell or invest in commodities or commodity contracts.      

       None of Balanced,  Utility or Value will purchase or sell  commodities or
commodity  contracts;  however,  each Fund may enter into  futures  contracts on
financial instruments or currency and sell or buy options on such contracts.    

       Total Return will not purchase or sell commodities or commodity contracts
or real estate,  except that it may purchase and sell securities secured by real
estate and securities of companies which invest in real estate and may engage in
currency or other financial futures contracts and related options transactions. 

14. Real Estate                                                   

       Small Cap may not  purchase or invest in real estate or interests in real
estate  (but  this  shall not  prevent  the Fund from  investing  in  marketable
securities  issued by companies such as real estate investment trusts which deal
in real estate or interests therein).                                           

       None of American Retirement, Foundation, Growth and Income, Tax Strategic
or Income and Growth may purchase, sell or invest in real estate or interests in
real  estate,  except  that  (i) each  Fund  may  purchase,  sell or  invest  in
marketable  securities  of  companies  holding  real estate or interests in real
estate,  including  real estate  investment  trusts,  and (ii) Tax Strategic may
purchase,  sell or invest  in  municipal  securities  or other  debt  securities
secured by real estate or interests therein.                                    

       None of Balanced,  Utility or Value will buy or sell real estate although
each Fund may invest in  securities  of companies  whose  business  involves the
purchase  or sale of real  estate or in  securities  which are  secured  by real
estate or  interests in real  estate.  Neither  Utility nor Value will invest in
limited partnership interests in real estate.                                   

    15.  Borrowing,  Senior Securities,  Repurchase Agreements and Reverse
Repurchase Agreements                                                           

       None of American  Retirement,  Foundation or Income and Growth may borrow
money except from banks as a temporary measure to facilitate redemption requests
which might otherwise require the untimely disposition of portfolio  investments
and for  extraordinary  or  emergency  purposes  (and,  with respect to American
Retirement  only,  for  leverage),  provided  that the  aggregat  amount of such
borrowings  shall not exceed 5% of the value of the Fund's  total net assets (5%
of total assets for American  Retirement and Foundation) at the time of any such
borrowing,  or mortgage,  pledge or hypothecate its assets,  except in an amount
sufficient  to  secure  any such  borrowing.  Neither  American  Retirement  nor
Foundation  may issue senior  securities,  except as permitted by the Investment
Company Act of 1940. Neither  Foundation nor American  Retirement may enter into
repurchase agreements or reverse repurchase agreements.                         

       Neither  Small Cap nor Tax  Strategic  may  borrow  money,  issue  senior
securities or enter into reverse repurchase agreements, except for temporary or 

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emergency purposes, and not for leveraging, and then in amounts not in excess of
10% of the value of each Fund's total assets at the time of such  borrowing;  or
mortgage,  pledge or hypothecate  any assets except in connection  with any such
borrowing  and in  amounts  not in excess of the  lesser of the  dollar  amounts
borrowed  or 10% of the value of each  Fund's  total  assets at the time of such
borrowing,  provided that each of Small Cap, Tax Strategic will not purchase any
securities at any time when borrowings, including reverse repurchase agreements,
exceed 5% of the value of its total assets. Neither Fund will enter into reverse
repurchase agreements exceeding 5% of the value of its total assets.            

       Growth and Income may not borrow  money  except from banks as a temporary
measure for  extraordinary  or emergency  purposes,  provided that the aggregate
amount of such  borrowings  shall not exceed 5% of the value of the Fund's total
assets at the time of such  borrowing;  or mortgage,  pledge or hypothecate  its
assets,  except in an amount not  exceeding  15% of its assets  taken at cost to
secure such  borrowing.  Growth and Income may not issue senior  securities,  as
defined in the  Investment  Company Act of 1940,  except  that this  restriction
shall  not be  deemed  to  prohibit  the Fund  from  (i)  making  any  permitted
borrowings,  mortgages or pledges,  (ii) lending its  portfolio  securities,  or
(iii) entering into permitted repurchase transactions.                          

       Balanced and Utility will not issue  senior  securities  except that each
Fund may borrow money and engage in reverse repurchase  agreements in amounts up
to one-third of the value of its total assets,  including  the amounts  borrowed
and except to the extent a Fund may enter into futures contracts. The Funds will
not  borrow  money or engage in reverse  repurchase  agreements  for  investment
leverage,  but rather as a  temporary,  extraordinary  or  emergency  measure to
facilitate management of their portfolios by enabling them to, for example, meet
redemption requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. Balanced will not purchase any securities while
any borrowings are  outstanding.  Utility will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding. Neither Balanced
nor Utility will  mortgage,  pledge or  hypothecate  any assets except to secure
permitted  borrowings.  In these cases,  Balanced and Utility may pledge  assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of borrowing.  Margin  deposits for
the purchase and sale of financial  futures  contracts  and related  options and
segregation  or  collateral   arrangements   made  in  connection  with  options
activities are not deemed to be a pledge.                                       

       Value will not issue  senior  securities  except that the Fund may borrow
money directly or through reverse  repurchase  agreements as a temporary measure
for  extraordinary or emergency  purposes and then only in amounts not in excess
of 10% of the value of its total assets;  provided that while borrowings  exceed
5% of the  Fund's  total  assets,  any such  borrowings  will be  repaid  before
additional investments are made. The Fund will not purchase any securities while
borrowings in excess of 5% of the value of its total assets are outstanding. The
Fund will not  borrow  money or  engage in  reverse  repurchase  agreements  for
investment leverage purposes. The Fund will not mortgage,  pledge or hypothecate
any assets except to secure permitted  borrowings.  In these cases, the Fund may
pledge  assets  having a market  value not  exceeding  the  lesser of the dollar
amounts  borrowed or 10% of the value of total assets at the time of  borrowing.
Margin  deposits for the purchase and sale of financial  futures  contracts  and
related  options and segregation or collateral  arrangements  made in connection
with options activities are not deemed to be a pledge.                          

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       Total  Return  will not  borrow  money or enter into  reverse  repurchase
agreements, except that the Fund may enter into reverse repurchase agreements or
borrow money from banks for temporary or emergency purposes in aggregate amounts
up to  one-third  of the value of the Fund's  net  assets;  provided  that while
borrowings from banks (not including reverse repurchase agreements) exceed 5% of
the Fund's net assets,  any such  borrowings  will be repaid  before  additional
investments  are made.  The Fund will not pledge more than 15% of its net assets
to secure  indebtedness;  the purchase or sale of  securities on a "when issued"
basis or  collateral  arrangement  with  respect  to the  writing  of options on
securities  are not  deemed  to be a pledge of  assets.  The Fund will not issue
senior  securities;  the purchase or sale of securities on a "when issued" basis
or collateral  arrangement  with respect to the writing of options on securities
are not deemed to be the issuance of a senior  security.  The Fund will not make
loans, except that the Fund may purchase or hold debt securities consistent with
its investment objective,  lend portfolio securities valued at not more than 15%
of its total assets to broker-dealers and enter into repurchase agreements.     

16.  Joint Trading                                                

       None of American Retirement,  Foundation,  Growth and Income, Small Cap,*
Tax  Strategic,*  or Income and Growth may  participate  on a joint or joint and
several basis in any trading account in any securities. (The "bunching of orders
or the purchase or sale of portfolio  securities with its investment  adviser or
accounts under its management to reduce brokerage commissions, to average prices
among  them or to  facilitate  such  transactions  is not  considered  a trading
account in securities for purposes of this restriction).                        

17.  Options                                                      

       Foundation and Tax Strategic* may not write, purchase or sell put or call
options, or combinations thereof.                                               

       Neither  Growth and Income nor Income and Growth may write,  purchase  or
sell put or call  options,  or  combinations  thereof,  except that each Fund is
authorized to write covered call options on portfolio securities and to purchase
call options in closing  purchase  transactions,  provided that (i) such options
are listed on a national securities exchange, (ii) the aggregate market value of
the underlying securities does not exceed 25% of the Fund's net assets, taken at
current market value on the date of any such writing, and (iii) the Fund retains
the underlying  securities for so long as call options written against them make
the shares subject to transfer upon the exercise of any options.                

       American Retirement may not write,  purchase or sell put or call options,
or  combinations  thereof,  except that the Fund is authorized (i) to write call
options traded on a national securities exchange against no more than 15% of the
value of the equity  securities  (including  securities  convertible into equity
securities)  held in its  portfolio,  provided  that the Fund owns the  optioned
securities  or  securities  convertible  into or carrying  rights to acquire the
optioned  securities  and (ii) to  purchase  call  options in  closing  purchase
transactions.                                                                   

       Utility*  will  not  purchase  put  options  on  securities   unless  the
securities  are held in the Fund's  portfolio and not more than 5% of the Fund's
total assets would be invested in premiums on open put  options.  Utility*  will
not write call options on securities unless securities are held in the Fund's   

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portfolio  or unless the Fund is entitled to them in  deliverable  form  without
further payment or after segregating cash in the amount of any further payment. 

18.  Investment in Equity Securities                              

       American  Retirement  may not  invest  more  than 75% of the value of its
total assets in equity securities (including securities  convertible into equity
securities).                                                                    

19.  Investing in Securities of Other Investment Companies        

       Balanced*,  Utility  and Value will  purchase  securities  of  investment
companies  only  in  open-market   transactions   involving  customary  broker's
commissions. However, these limitations are not applicable if the securities are
acquired in a merger, consolidation or acquisition of assets. It should be noted
that  investment  companies  incur certain  expenses such as management fees and
therefore any investment by a Fund in shares of another investment company would
be subject to such duplicate expenses.                                          

       Total Return may not purchase  securities of other investment  companies,
except  as part of a  merger,  consolidation,  purchase  or  assets  or  similar
transaction.                                                                    

       Each  other  Fund  may  purchase  the  securities  of  other   investment
companies,  except to the extent such  purchases are not permitted by applicable
law.                                                                            

20.  Restricted Securities                                        

       Balanced  and Value will not invest  more than 10% of their net assets in
securities  subject to  restrictions  on resale under the Securities Act of 1933
(except for, in the case of Balanced,  certain restricted  securities which meet
criteria for liquidity established by the Trustees).                            

       Utility*  will not invest more than 10% of the value of its net assets in
securities  subject to  restrictions on resale under the Securities Act of 1933,
except for  commercial  paper issued under Section 4(2) of the Securities Act of
1933 and  certain  other  restricted  securities  which  meet the  criteria  for
liquidity as established by the Trustees.                                       

          NON FUNDAMENTAL OPERATING POLICIES

       Certain Funds have adopted additional non-fundamental operating policies.
Operating policies may be changed by the Board of Trustees without a shareholder
vote.                                                                           

1. Futures and Options Transactions                               

       Small Cap will not: (i) sell futures  contracts,  purchase put options or
write call  options if, as a result,  more than 30% of the Fund's  total  assets
would be hedged with futures and options under normal conditions;  (ii) purchase
futures  contracts  or write  put  options  if, as a result,  the  Fund's  total
obligations  upon  settlement  or exercise of purchased  futures  contracts  and
written put options would exceed 30% of its total assets; or (iii) purchase call
options  if, as a result,  the  current  value of option  premiums  for  options
purchased  by the  Fund  would  exceed  5% of the  Fund's  total  assets.  These
limitations do not apply to options attached to, or acquired or traded together 

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with  their  underlying  securities,   and  do  not  apply  to  securities  that
incorporate features similar to options.                                        

2.  Illiquid Securities.                                          

       None of American  Retirement,  Foundation,  Growth and Income, Small Cap,
Tax Strategic or Income and Growth may invest more than 15% of its net assets in
illiquid  securities  and other  securities  which are not  readily  marketable,
including repurchase agreements which have a maturity of longer than seven days,
but excluding  securities  eligible for resale under Rule 144A of the Securities
Act of 1933, as amended, which the Trustees have determined to be liquid.       

       Balanced  and  Utility  will  not  invest  more  than 10% (in the case of
Balanced)  or 15% (in the  case  of  Utility)  of its  net  assets  in  illiquid
securities,  including  repurchase  agreements  providing for settlement in more
than seven days after notice and certain  securities  determined by the Trustees
not to be liquid and, in the case of Utility, in non-negotiable time deposits.  

       Except with respect to borrowing  money,  if a percentage  limitation  is
adhered to at the time of investment, a later increase or decrease in percentage
resulting  from any change in value or net assets will not result in a violation
of such restriction.                                                            

CERTAIN RISK CONSIDERATIONS 

       There  can be no  assurance  that  a Fund  will  achieve  its  investment
objective  and an  investment  in the Fund  involves  certain  risks  which  are
described under "Description of the Funds - Investment  Objectives and Policies"
in each Fund's Prospectus.                                                      

       In  addition,  the ability of Tax  Strategic  to achieve  its  investment
objective  is dependent  on the  continuing  ability of the issuers of Municipal
Securities in which the Fund invests -- and of banks  issuing  letters of credit
backing such securities -- to meet their obligations with respect to the payment
of interest and principal  when due. The ratings of Moody's  Investors  Service,
Inc.,  Standard & Poor's Ratings  Service,  a division of McGraw Hill Companies,
Inc.and  other  nationally  recognized  rating  organizations   represent  their
opinions as to the quality of Municipal Securities which they undertake to rate.
Ratings  are  not  absolute  standards  of  quality;   consequently,   Municipal
Securities with the same maturity, coupon, and rating may have different yields.
There  are  variations  in  Municipal  Securities,   both  within  a  particular
classification and between classifications, resulting from numerous factors.    

       Unlike   other   types  of   investments,   Municipal   Securities   have
traditionally not been subject to regulation by, or registration  with, the SEC,
although  there have been  proposals  which would provide for  regulation in the
future.                                                                         

       The  federal  bankruptcy  statutes  relating  to the  debts of  political
subdivisions  and  authorities  of states of the United States  provide that, in
certain  circumstances,  such  subdivisions  or authorities may be authorized to
initiate bankruptcy proceedings without prior notice to or consent of creditors,
which  proceedings could result in material and adverse changes in the rights of
holders of their obligations.  In addition, there have been lawsuits challenging
the  issuance  of  pollution  control  revenue  bonds or the  validity  of their
issuance under state or federal law which could ultimately                      

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affect the validity of those Municipal Securities or the tax-free nature of the 
interest thereon.                                                               

          MANAGEMENT

       The Trustees and executive officers of the Trusts,  their ages, addresses
and principal occupations during the past five years are set forth below:       

TRUSTEES                                                                        

JAMES S. HOWELL (72), 4124 Crossgate Road, Charlotte, NC                
   Chairman of the Evergreen Group of Mutual Funds, and Trustee.  Retired Vice
  President of Lance Inc. (food manufacturing); Chairman of the Distribution
Comm. Foundation for the Carolinas from 1989 to 1993.                   

    RUSSELL A. SALTON, III, M.D. (49), 205 Regency Executive Park, Charlotte, NC
 Trustee. Medical Director, U.S. Healthcare of the Charlotte, NC Carolinas
since 1996; President, Primary Physician Care from 1990 to 1996.        

MICHAEL S. SCOFIELD (53), 212 S. Tryon Street Suite 980, Charlotte, NC  
Trustee.  Attorney, Law Offices of Michael S. Scofield since 1969.      

Messrs. Howell, Salton and Scofield are Trustees of all forty-three investment  
companies:                                                                      

GERALD M. MCcDONNELL (57), 821 Regency Drive, Charlotte, NC             
    Trustee.  Sales Representative with Nucor-Yamoto Inc. (steel producer) since
1988.                                                                   

    THOMAS L. McVERRY (58), 4419 Parkview Drive, Charlotte, NC Trustee. Director
    of  Carolina   Cooperative  Federal  Credit  Union  since  1990  and  Rexham
    Corporation  from 1988 to 1990;  Vice President of Rexham  Industries,  Inc.
    (diversified  manufacturer)  from 1989 to 1990; Vice  President-Finance  and
Resources, Rexham Corporation from 1979 to 1990.                        

    WILLIAM  WALT  PETTIT*(41),  Holcomb and Pettit,  P.A.,  227 West Trade St.,
    Charlotte,  NC Trustee.  Partner in the law firm  Holcomb  and Pettit,  P.A.
since 1990.                                                             

Messrs. McDonnell, McVerry and Pettit are Trustees of forty-two of the          
investment companies (excluded is Evergreen Variable Trust).                    

LAURENCE B. ASHKIN (68), 180 East Pearson Street, Chicago, IL           
Trustee. Real estate developer and construction consultant since 1980;  
   President of Centrum Equities since 1987 and Centrum Properties, Inc. since
1980.                                                                   

FOSTER BAM* (70), Greenwich Plaza, Greenwich, CT                        
Trustee.  Partner in the law firm of Cummings and Lockwood since 1968.  

Messrs. Ashkin and Bam are Trustees of forty-one of the investment companies    
(excluded are Evergreen Variable Trust and Evergreen Investment Trust).         

FREDERICK AMLING ( )                                                    
Trustee.  Professor, Finance Department, George Washington University;  
   President, Amling & Company (investment advice); Member, Board of Advisers,
 Credito Emilano (banking); and former Economics and Financial Consultant,
Riggs National Bank.                                                    

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CHARLES A. AUSTIN III (  )                                              
  Trustee.  Investment Counselor to Appleton Partners, Inc.; former Managing
Director, Seaward Management Corporation (investment advice); and former
 Director, Executive Vice President and Treasurer, State Street Research &
Management Company (investment advice).                                 

GEORGE S. BISSELL* (  )                                                 
    Chairman of the Keystone Investments Family of Funds, and Trustee.  Director
    of  Keystone  Investments;  Chairman  of the Board and  Trustee of  Anatolia
    College;  Trustee of University  Hospital  (and  Chairman of its  Investment
    Committee);  former Director and Chairman of the Board of Hartwell Keystone;
    and former  Chairman  of the Board and Chief  Executive  Officer of Keystone
Investments.                                                            

EDWIN D. CAMPBELL (  )                                                  
    Trustee.  Director and former Executive Vice President, National Alliance of
   Business; former Vice President, Educational Testing Services; former Dean,
School of Business, Adelphi University; and former Executive Director,  
Coalition of Essential Schools, Brown University.                       

CHARLES F. CHAPIN (  )                                                  
  Trustee.  Former Group Vice President, Textron Corp.; and former Director,
Peoples Bank (Charlotte, NC).                                           

K. DUN GIFFORD (  )                                                     
    Trustee.  Chairman of the Board, Director, and Executive Vice President, The
    London Harness Company; Managing Partner,  Roscommon Capital Corp.; Trustee,
    Cambridge  College;  Chairman Emeritus and Director,  American  Institute of
    Food and  Wine;  Chief  Executive  Officer,  Gifford  Gifts  of Fine  Foods;
    Chairman,   Gifford,  Drescher  &  Associates  (environmental   consulting);
    President,  Oldways Preservation and Exchange Trust (education);  and former
Director, Keystone Investments and Keystone.                            

LEROY KEITH, JR. (  )                                                   
  Trustee.  Director of Phoenix Total Return Fund and Equifax, Inc.; Trustee
 of Phoenix Series Fund, Phoenix Multi-Portfolio Fund, and The Phoenix Big
Edge Series Fund; and former President, Morehouse College.              

F. RAY KEYSER, JR. (  )                                                 
    Trustee.  Counsel,  Keyser,  Crowley & Meub, P.C.;  Member,  Governor's (VT)
    Council of Economic  Advisers;  Chairman of the Board and Director,  Central
    Vermont Public Service Corporation and Hitchcock Clinic;  Director,  Vermont
    Yankee Nuclear Power  Corporation,  Vermont  Electric  Power Company,  Inc.,
    Grand  Trunk  Corporation,  Central  Vermont  Railway,  Inc.,  S.K.I.  Ltd.,
    Sherburne  Corporation,  Union Mutual Fire  Insurance  Company,  New England
    Guaranty  Insurance  Company,  Inc., and the Investment  Company  Institute;
    former  Governor of  Vermont;  former  Director  and  President,  Associated
    Industries  of  Vermont;  former  Chairman  and  President,  Vermont  Marble
    Company;  former  Director of Keystone;  and former Director and Chairman of
the Board, Green Mountain Bank.                                         

DAVID M. RICHARDSON (  )                                                
Trustee.  Executive Vice President, DHR International, Inc. (executive  
recruitment); former Senior Vice President, Boyden Inter-national Inc.  
   (executive recruitment); and Director, Commerce and Industry Association of
New Jersey, 411 International, Inc., and J&M Cumming Paper Co.          

RICHARD J. SHIMA (  )                                                   

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    Trustee. Chairman,  Environmental Warranty, Inc., and Consultant, Drake Beam
    Morin, Inc.  (executive  outplacement);  Director of Connecticut Natural Gas
    Corporation,  Trust Company of  Connecticut,  Hartford  Hospital,  Old State
    House Association,  and Enhance Financial Services, Inc.; Chairman, Board of
    Trustees,  Hartford Graduate Center;  Trustee,  Kingswood-Oxford  School and
    Greater Hartford YMCA; former Director,  Executive Vice President,  and Vice
    Chairman of The Travelers  Corporation;  former Managing Director of Russell
Miller, Inc.; and former Member, Georgetown College Board of Advisors.  

ANDREW J. SIMONS* (  )                                                  
   Trustee.  Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky & Armentano,
    P.C.; former President, Nassau County Bar Association; former Associate Dean
and Professor of Law, St. John's University School of Law.              

Messrs. Amling, Austin, Bissell, Campbell, Chapin, Gifford, Keith, Keyser,      
Richardson, Shima and Simons are Trustees or Directors of the thirty funds in   
the Keystone Group of Funds.  Their address is 200 Berkeley Street, Boston,     
Massachusetts 02116-5034.                                                       

ROBERT J. JEFFRIES (74), 2118 New Bedford Drive, Sun City Center, FL    
Trustee Emeritus.  Corporate consultant since 1967.                             

Mr. Jeffries has been serving as a Trustee  Emeritus of eleven of the investment
companies  since  January  1,  1996  (excluded  are  Evergreen  Variable  Trust,
Evergreen Investment Trust and the Keystone Group of Funds).                    

EXECUTIVE OFFICERS                                                              

    JOHN J. PILEGGI (37), 230 Park Avenue, Suite 910, New York, NY President and
    Treasurer.  Consultant to BISYS Fund Services  since 1996.  Senior  Managing
  Director, Furman Selz LLC since 1992, Managing Director from 1984 to 1992.

GEORGE MARTINEZ (37), 3435 Stelzer Road, Columbus, OH                   
   Secretary.  Senior Vice President/Director of Administration and Regulatory
 Services, BISYS Fund Services since April 1995.  Vice President/Assistant
GeneralCounsel, Alliance Capital Management from 1988 to 1995.          

--------                                                                        
*  Messrs.  Pettit,  Bam,  Bissell  and  Simons  may  each  be  deemed  to be an
"interested person" within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act").                                                       

       The  officers of the Trusts are all  officers  and/or  employees of BISYS
Fund  Services.  BISYS Fund  Services  is an  affiliate  of  Evergreen  Keystone
Distributor, Inc., the distributor of each Class of shares of each Fund.        

       The Funds do not pay any direct  remuneration  to any  officer or Trustee
who is an  "affiliated  person" of either  First  Union  National  Bank of North
Carolina,  Evergreen Asset  Management Corp. or Keystone  Investment  Management
Company or their affiliates.  See "Investment Advisers".  Currently, none of the
Trustees is an  "affiliated  person" as defined in the 1940 Act.  The Trusts pay
each Trustee who is not an "affiliated  person" an annual retainer and a fee per
meeting attended, plus expenses, as follows:                                    

Name of Trust/Fund                              Annual Retainer   Meeting Fee   

Income and Growth                               $ 5,500              $  300     

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Growth and Income                                   500                 100     
The Evergreen American Retirement Trust           1,000                         
American Retirement                                                   100   
Small Cap                                                             100   
Evergreen Foundation Trust                          500                         
Foundation                                                            100   
Tax Strategic                                                         100   
Evergreen Investment Trust                       15,000**             2,000**   
Balanced                                                                    
Utility                                                                     
Value                                                                       
Keystone Total Return                            ______***                      
--------------------                                                            

** Allocated among the fourteen funds of the Evergreen Investment Trust based on
assets.  ***  Allocated  among  the  more  than  thirty  funds  in the  Keystone
Investments Family of Funds.                                                    

In addition:                                                                    

(1) The Chairman of the Board of the Evergreen  Group of Mutual Funds is paid an
annual  retainer of $5,000,  and the Chairman of the Audit  Committee is paid an
annual retainer of $2,000.  These retainers are allocated among all the funds in
the Evergreen group of mutual funds, based upon assets.                         

(2) The  Chairman of the Board of the  Keystone  Investments  Family of Funds is
paid an annual retainer of $_______________.                                    

(3)    Each member of the Audit Committee is paid an annual retainer of $500.   

(4)  Each  non-affiliated  Trustee  is  paid  a fee of  $500  for  each  special
telephonic  meeting in which he  paricipates,  regardless of the number of Funds
for which the meeting is called.                                                

(5) Each non-affiliated Trustee is paid a fee of $250 for each special Committee
of the Board telephone  conference call meeting of one or more Funds in which he
participates.                                                                   

(6) Any individual  who has been appointed as a Trustee  Emeritus of one or more
funds in the  Evergreen  Group of mutual funds is paid one-half of the fees that
are payable to regular Trustees.                                                

       Set forth below for each of the  Trustees is the  aggregate  compensation
(and  expenses)  paid to such  Trustees  by each Trust for the fiscal year ended
December  31, 1996  (fiscal  year ended  November  30, 1996 for Total Return and
January 31, 1997 for Income and Growth).                                        

            Aggregate Compensation From Each Trust
Total                                                                           

Compensation                                                                    
             Evergreen  Evergreen  Evergreen                          Keystone
From Trusts                                                                     
             Income     Growth     American    Evergreen   Evergreen  Fund for
Fund                                                                            
Name of       and Growth and Income Retirement  Foundation  Investment Total    
Complex Paid                                                                    

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Trustee         Fund        Fund        Trust       Trust     Trust   Return    
Trustees                                                                        

L.B. Ashkin                                                                     
F. Bam                                                                          
J.S. Howell                                                                     
G.M. McDonnell                                                                  
T.L. McVerry                                                                    
W.W. Pettit                                                                     
R.A. Salton                                                                     
M.S. Scofield                                                                   
F.Amling                                                                        
C.A. Austin                                                                     
G.S. Bissell                                                                    
E.D. Campbell                                                                   
C.F. Chapin                                                                     
K.D. Gifford                                                                    
L. Keith                                                                        
F.R. Keyser                                                                     
D.M. Richardson                                                                 
R.J. Shima                                                                      
A.J. Simons                                                                     
R.J. Jeffries                                                                   

       The  number  and  percent  of  outstanding  shares of each Fund  owned by
officers and Trustees as a group on February 28, 1997 is as follows:            

No. of Shares Owned     
                             By Officers and         Ownership by Officers and
                             Trustees               Trustees as a % of
Name of Fund                     as a Group              Shares Outstanding     

Balanced                                                                        
Income and Growth                                                               
Growth and Income                                                               
American Retirement                                                             
Small Cap                                                                       
Foundation                                                                      
Tax Strategic                                                                   
Utility                                                                         
Value                                                                           

As of November  30,  1996,  none of the  Trustees  and  officers of Total Return
beneficially owned any of the Fund's then outstanding Class A, B and C shares.  

       Set forth below is information with respect to each person,  who, to each
Fund's  knowledge,  owned  beneficially  or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of February 28, 1997.                               

                       Name of                        % of
Name and Address                  Fund/Class      No. of Shares  Class/Fund     
----------------                  ----------      -------------                 
---------------                                                                 
State Street Bank & Trust Co      Balanced/C             809          5.86%/.0% 
Cust for the IRA of                                                             
Kathleen McEvoy                                                                 
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

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Fubs & Co. Febo                   Balanced/C             718           5.19%/0% 
Vivian G. Hardin IRA                                                            
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       
Fubs & Co. Febo                   Balanced/C             966                    
6.99%/.01%                                                                      
Daniel J. Plummer                                                               
Janet R. Plummer                                                                
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                   Balanced/C           1,942                    
14.05%/0%                                                                       
Leroy Selby, Jr.                                                                
Leroy Selby, III                                                                
C/O First Union National Bank                                                   
301 S. Tron Street                                                              
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                   Balanced/C           1,826          13.21%/0% 
Mary Martha McBee Summerour C/F                                                 
Rebecca Jean Summerour                                                          
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                   Balanced/C             898           6.50%/0% 
Annabelle D. Thompson                                                           
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank         Balanced/Y       49,791,633                   
81.05%/68.32%                                                                   
Trust Accounts                                                                  
Attn: Ginny Batten                                                              
11th Floor CMG-1151                                                             
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank         Balanced/Y       11,633,627                   
18.94%/15.96%                                                                   
Trust Accounts                                                                  
Attn: Ginny Batten                                                              
11th Floor CMG-1151                                                             
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                   Income and Growth/A      13,303               
6.07%/.03%                                                                      
Steven Brad Zlatkiss                                                            
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotee, NC  28288-0001                                                       

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Fubs & Co. Febo                   Income and Growth/C        1,331              
5.11%/0%                                                                        
Perlean Wade Boozer and                                                         
Velina Wade                                                                     
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC 28288-0001                                                        

Fubs & Co. Febo                   Income and Growth/C        2,611              
10.03%/0%                                                                       
Roberto Paiz and                                                                
Magalis Paiz and                                                                
Asteria De La Fuente                                                            
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                   Income and Growth/C         1,955             
7.51%/0%                                                                        
Barbara B. Bachmann                                                             
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                   Income and Growth/C         3,802             
14.60%/0%                                                                       
Nancy C. Logreco And                                                            
George E. Logreco                                                               
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                   Income and Growth/C         1,579             
6.06%/0%                                                                        
William A.Martin IRA R/O                                                        
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                   Growth and Income/C   29,045     26.24%/.14%  
Clara Caudill                                                                   
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Fidelity Bank                Growth and Income/Y             4,688,120    
29.46%/23.40%                                                                   
Attn Christine James                                                            
Broad & Walnut Street                                                           
2 1/2 With Bldg                                                                 
Philadelphia, PA 19109                                                          

First Fidelity Bank                Growth and Income/Y             3,109,279    
19.54%/15.51%                                                                   
Broad & Walnut Street                                                           
2 1/2 With Bldg                                                                 
Philadelphia, PA 19109                                                          

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First Union National Bank/EB/INT  Growth and Income/Y   1,024,525   6.44%/5.11% 
Cash Account                                                                    
Attn. Trust Operations Fund Group                                               
401 S. Tryon Street, 3rd Floor                                                  
CMG 1151                                                                        
Charlotte, NC  28202-1911                                                       

First Union National Bank/EB/INT  Growth and Income/Y   1,956,232  12.29%/9.76% 
Cash Account                                                                    
Attn. Trust Operations Fund Group                                               
401 S. Tryon Street, 3rd Floor                                                  
CMG 1151                                                                        
Charlotte, NC  28202-1911                                                       

First Union Natl Bank-VA C/F      American Retirement/A  10,542     5.78%/.27%  
Robert C Ewers IRA                                                              
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                  American Retirement/A   15,699     8.61%/.41%  
Joe Hughes Jr. and                                                              
Debra A Hughes                                                                  
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       
Fubs & Co. Febo                  American Retirement/A   10,033     5.50%/.26%  
Lothar Sindram                                                                  
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      American Retirement/C        769                
5.21%/.02%                                                                      
VA C/F                                                                          
James L. Wilkinson Rollover IRA                                                 
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 American Retirement/C    4,358     29.54%/.11%  
Melvin H. Sease and                                                             
Clara K. Sease                                                                  
C/O First Union National Bank                                                   
301 S. Tryon St.                                                                
Charlotte, NC 28288-0001                                                        

First Union National Bank-Fl    American Retirement/C      778      5.27%/.02%  
Earline McKinnie-IRA                                                            
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 American Retirement/C    1,207      8.18%/.03%  
Odus Williams and                                                               
Christine Williams                                                              
C/O First Union National Bank                                                   
301 S Tryon Street                                                              

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Charlotte,  NC 28288-0001                                                       

Fubs & Co. Febo                 American Retirement/C    1,243      8.43%/.03%  
Helen D. Just                                                                   
C/O First Union National Bank                                                   
301 S Tryon Street                                                              
Charlotte,  NC 28288-0001                                                       

First Union National Bank-      American Retirement/C    2,450      16.61%/.06% 
VA C/F                                                                          
William A Martin IRA R/O                                                        
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 American Retirement/C    1,565                  
10.61%/.04%                                                                     
Odette I Struys                                                                 
C/O First Union National Bank                                                   
301 S Tryon Street                                                              
Charlotte,  NC 28288-0001                                                       

Charles Schwab & Co. Inc.       American Retirement/Y    156,762                
5.17%/4.09%                                                                     
Cash Account                                                                    
Attn: Mutual Funds Dept.                                                        
101 Montgomery Street                                                           
San Francisco, CA  94104-4122                                                   

Charles Schwab & Co. Inc.       American Retirement/Y     618,596               
20.40%/16.13%                                                                   
Reinvest Account                                                                
Attn: Mutual Funds Dept.                                                        
101 Montgomery Street                                                           
San Francisco, CA  94104-4122                                                   

Stephen A. Lieber               American Retirement/Y     171,346               
5.65%/4.47%                                                                     
C/O Lieber & Co.                                                                
2500 Westchester Avenue                                                         
Purchase, NY  10577                                                             

State Street Bank & Trust Co. Small Cap/A                   1,028               
5.28%/.21%                                                                      
Cust For the IRA of                                                             
Lynn B. Crookston                                                               
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Small Cap/A                 6,549               
33.68%/1.33%                                                                    
Elizabeth M. Screven                                                            
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

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First Union National Bank-      Small Cap/A            1,105                    
5.68%/.22%                                                                      
FL C/F                                                                          
Aura Dominguez                                                                  
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Small Cap/A            1,385                    
7.12%/.28%                                                                      
Carlene Toron                                                                   
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Lewco Securities Corp.          Small Cap/A       1,384        7.11%/.28%       
FBO A/C # W24-400190-5-04 34                                                    
Exchange Place                                                                  
4th Floor Jersey City, NJ 07302-3901                                            

First Union National Bank-      Small Cap/B            2,428         9.90%/.46% 
NC C/F                                                                          
Harold T. Brooks IRA                                                            
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank       Small Cap/B            6,872                    
28.02%/1.40%                                                                    
GA C/F                                                                          
Lawrence Pelowski                                                               
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      Small Cap/B           1,547          6.31%/.31% 
FL C/F                                                                          
James P. Turner IRA                                                             
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      Small Cap/B           1,459          5.95%/.30% 
FL C/F                                                                          
Robert H. Carr IRA                                                              
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      Small Cap/B           1,394          5.68%/.28% 
NC C/F                                                                          
Eric W. Johnson IRA                                                             
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      Small Cap/C             110          5.39%/.02% 
FL C/F, Inc.                                                                    

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Michael A. Sorg IRA                                                             
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      Small Cap/C             110          5.39%/.02% 
FL C/F, Inc.                                                                    
Matthew R. Sorg IRA                                                             
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      Small Cap/C           1,365         66.77%/.28% 
VA C/F, Inc.                                                                    
Bruce S. Barker IRA                                                             
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      Small Cap/C             437         21.37%/.09% 
VA C/F                                                                          
Brenton S. Farmer IRA                                                           
C/O First Union National Bank                                                   
301 S Tryon Street                                                              
Charlotte, NC  28288-0001                                                       

Nola Maddox Falcone             Small Cap/Y           56,754      12.73%/11.54% 
C/O Lieber & Co.                                                                
2500 Westchester Avenue                                                         
Purchase, NY  10577                                                             

Stephen A. Lieber               Small Cap/Y          113,510      25.46%/23.08% 
C/O Lieber & Co.                                                                
2500 Westchester Avenue                                                         
Purchase, NY  10577                                                             

Charles Schwab & Co. Inc.       Small Cap/Y           29,785        6.68%/6.06% 
Reinvest Account                                                                
101 Montgomery Street                                                           
Mutual Fund Dept.                                                               
San Francisco, CA  94104-4122                                                   

First Union National Bank/EB    Small Cap/Y           65,128      14.61%/13.24% 
Cash Account                                                                    
Attn: Trust Operations Fund                                                     
401 S. Tryon Street                                                             
3rd Floor CMG 11                                                                
Charlotte, NC  28202-1911                                                       

First Union National Bank/EB    Small Cap/Y           24,508       5.50%/ 4.98% 
Reinvest Account                                                                
Attn: Trust Operations Fund                                                     
401 S. Tryon Street                                                             
3rd Floor CMG 11                                                                
Charlotte, NC  28202-1911                                                       

Charles Schwab & Co. Inc.       Foundation/A         960,412                    
11.60%/1.25%                                                                    

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101 Montgomery St.                                                              
San Francisco, CA 49104-4122                                                    

Charles Schwab & Co. Inc.       Foundation/Y       5,155,427      11.44%/6.73%  
101 Montgomery Street                                                           
San Francisco, CA  94104-4122                                                   

First Union National Bank/EB    Foundation/Y      12,455,187      27.64%/16.26% 
Reinvest Account                                                                
Attn: Trust Operations Fund                                                     
401 S. Tryon Street                                                             
3rd Floor CMG 11                                                                
Charlotte, NC  28202-1911                                                       

Mac & Co.                       Foundation/Y       6,406,497      14.22%/8.36%  
A/C 195-6432                                                                    
C/O Mellon Bank NA                                                              
Mutual Funds                                                                    
P.O. Box 320                                                                    
Pittsburgh, PA  15230-0320                                                      

Fubs & Co. Febo                 Tax Strategic /C       4,971        11.32%/.23% 
Harry A. Edwards Jr.                                                            
Linda R. Edwards                                                                
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Tax Strategic /C       8,896        20.26%/.41% 
Wade H. Moser, Jr. M.D.                                                         
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Tax Strategic /C      14,663        33.39%/.68% 
Brenda Dykgraaf                                                                 
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Tax Strategic /C       5,077        11.56%/.23% 
Paul E. Hook and                                                                
Mary G. Hook                                                                    
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Tax Strategic /C       2,619         5.96%/.12% 
William Kent and                                                                
Janet R. Kent                                                                   
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Nola Maddox Falcone             Tax Strategic /Y     100,357        8.93%/4.64% 
C/O Lieber & Co.                                                                
2500 Westchester Avenue                                                         
Purchase, NY  10577                                                             

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Constance E. Lieber             Tax Strategic /Y      58,774        5.23%/2.72% 
C/O Lieber & Co.                                                                
2500 Westchester Avenue                                                         
Purchase, NY  10577                                                             

Stephen A. Lieber               Tax Strategic/Y      509,312      45.34%/23.71% 
C/O Lieber & Co.                                                                
2500 Westchester Avenue                                                         
Purchase, NY  10577                                                             

Fubs & Co. Febo                 Utility/C              5,909        25.42%/.04% 
Elsie B. Strom                                                                  
Lewis F. Strom                                                                  
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Utility/C              3,212        13.82%/.02% 
Laura Alyce Hulbert                                                             
Ronald F. Hulbert                                                               
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Utility/C              1,178         5.07%/.0%  
Evelyn L. Smith                                                                 
Creg Smith                                                                      
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Utility/C              1,543         6.64%/.01% 
Ruth D. Hayes and                                                               
D. W. Hayes                                                                     
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank       Utility/Y            599,595      81.93%/ 4.24% 
Trust Accounts                                                                  
Attn: Ginny Batten                                                              
11th Floor CMG-1151                                                             
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank       Utility/Y            122,268      16.17%/.86%   
Trust Accounts                                                                  
Attn: Ginny Batten                                                              
11th Floor CMG-1151                                                             
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

Fubs & Co. Febo                 Value/C                1,874         5.03%/0%   
Kimberly Lynn Hadley                                                            
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       
Fubs & Co. Febo                 Value/C                3,538          9.49%/0%  

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Alex G. Suero                                                                   
Maria E. Espinosa                                                               
C/O First Union National  Bank                                                  
301 S. Tryon Street                                                             
Charlotte,  NC                                                                  
28288-0001                                                                      

Fubs & Co. Febo                 Value/C                1,921         5.15%/0%   
William H. Smith                                                                
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank-      Value/C                2,014         5.40%/0%   
Cecil Elders                                                                    
C/O First Union National Bank                                                   
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank       Value/Y           29,394,176      71.12%/46.93% 
Trust Accounts                                                                  
Attn: Ginny Batten                                                              
11th Floor CMG-1151                                                             
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Union National Bank       Value/Y            8,404,542                    
20.34%/13.42%                                                                   
Trust Accounts                                                                  
Attn: Ginny Batten                                                              
11th Floor CMG-1151                                                             
301 S. Tryon Street                                                             
Charlotte, NC  28288-0001                                                       

First Fidelity Bank                  Value/Y      2,561,782          6.25%/4.12%
Attn: Joanne Monteiro                                                           
123 S. Broad St.                                                                
Philadelphia, PA 19109-1029                                                     

---------------------------------                                               

       First Fidelity Bank acts in various capacities for numerous accounts.  As
a result of its  ownership  of  _________%  of Growth and Income on February 28,
1997,  First  Fidelity Bank may be deemed to "control" that Fund as that term in
defined in the 1940 Act.                                                        

       First Union  National Bank of North  Carolina and its  affiliates  act in
various  capacities  for  numerous  accounts.  As a result of its  ownership  on
February 28, 1997, of ______% of the Class Y shares of Balanced,  _________% and
_________%,  respectively,  of the  Class B and  Class C shares  of  Small  Cap,
________% of the Class Y shares of Foundation,  _________% of the Class Y shares
of Utility and  _________% of the Class Y shares of Value,  First  Fidelity Bank
may be deemed to "control" those Funds as that term in defined in the 1940 Act. 

      Fubs and Co. Febo  acts in various capacities for numerous accounts.  As a
result of its ownership on February 28, 1997, of _________% of the Class C      

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shares of  Balanced,  _________%  of the Class C shares of American  Retirement,
________% of the Class A shares of Small Cap,  _______% of the Class C shares of
Tax Strategic and _________% of the Class C shares of Utility,  Fubs and Co. may
be deemed to "control" those Funds as that term in defined in the 1940 Act.     

       As a result of Stephen A.  Lieber's  ownership on February  28, 1997,  of
_______% of the Class Y shares of Small Cap and  ________% of the Class Y shares
of Tax Strategic, Mr. Lieber may be deemed to "control" those Funds as that term
in defined in the 1940 Act.                                                     

       INVESTMENT ADVISERS
           (See also "Management of the Fund" in each Fund's Prospectus)

         The  investment  adviser  of Income  and  Growth,  Growth  and  Income,
American Retirement,  Small Cap, Foundation and Tax Strategic is Evergreen Asset
Management  Corp.,  a New York  corporation,  with  offices at 2500  Westchester
Avenue,  Purchase,  New York or ("Evergreen Asset" or the "Adviser").  Evergreen
Asset is owned by First Union  National  Bank of North  Carolina  ("FUNB" or the
"Adviser")  which, in turn, is a subsidiary of First Union  Corporation  ("First
Union"), a bank holding company headquartered in Charlotte, North Carolina.     

         The  investment  adviser of  Balanced,  Utility and Value is FUNB which
provides investment advisory services through its Capital Management Group.     

         The  investment   adviser  of  Total  Return  is  Keystone   Investment
Management Company ("Keystone" or the "Adviser"), a ______________  corporation,
with offices at 200 Berkeley Street, Boston, Massachusetts. Keystone is owned by
FUNB.                                                                           

        The Directors of Evergreen Asset are Richard K. Wagoner and Barbara I.
Colvin.  The executive officers of Evergreen Asset are Stephen A. Lieber,       
Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President and     
Co-Chief Executive Officer, and Theodore J. Israel, Jr., Executive Vice         
President.  The Directors of Keystone are Donald McMullen, William M. Ennis, II 
and Barbara I. Colvin.  The executive officers of Keystone are James R. McCall, 
President, Edward F. Godfrey, Senior Vice President, Chief Financial Officer    
and Treasurer, Philip M. Bryne, Senior Vice President, and Rosemary D. Van      
Antwerp, Senior Vice President, General Counsel and Secretary.                  

         On June 30, 1994, Evergreen Asset and Lieber & Company ("Lieber"), were
acquired by First Union through certain of its  subsidiaries.  Contemporaneously
with the acquisition, Income and Growth, Growth and Income, American Retirement,
Small Cap,  Foundation and Tax Strategic entered into a new investment  advisory
agreement with Evergreen Asset and into a distribution  agreement with Evergreen
Keystone  Distributor,  Inc.  (formerly  known as Evergreen  Funds  Distributor,
(Inc.) (the "Distributor"),  an affiliate of BISYS Fund Services.  At that time,
Evergreen  Asset also  entered  into a new  sub-advisory  agreement  with Lieber
pursuant  to which  Lieber  provides  certain  services  to  Evergreen  Asset in
connection  with  its  duties  as  investment  adviser.  The  new  advisory  and
sub-advisory  agreements were approved by the shareholders of Income and Growth,
Growth and Income, American Retirement,  Small Cap, Foundation and Tax Strategic
at their meeting held on June 23, 1994, and became effective on June 30, 1994.  

         On September 6, 1996,  First Union and FUNB entered into an  Agreeement
and Plan of Acquisition  and Merger (the  "Merger")  with Keystone  Investments,
Inc. ("Keystone Investments"), the corporate parent of Keystone, which provided,
among other things, for the merger of Keystone Investments with and into a      

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wholly-owned  subsidiary  of FUNB.  The Merger was  consummated  on December 11,
1996. Keystone continues to provide investment advisory services to the Keystone
Investments  Family of Funds.  Contemporaneously  with the Merger,  Total Return
entered  into a new  investment  advisory  agreement  with  Keystone  and into a
principal underwriting agreement with the Distributor.                          

         Under the Investment  Advisory  Agreement with each Fund,  each Adviser
has  agreed  to  furnish   reports,   statistical  and  research   services  and
recommendations  with  respect  to each  Fund's  portfolio  of  investments.  In
addition,  each Adviser  provides office  facilities to the Funds and performs a
variety of administrative  services. Each Fund pays the cost of all of its other
expenses  and  liabilities,  including  expenses  and  liabilities  incurred  in
connection with maintaining their registration under the Securities Act of 1933,
as amended, and the 1940 Act, printing prospectuses (for existing  shareholders)
as they are updated, state qualifications,  mailings,  brokerage,  custodian and
stock  transfer  charges,  printing,  legal and auditing  expenses,  expenses of
shareholder meetings and reports to shareholders. Notwithstanding the foregoing,
each Adviser will pay the costs of printing and distributing  prospectuses  used
for prospective shareholders.                                                   

         The method of computing  the  investment  advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
three most recent fiscal periods reflected in its registration statement are set
forth below:                                                                    

BALANCED                    Year Ended          Year Ended      Year Ended      
                    12/31/96            12/31/95        12/31/94
Advisory Fee                                    $4,870,748      $4,621,512      
                      ==========          ==========      ==========

INCOME AND GROWTH           Year Ended          Year Ended      Year Ended      
                   1/31/97             1/31/96         1/31/95
Advisory Fee                                    $9,343,195      $8,542,289      
                       ==========          ===========     ===========
Expense                                                                         
Reimbursement                                   $   53,576                      

FOUNDATION                  Year Ended          Year Ended      Year Ended      
                    12/31/96            12/31/95        12/31/94
Advisory Fee                                    $5,387,186      $2,551,768      
                    ==========          ==========      ========
Expense                                                                         
Reimbursement                                    11,064                         

SMALL CAP                   Year Ended          Year Ended      Year Ended      
                    12/31/96            12/31/95        12/31/94
Advisory Fee                                    $45,397         $29,075         
                    ---------           --------        --------
Waiver                                          ($45,397)       ($29,075)       
Net Advisory Fee                                $        0      $    0          
                     =========           =========       =========
Expense                                                                         
Reimbursement                                   $164,584        $63,704         
                   ---------           -------         -------

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UTILITY                     Year Ended          Year Ended      Year Ended      
                    12/31/96            12/31/95        12/31/94
Advisory Fee                                    $456,021        $153,458        
                                          ---------       ----------
Waiver                                          ($299,028)      ($152,038)      
Net Advisory Fee                                 $156,993        $  1,420       
                                         =========       =========
Expense                                                                         
Reinbursement                                    $ 51,894       $106,957        
                                          --------       ---------

GROWTH AND INCOME           Year Ended          Year Ended      Year Ended      
                    12/31/96            12/31/95        12/31/94
Advisory Fee                                    $1,332,685      $684,891        
                    ========            ========        ========
Expense                                                                         
Reimbursement                                     $ 38,106                      

                          --------

AMERICAN                    Year Ended          Year Ended      Year Ended      
RETIREMENT                  12/31/96            12/31/95        12/31/94        
Advisory Fee                                   $297,242        $292,628       
                    ========            ========        ========
Expense                                                                       
Reimbursement                                  $ 76,464                       
                        --------

TAX STRATEGIC               Year Ended          Year Ended      Year Ended      

                    12/31/96            12/31/95        12/31/94
Advisory Fee                                   $140,386        $ 65,915       
                    ------              ------          --------
Waiver                                         ($96,975)       ($65,915)      
Net Advisory Fee                               $ 43,411        $    0         
                     ==========          =========       =========
Expense                                                                       
Reimbursement                                  $ 85,543        $ 3,777        
                  ------              ------          ------

VALUE                      Year Ended          Year Ended      Year Ended     
                    12/31/96            12/31/95        12/31/94
Advisory Fee                                   $5,120,579      $3,850,673     

TOTAL RETURN                Year Ended          Year Ended      Year Ended      
                    11/30/96            11/30/95        11/30/94
Advisory Fee                                                                    

         Utility  commenced  operations on January 4, 1994 and,  therefore,  the
first year's figures set forth in the table above reflect for Utility investment
advisory  fees paid for the  period  from  commencement  of  operations  through
December 31, 1994.                                                              

Expense Limitations                                                             

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         Evergreen  Asset has  voluntarily  agreed to reimburse Small Cap to the
extent  that any of the  Fund's  aggregate  operating  expenses  (including  the
Adviser's fee but excluding interest,  taxes, brokerage commissions,  Rule 12b-1
distribution  fees and shareholder  servicing fees and  extraordinary  expenses)
exceed 1.50% of its average net assets until such time as said Fund's net assets
reach $15 million.                                                              

         Total  Return  voluntarily  limits  Class A  expenses  to  1.50% of the
average  daily net  assets  of Class A shares,  such  expense  limitation  to be
reevaluated  on a calendar  month basis and to be modified or  eliminated in the
future at the discretion of Keystone.                                           

         The Investment Advisory Agreements are terminable,  without the payment
of any penalty,  on sixty days'  written  notice,  by a vote of the holders of a
majority of each Fund's  outstanding  shares, or by a vote of a majority of each
Trust's  Trustees  or  by  the  respective  Adviser.   The  Investment  Advisory
Agreements will automatically  terminate in the event of their assignment.  Each
Investment  Advisory  Agreement provides in substance that the Adviser shall not
be liable  for any  action  or  failure  to act in  accordance  with its  duties
thereunder in the absence of willful misfeasance,  bad faith or gross negligence
on  the  part  of the  Adviser  or of  reckless  disregard  of  its  obligations
thereunder.                                                                     

         The Investment  Advisory  Agreements with respect to Income and Growth,
Growth and Income, American Retirement,  Small Cap, Foundation and Tax Strategic
were approved by each Fund's  shareholders on June 23, 1994, became effective on
June 30, 1994,  and were last approved by the Trustees of each Trust on February
8, 1996.                                                                        

         The Investment Advisory Agreement with respect to Balanced, Utility and
Value dated  February 28, 1985,  and amended from time to time  thereafter,  was
last approved by the Trustees of Evergreen Investment Trust on February 8, 1996.

         The  Investment  Advisory  Agreement  with  respect to Total Return was
approved by the Fund's shareholders on December 9, 1996, and became effective on
December 11, 1996.                                                              

         Each Investment Advisory Agreement will continue in effect from year to
year provided that its continuance is approved  annually by a vote of a majority
of the Trustees of each Trust including a majority of those Trustees who are not
parties thereto or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting duly called for the purpose of voting on such
approval or a majority of the outstanding voting shares of each Fund.           

         Certain  other clients of each Adviser may have  investment  objectives
and  policies  similar  to those  of the  Funds.  Each  Adviser  (including  the
sub-adviser)  may, from time to time, make  recommendations  which result in the
purchase or sale of a particular  security by its other  clients  simultaneously
with a Fund. If  transactions  on behalf of more than one client during the same
period  increase  the demand for  securities  being  purchased  or the supply of
securities being sold,  there may be an adverse effect on price or quantity.  It
is the  policy of each  Adviser to  allocate  advisory  recommendations  and the
placing of orders in a manner  which is deemed  equitable  by the Adviser to the
accounts  involved,  including the Funds. When two or more of the clients of the
Adviser  (including one or more of the Funds) are purchasing or selling the same
security on a given day from the same  broker-dealer,  such  transactions may be
averaged as to price.                                                           

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         Although the  investment  objectives of the Funds are not the same, and
their investment  decisions are made independently of each other, they rely upon
the same  resources for investment  advice and  recommendations.  Therefore,  on
occasion,  when a particular security meets the different investment  objectives
of the  various  Funds,  they  may  simultaneously  purchase  or sell  the  same
security.  This could have a detrimental effect on the price and quantity of the
security  available  to each Fund.  If  simultaneous  transactions  occur,  each
Adviser attempts to allocate the securities,  both as to price and quantity,  in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives.  In some cases, simultaneous purchases or sales
could have a beneficial  effect,  in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.             

         Each Fund has  adopted  procedures  under Rule 17a-7 of the 1940 Act to
permit purchase and sales  transactions to be effected between each Fund and the
other  registered  investment  companies  for  which  Evergreen  Asset,  FUNB or
Keystone act as investment  adviser or between the Fund and any advisory clients
of Evergreen Asset,  FUNB,  Keystone or Lieber.  Each Fund may from time to time
engage in such  transactions but only in accordance with these procedures and if
they are equitable to each  participant and consistent  with each  participant's
investment objectives.                                                          

         Prior to July 7, 1995, Federated  Administrative Services, a subsidiary
of Federated  Investors,  provided  legal,  accounting and other  administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust. The Trust paid a fee for such services at the following annual rate: .15%
on the first $250 million  average  daily net assets of the Trust;  .125% on the
next $250  million;  .10% on the next $250 million and .075% on assets in excess
of $250 million.  For the period ended July 7, 1995,  and the fiscal years ended
December 31, 1994 and 1993 Balanced  incurred  $392,991,  $779,584 and $597,752,
respectively,  in  administrative  service  costs.  For the period ended July 7,
1995,  and the period  from  January 4, 1994  (commencement  of  operations)  to
December 31,  1994,  Utility  incurred  $10,384 and  $16,382,  respectively,  in
administrative  service costs,  all of which were  voluntarily  waived.  For the
period ended July 7,1995,  and for the fiscal years ended  December 31, 1994 and
1993,  Value  incurred  $374,216,  $649,487,  and  $526,836,   respectively,  in
administrative service costs.                                                   

         Evergreen Asset has been providing  administrative  services to each of
the portfolios of Evergreen Investment Trust since July 8, 1995, for a fee based
on the average daily net assets of each fund administered by Evergreen Asset for
which  Evergreen  Asset or FUNB also serves as  investment  adviser,  calculated
daily and payable monthly at the following  annual rates:  .050% on the first $7
billion;  .035% on the next $3 billion;  .030% on the next $5 billion;  .020% on
the next $10  billion;  .015% on the next $5  billion;  and  .010% on  assets in
excess of $30  billion.  For the period from July 8, 1995  through  December 31,
1995, and the fiscal year ended December 31, 1996,  Balanced,  Utility and Value
incurred   the   following   administration   costs:   Balanced   $283,139   and
$____________,  respectively;  Utility $39,330 and $____________,  respectively;
and Value $323,050 and $___________,  respectively.  For the period July 8, 1995
through  December 31, 1995 and the fiscal year ended December 31, 1996,  Utility
incurred $35,512 and  $_____________,  respectively,  in administrative  service
costs, all of which was voluntarily waived. BISYS Fund Services, an affiliate of
the Distributor,  serves as sub-administrator to Balanced, Utility and Value and
is entitled to receive a fee from each Fund  calculated on the average daily net
assets of each  Fund at a rate  based on the total  assets of the  mutual  funds
administered  by Evergreen Asset for which FUNB or Evergreen Asset also serve as
investment adviser, calculated in accordance with the following schedule:       

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 .0100% of the first $7  billion;  .0075% on the next $3  billion; .0050% on the
next $15  billion;  and  .0040% on assets  in excess of $25  billion.  The total
assets of the mutual funds  administered  by Evergreen Asset for which Evergreen
Asset, FUNB or Keystone serve as investment adviser were approximately  $_______
billion as of February 28, 1997.                                                

DISTRIBUTION PLANS  

         Reference is made to "Management of the Funds - Distribution  Plans and
Agreements" in the Prospectus of each Fund for additional  disclosure  regarding
the Funds'  distribution  arrangements.  Distribution fees are accrued daily and
paid  monthly on the Class A, B and C shares and are charged as class  expenses,
as accrued. The distribution fees attributable to the Class B shares and Class C
shares are  designed  to permit an investor  to  purchase  such  shares  through
broker-dealers  without the assessment of a front-end sales charge,  and, in the
case of Class C shares,  without the  assessment of a contingent  deferred sales
charge  after  the  first  year  following  purchase,  while  at the  same  time
permitting the Distributor to compensate  broker-dealers  in connection with the
sale of such  shares.  In this regard the purpose and  function of the  combined
contingent  deferred sales charge and  distribution  services fee on the Class B
shares  and the Class C  shares,  are the same as those of the  front-end  sales
charge and  distribution  fee with respect to the Class A shares in that in each
case the sales charge and/or  distribution  fee provide for the financing of the
distribution of the Fund's shares.                                              

         Under the Rule 12b-1  Distribution Plans that have been adopted by each
Fund with  respect  to each of its Class A,  Class B and Class C shares  (each a
"Plan" and  collectively,  the "Plans"),  the Treasurer of each Fund reports the
amounts  expended  under the Plan and the purposes  for which such  expenditures
were made to the Trustees of each Trust for their  review on a quarterly  basis.
Also, each Plan provides that the selection and nomination of the  disinterested
Trustees are committed to the discretion of such disinterested  Trustees then in
office.                                                                         

         Each Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services  to the  Distributor;  the  latter  may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.     

         Growth and Income, Income and Growth,  American Retirement,  Small Cap,
Foundation  and Tax  Strategic  commenced  offering  Class A, B or C  shares  on
January  3, 1995.  Each Plan with  respect to such  Funds  became  effective  on
December 30, 1994 and was  initially  approved by the sole  shareholder  of each
Class of shares of each Fund with  respect  to which a Plan was  adopted on that
date and by the  unanimous  vote of the  Trustees of each Trust,  including  the
disinterested  Trustees voting separately,  at a meeting called for that purpose
and held on December 13, 1994. The Distribution Agreements between each Fund and
the Distributor  pursuant to which distribution fees are paid under the Plans by
each Fund with  respect  to its  Class A,  Class B and Class C shares  were also
approved at the December 13, 1994 meeting by the unanimous vote of the Trustees,
including the disinterested Trustees voting separately.                         

         Each Plan and  Distribution  Agreement  will  continue  in  effect  for
successive  twelve-month  periods  provided,  however,  that such continuance is
specifically approved at least annually by the Trustees of each Trust or by vote
of the holders of a majority of the outstanding voting securities of that       

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Class and, in either case,  by a majority of the  disinterested  Trustees of the
Trust.                                                                          

         Prior to July 8, 1995,  Federated  Securities  Corp.,  a subsidiary  of
Federated Investors,  served as the distributor for Balanced,  Utility and Value
as well as other  portfolios of Evergreen  Investment  Trust.  The  Distribution
Agreements between each Fund and the Distributor  pursuant to which distribution
fees are paid under the Plans by each Fund with  respect to its Class A, Class B
and Class C shares were approved on April 20, 1995 by the unanimous  vote of the
Trustees including the disinterested Trustees voting separately.                

         The  Plans  permit  the  payment  of fees to  brokers  and  others  for
distribution   and   shareholder-related    administrative   services   and   to
broker-dealers,    depository   institutions,   financial   intermediaries   and
administrators  for  administrative  services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide  distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate  administrators  to render  administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The  administrative  services are provided by a representative who has knowledge
of the shareholder's  particular  circumstances and goals, and include,  but are
not limited to providing  office space,  equipment,  telephone  facilities,  and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial  to  establish  and  maintain   shareholder   accounts  and  records;
processing  purchase and redemption  transactions  and automatic  investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares;  assisting  clients in changing dividend options,
account  designations,  and addresses;  and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.           

         In addition to the Plans, Balanced, Utility and Value have each adopted
a Shareholder  Services Plan whereby  shareholder  servicing  agents may receive
fees from the Fund for providing services which include, but are not limited to,
distributing   prospectuses  and  other   information,   providing   shareholder
assistance, and communicating or facilitating purchases and redemptions of Class
B and Class C shares of the Fund.                                               

         In the event that a Plan or Distribution Agreement is terminated or not
continued  with  respect to one or more Classes of a Fund,  (i) no  distribution
fees (other than current  amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution   Agreement  not  previously  recovered  by  the  Distributor  from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.                                                         

         All material  amendments to any Plan or Distribution  Agreement must be
approved  by a vote of the  Trustees  of a Trust or the  holders  of the  Fund's
outstanding voting  securities,  voting separately by Class, and in either case,
by a majority of the disinterested  Trustees, cast in person at a meeting called
for the  purpose  of  voting  on such  approval;  and any  Plan or  Distribution
Agreement  may not be amended in order to increase  materially  the costs that a
particular  Class  of  shares  of a  Fund  may  bear  pursuant  to the  Plan  or
Distribution  Agreement without the approval of a majority of the holders of the
outstanding  voting  shares of the Class  affected.  With  respect to  Balanced,
Utility,  and Value,  amendments  to the  Shareholder  Services  Plan  require a
majority vote of the disinterested Trustees but do not require a shareholders   

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vote.  Any Plan,  Shareholder  Services  Plan or  Distribution  Agreement may be
terminated  (a) by a Fund without  penalty at any time by a majority vote of the
holders of the outstanding  voting  securities of the Fund, voting separately by
Class  or by a  majority  vote  of  the  disinterested  Trustees,  or (b) by the
Distributor.  To terminate any Distribution  Agreement,  any party must give the
other parties 60 days' written  notice;  to terminate a Plan only, the Fund need
give no notice to the  Distributor.  Any  Distribution  Agreement will terminate
automatically in the event of its assignment.                                   

       Income and Growth, Growth and Income, American Retirement, Small Cap,
Foundation and Tax Strategic incurred the following Distribution Services Plans 
and Shareholder Services fees:                                                  

Distribution Services Fees:                                                     

INCOME AND GROWTH.  For the fiscal period from January 3, 1995  (commencement of
class  operations)  through January 31, 1995, the fiscal years ended January 31,
1996 and 1997,  $7,  $4,915  and  $___________  on behalf of its Class A shares,
$126,  $46,636 and  $___________,  respectively on behalf of its Class B shares,
and $7, $1,516 and $________, respectively on behalf of its Class C shares.     

GROWTH AND INCOME.  For the fiscal period from January 3,1995  (commencement  of
class  operations)  through December 31, 1995 and the fiscal year ended December
31,  1996,  $22,055  and  $__________,  respectively,  on  behalf of its Class A
shares,  $159,114  and  $___________,  respectively,  on  behalf  of its Class B
shares,  and  $6,902  and  $_________,  respectively,  on  behalf of its Class C
shares.                                                                         

AMERICAN RETIREMENT.  For the fiscal period from January 3,1995 (commencement of
class  operations)  through December 31, 1995 and the fiscal year ended December
31, 1996,  $659 and  $_________,  respectively,  on behal of its Class A shares,
$9,137 and $_________,  respectively,  on behalf of its Class B shares, and $187
and $________, respectively, on behalf of its Class C shares.                   

SMALL CAP.  For the fiscal  period from January 3, 1995  (commencement  of class
operations)  through  December  31, 1995 and the fiscal year ended  December 31,
1996, $340 and $________,  respectively, on behalf of its Class A shares, $1,298
and  $_______,  respectively,  on behalf  of its  Class B  shares,  and $111 and
$_______, respecively, on behalf of its Class C shares.                         

FOUNDATION.  For the fiscal period from January 3, 1995  (commencement  of class
operations)  through  December  31, 1995 and the fiscal year ended  December 31,
1996,  $116,677 and  $_________,  respectively  on behalf of its Class A shares,
$972,541 and $____________,  respectively,  on behalf of its Class B shares, and
$37,823 and $____________, respectively, on behalf of its Class C shares.       

TAX STRATEGIC. For the fiscal period from January 3, 1995 (commencement of class
operations)  through  December  31, 1995 and the fiscal year ended  December 31,
1996,  $2,582  and  $________,  respectively,  on  behalf of its Class A shares,
$21,725  and  $__________,  respectively,  on behalf of its Class B shares,  and
$1,292 and $___________, respectively, on behalf of its Class C shares.         

Shareholder Services Fees:                                                      

INCOME AND GROWTH.  For the fiscal period from January 3, 1995  (commencement of
class  operations)  through January 31, 1995, the fiscal years ended January 31,
1996 and 1997, shareholder services fees on behalf of $42, $15,546 and          

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$__________,  respectively,  on behalf of its Class B shares,  and $3,  $505 and
$____________, respectively, on behalf of its Class C shares.                   

GROWTH AND INCOME.  For the fiscal period from January 3, 1995  (commencement of
class  operations)  through December 31, 1995 and the fiscal year ended December
31, 1996, shareholder services fees of $53,139 and $___________ on behalf of its
Class B shares,  and $2,301  and  $___________,  respectively,  on behalf of its
Class C shares.                                                                 

AMERICAN RETIREMENT. For the fiscal period from January 3, 1995 (commencement of
class  operations)  through December 31, 1995 and the fiscal year ended December
31, 1996, $3,045 and $_________,  respectively, on behalf of its Class B shares,
and $62 and $________, respectively, on behalf of its Class C shares.           

SMALL CAP.  For the fiscal  period from January 3, 1995  (commencement  of class
operations)  through  December  31, 1995 and the fiscal year ended  December 31,
1996, $433 and $_______,  respectively, on behalf of its Class B shares, and $37
and $_______, respectively, on behalf of its Class C shares.                    

FOUNDATION.  For the fiscal period from January 3, 1995  (commencement  of class
operations)  through  December  31, 1995 and the fiscal year ended  December 31,
1996, $324,180 and $____________, respectively, on behalf of its Class B shares,
and $12,608 and $____________, respectively, on behalf of its Class C shares.   

TAX STRATEGIC. For the fiscal period from January 3, 1995 (commencement of class
operations)  through  December  31, 1995 and the fiscal year ended  December 31,
1996, $7,242 and $__________, respectively, on behalf of its Class B shares, and
$431 and $___________, respectively, on behalf of its Class C shares.           

         Balanced,   Value  and  Utility  incurred  the  following  Distribution
Services Plans and Shareholder Services Plans fees:                             

Distribution Services Fees:                                                     

BALANCED. For the fiscal years ended December 31, 1994, 1995 and 1996, $102,621,
$102,400 and $________, respectively, on behalf of Class A shares, and $670,202,
$784,084  and  $________,  respectively,  on behalf  of Class B shares;  for the
period from September 2, 1994 (commencement of operations) to December 31, 1994,
and the fiscal years ended December 31, 1995 and 1996, $310, $1,811 and $______,
respectively, on behalf of Class C shares.                                      

VALUE.  For the fiscal years ended December 31, 1994,  1995 and 1996,  $473,347,
$603,896 and $_______,  respectively, on behalf of Class A shares, and $621,330,
$916,221  and  $________,  respectively,  on behalf  of Class B shares;  for the
period from September 2, 1994 (commencement of operations) to December 31, 1994,
and the fiscal years ended December 31, 1995 and 1996, $716, $4,798 and $______,
respectively, on behalf of Class C shares.                                      

UTILITY.  For the fiscal years ended December 31, 1994,  1995 and 1996,  $9,658,
$133,582 and $________, respectively, on behalf of Class A shares, and $169,007,
$234,357  and  $________,  respectively,  on behalf  of Class B shares;  for the
period from September 2, 1994 (commencement of operations) to December 31, 1994,
and the  fiscal  years  ended  December  31,  1995 and 1996,  $232,  $1,271  and
$_______, respectively, on behalf of Class C shares.                            

Shareholder Services Plans fees:                                                

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BALANCED.  For the fiscal years ended December 31, 1994, 1995 and 1996, $83,641,
$261,361 and $_______, respectively, on behalf of Class B shares, and $103, $604
and $________, respectively, on behalf of Class C shares.                       

UTILITY.  For the fiscal years ended December 31, 1994, 1995 and 1996,  $24,141,
$78,119 and $_______,  respectively,  on behalf of Class B shares, and $77, $424
and $_________, respectively, on behalf of Class C shares.                      

VALUE.  For the fiscal years ended  December 31, 1994,  1995 and 1996,  $83,225,
$305,407 and $___________,  respectively, on behalf of Class B shares, and $239,
$1,599 and $__________, respectively, on behalf of Class C shares.              

   ALLOCATION OF BROKERAGE

         Decisions  regarding  each Fund's  portfolio  are made by its  Adviser,
subject to the supervision and control of the Trustees.  Orders for the purchase
and sale of  securities  and other  investments  are placed by employees of each
Fund's Adviser. In general,  the same individuals perform the same functions for
the other funds  managed by each  Adviser.  A Fund will not effect any brokerage
transactions  with any broker or dealer  affiliated  directly or indirectly with
the  Adviser  unless  such  transactions  are fair  and  reasonable,  under  the
circumstances, to the Fund's shareholders.  Circumstances that may indicate that
such  transactions  are  fair  or  reasonable  include  the  frequency  of  such
transactions,  the selection  process and the commissions  payable in connection
with such transactions.                                                         

         A substantial portion of the transactions in equity securities for each
Fund will occur on domestic stock  exchanges.  Transactions  on stock  exchanges
involve the payment of brokerage commissions. In transactions on stock exchanges
in the United States, these commissions are negotiated,  whereas on many foreign
stock exchanges these commissions are fixed. In the case of securities traded in
the foreign and domestic  over-the-counter markets, there is generally no stated
commission,  but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market  maker,  although  the Fund may place an  over-the-counter  order  with a
broker-dealer  if a  better  price  (including  commission)  and  execution  are
available.                                                                      

         It is anticipated  that most purchase and sale  transactions  involving
fixed income  securities will be with the issuer or an underwriter or with major
dealers in such securities acting as principals.  Such transactions are normally
on a net basis and  generally do not involve  payment of brokerage  commissions.
However,  the cost of securities  purchased from an underwriter usually includes
commission  paid by the  issuer  to the  underwriter.  Purchases  or sales  from
dealers will normally reflect the spread between bid and ask prices.            

         In  selecting  firms to effect  securities  transactions,  the  primary
consideration  of each Fund  shall be  prompt  execution  at the most  favorable
price.  Each  Adviser  will  also  consider  such  factors  as the  price of the
securities  and the size and  difficulty  of  execution  of the order.  If these
objectives  may be met with more than one firm,  the Adviser will also  consider
the  availability  of  statistical  and  investment  data and economic facts and
opinions  helpful to the Fund. To the extent that receipt of these  services for
which the Adviser or its affiliates  might otherwise have paid, it would tend to
reduce their expenses.                                                          

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         Under Section 11(a) of the Securities Exchange Act of 1934, as amended,
and the rules  adopted  thereunder  by the SEC,  Lieber may be  compensated  for
effecting  transactions  in  portfolio  securities  for  a  fund  on a  national
securities  exchange  provided the  conditions  of the rules are met.  Each Fund
advised by Evergreen Asset has entered into an agreement with Lieber authorizing
Lieber to retain  compensation for brokerage  services.  In accordance with such
agreement, it is contemplated that Lieber, a member of the New York and American
Stock Exchanges, will, to the extent practicable,  provide brokerage services to
Growth and Income, Income and Growth, American Retirement, Small Cap, Foundation
and Tax Strategic  with respect to  substantially  all  securities  transactions
effected on the New York and American Stock Exchanges. In such transactions, the
Adviser will seek the best execution at the most favorable  price while paying a
commission  rate no higher than that offered to other  clients of Lieber or that
which can be reasonably expected to be offered by an unaffiliated  broker-dealer
having comparable  execution  capability in a similar  transaction.  However, no
Fund will engage in transactions in which Lieber would be a principal.  While no
Fund advised by Evergreen Asset contemplates any ongoing arrangements with other
brokerage  firms,  brokerage  business  may be given  from time to time to other
firms. In addition,  the Trustees have adopted procedures pursuant to Rule 17e-1
under the 1940 Act to ensure that all brokerage  transactions with Lieber, as an
affiliated broker-dealer, are fair and reasonable.                              

         Neither  Total  Return  nor  Keystone  intends  on  placing  securities
transactions  with any  particular  broker.  The Fund's  Board of  Trustees  has
determined, however, that the Fund may consider sales of Fund shares as a factor
in the selection of brokers to execute  portfolio  transactions,  subject to the
requirements of best execution  described above. The Fund expects that purchases
and sales of securitis will usually be effected through  brokerage  transactions
for which commissions are payable.  Purchases from underwriters will include the
underwriting  commission or concession,  and purchases  from dealers  serving as
market makers will include a dealer's  mark-up or reflect a dealer's  mark-down.
Where transactions are made in the  over-the-counter  market, the Fund will deal
with  primary  market  makers  unless  more   favorable   prices  are  otherwise
obtainable.  Under its Advisory  Agreement,  Keystone is permitted to pay higher
brokerage  commissions  for brokerage and research  services in accordance  with
Section  28(e) of the  Securities  Exchange Act of 1934.  In the event  Keystone
follows such a practice,  it will do so on a basis that is fair and equitable to
the Fund.                                                                       

         Any profits from brokerage  commissions  accruing to Lieber as a result
of portfolio transactions for the Growth and Income, Income and Growth, American
Retirement,  Small Cap,  Foundation and Tax Strategic will accrue to FUNB and to
its ultimate  parent,  First Union.  The Investment  Advisory  Agreements do not
provide for a reduction  of the  Adviser's  fee with  respect to any Fund by the
amount of any profits earned by Lieber from brokerage  commissions  generated by
portfolio transactions of the Fund.                                             

         The following chart shows:  (1) the brokerage  commissions paid by each
Fund advised by Evergreen  Asset during their last three fiscal  years;  (2) the
amount and  percentage  thereof paid to Lieber;  and (3) the  percentage  of the
total  dollar  mount  of  all  portfolio  transactions  with  respect  to  which
commissions have been paid which were effected by Lieber:                       

INCOME AND GROWTH                Year Ended        Year Ended      Year Ended   
                           1/31/97           1/31/96         1/31/95

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Total Brokerage                                    $3,255,068      $3,755,606   
Commissions                                                                     
Dollar Amount and %                                $2,982,640      $3,465,900   
paid to Lieber                                         92%             92%      
% of Transactions                                                               
Effected by Lieber                                     90%             97%      

FOUNDATION                       Year Ended        Year Ended      Year Ended   
                            12/31/96          12/31/95        12/31/94
Total Brokerage                                    $393,121        $282,250     
Commissions                                                                     
Dollar Amount and %                                $380,226        $  276,985   
paid to Lieber                                         98%             98%      
% of Transactions                                                               
Effected by Lieber                                     97%             98%      

SMALL CAP                        Year Ended        Year Ended      Period Ended 
                            12/31/96          12/31/95        12/31/94
Total Brokerage                                    $5,968          $ 3,998      
Commissions                                                                     
Dollar Amount and %                                $4,863          $ 3,618      
paid to Lieber                                        81%                90%    
% of Transactions                                                               
Effected by Lieber                                    77%                90%    

GROWTH AND INCOME                Year Ended        Year Ended      Year Ended   
                            12/31/96          12/31/95        12/31/94
Total Brokerage                                    $210,923        $80,871      
Commissions                                                                     
Dollar Amount and %                                $160,659        $71,721      
paid to Lieber                                        76%             89%       
% of Transactions                                                               
Effected by Lieber                                    74%             88%       

AMERICAN RETIREMENT              Year Ended        Year Ended      Year Ended   
                            12/31/96          12/31/95        12/31/94
Total Brokerage                                    $57,216         $203,922     
Commissions                                                                     
Dollar Amount and %                                $53,276         $202,838     
paid to Lieber                                       93%              99%       
% of Transactions                                                               
Effected by Lieber                                   82%              99%       

TAX STRATEGIC                    Year Ended        Year Ended      Period Ended 
                            12/31/96          12/31/95        12/31/94
Total Brokerage                                    $37,374         $24,872      
Commissions                                                                     
Dollar Amount and %                                $35,954         $24,072      
paid to Lieber                                        96%              97%      
% of Transactions                                                               
Effected by Lieber                                    94%              98%      

         Income and Growth  changed its fiscal year end from March 31 to January
31 during the first period  covered by the  foregoing  table.  Accordingly,  the
commissions  reported in the  foregoing  table reflect for Income and Growth the
period from April 1, 1994 to January 31, 1995.                                  

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         Balanced,  Value,  Utility and Total Return did not pay any commissions
to Lieber. For the fiscal years ended December 31, 1996, 1995 and 1994, Balanced
paid $________, $615,041 and $450,569, respectively, in commissions on brokerage
transactions.  For the fiscal year ended December 31, 1996 and 1995, and for the
period from January 4, 1994  (commencement  of operations) to December 31, 1994,
Utility paid $___________, $272,806 and $66,294, respectively, in commissions on
brokerage  transactions.  For the fiscal years ended December 31, 1996, 1995 and
1994, Value paid $_________________, $1,644,077 and $1,437,338, respectively, in
commissions on brokerage  transactions.  For the fiscal years ended November 30,
1996,  1995 and 1994,  Total  Return paid  $___________,  $92,665  and  $65,514,
respectively, in commissions on brokerage transactions.                         

ADDITIONAL TAX INFORMATION
       (See also "Other Information - Dividends,
 Distributions and Taxes" in each Fund's Prospectus)

         Each Fund has  qualified  and  intends to  continue  to qualify for and
elect the tax treatment  applicable to regulated  investment  companies  ("RIC")
under  Subchapter  M of the  Internal  Revenue  Code of 1986,  as  amended  (the
"Code").  (Such  qualification  does not involve  supervision  of  management or
investment  practices or policies by the Internal Revenue  Service.) In order to
qualify as a regulated  investment company, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends,  interest, payments with
respect  to  proceeds  from  securities  loans,  gains  from  the  sale or other
disposition  of securities  or foreign  currencies  and other income  (including
gains from options,  futures or forward  contracts)  derived with respect to its
business of investing in such securities;  (b) derive less than 30% of its gross
income from the sale or other  disposition  of securities,  options,  futures or
forward  contracts  (other  than  those  on  foreign  currencies),   or  foreign
currencies  (or  options,  futures or forward  contracts  thereon)  that are not
directly related to the RIC's principal  business of investing in securities (or
options and futures with respect  thereto) held for less than three months;  and
(c)  diversify  its holdings so that,  at the end of each quarter of its taxable
year,  (i) at least  50% of the  market  value of the  Fund's  total  assets  is
represented by cash, U.S. government  securities and other securities limited in
respect of any one issuer,  to an amount not greater than 5% of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the  securities of
any one issuer (other than U.S.  Government  securities  and securities of other
regulated  investment  companies).  By so  qualifying,  a Fund is not subject to
Federal  income tax if it timely  distributes  its  investment  company  taxable
income and any net realized capital gains. A 4% nondeductible excise tax will be
imposed  on a  Fund  to  the  extent  it  does  not  meet  certain  distribution
requirements  by the end of each calendar year.  Each Fund  anticipates  meeting
such distribution requirements.                                                 

         Dividends  paid  by a  Fund  from  investment  company  taxable  income
generally  will be taxed to the  shareholders  as  ordinary  income.  Investment
company  taxable  income  includes  net  investment   income  and  net  realized
short-term  gains (if  any).  Any  dividends  received  by a Fund from  domestic
corporations will constitute a portion of the Fund's gross investment income. It
is  anticipated  that this portion of the  dividends  paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction  for  corporations.  Shareholders  will be  informed of the amounts of
dividends which so qualify.                                                     

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         Distributions  of the  excess of net  long-term  capital  gain over net
short-term  capital  loss are taxable to  shareholders  (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders who are not exempt from tax as ordinary income. Such
distributions are not eligible for the  dividends-received  deduction.  Any loss
recognized  upon the sale of  shares  of a Fund  held by a  shareholder  for six
months or less will be treated as a  long-term  capital  loss to the extent that
the shareholder  received a long-term  capital gain distribution with respect to
such shares.                                                                    

         Distributions  of  investment   company  taxable  income  and  any  net
short-term  capital gains will be taxable as ordinary  income as described above
to  shareholders  (who are not exempt  from tax),  whether  made in shares or in
cash.  Shareholders  electing to receive distributions in the form of additional
shares will have a cost basis for Federal  income tax  purposes in each share so
received  equal to the net asset value of a share of a Fund on the  reinvestment
date.                                                                           

         Distributions by each Fund result in a reduction in the net asset value
of the Fund's shares.  Should a distribution  reduce the net asset value below a
shareholder's  cost basis,  such distribution  nevertheless  would be taxable as
ordinary income or capital gain as described above to shareholders  (who are not
exempt from tax), even though, from an investment standpoint,  it may constitute
a return of capital. In particular,  investors should be careful to consider the
tax  implications  of buying shares just prior to a  distribution.  The price of
shares   purchased  at  that  time  includes  the  amount  of  the   forthcoming
distribution.  Those  purchasing just prior to a distribution  will then receive
what is in  effect  a  return  of  capital  upon  the  distribution  which  will
nevertheless be taxable to shareholders subject to taxes.                       

         Upon a sale or exchange of its shares,  a  shareholder  will  realize a
taxable gain or loss  depending  on its basis in the shares.  Such gains or loss
will be treated as a capital  gain or loss if the shares are  capital  assets in
the investor's hands and will be a long-term  capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent shares disposed of are replaced within
a period of sixty-one days  beginning  thirty days before and ending thirty days
after the shares are disposed of. Any loss realized by a shareholder on the sale
of  shares of the Fund held by the  shareholder  for six  months or less will be
disallowed  to the  extent of any  exempt  interest  dividends  received  by the
shareholder with respect to such shares, and will be treated for tax purposes as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.                        

         All distributions, whether received in shares or cash, must be reported
by each  shareholder on his or her Federal income tax return.  Each  shareholder
should  consult his or her own tax adviser to determine  the state and local tax
implications of Fund distributions.                                             

         Shareholders who fail to furnish their taxpayer  identification numbers
to a Fund and to certify as to its  correctness  and certain other  shareholders
may be subject to a 31% Federal  income tax backup  withholding  requirement  on
dividends,  distributions of capital gains and redemption  proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these                                             

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shareholders,  whether taken in cash or reinvested in additional shares, and any
redemption  proceeds  will be reduced by the amounts  required  to be  withheld.
Investors may wish to consult their own tax advisers about the  applicability of
the backup withholding provisions.                                              

          The foregoing discussion relates solely to U.S. Federal income tax law
as  applicable  to U.S.  persons  (i.e.,U.S.  citizens  and  residents  and U.S.
domestic  corporations,  partnerships,  trusts and estates). It does not reflect
the  special tax  consequences  to certain  taxpayers  (e.g.,  banks,  insurance
companies,  tax exempt  organizations  and foreign  persons).  Shareholders  are
encouraged  to  consult  their own tax  advisers  regarding  specific  questions
relating to Federal,  state and local tax consequences of investing in shares of
a Fund. Each  shareholder who is not a U.S. person should consult his or her tax
adviser  regarding the U.S. and foreign tax  consequences of ownership of shares
of a Fund, including the possibility that such a shareholder may be subject to a
U.S. withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.                     

Special Tax Considerations for Tax Strategic                                    

         With respect to Tax Strategic,  to the extent that the Fund distributes
exempt interest dividends to a shareholder, interest on indebtedness incurred or
continued  by such  shareholder  to purchase or carry  shares of the Fund is not
deductible.  Furthermore,  entities or persons who are  "substantial  users" (or
related  persons) of facilities  financed by "private  activity"  bonds (some of
which were  formerly  referred  to as  "industrial  development"  bonds)  should
consult their tax advisers before  purchasing  shares of the Fund.  "Substantial
user" is defined generally as including a "non-exempt person" who regularly uses
in its trade or  business a part of a facility  financed  from the  proceeds  of
industrial development bonds.                                                   

         The percentage of the total  dividends paid by the Fund with respect to
any taxable year that  qualifies as exempt  interest  dividends will be the same
for all shareholders of the Fund receiving  dividends with respect to such year.
If a shareholder  receives an exempt interest dividend with respect to any share
and such  share  has been held for six  months or less,  any loss on the sale or
exchange of such share will be disallowed  to the extent of the exempt  interest
dividend amount.                                                                

           NET ASSET VALUE

         The  following  information  supplements  that set forth in each Fund's
Prospectus  under the subheading  "How to Buy Shares - How the Funds Value Their
Shares" in the Section entitled "Purchase and Redemption of Shares".            

         The public  offering  price of shares of a Fund is its net asset  value
plus,  in the case of Class A shares,  a sales charge which will vary  depending
upon the purchase alternative chosen by the investor, as more fully described in
the  Prospectus.  See  "Purchase  of Shares - Class A Shares -  Front-End  Sales
Charge Alternative". On each Fund business day on which a purchase or redemption
order is received by a Fund and  trading in the types of  securities  in which a
Fund invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance  with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange")  (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its                      

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liabilities, by the total number of its shares then outstanding. A Fund business
day is any  weekday,  exclusive  of national  holidays on which the  Exchange is
closed and Good Friday.                                                         

         For each Fund, securities for which the primary market is on a domestic
or foreign exchange and  over-the-counter  securities admitted to trading on the
NASDAQ  National  List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked prices and portfolio bonds are presently valued by
a recognized  pricing  service when such prices are believed to reflect the fair
value of the security.  Over-the-counter  securities  not included in the NASDAQ
National List for which market  quotations are readily available are valued at a
price quoted by one or more brokers.  If accurate  quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.                                                                       

         The  respective  per share net  asset  values of the Class A,  Class B,
Class C and Class Y shares are  expected  to be  substantially  the same.  Under
certain  circumstances,  however,  the per share net asset values of the Class B
and Class C shares may be lower than the per share net asset  value of the Class
A shares (and, in turn, that of Class A shares may be lower than Class Y shares)
as a result of the greater daily expense accruals, relative to Class A and Class
Y shares,  of Class B and Class C shares relating to distribution  services fees
(and, with respect to Balanced, Utility and Value, shareholder service fee) and,
to the extent applicable,  transfer agency fees and the fact that Class Y shares
bear no additional distribution,  shareholder service or transfer agency related
fees.  While it is  expected  that,  in the event each Class of shares of a Fund
realizes net  investment  income or does not realize a net operating  loss for a
period, the per share net asset values of the four Classes will tend to converge
immediately  after the  payment of  dividends,  which  dividends  will differ by
approximately the amount of the expense accrual  differential among the Classes,
there is no  assurance  that  this  will be the  case.  In the event one or more
Classes of a Fund  experiences a net operating loss for any fiscal  period,  the
net asset value per share of such Class or Classes  will remain  lower than that
of Classes that incurred lower expenses for the period.                         

         To the extent  that any Fund  invests in  non-U.S.  dollar  denominated
securities,  the value of all assets and  liabilities  will be  translated  into
United  States  dollars at the mean between the buying and selling  rates of the
currency in which such a security is  denominated  against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees will monitor,  on an ongoing  basis,  a Fund's method of valuation.
Trading in  securities  on European  and Far Eastern  securities  exchanges  and
over-the-counter markets is normally completed well before the close of business
on  each  business  day  in New  York.  In  addition,  European  or Far  Eastern
securities  trading  generally or in a particular  country or countries  may not
take place on all business days in New York.                                    

         Furthermore,  trading  takes place in various  foreign  markets on days
which are not business  days in New York and on which the Fund's net asset value
is not calculated.  Such calculation does not take place  contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such  calculation.  Events affecting the values of portfolio  securities that
occur between the time their prices are determined and the close of the Exchange
will not be  reflected  in a Fund's  calculation  of net asset value  unless the
Trustees deem that the particular event would materially affect net asset value,
in which case an adjustment will be made. Securities transactions               

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are  accounted  for on the  trade  date,  the date  the  order to buy or sell is
executed.   Dividend  income  and  other   distributions  are  recorded  on  the
ex-dividend  date,  except  certain  dividends  and  distributions  from foreign
securities  which  are  recorded  as soon  as the  Fund is  informed  after  the
ex-dividend date.                                                               

    PURCHASE OF SHARES

         The  following  information  supplements  that set forth in each Fund's
Prospectus  under the heading  "Purchase  and  Redemption of Shares - How To Buy
Shares."                                                                        

General                                                                         

         Shares of each Fund will be  offered on a  continuous  basis at a price
equal to their net  asset  value  plus an  initial  sales  charge at the time of
purchase (the "front-end sales charge alternative"),  with a contingent deferred
sales charge (the deferred sales charge alternative"),  or without any front-end
sales charge,  but with a contingent  deferred  sales charge imposed only during
the first year after  purchase  (the  "level-load  alternative"),  as  described
below.  Class Y shares which, as described below, are not offered to the general
public, are offered without any front-end or contingent sales charges. Shares of
each Fund are offered on a continuous basis through (i) investment  dealers that
are members of the National  Association  of Securities  Dealers,  Inc. and have
entered  into  selected  dealer  agreements  with  the  Distributor   ("selected
dealers"),  (ii) depository  institutions and other financial  intermediaries or
their  affiliates,  that have entered into selected  agent  agreements  with the
Distributor  ("selected  agents"),  or (iii) the  Distributor.  The  minimum for
initial  investment is $1,000;  there is no minimum for subsequent  investments.
The  subscriber  may use the  Share  Purchase  Application  available  from  the
Distributor  for his or her  initial  investment.  Sales  personnel  of selected
dealers  and  agents   distributing  a  Fund's  shares  may  receive   differing
compensation for selling Class A, Class B or Class C shares.                    

         Investors  may purchase  shares of a Fund in the United  States  either
through selected  dealers or agents or directly through the Distributor.  A Fund
reserves  the right to suspend  the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.                   

         Each  Fund  will  accept  unconditional  orders  for its  shares  to be
executed  at the  public  offering  price  equal  to the net  asset  value  next
determined (plus for Class A shares, the applicable sales charges), as described
below.  Orders received by the Distributor prior to the close of regular trading
on the  Exchange on each day the  Exchange is open for trading are priced at the
net asset value  computed as of the close of regular  trading on the Exchange on
that day (plus for Class A shares the sales charges).  In the case of orders for
purchase of shares placed  through  selected  dealers or agents,  the applicable
public offering price will be the net asset value as so determined,  but only if
the  selected  dealer or agent  receives the order prior to the close of regular
trading on the Exchange and transmits it to the  Distributor  prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is  responsible  for  transmitting  such  orders  by 5:00  p.m.  If the
selected  dealer or agent  fails to do so,  the  investor's  right to that day's
closing  price must be settled  between the investor and the selected  dealer or
agent.  If the  selected  dealer or agent  receives the order after the close of
regular trading on the Exchange,  the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.                                                            

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         Following the initial  purchase of shares of a Fund, a shareholder  may
place orders to purchase  additional  shares by telephone if the shareholder has
completed the appropriate portion of the Share Purchase Application. Payment for
shares purchased by telephone can be made only by Electronic Funds Transfer from
a bank account  maintained by the  shareholder at a bank that is a member of the
National  Automated  Clearing  House  Association  ("ACH").  If a  shareholder's
telephone  purchase request is received before 3:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically placed the same Fund
business day for  non-money  market  funds,  and two days  following the day the
order is received for money market funds,  and the  applicable  public  offering
price will be the public  offering price  determined as of the close of business
on such business day. Full and fractional  shares are credited to a subscriber's
account  in the  amount  of his or her  subscription.  As a  convenience  to the
subscriber,  and to avoid  unnecessary  expense  to a Fund,  stock  certificates
representing  shares of a Fund are not issued. This facilitates later redemption
and relieves the shareholder of the responsibility for and inconvenience of lost
or stolen certificates.                                                         

Alternative Purchase Arrangements                                               

         Each Fund issues four classes of shares: (i) Class A shares,  which are
sold to investors choosing the front-end sales charge alternative;  (ii) Class B
shares,  which  are  sold  to  investors  choosing  the  deferred  sales  charge
alternative;  (iii) Class C shares,  which are sold to  investors  choosing  the
level-load sales charge alternative;  and (iv) Class Y shares, which are offered
only to (a)  persons  who at or prior to  December  30,  1994 owned  shares in a
mutual fund advised by Evergreen Asset, (b) certain investment  advisory clients
of the Advisers and their affiliates,  and (c) institutional investors. The four
Classes  of  shares  each  represent  an  interest  in  the  same  portfolio  of
investments of the Fund, have the same rights and are identical in all respects,
except  that (I) only Class A, Class B and Class C shares are  subject to a Rule
12b-1 distribution fee, (II) Class B and Class C shares of Balanced, Utility and
Value are subject to a  shareholder  service fee,  (III) Class A shares bear the
expense of the  front-end  sales  charge and Class B and Class C shares bear the
expense of the  deferred  sales  charge,  (IV) Class B shares and Class C shares
each bear the  expense of a higher  Rule  12b-1  distribution  services  fee and
shareholder  service fee than Class A shares and, in the case of Class B shares,
higher  transfer  agency costs,  (V) with the exception of Class Y shares,  each
Class of each Fund has exclusive voting rights with respect to provisions of the
Rule 12b-1 Plan pursuant to which its distribution  services (and, to the extent
applicable,  shareholder  service) fee is paid which relates to a specific Class
and  other  matters  for  which  separate  Class  voting  is  appropriate  under
applicable  law,  provided that, if the Fund submits to a  simultaneous  vote of
Class A, Class B and Class C  shareholders  an  amendment to the Rule 12b-1 Plan
that would materially  increase the amount to be paid thereunder with respect to
the  Class A  shares,  the  Class A  shareholders  and the  Class B and  Class C
shareholders will vote separately by Class, and (VI) only the Class B shares are
subject to a conversion  feature.  Each Class has different exchange  privileges
and certain different shareholder service options available.                    

         The alternative purchase  arrangements permit an investor to choose the
method of  purchasing  shares  that is most  beneficial  given the amount of the
purchase,  the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services (and, to the
extent  applicable,  shareholder  service)  fee and  contingent  deferred  sales
charges on Class B shares prior to conversion, or the accumulated distribution  

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services  (and, to the extent  applicable,  shareholder  service) fee on Class C
shares,   would  be  less  than  the  front-end  sales  charge  and  accumulated
distribution  services fee on Class A shares  purchased at the same time, and to
what extent such  differential  would be offset by the higher  return of Class A
shares.  Class B and  Class C  shares  will  normally  not be  suitable  for the
investor who qualifies to purchase Class A shares at the lowest applicable sales
charge.  For this reason,  the Distributor  will reject any order (except orders
for Class B shares from certain  retirement  plans) for more than $2,500,000 for
Class B shares or $500,000 for Class C shares.                                  

         Class A shares are subject to a lower distribution  services fee and no
shareholder service fee and, accordingly,  pay correspondingly  higher dividends
per share  than  Class B shares or Class C shares.  However,  because  front-end
sales charges are deducted at the time of purchase, investors purchasing Class A
shares would not have all their funds invested initially and,  therefore,  would
initially own fewer shares. Investors not qualifying for reduced front-end sales
charges who expect to maintain their  investment for an extended  period of time
might  consider  purchasing  Class A shares because the  accumulated  continuing
distribution  (and, to the extent  applicable,  shareholder  service) charges on
Class B shares or Class C shares may exceed the front-end  sales charge on Class
A shares during the life of the investment.  Again, however, such investors must
weigh this consideration  against the fact that, because of such front-end sales
charges, not all their funds will be invested initially.                        

         Other  investors  might  determine,  however,  that  it  would  be more
advantageous  to purchase  Class B shares or Class C shares in order to have all
their funds invested initially,  although remaining subject to higher continuing
distribution services (and, to the extent applicable,  shareholder service) fees
and, in the case of Class B shares, being subject to a contingent deferred sales
charge for a six-year period.  For example,  based on current fees and expenses,
an investor  subject to the 4.75%  front-end  sales charge  imposed by Evergreen
Equity  and  Long-Term  Bond  Funds  would  have to hold  his or her  investment
approximately  seven  years for the Class B and  Class C  distribution  services
(and,  to the  extent  applicable,  shareholders  service)  fees,  to exceed the
front-end sales charge plus the accumulated distribution services fee of Class A
shares. In this example, an investor intending to maintain his or her investment
for a longer period might consider  purchasing Class A shares. This example does
not take into account the time value of money,  which further reduces the impact
of the Class B and Class C distribution services (and, to the extent applicable,
shareholder service) fees on the investment,  fluctuations in net asset value or
the effect of different performance assumptions.                                

         Those  investors  who  prefer  to  have  all of  their  funds  invested
initially  but may not wish to retain Fund shares for the six year period during
which Class B shares are subject to a contingent  deferred sales charge may find
it more advantageous to purchase Class C shares.                                

         With respect to each Fund, the Trustees have  determined that currently
no conflict of  interest  exists  between or among the Class A, Class B, Class C
and Class Y  shares.  On an  ongoing  basis,  the  Trustees,  pursuant  to their
fiduciary  duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.                                                           

Front-End Sales Charge Alternative--Class A Shares                              

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         The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.                                      

         Shares  issued  pursuant  to  the  automatic   reinvestment  of  income
dividends or capital gains  distributions  are not subject to any sales charges.
The Fund  receives  the  entire  net asset  value of its Class A shares  sold to
investors.  The  Distributor's  commission  is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission "reallowed"
to selected  dealers and agents.  The  Distributor  will  reallow  discounts  to
selected  dealers  and  agents  in the  amounts  indicated  in the  table in the
Prospectus.  In this  regard,  the  Distributor  may elect to reallow the entire
sales charge to selected  dealers and agents for all sales with respect to which
orders are placed with the Distributor.                                         

         Set forth below is an example of the method of  computing  the offering
price of the Class A shares of each Fund.  The  example  assumes a  purchase  of
Class A shares of a Fund  aggregating less than $100,000 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of each  Fund at the end of each  Fund's  latest  fiscal
year.                                                                           

                           Net        Per Share                   Offering
                        Asset      Sales                       Price
                            Value      Charge         Date         Per Share

Balanced                      $12.95     $0.65          12/31/96     $13.60     

Growth and Income             $22.53     $1.12          12/31/96     $23.65     

Income and Growth             $          $               1/31/97     $          

American Retirement           $13.86     $0.69          12/31/96     $14.55     

Small Cap                     $13.10     $0.65          12/31/96     $13.75     

Foundation                    $16.13     $0.80          12/31/96     $16.93     

Tax Strategic                 $13.50     $0.67          12/31/96     $14.17     

Utility                       $10.53     $.54           12/31/96     $11.10     

Value                         $20.57     $1.03          12/31/96     $21.60     

Total Return                                            11/30/96                

         Prior to  January  3, 1995,  shares of Growth  and  Income,  Income and
Growth,  American  Retirement,  Small Cap,  Foundation  and Tax  Strategic  were
offered  exclusively  on a  no-load  basis  and,  accordingly,  no  underwriting
commissions  were paid in respect of sales of shares of these  Funds or retained
by the  Distributor.  In  addition,  since  Class B and Class C shares  were not
offered by Growth and Income, Income and Growth, American Retirement, Small Cap,
Foundation or Tax Strategic prior to January 3, 1995,  contingent deferred sales
charges  have been paid to the  distributor  with  respect to Class B or Class C
shares only since January 3, 1995.                                              

        With respect to Balanced, Utility and Value, the following commissions
were paid to and amounts were retained by Federated Securities Corp. through    

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July 7, 1995, which until such date was the principal  underwriter of portfolios
of Evergreen  Investment  Trust. For the period from July 8 through December 31,
1995,  commissions  were  paid  to and  amounts  were  retained  by the  current
Distributor as noted below:                                                     

                          Year Ended     Period from     Period From
Year Ended                                                                      
                                12/31/96       7/8/95 to      1/1/95 to 12/31/94
     12/31/95       7/7/95
BALANCED                                                                        

Commissions Received              $15,844         $11,841         $605,000      
Commissions Retained              $ 1,731         $ 1,303          $12,000      

VALUE                                                                           

Commissions Received              $58,797         $56,058        1,003,000      
Commissions Retained              $ 6,615         $ 6,001          $36,000      

UTILITY                                                                         
Period from                                                                     

1/4/94 to                                                                       
12/31/94                                                                        
Commissions Received              $15,692         $20,958         $243,999      
Commissions Retained              $ 1,727         $ 2,228          $10,000      

         With  respect  to  Income  and  Growth,  Growth  and  Income,  American
Retirement,  Small Cap, Foundation and Tax Strategic,  the following commissions
were paid to and  amounts  were  retained  by the  Distributor  for the  periods
indicated:                                                                      

                             Year Ended     Year Ended      Period from 1/3/95
INCOME AND GROWTH             1/31/97        1/31/96         to 1/31/95         

Commissions Received                         $   98,890      $4,585             
Commissions Retained                         $   10,733        ---              

     Year Ended     Year Ended
GROWTH AND INCOME             12/31/96       12/31/95                           

Commissions Received                         $  326,249                         
Commissions Retained                         $   37,300                         

AMERICAN RETIREMENT                                                             

Commissions Received                         $   42,447                         

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Commissions Retained                         $    7,397                         

SMALL CAP                                                                       

Commissions Received                         $      778                         
Commissions Retained                         $      284                         

FOUNDATION                                                                      

Commissions Received                         $1,604,275                         
Commissions Retained                         $  178,885                         

TAX STRATEGIC                                                                   

Commissions Received                         $   28,976                         
Commissions Retained                         $    3,266                         

         Investors  choosing the front-end  sales charge  alternative  may under
certain   circumstances   be  entitled  to  pay  reduced  sales   charges.   The
circumstances  under  which such  investors  may pay reduced  sales  charges are
described below.                                                                

         Combined Purchase Privilege.  Certain persons may qualify for the sales
charge  reductions  by combining  purchases  of shares of one or more  Evergreen
Keystone  Funds other than the money market funds into a single  "purchase",  if
the resulting  "purchase"  totals at least $100,000.  The term "purchase" refers
to:(i) a single purchase by an individual, or to concurrent purchases,  which in
the aggregate are at least equal to the  prescribed  amounts,  by an individual,
his or her spouse and their children under the age of 21 years purchasing shares
for his,  her or their own  account(s);  (ii) a single  purchase by a trustee or
other fiduciary purchasing shares for a single trust, estate or single fiduciary
account  although  more  than one  beneficiary  is  involved;  or (iii) a single
purchase  for  the  employee  benefit  plans  of a  single  employer.  The  term
"purchase" also includes  purchases by any "company",  as the term is defined in
the 1940 Act, but does not include  purchases by any such company  which has not
been in existence for at least six months or which has no purpose other than the
purchase of shares of a Fund or shares of other registered  investment companies
at a discount.  The term "purchase"  does not include  purchases by any group of
individuals whose sole organizational nexus is that the participants therein are
credit  card  holders of a company,  policy  holders  of an  insurance  company,
customers of either a bank or broker-dealer or clients of an investment adviser.
A  "purchase"  may also  include  shares,  purchased  at the same time through a
single selected dealer or agent, of any Evergreen Keystone Fund. Currently,  the
Evergreen Keystone Funds include:                                               

Evergreen Trust:                                              
Evergreen Fund                              
Evergreen Aggressive Growth Fund            

Evergreen Equity Trust:                                       
Evergreen Global Real Estate Equity Fund    
Evergreen U.S. Real Estate Equity Fund      
Evergreen Global Leaders Fund               

The Evergreen Limited Market Fund, Inc.                       

Evergreen Growth and Income Fund                              

Evergreen Income and Growth Fund                              

The Evergreen American Retirement Trust:                      
The Evergreen American Retirement Fund      
Evergreen Small Cap Equity Income Fund      

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Evergreen Foundation Trust:                                   
Evergreen Foundation Fund                   
Evergreen Tax Strategic Foundation Fund     

Evergreen Municipal Trust:                                    
Evergreen Short-Intermediate Municipal Fund 
  Evergreen Short-Intermediate Municipal Fund-CA
     Evergreen Florida High Income Municipal Bond Fund
Evergreen Tax Exempt Money Market Fund      
        Evergreen Institutional Tax Exempt Money Market Fund

Evergreen Money Market Trust:                                 
Evergreen Money Market Fund                 
Evergreen Institutional Money Market Fund   
      Evergreen Institutional Treasury Money Market Fund
Evergreen Investment  Trust:                
Evergreen Emerging  Markets  Growth  Fund   
Evergreen International  Equity Fund        
Evergreen Balanced Fund                     
Evergreen Value Fund Evergreen  Utility Fund
Evergreen Short Intermediate   Bond  Fund   
Evergreen U.S. Government   Fund            
Evergreen Florida  Municipal  Bond  Fund    
Evergreen Georgia Municipal  Bond Fund      
 Evergreen North Carolina  Municipal Bond Fund
  Evergreen South  Carolina  Municipal Bond Fund
Evergreen Virginia  Municipal  Bond Fund    
Evergreen High Grade Tax Free Fund          
Evergreen Treasury Money Market Fund        

Evergreen Lexicon Fund:                                       
          Evergreen Intermediate Term Government Securities Fund
Evergreen Intermediate Term Bond Fund       

Evergreen Tax Free Trust:                                     
     Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax Free Income Fund   

Evergreen Variable Trust:                                     
Evergreen VA Fund                           
Evergreen VA Growth and Income Fund         
Evergreen VA Foundation Fund                
Evergreen VA Global Leaders Fund            
Evergreen VA Strategic Income Fund          
Evergreen VA Aggressive Growth Fund         

Keystone America Fund Family:                                 
Keystone Fund for Total Return              
         Keystone America Hartwell  Emerging Growth Fund, Inc.
Keystone Balanced Fund II                   
 Keystone Capital Preservation and Income Fund
Keystone Small  Company  Growth Fund II     
Keystone Fund of the Americas               
Keystone Global Opportunities Fund          
Keystone Government Securities Fund         
Keystone Intermediate Term Bond Fund        
Keystone Omega Fund                         
  Keystone Global Resources and Development Fund
Keystone Strategic Income Fund              
Keystone State Tax Free Fund                
Keystone State Tax Free Fund - Series II    
Keystone Tax Free Income Fund               
Keystone World Bond Fund                    

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         Prospectuses  for the Evergreen  Keystone Funds may be obtained without
charge by contacting the Distributor or the Advisers at the address or telephone
number shown on the front cover of this Statement of Additional Information.    

         Cumulative  Quantity  Discount (Right of  Accumulation).  An investor's
purchase of  additional  Class A shares of a Fund may  qualify for a  Cumulative
Quantity Discount. The applicable sales charge will be based on the total of:   

(i) the investor's current purchase;    

                   (ii) the net asset  value (at the  close of  business  on the
                  previous  day) of (a) all Class A,  Class B and Class C shares
                  of the Fund held by the  investor  and (b) all such  shares of
               any other Evergreen Keystone Fund held by the investor; and

                  (iii) the net asset value of all shares described in paragraph
                  (ii) owned by another  shareholder  eligible to combine his or
                  her  purchase   with  that  of  the  investor  into  a  single
"purchase" (see above).                     

         For  example,  if an  investor  owned  Class  A,  B or C  shares  of an
Evergreen  Keystone  Fund worth  $200,000 at their then  current net asset value
and,  subsequently,  purchased  Class A shares  of a Fund  worth  an  additional
$100,000,  the  sales  charge  for the  $100,000  purchase,  in the  case of any
Evergreen  Equity or Long-Term Bond Fund,  would be at the 2.50% rate applicable
to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate.

         To  qualify  for the  Combined  Purchase  Privilege  or to  obtain  the
Cumulative  Quantity  Discount on a purchase through a selected dealer or agent,
the  investor or selected  dealer or agent must  provide  the  Distributor  with
sufficient  information to verify that each purchase qualifies for the privilege
or discount.                                                                    

         Statement of  Intention.  Class A investors may also obtain the reduced
sales  charges  shown  in the  Prospectus  by means of a  written  Statement  of
Intention,  which  expresses  the  investor's  intention to invest not less than
$100,000  within a period of 13 months  in Class A shares  (or Class A,  Class B
and/or Class C shares) of the Fund or any other  Evergreen  Keystone Fund.  Each
purchase of shares  under a Statement  of  Intention  will be made at the public
offering  price or prices  applicable  at the time of such  purchase to a single
transaction of the dollar amount indicated in the Statement of Intention. At the
investor's  option, a Statement of Intention may include purchases of Class A, B
or C shares of the Fund or any other Evergreen mutual fund made not more than 90
days  prior to the date  that  the  investor  signs a  Statement  of  Intention;
however,  the  13-month  period  during  which the  Statement of Intention is in
effect will begin on the date of the earliest purchase to be included.          

         Investors  qualifying  for the Combined  Purchase  Privilege  described
above  may  purchase  shares  of the  Evergreen  Keystone  Funds  under a single
Statement of ntention. For example, if at the time an investor signs a Statement
of  Intention  to invest at least  $100,000  in Class A shares of the Fund,  the
investor  and the  investor's  spouse  each  purchase  shares of the Fund  worth
$20,000 (for a total of $40,000), it will only be necessary to invest a total of
$60,000  during  the  following  13  months  in  shares of the Fund or any other
Evergreen Keystone Fund, to qualify for the 3.75% sales charge applicable to    

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puchases in any  Evergreen  Equity or  Long-Term  Bond Fund on the total  amount
being invested (the sales charge applicable to an investment of $100,000).      

         The  Statement  of  Intention  is not a  binding  obligation  upon  the
investor to purchase the full amount indicated.  The minimum initial  investment
under a Statement of Intention is 5% of such amount.  Shares  purchased with the
first 5% of such amount will be held in escrow  (while  remaining  registered in
the  name  of the  investor)  to  secure  payment  of the  higher  sales  charge
applicable to the shares actually  purchased if the full amount indicated is not
purchased,  and such escrowed shares will be  involuntarily  redeemed to pay the
additional sales charge,  if necessary.  Dividends on escrowed  shares,  whether
paid in cash or reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased,  the escrow will be released.
To the extent that an investor  purchases more than the dollar amount  indicated
on the Statement of Intention and qualifies for a further  reduced sales charge,
the sales charge will be adjusted for the entire amount  purchased at the end of
the 13-month  period.  The  difference  in sales charge will be used to purchase
additional  shares of the Fund subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases.                                   

         Investors wishing to enter into a Statement of Intention in conjunction
with their initial  investment  in Class A shares of a Fund should  complete the
appropriate  portion of the  Subscription  Application  found in the  Prospectus
while  current  Class A  shareholders  desiring  to do so can  obtain  a form of
Statement of Intention by  contacting a Fund at the address or telephone  number
shown on the cover of this Statement of Additional Information.                 

         Investments  Through  Employee  Benefit  and  Savings  Plans.   Certain
qualified  and  non-qualified  benefit and savings  plans may make shares of the
Evergreen mutual funds available to their participants. Investments made by such
employee benefit plans may be exempt from any applicable front-end sales charges
if  they  meet  the  criteria  set  forth  in  the  Prospectus  under  "Class  A
Shares-Front   End  Sales   Charge   Alternative".   The  Advisers  may  provide
compensation  to  organizations   providing   administrative  and  recordkeeping
services to plans which make shares of the Evergreen  mutual funds  available to
their participants.                                                             

         Reinstatement  Privilege.  A Class A shareholder  who has caused any or
all of his or her shares of the Fund to be redeemed or repurchased  may reinvest
all or any portion of the redemption or repurchase proceeds in Class A shares of
the Fund at net  asset  value  without  any  sales  charge,  provided  that such
reinvestment  is made within 30 calendar days after the redemption or repurchase
date.  Shares are sold to a reinvesting  shareholder at the net asset value next
determined as described  above. A reinstatement  pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized  for Federal  income tax purposes  except that no
loss will be recognized to the extent that the proceeds are reinvested in shares
of the Fund. The  reinstatement  privilege may be used by the  shareholder  only
once, irrespective of the number of shares redeemed or repurchased,  except that
the privilege may be used without limit in connection  with  transactions  whose
sole purpose is to transfer a  shareholder's  interest in the Fund to his or her
individual  retirement  account  or other  qualified  retirement  plan  account.
Investors may exercise the  reinstatement  privilege by written  request sent to
the Fund at the  address  shown on the  cover of this  Statement  of  Additional
Information.                                                                    

          Sales at Net Asset Value.  In addition to the  categories of investors
set forth in the Prospectus, each Fund may sell its Class A shares at net asset 

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value,  i.e.,  without any sales  charge,  to: (i) certain  investment  advisory
clients of the Advisers or their affiliates; (ii) officers and present or former
Trustees of the Trusts; present or former trustees of other investment companies
managed by the Advisers;  officers,  directors and present or retired  full-time
employees of the Advisers,  the  Distributor,  and their  affiliates;  officers,
directors and present and full-time  employees of selected dealers or agents; or
the  spouse,  sibling,  direct  ancestor  or  direct  descendant   (collectively
"relatives") of any such person; or any trust,  individual retirement account or
retirement  plan account for the benefit of any such person or relative;  or the
estate  of any such  person  or  relative,  if such  shares  are  purchased  for
investment  purposes  (such shares may not be resold except to the Fund);  (iii)
certain  employee  benefit plans for employees of the Advisers,  the Distributor
and  their  affiliates;  (iv)  persons  participating  in a  fee-based  program,
sponsored  and  maintained  by a  registered  broker-dealer  and approved by the
Distributor,  pursuant  to which such  persons  pay an  asset-based  fee to such
broker-dealer,  or  its  affiliate  or  agent,  for  service  in the  nature  of
investment advisory or administrative services. These provisions are intended to
provide additional job-related incentives to persons who serve the Funds or work
for companies  associated with the Funds and selected  dealers and agents of the
Funds.  Since these persons are in a position to have a basic  understanding  of
the nature of an investment  company as well as a general  familiarity  with the
Fund,  sales to these  persons,  as compared to sales in the normal  channels of
distribution,   require  substantially  less  sales  effort.  Similarly,   these
provisions  extend the  privilege  of  purchasing  shares at net asset  value to
certain  classes of  institutional  investors who,  because of their  investment
sophistication,  can be expected to require significantly less than normal sales
effort on the part of the Funds and the Distributor.                            

Deferred Sales Charge Alternative--Class B Shares                               

         Investors choosing the deferred sales charge alternative purchase Class
B shares at the public  offering price equal to the net asset value per share of
the Class B shares on the date of  purchase  without the  imposition  of a sales
charge at the time of purchase.  The Class B shares are sold without a front-end
sales  charge so that the full  amount of the  investor's  purchase  payment  is
invested in the Fund initially.                                                 

         Proceeds  from the  contingent  deferred  sales  charge are paid to the
Distributor  and are used by the  Distributor  to  defray  the  expenses  of the
Distributor  related to providing  distribution-related  services to the Fund in
connection  with  the  sale  of the  Class B  shares,  such  as the  payment  of
compensation  to selected  dealers and agents for  selling  Class B shares.  The
combination  of the  contingent  deferred  sales  charge  and  the  distribution
services fee (and, with respect to Balanced,  Utility and Value, the shareholder
service fee) enables the Fund to sell the Class B shares  without a sales charge
being  deducted at the time of purchase.  The higher  distribution  services fee
(and, with respect to Balanced,  Utility and Value, the shareholder service fee)
incurred by Class B shares will cause such shares to have a higher expense ratio
and to pay lower dividends than those related to Class A shares.                

         Contingent  Deferred  Sales  Charge.  Class B shares which are redeemed
within six years of  purchase  will be subject to a  contingent  deferred  sales
charge at the rates set forth in the  Prospectus  charged as a percentage of the
dollar amount subject thereto. The charge will be assessed on an amount equal to
the lesser of the cost of the shares being  redeemed or their net asset value at
the  time of  redemption.  Accordingly,  no  sales  charge  will be  imposed  on
increases in net asset value above the initial  purchase price. In addition,  no
contingent deferred sales charge will be assessed on shares derived from        

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reinvestment  of dividends  or capital  gains  distributions.  The amount of the
contingent  deferred sales charge,  if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares.                                                   

         In  determining  the contingent  deferred sales charge  applicable to a
redemption,  it will be  assumed  that the  redemption  is first of any  Class A
shares or Class C shares in the  shareholder's  Fund account,  second of Class B
shares  held  for over  eight  years or  Class B  shares  acquired  pursuant  to
reinvestment  of  dividends  or  distributions  and third of Class B shares held
longest during the eight-year period.                                           

         To illustrate,  assume that an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the second year after  purchase,  the
net  asset  value per share is $12 and,  during  such  time,  the  investor  has
acquired 10  additional  Class B shares upon dividend  reinvestment.  If at such
time the investor  makes his or her first  redemption  of 50 Class B shares,  10
Class B shares will not be subject to charge  because of dividend  reinvestment.
With respect to the  remaining 40 Class B shares,  the charge is applied only to
the original cost of $10 per share and not to the increase in net asset value of
$2 per  share.  Therefore,  of the  $600  of the  shares  redeemed  $400  of the
redemption proceeds (40 shares x $10 original purchase price) will be charged at
a rate of 4.0% (the  applicable  rate in the second  year after  purchase  for a
contingent deferred sales charge of $16).                                       

         The contingent deferred sales charge is waived on redemptions of shares
(i) following the death or disability, as defined in the Code, of a shareholder,
or  (ii) to the  extent  that  the  redemption  represents  a  minimum  required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.                                 

         Conversion  Feature.  At the end of the period ending seven years after
the end of the  calendar  month in which the  shareholder's  purchase  order was
accepted,  Class B shares will automatically  convert to Class A shares and will
no longer be subject to a higher distribution services fee (and, with respect to
Balanced,  Utility and Value,  the  shareholder  service fee) imposed on Class B
shares. Such conversion will be on the basis of the relative net asset values of
the two classes,  without the imposition of any sales load, fee or other charge.
The purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long enough for the
Distributor to have been  compensated for the expenses  associated with the sale
of such shares.                                                                 

         For purposes of conversion to Class A, Class B shares purchased through
the  reinvestment  of  dividends  and  distributions  paid in respect of Class B
shares in a  shareholder's  account will be  considered to be held in a separate
sub-account.  Each time any Class B shares in the  shareholder's  account (other
than those in the sub-account)  convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to Class A.             

         The  conversion  of Class B shares to Class A shares is  subject to the
continuing  availability  of an opinion  of  counsel to the effect  that (i) the
assessment  of the  higher  distribution  services  fee (and,  with  respect  to
Balanced,  Utility and Value, shareholder service fee) and transfer agency costs
with respect to Class B shares does not result in the dividends or distributions
payable  with  respect  to  other  Classes  of  a  Fund's  shares  being  deemed
"preferential dividends" under the Code, and (ii) the conversion of             

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Class B shares  to Class A shares  does not  constitute  a taxable  event  under
Federal  income tax law. The  conversion of Class B shares to Class A shares may
be  suspended  if such an  opinion  is no  longer  available  at the  time  such
conversion is to occur. In that event, no further  conversions of Class B shares
would occur, and shares might continue to be subject to the higher  distribution
services fee (and, with respect to Balanced,  Utility and Value, the shareholder
service fee) for an indefinite  period which may extend beyond the period ending
seven  years  after the end of the  calendar  month in which  the  shareholder's
purchase order was accepted.                                                    

Level-Load Alternative--Class C Shares                                          

         Investors  choosing  the level load sales charge  alternative  purchase
Class C shares at the public  offering  price  equal to the net asset  value per
share of the Class C shares on the date of purchase  without the imposition of a
front-end sales charge.  However,  you will pay a 1.0% contingent deferred sales
charge if you redeem shares during the first year after  purchase.  No charge is
imposed in connection with  redemptions made more than one year from the date of
purchase.  Class C shares are sold without a front-end  sales charge so that the
Fund will receive the full amount of the investor's  purchase  payment and after
the first year without a contingent  deferred  sales charge so that the investor
will receive as proceeds  upon  redemption  the entire net asset value of his or
her Class C shares. The Class C distribution  services fee (and, with respect to
Balanced,  Utility and Value,  shareholder service fee) enables the Fund to sell
Class C of shares  without  either a  front-end  or  contingent  deferred  sales
charge.  However,  unlike  Class B shares,  Class C shares do not convert to any
other  Class  shares  of the  Fund.  Class C shares  incur  higher  distribution
services  fees (and,  with respect to Balanced,  Utility and Value,  shareholder
service fees) than Class A shares, and will thus have a higher expense ratio and
pay correspondingly lower dividends than Class A shares.                        

Class Y Shares                                                                  

         Class Y shares are not offered to the general  public and are available
only to (i)  persons  who at or prior to  December  30,  1994 owned  shares in a
mutual fund advised by Evergreen Asset, (ii) certain investment advisory clients
of the Advisers and their affiliates, and (iii) institutional investors. Class Y
shares do not bear any Rule 12b-1  distribution  expenses and are not subject to
any front-end or contingent deferred sales charges.                             

GENERAL INFORMATION ABOUT THE FUNDS (See also "Other
Information - General Information"
in each Fund's Prospectus)

Capitalization and Organization                                                 

         Each of the Evergreen  Growth and Income Fund and Evergreen  Income and
Growth Fund is a Massachusetts  business trust.  Evergreen  American  Retirement
Fund and Evergreen  Small Cap Equity Income Fund are each separate series of The
Evergreen  American  Retirement  Trust,  a  Massachusetts  business  trust.  The
Evergreen  Foundation Fund and Evergreen Tax Strategic  Foundation Fund are each
separate  series of the Evergreen  Foundation  Trust, a  Massachusetts  business
trust. The Evergreen  Balanced Fund,  Evergreen Utility Fund and Evergreen Value
Fund,  which  prior to July 7,  1995  were  known as the  First  Union  Balanced
Portfolio,  First Union  Utility  Portfolio  and First  Union  Value  Portfolio,
respectively, are each separate series of Evergreen Investment Trust, a         

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Massachusetts  business trust. Keystone Fund for Total Return (formerly Keystone
America Fund for Total Return) is a  Massachusetts  business  trust.  On July 7,
1995,  First Union Funds  changed its name to Evergreen  Investment  Trust.  The
above-named Trusts are individually  referred to in this Statement of Additional
Information  as the  "Trust" and  collectively  as the  "Trusts."  Each Trust is
governed by a board of trustees.  Unless  otherwise  stated,  references  to the
"Board of Trustees" or  "Trustees" in this  Statement of Additional  Information
refer to the Trustees of all the Trusts.                                        

         Income and Growth and Growth and Income may issue an  unlimited  number
of shares of beneficial interest with a $0.001 par value.  American  Retirement,
Small Cap, Foundation,  Tax Strategic,  Balanced, Value and Utility may issue an
unlimited  number of shares of  beneficial  interest  with a $0.0001  par value.
Total Return may issue an unlimited number of shares of beneficial interest with
a $______ par value. All shares of these Funds have equal rights and privileges.
Each share is entitled to one vote,  to  participate  equally in  dividends  and
distributions  declared by the Funds and on liquidation  to their  proportionate
share of the assets  remaining after  satisfaction  of outstanding  liabilities.
Shares of these Funds are fully paid,  nonassessable and fully transferable when
issued and have no pre-emptive, conversion or exchange rights. Fractional shares
have  proportionally  the same rights,  including voting rights, as are provided
for a full share.                                                               

         Under each Trust's  Declaration of Trust, each Trustee will continue in
office  until  the  termination  of the  Trust  or his  or  her  earlier  death,
incapacity,  resignation  or removal.  Shareholders  can remove a Trustee upon a
vote of  two-thirds  of the  outstanding  shares of  beneficial  interest of the
Trust. Vacancies will be filled by a majority of the remaining Trustees, subject
to the 1940  Act.  As a  result,  normally  no annual  or  regular  meetings  of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.                                                  

         Shares have noncumulative  voting rights,  which means that the holders
of more than 50% of the shares  voting for the  election of  Trustees  can elect
100% of the  Trustees  if they  choose to do so and in such event the holders of
the remaining shares so voting will not be able to elect any Trustees.          

         The Trustees of each Trust are  authorized to reclassify  and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly,  in the future,  for reasons such as the desire to establish one or
more  additional  portfolios of a Trust with  different  investment  objectives,
policies or restrictions,  additional  series of shares may be created by one or
more of the Trusts.  Any issuance of shares of another  series or class would be
governed by the 1940 Act and the law of the  Commonwealth of  Massachusetts.  If
shares of another series of a Trust were issued in connection  with the creation
of additional investment  portfolios,  each share of the newly created portfolio
would  normally be entitled to one vote for all purposes.  Generally,  shares of
all portfolios would vote as a single series on matters, such as the election of
Trustees,  that affected all portfolios in substantially  the same manner. As to
matters affecting each portfolio differently, such as approval of the Investment
Advisory  Agreement and changes in investment  policy,  shares of each portfolio
would vote separately.                                                          

         In addition any Fund may, in the future,  create additional  classes of
shares which represent an interest in the same investment portfolio.  Except for
the different distribution related and other specific costs borne by such       

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additional  classes,  they will have the same voting and other rights  described
for the existing classes of each Fund.                                          

         Procedures for calling a  shareholders'  meeting for the removal of the
Trustees of each Trust,  similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of each Fund. The rights of the holders of
shares  of a  series  of a Fund  may not be  modified  except  by the  vote of a
majority of the outstanding shares of such series.                              

         An order has been  received  from the SEC  permitting  the issuance and
sale of multiple classes of shares  representing  interests in each Fund. In the
event a Fund  were to issue  additional  Classes  of  shares  other  than  those
described herein, no further relief from the SEC would be required.             

Distributor                                                                     

         Evergreen Keystone Distributor, Inc. (formerly known as Evergreen Funds
Distributor,  Inc.  (the  "Distributor"),  230 Park Avenue,  New York,  New York
10169,  serves as each  Fund's  principal  underwriter,  and as such may solicit
orders from the public to purchase  shares of any Fund.  The  Distributor is not
obligated to sell any  specific  amount of shares and will  purchase  shares for
resale only against orders for shares. Under the Distribution  Agreement between
the Fund and the Distributor,  the Fund has agreed to indemnify the Distributor,
in the  absence of its  willful  misfeasance,  bad faith,  gross  negligence  or
reckless  disregard  of  its  obligations  thereunder,   against  certain  civil
liabilities, including liabilities under the Securities Act of 1933, as amended.

Counsel                                                                         

         Sullivan & Worcester LLP,  Washington,  D.C.,  serves as counsel to the
Funds.                                                                          

Independent Auditors                                                            

         Price  Waterhouse LLP has been selected to be the independent  auditors
of Income and Growth, Foundation and Tax Strategic.                             

         KPMG Peat Marwick LLP has been selected to be the independent  auditors
of Growth and Income, American Retirement,  Small Cap, Balanced,  Utility, Value
and Total Return.                                                               

 PERFORMANCE INFORMATION

Total Return                                                                    

         From time to time a Fund may  advertise  its "total  return."  Computed
separately  for each class,  the Fund's  "total  return" is its  average  annual
compounded  total  return for recent one,  five,  and  ten-year  periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by  finding,  through  the use of a formula  prescribed  by the SEC the
average  annual  compounded  rate of return over the period that would equate an
assumed  initial amount  invested to the value of such  investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains  distributions  paid on  shares  of the  Fund  are  assumed  to have  been
reinvested  when paid and the maximum  sales charge  applicable  to purchases of
Fund shares is assumed to have been paid. The Fund will include performance     

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data for Class A,  Class B, Class C and Class Y shares in any  advertisement  or
information including performance data of the Fund.                             

         With  respect  to  Income  and  Growth,  Growth  and  Income,  American
Retirement,  Small Cap,  Foundation and Tax  Strategic,  the shares of each Fund
outstanding  prior to January 3, 1995 have been  reclassified as Class Y shares.
The average annual  compounded  total return for each Class of shares offered by
the Funds for the most recently  completed one, five and ten year fiscal periods
is set forth in the table below.                                                

INCOME AND GROWTH              1 Year        5 Years           10 Years         
                   Ended         Ended             Ended
                     1/31/97       1/31/97           1/31/97
Class A                                                                         
Class B                                                                         
Class C                                                                         
Class Y                                                                         

                                                  From
GROWTH AND INCOME              1 Year        5 Years           10/15/86         
                         Ended         Ended             (inception)
                         12/31/96      12/31/96          to 12/31/96
Class A                                                                         
Class B                                                                         
Class C                                                                         
Class Y                                                                         

                                                  From
AMERICAN                       1 Year        5 Years           3/14/88          
RETIREMENT                     Ended         Ended             (inception)      
                         12/31/96      12/31/96          to 12/31/96
Class A                                                                         
Class B                                                                         
Class C                                                                         
Class Y                                                                         

From          
SMALL CAP                      1 Year        10/1/93                            
       Ended         (inception)
       12/31/96      to 12/31/96
Class A                                                                         
Class B                                                                         
Class C                                                                         
Class Y                                                                         

FOUNDATION                     1 Year        5 Years           From 1/2/90      
                         Ended         Ended             (inception)
                         12/31/96      12/31/96          to 12/31/96
Class A                                                                         
Class B                                                                         
Class C                                                                         
Class Y                                                                         

TAX STRATEGIC                  1 Year        From 11/02/93                      
          Ended         (inception) to
    12/31/96      12/31/96
Class A                                                                         

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Class B                                                                         
Class C                                                                         
Class Y                                                                         

BALANCED                       1 Year                                           
           Ended         From inception*
       12/31/96      to 12/31/96
Class A                                                                         
Class B                                                                         
Class C                                                                         
Class Y                                                                         

UTILITY                        1 Year        From inception**                   
       Ended         to 12/31/96
12/31/96          
Class A                                                                         
Class B                                                                         
Class C                                                                         
Class Y                                                                         

VALUE                          1 Year        5 Years                            
                               Ended         Ended             From inception***
                         12/31/96      12/31/96          to 12/31/96
Class A                                                                         
Class B                                                                         
Class C                                                                         
Class Y                                                                         

* Inception date:  Class A - June 6, 1991; Class B - January 25, 1993; Class C  
-                                                                               
September 2, 1994; Class Y - April 1, 1991.                                     

** Inception date: Class A - January 4, 1994; Class B - January 4, 1994; Class  
C                                                                               
- September 2, 1994; Class Y - February 28, 1994.                               

*** Inception date:  Class A - April 12, 1985; Class B - January 25, 1993; Class
C - September 2, 1994; Class Y - December 31, 1990.                             

         The  performance  numbers  for Income and  Growth,  Growth and  Income,
American  Retirement,  Small Cap,  Foundation and Tax Strategic for the Class A,
Class B and Class C shares are hypothetical numbers based on the performance for
Class Y  shares  as  adjusted  for any  applicable  front-end  sales  charge  or
contingent  deferred sales charge through January 3, 1995 (commencement of class
operations)  and the actual  performance of each class  subsequent to January 3,
1995. The performance data calculated prior to January 3, 1995, does not reflect
any Rule 12b-1 fees. If such fees were reflected the returns would be lower.    

         A Fund's  total  return is not fixed and will  fluctuate in response to
prevailing  market  conditions  or as a function  of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is  

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useful in reviewing a Fund's  performance but such information may not provide a
basis for comparison with bank deposits or other  investments  which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions.       

YIELD CALCULATIONS                                                              

         From time to time, a Fund may quote its yield in  advertisements  or in
reports or other communications to shareholders.  Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the SEC yield formula) for
a given 30-day or one month period,  net of expenses,  by the average  number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the  result  (assuming  compounding  of  income) in order to arrive at an annual
percentage rate. The formula for calculating yield is as follows:               

YIELD = 2[(a-b+1)6-1]     
cd  

Where    a = Interest earned during the period                                  
         b  = Expenses  accrued for the period (net of  reimbursements)  c = The
    average daily number of shares outstanding during the period
that were entitled to receive dividends   
        d = The maximum offering price per share on the last day of the period

         Income is  calculated  for purposes of yield  quotations  in accordance
with  standardized  methods  applicable  to all stock and bond funds.  Gains and
losses  generally  are excluded  from the  calculation.  Income  calculated  for
purposes of  determining a Fund's yield  differs from income as  determined  for
other accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations,  the yields quoted for
a Fund may  differ  from the rate of  distributions  a Fund  paid  over the same
period, or the net investment income reported in a Fund's financial statements. 

         Yield  information  is useful in  reviewing a Fund's  performance,  but
because yields fluctuate, such information cannot necessarily be used to compare
an  investment  in a Fund's  shares with bank  deposits,  savings  accounts  and
similar  investment  alternatives  which often  provide an agreed or  guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a  function  of the  kind  and  quality  of  the  instruments  in the  Funds'
investment  portfolios,   portfolio  maturity,  operating  expenses  and  market
conditions.                                                                     

         It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat  higher than  prevailing  market  rates,  and in
periods of rising  interest  rates the yields  will tend to be  somewhat  lower.
Also,  when  interest  rates are falling,  the inflow of net new money to a Fund
from the  continuous  sale of its shares will likely be invested in  instruments
producing  lower  yields  than the  balance of the Fund's  investments,  thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.                                              

         The yield of each Fund for the  thirty-day  period  ended  December 31,
1996  (November 30, 1996 with respect to the Class A, Class B and Class C shares
of                                                                              

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Total Return*,  and January 31, 1997 with respect to Income and Growth) for each
Class of shares offered by the Funds is set forth in the table below:           

Income and Growth                Tax Strategic                                  
Class A                          Class A                                    
Class B                          Class B                                    
Class C                          Class C                                    
Class Y                          Class Y                                    

Growth and Income                Balanced                                       
Class A                          Class A                                    
Class B                          Class B                                    
Class C                          Class C                                    
Class Y                          Class Y                                    

American Retirement             Utility                                         
Class A                         Class A                                     
Class B                         Class B                                     
Class C                         Class C                                     
Class Y                         Class Y                                     

Small Cap                       Value                                           
Class A                         Class A                                     
Class B                         Class B                                     
Class C                         Class C                                     
Class Y                         Class Y                                     

Foundation                      Total Return                                    
Class A                         Class A                                     
Class B                         Class B                                     
Class C                         Class C                                     
Class Y                                                                     

* Total Return commenced offering Class Y shares effective December 15, 1996.   

Non-Standardized Performance                                                    

         In addition to the performance  information described above, a Fund may
provide total return  information for designated  periods,  such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.                                                                           

GENERAL                                                                         

          From time to time, a Fund may quote its performance in advertising and
other  types of  literature  as compared to the  performance  of the  Standard &
Poor's 500  Composite  Stock  Price  Index,  the Dow Jones  Industrial  Average,
Russell 2000 Index,  or any other commonly  quoted index of common stock prices.
The Standard & Poor's 500 Composite Stock Price Index,  the Dow Jones Industrial
Average  and the Russell  2000 Index are  unmanaged  indices of selected  common
stock prices. A Fund's performance may also be compared to those of other mutual
funds having similar objectives. This comparative performance would be expressed
as a ranking prepared by Lipper Analytical Services, Inc. or similar independent
services  monitoring  mutual  fund  performance.  A Fund's  performance  will be
calculated by assuming,  to the extent  applicable,  reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may         

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be useful to investors who wish to compare a Fund's past  performance  with that
of its competitors.  Of course, past performance cannot be a guarantee of future
results.                                                                        

Additional Information                                                          

         Any shareholder  inquiries may be directed to the shareholder's  broker
or to each Adviser at the address or  telephone  number shown on the front cover
of this  Statement of  Additional  Information.  This  Statement  of  Additional
Information  does not contain all the information set forth in the  Registration
Statements  filed by the Trusts with the SEC under the  Securities  Act of 1933.
Copies of the  Registration  Statements  may be obtained at a reasonable  charge
from the SEC or may be examined,  without  charge,  at the offices of the SEC in
Washington, D.C.                                                                

FINANCIAL STATEMENTS  

         Each Fund's financial statements appearing in their most current fiscal
year Annual Report to  shareholders  and the report  thereon of the  independent
auditors appearing  therein,  namely Price Waterhouse LLP (in the case of Income
and Growth,  Foundation and Tax Strategic) or KPMG Peat Marwick LLP (in the case
of Growth and Income, American Retirement,  Small Cap, Balanced,  Utility, Value
and Total Return) are  incorporated by reference in this Statement of Additional
Information. The Annual Reports to Shareholders for each Fund, which contain the
referenced statements, are available upon request and without charge.           

APPENDIX "A"                                                                    

DESCRIPTION OF BOND RATINGS                                                     

         Standard & Poor's  Ratings  Service.  A Standard & Poor's  corporate or
municipal  bond rating is a current  assessment  of the credit  worthiness of an
obligor  with  respect  to a  specific  obligation.  This  assessment  of credit
worthiness may take into consideration obligors such as guarantors,  insurers or
lessees.  The debt rating is not a  recommendation  to purchase,  sell or hold a
security,  inasmuch as it does not comment as to market price or suitability for
a particular investor.                                                          

         The ratings are based on current  information  furnished  to Standard &
Poor's by the issuer or  obtained  by  Standard & Poor's  from other  sources it
considers  reliable.  Standard & Poor's does not perform any audit in connection
with the ratings and may, on occasion,  rely on unaudited financial information.
The ratings may be changed,  suspended  or  withdrawn as a result of changes in,
unavailability of such information, or for other circumstances.                 

         The  ratings  are  based,   in  varying   degrees,   on  the  following
considerations:                                                                 

         1. Likelihood of default-capacity  and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation.                                                        

2.  Nature of and provisions of the obligation.               

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         3. Protection  afforded by, and relative position of, the obligation in
the event of bankruptcy,  reorganization  or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.                          

         AAA - This is the  highest  rating  assigned  by Standard & Poor's to a
debt  obligation and indicates an extremely  strong capacity to pay interest and
repay any principal.                                                            

         AA - Debt rated AA also  qualifies as high  quality  debt  obligations.
Capacity to pay interest and repay  principal is very strong and in the majority
of instances they differ from AAA issues only in small degree.                  

         A - Debt  rated A has a  strong  capacity  to pay  interest  and  repay
principal  although it is somewhat more  susceptible  to the adverse  effects of
changes in  circumstances  and  economic  conditions  than debt in higher  rated
categories.                                                                     

         BBB - Debt rated BBB is regarded as having an adequate  capacity to pay
interest  and  repay  principal.   Whereas  they  normally  exhibit   protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened  capacity to pay interest and repay  principal  for
debt in this category than in higher rated categories.                          

         BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is  regarded,  on a
balance,  as predominantly  speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.             

         BB indicates the lowest degree of speculation  and C the highest degree
of  speculation.  While such debt will likely have some  quality and  protective
characteristics,  these are  outweighed  by large  uncertainties  or major  risk
exposures to adverse conditions.                                                

         BB - Debt rated BB has less  near-term  vulnerability  to default  than
other  speculative  issues.  However,  it faces major ongoing  uncertainties  or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate  capacity to meet timely interest and principal  payments.  The BB
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned an actual or implied BBB - rating.                                     

         B - Debt rated B has greater vulnerability to default but currently has
the  capacity  to meet  interest  payments  and  principal  repayments.  Adverse
business,  financial,  or economic  conditions  will likely  impair  capacity or
willingness to pay interest and repay  principal.  The B rating category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.                                                               

         CCC - Debt  rated  CCC has a  currently  indefinable  vulnerability  to
default,  and is  dependent  upon  favorable  business,  financial  and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay  principal.  The CCC rating category
is also used for debt  subordinated to senior debt that is assigned an actual or
implied B or B- rating.                                                         

         CC - The rating CC is typically  applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.                          

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         C - The rating C is typically  applied to debt  subordinated  to senior
debt which is assigned an actual or implied CCC- debt  rating.  The C rating may
be used to cover a situation  where a bankruptcy  petition  has been filed,  but
debt service payments are continued.                                            

         C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.                                                                     

         D - Debt  rated  D is in  payment  default.  It is used  when  interest
payments or principal payments are not made on a due date even if the applicable
grace  period  has not  expired,  unless  Standard & Poor's  believes  that such
payments  will be made  during such grace  periods;  it will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.       

         Plus (+) or Minus (-) - To provide more detailed  indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.        

         NR - indicates that no public rating has been requested,  that there is
insufficient  information  on which to base a rating,  or that Standard & Poor's
does not rate a  particular  type of  obligation  as a matter  of  policy.  Debt
obligations of issuers  outside the United States and its  territories are rated
on the same basis as  domestic  corporate  and  municipal  issues.  The  ratings
measure  the  credit  worthiness  of the  obligor  but do not take into  account
currency exchange and related uncertainties.                                    

         Bond  Investment  Quality  Standards:  Under  present  commercial  bank
regulations  issued by the  Comptroller of the Currency,  bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment  Grade" ratings)
are generally regarded as eligible for bank investment.  In addition,  the Legal
Investment  Laws of various states may impose certain rating or other  standards
for  obligations  eligible for  investment by savings  banks,  trust  companies,
insurance companies and fiduciaries generally.                                  

        Moody's Investors Service, Inc.  A brief description of the applicable
Moody's rating symbols and their meanings follows:                              

         Aaa - Bonds  which are rated Aaa are judged to be of the best  quality.
They carry the smallest degree of investment risk and are generally  referred to
as  "gilt  edge".   Interest  payments  are  protected  by  a  large  or  by  an
exceptionally   stable  margin  and  principal  is  secure.  While  the  various
protective  elements are likely to change such changes as can be visualized  are
most unlikely to impair the fundamentally strong position of such issues.       

         Aa - Bonds  which are rated Aa are judged to be of high  quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds.  They are rated lower than the best bonds  because  margins of
protection  may  not  be as  large  as in  Aaa  securities  or  fluctuations  of
protective  elements may be of greater  amplitude or there may be other elements
present  which make the  long-term  risks  appear  somewhat  larger  than in Aaa
securities.                                                                     

         A  -  Bonds  which  are  rated  A  possess  many  favorable  investment
attributes and are to be considered as upper medium grade  obligations.  Factors
giving security to principal and interest are considered adequate, but          

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elements may be present which  suggest a  susceptibility  to  impairment        
sometime in the future.                                                         

         Baa -  Bonds  which  are  rated  Baa are  considered  as  medium  grade
obligations,  i.e.,  they are  neither  highly  protected  nor  poorly  secured.
Interest  payments and principal  security  appear  adequate for the present but
certain  protective  elements  may  be  lacking  or  may  be  characteristically
unreliable over any great length of time. Some bonds lack outstanding investment
characteristics  and in fact have  speculative  characteristics  as well.  NOTE:
Bonds  within  the above  categories  which  possess  the  strongest  investment
attributes are designated by the symbol "1" following the rating.               

         Ba - Bonds which are rated Ba are judged to have speculative  elements;
their future  cannot be  considered  as well  assured.  Often the  protection of
interest  and  principal  payments  may be very  moderate  and  thereby not well
safeguarded  during good and bad times over the future.  Uncertainty of position
characterizes bonds in this class.                                              

         B - Bonds  which  are rated B  generally  lack  characteristics  of the
desirable  investment.  Assurance  of  interest  and  principal  payments  or of
maintenance  of other terms of the contract  over any long period of time may be
small.                                                                          

         Caa - Bonds which are rated Caa are of poor  standing.  Such issues may
be in  default  or there may be  present  elements  of danger  with  respect  to
principal or interest.                                                          

         Ca  -  Bonds  which  are  rated  Ca  represent  obligations  which  are
speculative  in a high  degree.  Such  issues are often in default or have other
marked shortcomings.                                                            

         C - Bonds  which are rated C are the  lowest  rated  class of bonds and
issue so rated  can be  regarded  as having  extremely  poor  prospects  of ever
attaining any real investment standing.                                         

         Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk
factors;  AA -- high credit quality,  with strong protection  factors and modest
risk,  which  may vary  very  slightly  from time to time  because  of  economic
conditions; A--average credit quality with adequate protection factors, but with
greater  and more  variable  risk  factors in periods of  economic  stress.  The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.                                     

         Fitch  Investors  Service LLP: AAA -- highest credit  quality,  with an
exceptionally  strong  ability to pay interest and repay  principal;  AA -- very
high  credit  quality,  with  very  strong  ability  to pay  interest  and repay
principal; A -- high credit quality,  considered strong as regards principal and
interest  protection,  but may be more vulnerable to adverse changes in economic
conditions  and  circumstances.  The indicators "+" and "-" to the AA, A and BBB
categories  indicate  the  relative  position  of  credit  within  those  rating
categories.                                                                     

DESCRIPTION OF MUNICIPAL NOTE RATINGS                                           

         A Standard & Poor's note rating  reflects  the  liquidity  concerns and
market access risks unique to notes. Notes due in three years or less           

                                                    68

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will likely receive a note rating.  Notes maturing  beyond three years will most
likely receive a long-term debt rating.  The following  criteria will be used in
making that assessment.                                                         

         o  Amortization  schedule  (the larger the final  maturity  relative to
other maturities the more likely it will be treated as a note).                 

         o Source of Payment (the more  dependent the issue is on the market for
its  refinancing,  the more  likely it will be treated as a note.)  Note  rating
symbols are as follows:                                                         

         o SP-1 Very strong or strong  capacity to pay  principal  and interest.
Those issues determined to possess  overwhelming safety  characteristics will be
given a plus (+) designation.                                                   

o   SP-2  Satisfactory capacity to pay principal and interest.

o   SP-3  Speculative capacity to pay principal and interest. 

         Moody's  Short-Term  Loan  Ratings  -  Moody's  ratings  for  state and
municipal  short-term  obligations will be designated  Moody's  Investment Grade
(MIG). This distinction is in recognition of the differences  between short-term
credit risk and long-term risk.  Factors affecting the liquidity of the borrower
are uppermost in importance in short-term  borrowing,  while various  factors of
major importance in bond risk are of lesser importance over the short run.      

Rating symbols and their meanings follow:                                       

         o MIG 1 - This  designation  denotes  best  quality.  There is  present
strong  protection by  established  cash flows,  superior  liquidity  support or
demonstrated broad-based access to the market for refinancing.                  

         o MIG 2 - This designation denotes high quality.  Margins of protection
are ample although not so large as in the preceding group.                      

         o MIG 3 - This  designation  denotes  favorable  quality.  All security
elements are  accounted for but this is lacking the  undeniable  strength of the
preceding  grades.  Liquidity and cash flow  protection may be narrow and market
access for refinancing is likely to be less well established.                   

         o  MIG  4 -  This  designation  denotes  adequate  quality.  Protection
commonly regarded as required of an investment  security is present and although
not distinctly or predominantly speculative, there is specific risk.            

COMMERCIAL PAPER RATINGS                                                        

         Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries
the smallest  degree of investment  risk.  The modifiers 1, 2, and 3 are used to
denote relative strength within this highest classification.                    

         Standard & Poor's Ratings Service:  "A" is the highest commercial paper
rating  category  utilized  by  Standard & Poor's  Ratings  Group which uses the
numbers  1+,  1,  2  and  3  to  denote   relative   strength   within  its  "A"
classification.                                                                 

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         Duff & Phelps,  Inc.:  Duff 1 is the highest  commercial  paper  rating
category utilized by Duff & Phelps which uses + or - to denote relative strength
within this classification.  Duff 2 represents good certainty of timely payment,
with minimal risk factors.  Duff 3 represents  satisfactory  protection factors,
with risk factors larger and subject to more variation.                         

         Fitch  Investors  Service  LLP:  F-1+ -- denotes  exceptionally  strong
credit quality given to issues regarded as having  strongest degree of assurance
for timely  payment;  F-1 -- very  strong,  with only  slightly  less  degree of
assurance for timely payment than F-1+; F-2 -- good credit  quality,  carrying a
satisfactory degree of assurance for timely payment.                            

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******************************************************************************  

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EVERGREEN INCOME AND GROWTH FUND        

PART C.    OTHER INFORMATION                                                    

Item 24. Financial Statements and Exhibits                                      

a.       Financial Statements                                                   

Included in Part A of this Registration Statement:            

            Financial  Highlights  for the fiscal  years  ended  March 31,  1987
                 through March 31, 1994,  the ten months ended January 31, 1995,
             the fiscal years ended January 31, 1996 and 1997 (audited).

            Financial Highlights for the period January 3, 1995 (commencement of
                  distribution)  through  January  31, 1995 and the fiscal years
ended January 31, 1996  and 1997(audited).  

Included in Part B of this Registration Statement:*           

  Statement of Investments as of January 31, 1997 (audited).

            Statement of Assets and Liabilities as of January 31, 1997(audited).

           Statement of Operations for the fiscal year ended January 31, 1997.

        Statements of Changes in Net Assets for the fiscal  years  ended
January  31, 1996 and 1997(audited).                    

Financial Highlights  (Classes  A,  B,  C and Y  Shares)

Notes  to  Financial Statements                         

Report of Independent Auditors                          

         Statements,  schedules  and  historical  information  other  than those
         listed above have been omitted since they are either not  applicable or
         are not required or the required  information is shown in the financial
statements or notes thereto.                                  

b.  Exhibits                                                                    

Number   Description                                          

1(A)     Amended and Restated Declaration of Trust**          
 1(B)     Form of Instrument providing for the Establishment and
Designation of Classes**          
2        By-Laws**                                            
3        None                                                 
4        Instruments Defining Rights of Shareholders**        
5(A)     Investment Advisory Agreement**                      
5(B)     Investment Subadvisory Agreement**                   
6        Distribution Agreement**                             
7        None                                                 
8        Custodian Agreement***                               
9        None                                                 
10       None                                                 
11       None                                                 
12       None                                                 
13       None                                                 
14       None                                                 
15       Rule 12b-1 Distribution Plans**                      
16       None                                                 
17       None                                                 
18       Not applicable                                       
19       Not Applicable                                       

Other Exhibits:                                               

Power of Attorney ****                      

--------------------------                                                      
         * Incorporated  by reference to the Annual Report to  Shareholders  for
         the fiscal year ended January 31, 1997 which has been previously  filed
         with the  Commission  and by  reference to the  Semi-Annual  and Annual
     Reports of Registrant on form NSAR for the  aforementioned  period.

       **Incorporated  by  reference  to  Post-Effective  Amendment  No.  21
    to Registrant's  registration  statement  on Form N-1A,  File  No.
2-61391, filed January 3, 1995.                               

      *** Incorporated by reference to  Post-Effective Amendment  No.11 to
      Registrant's  registration  statement on Form N-1A, File No.2-61391,
filed February 6, 1986.                                       

    ****Incorporated by reference to Post-Effective Amendment No.24 to
     Registrant's Registration Statement on Form N-1A, File No. 2-61391,
filed April 1, 1996.                                          

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Item 25. Persons Controlled by or Under Common Control with Registrant          

None                      

Item 26. Number of Holders of Securities (as of January 31, 1997)               

(1)                                                 (2)       
Title of Class                                      Number of 
                                                             Record Shareholders

Class Y Shares of Beneficial Interest ($0.001 par value)                        

Class A Shares of Beneficial Interest ($0.001 par value)                        

Class B Shares of Beneficial Interest ($0.001 par value)                        

Class C Shares of Beneficial Interest ($0.001 par value)                        

Item 27. Indemnification                                                        

         Article  XI  of  the   Registrant's   By-laws  contains  the  following
provisions regarding indemnification of Trustees and officers:                  

         SECTION  11.1  Actions  Against  Trustee or  Officer.  The Trust  shall
indemnify any  individual  who is a present or former  Trustee or officer of the
Trust and who, by reason of his position as such,  was, is, or is  threatened to
be  made a  party  to any  threatened,  pending  or  completed  action,  suit or
proceeding, whether civil, criminal, administrative or investigative (other than
any action or suit by or in the right of the Trust) against expenses,  including
attorneys' fees, judgments, fines, and amounts paid in settlement,  actually and
reasonably  incurred  by him in  connection  with the claim,  action,  suit,  or
proceeding,  if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best  interests of the Trust,  and,  with respect to
any  criminal  action or  proceeding,  had no  reasonable  cause to believe  his
conduct was  unlawful.  The  termination  of any action,  suit or  proceeding by
judgment, order, settlement,  conviction, or upon the plea of nolo contendere or
its equivalent,  shall not, of itself,  create a presumption that the person did
not act in good faith and in a manner which he  reasonably  believed to be in or
not  opposed  to the best  interests  of the  Trust,  and,  with  respect to any
criminal action or proceeding,  had reasonable cause to believe that his conduct
was unlawful.                                                                   

         SECTION 11.2 Derivative Actions Against Trustees or Officers. The Trust
shall  indemnify any individual who is a present or former Trustee or officer of
the Trust and who, by reason of his position as such,  was, is, or is threatened
to be made a party to any threatened,  pending or completed action or suit by or
on  behalf of the Trust to obtain a  judgment  or decree in its  favor,  against
expenses,  including attorneys' fees, actually and reasonably incurred by him in
connection  with the defense or settlement of the action or suit, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best  interests of the Trust,  except that no  indemnification  shall be made in
respect  of any  claim,  issue or  matter as to which  the  individual  has been
adjudged to be liable for  negligence or misconduct  in the  performance  of his
duty to the Trust,  except to the  extent  that the court in which the action or
suit was brought  determines upon application that,  despite the adjudication of
liability but in view of all circumstances of the case, the person is fairly and
reasonably  entitled to indemnity for those  expenses which the court shall deem
proper,  provided such Trustee or officer is not adjudged to be liable by reason
of his wilful misfeasance,  bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.                               

         SECTION  11.3  Expenses  of  Successful  Defense.  To the extent that a
Trustee or officer of the Trust has been  successful  on the merits or otherwise
in defense of any action, suit or proceeding referred to in Section 11.1 or 11.2
or in defense of any claim,  issue, or matter  therein,  he shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection therewith.                                                    

SECTION 11.4 Required Standard of Conduct.                    

         (a) Unless a court orders otherwise,  any indemnification under Section
11.1 or 11.2 may be made by the Trust only as  authorized  in the specific  case
after a determination  that  indemnification of the Trustee or officer is proper
in the circumstances  because he has met the applicable  standard of conduct set
forth in  Section  11.1 or 11.2.  The  determination  shall be made by:  (i) the
Trustees,  by a majority  vote of a quorum  consisting  of Trustees who were not
parties to the action,  suit or  proceeding;  or if the  required  quorum is not
obtainable,  or if a  quorum  of  disinterested  Trustees  so  directs,  (ii) an
independent legal counsel in a written opinion.                                 

         (b) Nothing  contained in this Article XI shall be construed to protect
any Trustee or officer of the Trust  against any  liability  to the Trust or its
Shareholders  to which  he would  otherwise  be  subject  by  reason  of  wilful
misfeasance,  bad faith,  gross negligence,  or reckless disregard of the duties
involved in the conduct of his office (any such conduct being hereinafter called
"Disabling Conduct").  No indemnification shall be made pursuant to this Article
XI unless:                                                                      

         (i) There is a final  determination  on the  merits by a court or other
body before whom the action,  suit or proceeding was brought that the individual
to be indemnified was not liable by reason of Disabling Conduct; or             

         (ii)  In the  absence  of such a  judicial  determination,  there  is a
reasonable determination, based upon a review of the facts, that such individual
was not liable by reason of Disabling Conduct, which determination shall be made
by:                                                                             

         (A) A majority  of a quorum of  Trustees  who are  neither  "interested
persons"  of the Trust,  as defined  in section  2(a) (19) of the 1940 Act,  nor
parties to the action, suit or proceeding; or                                   

(B) An independent legal counsel in a written opinion.        

         SECTION 11.5 Advance  Payments.  Notwithstanding  any provision of this
Article  XI, any  advance  payment of  expenses  by the Trust to any  Trustee or
officer of the Trust shall be made only upon the  undertaking by or on behalf of
such Trustee or officer to repay the advance unless it is ultimately  determined
that he is entitled to indemnification as above provided, and only if one of the
following conditions is met:                                                    

     (a) the Trustee or officer to be  indemnified  provides a security  for his
undertaking; or                                                                 

     (b) The Trust is  insured  against  losses  arising by reason of any lawful
advances; or                                                                    

     (c) There is a determination, based on a review of readily available facts,
that there is reason to believe  that the  Trustee or officer to be  indemnified
ultimately will be entitled to  indemnification,  which  determination  shall be
made by:                                                                        

                  (i) A  majority  of a  quorum  of  Trustees  who  are  neither
                  "interested  persons" of the Trust, as defined in Section 2(a)
                  (19) of the 1940  Act,  nor  parties  to the  action,  suit or
proceeding; or                              

               (ii)     An independent legal counsel in a written opinion.

         SECTION 11.6 Former Trustees and Officers. The indemnification provided
by this  Article XI shall  continue as to an  individual  who has ceased to be a
Trustee  or  officer  of the  Trust  and  inure  to  the  benefit  of the  legal
representatives  of such  individual  and shall not be deemed  exclusive  of any
other rights to which any Trustee,  officer,  employee or agent of the Trust may
be entitled  under any  agreement,  vote of Trustees  or  otherwise,  both as to
action in his  official  capacity  and as to action in  another  capacity  while
holding  office as such;  provided,  that no  Person  may  satisfy  any right of
indemnity granted herein or to which he may be otherwise entitled, except out of
the Trust Property,  and no Shareholder  shall be personally liable with respect
to any claim for indemnity.                                                     

         SECTION 11.7 Insurance.  The Trust may purchase and maintain  insurance
on behalf of any person who is or was a Trustee, officer,  employee, or agent of
the Trust, against any liability asserted against him and incurred by him in any
such capacity,  or arising out of his status as such.  However,  the Trust shall
not purchase insurance to indemnify any Trustee or officer against liability for
any  conduct in respect of which the 1940 Act  prohibits  the Trust  itself from
indemnifying him.                                                               

         SECTION  11.8  Other  Rights to  Indemnification.  The  indemnification
provided for herein  shall not be deemed  exclusive of any other rights to which
those seeking indemnification may be entitled under any By-Law,  agreement, vote
of Shareholders or disinterested Trustees or otherwise.                         

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees,  officers and  controlling  persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such  indemnification  is against  public policy as expressed in the Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the Registrant of expenses incurred
or paid by a  Trustee,  officer,  or  controlling  person of the  Registrant  in
connection  with the  successful  defense of any action,  suit or proceeding) is
asserted by such Trustee,  officer or controlling  person in connection with the
shares  being  registered,  the  Registrant  will,  unless in the opinion of its
counsel the matter has been settled by controlling precedent,  submit to a court
of appropriate  jurisdiction the question whether such  indemnification by it is
against  public policy as expressed in the Act and will be governed by the final
adjudication of such issue.                                                     

Item 28. Business or Other Connections of Investment Adviser                    

     (a) For a description of the other business of the investment adviser,  see
the section entitled "Management of the Funds-Investment Adviser" in Part A.    

     Evergreen Asset Management Corp., the Registrant's  investment adviser, and
Lieber  and  Company,  the  Registrant's  sub-adviser  also  act as  such to the
Evergreen Trust,  Evergreen Income and Growth Fund, The Evergreen Limited Market
Fund, Inc.,  Evergreen Growth and Income Fund, The Evergreen Money Market Trust,
The  Evergreen  American   Retirement  Trust,  The  Evergreen  Municipal  Trust,
Evergreen Equity Trust, Evergreen Foundation Trust and Evergreen Variable Trust,
all registered investment companies.  Stephen A. Lieber, Theodore J. Israel, Jr.
and Nola Maddox  Falcone,  officers of the Adviser and Lieber and Company  were,
prior to June 30, 1994 officers  and/or  directors or trustees of the Registrant
and the other funds for which the Adviser acts as investment adviser.  Evergreen
Asset Management  Corp. and Lieber and Company are wholly-owned  subsidiaries of
First Union National Bank Of North Carolina.                                    

     The Trustees and principal  executive officers of First Union National Bank
of  North  Carolina,   parent  of  the  Registrants's   investment  adviser  and
sub-adviser,  and the Directors of First Union National Bank of North  Carolina,
are set forth in the following tables:                                          

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FIRST UNION NATIONAL BANK OF NORTH CAROLINA       
BOARD OF DIRECTORS        

George E. Battle, Jr.              John R. Belk                   
President of the Board of          Senior Vice President          
Bishops of AME Zion Church         Belk Stores Services, Inc.     
South Atlantic Region              2801 W. Tyvola Road            
Two First Union Center-Ste 2040    Charlotte, NC 29217-4500       
Charlotte, NC 28202                                               

Daniel T. Blue, Jr.                Ben Mayo Boddie                
Partner                            Chairman & CEO                 
Thigpen, Blue, Stephens & Fellers   Boddie-Noell Enterprises, Inc.
205 Fayetteville Street Mall       P.O. Box 1908                  
Raleigh, NC 27602                  Rocky Mount, NC 27802          

Raymond A. Bryan, Jr.              John F.A.V. Cecil              
Chairman & CEO                     President                      
T.A. Loving Company                Biltmore Dairy Farms, Inc.     
P.O. Drawer 919                    P.O. Box 5355                  
Goldsboro, NC 27530                Asheville, NC 28813            

John W. Copeland                   John Crosland, Jr.             
President                          Chairman of the Board          
Ruddick Corporation                The Crosland Group, Inc.       
2000 Two First Union Center        135 Scaleybark Road            
Charlotte, NC 28282                Charlotte, NC  28209           

J. William Disher                  Malcolm E. Everett, III        
Chairman & President               President & CEO                
Lance Incorporated                 First Union National Bank      
P.O. Box 32368                     of North Carolina              
Charlotte, NC 28232                310 S. Tryon Street            
                            Charlotte, NC 28288-0006

James F. Goodmon                   Shelton Gorelick               
President & Chief                  President                      
Executive Officer                SGIC, Inc.                   
Capitol Broadcasting               P.O. Box 35229                 
Company, Inc.                    Charlotte, NC 28235-5129     
P.O. Box 12000                                                    
Raleigh, NC  27605                                                

Charles L. Grace                   James E. S. Hynes              
President                          Chairman                       
Cummins Atlantic, Inc.             Hynes Sales Company, Inc.      
P.O. Box 240729                    P.O. Box 220948                
Charlotte, NC  28224-0729          Charlotte, NC  28222           

Mackey J. McDonald                 Earl N. Phillips, Jr.          
President & CEO                    President                      
V F Corporation                    First Factors Corporation      
P.O. Box 1022                      P.O. Box 2730                  
Wyomissing, PA 19610               High Point, NC  27261          

J. Gregory Poole, Jr.              John P. Rostan, III            
Chairman & President               General Partner                
Gregory Poole Equipment Company    Heritage Investments, LLP      
P.O. Box 469                       P.O. Box 970                   
Raleigh, NC  27602                 Valdese, NC  28690             

Nelson Schwab, III                 George Shinn                   
Managing Director                  Owner and Chairman             
Carousel Capatal Company           Shinn Enterprises, Inc.        
4201 Congress St., Suite 440       100 Hive Drive                 
Charlotte, NC  28209               Charlotte, NC  28217           

Harley F. Shuford, Jr.             Stanley E. Wright              
President and CEO                  Retired President and Chief    
Shuford Industries                 Executive Officer              
P.O. Box 608                       219 Fayetteville Street Mall   
Hickory, NC  28603                 Raleigh Federal Savings Bank   
                     Raleigh, NC 27601

FIRST UNION NATIONAL BANK OF NORTH CAROLINA       
EXECUTIVE OFFICERS        

    Edward E. Crutchfield, Chairman & CEO, First Union Corporation
John R. Georgius, Vice Chairman, First Union Corporation  
B.J. Walker, Vice Chariman, First Union Corporation       
Malcolm E. Everett, President, FUNB of NC                 
Austin A. Adams, EVP, First Union Corporation             
Marion A. Cowell Jr., EVP, First Union Corporation        
Robert T. Atwood, EVP & CFO, First Union Corporation      
Leigh Bullen, Controller, FUNB of NC                      
H. Burt Melton, EVP, First Union Corporation              
Don R. Johnson, EVP, First Union Corporation              
Malcolm T. Murray, EVP, First Union Corporation           
Alvin T. Sale, EVP, First Union Corporation               
Richard K. Wagoner, EVP, FUNB of NC                       
         James H. Hatch, SVP & Corporate Controller, First Union Corporation
Richard C. Highfield, SVP, First Union Corporation        
Ben C. Maffitt, SVP, FUNB of NC                           
Donald A. McMullen, EVP, FUNB of NC                       
Kenneth R. Stancliff, SVP, First Union Corporation        
Fred Winkler, EVP, FUNB of NC                             
Peter J. Schild, SVP, First Union Corporation             
Betty Trautwein, SVP, FUNB of NC                          
Alice Lehman, SVP, First Union Corporation                
Nina Archer, SVP, FUNB of NC                              

  All of the Executive Officers are located at the following
        address:  First Union National Bank of North Carolina, One First
Union Center, Charlotte, NC  28288.                     

Item 29. Principal Underwriters                                                 

         Evergreen Keystone Distributor, Inc. (formerly known as Evergreen Funds
        Distributor, Inc.)  The Director and principal executive officers are:

Director          Michael C. Petrycki                                           

Officers          Robert A. Hering           President                          
Michael C. Petrycki        Vice President   
Gordon M. Forrester        Vice President   
          Lawrence Wagner            VP, Chief Financial Officer
       Steven D. Blecher          VP, Treasurer, Secretary
  Elizabeth Q. Solazzo       Assistant Secretary
  Thalia M. Cody             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                                          
Evergreen Income and Growth Fund                                          
The Evergreen American Retirement Trust:                                  
The Evergreen American Retirement Fund                          
Evergreen Small Cap Equity Income Fund                          
The Evergreen Foundation Trust:                                           
Evergreen Foundation Fund                                       
Evergreen Tax Strategic Foundation Fund                         
The Evergreen Municipal Trust:                                            
Evergreen Short-Intermediate Municipal Fund                     
Evergreen Short-Intermediate Municipal Fund-CA                  
Evergreen Florida High Income Municipal Bond Fund               
Evergreen Tax Exempt Money Market Fund                          
Evergreen Institutional Tax Exempt Money Market Fund            
Evergreen Money Market Trust:                                             
Evergreen Money Market Fund                                     
Evergreen Institutional Money Market Fund                       
Evergreen Institutional Treasury Money Market Fund              
Evergreen Investment Trust:                                               
Evergreen Emerging Markets Growth Fund                          
Evergreen  International Equity  Fund                           
Evergreen  Balanced Fund                                        
Evergreen  Value Fund                                           
Evergreen  Utility Fund                                         
Evergreen Short-Intermediate Bond Fund                          
Evergreen U.S.  Government  Fund                                
Evergreen Florida Municipal Bond Fund                           
Evergreen Georgia Municipal Bond Fund                           
Evergreen North Carolina Municipal Bond Fund                    
Evergreen South Carolina  Municipal Bond Fund                   
Evergreen  Virginia  Municipal Bond Fund                        
Evergreen  High Grade Tax Free Fund                             
Evergreen  Treasury  Money Market Fund                          
The Evergreen Lexicon Fund:                                               
Evergreen Intermediate-Term Government Securities Fund          
Evergreen Intermediate-Term Bond Fund                           
Evergreen Tax Free Trust:                                                 
Evergreen Pennsylvania Tax Free Money Market Fund               
Evergreen New Jersey Tax Free Income Fund                       
Evergreen Variable Trust:                                                 
Evergreen VA Fund                                               
Evergreen VA Growth and Income Fund                             
Evergreen VA Foundation Fund                                    
Evergreen VA Global Leaders Fund                                

Item 30. Location of Accounts and Records                                       

         Accounts,  books and  other  documents  required  to be  maintained  by
Section 31(a) of the  Investment  Company Act of 1940 and the Rules  promulgated
thereunder are maintained at the offices of the  Registrant's  Custodian,  State
Street Bank and Trust Company,  2 Heritage  Drive,  North Quincy,  Massachusetts
02171 or the offices of  Evergreen  Asset  Management  Corp.,  2500  Westchester
Avenue, Purchase, New York 10577.                                               

Item 31. Management Services                                                    

Not Applicable.           

Item 32. Undertakings                                                           

Not Applicable.           

485APOS
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SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
has  duly  caused  this  Post-Effective  Amendment  No. 26 to  the  Registration
Statement  to be  signed  on its  behalf  by  the  undersigned,  thereunto  duly
authorized,  in The  City of New  York,  State of New  York,  on the 31st day of
January, 1997.                                                                  

                  EVERGREEN INCOME AND GROWTH FUND

                   /s/ John J. Pileggi
                     by-----------------------------
                          John J. Pileggi, President
                  by James P. Wallin
                    Attorney - In - Fact

     Pursuant to the  requirements  of the  Securities  Act of 1933, as amended,
this  Post-Effective  Amendment  No. 26 to the  Registration  Statement has been
signed  below  by the  following  persons  in the  capacities  and on the  dates
indicated.                                                                      

Signatures                         Title                      Date              
-----------                        -----                      ----              
/s/John J. Pileggi                                                              
-----------------------            President and             January 31, 1997   
John J. Pileggi                    Treasurer                                    
by James P. Wallin                                                              
Attorney - In - Fact                                                            

/s/ Laurence B. Ashkin                                                          
-----------------------            Trustee                   January 31, 1997   
Laurence B. Ashkin                                                              
by James P. Wallin                                                              
Attorney - In - Fact                                                            

/s/Foster Bam                                                                   
-----------------------            Trustee                   January 31, 1997   
Foster Bam                                                                      
by James P. Wallin                                                              
Attorney - In - Fact                                                            

/s/James S. Howell                                                              
-----------------------            Trustee                   January 31, 1997   
James S. Howell                                                                 
by James P. Wallin                                                              
Attorney - In - Fact                                                            

/s/Gerald M. McDonnell                                                          
-----------------------            Trustee                   January 31, 1997   
Gerald M. McDonnell                                                             
by James P. Wallin                                                              
Attorney - In - Fact                                                            

/s/Thomas L. McVerry                                                            
-----------------------            Trustee                   January 31, 1997   
Thomas L. McVerry                                                               
by James P. Wallin                                                              
Attorney - In - Fact                                                            

/s/William Walt Pettit                                                          
-----------------------            Trustee                   January 31, 1997   
William Walt Pettit                                                             
by James P. Wallin                                                              
Attorney - In - Fact                                                            

/s/Russell A. Salton, III, M.D                                                  
------------------------------     Trustee                   January 31, 1997   
Russell A. Salton, III, M.D                                                     
by James P. Wallin                                                              
Attorney - In - Fact                                                            

/s/Michael S. Scofield                                                          
-----------------------            Trustee                   January 31, 1997   
Michael S. Scofield                                                             
by James P. Wallin                                                              
Attorney - In - Fact                                                            

485APOS
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 INDEX TO EXHIBITS

Exhibit                                                                         
Number                     Description                                          
-------                    ------------                                         

Other Exhibit                                                                   

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘485APOS’ Filing		Date		First		Last			Other Filings
		4/1/97		2		46			485BPOS,  NSAR-B
		3/28/97		1
		2/28/97		66		81
Filed on:		1/31/97		1		120			24F-2NT,  N-30D,  NSAR-B
		12/31/96		6		108
		12/15/96		109
		12/11/96		15		79
		12/9/96		79
		11/30/96		65		108
		9/6/96		76
		4/1/96		117					485B24E,  497J,  NSAR-B
		2/8/96		79
		1/31/96		7		117			24F-2NT,  N-30D,  NSAR-B
		1/1/96		64
		12/31/95		6		96
		11/30/95		88
		7/8/95		80		82
		7/7/95		80		104
		4/20/95		82
		1/31/95		7		117			24F-2NT,  N-30D/A,  NSAR-BT
		1/3/95		81		117
		12/31/94		6		88
		12/30/94		41		103
		12/13/94		81
		11/30/94		88
		9/2/94		84		107
		6/30/94		15		118
		6/23/94		76		79
		4/1/94		87
		3/31/94		117					NSAR-B
		2/28/94		107
		1/4/94		78		107
		12/31/93		80
		1/25/93		107
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