Keystone Precious Metals Holdings Inc · 485APOS · On 1/5/98

Filed On 1/5/98   ·   SEC File 333-41405   ·   Accession Number 908737-98-4

Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485APOS     Post-Effective Amendment                             296± 1,251K 
 2: EX-99.B11   Miscellaneous Exhibit                                  2     13K 
 3: EX-99.B12   Miscellaneous Exhibit                                  3     15K 
 4: EX-99.B14   Miscellaneous Exhibit                                  2      7K 
 5: EX-99.B17   Miscellaneous Exhibit                                  2     10K 

485APOS   ·   Post-Effective Amendment
Document Table of Contents

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 1933 Act Registration No. 333-41405

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 Form N-14AE

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933

[ ]      Pre-Effective                          [X]      Post-Effective         
 Amendment No.                                   Amendment No. 1

EVERGREEN INTERNATIONAL TRUST 

(Exact Name of Registrant as Specified in Charter)

Area Code and Telephone Number: (617) 210-3200

 200 Berkeley Street
 Boston, Massachusetts 02116
 -----------------------------------
(Address of Principal Executive Offices)

 Rosemary D. Van Antwerp, Esq.
Keystone Investment Management Company
 200 Berkeley Street
 Boston, Massachusetts 02116
----------------------------------------- 
 (Name and Address of Agent for Service)

Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP
 1025 Connecticut Avenue, N.W.
Washington, D.C. 20036

It is proposed that this filing will become effective:        

[ ] immediately upon filing pursuant to paragraph (b)                           
[ ] on  __________pursuant to  paragraph  (b)                                   
[X] 60 days after filing  pursuant to  paragraph  (a) (1)                       
[ ] on___________ pursuant  to paragraph (a) (1)                                
[ ] 75 days after filing pursuant to paragraph (a) (2)                          
[ ] on___________pursuant to paragraph (a) (2) of Rule 485                      

         Pursuant  to  Rule  414  under  the  Securities  Act of  1933,  by this
amendment  to  Registration  Statement  No.  333-41405 on Form N- 14 of Keystone
Precious Metals Holdings,  Inc., a Delaware  corporation,  the Registrant hereby
adopts the Registration                                                         

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Statement of such corporation under                                             

the Securities Act of 1933.                                                     

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EVERGREEN INTERNATIONAL TRUST                                                 

 CROSS REFERENCE SHEET

Pursuant to Rule 481(a) under the Securities Act of 1933

                                        Location in Prospectus/Proxy
Item of Part A of Form N-14                                           Statement 

1.       Beginning of Registration            Cross Reference Sheet; Cover      
Statement and Outside                Page                     
Front Cover Page of                                           
Prospectus                                                    

2.       Beginning and Outside                Table of Contents                 
Back Cover Page of                                            
Prospectus                                                    

3.       Fee Table, Synopsis and              Comparison of Fees and            
    Risk Factors                         Expenses; Summary; Comparison
                                        of Investment Objectives and
                           Policies; Risks

4.       Information About the                Summary; Reasons for the          
  Transaction                          Reorganization; Comparative
                                        Information on Shareholders'
                                        Rights; Exhibit A (Agreement
                                       and Plan of Reorganization)

5.       Information about the                Cover Page; Summary; Risks;       
Registrant                           Comparison of Investment 
                                    Objectives and Policies;
                                      Comparative Information on
                                 Shareholders' Rights;
                                  Additional Information

6.       Information about the                Cover Page; Summary; Risks;       
Company Being Acquired               Comparison of Investment 
                                   Objective and Policies;
                                      Comparative Information on
                                 Shareholders' Rights;
                                  Additional Information

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7.       Voting Information                   Cover Page; Summary; Voting       
                                      Information Concerning the
                   Meeting

8.       Interest of Certain                  Financial Statements and          
Persons and Experts                  Experts; Legal Matters   

9.       Additional Information               Inapplicable                      
Required for Reoffering                                       
by Persons Deemed to be                                       
Underwriters                                                  

Item of Part B of Form N-14                                                     

10.      Cover Page                           Cover Page                        

11.      Table of Contents                    Omitted                           

12.      Additional Information               Statement of Additional           
About the Registrant                 Information of Keystone  

                                          Precious Metals Holdings, Inc.
                                    dated April 30, 1997, as
                     amended

13.      Additional Information               Statement of Additional           
about the Company Being              Information of Blanchard 
 Acquired                             Precious Metals Fund, Inc.
                               dated  November 30,
                1997

14.      Financial Statements                 Financial Statements dated        
                                        October 31, 1997 of Keystone
                                     Precious Metals Holdings,
                                         Inc.; Financial Statements of
                                     Blanchard Precious Metals
                                          Fund, Inc. dated September 30,
                                     1997; Pro Forma Financial
                      Statements

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Item of Part C of Form N-14                   Incorporated by Reference to      
                                         Part A Caption - "Comparative
15.      Indemnification                      Information on Shareholders'      
                                  Rights - Liability and
                                       Indemnification of Trustees
                          and Directors"

16.      Exhibits                             Item 16.          Exhibits        

17.      Undertakings                         Item 17.          Undertakings    

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BLANCHARD PRECIOUS METALS FUND, INC.
 FEDERATED INVESTORS TOWER
 PITTSBURGH, PENNSYLVANIA 15222-3779

January  6, 1998                                                                

Dear Shareholder,                                                               

As a  result  of the  merger  of  Signet  Banking  Corporation  with  and into a
wholly-owned  subsidiary of First Union Corporation effective November 28, 1997,
I am writing to  shareholders  of the Blanchard  Precious Metals Fund, Inc. (the
"Fund"), to inform you of a Special Shareholders' meeting to be held on February
20, 1998.  Before that meeting,  I would like your vote on the important  issues
affecting your Fund as described in the attached Prospectus/Proxy Statement.    

The  Prospectus/Proxy  Statement  includes three  proposals.  The first proposal
requests  that  shareholders  consider  and act  upon an  Agreement  and Plan of
Reorganization  whereby  all of the  assets  of the Fund  would be  acquired  by
Keystone  Precious  Metals  Holdings in exchange  for Class A shares of Keystone
Precious Metals Holdings and the assumption by Keystone Precious Metals Holdings
of certain liabilities of the Fund. You will receive shares of Keystone Precious
Metals  Holdings  having an aggregate net asset value equal to the aggregate net
asset  value  of your  Fund  shares.  Details  about  Keystone  Precious  Metals
Holdings' investment objective, portfolio management team, performance, etc. are
contained in the  attached  Prospectus/Proxy  Statement.  The  transaction  is a
non-taxable event for shareholders.                                             

The second proposal requests shareholder  consideration of an Interim Investment
Advisory Agreement between the Fund and Virtus                                  
Capital Management, Inc.                                                        

The third and final proposal  requests  shareholder  consideration of an Interim
Sub-Advisory  Agreement  between  Virtus  Capital  Management,  Inc. and Cavelti
Capital Management, Ltd.                                                        

Information  relating  to the  Interim  Investment  Advisory  Agreement  and the
Interim  Sub-Advisory  Agreement is  contained in the attached  Prospectus/Proxy
Statement.                                                                      

The Board of Directors has approved the proposals and  recommends  that you vote
FOR these proposals.                                                            

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I realize that this  Prospectus/Proxy  Statement  will take time to review,  but
your vote is very important.  Please take the time to familiarize  yourself with
the  proposals  presented  and sign and return  your proxy card in the  enclosed
postage-paid envelope today.                                                    

If we do not receive your completed  proxy card after several weeks,  you may be
contacted by our proxy solicitor,  Shareholder Communications  Corporation,  who
will remind you to vote your shares.                                            

Thank you for taking this matter  seriously and  participating in this important
process.                                                                        

Sincerely,                                                                      

Edward C. Gonzales                                                            
President                                                                     

Blanchard Precious Metals Fund, Inc.                                            

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  BLANCHARD PRECIOUS METALS FUND, INC.

 FEDERATED INVESTORS TOWER
 PITTSBURGH, PENNSYLVANIA 15222-3779

 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
 TO BE HELD ON FEBRUARY 20, 1998

         Notice is  hereby  given  that a Special  Meeting  (the  "Meeting")  of
Shareholders of Blanchard Precious Metals Fund, Inc. ("Precious Metals") will be
held at the offices of the Evergreen  Funds,  200 Berkeley  Street,  26th Floor,
Boston,  Massachusetts 02116 on February 20, 1998 at 2:00 p.m. for the following
purposes:                                                                       

         1. To consider and act upon the  Agreement  and Plan of  Reorganization
(the "Plan") dated as of November 26, 1997, providing for the acquisition of all
of the assets of Precious Metals by Keystone Precious Metals Holdings ("Keystone
Precious Metals"),  a series of the Evergreen  International  Trust, in exchange
for Class A shares of Keystone  Precious  Metals and the  assumption by Keystone
Precious Metals of certain  identified  liabilities of Precious Metals. The Plan
also provides for  distribution  of such shares of Keystone  Precious  Metals to
shareholders  of Precious  Metals in liquidation  and subsequent  termination of
Precious  Metals.  A vote  in  favor  of the  Plan  is a vote  in  favor  of the
liquidation and dissolution of Precious Metals.                                 

     2. To  consider  and act  upon  the  Interim  Management  Contract  between
Precious Metals and Virtus Capital Management, Inc.                             

     3. To consider  and act upon the  Interim  Sub-Advisory  Agreement  between
Virtus Capital Management, Inc. and Cavelti Capital Management, Ltd.            

         4. To transact any other  business  which may properly  come before the
Meeting or any adjournment or adjournments thereof.                             

         The  Board of  Directors  of  Precious  Metals  has  fixed the close of
business  on  December  26,  1997 as the record  date for the  determination  of
shareholders of Precious Metals entitled to notice of and to vote at the Meeting
or any adjournment thereof.                                                     

IT IS  IMPORTANT  THAT  PROXIES BE RETURNED  PROMPTLY.  SHAREHOLDERS  WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED                                            

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WITHOUT  DELAY TO SIGN AND RETURN THE ENCLOSED  PROXY IN THE ENCLOSED  ENVELOPE,
WHICH  REQUIRES  NO  POSTAGE,  SO THAT THEIR  SHARES MAY BE  REPRESENTED  AT THE
MEETING.  YOUR PROMPT  ATTENTION  TO THE  ENCLOSED  PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.                                                

By Order of the Board of Directors

                                                             John W. McGonigle
                                                     Secretary

January  6, 1998                                                                

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INSTRUCTIONS FOR EXECUTING PROXY CARDS

         The  following  general  rules  for  signing  proxy  cards  may  be  of
assistance  to you and may  help to  avoid  the time  and  expense  involved  in
validating your vote if you fail to sign your proxy card(s) properly.           

1.       INDIVIDUAL ACCOUNTS:  Sign your name exactly as it   
appears in the Registration on the proxy card(s).                               

  2.       JOINT ACCOUNTS:  Either party may sign, but the name of
the party signing should conform exactly to a name shown in the                 
Registration on the proxy card(s).                                              

         3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card(s) should be indicated  unless it is reflected in the form of Registration.
For example:                                                                    

REGISTRATION                                     VALID SIGNATURE                

CORPORATE                                                                       
ACCOUNTS                                                                        
(1)  ABC Corp.                                   ABC Corp.                      
(2)  ABC Corp.                                   John Doe, Treasurer            
(3)  ABC Corp.                                                                  
c/o John Doe, Treasurer                          John Doe, Treasurer            
(4)  ABC Corp. Profit Sharing Plan               John Doe, Trustee              
TRUST ACCOUNTS                                                                  

(1)  ABC Trust                                   Jane B. Doe, Trustee           
(2)  Jane B. Doe, Trustee                        Jane B. Doe                    
u/t/d 12/28/78                                                                  
CUSTODIAL OR ESTATE ACCOUNTS                                                    
(1)  John B. Smith, Cust.                        John B. Smith                  
f/b/o John B. Smith, Jr. UGMA                                                   
(2)  John B. Smith,    Sr.                       John B. Smith, Jr., Executor   

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PROSPECTUS/PROXY STATEMENT DATED JANUARY 6, 1998

Acquisition of Assets of

BLANCHARD PRECIOUS METALS FUND, INC.
 Federated Investors Tower
 Pittsburgh, Pennsylvania 15222-3779

By and in Exchange for Shares of

 KEYSTONE PRECIOUS METALS HOLDINGS

 a series of
 Evergreen International Trust
 200 Berkeley Street
 Boston, Massachusetts 02116

         This  Prospectus/Proxy  Statement is being furnished to shareholders of
Blanchard  Precious Metals Fund, Inc.  ("Precious  Metals") in connection with a
proposed  Agreement and Plan of  Reorganization  (the "Plan") to be submitted to
shareholders  of  Precious  Metals  for  consideration  at a Special  Meeting of
Shareholders  to be held on February 20, 1998 at 2:00 p.m. at the offices of the
Evergreen  Funds,  200 Berkeley  Street,  Boston,  Massachusetts  02116, and any
adjournments thereof (the "Meeting"). The Plan provides for all of the assets of
Precious Metals to be acquired by Keystone  Precious Metals Holdings  ("Keystone
Precious Metals") in exchange for Class A shares of Keystone Precious Metals and
the assumption by Keystone Precious Metals of certain identified  liabilities of
Precious  Metals  (hereinafter  referred to as the  "Reorganization").  Keystone
Precious  Metals and  Precious  Metals are  sometimes  hereinafter  referred  to
individually  as the "Fund"  and  collectively  as the  "Funds."  Following  the
Reorganization,  Class A shares of Keystone  Precious Metals will be distributed
to  shareholders  of Precious  Metals in liquidation of Precious Metals and such
Fund will be  terminated.  No initial sales charge will be imposed in connection
with the shares of  Keystone  Precious  Metals  received by holders of shares of
Precious  Metals.  As a result of the proposed  Reorganization,  shareholders of
Precious  Metals will receive that number of full and fractional  Class A shares
of Keystone  Precious  Metals  having an aggregate  net asset value equal to the
aggregate net asset value of such  shareholder's  shares of Precious Metals. The
Reorganization  is being  structured  as a tax-free  reorganization  for federal
income tax purposes.                                                            

         Keystone   Precious   Metals  is  a   separate   series  of   Evergreen
International Trust, an open-end management investment                          

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company  registered  under the  Investment  Company Act of 1940, as amended (the
"1940 Act"). The investment  objectives of Keystone  Precious Metals are to seek
long-term  capital   appreciation  while  protecting  the  purchasing  power  of
shareholders'  capital and, as a secondary objective,  to obtain current income.
Keystone  Precious  Metals  invests  primarily in common  stocks of  established
companies  directly or  indirectly  engaged in mining,  processing or dealing in
gold or other precious metals and minerals.                                     

         The  primary  investment  objective  of  Precious  Metals is to provide
long-term  capital  appreciation  and  preservation of purchasing  power through
investments in physical precious metals,  such as gold,  silver,  platinum,  and
palladium, and in securities of companies involved with precious metals.        

         Shareholders  of  Precious  Metals are also being  asked to approve the
Interim Management Contract with Virtus Capital  Management,  Inc., a subsidiary
of First Union Corporation  ("Virtus") (the "Interim Advisory Agreement"),  with
the same terms and fees as the  previous  advisory  agreement  between  Precious
Metals and Virtus and the  Interim  Sub-Advisory  Agreement  between  Virtus and
Cavelti Capital  Management,  Ltd.  ("Cavelti  Capital") with the same terms and
fees as the previous sub- advisory agreement between Virtus and Cavelti Capital.
The Interim  Advisory  Agreement and Interim  Sub-Advisory  Agreement will be in
effect for the period of time between  November 28, 1997,  the date on which the
merger of Signet Banking Corporation with and into a wholly-owned  subsidiary of
First Union  Corporation  was  consummated,  and the date of the  Reorganization
(scheduled for on or about February 27, 1998).                                  

         This  Prospectus/Proxy  Statement,  which should be retained for future
reference,  sets forth concisely the information  about Keystone Precious Metals
that   shareholders  of  Precious  Metals  should  know  before  voting  on  the
Reorganization.  Certain relevant  documents listed below, which have been filed
with the Securities and Exchange Commission  ("SEC"),  are incorporated in whole
or in part by reference.  A Statement of Additional Information dated January 6,
1998, relating to this  Prospectus/Proxy  Statement and the Reorganization which
includes the financial  statements of Keystone Precious Metals dated October 31,
1997 and Precious  Metals dated  September 30, 1997, has been filed with the SEC
and is  incorporated  by reference in its  entirety  into this  Prospectus/Proxy
Statement.  A copy of such Statement of Additional Information is available upon
request  and  without  charge by  writing  to  Keystone  Precious  Metals at 200
Berkeley  Street,   Boston,   Massachusetts   02116,  or  by  calling  toll-free
1-800-343-2898.                                                                 

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         The  Prospectus  of Keystone  Precious  Metals dated April 30, 1997, as
amended,  and its Annual  Report for the fiscal year ended  October 31, 1997 are
incorporated  herein by reference in their  entirety.  Shareholders  of Precious
Metals  will  receive,  with  this  Prospectus/Proxy  Statement,  copies  of the
Prospectus of Keystone  Precious Metals.  Additional  information about Keystone
Precious  Metals is contained in its Statement of Additional  Information of the
same date which has been filed with the SEC and which is available  upon request
and  without  charge by writing to or calling  Keystone  Precious  Metals at the
address or telephone number listed in the preceding paragraph.                  

         The Prospectus of Precious  Metals dated November 30, 1997,  insofar as
it  relates  to  Precious  Metals  only,  and not to any other  funds  described
therein,  is  incorporated  herein in its entirety by  reference.  Copies of the
Prospectus and related Statement of Additional  Information dated the same date,
are available upon request  without charge by writing to Precious  Metals at the
address  listed  on the  cover  page of this  Prospectus/Proxy  Statement  or by
calling toll-free 1-800-829- 3863.                                              

         Included as Exhibits A, B and C to this Prospectus/Proxy  Statement are
a copy of the Plan, the Interim Advisory Agreement and the Interim  Sub-Advisory
Agreement, respectively.                                                        

         THESE   SECURITIES  HAVE  NOT  BEEN  APPROVED  OR  DISAPPROVED  BY  THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES  COMMISSION,  NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON  THE  ACCURACY  OR  ADEQUACY  OF  THIS  PROSPECTUS/PROXY   STATEMENT.   ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.                           

         The shares offered by this Prospectus/Proxy  Statement are not deposits
or  obligations  of any bank and are not insured or  otherwise  protected by the
U.S. government, the Federal Deposit Insurance Corporation,  the Federal Reserve
Board or any other  government  agency and involve  investment  risk,  including
possible                                                                        
loss of capital.                                                                

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 TABLE OF CONTENTS

                                                                          Page

COMPARISON OF FEES AND EXPENSES...............................................6 

SUMMARY  .....................................................................8 
        Proposed Plan of Reorganization....................................  9
        Tax Consequences....................................................10
        Investment Objectives and Policies of the Funds.....................11
        Comparative Performance Information for each Fund...................11
        Management of the Funds.............................................12
        Investment Advisers and Sub-Adviser.................................12
        Administrator.......................................................14
        Portfolio Manager...................................................14
        Distribution of Shares..............................................14
        Purchase and Redemption Procedures..................................15
        Exchange Privileges.................................................16
        Dividend Policy.....................................................16
        Risks    ...........................................................17

REASONS FOR THE REORGANIZATION...............................................19 
      Agreement and Plan of Reorganization............................. 22
        Federal Income Tax Consequences.....................................24
        Pro-forma Capitalization............................................25
        Shareholder Information.............................................26

COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.............................27 

COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS..............................30 
        Forms of Organization...............................................30
        Capitalization......................................................30
        Shareholder Liability...............................................31
      Shareholder Meetings and Voting Rights........................... 32
        Liquidation or Dissolution..........................................32
Liability and Indemnification of Trustees and                 
Directors................................................................. 33   

INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT.........................34 
        Introduction........................................................34
Comparison of the Interim Advisory Agreement and the          
                 Previous Advisory Agreement................................35
Information about Precious Metals' Investment                 
Adviser......................................................................36 

INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT.....................37 
        Introduction........................................................37
Comparison of the Interim Sub-Advisory Agreement              

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and the Previous Sub-Advisory Agreement......................................38 

ADDITIONAL INFORMATION.......................................................39 

VOTING INFORMATION CONCERNING THE MEETING....................................40 

FINANCIAL STATEMENTS AND EXPERTS.......................................... 43   

LEGAL MATTERS................................................................43 

OTHER BUSINESS...............................................................43 

APPENDIX A................................................................ 45   

APPENDIX B................................................................ 47   

EXHIBIT A                                                                       

EXHIBIT B                                                                       

EXHIBIT C                                                                       

EXHIBIT D                                                                       

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 COMPARISON OF FEES AND EXPENSES

         It is  anticipated  that on or about January 9, 1998 Keystone  Precious
Metals  will become a multiple  class fund.  As of that date the Fund will offer
Class A, Class B and Class C shares. It is further anticipated that at that time
current  outstanding  shares of Keystone  Precious  Metals  will become  Class B
shares of the Fund. On or before  January 16, 1998, it is  anticipated  that any
Class B shares of Keystone  Precious  Metals  purchased prior to January 1, 1995
will  convert to Class A shares of the Fund.  The  amounts for Class A shares of
Keystone  Precious Metals set forth in the following  tables and in the examples
are based on the expenses of Keystone  Precious Metals for the fiscal year ended
October 31,  1997.  The  amounts for shares of Precious  Metals set forth in the
following  tables and in the  examples  are based on the  expenses  for Precious
Metals for the fiscal year ended  September 30, 1997.  The pro forma amounts for
Class A shares  of  Keystone  Precious  Metals  are  based on what the  combined
expenses would have been for Keystone Precious Metals for the fiscal year ending
October 31, 1997. The pro forma numbers reflect the events described above.     

         The following tables show for Keystone Precious Metals, Precious Metals
and  Keystone   Precious  Metals  pro  forma,   assuming   consummation  of  the
Reorganization,  the shareholder  transaction expenses and annual fund operating
expenses  associated  with an  investment  in the  Class A  shares  of  Keystone
Precious Metals and shares of Precious Metals, as applicable.                   

Comparison of Class A Shares

of Keystone Precious Metals With

 Shares of Precious Metals

                                                                · Download Table


                                               Keystone  
                        Keystone    Precious   Precious  
                        Precious    Metals     Metals Pro
                        Metals      ------     Forma     

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

Shareholder                                              
Transaction             Shares      Shares     Class A   
Expenses                ------      ------     -------   

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Maximum Sales Load      None        None       4.75%     
Imposed on Purchases                                     
(as a percentage of                                      
offering price) (1)                                      

Maximum Sales Load      4.00%       None       None      
Imposed on Reinvested                                    
Dividends (as a                                          
percentage of offering                                   
price)                                                   

Contingent Deferred     None        None       None      
Sales Charge    (as a                                    
percentage of original                                   
purchase price or                                        
redemption proceeds,                                     
whichever is lower)                                      

Exchange Fee            None        None       None      

Annual Fund Operating                                    
Expenses (as a                                           
percentage of average                                    
daily net assets)                                        

Management Fee               0.70%  1.00%      0.67%     

12b-1 Fees    (2)       0.25%       0.75%      0.25%     

Other Expenses            1.00%     0.46%      0.64%     

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

Annual Fund Operating   2.48%       2.21%      1.56%     
Expenses                ---------   ---------  --------- 

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

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

(1)      The 4.75% sales load, as described in the "Examples"  paragraph  below,
has been waived for Precious Metals' shareholders.            

(2)      Class A  shares  of  Keystone  Precious  Metals  can pay up to 0.75% of
         average  daily net assets as a 12b-1 fee. For the  foreseeable  future,
         the Class A 12b-1 fees will be  limited  to 0.25% of average  daily net
assets.                                                       

         Examples.  The following  tables show for Keystone  Precious Metals and
Precious  Metals,   and  for  Keystone  Precious  Metals  pro  forma,   assuming
consummation  of the  Reorganization,  examples  of  the  cumulative  effect  of
shareholder transaction expenses and annual fund operating expenses indicated   

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above on a $1,000 investment in each class of shares for the periods  specified,
assuming a 5% annual return . In the case of Keystone Precious Metals pro forma,
the example does not reflect the  imposition  of the 4.75% maximum sales load on
purchases of Class A shares since Precious Metals shareholders who receive Class
A shares of  Keystone  Precious  Metals in the  Reorganization  or who  purchase
additional  Class  A  shares  of  Keystone  Precious  Metals  subsequent  to the
Reorganization will not incur any sales load.                                   

                                                                · Download Table


                 One   Three  Five   Ten  
                 Year  Years  Years  Years
                 ----  -----  -----  -----

                                          

 Keystone                                 
Precious Metals  $25   $77           $282 
                              $132        

Precious Metals   $22  $69    $118   $254 

 Keystone                                 
Precious Metals   $16  $49    $85    $186 
Pro Forma                                 

Class A                                   


         The  purpose of the  foregoing  examples is to assist  Precious  Metals
shareholders in understanding the various costs and expenses that an investor in
Keystone  Precious  Metals would bear directly and indirectly as a result of the
Reorganization  as  compared  with the  various  direct  and  indirect  expenses
currently borne by a shareholder in Precious  Metals.  These examples should not
be  considered a  representation  of past or future  expenses or annual  return.
Actual expenses may be greater or less than those shown.                        

 SUMMARY

         This  summary  is  qualified  in  its  entirety  by  reference  to  the
additional  information contained elsewhere in this Prospectus/Proxy  Statement,
and,  to the extent  not  inconsistent  with such  additional  information,  the
Prospectus of Keystone Precious Metals dated April 30, 1997, as amended, and the
Prospectus of Precious  Metals dated  November 30, 1997 (which are  incorporated
herein by reference),  the Plan, the Interim Advisory  Agreement and the Interim
Sub- Advisory  Agreement,  forms of which are attached to this  Prospectus/Proxy
Statement as Exhibits A, B and C, respectively.                                 

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Proposed Plan of Reorganization                                                 

         The Plan  provides  for the  transfer  of all of the assets of Precious
Metals in  exchange  for  Class A shares of  Keystone  Precious  Metals  and the
assumption by Keystone  Precious  Metals of certain  identified  liabilities  of
Precious Metals.  The identified  liabilities  consist only of those liabilities
reflected  on  the  Fund's  statement  of  assets  and  liabilities   determined
immediately   preceding  the  Reorganization.   The  Plan  also  calls  for  the
distribution   of  shares  of  Keystone   Precious  Metals  to  Precious  Metals
shareholders in liquidation of Precious Metals as part of the Reorganization. As
a result of the Reorganization,  the shareholders of Precious Metals will become
the  owners of that  number of full and  fractional  Class A shares of  Keystone
Precious  Metals  having an aggregate net asset value equal to the aggregate net
asset value of the  shareholders'  shares of Precious Metals, as of the close of
business  immediately  prior  to the  date  that  Precious  Metals'  assets  are
exchanged  for  shares  of  Keystone  Precious  Metals.  See  "Reasons  for  the
Reorganization - Agreement and Plan of Reorganization."                         

         The Board of Directors of Precious Metals,  including the Directors who
are not  "interested  persons,"  as such  term is  defined  in the 1940 Act (the
"Independent Directors"), have concluded that the Reorganization would be in the
best interests of shareholders of Precious Metals, and that the interests of the
shareholders  of  Precious  Metals  will  not  be  diluted  as a  result  of the
transactions contemplated by the Reorganization. Accordingly, the Directors have
submitted the Plan for the approval of Precious Metals' shareholders.           

 THE BOARD OF DIRECTORS OF PRECIOUS METALS
RECOMMENDS APPROVAL BY SHAREHOLDERS OF
 OF THE PLAN EFFECTING THE REORGANIZATION.

         The Trustees of Evergreen  International  Trust,  on behalf of Keystone
Precious Metals, have also approved the Plan, and accordingly  Keystone Precious
Metals' participation in the Reorganization.                                    

         Approval  of the  Reorganization  on the part of  Precious  Metals will
require the affirmative  vote of a majority of Precious Metals' shares voted and
entitled  to vote,  with all  classes  voting  together  as a single  class at a
Meeting at which a quorum of the Fund's  shares is  present.  A majority  of the
outstanding  shares  entitled  to vote,  represented  in person or by proxy,  is
required  to  constitute  a  quorum  at the  Meeting.  See  "Voting  Information
Concerning the Meeting."                                                        

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         The merger (the "Merger") of Signet Banking Corporation ("Signet") with
and into a wholly-owned  subsidiary of First Union  Corporation  ("First Union")
has  been  consummated  and,  as a  result,  by law the  Merger  terminated  the
investment  advisory  agreement  between  Virtus  and  Precious  Metals  and the
sub-advisory agreement between Virtus and Cavelti Capital. Prior to consummation
of the Merger,  Precious  Metals  received an order from the SEC which permitted
the  implementation,  without formal shareholder  approval,  of a new investment
advisory agreement between the Fund and Virtus and a new sub-advisory  agreement
between  Virtus  and  Cavelti  Capital  for a period  of not more  than 120 days
beginning  on the date of the closing of the Merger and  continuing  through the
date the Interim  Advisory  Agreement  and Interim  Sub-Advisory  Agreement  are
approved by the Fund's shareholders (but in no event later than April 30, 1998).
The Interim Advisory Agreement and the Interim  Sub-Advisory  Agreement have the
same  terms  and fees as the  previous  investment  advisory  agreement  between
Precious  Metals and  Virtus and the  previous  sub-advisory  agreement  between
Virtus and Cavelti Capital,  respectively.  The  Reorganization  is scheduled to
take place on or about February 27, 1998.                                       

         Approval of the Interim  Advisory  Agreement  and Interim Sub- Advisory
Agreement  requires  the  affirmative  vote of (i) 67% or more of the  shares of
Precious Metals present in person or by proxy at the Meeting, if holders of more
than 50% of the shares of  Precious  Metals  outstanding  on the record date are
present,  in person or by proxy, or (ii) more than 50% of the outstanding shares
of Precious Metals,  whichever is less. See "Voting  Information  Concerning the
Meeting."                                                                       

         If the  shareholders  of  Precious  Metals do not vote to  approve  the
Reorganization,  the Directors will consider other possible courses of action in
the best interests of shareholders.                                             

Tax Consequences                                                                

         Prior to or at the completion of the  Reorganization,  Precious  Metals
will  have   received  an  opinion  of   Sullivan  &  Worcester   LLP  that  the
Reorganization has been structured so that no gain or loss will be recognized by
the Fund or its  shareholders for federal income tax purposes as a result of the
receipt of shares of Keystone Precious Metals in the Reorganization. The holding
period and  aggregate tax basis of shares of Keystone  Precious  Metals that are
received by Precious Metals' shareholders will be the same as the holding period
and  aggregate  tax  basis  of  shares  of the  Fund  previously  held  by  such
shareholders,  provided that shares of the Fund are held as capital  assets.  In
addition,  the holding period and tax basis of the assets of Precious  Metals in
the hands of                                                                    

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Keystone Precious Metals as a result of the  Reorganization  will be the same as
in the hands of the Fund immediately prior to the Reorganization, and no gain or
loss will be  recognized  by  Keystone  Precious  Metals upon the receipt of the
assets of the Fund in exchange  for shares of Keystone  Precious  Metals and the
assumption by Keystone Precious Metals of certain identified liabilities.       

Investment Objectives and Policies of the Funds                                 

         The investment  objectives and policies of Keystone Precious Metals and
Precious  Metals are similar in that both seek  capital  appreciation  primarily
through investments in securities of companies related to precious metals. There
are, however, differences between the Funds' objectives and policies.           

         The  investment  objectives  of  Keystone  Precious  Metals are to seek
long-term  capital   appreciation  while  protecting  the  purchasing  power  of
shareholders' capital and secondly, to obtain current income.  Keystone Precious
Metals invests primarily in common stocks of established  companies  directly or
indirectly  engaged in mining,  processing or dealing in gold or other  precious
metals and minerals.                                                            

         The  primary  investment  objective  of  Precious  Metals is to provide
long-term  capital  appreciation  and  preservation of purchasing  power through
investments in physical precious metals,  such as gold,  silver,  platinum,  and
palladium,  and in securities of companies  involved with precious  metals.  The
Fund will ordinarily tend to emphasize  precious metals securities over physical
precious metals investments.                                                    

See "Comparison of Investment Objectives and Policies" below. 

Comparative Performance Information for each Fund                               

         Discussions  of the manner of calculation of total return are contained
in the  respective  Prospectus  and Statement of Additional  Information  of the
Funds. The total return of Keystone  Precious Metals and Precious Metals for the
one, five, and if applicable, ten year periods ended September 30, 1997, and for
both Funds for the periods from  inception  through  September  30, 1997 are set
forth  in  the  table  below.  The  calculations  of  total  return  assume  the
reinvestment   of  all  dividends  and  capital  gains   distributions   on  the
reinvestment date and the deduction of all recurring  expenses  (including sales
charges) that were charged to shareholders' accounts.                           

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                                                                · Download Table


                Average Annual Total Return                                 

           1 Year               5 Years      10 Years   From                
           Ended                Ended        Ended      Inception           
           September            September    September  To                  
           30,                  30,          30,        September  Inception
           1997                 1997         1997       30, 1997   Date     
           -------              -------      --------   ---------  ---------

                                                                            

           (19.88%)             6.65%        (1.82%)    9.58%      1/30/78  
Keystone                                                                    
Precious                                                                    
Metals                                                                      

Precious   (15.24%)             9.96%        N/A        1.27%      6/22/88  
Metals                                                                      
---------                                                                   


         Important  information about Keystone Precious Metals is also contained
in management's  discussion of Keystone Precious Metals'  performance,  attached
hereto as Exhibit D. This  information  also  appears in the most recent  Annual
Report of Keystone Precious Metals.                                             

Management of the Funds                                                         

         The  overall  management  of Keystone  Precious  Metals and of Precious
Metals is the  responsibility of, and is supervised by, the Board of Trustees of
Evergreen  International  Trust and the Board of Directors  of Precious  Metals,
respectively.                                                                   

Investment Advisers and Sub-Adviser                                             

         Keystone   Investment   Management  Company   ("Keystone")   serves  as
investment  adviser  to  Keystone  Precious  Metals.   Keystone  has  served  as
investment  adviser to the  Keystone  family of mutual  funds  since 1932 and as
investment  adviser to  Keystone  Precious  Metals  since  1984.  Keystone is an
indirect wholly-owned  subsidiary of First Union National Bank ("FUNB"). FUNB is
a subsidiary  of First Union , the sixth  largest  bank  holding  company in the
United  States  based on total  assets as of  September  30,  1997.  The Capital
Management  Group of FUNB,  Evergreen Asset Management Corp. and Keystone manage
the Evergreen family of mutual funds with assets of approximately $40 billion as
of November 30, 1997. For further information regarding Keystone, FUNB and First
Union, see "Fund Management                                                     

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and Expenses -Investment Adviser" in the Prospectus of                          
Keystone Precious Metals.                                                       

         Keystone manages investments,  provides various administrative services
and supervises the daily business affairs of Keystone Precious Metals subject to
the authority of the Evergreen International Trust's Board of Trustees. Keystone
Precious Metals pays Keystone a fee for its services at the annual rate of 0.75%
of the Fund's average daily net assets up to $100,000,000;  0.625% of net assets
between   $100,000,000   and   $200,000,000;   and  0.50%  of  net  assets  over
$200,000,000.                                                                   

         Since August 1, 1995, Harbor Capital Management Company,  Inc. ("Harbor
Capital"),  located at 125 High Street, Boston,  Massachusetts 02110, has served
as a consultant to Keystone with respect to Keystone Precious Metals pursuant to
a Consultant Agreement. Under the Consultant Agreement,  Harbor Capital provides
Keystone with monthly  reports  discussing the world's gold bullion  markets and
gold stock  markets,  and  advice  regarding  economic  factors an trends in the
precious metals sector. For its services,  Harbor Capital receives from Keystone
a fee at the annual rate of 0.10% of Keystone Precious Metals' average daily net
assets.  Keystone  Precious Metals has no responsibility to pay Harbor Capital's
fee.                                                                            

         Virtus  serves  as the  investment  adviser  for  Precious  Metals.  As
investment  adviser,  Virtus is responsible  for performing or providing for all
management  and  administrative  services  for the  Fund.  In  carrying  out its
obligations, Virtus provides or arranges for investment research and supervision
of the Fund's  investments;  selects and evaluates the performance of the Fund's
sub-adviser,  Cavelti Capital; and conducts or arranges for a continuous program
of appropriate  sale or other  disposition of the Fund's assets,  subject at all
times to the direction of the Board of  Directors.  Virtus  compensates  Cavelti
Capital from the advisory fee received from Precious  Metals.  See  "Information
Regarding the Interim  Sub-Advisory  Agreement."  For its services as investment
adviser,  Virtus  receives a fee at an annual rate of 1.00% of Precious  Metals'
average  daily net  assets up to  $150,000,000;  0.875%  of net  assets  between
$150,000,000 and $300,000,000; and 0.75% of net assets over $300,000,000.       

         Each investment adviser may, at its discretion, reduce or waive its fee
or  reimburse  a Fund for  certain of its other  expenses in order to reduce its
expense  ratios.  Each  investment  adviser may reduce or cease these  voluntary
waivers and reimbursements at any time.                                         

Administrator                                                                   

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         Federated Administrative Services ("FAS") provides Precious Metals with
certain  administrative  personnel  and  services  including  certain  legal and
accounting  services.  FAS is entitled to receive a fee for such services at the
following  annual  rates:  0.15% on the first $250 million of average  daily net
assets of the combined assets of the funds in the  Blanchard/Virtus  mutual fund
family,  0.125% on the next $250 million of such assets,  0.10% on the next $250
million of such assets; and 0.075% on assets in excess of $750 million.         

Portfolio Manager                                                               

         John Madden has been the Portfolio  Manager of Keystone Precious Metals
since 1995 and is a Vice  President  and Senior  Portfolio  Manager of Keystone.
Before joining  Keystone in 1994, Mr. Madden was an investment  analyst and then
Vice President at Pioneer Funds, Boston, Massachusetts from 1982 to 1994. He has
over 29 years of investment experience.                                         

Distribution of Shares                                                          

         Evergreen  Distributor,  Inc.  ("EDI"),  an  affiliate  of  BISYS  Fund
Services,  acts as underwriter of the shares of Keystone  Precious  Metals.  EDI
distributes  the  Fund's  shares  directly  or  through  broker-dealers,   banks
(including  FUNB),  or other  financial  intermediaries.  Effective  on or about
January 9, 1998,  Keystone  Precious  Metals will offer three classes of shares:
Class  A,  Class  B,  and  Class  C.  Each  class  has   separate   distribution
arrangements.  (See "Distribution  -Related Expenses" below.) No class will bear
the distribution expenses relating to the shares of any other class.            

         In the proposed  Reorganization,  shareholders  of Precious Metals will
receive Class A shares of Keystone  Precious Metals.  Class A shares of Keystone
Precious Metals  currently incur Rule 12b-1 fees of 0.25% per year, while shares
of Precious  Metals incur 12b-1 fees at the rate of 0.75% per year.  Because the
Reorganization  will be effected at net asset value without the  imposition of a
sales charge,  Keystone  Precious  Metals  shares  acquired by  shareholders  of
Precious Metals pursuant to the proposed  Reorganization would not be subject to
any initial sales charge or contingent  deferred sales charge as a result of the
Reorganization.                                                                 

         The  following  is a summary  description  of charges  and fees for the
Class A shares of Keystone  Precious  Metals  which will be received by Precious
Metals  shareholders in the  Reorganization.  More detailed  descriptions of the
distribution arrangements applicable to the classes of shares are contained in  

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the respective  Keystone  Precious  Metals  Prospectus  and the Precious  Metals
Prospectus and in each Fund's respective                                        

Statement of Additional Information.                                            

         Class A  Shares.  Class A shares  are sold at net asset  value  plus an
initial   sales   charge   and,   as   indicated    below,    are   subject   to
distribution-related  fees.  For a  description  of the  initial  sales  charges
applicable  to purchases of Class A shares,  see  "Purchase  and  Redemption  of
Shares - How to Buy Shares" in the  Prospectus  for  Keystone  Precious  Metals.
Holders of shares of  Precious  Metals who  receive  Class A shares of  Keystone
Precious Metals will be able to purchase  additional  Class A shares of Keystone
Precious  Metals and of any other  Evergreen fund at net asset value. No initial
sales charge will be imposed.                                                   

         Additional  information regarding the classes of shares of each Fund is
included in its respective Prospectus and Statement of Additional Information.  

         Distribution-Related  Expenses.  Keystone Precious Metals has adopted a
Rule 12b-1 plan with respect to its Class A shares under which the Class may pay
for  distribution-related  expenses at an annual rate which may not exceed 0.75%
of average daily net assets attributable to the Class.  Payments with respect to
Class A shares  are  currently  limited  to 0.25% of  average  daily net  assets
attributable  to the class,  which amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.                      

         Precious  Metals  has  adopted a Rule  12b-1  plan with  respect to its
shares under which Precious Metals may pay for distribution-related  expenses at
an annual rate of 0.75% of average daily net assets.                            

         Additional  information  regarding the Rule 12b-1 plans adopted by each
Fund is  included in its  respective  Prospectus  and  Statement  of  Additional
Information.                                                                    

Purchase and Redemption Procedures                                              

         Information     concerning     applicable     sales     charges     and
distribution-related  fees is provided  above.  Investments in the Funds are not
insured.  The minimum initial purchase  requirement for Keystone Precious Metals
is $1,000 (except for participants in certain  retirement  plans, for whom there
is no minimum, and for investments under a Systematic Investment Plan, for which
the minimum is $25) and the minimum  investment  for  Precious  Metals is $3,000
($2,000 for qualified pension plans).  Precious Metals has a minimum  investment
requirement of $200 for                                                         

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subsequent  investments.  There is no minimum for subsequent purchases of shares
of Keystone  Precious  Metals.  Each Fund provides for  telephone,  mail or wire
redemption  of shares at net asset value as next  determined  after receipt of a
redemption  request on each day the New York Stock Exchange ("NYSE") is open for
trading.  Additional information concerning purchases and redemptions of shares,
including  how each Fund's net asset value is  determined,  is  contained in the
respective  Prospectus  for  each  Fund.  Each  Fund  may  involuntarily  redeem
shareholders'  accounts that have less than $1,000 of invested funds.  All funds
invested in each Fund are  invested  in full and  fractional  shares.  The Funds
reserve the right to reject any purchase order.                                 

Exchange Privileges                                                             

         Precious Metals currently permits  shareholders to exchange such shares
for shares of another  fund in the  Blanchard  Group of Funds or for  Investment
shares of other  funds  managed  by  Virtus.  In  addition,  such  shares may be
exchanged for shares of Federated  Emerging Markets Fund. Holders of shares of a
class of Keystone Precious Metals generally may exchange their shares for shares
of the same class of any other Evergreen fund. Precious Metals shareholders will
be receiving Class A shares of Keystone  Precious  Metals in the  Reorganization
and, accordingly, with respect to shares of Keystone Precious Metals received by
Precious Metals  shareholders in the  Reorganization,  the exchange privilege is
limited  to the  Class A shares of other  Evergreen  funds.  No sales  charge is
imposed on an exchange.  An exchange which  represents an initial  investment in
another  Evergreen  fund must amount to at least  $1,000.  The current  exchange
privileges,   and  the  requirements  and  limitations  attendant  thereto,  are
described in each Fund's  respective  Prospectus  and  Statement  of  Additional
Information.                                                                    

Dividend Policy                                                                 

         Each Fund  distributes its net investment  income  dividends  annually.
Distributions  of any net  realized  gains  of a Fund  will  be  made  at  least
annually. Dividends and distributions are reinvested in additional shares of the
same  class of the  respective  Fund,  or paid in  cash,  as a  shareholder  has
elected.  See the  respective  Prospectus  of each Fund for further  information
concerning dividends and distributions.                                         

         After the  Reorganization,  shareholders  of  Precious  Metals who have
elected  to have  their  dividends  and/or  distributions  reinvested  will have
dividends and/or distributions received from Keystone Precious Metals reinvested
in shares of Keystone Precious Metals.  Shareholders of Precious Metals who have
elected to receive dividends and/or distributions                               

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in cash will receive  dividends  and/or  distributions  from  Keystone  Precious
Metals  in  cash  after  the  Reorganization,   although  they  may,  after  the
Reorganization,  elect to have such dividends and/or distributions reinvested in
additional shares of Keystone Precious Metals.                                  

         Each of Keystone  Precious Metals and Precious Metals has qualified and
intends to continue to qualify to be treated as a regulated  investment  company
under the Internal  Revenue  Code of 1986,  as amended  (the  "Code").  While so
qualified,  so long as each Fund  distributes all of its net investment  company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be  required  to pay any  federal  income  taxes on the amounts so
distributed.  A 4%  nondeductible  excise tax will be  imposed  on  amounts  not
distributed if a Fund does not meet certain distribution requirements by the end
of  each  calendar  year.  Each  Fund  anticipates   meeting  such  distribution
requirements.                                                                   

Risks                                                                           

         Since the investment  objectives and policies of each Fund are similar,
the risks  involved  in  investing  in each  Fund's  shares are  similar.  For a
discussion of each Fund's objectives and policies, see "Comparison of Investment
Objectives and Policies."  There is no assurance  that  investment  performances
will be positive and that the Funds will meet their investment objectives.      

         Precious  Metals.  The  profits  of the  companies  in which both Funds
invest,  and ultimately  the value of the securities of the Funds,  are directly
affected by the price of gold and other precious metals and minerals.  The price
of gold and  other  precious  metals  and  minerals,  in  turn,  is  subject  to
substantial  short-term  volatility  caused by  various  conditions,  including:
monetary  and  political  developments  within a  particular  country  and among
various  countries,  such as currency  devaluations or revaluations and exchange
controls;  economic and social  conditions  such as  industrial  and  commercial
demand,  and  investment  and  speculation;   and  trade  restrictions   between
countries.  Because a  significant  portion of the world's  gold ore reserves is
located in South Africa, the political, social and economic conditions there can
affect local and other gold and gold-related companies.                         

     Foreign  Securities.  Both Funds invest in foreign  securities.  Securities
markets of foreign  countries  in which the Funds may invest are  generally  not
subject to the same  degree of  regulation  as the U.S.  markets and may be more
volatile and less liquid than the major U.S. markets. The differences between   

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investing in foreign and U.S.  companies  include:  (1) less publicly  available
information  about  foreign  companies;   (2)  the  lack  of  uniform  financial
accounting  standards  and  practices  among  countries  which could  impair the
validity of direct  comparisons of valuation  measures  (such as  price/earnings
ratios) for securities in different countries; (3) less readily available market
quotations on foreign  companies;  (4) differences in government  regulation and
supervision of foreign stock exchanges,  brokers,  listed companies,  and banks;
(5)  differences  in legal  systems  which may  affect  the  ability  to enforce
contractual  obligations or obtain court judgments;  (6) generally lower foreign
stock market  volume;  (7) the  likelihood  that foreign  securities may be less
liquid or more volatile, which may affect the Fund's ability to purchase or sell
large  blocks of  securities  and thus  obtain the best price;  (8)  transaction
costs, including brokerage charges and custodian charges associated with holding
foreign  securities,  may be higher;  (9) the  settlement  periods  for  foreign
securities,  which  are  sometimes  longer  than  those for  securities  of U.S.
issuers,  may affect  portfolio  liquidity;  (10) the  possibility  that foreign
securities held by a Fund may be traded on days that the Fund does not value its
portfolio  securities,  such as Saturdays and customary business  holidays,  and
accordingly,  the Fund's net asset value may be  significantly  affected on days
when  shareholders do not have access to the Fund; and (11) political and social
instability,  expropriation,  and political or financial changes which adversely
affect investment in some countries.                                            

         Emerging  Markets.  Investing  in  securities  of issuers  in  emerging
markets countries  involves exposure to economic systems that are generally less
stable than those of  developed  countries.  Investing  in companies in emerging
markets  countries may involve  exposure to national  policies that may restrict
investment by foreigners and  undeveloped  legal systems  governing  private and
foreign  investments  and  private  property.  The  typically  small size of the
markets for securities issued by companies in emerging markets countries and the
possibility  of a low or nonexistent  volume of trading in those  securities may
also result in a lack of liquidity and in price volatility for those securities.

         When a Fund  invests  in  foreign  securities,  they  usually  will  be
denominated in foreign  currencies,  and the Fund may temporarily  hold funds in
foreign  securities.  Thus,  the value of a Fund's  shares  may be  affected  by
changes in exchange rates.                                                      

         Precious Metals is a non-diversified investment company. As such, there
is no limit on the  percentage of assets which can be invested in the securities
of a single issuer.  An investment in Precious  Metals,  therefore,  will entail
greater risk than would                                                         

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exist in a  diversified  investment  company  because the higher  percentage  of
investments among fewer issuers may result in greater  fluctuations in the total
market value of its shares. Any adverse developments  affecting the value of the
securities held by Precious Metals will have a greater impact on the total value
of Precious Metals than would be the case if Precious  Metals'  investments were
diversified among more issuers.                                                 

     Additional  Information.  Further information about these risks, as well as
other risks relating to an investment in Keystone  Precious Metals, is set forth
in the Prospectus of Keystone Precious Metals at "Risk Factors."                

REASONS FOR THE REORGANIZATION

         On July 18, 1997,  First Union  entered  into an Agreement  and Plan of
Merger with Signet, which provided, among other things, for the Merger of Signet
with  and  into a  wholly-owned  subsidiary  of  First  Union.  The  Merger  was
consummated  on November 28, 1997. As a result of the Merger it is expected that
FUNB  and  its  affiliates   will  succeed  to  the   investment   advisory  and
administrative  functions  currently  performed  for Precious  Metals by various
units of Signet and  various  unaffiliated  parties.  It is also  expected  that
Signet  will no  longer,  upon  completion  of the  Reorganization  and  similar
reorganizations  of other  funds  in the  Signet  mutual  fund  family,  provide
investment advisory or administrative services to investment companies.         

         At a meeting  held on  September  16,  1997,  the Board of Directors of
Precious  Metals  considered  and  approved  the  Reorganization  as in the best
interests of  shareholders  of Precious Metals and determined that the interests
of existing  shareholders  of Precious Metals will not be diluted as a result of
the transactions contemplated by the Reorganization.  In addition, the Directors
approved the Interim Advisory Agreement and Interim Sub-Advisory  Agreement with
respect to Precious Metals.                                                     

         As  noted  above,  Signet  has  merged  with  and  into a  wholly-owned
subsidiary of First Union.  Signet is the parent  company of Virtus,  investment
adviser to the mutual funds which  comprise the  Blanchard  Group of Funds.  The
Merger  caused,  as a matter  of law,  termination  of the  investment  advisory
agreement  between  Precious  Metals and Virtus and the  sub-advisory  agreement
between Virtus and Cavelti  Capital.  Precious Metals has received an order from
the SEC which permits Virtus and Cavelti  Capital to continue to act as Precious
Metals' investment adviser and sub-adviser,  respectively,  without  shareholder
approval,  for a period of not more than 120 days from the date the  Merger  was
consummated                                                                     

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(November  28,  1997) to the date of  shareholder  approval of a new  investment
advisory  agreement  and  sub-advisory  agreement.  Accordingly,  the  Directors
considered   the   recommendations   of  Signet  in   approving   the   proposed
Reorganization.                                                                 

         In approving the Plan, the Directors reviewed various factors about the
Funds  and the  proposed  Reorganization.  There  are  substantial  similarities
between  Keystone  Precious Metals and Precious Metals.  Specifically,  Keystone
Precious  Metals and Precious  Metals have  similar  investment  objectives  and
policies and comparable risk profiles.  See "Comparison of Investment Objectives
and  Policies"  below.  At the same time,  the Board of Directors  evaluated the
potential  economies of scale  associated with larger mutual funds and concluded
that  operational  efficiencies may be achieved upon the combination of Precious
Metals with an Evergreen  fund with a greater  level of assets.  As of September
30, 1997, Keystone Precious Metals' net assets were approximately $138.8 million
and Precious Metals' net assets were approximately $67.0 million.               

         In addition,  assuming that an alternative to the Reorganization  would
be to propose that  Precious  Metals  continue its  existence  and be separately
managed by Keystone or one of its  affiliates,  Precious Metals would be offered
through common distribution  channels with the similar Keystone Precious Metals.
Precious  Metals  would also have to bear the cost of  maintaining  its separate
existence.  Signet and  Keystone  believe  that the  prospect  of  dividing  the
resources of the Evergreen  mutual fund  organization  between two similar funds
could  result in each Fund being  disadvantaged  due to an  inability to achieve
optimum size,  performance  levels and the greatest possible economies of scale.
Accordingly,  for the reasons noted above and  recognizing  that there can be no
assurance that any economies of scale or other benefits will be realized, Signet
and  Keystone  believe  that the  proposed  Reorganization  would be in the best
interests of each Fund and its shareholders.                                    

         The Board of  Directors  of  Precious  Metals  met and  considered  the
recommendation  of Signet and Keystone and, in addition,  considered among other
things,  (i) the terms and  conditions of the  Reorganization;  (ii) whether the
Reorganization  would result in the dilution of shareholders'  interests;  (iii)
expense  ratios,  fees and  expenses of Keystone  Precious  Metals and  Precious
Metals;  (iv) the  comparative  performance  records of each of the  Funds;  (v)
compatibility of their investment  objectives and policies;  (vi) the investment
experience,   expertise  and  resources  of  Keystone;  (vii)  the  service  and
distribution resources available to the Evergreen funds and the broad array of  

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investment alternatives available to shareholders of the Evergreen funds; (viii)
the personnel and financial  resources of First Union and its  affiliates;  (ix)
the fact that  FUNB  will  bear the  expenses  incurred  by  Precious  Metals in
connection with the  Reorganization;  (x) the fact that Keystone Precious Metals
will assume  certain  identified  liabilities of Precious  Metals;  and (xi) the
expected federal income tax consequences of the Reorganization.                 

         The  Directors   also   considered   the  benefits  to  be  derived  by
shareholders of Precious Metals from the sale of its assets to Keystone Precious
Metals. In this regard, the Directors considered the potential benefits of being
associated  with a  larger  entity  and the  economies  of scale  that  could be
realized  by the  participation  in such an entity by  shareholders  of Precious
Metals.                                                                         

         In  addition,  the  Directors  considered  that there are  alternatives
available to  shareholders of Precious  Metals,  including the ability to redeem
their shares, as well as the option to vote against the Reorganization.         

         During their consideration of the Reorganization the Directors met with
Fund counsel and counsel to the Independent Directors regarding the legal issues
involved.  The Trustees of Evergreen  International Trust, on behalf of Keystone
Precious  Metals,  also  concluded at a meeting on  September  17, 1997 that the
proposed  Reorganization  would  be in the best  interests  of  shareholders  of
Keystone  Precious Metals and that the interests of the shareholders of Keystone
Precious  Metals  would  not  be  diluted  as  a  result  of  the   transactions
contemplated by the Reorganization.                                             

 THE BOARD OF DIRECTORS OF PRECIOUS METALS
RECOMMENDS THAT THE SHAREHOLDERS APPROVE
THE PROPOSED REORGANIZATION.

Agreement and Plan of Reorganization                                            

         The following  summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).                                                        

         The Plan provides that Keystone Precious Metals will acquire all of the
assets of Precious Metals in exchange for shares of Keystone Precious Metals and
the assumption by Keystone Precious Metals of certain identified  liabilities of
Precious  Metals on or about  February  27,  1998 or such  other  date as may be
agreed upon by the parties  (the  "Closing  Date").  Prior to the Closing  Date,
Precious Metals will endeavor to discharge all of its known liabilities and     

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obligations.  Keystone  Precious  Metals  will not  assume  any  liabilities  or
obligations  of  Precious  Metals  other than those  reflected  in an  unaudited
statement of assets and  liabilities of Precious Metals prepared as of the close
of  regular  trading  on the NYSE,  currently  4:00 p.m.  Eastern  time,  on the
business  day  immediately  prior to the  Closing  Date.  The number of full and
fractional  shares of each class of Keystone  Precious  Metals to be received by
the  shareholders  of Precious  Metals will be  determined  by  multiplying  the
respective  outstanding  class of shares of  Precious  Metals by a factor  which
shall be computed by  dividing  the net asset value per share of the  respective
class of shares  of  Precious  Metals  by the net  asset  value per share of the
respective class of shares of Keystone  Precious Metals.  Such computations will
take place as of the close of regular  trading on the NYSE on the  business  day
immediately  prior to the  Closing  Date.  The net asset value per share of each
class will be  determined by dividing  assets,  less  liabilities,  in each case
attributable to the respective class, by the total number of outstanding shares.

         State  Street  Bank and  Trust  Company,  the  custodian  for  Keystone
Precious  Metals,  will  compute the value of each Fund's  respective  portfolio
securities.  The  method  of  valuation  employed  will be  consistent  with the
procedures set forth in the  Prospectus and Statement of Additional  Information
of  Keystone  Precious  Metals,  Rule  22c-1  under the 1940  Act,  and with the
interpretations of such Rule by the SEC's Division of Investment Management.    

         At or prior to the Closing Date,  Precious  Metals will have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and  distributions,  shall have the effect of distributing to
the Fund's  shareholders  (in shares of the Fund, or in cash, as the shareholder
has previously  elected) all of the Fund's net investment company taxable income
for the taxable  period ending on the Closing Date  (computed  without regard to
any deduction for dividends  paid) and all of its net capital gains  realized in
all taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).                                                             

         As soon after the Closing Date as  conveniently  practicable,  Precious
Metals will liquidate and distribute  pro rata to  shareholders  of record as of
the close of  business  on the Closing  Date the full and  fractional  shares of
Keystone  Precious  Metals  received by Precious  Metals.  Such  liquidation and
distribution  will be accomplished by the establishment of accounts in the names
of the Fund's  shareholders  on the share records of Keystone  Precious  Metals'
transfer agent. Each account will represent the respective pro rata number of   

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full and  fractional  shares  of  Keystone  Precious  Metals  due to the  Fund's
shareholders.  All issued and outstanding  shares of Precious Metals,  including
those  represented  by  certificates,  will be canceled.  The shares of Keystone
Precious Metals to be issued will have no preemptive or conversion rights. After
such  distributions  and the winding up of its affairs,  Precious Metals will be
terminated. In connection with such termination,  Precious Metals will file with
the SEC an application for termination as a registered investment company.      

         The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by Precious Metals' shareholders, accuracy
of various  representations  and  warranties and receipt of opinions of counsel,
including  opinions with respect to those matters referred to in "Federal Income
Tax   Consequences"   below.   Notwithstanding   approval  of  Precious  Metals'
shareholders, the Plan may be terminated (a) by the mutual agreement of Precious
Metals and Keystone  Precious Metals;  or (b) at or prior to the Closing Date by
either  party (i) because of a breach by the other party of any  representation,
warranty,  or  agreement  contained  therein to be  performed at or prior to the
Closing  Date if not cured  within 30 days,  or (ii)  because a condition to the
obligation of the terminating  party has not been met and it reasonably  appears
that it cannot be met.                                                          

         The expenses of Precious Metals in connection  with the  Reorganization
(including the cost of any proxy soliciting agent) will be borne by FUNB whether
or not the  Reorganization  is consummated.  No portion of such expenses will be
borne directly or indirectly by Precious Metals or its  shareholders.  There are
no liabilities or expected  reimbursements  in connection with the 12b-1 Plan of
Precious Metals.  As a result,  no 12b-1 liabilities will be assumed by Keystone
Precious Metals following the Reorganization.                                   

         If the  Reorganization  is not  approved  by  shareholders  of Precious
Metals,  the Board of Directors of Precious  Metals will consider other possible
courses of action in the best interests of shareholders.                        

Federal Income Tax Consequences                                                 

         The  Reorganization  is  intended  to qualify  for  federal  income tax
purposes as a tax-free  reorganization  under  section  368(a) of the Code. As a
condition to the closing of the Reorganization,  Precious Metals will receive an
opinion of  Sullivan &  Worcester  LLP to the effect  that,  on the basis of the
existing provisions of the Code, U.S. Treasury regulations issued               

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thereunder,  current  administrative rules,  pronouncements and court decisions,
for federal income tax purposes, upon consummation of the Reorganization:       

         (1) The  transfer  of all of the assets of  Precious  Metals  solely in
exchange for shares of Keystone  Precious  Metals and the assumption by Keystone
Precious Metals of certain identified liabilities,  followed by the distribution
of Keystone  Precious  Metals'  shares by  Precious  Metals in  dissolution  and
liquidation of Precious Metals,  will constitute a  "reorganization"  within the
meaning of section  368(a)(1)(C)  of the Code, and Keystone  Precious Metals and
Precious Metals will each be a "party to a reorganization" within the meaning of
section 368(b) of the Code;                                                     

         (2) No gain or  loss  will be  recognized  by  Precious  Metals  on the
transfer of all of its assets to Keystone Precious Metals solely in exchange for
Keystone  Precious Metals' shares and the assumption by Keystone Precious Metals
of certain identified liabilities of Precious Metals or upon the distribution of
Keystone  Precious Metals' shares to Precious  Metals'  shareholders in exchange
for their shares of Precious Metals;                                            

         (3)  The tax  basis  of the  assets  transferred  will  be the  same to
Keystone  Precious  Metals as the tax basis of such  assets to  Precious  Metals
immediately prior to the  Reorganization,  and the holding period of such assets
in the hands of Keystone  Precious  Metals will include the period  during which
the assets were held by Precious Metals;                                        

         (4) No gain or loss will be recognized by Keystone Precious Metals upon
the receipt of the assets from Precious Metals solely in exchange for the shares
of Keystone  Precious  Metals and the assumption by Keystone  Precious Metals of
certain identified liabilities of Precious Metals;                              

         (5) No gain or loss will be recognized by Precious Metals' shareholders
upon the issuance of the shares of Keystone  Precious  Metals to them,  provided
they receive solely such shares  (including  fractional  shares) in exchange for
their shares of Precious Metals; and                                            

         (6) The aggregate tax basis of the shares of Keystone  Precious Metals,
including  any  fractional  shares,  received  by  each of the  shareholders  of
Precious Metals pursuant to the Reorganization will be the same as the aggregate
tax basis of the shares of Precious Metals held by such shareholder  immediately
prior to the Reorganization, and the holding period                             

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of the shares of Keystone Precious Metals, including fractional shares, received
by each such  shareholder  will  include the period  during  which the shares of
Precious Metals exchanged therefor were held by such shareholder  (provided that
the shares of Precious  Metals  were held as a capital  asset on the date of the
Reorganization).                                                                

         Opinions of counsel are not binding upon the Internal  Revenue  Service
or the courts.  If the  Reorganization  is consummated but does not qualify as a
tax-free  reorganization  under the Code, a shareholder of Precious Metals would
recognize a taxable gain or loss equal to the difference  between his or her tax
basis in his or her Fund shares and the fair market  value of Keystone  Precious
Metals shares he or she received. Shareholders of Precious Metals should consult
their tax advisers regarding the effect, if any, of the proposed  Reorganization
in light of  their  individual  circumstances.  It is not  anticipated  that the
securities  of the combined  portfolio  will be sold in  significant  amounts in
order to comply with the policies and investment  practices of Keystone Precious
Metals.  Since the foregoing  discussion  relates only to the federal income tax
consequences of the Reorganization,  shareholders of Precious Metals should also
consult their tax advisers as to the state and local tax  consequences,  if any,
of the Reorganization.                                                          

Pro-forma Capitalization                                                        

          The  following  table  sets  forth  the  capitalizations  of  Keystone
Precious   Metals  and  Precious  Metals  as  of  September  30,  1997  and  the
capitalization of Keystone Precious Metals on a pro forma basis as of that date,
giving effect to the proposed  acquisition  of assets at net asset value and the
conversion  of  3,900,247  Keystone  Precious  Metals  Class B shares to Class A
shares.  See  "Comparison  of Fees and Expenses." The pro forma data reflects an
exchange  ratio of  approximately  0.27988  Class A shares of Keystone  Precious
Metals issued for each share of Precious Metals.                                

 Capitalization of Keystone Precious Metals,
Precious Metals and Keystone

 Precious Metals (Pro Forma)

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                                                                · Download Table


                                                               Keystone     

                                   Keystone                                 
                                   Precious      Precious                   
                                   Metals        Metals                     
                                   --------      ---------                  

                                                               Precious     
                                                               Metals (After
                                                               Reorgani-    
                                                               zation)      
                                                               ------------ 
                                                                            

Net Assets                                                                  

   Shares......................... N/A           $67,037,240       N/A      
   Class A........................ N/A           N/A           $141,860,060 
   Class B........................                             $63,943,537  
                                   $138,766,357  N/A           -------------

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

Total Net Assets                                 $67,037,240   $205,803,597 
                                   $138,766,357                             

Net Asset Value Per                                                         
Share                                                                       

   Shares......................... N/A           $5.37             N/A      
   Class A........................ N/A           N/A           $19.18       
   Class B........................     $19.18    N/A           $19.18       

Shares Outstanding                                                          

   Shares......................... N/A           12,486,361        N/A      
   Class A........................ N/A                         7,396,168    
                                                 N/A                        
   Class B........................               N/A             3,333,149  
                                   7,233,396     ------------  -------------

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

   All Classes.................... 7,233,396     12,486,361                 
                                                               10,729,317   


         The table set forth  above  should not be relied  upon to  reflect  the
number of shares to be  received  in the  Reorganization;  the actual  number of
shares to be received  will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the Reorganization.                     

Shareholder Information                                                         

         As of December  26, 1997 (the  "Record  Date"),  there were  11,681,703
shares of beneficial interest of Precious Metals outstanding.                   

     As of November 30, 1997,  the  officers  and  Directors of Precious  Metals
beneficially owned as a group less than 1% of the outstanding shares of Precious
Metals. To                                                                      

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Precious  Metals'  knowledge,  the following  persons owned  beneficially  or of
record more than 5% of Precious Metals' total outstanding  shares as of November
30, 1997:                                                                       

                                                                · Download Table


                                           Percentage      

                                Percentag  of Shares of    
                                e of       Class           
                                Shares                     

                     No. of     Before      After          
Name and Address     Shares     Reorgan-    Reorgan-       
                                ization     ization        
                                                           

Charles Schwab                   9.31%       3.74% Class A 
Co. Inc.             1,068,625                             

101 Montgomery St.                                         
San Francisco, CA                                          
94104-4122                                                 

National Financial                5.42%       2.18% Class A
Services Corp. for   622,217                               
the Exclusive                                              
Benefit of                                                 
Customers                                                  
Attn. Mutual Funds                                         
Fifth Floor                                                

200 Liberty St.                                            
One World Financial                                        
Center                                                     
New York, NY                                               
10281-1003                                                 

COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES

         The following discussion is based upon and qualified in its entirety by
the  descriptions  of  the  respective  investment   objectives,   policies  and
restrictions set forth in the respective  Prospectus and Statement of Additional
Information of each Fund. The investment  objectives,  policies and restrictions
of Keystone  Precious Metals can be found in the Prospectus of Keystone Precious
Metals under the caption  "Investment  Objectives  and Policies." The investment
objectives,  policies and  restrictions  of Precious  Metals can be found in the
Prospectus of the Fund under the caption "The Funds'  Investment  Objectives and
Policies."  Unlike the  investment  objectives  of  Precious  Metals,  which are
fundamental, the investment objectives of Keystone                              

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Precious Metals are  non-fundamental and can be changed by the Board of Trustees
without shareholder approval.                                                   

         The investment  objectives of Keystone  Precious  Metals are to provide
shareholders  with long-term  capital  appreciation  and with  protection of the
purchasing  power of their  capital  and,  as a secondary  objective,  to obtain
current income. Under normal circumstances, Keystone Precious Metals pursues its
objectives by investing at least 80% of its assets in common stocks of companies
that are engaged in, or which  receive at least 50% of their  revenue from other
companies  engaged in,  exploration,  mining,  processing or dealing in precious
metals (gold,  silver,  platinum and palladium) and minerals,  such as diamonds.
For purposes of this policy, a company is considered to be engaged in a business
or activity  if at least 50% of the  company's  assets,  revenues or profits are
derived from that business or activity.                                         

         Currently, Keystone Precious Metals has a policy of investing a portion
of its assets in domestic or foreign  issuers  that  operate in the  Republic of
South Africa,  the principal location of the known free-world gold ore reserves.
Keystone Precious Metals generally makes such investments by purchasing American
Depository  Receipts.  Keystone  Precious  Metals  does not invest  directly  in
precious  metals,  but may  invest  up to 25% of its  total  assets in common or
preferred  stock  of  wholly-owned  subsidiaries  that  make  such  investments.
Currently,  Keystone  Precious Metals has one such  subsidiary,  Precious Metals
(Bermuda) Ltd.                                                                  

         The  investment  objective of Precious  Metals is to provide  long-term
capital appreciation and preservation of purchasing power through investments in
physical  precious  metals and  securities  of companies  involved with precious
metals.                                                                         

         A secondary  objective of Precious Metals is to reduce the risk of loss
of capital and decrease the volatility  often  associated  with precious  metals
investments by changing the allocation of the Fund's assets from precious metals
securities  to  physical  precious  metals   investments   and/or  investing  in
short-term  instruments  and  government  securities  during  periods  when  the
sub-adviser believes the precious metals markets may experience declines.       

     For the purpose of Precious Metals,  the term "precious metals  securities"
refers to the debt and equity  securities  of  domestic  and  foreign  companies
listed on domestic  and foreign  exchanges  which are  directly  involved in the
exploration,  development, mining, refining, manufacturing, dealing or marketing
of precious metals or precious metals products. A                               

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company will be  considered to be "involved in" such activity if it derives more
than 50% of its  revenues  from or  devotes  more than 50% of its assets to such
activity.  The  Fund  may  invest  in (1)  publicly-traded  common  stocks,  (2)
securities  convertible into common stocks, such as convertible preferred stock,
convertible   debentures,   convertible  rights  and  warrants  (to  the  extent
permissible by the Fund's investment policies),  and (3) debt securities of such
companies,  all of which are believed by the  sub-adviser  to have the potential
for appreciation.                                                               

         Precious Metals,  unlike Keystone  Precious  Metals,  may, from time to
time, invest up to 5% of its assets in unrated foreign debt securities which are
judged by the  Fund's  sub-  adviser  to be of at least  comparable  quality  to
lower-rated  U.S. debt  securities  (usually  defined as Baa or lower by Moody's
Investors Service or BBB or lower by Standard & Poor's Ratings Group).  Precious
Metals  may invest up to 49% of its total  assets in  physical  precious  metals
through holdings in bullion or precious metals  certificates or storage receipts
representing the physical metals.                                               

         Precious Metals and Keystone Precious Metals may purchase contracts for
forward  delivery of physical  precious metals.  Forward  contracts for precious
metals are  contracts  between  the Fund and  institutions  dealing in  precious
metals for the future receipt or delivery of metals at a price fixed at the time
of the transaction.                                                             

   Both Funds may invest in derivatives such as options and futures.

         Under normal conditions,  Precious Metals has at least 65% of its total
assets  invested in precious  metals  securities  and physical  precious  metals
investments.  Under other  circumstances,  the Fund may invest up to 100% of its
assets in short-term instruments,  including commercial paper, bank certificates
of deposit,  bankers'  acceptances and securities of the U.S. government and its
agencies and instrumentalities as well as cash and cash equivalents  denominated
in foreign currency.                                                            

         Neither  Keystone  Precious  Metals nor Precious Metals may invest more
than 5% of its assets in  securities of any one issuer or purchase more than 10%
of the  outstanding  voting  securities  of any  one  issuer.  However,  because
Precious  Metals is a  non-diversified  portfolio  for purposes of the 1940 Act,
these  restrictions  apply  to  50% of  the  assets  of  Precious  Metals.  As a
diversified  portfolio under the 1940 Act, the same restrictions apply to 75% of
the assets of Keystone                                                          

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Precious Metals. Non-diversification may increase investment risks.             

         The  characteristics of each investment policy and the associated risks
are described in each Fund's  respective  Prospectus and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Prospectus and Statement of Additional Information of each
Fund.                                                                           

 COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS

Forms of Organization                                                           

         Evergreen  International  Trust and Precious  Metals are both  open-end
management investment companies registered with the SEC under the 1940 Act which
continuously  offer  shares  to the  public.  Evergreen  International  Trust is
organized as a Delaware  business  trust,  and Precious Metals is organized as a
Maryland corporation. Evergreen International Trust is governed by a Declaration
of Trust, By-Laws and a Board of Trustees. Evergreen International Trust is also
governed by applicable  Delaware and federal law.  Keystone Precious Metals is a
series of  Evergreen  International  Trust.  Precious  Metals is governed by its
Articles  of  Incorporation,  ByLaws  and a  Board  of  Directors,  as  well  as
applicable Maryland and federal law.                                            

         As set forth in the Supplement to the  Prospectus of Keystone  Precious
Metals,  effective December 22, 1997,  Keystone Precious Metals Holdings,  Inc.,
was reorganized (the "Delaware Reorganization") from a Delaware corporation into
a series  (Keystone  Precious  Metals ) of  Evergreen  International  Trust.  In
connection with the Delaware  Reorganization,  the Fund's investment  objectives
were reclassified from "fundamental" to  "non-fundamental"  and therefore may be
changed without  shareholder  approval;  the Fund adopted  certain  standardized
investment   restrictions;   and  the  Fund  eliminated  or  reclassified   from
fundamental  to  non-  fundamental  certain  of  the  Fund's  other  fundamental
investment restrictions. On January 9, 1998 Keystone Precious Metals will change
its name to Evergreen Precious Metals Fund.                                     

Capitalization                                                                  

     The beneficial  interests in Keystone Precious Metals are represented by an
unlimited number of transferable shares of beneficial interest,  $.001 par value
per share. Precious Metals' authorized shares consist of 1,000,000,000 shares of
common stock, par value $.001 per share. Evergreen                              

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International  Trust's  Declaration  of Trust and Precious  Metals'  Articles of
Incorporation permit the Trustees or Directors respectively,  to allocate shares
into an unlimited number of series, and classes thereof,  with rights determined
by the  Trustees or  Directors,  all without  shareholder  approval.  Currently,
Precious  Metals has only a single  series.  Fractional  shares may be issued by
either Fund. Each Fund's shares represent equal  proportionate  interests in the
assets belonging to the Funds. Shareholders of each Fund are entitled to receive
dividends  and  other  amounts  as  determined  by the  Trustees  or  Directors.
Shareholders  of each Fund vote  separately,  by class,  as to matters,  such as
approval of or amendments  to Rule 12b-1  distribution  plans,  that affect only
their  particular  class and by series as to  matters,  such as  approval  of or
amendments to investment advisory agreements or proposed  reorganizations,  that
affect only their particular series.                                            

Shareholder Liability                                                           

         Under  Delaware  law,  shareholders  of a Delaware  business  trust are
entitled to the same limitation of personal  liability  extended to stockholders
of Delaware  corporations.  No similar  statutory  or other  authority  limiting
business trust shareholder  liability exists in any other state. As a result, to
the extent that Evergreen International Trust or a shareholder is subject to the
jurisdiction  of courts in those states,  the courts may not apply Delaware law,
and may thereby subject shareholders of a Delaware trust to liability.  To guard
against this risk, the Declaration of Trust of Evergreen International Trust (a)
provides that any written  obligation of the Trust may contain a statement  that
such  obligation  may only be  enforced  against  the assets of the Trust or the
particular  series  in  question  and the  obligation  is not  binding  upon the
shareholders of the Trust;  however,  the omission of such a disclaimer will not
operate to create personal  liability for any shareholder;  and (b) provides for
indemnification  out of Trust property of any shareholder held personally liable
for the  obligations  of the Trust.  Accordingly,  the risk of a shareholder  of
Evergreen International Trust incurring financial loss beyond that shareholder's
investment  because of  shareholder  liability  is limited to  circumstances  in
which:  (i) the  court  refuses  to  apply  Delaware  law;  (ii) no  contractual
limitation  of  liability  was in effect;  and (iii) the Trust  itself  would be
unable to meet its  obligations.  In light of  Delaware  law,  the nature of the
Trust's business,  and the nature of its assets,  the risk of personal liability
to a shareholder of Evergreen International Trust is remote.                    

Shareholder Meetings and Voting Rights                                          

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         Neither  Evergreen  International  Trust on behalf of Keystone Precious
Metals nor Precious Metals is required to hold annual meetings of  shareholders.
However,  a meeting of shareholders  for the purpose of voting upon the question
of removal of a Trustee or Director, respectively, must be called when requested
in writing by the holders of at least 10% of the outstanding shares of Evergreen
International Trust or Precious Metals. In addition,  each is required to call a
meeting of shareholders for the purpose of electing Trustees or Directors if, at
any time,  less than a majority of the Trustees or Directors then holding office
were elected by shareholders. Neither Evergreen International Trust nor Precious
Metals currently intends to hold regular shareholder meetings. Neither Evergreen
International  Trust nor Precious Metals permits cumulative voting. For Keystone
Precious Metals and Precious  Metals,  a majority of the votes cast and entitled
to vote is sufficient to act on a matter (unless otherwise specifically required
by the applicable governing documents or other law, including the 1940 Act).    

         Under the Declaration of Trust of Evergreen  International  Trust, each
share of Keystone Precious Metals is entitled to one vote for each dollar of net
asset value  applicable  to each share.  Under the voting  provisions  governing
Precious Metals, each share is entitled to one vote. The net asset values of the
mutual  funds  which are each a series of  Evergreen  International  Trust  have
different  net asset  values per share and can be expected to change in relation
to one another in the future.  Because of the divergence in net asset values,  a
given  dollar  investment  in a fund with a lower net asset value will  purchase
more shares and under Precious Metals' voting  provisions have more votes,  than
the  same  investment  in a fund  with a  higher  net  asset  value.  Under  the
Declaration of Trust of Evergreen  International  Trust, voting power is related
to the dollar value of a shareholder's  investment  rather than to the number of
shares held.                                                                    

Liquidation or Dissolution                                                      

         In the event of the liquidation of Keystone Precious Metals or Precious
Metals the  shareholders  are entitled to receive,  when, and as declared by the
Trustees or Directors,  respectively, the excess of the assets belonging to such
Fund or attributable to the class over the liabilities  belonging to the Fund or
attributable  to the  class.  In either  case,  the assets so  distributable  to
shareholders  of  the  Fund  will  be  distributed  among  the  shareholders  in
proportion  to the  number  of  shares  of a class of the Fund  held by them and
recorded on the books of the Fund.                                              

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Liability and Indemnification of Trustees and Directors                         

         The  Articles of  Incorporation  of  Precious  Metals  provide  that no
Director or officer  shall be liable unless such Director or officer is found to
have acted in bad faith, with willful misfeasance,  gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.           

         The Articles of Incorporation of Precious Metals provide that a present
or former Director or officer is entitled to indemnification against liabilities
and  expenses  with respect to claims  related to his or her  position  with the
Fund,  provided  that no  indemnification  shall be  provided  to a Director  or
officer  against any  liability  to the Fund or the  shareholders  by reasons of
willful  misfeasance,  bad faith,  gross negligence or reckless disregard of the
duties involved in the conduct of his office.                                   

         Under the  Declaration  of Trust of Evergreen  International  Trust,  a
Trustee is liable to the Trust and its shareholders  only for such Trustee's own
willful misfeasance,  bad faith, gross negligence,  or reckless disregard of the
duties involved in the conduct of the office of Trustee or the discharge of such
Trustee's  functions.  As provided in the Declaration of Trust,  each Trustee of
the Trust is entitled to be indemnified  against all liabilities  against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good  faith in the  reasonable  belief  that  such  Trustee's
action was in or not opposed to the best interests of the Trust;  (ii) had acted
with willful  misfeasance,  bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding,  had reasonable cause
to believe that such Trustee's  conduct was unlawful  (collectively,  "disabling
conduct").  A determination that the Trustee did not engage in disabling conduct
and is, therefore,  entitled to indemnification may be based upon the outcome of
a court action or  administrative  proceeding  or by (a) a vote of a majority of
those Trustees who are neither  "interested  persons"  within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent  legal counsel in a
written opinion.  The Trust may also advance money for such litigation  expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
later  determined to preclude  indemnification  and certain other conditions are
met.                                                                            

     The  foregoing  is  only  a  summary  of  certain  characteristics  of  the
operations  of the  Declaration  of  Trust  of  Evergreen  International  Trust,
Articles of Incorporation of Precious Metals, By-Laws, and Delaware and Maryland
law and is not a complete description of those documents or law. Shareholders   

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should  refer to the  provisions  of such  Declaration  of  Trust,  Articles  of
Incorporation, By-Laws, and Delaware and Maryland law directly for more complete
information.                                                                    

INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT

Introduction                                                                    

         In view of the Merger discussed above, and the factors discussed below,
the Board of  Directors  of Precious  Metals  recommends  that  shareholders  of
Precious  Metals  approve  the Interim  Advisory  Agreement.  The Merger  became
effective on November 28, 1997.  Pursuant to an order  received from the SEC all
fees payable under the Interim  Advisory  Agreement will be placed in escrow and
paid to Virtus if  shareholders  approve  the  contract  within  120 days of its
effective date. The Interim  Advisory  Agreement will remain in effect until the
earlier  of the  Closing  Date  for the  Reorganization  or two  years  from its
effective date. The terms of the Interim Advisory  Agreement are essentially the
same as the Previous Advisory  Agreement (as defined below). The only difference
between the Previous Advisory Agreement and the Interim Advisory  Agreement,  if
approved by  shareholders,  is the length of time each Agreement is in effect. A
description of the Interim Advisory Agreement pursuant to which Virtus continues
as investment adviser to Precious Metals, as well as the services to be provided
by Virtus  pursuant  thereto is set forth below under  "Advisory  Services." The
description of the Interim Advisory Agreement in this Prospectus/Proxy Statement
is qualified in its  entirety by  reference to the Interim  Advisory  Agreement,
attached hereto as Exhibit B.                                                   

         Virtus,  a  Maryland  corporation  formed  in  1995 to  succeed  to the
business of Signet Asset Management,  is an indirect wholly-owned  subsidiary of
First  Union.  The  address  of  Virtus  is 707 East Main  Street,  Suite  1300,
Richmond, Virginia 23219. Virtus has served as investment adviser pursuant to an
Investment  Advisory  Agreement  dated  July  12,  1995.  As  used  herein,  the
Investment  Advisory  Agreement  for  Precious  Metals  is  referred  to as  the
"Previous  Advisory  Agreement."  At a  meeting  of the  Board of  Directors  of
Precious Metals held on September 16, 1997, the Directors,  including a majority
of the  Independent  Directors,  approved  the Interim  Advisory  Agreement  for
Precious Metals.                                                                

         The Directors have authorized Precious Metals to enter into the Interim
Advisory Agreement with Virtus.  Such Agreement became effective on November 28,
1997. If the Interim  Advisory  Agreement for Precious Metals is not approved by
shareholders, the Directors will consider appropriate actions to be taken with  

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respect to Precious Metals' investment  advisory  arrangements at that time. The
Previous  Advisory  Agreement  was last approved by the  Directors,  including a
majority of the Independent Directors, on May 11, 1997.                         

Comparison of the Interim Advisory Agreement and the Previous                   
Advisory Agreement                                                              

         Advisory Services.  The management and advisory services to be provided
by Virtus under the Interim Advisory  Agreement are identical to those currently
provided by Virtus under the  Previous  Advisory  Agreement.  Under the Previous
Advisory  Agreement and Interim  Advisory  Agreement,  Virtus is responsible for
managing Precious Metals and overseeing the investment of its assets, subject at
all times to the supervision of the Board of Directors. Virtus selects, monitors
and  evaluates  the  Fund's  sub-adviser.   Virtus   periodically   reviews  the
sub-adviser's  performance record and will make a change, if necessary,  subject
to approval of the Board of Directors and shareholders.                         

     FAS currently acts as administrator  of Precious Metals.  FAS will continue
during  the  term  of  the  Interim  Advisory   Agreement  as  Precious  Metals'
administrator for the same compensation as currently  received . An affiliate of
FAS currently performs transfer agency services for Precious                    

     Metals' shareholders. Commencing February 9, 1998 Evergreen Service Company
will provide such transfer agency services for the same fees charged by Precious
Metals' current transfer agent. See "Summary - Administrator."                  

     Fees and Expenses. The investment advisory fees and expense limitations for
Precious Metals under the Previous  Advisory  Agreement and the Interim Advisory
Agreement are identical. See "Summary - Investment Advisers and Sub-Adviser."   

         Expense  Reimbursement.  Virtus  may, if it deems  appropriate,  assume
expenses of Precious  Metals to the extent that the Fund's  expenses exceed such
lower  expense  limitation  as Virtus  may,  by notice to the  Precious  Metals,
voluntarily declare to be effective.                                            

 The Interim Advisory Agreement contains an identical provision.

     Payment of Expenses and Transaction  Charges.  Under the Previous  Advisory
Agreement,  Precious  Metals was  required to pay or cause to be paid all of its
own expenses.                                                                   

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 The Interim Advisory Agreement contains an identical provision.

         Limitation of Liability.  The Previous Advisory Agreement provided that
in the absence of willful  misfeasance,  bad faith, gross negligence or reckless
disregard of  obligations  or duties under the  Agreement on the part of Virtus,
Virtus was not liable to Precious  Metals or to any  shareholder  for any act or
omission in the course of or connected in any way with rendering services or for
any  losses  that  may be  sustained  in the  purchase,  holding  or sale of any
security.                                                                       

 The Interim Advisory Agreement contains an identical provision.

         Termination;  Assignment.  The Interim Advisory Agreement provides that
it may be terminated  without  penalty by vote of a majority of the  outstanding
voting  securities of Precious  Metals (as defined in the 1940 Act) or by a vote
of its Board of Directors on 60 days'  written  notice to Virtus or by Virtus on
60 days' written notice to Precious Metals. Also, the Interim Advisory Agreement
will  automatically  terminate in the event of its assignment (as defined in the
1940 Act). The Previous Advisory Agreement contained identical  provisions as to
termination and assignment.                                                     

Information about Precious Metals' Investment Adviser                           

         Virtus, a registered  investment  adviser,  manages, in addition to the
Fund,  The Virtus Funds,  other funds of the Blanchard  Group of Funds and three
fixed  income trust funds.  The name and address of each  executive  officer and
director  of  Virtus  is  set  forth  in  Appendix  A to  this  Prospectus/Proxy
Statement.                                                                      

         For the fiscal year ended September 30, 1997 and the period from May 1,
1996 to September 30, 1996, Virtus received from Precious Metals management fees
of  $744,283  and  $442,945,  respectively.  For the fiscal year ended April 30,
1996, the Fund's investment  management fee paid to Virtus and the prior manager
was $840,942.  Signet acts as custodian for Precious Metals and received $50,200
for the fiscal year ended September 30, 1997. Commencing on or about January 20,
1998 FUNB will as  Precious  Metals'  custodian  during the term of the  Interim
Advisory Agreement.                                                             

         The Board of Directors  considered  the Interim  Advisory  Agreement as
part of its overall  approval of the Plan.  The Board of  Directors  considered,
among  other   things,   the  factors  set  forth  above  in  "Reasons  for  the
Reorganization." The Board of                                                   

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Directors  also  considered  the fact that  there were no  material  differences
between  the  terms  of the  Interim  Advisory  Agreement  and the  terms of the
Previous Advisory Agreement.                                                    

THE DIRECTORS OF PRECIOUS METALS RECOMMEND
 THAT SHAREHOLDERS APPROVE THE
 INTERIM ADVISORY AGREEMENT.

INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT

Introduction                                                                    

         In view of the Merger discussed above, and the factors discussed below,
the Board of  Directors  of Precious  Metals  recommends  that  shareholders  of
Precious  Metals  approve the Interim  Sub-Advisory  Agreement.  Such  Agreement
became  effective on November  28, 1997.  Pursuant to an order from the SEC, all
fees payable under the Interim  Sub-Advisory  Agreement will be placed in escrow
and paid to Cavelti Capital if shareholders approve the contract within 120 days
of its effective date. The Interim Sub-Advisory  Agreement will remain in effect
until the earlier of the Closing Date for the  Reorganization  or two years from
its  effective  date.  The  terms  of the  Interim  Sub-Advisory  Agreement  are
essentially the same as the Previous Sub-Advisory  Agreement (as defined below).
The only difference between the Previous Sub-Advisory  Agreement and the Interim
Sub-Advisory Agreement,  if approved by shareholders,  is the length of time the
Agreement is in effect.  A description  of the Interim Sub-  Advisory  Agreement
pursuant to which Cavelti  Capital  continues as the  investment  sub-adviser to
Precious  Metals,  as well as the  services to be  provided  by Cavelti  Capital
pursuant  thereto,  is  set  forth  below  under  "Sub-Advisory  Services."  The
description  of the  Interim  Sub-Advisory  Agreement  in this  Prospectus/Proxy
Statement is qualified in its entirety by reference to the Interim  Sub-Advisory
Agreement, attached hereto as Exhibit C.                                        

         Cavelti  Capital  Management,  Ltd.,  4100  Yonge  Street,  Willowdale,
Ontario MP2 2B6 Canada,  has served as sub- adviser to Precious  Metals pursuant
to a Sub- Advisory  Agreement  dated July 11, 1995 (the  "Previous Sub- Advisory
Agreement") and is responsible for the day-to-day management of Precious Metals'
portfolio. See "Summary Investment Advisers and Sub-Adviser." Cavelti Capital is
a Canadian money  management  firm  specializing  in bullion and precious metals
mining shares. Peter C. Cavelti, the President of Cavelti Capital, has extensive
experience in the field of precious  metals.  Cavelti  Capital  clients  include
government  agencies,  financial  institutions,  mining  companies  and Canadian
closed-end funds.                                                               

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         The Directors have authorized Precious Metals to enter into the Interim
Sub-Advisory  Agreement with Virtus and Cavelti  Capital.  Such Agreement became
effective  on November  28,  1997.  If the Interim  Sub-Advisory  Agreement  for
Precious  Metals is not approved by  shareholders,  the Directors  will consider
appropriate  actions to be taken with  respect to  Precious  Metals'  investment
sub-advisory arrangements at that time. The Previous Sub- Advisory Agreement was
last  approved  by the  Directors,  including  a  majority  of  the  Independent
Directors, on May 11, 1997.                                                     

Comparison of the Interim Sub-Advisory Agreement and the Previous               
Sub-Advisory Agreement                                                          

         Sub-Advisory  Services.  The  management  and  advisory  services to be
provided  by  Cavelti  Capital  under the  Interim  Sub-Advisory  Agreement  are
identical  to those  currently  provided by Cavelti  Capital  under the Previous
Sub-Advisory  Agreement.  Under the  Previous  Sub-Advisory  Agreement,  Cavelti
Capital  supervised the investment and  reinvestment of the cash,  securities or
other properties comprising Precious Metals' portfolio,  subject at all times to
the  direction of Virtus and the policies and control of Precious  Metals' Board
of Directors.                                                                   

         Fees and Expenses. The investment  sub-advisory fees under the Previous
Sub-Advisory Agreement and the Interim Sub-Advisory Agreement are identical.  As
compensation  for its  sub-advisory  services  under the  Previous  Sub-Advisory
Agreement Cavelti Capital was paid by Virtus a monthly fee at the annual rate of
0.30% of the first $150  million of the Fund's  average  daily net assets;  plus
0.2625% of the Fund's  average  daily net assets in excess of $150  million  but
less than $300  million;  plus 0.255% of the Fund's  average daily net assets in
excess of $300 million.                                                         

         The fee paid to Cavelti  Capital  by Virtus  for the fiscal  year ended
September 30, 1997 was $223,285.  The fee paid to Cavelti Capital for the period
May 1, 1996 to September 30, 1996 was $269,873.  The fee paid to Cavelti Capital
by Virtus for the period from July 12, 1995 through April 30, 1996 was $228,140.

         The  names  and  addresses  of the  principal  executive  officers  and
directors   of   Cavelti   Capital   are  set  forth  in   Appendix  B  to  this
Prospectus/Proxy Statement.                                                     

         Limitation of Liability.  The Previous Sub-Advisory  Agreement provided
that in the absence of willful misfeasance, bad faith or gross negligence on the
part of Cavelti  Capital or its  officers,  directors,  or employees or reckless
disregard by Cavelti Capital of its duties under the Agreement, Cavelti         

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Capital shall not be liable to Virtus,  Precious Metals or to any shareholder of
Precious  Metals for any act or  omission in the course of, or  connected  with,
rendering  services  thereunder  or for any losses that may be  sustained in the
purchase,  holding or sale of any security.  The Interim Sub-Advisory  Agreement
contains an identical provision.                                                

         Termination;  Assignment.  The Interim Sub-Advisory  Agreement provides
that  it  may be  terminated  without  penalty  by  vote  of a  majority  of the
outstanding voting securities of Precious Metals (as defined in the 1940 Act) or
by a vote of a majority of Precious  Metals'  entire  Board of  Directors  on 60
days' written  notice to Cavelti  Capital or by Virtus or Cavelti  Capital on 60
days'  written  notice to the other party to the  Agreement.  Also,  the Interim
Sub-Advisory  Agreement  will  automatically  terminate  in  the  event  of  its
assignment  (as defined in the 1940 Act).  The Previous  Sub-Advisory  Agreement
contained identical provisions as to termination and assignment.                

         The Board of Directors considered the Interim Sub-Advisory Agreement as
part of its overall  approval of the Plan.  The Board of  Directors  considered,
among  other   things,   the  factors  set  forth  above  in  "Reasons  for  the
Reorganization." The Board of Directors also considered the fact that there were
no material differences between the terms of the Interim Sub-Advisory  Agreement
and the terms of the Previous Sub-Advisory Agreement.                           

THE DIRECTORS OF PRECIOUS METALS RECOMMEND
 THAT SHAREHOLDERS APPROVE THE
 INTERIM SUB-ADVISORY AGREEMENT.

ADDITIONAL INFORMATION

         Keystone  Precious  Metals.  Information  concerning  the operation and
management of Keystone Precious Metals is incorporated  herein by reference from
the  Prospectus  dated April 30, 1997, as amended,  a copy of which is enclosed,
and  Statement of  Additional  Information  dated April 30, 1997. A copy of such
Statement of Additional Information is available upon request and without charge
by writing to Keystone  Precious  Metals at the address listed on the cover page
of this Prospectus/Proxy Statement or by calling toll-free 1-800- 343-2898.     

         Precious Metals.  Information about the Fund is included in its current
Prospectus   dated  November  30,  1997  and  in  the  Statement  of  Additional
Information of the same date, that has been filed with the SEC, all of which are
incorporated  herein by  reference.  Copies of the  Prospectus  and Statement of
Additional Information are available upon request and without                   

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charge by writing to Precious  Metals at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863.         

         Keystone  Precious  Metals and Precious  Metals are each subject to the
informational  requirements of the Securities  Exchange Act of 1934 and the 1940
Act, and in accordance  therewith file reports and other information,  including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities  maintained by the SEC at
450 Fifth  Street,  N.W.,  Washington,  D.C.  20549,  and at the SEC's  Regional
Offices located at Northwest  Atrium Center,  500 West Madison Street,  Chicago,
Illinois  60661- 2511 and Seven World Trade Center,  Suite 1300,  New York,  New
York 10048.                                                                     

 VOTING INFORMATION CONCERNING THE MEETING

         This  Prospectus/Proxy  Statement  is furnished  in  connection  with a
solicitation  of proxies by the  Directors of Precious  Metals to be used at the
Special Meeting of  Shareholders to be held at 2:00 p.m.,  February 20, 1998, at
the offices of the Evergreen Funds, 200 Berkeley Street,  Boston,  Massachusetts
02116 and at any adjournments thereof. This  Prospectus/Proxy  Statement,  along
with a Notice  of the  meeting  and a proxy  card,  is  first  being  mailed  to
shareholders of Precious  Metals on or about January 6, 1998. Only  shareholders
of record as of the close of  business  on the Record  Date will be  entitled to
notice of, and to vote at, the Meeting or any adjournment  thereof.  The holders
of a  majority  of the  outstanding  shares  entitled  to vote,  at the close of
business on the Record Date,  present in person or  represented  by proxy,  will
constitute a quorum for the Meeting.  If the enclosed  form of proxy is properly
executed  and  returned in time to be voted at the  Meeting,  the proxies  named
therein will vote the shares  represented  by the proxy in  accordance  with the
instructions  marked  thereon.  Unmarked  proxies will be voted FOR the proposed
Reorganization, FOR the Interim Advisory Agreement, FOR the Interim Sub-Advisory
Agreement and FOR any other  matters  deemed  appropriate.  Proxies that reflect
abstentions and "broker non-votes" (i.e.,  shares held by brokers or nominees as
to which (i) instructions  have not been received from the beneficial  owners or
the  persons  entitled  to vote or (ii)  the  broker  or  nominee  does not have
discretionary  voting  power on a  particular  matter) will be counted as shares
that are present and entitled to vote for purposes of  determining  the presence
of a quorum,  but will not be counted as shares voted and will have no effect on
the vote  regarding the Plan.  However,  such "broker  non-votes"  will have the
effect of being counted as votes against the Interim Advisory  Agreement and the
Interim Sub- Advisory Agreement which must be approved by a percentage of the   

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shares  present  at  the  Meeting  or  a  majority  of  the  outstanding  voting
securities.  A proxy may be  revoked  at any time on or before  the  Meeting  by
written notice to the Secretary of Precious Metals,  Federated  Investors Tower,
Pittsburgh,  Pennsylvania 15222-3779.  Unless revoked, all valid proxies will be
voted in accordance with the  specifications  thereon or, in the absence of such
specifications,  FOR  approval of the Plan and the  Reorganization  contemplated
thereby,  FOR approval of the Interim Advisory Agreement and FOR approval of the
Interim Sub-Advisory Agreement.                                                 

         Approval of the Plan will require the affirmative vote of a majority of
the shares  voted and  entitled  to vote at the Meeting at which a quorum of the
Fund's shares is present. Approval of the Interim Advisory Agreement and Interim
Sub-Advisory  Agreement will require the affirmative  vote of (i) 67% or more of
the outstanding voting securities if holders of more than 50% of the outstanding
voting  securities are present,  in person or by proxy, at the Meeting,  or (ii)
more than 50% of the outstanding voting securities, whichever is less. Each full
share  outstanding is entitled to one vote and each fractional share outstanding
is entitled to a proportionate share of one vote.                               

         Proxy   solicitations  will  be  made  primarily  by  mail,  but  proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees of Keystone or Signet,  their  affiliates or
other  representatives  of  Precious  Metals  (who  will not be paid  for  their
soliciting activities).  Shareholder Communications Corporation has been engaged
by Precious Metals to assist in soliciting proxies.                             

         If you wish to  participate  in the  Meeting,  you may submit the proxy
card  included  with this  Prospectus/Proxy  Statement or attend in person.  Any
proxy given by you is revocable.                                                

         In the event that sufficient  votes to approve the  Reorganization  are
not received by February 20, 1998,  the persons named as proxies may propose one
or more  adjournments of the Meeting to permit further  solicitation of proxies.
In  determining  whether to adjourn the Meeting,  the  following  factors may be
considered:  the  percentage of votes  actually cast, the percentage of negative
votes actually cast, the nature of any further  solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such  adjournment  will  require  an  affirmative  vote by the  holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting.  The persons  named as proxies  will vote upon such  adjournment  after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.                                                                        

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         A shareholder  who objects to the proposed  Reorganization  will not be
entitled under either Maryland law or the Articles of  Incorporation of Precious
Metals to demand  payment for, or an appraisal  of, his or her shares.  However,
shareholders should be aware that the Reorganization as proposed is not expected
to result in recognition of gain or loss to shareholders  for federal income tax
purposes and that, if the  Reorganization  is consummated,  shareholders will be
free to redeem the shares of Keystone  Precious Metals which they receive in the
transaction at their then-current net asset value. Shares of Precious Metals may
be  redeemed  at any  time  prior  to the  consummation  of the  Reorganization.
Shareholders of Precious Metals may wish to consult their tax advisers as to any
differing  consequences of redeeming Fund shares prior to the  Reorganization or
exchanging such shares in the Reorganization.                                   

         Precious  Metals  does not hold  annual  shareholder  meetings.  If the
Reorganization  is not approved,  shareholders  wishing to submit  proposals for
consideration  for inclusion in a proxy  statement for a subsequent  shareholder
meeting should send their written  proposals to the Secretary of Precious Metals
at the address set forth on the cover of this  Prospectus/Proxy  Statement  such
that they will be received by the Fund in a  reasonable  period of time prior to
any such meeting.                                                               

         The votes of the shareholders of Keystone Precious Metals are not being
solicited by this  Prospectus/Proxy  Statement and are not required to carry out
the Reorganization.                                                             

         NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise  Precious  Metals whether other persons are  beneficial  owners of
shares for which proxies are being solicited and, if so, the number of copies of
this Prospectus/Proxy Statement needed to supply copies to the beneficial owners
of the respective shares.                                                       

FINANCIAL STATEMENTS AND EXPERTS

         The financial  statements of Keystone Precious Metals as of October 31,
1997,  and the financial  statements  and financial  highlights  for the periods
indicated  therein,  have  been  incorporated  by  reference  herein  and in the
Registration  Statement  in reliance  upon the report of KPMG Peat  Marwick LLP,
independent certified public accountants,  incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.          

         The financial  statements and financial  highlights of Precious  Metals
incorporated  in this  Prospectus/Proxy  Statement by reference  from the Annual
Report of the                                                                   

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Blanchard  Funds for the year  ended  September  30,  1997 have been  audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their  authority as experts in accounting and
auditing.                                                                       

 LEGAL MATTERS

         Certain  legal  matters  concerning  the issuance of shares of Keystone
Precious  Metals will be passed upon by  Sullivan & Worcester  LLP,  Washington,
D.C.                                                                            

OTHER BUSINESS

         The  Directors  of  Precious  Metals do not intend to present any other
business at the Meeting.  If,  however,  any other matters are properly  brought
before the Meeting,  the persons  named in the  accompanying  form of proxy will
vote thereon in accordance with their judgment.                                 

         THE DIRECTORS OF PRECIOUS  METALS  RECOMMEND  APPROVAL OF THE PLAN, THE
INTERIM  ADVISORY  AGREEMENT  AND THE INTERIM  SUB-ADVISORY  AGREEMENT,  AND ANY
UNMARKED PROXIES WITHOUT  INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF
APPROVAL  OF  THE  PLAN,  THE  INTERIM   ADVISORY   AGREEMENT  AND  THE  INTERIM
SUB-ADVISORY AGREEMENT.                                                         

January  6, 1998                                                                

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APPENDIX A

The names and addresses of the principal executive officers   
and directors of Virtus Capital Management, Inc. are as follows:                

OFFICERS:                                                                       

Name                                       Address                              
----                                       -------                              

David C. Francis, Chief                    First Union National Bank            
Investment Officer                         201 South College Street             

                                      Charlotte, North Carolina 28288-
          1195

Tanya Orr Bird, Vice                       Virtus Capital Management, Inc.      
President                                  707 East Main Street                 

                Suite 1300
                              Richmond, Virginia 23219

Josie Clemons Rosson, Vice                 Virtus Capital Management, Inc.      
President, Assistant                       707 East Main Street                 
Secretary                                  Suite 1300                           

                               Richmond, Virginia  23219

L. Robert Cheshire, Vice                   First Union National Bank            
President                                  201 South College Street             

                                      Charlotte, North Carolina 28288-
          1195
John E. Gray, Vice                         First Union National Bank            
President                                  201 South College Street             
                                      Charlotte, North Carolina 28288-
          1195
Dillon S. Harris, Jr., Vice                First Union National Bank            
President                                  201 South College Street             
                                      Charlotte, North Carolina 28288-
          1195
J. Kellie Allen, Vice                      First Union National Bank            
President                                  201 South College Street             
                                      Charlotte, North Carolina 28288-
          1195
Ethel B. Sutton, Vice                      Evergreen Asset Management Corp.     
President                                  2500 Westchester Avenue              
                              Purchase, New York 10577

DIRECTORS:                                                                      

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Name                                       Address                              
----                                       -------                              

                             First Union National Bank
                     201 South College
David C. Francis                           Street                               
                        Charlotte, North
                         Carolina 28288-1195
Donald A. McMullen                         First Union National Bank            
         201
                          South College Street
                                      Charlotte, North Carolina 28288-
          1195

William M. Ennis                           First Union National Bank            
                              201 South College Street
                                      Charlotte, North Carolina 28288-
          1195
Barbara J. Colvin                          First Union National Bank            
                              201 South College Street
                                      Charlotte, North Carolina 28288-
          1195
William D. Munn                            First Union National Bank            
                              201 South College Street
                                          Charlotte, North Carolina 28288-1195

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APPENDIX B

     The names and addresses of the principal  executive  officers and directors
of Cavelti Capital Management, Ltd. are as follows:                             

OFFICERS:                                                                       

Name                                       Address                              
----                                       -------                              
Peter C. Cavelti                           Cavelti Capital Management, Ltd.     
                       4100 Yonge Street
                                 Willowdale, Ontario M2P 2B6
            Canada
Heinz Thoma                                Cavelti Capital Management, Ltd.     
                       4100 Yonge Street
                                 Willowdale, Ontario M2P 2B6
            Canada
Carolyn Cavelti                            Cavelti Capital Management, Ltd.     
                       4100 Yonge Street
                                 Willowdale, Ontario M2P 2B6
            Canada

DIRECTORS:                                                                      

Name                                       Address                              
----                                       -------                              
Peter C. Cavelti                           Cavelti Capital Management, Ltd.     
                       4100 Yonge Street
                                 Willowdale, Ontario M2P 2B6
            Canada
Heinz Thoma                                Cavelti Capital Management, Ltd.     
                       4100 Yonge Street
                                 Willowdale, Ontario M2P 2B6
            Canada

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                                                             EXHIBIT A

AGREEMENT AND PLAN OF REORGANIZATION

         THIS AGREEMENT AND PLAN OF REORGANIZATION  (the "Agreement") is made as
of this 26th day of November,  1997, by and between the Evergreen  International
Trust, a Delaware  business  trust,  with its principal place of business at 200
Berkeley Street, Boston,  Massachusetts 02116 (the "Trust"), with respect to the
Keystone Precious Metals Holdings series (the "Acquiring  Fund"),  and Blanchard
Precious Metals Fund, Inc., a Maryland corporation,  with its principal place of
business at Federated Investors Tower, Pittsburgh,  Pennsylvania 15222-3779,(the
"Selling Fund").                                                                

         This  Agreement  is  intended  to be,  and is  adopted  as,  a plan  of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United  States  Internal  Revenue  Code of 1986,  as amended (the  "Code").  The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the  assets  of the  Selling  Fund in  exchange  solely  for  Class A shares  of
beneficial  interest,  $.001 par value per  share,  of the  Acquiring  Fund (the
"Acquiring  Fund Shares");  (ii) the assumption by the Acquiring Fund of certain
identified  liabilities of the Selling Fund; and (iii) the  distribution,  after
the Closing Date  hereinafter  referred to, of the Acquiring  Fund Shares to the
shareholders  of the Selling Fund in liquidation of the Selling Fund as provided
herein,  all  upon  the  terms  and  conditions  hereinafter  set  forth in this
Agreement.                                                                      

         WHEREAS, the Selling Fund is an open-end, registered investment company
of the management type, and the Acquiring Fund is a separate  investment  series
of an open-end,  registered  investment  company of the management  type and the
Selling Fund owns securities that generally are assets of the character in which
the Acquiring Fund is permitted to invest;                                      

WHEREAS, both Funds are authorized to issue their shares of   
beneficial interest;                                                            

         WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the  assets  of the  Selling  Fund  for  Acquiring  Fund  Shares  and the
assumption  of  certain  identified  liabilities  of  the  Selling  Fund  by the
Acquiring Fund on the terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;                                 

         WHEREAS, the Board of Directors of the Selling Fund has determined that
the  Selling  Fund  should  exchange  all of its assets and  certain  identified
liabilities for Acquiring Fund                                                  

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Shares and that the interests of the existing  shareholders  of the Selling Fund
will not be diluted as a result of the transactions contemplated herein;        

         NOW,  THEREFORE,  in consideration of the premises and of the covenants
and agreements  hereinafter set forth,  the parties hereto covenant and agree as
follows:                                                                        

 ARTICLE I

TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR        
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
 LIABILITIES AND LIQUIDATION OF THE SELLING FUND

         1.1 THE EXCHANGE.  Subject to the terms and conditions herein set forth
and on the basis of the  representations  and warranties  contained herein,  the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph  1.2 to the  Acquiring  Fund.  The  Acquiring  Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding  of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling  Fund by the net
asset  value per  share of the  corresponding  class of  Acquiring  Fund  Shares
computed in the manner and as of the time and date set forth in  paragraph  2.2;
and (ii) to assume  certain  identified  liabilities of the Selling Fund, as set
forth in  paragraph  1.3.  Such  transactions  shall take  place at the  closing
provided for in paragraph 3.1 (the "Closing Date").                             

         1.2  ASSETS  TO BE  ACQUIRED.  The  assets  of the  Selling  Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation,  all cash,  securities,  commodities,  and  interests in futures and
dividends  or interest  receivables,  that is owned by the Selling  Fund and any
deferred or prepaid  expenses shown as an asset on the books of the Selling Fund
on the Closing Date.                                                            

         The Selling Fund has provided the  Acquiring  Fund with its most recent
audited  financial  statements,  which  contain a list of all of Selling  Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the  execution  of this  Agreement  there  have been no  changes  in its
financial  position as reflected in said financial  statements  other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.        

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         The Acquiring Fund will,  within a reasonable time prior to the Closing
Date,  furnish the Selling  Fund with a list of the  securities,  if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not  conform  to the  Acquiring  Fund's  investment  objectives,  policies,  and
restrictions.  The  Selling  Fund will,  within a  reasonable  time prior to the
Closing Date, furnish the Acquiring Fund with a list of its portfolio securities
and other investments.  In the event that the Selling Fund holds any investments
that the  Acquiring  Fund may not hold,  the Selling  Fund,  if requested by the
Acquiring Fund,  will dispose of such  securities  prior to the Closing Date. In
addition,  if it is  determined  that the Selling  Fund and the  Acquiring  Fund
portfolios,  when  aggregated,   would  contain  investments  exceeding  certain
percentage  limitations  imposed  upon the  Acquiring  Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient  amount of such  investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing,  nothing
herein  shall  require  the  Selling  Fund  to  dispose  of any  investments  or
securities if, in the reasonable  judgment of the Selling Fund, such disposition
would  adversely  affect  the  tax-free  nature of the  Reorganization  or would
violate the Selling Fund's fiduciary duty to its shareholders.                  

         1.3  LIABILITIES  TO BE  ASSUMED.  The  Selling  Fund will  endeavor to
discharge  all of its known  liabilities  and  obligations  prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities,  expenses,  costs,
charges and reserves  reflected on a Statement of Assets and  Liabilities of the
Selling Fund prepared on behalf of the Selling  Fund,  as of the Valuation  Date
(as defined in paragraph 2.1), in accordance with generally accepted  accounting
principles  consistently  applied from the prior audited  period.  The Acquiring
Fund shall assume only those  liabilities  of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other  liabilities,
whether absolute or contingent,  known or unknown,  accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.                          

         In addition,  upon  completion of the  Reorganization,  for purposes of
calculating  the maximum  amount of sales charges  (including  asset based sales
charges)  permitted  to be imposed  by the  Acquiring  Fund  under the  National
Association  of Securities  Dealers,  Inc.  Conduct Rule 2830  ("Aggregate  NASD
Cap"),  the Acquiring Fund will add to its Aggregate NASD Cap immediately  prior
to the  Reorganization  the Aggregate  NASD Cap of the Selling Fund  immediately
prior to the  Reorganization,  in each case  calculated in accordance  with such
Rule 2830.                                                                      

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         1.4 LIQUIDATION AND DISTRIBUTION.  On or as soon after the Closing Date
as is conveniently  practicable (the "Liquidation  Date"),  (a) the Selling Fund
will liquidate and distribute  pro rata to the Selling  Fund's  shareholders  of
record,  determined  as of the  close of  business  on the  Valuation  Date (the
"Selling Fund Shareholders"),  the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon  proceed
to  dissolve  as  set  forth  in  paragraph  1.8  below.  Such  liquidation  and
distribution  will be  accomplished by the transfer of the Acquiring Fund Shares
then  credited to the account of the Selling Fund on the books of the  Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the  Acquiring  Fund Shares due such  shareholders.  All issued and  outstanding
shares of the Selling Fund will  simultaneously  be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue  certificates  representing the
Acquiring Fund Shares in connection with such exchange.                         

         1.5  OWNERSHIP OF SHARES.  Ownership  of Acquiring  Fund Shares will be
shown  on the  books of the  Acquiring  Fund's  transfer  agent.  Shares  of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and  Proxy  Statement  on Form N-14 to be  distributed  to  shareholders  of the
Selling Fund as described in paragraph 5.7.                                     

         1.6 TRANSFER  TAXES.  Any transfer  taxes  payable upon issuance of the
Acquiring Fund Shares in a name other than the registered  holder of the Selling
Fund  shares  on the  books of the  Selling  Fund as of that  time  shall,  as a
condition  of such  issuance  and  transfer,  be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.                         

         1.7  REPORTING  RESPONSIBILITY.  Any  reporting  responsibility  of the
Selling  Fund is and shall remain the  responsibility  of the Selling Fund up to
and  including the Closing Date and such later date on which the Selling Fund is
terminated.                                                                     

         1.8  TERMINATION.   The  Selling  Fund  shall  be  terminated  promptly
following  the  Closing  Date and the making of all  distributions  pursuant  to
paragraph 1.4.                                                                  

ARTICLE II

 VALUATION

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         2.1 VALUATION OF ASSETS.  The value of the Selling  Fund's assets to be
acquired  by the  Acquiring  Fund  hereunder  shall be the value of such  assets
computed  as of the close of  business  on the New York  Stock  Exchange  on the
business  day next  preceding  the  Closing  Date  (such  time  and  date  being
hereinafter  called the "Valuation  Date"),  using the valuation  procedures set
forth in the Trust's  Declaration of Trust and the Acquiring Fund's then current
prospectuses  and statement of additional  information  or such other  valuation
procedures as shall be mutually agreed upon by the parties.                     

         2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares  shall be the net asset value per share  computed as of the close of
business  on the New York  Stock  Exchange  on the  Valuation  Date,  using  the
valuation  procedures  set  forth in the  Trust's  Declaration  of Trust and the
Acquiring   Fund's  then  current   prospectuses  and  statement  of  additional
information.                                                                    

         2.3 SHARES TO BE ISSUED.  The number of the  Acquiring  Fund  Shares of
each class to be issued  (including  fractional  shares, if any) in exchange for
the  Selling  Fund's  assets  shall be  determined  by  multiplying  the  shares
outstanding  of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling  Fund  attributable  to each of its
classes  by the net  asset  value  per share of the  respective  classes  of the
Acquiring Fund determined in accordance with paragraph 2.2. Holders of shares of
the Selling Fund will receive Class A shares of the Acquiring Fund.             

         2.4  DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance  with its regular  practice in
pricing the shares and assets of the Acquiring Fund.                            

 ARTICLE III

CLOSING AND CLOSING DATE

         3.1 CLOSING DATE.  The Closing (the  "Closing")  shall take place on or
about  February  27,  1998 or such  other  date as the  parties  may agree to in
writing (the  "Closing  Date").  All acts taking  place at the Closing  shall be
deemed to take place simultaneously immediately prior to the opening of business
on the Closing Date unless otherwise  provided.  The Closing shall be held as of
9:00 a.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA
02116, or at such other time and/or place as the parties may agree.             

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         3.2 CUSTODIAN'S CERTIFICATE. Signet Trust Company, as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized  officer  stating that (a) the Selling Fund's  portfolio  securities,
cash,  and any other  assets  shall have been  delivered  in proper  form to the
Acquiring  Fund on the Closing Date; and (b) all necessary  taxes  including all
applicable  federal and state stock  transfer  stamps,  if any,  shall have been
paid, or provision for payment  shall have been made,  in  conjunction  with the
delivery of portfolio securities by the Selling Fund.                           

         3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock  Exchange  or  another  primary  trading  market for
portfolio  securities of the Acquiring  Fund or the Selling Fund shall be closed
to  trading  or  trading  thereon  shall be  restricted;  or (b)  trading or the
reporting of trading on said  Exchange or  elsewhere  shall be disrupted so that
accurate  appraisal of the value of the net assets of the Acquiring  Fund or the
Selling Fund is  impracticable,  the Valuation Date shall be postponed until the
first  business day after the day when trading shall have been fully resumed and
reporting shall have been restored.                                             

         3.4  TRANSFER  AGENT'S  CERTIFICATE.   Evergreen  Service  Company,  as
transfer  agent for the Selling Fund as of the Closing Date shall deliver at the
Closing a certificate of an authorized  officer stating that its records contain
the names and  addresses  of the Selling  Fund  Shareholders  and the number and
percentage  ownership  of  outstanding  shares  owned by each  such  shareholder
immediately prior to the Closing.  The Acquiring Fund shall issue and deliver or
cause Evergreen  Service Company,  its transfer agent as of the Closing Date, to
issue and deliver a  confirmation  evidencing  the  Acquiring  Fund Shares to be
credited on the Closing  Date to the  Secretary  of  Blanchard  Funds or provide
evidence  satisfactory  to the Selling Fund that such Acquiring Fund Shares have
been credited to the Selling Fund's account on the books of the Acquiring  Fund.
At the  Closing,  each  party  shall  deliver  to the other  such bills of sale,
checks, assignments, share certificates, if any, receipts and other documents as
such other party or its counsel may reasonably request.                         

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 4.1      REPRESENTATIONS OF THE SELLING FUND.  The Selling Fund
represents and warrants to the Acquiring Fund as follows:                       

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                  (a) The Selling Fund is a Maryland Corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland. 

                  (b)  The  Selling  Fund  is a  Maryland  Corporation  that  is
registered as an investment  company  classified as a management  company of the
open-end type, and its registration with the Securities and Exchange  Commission
(the  "Commission") as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), is in full force and effect.                 

                  (c) The  current  prospectuses  and  statement  of  additional
information  of the  Selling  Fund  conform  in  all  material  respects  to the
applicable  requirements  of the  Securities  Act of 1933, as amended (the "1933
Act"),  and the  1940  Act and  the  rules  and  regulations  of the  Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact  required to be stated  therein or necessary to make the
statements  therein,  in light of the circumstances  under which they were made,
not misleading.                                                                 

                  (d) The Selling Fund is not, and the execution,  delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of its Articles of  Incorporation or By-Laws or of
any  material  agreement,  indenture,  instrument,  contract,  lease,  or  other
undertaking to which the Selling Fund is a party or by which it is bound.       

                  (e) The  Selling  Fund  has no  material  contracts  or  other
commitments  (other than this  Agreement) that will be terminated with liability
to it  prior  to the  Closing  Date,  except  for  liabilities,  if  any,  to be
discharged or reflected on the Statement of Assets and  Liabilities  as provided
in paragraph 1.3 hereof.                                                        

                  (f) Except as  otherwise  disclosed in writing to and accepted
by  the  Acquiring   Fund,  no   litigation,   administrative   proceeding,   or
investigation of or before any court or governmental  body is presently  pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its  financial  condition,  the conduct of its  business,  or the ability of the
Selling Fund to carry out the transactions  contemplated by this Agreement.  The
Selling Fund knows of no facts that might form the basis for the  institution of
such  proceedings  and is not a party to or  subject  to the  provisions  of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its                                                           

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business or its ability to consummate the transactions herein                   
contemplated.                                                                   

                  (g) The financial  statements of the Selling Fund at September
30,  1997  are in  accordance  with  generally  accepted  accounting  principles
consistently  applied,  and such statements (copies of which have been furnished
to the Acquiring  Fund) fairly  reflect the  financial  condition of the Selling
Fund as of such  date,  and there  are no known  contingent  liabilities  of the
Selling Fund as of such date not disclosed therein.                             

                  (h) Since  September  30, 1997 there has not been any material
adverse change in the Selling Fund's financial condition,  assets,  liabilities,
or business other than changes occurring in the ordinary course of business,  or
any incurrence by the Selling Fund of  indebtedness  maturing more than one year
from the date such indebtedness was incurred,  except as otherwise  disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline  in the net asset  value of the  Selling  Fund  shall not  constitute  a
material adverse change.                                                        

                  (i) At the Closing Date, all federal and other tax returns and
reports of the  Selling  Fund  required  by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and  reports  shall have been paid,  or  provision  shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge,  no such return is
currently under audit,  and no assessment has been asserted with respect to such
returns.                                                                        

                  (j) For each fiscal year of its  operation,  the Selling  Fund
has met the  requirements  of  Subchapter  M of the Code for  qualification  and
treatment as a regulated  investment  company and has  distributed  in each such
year all net investment income and realized capital gains.                      

                  (k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding,  fully
paid and  non-assessable  by the Selling Fund. All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts  set forth in the  records of the  transfer  agent as
provided in  paragraph  3.4.  The  Selling  Fund does not have  outstanding  any
options,  warrants,  or other  rights to  subscribe  for or purchase  any of the
Selling Fund shares, nor is there outstanding any security  convertible into any
of the Selling Fund shares.                                                     

                  (l) At the Closing  Date,  the Selling Fund will have good and
marketable title to the Selling Fund's assets to be                             

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transferred  to the  Acquiring  Fund  pursuant to paragraph  1.2 and full right,
power,  and  authority  to sell,  assign,  transfer,  and  deliver  such  assets
hereunder,  and, upon delivery and payment for such assets,  the Acquiring  Fund
will acquire good and marketable  title thereto,  subject to no  restrictions on
the full transfer thereof,  including such restrictions as might arise under the
1933 Act,  other than as  disclosed  to the  Acquiring  Fund and accepted by the
Acquiring Fund.                                                                 

                  (m) The execution, delivery, and performance of this Agreement
have been duly  authorized  by all  necessary  action on the part of the Selling
Fund and, subject to approval by the Selling Fund  Shareholders,  this Agreement
constitutes a valid and binding  obligation of the Selling Fund,  enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization,  moratorium,  and other laws relating to or affecting creditors'
rights and to general equity principles.                                        

                  (n) The  information  to be  furnished by the Selling Fund for
use in no-action  letters,  applications  for orders,  registration  statements,
proxy  materials,  and other  documents that may be necessary in connection with
the  transactions  contemplated  hereby  shall be accurate  and  complete in all
material  respects  and  shall  comply in all  material  respects  with  federal
securities and other laws and regulations thereunder applicable thereto.        

                  (o) The Proxy  Statement of the Selling Fund to be included in
the Registration  Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring  Fund) will, on the effective  date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a  material  fact or omit to state a  material  fact  required  to be  stated
therein  or  necessary  to  make  the  statements   therein,  in  light  of  the
circumstances under which such statements were made, not misleading.            

4.2.1             REPRESENTATIONS OF THE ACQUIRING FUND. The  
Acquiring Fund represents and warrants to the Selling Fund as                   
follows:                                                                        

                  (a) The Acquiring  Fund is a separate  investment  series of a
Delaware  business trust duly organized,  validly  existing and in good standing
under the laws of the State of Delaware.                                        

                  (b) The Acquiring  Fund is a separate  investment  series of a
Delaware business trust that is registered as an investment  company  classified
as a management company of the open-end type,                                   

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and its registration with the Commission as an investment company under the 1940
Act is in full force and effect.                                                

                  (c)  The  current   prospectus  and  statement  of  additional
information  of the  Acquiring  Fund  conform in all  material  respects  to the
applicable  requirements  of the 1933 Act and the  1940  Act and the  rules  and
regulations of the Commission thereunder and do not include any untrue statement
of a material  fact or omit to state any  material  fact  required  to be stated
therein  or  necessary  to  make  the  statements   therein,  in  light  of  the
circumstances under which they were made, not misleading.                       

                  (d) The Acquiring Fund is not, and the execution, delivery and
performance  of this  Agreement  will not result,  in  violation  of the Trust's
Declaration  of  Trust  or  By-Laws  or of any  material  agreement,  indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.                                                

                  (e) Except as  otherwise  disclosed  in writing to the Selling
Fund and accepted by the Selling Fund, no litigation,  administrative proceeding
or  investigation  of or before  any  court or  governmental  body is  presently
pending or to its knowledge  threatened against the Acquiring Fund or any of its
properties or assets,  which,  if adversely  determined,  would  materially  and
adversely affect its financial  condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement.  The  Acquiring  Fund knows of no facts that might form the basis for
the  institution  of such  proceedings  and is not a party to or  subject to the
provisions of any order,  decree,  or judgment of any court or governmental body
that materially and adversely  affects its business or its ability to consummate
the transactions contemplated herein.                                           

                  (f) The financial statements of the Acquiring Fund at February
28,  1997  are in  accordance  with  generally  accepted  accounting  principles
consistently  applied,  and such statements (copies of which have been furnished
to the Selling  Fund) fairly  reflect the  financial  condition of the Acquiring
Fund as of such  date,  and there  are no known  contingent  liabilities  of the
Acquiring Fund as of such date not disclosed therein.                           

                  (g) Since  February 28, 1997,  there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business,  or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred,  except as otherwise  disclosed to
and accepted by the Selling Fund. For the purposes                              

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of this subparagraph (g), a decline in the net asset value of the Acquiring Fund
shall not constitute a material adverse change.                                 

                  (h) At the Closing Date, all federal and other tax returns and
reports of the  Acquiring  Fund  required  by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and  reports  shall  have been paid or  provision  shall  have been made for the
payment thereof.  To the best of the Acquiring Fund's knowledge,  no such return
is currently  under audit,  and no assessment  has been asserted with respect to
such returns.                                                                   

                  (i) For each fiscal year of its operation,  the Acquiring Fund
has met the  requirements  of  Subchapter  M of the Code for  qualification  and
treatment as a regulated  investment  company and has  distributed  in each such
year all net investment income and realized capital gains.                      

                  (j) All issued and outstanding  Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and  non-assessable.  The Acquiring Fund does not have  outstanding any options,
warrants,  or other  rights to  subscribe  for or purchase  any  Acquiring  Fund
Shares,  nor is there  outstanding any security  convertible  into any Acquiring
Fund Shares.                                                                    

                  (k) The execution, delivery, and performance of this Agreement
have been duly  authorized by all necessary  action on the part of the Acquiring
Fund,  and this  Agreement  constitutes  a valid and binding  obligation  of the
Acquiring  Fund  enforceable  in  accordance  with  its  terms,  subject  as  to
enforcement, to bankruptcy,  insolvency,  reorganization,  moratorium, and other
laws  relating  to  or  affecting   creditors'  rights  and  to  general  equity
principles.                                                                     

                  (l) The  Acquiring  Fund Shares to be issued and  delivered to
the Selling Fund, for the account of the Selling Fund Shareholders,  pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and  delivered,  will be duly and validly  issued  Acquiring
Fund Shares, and will be fully paid and non-assessable.                         

                  (m) The  information to be furnished by the Acquiring Fund for
use in no-action  letters,  applications  for orders,  registration  statements,
proxy  materials,  and other  documents that may be necessary in connection with
the  transactions  contemplated  hereby  shall be accurate  and  complete in all
material  respects  and  shall  comply in all  material  respects  with  federal
securities and other laws and regulations applicable thereto.                   

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                  (n)  The  Prospectus  and  Proxy   Statement  (as  defined  in
paragraph 5.7) to be included in the Registration  Statement (only insofar as it
relates to the Acquiring  Fund) will, on the effective date of the  Registration
Statement  and on the  Closing  Date,  not  contain  any untrue  statement  of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which such statements were made, not misleading.                                

                  (o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations  required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem  appropriate in
order to continue its operations after the Closing Date.                        

         4.2.2  REPRESENTATIONS  OF PREDECESSOR  FUND. The  representations  and
warranties set forth in Section 4.2.1 shall be deemed to include,  to the extent
applicable,  representations  and  warranties  made by and on behalf of Keystone
Precious Metals Holdings, Inc. (the "Predecessor Fund"), a Delaware corporation,
as of the date hereof.  The  Acquiring  Fund shall deliver to the Selling Fund a
certificate of the Predecessor Fund of even date making the  representations set
forth in  Section  4.2.1  with  respect  to the  Predecessor  Fund to the extent
applicable to the Predecessor Fund as of the date hereof.                       

 ARTICLE V

COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND

         5.1 OPERATION IN ORDINARY  COURSE.  The Acquiring  Fund and the Selling
Fund each will  operate its  business in the  ordinary  course  between the date
hereof and the Closing Date, it being  understood  that such ordinary  course of
business will include customary dividends and distributions.                    

         5.2 APPROVAL OF  SHAREHOLDERS.  The Selling Fund will call a meeting of
the Selling Fund  Shareholders  to consider and act upon this  Agreement  and to
take  all  other  action  necessary  to  obtain  approval  of  the  transactions
contemplated herein.                                                            

         5.3  INVESTMENT  REPRESENTATION.  The Selling Fund  covenants  that the
Acquiring  Fund Shares to be issued  hereunder  are not being  acquired  for the
purpose of making any  distribution  thereof other than in  accordance  with the
terms of this Agreement.                                                        

5.4      ADDITIONAL INFORMATION.  The Selling Fund will assist
the Acquiring Fund in obtaining such information as the Acquiring               

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Fund reasonably requests concerning the beneficial ownership of the Selling Fund
shares.                                                                         

         5.5 FURTHER ACTION.  Subject to the provisions of this  Agreement,  the
Acquiring  Fund and the Selling Fund will each take,  or cause to be taken,  all
action, and do or cause to be done, all things reasonably  necessary,  proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.   

         5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable,  but
in any case within  sixty days after the Closing  Date,  the Selling  Fund shall
furnish the Acquiring  Fund, in such form as is reasonably  satisfactory  to the
Acquiring  Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of  Section  381 of the Code,  and which  will be  reviewed  by KPMG Peat
Marwick LLP and certified by the Selling Fund's President and Treasurer.        

     5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT.  The Selling Fund will
provide  the  Acquiring  Fund  with  information  reasonably  necessary  for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy  Statement"),  all to be included
in  a   Registration   Statement  on  Form  N-14  of  the  Acquiring  Fund  (the
"Registration  Statement"),  in  compliance  with the 1933 Act,  the  Securities
Exchange  Act of  1934,  as  amended  (the  "1934  Act"),  and the  1940  Act in
connection  with the  meeting  of the  Selling  Fund  Shareholders  to  consider
approval of this Agreement and the transactions contemplated herein.            

         5.8 CAPITAL LOSS CARRYFORWARDS.  As promptly as practicable, but in any
case  within  sixty days after the  Closing  Date,  the  Acquiring  Fund and the
Selling  Fund shall cause KPMG Peat  Marwick LLP to issue a letter  addressed to
the Acquiring Fund and the Selling Fund, in form and substance  satisfactory  to
the Funds, setting forth the federal income tax implications relating to capital
loss  carryforwards (if any) of the Selling Fund and the related impact, if any,
of the  proposed  transfer  of all of the  assets  of the  Selling  Fund  to the
Acquiring  Fund and the  ultimate  dissolution  of the  Selling  Fund,  upon the
shareholders of the Selling Fund.                                               

ARTICLE VI

 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND

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         The  obligations  of the Selling Fund to  consummate  the  transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring  Fund of all the  obligations  to be  performed  by it hereunder on or
before the Closing  Date,  and,  in  addition  thereto,  the  following  further
conditions:                                                                     

         6.1 All  representations,  covenants,  and  warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the  Closing  Date with the same force and effect as if made on and as
of the Closing Date,  and the Acquiring Fund shall have delivered to the Selling
Fund a  certificate  executed  in its  name  by the  Trust's  President  or Vice
President  and its  Treasurer  or  Assistant  Treasurer,  in form and  substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other  matters as the Selling  Fund shall  reasonably
request.                                                                        

         6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP,  counsel to the Acquiring  Fund,  dated as of the
Closing Date, in a form reasonably  satisfactory  to the Selling Fund,  covering
the following points:                                                           

                  (a) The Acquiring  Fund is a separate  investment  series of a
Delaware  business trust duly organized,  validly  existing and in good standing
under  the laws of the  State of  Delaware  and has the  power to own all of its
properties and assets and to carry on its business as presently conducted.      

                  (b) The Acquiring  Fund is a separate  investment  series of a
Delaware business trust registered as an investment  company under the 1940 Act,
and, to such counsel's  knowledge,  such  registration with the Commission as an
investment company under the 1940 Act is in full force and effect.              

                  (c) This  Agreement has been duly  authorized,  executed,  and
delivered by the Acquiring Fund, and, assuming due authorization,  execution and
delivery  of  this  Agreement  by the  Selling  Fund,  is a  valid  and  binding
obligation  of the Acquiring  Fund  enforceable  against the  Acquiring  Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization,  moratorium,  and other laws relating to or affecting creditors'
rights generally and to general equity principles.                              

                  (d) Assuming that a  consideration  therefor not less than the
net asset value thereof has been paid,  the  Acquiring  Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund  Shareholders as
provided by this                                                                

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Agreement are duly  authorized and upon such delivery will be legally issued and
outstanding and fully paid and  non-assessable.  No shareholder of the Acquiring
Fund has any preemptive rights in respect thereof.                              

                  (e) The Registration  Statement,  to such counsel's knowledge,
has been declared  effective by the  Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United  States or the State of Delaware is required for  consummation  by
the Acquiring Fund of the transactions  contemplated herein, except such as have
been  obtained  under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.                                           

                  (f) The execution and delivery of this  Agreement did not, and
the consummation of the transactions  contemplated  hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture,  instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the  Acquiring  Fund is a party or
by which it or any of its  properties  may be bound or to the  knowledge of such
counsel,  result in the  acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.                                                

                  (g) Only  insofar as they relate to the  Acquiring  Fund,  the
descriptions  in the  Prospectus  and Proxy  Statement  of  statutes,  legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.                                   

                  (h) Such  counsel  does not know of any legal or  governmental
proceedings,  only insofar as they relate to the Acquiring Fund,  existing on or
before the  effective  date of the  Registration  Statement  or the Closing Date
required  to be  described  in the  Registration  Statement  or to be  filed  as
exhibits  to the  Registration  Statement  which are not  described  or filed as
required.                                                                       

                  (i) To  the  knowledge  of  such  counsel,  no  litigation  or
administrative   proceeding  or   investigation   of  or  before  any  court  or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its  properties  or assets  and the  Acquiring  Fund is not a party to or
subject to the  provisions  of any  order,  decree or  judgment  of any court or
governmental  body, which materially and adversely  affects its business,  other
than as previously disclosed in the Registration Statement.                     

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         Such  counsel  shall  also  state  that  they  have   participated   in
conferences  with officers and other  representatives  of the Acquiring  Fund at
which the contents of the  Prospectus  and Proxy  Statement and related  matters
were  discussed  and,  although  they are not passing upon and do not assume any
responsibility  for the  accuracy,  completeness  or fairness of the  statements
contained in the Prospectus and Proxy Statement  (except to the extent indicated
in paragraph (g) of their above opinion), on the basis of the foregoing (relying
as to  materiality  to a large extent upon the opinions of the Trust's  officers
and other  representatives  of the Acquiring  Fund), no facts have come to their
attention that lead them to believe that the  Prospectus and Proxy  Statement as
of its date, as of the date of the Selling Fund Shareholders' meeting, and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquiring Fund
or necessary,  in the light of the circumstances  under which they were made, to
make the statements  therein  regarding the Acquiring Fund not misleading.  Such
opinion may state that such counsel does not express any opinion or belief as to
the  financial  statements or any  financial or  statistical  data, or as to the
information  relating to the Selling Fund, contained in the Prospectus and Proxy
Statement or the Registration Statement, and that such opinion is solely for the
benefit of the Selling Fund.  Such opinion shall contain such other  assumptions
and  limitations  as  shall  be in the  opinion  of  Sullivan  &  Worcester  LLP
appropriate to render the opinions expressed therein.                           

         In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such  Prospectus and Proxy  Statement and
not to any exhibits or attachments  thereto or to any documents  incorporated by
reference therein.                                                              

         6.3 The merger  between  First  Union  Corporation  and Signet  Banking
Corporation shall be completed prior to the Closing Date.                       

         6.4  The  acquisition  of the  assets  of the  Predecessor  Fund by the
Acquiring Fund shall have been completed prior to the Closing Date.             

 ARTICLE VII

 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND

         The  obligations  of the  Acquiring  Fund to complete the  transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the                                                         

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obligations  to be  performed by it hereunder on or before the Closing Date and,
in addition thereto, the following conditions:                                  

         7.1 All representations,  covenants, and warranties of the Selling Fund
contained in this Agreement  shall be true and correct as of the date hereof and
as of the  Closing  Date with the same  force and effect as if made on and as of
the Closing  Date,  and the Selling Fund shall have  delivered to the  Acquiring
Fund on the  Closing  Date a  certificate  executed  in its name by the  Selling
Fund's President or Vice President and the Treasurer or Assistant Treasurer,  in
form and  substance  satisfactory  to the  Acquiring  Fund  and  dated as of the
Closing Date, to such effect and as to such other matters as the Acquiring  Fund
shall reasonably request.                                                       

         7.2 The  Selling  Fund shall have  delivered  to the  Acquiring  Fund a
statement of the Selling Fund's assets and liabilities,  together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the  holding  periods of such  securities,  as of the  Closing  Date,
certified by the Treasurer of the Selling Fund.                                 

         7.3.1 The  Acquiring  Fund shall have  received on the Closing  Date an
opinion of Dickstein  Shapiro Morin & Oshinsky LLP, counsel to the Selling Fund,
in a form satisfactory to the Acquiring Fund covering the following points:     

                  (a) The Selling Fund is a Maryland corporation duly organized,
validly  existing and in good  standing  under the laws of the State of Maryland
and has the power to own all of its  properties  and  assets and to carry on its
business as presently conducted.                                                

                  (b) The  Selling  Fund is a  separate  investment  series of a
Maryland  corporation  registered as an  investment  company under the 1940 Act,
and, to such counsel's  knowledge,  such  registration with the Commission as an
investment company under the 1940 Act is in full force and effect.              

                  (c) This  Agreement  has been duly  authorized,  executed  and
delivered by the Selling Fund, and, assuming due authorization,  execution,  and
delivery  of this  Agreement  by the  Acquiring  Fund,  is a valid  and  binding
obligation  of  the  Selling  Fund  enforceable  against  the  Selling  Fund  in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization,  moratorium  and other laws relating to or affecting  creditors'
rights generally and to general equity principles.                              

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                  (d) To the  knowledge of such counsel,  no consent,  approval,
authorization  or order of any court or  governmental  authority  of the  United
States or the State of Maryland is required for consummation by the Selling Fund
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act, and as may be required  under state
securities laws.                                                                

                  (e) The execution and delivery of this  Agreement did not, and
the consummation of the transactions  contemplated  hereby will not, result in a
violation of the Selling Fund's  Articles of  Incorporation  or By-laws,  or any
provision of any material agreement, indenture,  instrument,  contract, lease or
other undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by  which it or any of its  properties  may be  bound  or,  to the
knowledge of such counsel,  result in the  acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which the
Selling Fund is a party or by which it is bound.                                

                  (f) The  descriptions in the Prospectus and Proxy Statement of
this Agreement, as set forth under the caption "Reasons for the Reorganization -
Agreement and Plan of  Reorganization,"  the Interim Advisory  Agreement and the
Previous  Advisory  Agreement,  as set  forth  under  the  caption  "Information
Regarding the Interim Advisory  Agreement," the Interim Sub- Advisory  Agreement
and  the  Previous  Sub-Advisory  Agreement,  as set  forth  under  the  caption
"Information  Regarding the Interim Sub-Advisory  Agreement" and the description
of voting requirements  applicable to approval of the Interim Advisory Agreement
and Interim  Sub-Advisory  Agreement,  as set forth  under the  caption  "Voting
Information Concerning the Meeting," insofar as the latter constitutes a summary
of applicable voting  requirements  under the Investment Company Act of 1940, as
amended, are, in each case, accurate and fairly present the information required
to be shown by the applicable requirements of Form N-14.                        

                  (g) Such  counsel  does not know of any legal or  governmental
proceedings,  insofar as they relate to the Selling  Fund  existing on or before
the date of mailing of the Prospectus and Proxy  Statement and the Closing Date,
required to be described in the Prospectus and Proxy Statement or to be filed as
an exhibit to the  Registration  Statement  which are not  described or filed as
required.                                                                       

                  (h) To  the  knowledge  of  such  counsel,  no  litigation  or
administrative   proceeding  or   investigation   of  or  before  any  court  or
governmental  body is presently  pending or threatened as to the Selling Fund or
any of its respective properties or assets and                                  

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the  Selling  Fund is neither a party to nor  subject to the  provisions  of any
order,  decree or judgment of any court or governmental  body,  which materially
and adversely  affects its business  other than as  previously  disclosed in the
Prospectus and Proxy Statement.                                                 

         7.3.2 The  Acquiring  Fund shall have  received on the closing  Date an
opinion of C. Grant Anderson,  Esq., Assistant Secretary of the Selling Fund, in
form   satisfactory   to  the  Acquiring  Fund  as  follows:   Assuming  that  a
consideration  therefor  of not less than the net asset  value  thereof has been
paid, and assuming that such shares were issued in accordance  with the terms of
the Selling Fund's registration  statement,  or any amendment thereto, in effect
at the time of such issuance,  all issued and outstanding  shares of the Selling
Fund are legally issued and fully paid and non-assessable.                      

         Mr. Anderson shall also state that he has reviewed and is familiar with
the  contents of the  Prospectus  and Proxy  Statement  and,  although he is not
passing  upon  and  does  not  assume  any   responsibility  for  the  accuracy,
completeness or fairness of the statements contained in the Prospectus and Proxy
Statement,  on the basis of the  foregoing,  no facts have come to his attention
that lead him to believe that the Prospectus and Proxy Statement as of its date,
as of the date of the Selling Fund Shareholders'  meeting, and as of the Closing
Date,  contained an untrue  statement  of a material  fact or omitted to state a
material  fact  required to be stated  therein  regarding  the  Selling  Fund or
necessary, in the light of the circumstances under which they were made, to make
the statements  therein regarding the Selling Fund not misleading.  Such opinion
may state that he does not  express  any  opinion or belief as to the  financial
statements  or any  financial  or  statistical  data,  or as to the  information
relating to the Acquiring Fund,  contained in the Prospectus and Proxy Statement
or Registration Statement.                                                      

         The  opinions  set forth in  paragraphs  7.3.1 and 7.3.2 may state that
such  opinions are solely for the benefit of the Acquiring  Fund.  Such opinions
shall contain such other  assumptions and limitations as shall be in the opinion
of Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson,  as applicable,
appropriate to render the opinions expressed therein,  and shall indicate,  with
respect to matters of Maryland law,  that as Dickstein  Shapiro Morin & Oshinsky
LLP and C. Grant Anderson are not admitted to the bar of Maryland, such opinions
are based  either  upon the review of  published  statutes,  cases and rules and
regulations of the State of Maryland or upon an opinion of Maryland counsel.    

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         In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such  Prospectus and Proxy  Statement and
not to any exhibits or attachments  thereto or to any documents  incorporated by
reference therein.                                                              

         7.4 The merger  between  First  Union  Corporation  and Signet  Banking
Corporation shall be completed prior to the Closing Date.                       

ARTICLE VIII

FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING        
 FUND AND THE SELLING FUND

         If any of the  conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring  Fund,  the other
party to this Agreement shall, at its option,  not be required to consummate the
transactions contemplated by this Agreement:                                    

         8.1 This Agreement and the transactions  contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding  shares of
the  Selling  Fund in  accordance  with the  provisions  of the  Selling  Fund's
Articles of  Incorporation  and By-Laws and certified  copies of the resolutions
evidencing  such  approval  shall have been  delivered  to the  Acquiring  Fund.
Notwithstanding anything herein to the contrary,  neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.      

         8.2 On the  Closing  Date,  the  Commission  shall  not have  issued an
unfavorable  report  under  Section  25(b) of the 1940 Act, nor  instituted  any
proceeding  seeking to enjoin the consummation of the transactions  contemplated
by this  Agreement  under Section  25(c) of the 1940 Act and no action,  suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in  connection  with,  this  Agreement or the  transactions  contemplated
herein.                                                                         

         8.3 All  required  consents of other  parties  and all other  consents,
orders,  and  permits  of  federal,   state  and  local  regulatory  authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary  "no-action" positions of and exemptive orders from such
federal  and state  authorities)  to  permit  consummation  of the  transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent,  order,  or permit would not involve a risk of a material  adverse
effect on the assets or properties  of the  Acquiring  Fund or the Selling Fund,
provided                                                                        

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that either party hereto may for itself waive any of such                       
conditions.                                                                     

         8.4 The  Registration  Statement shall have become  effective under the
1933 Act, and no stop orders  suspending  the  effectiveness  thereof shall have
been issued and, to the best knowledge of the parties hereto,  no  investigation
or  proceeding  for that  purpose  shall  have been  instituted  or be  pending,
threatened or contemplated under the 1933 Act.                                  

         8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the  Selling  Fund  Shareholders  all of the  Selling  Fund's net  investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed  without  regard to any deduction for dividends  paid) and all of
its net capital gains realized in all taxable  periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).               

         8.6 The parties shall have  received a favorable  opinion of Sullivan &
Worcester   LLP,   addressed  to  the  Acquiring   Fund  and  the  Selling  Fund
substantially to the effect that for federal income tax purposes:               

                  (a) The transfer of all of the Selling Fund assets in exchange
for the  Acquiring  Fund  Shares and the  assumption  by the  Acquiring  Fund of
certain stated  liabilities of the Selling Fund followed by the  distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution  and liquidation of
the  Selling  Fund will  constitute  a  "reorganization"  within the  meaning of
Section  368(a)(1)(C)  of the Code and the  Acquiring  Fund and the Selling Fund
will each be a "party to a reorganization"  within the meaning of Section 368(b)
of the Code.                                                                    

                  (b) No gain or loss will be recognized  by the Acquiring  Fund
upon the  receipt of the assets of the Selling  Fund solely in exchange  for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.                                                

                  (c) No gain or loss will be  recognized  by the  Selling  Fund
upon the transfer of the Selling Fund assets to the  Acquiring  Fund in exchange
for the  Acquiring  Fund  Shares and the  assumption  by the  Acquiring  Fund of
certain stated liabilities of the Selling Fund or upon the distribution (whether
actual  or   constructive)   of  the  Acquiring  Fund  Shares  to  Selling  Fund
Shareholders in exchange for their shares of the Selling Fund.                  

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                  (d) No gain or loss will be  recognized  by the  Selling  Fund
Shareholders  upon the exchange of their  Selling Fund shares for the  Acquiring
Fund Shares in liquidation of the Selling Fund.                                 

                  (e) The  aggregate  tax basis for the  Acquiring  Fund  Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the  aggregate  tax basis of the  Selling  Fund  shares held by such
shareholder  immediately prior to the Reorganization,  and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund  Shareholder  will
include the period during which the Selling Fund shares exchanged  therefor were
held by such shareholder  (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).                                      

                  (f) The tax basis of the Selling  Fund assets  acquired by the
Acquiring  Fund will be the same as the tax basis of such  assets to the Selling
Fund  immediately  prior to the  Reorganization,  and the holding  period of the
assets of the Selling Fund in the hands of the  Acquiring  Fund will include the
period during which those assets were held by the Selling Fund.                 

         Notwithstanding anything herein to the contrary,  neither the Acquiring
Fund nor the Selling Fund may waive the  conditions  set forth in this paragraph
8.6.                                                                            

         8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter  addressed to the Acquiring  Fund, in form and substance  satisfactory to
the Acquiring Fund, to the effect that:                                         

                  (a) they are independent  certified  public  accountants  with
respect  to the  Selling  Fund  within  the  meaning  of the  1933  Act  and the
applicable published rules and regulations thereunder;                          

                  (b) on the  basis of  limited  procedures  agreed  upon by the
Acquiring  Fund  and  described  in  such  letter  (but  not an  examination  in
accordance with generally accepted auditing  standards)  consisting of a reading
of any unaudited pro forma  financial  statements  included in the  Registration
Statement and  Prospectus  and Proxy  Statement,  and  inquiries of  appropriate
officials of the Selling Fund responsible for financial and accounting  matters,
nothing came to their  attention that caused them to believe that such unaudited
pro forma financial statements do not comply as to form in all material respects
with the  applicable  accounting  requirement  of the 1933 Act and the published
rules and regulations thereunder;                                               

              (c)      on the basis of limited procedures agreed upon by
the Acquiring Fund and described in such letter (but not an                     

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examination  in accordance  with generally  accepted  auditing  standards),  the
Capitalization Table appearing in the Registration  Statement and Prospectus and
Proxy  Statement has been obtained  from and is consistent  with the  accounting
records of the Selling Fund;                                                    

                  (d) on the  basis of  limited  procedures  agreed  upon by the
Acquiring  Fund  and  described  in  such  letter  (but  not an  examination  in
accordance with generally accepted auditing standards),  the pro forma financial
statements  that are included in the  Registration  Statement and Prospectus and
Proxy  Statement  were  prepared  based on the  valuation of the Selling  Fund's
assets in accordance with the Selling Fund's Articles of  Incorporation  and the
Acquiring Fund's then current prospectus and statement of additional information
pursuant to procedures customarily utilized by the Acquiring Fund in valuing its
own assets;                                                                     

                  (e) on the  basis of  limited  procedures  agreed  upon by the
Acquiring  Fund  and  described  in  such  letter  (but  not an  examination  in
accordance with generally accepted auditing standards), the data utilized in the
calculations  of the  projected  expense  ratios  appearing in the  Registration
Statement and Prospectus and Proxy Statement  agree with  underlying  accounting
records  of the  Selling  Fund or  with  written  estimates  by  Selling  Fund's
management and were found to be mathematically correct.                         

         In addition,  the  Acquiring  Fund shall have  received  from KPMG Peat
Marwick LLP a letter  addressed to the Acquiring Fund dated on the Closing Date,
in form and substance satisfactory to the Acquiring Fund, to the effect, that on
the basis of limited  procedures  agreed upon by the Acquiring  Fund (but not an
examination  in accordance  with generally  accepted  auditing  standards),  the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted  accounting  practices
and the portfolio valuation practices of the Acquiring Fund.                    

         8.8 The Selling Fund shall have  received  from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance  satisfactory to the
Selling Fund, to the effect that:                                               

                  (a) they are independent  certified  public  accountants  with
respect  to the  Acquiring  Fund  within  the  meaning  of the  1933 Act and the
applicable published rules and regulations thereunder;                          

                  (b) on the  basis of  limited  procedures  agreed  upon by the
Selling Fund and described in such letter (but not an  examination in accordance
with generally accepted auditing                                                

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standards), the Capitalization Table appearing in the Registration Statement and
Prospectus and Proxy Statement has been obtained from and is consistent with the
accounting records of the Acquiring Fund; and                                   

                  (c) on the  basis of  limited  procedures  agreed  upon by the
Selling Fund (but not an  examination  in  accordance  with  generally  accepted
auditing  standards),  the data  utilized in the  calculations  of the projected
expense ratio appearing in the  Registration  Statement and Prospectus and Proxy
Statement agree with written  estimates by each Fund's management and were found
to be mathematically correct.                                                   

ARTICLE IX

EXPENSES

         9.1 Except as  otherwise  provided  for  herein,  all  expenses  of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring  Fund  will be borne by  First  Union  National  Bank.  Such  expenses
include,  without  limitation,  (a)  expenses  incurred in  connection  with the
entering  into and the carrying out of the  provisions  of this  Agreement;  (b)
expenses  associated  with  the  preparation  and  filing  of  the  Registration
Statement  under the 1933 Act  covering the  Acquiring  Fund Shares to be issued
pursuant to the provisions of this Agreement;  (c) registration or qualification
fees and  expenses of  preparing  and filing such forms as are  necessary  under
applicable  state  securities  laws to qualify the  Acquiring  Fund Shares to be
issued  in  connection  herewith  in  each  state  in  which  the  Selling  Fund
Shareholders  are resident as of the date of the mailing of the  Prospectus  and
Proxy Statement to such shareholders;  (d) postage; (e) printing; (f) accounting
fees;  (g)  legal  fees;  and  (h)   solicitation   costs  of  the  transaction.
Notwithstanding the foregoing,  the Acquiring Fund shall pay its own federal and
state registration fees.                                                        

 ARTICLE X

ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

         10.1 The  Acquiring  Fund and the Selling Fund agree that neither party
has made any representation,  warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.            

         10.2 The representations,  warranties,  and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.  

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ARTICLE XI

 TERMINATION

         11.1 This  Agreement may be  terminated by the mutual  agreement of the
Acquiring  Fund and the Selling Fund. In addition,  either the Acquiring Fund or
the Selling Fund may at its option  terminate  this Agreement at or prior to the
Closing Date because:                                                           

                  (a) of a breach by the other of any representation,  warranty,
or agreement  contained  herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or                                                 

                  (b) a  condition  herein  expressed  to be  precedent  to  the
obligations of the terminating party has not been met and it reasonably  appears
that it will not or cannot be met.                                              

         11.2 In the event of any such  termination,  in the  absence of willful
default,  there  shall be no  liability  for  damages  on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees,  Directors
or officers, to the other party or its Trustees, Directors or officers.         

 ARTICLE XII

AMENDMENTS

         12.1 This Agreement may be amended,  modified,  or supplemented in such
manner as may be mutually  agreed upon in writing by the authorized  officers of
the Selling Fund and the Acquiring Fund; provided,  however,  that following the
meeting of the Selling Fund Shareholders  called by the Selling Fund pursuant to
paragraph  5.2 of this  Agreement,  no such  amendment  may have the  effect  of
changing the provisions for  determining the number of the Acquiring Fund Shares
to be issued to the  Selling  Fund  Shareholders  under  this  Agreement  to the
detriment of such shareholders without their further approval.                  

ARTICLE XIII

HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
 LIMITATION OF LIABILITY

         13.1 The Article and paragraph headings contained in this Agreement are
for  reference  purposes  only and shall not  affect in any way the  meaning  or
interpretation of this Agreement.                                               

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         13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.                                           

         13.3 This  Agreement  shall be governed by and  construed in accordance
with the laws of the State of Delaware,  without  giving effect to the conflicts
of laws  provisions  thereof;  provided,  however,  that the due  authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance  with the laws of the State of Maryland,
without giving effect to the conflicts of laws provisions thereof.              

         13.4 This Agreement  shall bind and inure to the benefit of the parties
hereto and their respective  successors and assigns,  but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder  shall be made by any party  without the written  consent of the other
party.  Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person,  firm,  or  corporation,  other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.                                                 

         13.5 It is expressly  agreed that the obligations of the Acquiring Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers,  agents, or employees of the Evergreen International Trust personally,
but shall bind only the trust property of the Acquiring Fund, as provided in the
Declaration of Trust of the Trust.  The execution and delivery of this Agreement
have been  authorized by the Trust on behalf of the Acquiring Fund and signed by
authorized officers of the Trust, acting as such, and neither such authorization
by such  Trustees  nor such  execution  and delivery by such  officers  shall be
deemed to have been made by any of them  individually or to impose any liability
on any of them  personally,  but  shall  bind  only the  trust  property  of the
Acquiring Fund as provided in the Declaration of Trust of the Trust.            

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         IN WITNESS  WHEREOF,  the parties  have duly  executed  and sealed this
Agreement, all as of the date first written above.                              

                                       EVERGREEN INTERNATIONAL TRUST
                                ON BEHALF OF  KEYSTONE
                                   PRECIOUS METALS  HOLDINGS

             By:

               Name:
                Title:

                                   BLANCHARD PRECIOUS METALS
                    FUND, INC.
             By:

               Name:

                Title:

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                                             EXHIBIT B

BLANCHARD PRECIOUS METALS FUND, INC.

 INTERIM MANAGEMENT CONTRACT

         This  Contract is made this 28th day of November,  1997 between  Virtus
Capital Management,  Inc., a Maryland  corporation having its principal place of
business in Richmond,  Virginia (the "Manager"),  and Blanchard  Precious Metals
Fund,  Inc., a Maryland  corporation  having its principal  place of business in
Pittsburgh,                                                                     
Pennsylvania (the "Corporation").                                               

         WHEREAS the Corporation is an open-end management investment company as
         that term is defined in the Investment Company Act of 1940, as amended,
         and is registered as such with the Securities and Exchange  Commission;
and                                                           

         WHEREAS  Manager is engaged in the  business  of  rendering  investment
advisory and management services.                             

         NOW,  THEREFORE,  the parties  hereto,  intending to be legally  bound,
hereby agree as follows:                                                        

         1. The Corporation  hereby appoints  Manager as manager for each of the
portfolios  ("Funds")  of the  Corporation  which  executes  an  exhibit to this
Contract, and Manager accepts the appointments.  Subject to the direction of the
Directors of the Corporation, Manager shall provide or procure on behalf of each
of the Funds all management  and  administrative  services.  In carrying out its
obligations under this paragraph,  the Manager shall: (i) provide or arrange for
investment research and supervision of the investments of the Funds; (ii) select
and evaluate the performance of each Fund's Portfolio Sub-Adviser;  (iii) select
and evaluate the performance of the  Administrator;  and (iv) conduct or arrange
for  a  continuous   program  of  appropriate  sale  or  other  disposition  and
reinvestment of each Fund's assets.                                             

         2. Manager, in its supervision of the investments of each of the Funds,
will be guided by each of the Fund's  investment  objective and policies and the
provisions  and  restrictions  contained  in the Articles of  Incorporation  and
By-Laws of the Corporation and as set forth in the  Registration  Statements and
exhibits as may be on file with the Securities and Exchange Commission.         

         3. Each Fund shall pay or cause to be paid all of its own  expenses and
its allocable share of Corporation expenses,  including, without limitation, the
expenses of organizing the                                                      

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Corporation  and continuing  its  existence;  fees and expenses of Directors and
officers of the  Corporation;  fees for management  services and  administrative
personnel  and services;  expenses  incurred in the  distribution  of its shares
("Shares"),  including  expenses of administrative  support  services;  fees and
expenses  of  preparing  and  printing  its  Registration  Statements  under the
Securities Act of 1933 and the Investment  Company Act of 1940, as amended,  and
any amendments thereto;  expenses of registering and qualifying the Corporation,
the Funds, and Shares of the Funds under federal and state laws and regulations;
expenses  of  preparing,   printing,  and  distributing  prospectuses  (and  any
amendments  thereto)  to  shareholders;   interest  expense,  taxes,  fees,  and
commissions  of  every  kind;   expenses  of  issue  (including  cost  of  Share
certificates),   purchase,  repurchase,  and  redemption  of  Shares,  including
expenses  attributable to a program of periodic  issue;  charges and expenses of
custodians,  transfer agents, dividend disbursing agents,  shareholder servicing
agents, and registrars;  printing and mailing costs, auditing,  accounting,  and
legal  expenses;   reports  to  shareholders  and   governmental   officers  and
commissions;  expenses of  meetings  of  Directors  and  shareholders  and proxy
solicitations therefor; insurance expenses; association membership dues and such
nonrecurring items as may arise,  including all losses and liabilities  incurred
in  administering  the  Corporation  and the Funds.  Each Fund will also pay its
allocable share of such  extraordinary  expenses as may arise including expenses
incurred in connection with  litigation,  proceedings,  and claims and the legal
obligations  of the  Corporation  to indemnify  its officers and  Directors  and
agents with respect thereto.                                                    

         4. Each of the Funds shall pay to Manager, for all services rendered to
each Fund by  Manager  hereunder,  the fees set forth in the  exhibits  attached
hereto.                                                                         

         5. If, for any fiscal year, the total of all ordinary business expenses
of the Fund,  including all investment advisory fees but excluding  distribution
fees, taxes,  interest and  extraordinary  expenses and certain other excludable
expenses,  would  exceed  the most  restrictive  expense  limits  imposed by any
statute or regulatory  authority of any jurisdiction in which Shares of the Fund
are offered for sale Manager shall reduce its  management fee in order to reduce
such excess  expenses,  but will not be required to  reimburse  the Fund for any
ordinary  business  expenses  which exceed the amount of its  management fee for
such fiscal year. The amount of any such reduction is to be borne by the Manager
and shall be deducted from the monthly  management fee otherwise  payable to the
Manager  during such fiscal year. For the purposes of this  paragraph,  the term
"fiscal year" shall  exclude the portion of the current  fiscal year which shall
have elapsed prior to the date hereof and shall include the portion of          

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the then current fiscal year which shall have elapsed at the date of termination
of this Agreement.                                                              

         6. The net asset  value of each  Fund's  Shares as used  herein will be
calculated to the nearest 1/10th of one cent.                                   

         7. The Manager  may from time to time and for such  periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's  expenses  exceed such lower
expense limitation as the Manger may, by notice to the Fund, voluntarily declare
to be effective.                                                                

         8. This Contract  shall begin for each Fund as of the date of execution
of the applicable exhibit and shall continue in effect with respect to each Fund
presently set forth on an exhibit (and any subsequent Funds added pursuant to an
exhibit  during the  initial  term of this  Contract)  until the  earlier of the
Closing Date defined in the  Agreement  and Plan of  Reorganization  dated as of
November  26,  1997 with  respect to each Fund or for two years from the date of
this Contract set forth above and thereafter for successive periods of one year,
subject  to the  provisions  for  termination  and all of the  other  terms  and
conditions  hereof if: (a) such continuation  shall be specifically  approved at
least  annually by the vote of a majority of the  Directors of the  Corporation,
including a majority of the  Directors  who are not parties to this  Contract or
interested persons of any such party cast in person at a meeting called for that
purpose;  and (b)  Manager  shall not have  notified  a Fund in writing at least
sixty  (60) days  prior to the  anniversary  date of this  Contract  in any year
thereafter that it does not desire such  continuation with respect to that Fund.
If a Fund is added after the first approval by the Directors as described above,
this Contract will be effective as to that Fund upon execution of the applicable
exhibit  and will  continue  in effect  until the next  annual  approval  of the
Contract by the Directors and  thereafter  for  successive  periods of one year,
subject to approval as described above.                                         

         9. Notwithstanding any provision in this Contract, it may be terminated
at any time with respect to any Fund, without the payment of any penalty, by the
Directors of the  Corporation or by a vote of the  shareholders  of that Fund on
sixty (60) days' written notice to Manager.                                     

         10.   This   Contract   may  not  be  assigned  by  Manager  and  shall
automatically  terminate in the event of any  assignment.  Manager may employ or
contract with such other person,  persons,  corporation,  or corporations at its
own cost and expense as it                                                      

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shall determine in order to assist it in carrying out this                      
Contract.                                                                       

         11. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless  disregard of the  obligations  or duties under this Contract on the
part of Manager, Manager shall not be liable to the Corporation or to any of the
Funds  or to any  shareholder  for  any  act or  omission  in the  course  of or
connected  in any way with  rendering  services  or for any  losses  that may be
sustained in the purchase, holding, or sale of any security.                    

         12.  This  Contract  may be  amended  at any time by  agreement  of the
parties  provided  that the  amendment  shall be approved  both by the vote of a
majority  of the  Directors  of the  Corporation,  including  a majority  of the
Directors who are not parties to this Contract or interested persons of any such
party to this  Contract  (other than as  Directors of the  Corporation)  cast in
person at a meeting  called  for that  purpose,  and where  required  by Section
15(a)(2) of the Act, on behalf of a Fund by a majority of the outstanding voting
securities of such Fund as defined in Section 2(a)(42) of the Act.              

         13. The Manager  acknowledges  that all sales literature for investment
companies (such as the Corporation) are subject to strict regulatory  oversight.
The Manager agrees to submit any proposed sales  literature for the  Corporation
(or any Fund) or for itself or its affiliates which mentions the Corporation (or
any Fund) to the  Corporation's  distributor  for  review  and  filing  with the
appropriate regulatory authorities prior to the public release of any such sales
literature,  provided,  however, that nothing herein shall be construed so as to
create  any  obligation  or duty on the part of the  Manager  to  produce  sales
literature for the  Corporation (or any Fund).  The Corporation  agrees to cause
its  distributor  to  promptly  review  all  such  sales  literature  to  ensure
compliance  with  relevant  requirements,  to  promptly  advise  Manager  of any
deficiencies  contained in such sales  literature,  to promptly  file  complying
sales  literature  with  the  relevant  authorities,  and to  cause  such  sales
literature to be distributed to prospective investors in the Corporation.       

         14.  Notice is hereby given that this  instrument is executed on behalf
of the Directors of the Corporation as Directors and not  individually  and that
the obligations of this instrument are not binding upon any of the Directors, or
any of the  officers,  employees,  agents  or  shareholders  of the  Corporation
individually  but  are  binding  only  upon  the  assets  and  property  of  the
Corporation.  Notice is also hereby given that the obligations  pursuant to this
instrument  of a  particular  Fund and of the  Corporation  with respect to that
particular Fund shall be limited solely to the assets of that particular Fund.  

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         15. This Contract shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.                                   

         16. This Contract will become  binding on the parties hereto upon their
execution of the attached exhibits to this Contract.                            

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 EXHIBIT A
to the
 Management Contract

BLANCHARD PRECIOUS METALS FUND, INC.

         For all services rendered by Manager  hereunder,  the above-named Funds
of the  Corporation  shall pay to Manager and  Manager  agrees to accept as full
compensation for all services rendered hereunder, an annual management fee equal
to the following  percentage ("the applicable  percentage") of the average daily
net assets of each Fund                                                         

Name of Fund                                     Percentage of Net Assets       
Blanchard Precious                               1% of the first $150 million   
Metals Fund, Inc.                                of average daily net assets,   
                                       .875%  of the  Fund's
                                       average   daily   net
                                       assets  in  excess of
                                       $150  million but not
                                       exceeding        $300
                                       million  and  .75% of
                                       the  Fund's   average
                                       daily  net  assets in
                                       excess     of    $300
                          million.

         The portion of the fee based upon the  average  daily net assets of the
Fund shall be accrued daily at the rate of 1/365th of the applicable  percentage
applied to the daily net assets of the Fund.                                    

The management fee so accrued shall be paid to Manager daily. 

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   Witness the due execution hereof this 28th day of November, 1997.

Attest:                                     Virtus Capital Management, Inc.     

________________________                    By: ___________________________     
Assistant Secretary                                  Senior Vice President      

Attest:                                     Blanchard Precious Metals Fund, Inc.

________________________                    By: ____________________________    
Assistant Secretary                         Vice President    

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                                                           EXHIBIT C

INTERIM SUB-ADVISORY AGREEMENT

         THIS  AGREEMENT is made this 28th day of November,  1997 by and between
VIRTUS CAPITAL  MANAGEMENT,  INC., a Maryland  corporation (the "Manager"),  and
CAVELTI  CAPITAL  MANAGEMENT,  LTD.,  a  Canadian  money  management  firm  (the
"Portfolio Manager" or "Cavelti") with respect to the following recital of fact:

 R E C I T A L

         WHEREAS,  Blanchard  Precious Metals Fund, Inc. (the  "Corporation") is
registered as an open-end  non-diversified  management  investment company under
the Investment  Company Act of 1940, as amended (the "1940 Act"),  and the rules
and regulations promulgated thereunder; and                                     

         WHEREAS,  the Portfolio Manager is registered as an investment  advisor
under the  Investment  Advisers  Act of 1940,  as  amended,  and  engages in the
business of acting as an investment advisor; and                                

         WHEREAS,  the Corporation is authorized to issue shares of Common Stock
in separate series, with each such series  representing  interests in a separate
portfolio of securities and other assets; and                                   

         WHEREAS,  the  Corporation  intends to  initially  offer  shares in one
series called the  BLANCHARD  PRECIOUS  METALS FUND,  INC.  (such series,  being
referred to as the "Fund"); and                                                 

         WHEREAS, the Corporation and the Manager have entered into an agreement
to provide for management  services for the Fund on the terms and conditions set
forth therein (the "Interim Management Agreement"); and                         

         WHEREAS,  the Portfolio Manager proposes to render investment  advisory
services to the Manager in connection with the Manager's responsibilities to the
Fund's portfolio on the terms and conditions hereinafter set forth.             

         NOW  THEREFORE,   in  consideration  of  the  mutual  covenants  herein
contained  and other good and  valuable  consideration,  the receipt of which is
hereby acknowledged, the parties hereto agree as follows:                       

1.       Investment Management.  Cavelti shall act as the     
Portfolio Manager for the Fund and shall, in such capacity,                     
supervise the investment and reinvestment of the cash, securities               

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or other properties comprising the Fund's portfolio, subject at all times to the
direction of the Manager and the policies and control of the Corporation's Board
of  Directors.  Cavelti  shall give the Fund the  benefit of its best  judgment,
efforts and facilities in rendering its services as Portfolio Manager.          

2.       Investment Analysis and Implementation.  In carrying 
out its obligation under paragraph 1 hereof, the Portfolio                      
Manager shall:                                                                  

                  (a) use the same skill and care in  providing  such service as
         it uses in providing  services to  fiduciary  accounts for which it has
investment responsibilities;                                  

                  (b)   obtain  and   evaluate   pertinent   information   about
         significant developments and economics, statistical and financial data,
         domestic, foreign or otherwise, whether affecting the economy generally
         or the Fund's portfolio and whether  concerning the individual  issuers
         whose securities are included in the Fund's portfolio or the activities
         in which the issuers  engage,  or with respect to securities  which the
         Portfolio  Manager  considers  desirable  for  inclusion  in the Fund's
portfolio;                                                    

            (c)      determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report      
thereon to the Manager;                                       

                  (d)  formulate  and  implement  continuing  programs  for  the
         purchases  and sales of the  securities  of such issuers and  regularly
report thereon to the Manager; and                            

                  (e) take,  on behalf of the Fund,  all actions which appear to
         the Fund and the Manager  necessary to carry into effect such  purchase
         and sale programs and supervisory functions as aforesaid, including the
         placing of orders for the purchase and sale of securities  for the Fund
      and the prompt reporting to the Manager of such purchases and sales.

         3.  Broker-Dealer  Relationships.  The Portfolio Manager is responsible
for decisions to buy and sell securities for the Fund's portfolio, broker-dealer
selection,   and  negotiation  of  brokerage  commission  rates.  The  Portfolio
Manager's  primary  consideration  in effecting a security  transaction  will be
execution at the most favorable  price. In selecting a broker-dealer  to execute
each particular transaction,  the Portfolio Manager will take the following into
consideration:  the best net price  available,  the  reliability,  integrity and
financial  condition  of  the  broker-dealer;  the  size  of and  difficulty  in
executing the order; and the value of the expected contribution                 

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of the  broker-dealer to the investment  performance of the Fund on a continuing
basis.  Accordingly,  the  price  to the  Fund  in any  transaction  may be less
favorable than that available  from another  broker-dealer  if the difference is
reasonably  justified  by other  aspects  of the  portfolio  execution  services
offered.  Subject to such policies as the Board of Directors may determine,  the
Portfolio  Manager  shall  not be  deemed to have  acted  unlawfully  or to have
breached any duty created by this Agreement or otherwise solely by reason of its
having  caused  the Fund to pay a broker or dealer  for  effecting  a  portfolio
investment  transaction in excess of the amount of commission  another broker or
dealer would have  charged for  effecting  that  transaction,  if the  Portfolio
Manager  determines in good faith that such amount of commission  was reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer,  viewed in terms of either that particular  transaction or the
Portfolio Manager's overall responsibilities with respect to the Fund and to its
other  clients as to which it exercises  investment  discretion.  The  Portfolio
Manager is further  authorized  to allocate the orders placed by it on behalf of
the Fund to its affiliated broker-dealer or to such brokers and dealers who also
provide research or statistical  material,  or other services to the Fund or the
Portfolio  Manager.  Such allocation shall be in such amounts and proportions as
the Portfolio  Manager shall determine and the Portfolio  Manager will report on
said  allocations  regularly  to  Manager  indicating  the  brokers to whom such
allocations have been made and the basis therefor.                              

         4. Control by Board of Directors.  Any investment program undertaken by
the  Portfolio  Manager  pursuant  to  this  Agreement,  as  well  as any  other
activities  undertaken by the  Portfolio  Manager on behalf of the Fund pursuant
thereto,  shall at all  times  be  subject  to any  directives  of the  Board of
Directors of the  Corporation.  The Manager shall provide the Portfolio  Manager
with written notice of all such directives, so long as this Agreement remains in
effect.                                                                         

5.       Compliance with Applicable Requirements.  In carrying
out its obligations under this Agreement, the Portfolio Manager                 
shall at all times conform to:                                                  

       (a)      all applicable provisions of the 1940 Act;

            (b)      the provisions of the Registration Statement of
the Corporation under the Securities Act of 1933 and the      
1940 Act; and                                                 

         (c)      any other applicable provisions of state and
federal law.                                                  

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         6. Expenses. The expenses connected with the Fund shall be borne by the
Portfolio Manager as follows:                                                   

                  The  Portfolio  Manager  shall  maintain,  at its  expense and
without  cost to the Manager or the Fund,  a trading  function in order to carry
out its obligations under subparagraph (e) of paragraph 2 hereof to place orders
for the purchase and sale of portfolio securities for the Fund.                 

         7. Delegation of Responsibilities. Upon request of the Manager and with
the approval of the Corporation's Board of Directors,  the Portfolio Manager may
perform services on behalf of the Fund which are not required by this Agreement.
Such  services  will be  performed  on  behalf  of the  Fund  and the  Portfolio
Manager's  cost in rendering such services may be billed monthly to the Manager,
subject to  examination  by the Manager's  independent  accountants.  Payment or
assumption  by the  Portfolio  Manager of any Fund  expense  that the  Portfolio
Manager is not required to pay or assume under this Agreement  shall not relieve
the Manager or the Portfolio  Manager of any of their obligations to the Fund or
obligate the Portfolio  Manager to pay or assume any similar Fund expense on any
subsequent occasions.                                                           

         8.  Compensation.  For the services to be rendered  and the  facilities
furnished  hereunder,  the  Manager  shall  pay the  Portfolio  Manager  monthly
compensation  of the sum of the amounts  determined  by applying  the  following
annual rates to the Fund's  aggregate  daily net assets:  .30% of the Fund's net
assets up to the first $150  million;  .2625% of the Fund's net assets in excess
of $150 million but less than $300 million;  plus .255% of the Fund's net assets
in excess of $300 million. Compensation under this Agreement shall be calculated
and accrued daily and the amounts of the daily  accruals  shall be paid monthly.
If this Agreement  becomes  effective  subsequent to the first day of a month or
shall terminate  before the last day of a month,  compensation  for that part of
the month this  Agreement is in effect shall be prorated in a manner  consistent
with the  calculation  of the fees as set forth above.  Payment of the Portfolio
Manager's  compensation  for the  preceding  month  shall be made as promptly as
possible after the end of each month.                                           

         9.  Expense  Limitation.  If,  for any  fiscal  year,  the total of all
ordinary business expenses of the Fund,  including all investment  advisory fees
but excluding  brokerage  commissions  and fees,  payments  pursuant to the Rule
12b-1 Plan then in effect,  taxes,  interest and extraordinary  expenses such as
litigation,  would  exceed  the most  restrictive  expense  limits  imposed by a
statute or regulatory  authority of any jurisdiction in which shares of the Fund
are offered for sale,  the  investment  advisory  fee,  which the Manager  would
otherwise receive from the Fund,                                                

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shall be  reduced  by the  amount of such  excess.  The fee which the  Portfolio
Manager would otherwise receive from the Manager pursuant to Paragraph 8 of this
Agreement shall also be reduced  proportionately.  For example, if the Manager's
fee is reduced by 1/4, the Portfolio Manager's fee from the Manager will also be
reduced by 1/4. Such reduction  shall be deducted from the monthly fee otherwise
payable to the  Portfolio  Manager by the Manager  and,  if such  amount  should
exceed such monthly fee, the Portfolio  Manager agrees to repay the Manager such
amount of its fee previously  received with respect to make up the deficiency no
later than the last day of the first month of the next  succeeding  fiscal year.
For the purposes of this  paragraph,  the term "fiscal  year" shall  exclude the
portion of the current  fiscal year which shall have  elapsed  prior to the date
hereof and shall include the portion of the then current fiscal year which shall
have elapsed at the date of termination of this Agreement.                      

         10.  Term.  This  Agreement  shall  become  effective  at the  close of
business  on the date  hereof  and shall  remain in force and  effect  until the
earlier of the Closing Date defined in the Agreement and Plan of  Reorganization
dated  November  26,  1997 with  respect to the Fund or for two years  after its
effective date, and shall remain in effect  thereafter if approved in the manner
set forth in Section 11 hereof.                                                 

         11.  Renewal.  Following  the  expiration  of  its  initial  term,  the
Agreement  shall  continue in force and effect from year to year,  provided that
such continuance is specifically approved at least annually:                    

                  (a) by the Corporation's  Board of Directors or by the vote of
         a majority of the Fund's  outstanding  voting securities (as defined in
Section 2(a)(42) of the 1940 Act), and                        

                  (b) by the affirmative vote of a majority of the Directors who
         are not parties to this  agreement or interested  persons of a party to
         this Agreement (other than as a Director of the Corporation),  by votes
   cast in person at a meeting specifically called for such purpose.

         12. Termination.  This Agreement may be terminated at any time, without
the payment of any penalty,  by vote of the Corporation's  Board of Directors or
by vote of a majority of the Fund's outstanding voting securities (as defined in
Section  2(a)(42) of the 1940 Act), or by the Manager or the Portfolio  Manager,
on sixty (60) days'  written  notice to the other party.  This  Agreement  shall
automatically  terminate:  (a)  in  the  event  of  its  assignment,   the  term
"assignment"  having the meaning  defined in Section 2(a)(4) of the 1940 Act, or
(b) in the event that the                                                       

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Interim Management Agreement between the Fund and the Manager shall terminate.  

         13.  Liability  of the  Portfolio  Manager.  In the  absence of willful
misfeasance,  bad faith or gross negligence on the part of the Portfolio Manager
or its officers,  directors or employees, or reckless disregard by the Portfolio
Manager of its duties under this Agreement,  the Portfolio  Manager shall not be
liable to the Manager,  the Corporation or to any shareholder of the Corporation
for any act or omission in the course of, or connected with,  rendering services
hereunder or for any losses that may be sustained  in the  purchase,  holding or
sale of any security.                                                           

         14.  Notices.  Any notices  under this  Agreement  shall be in writing,
addressed  and  delivered  or mailed  postage  paid to the  other  party at such
address as such other party may designate for the receipt of such notice.  Until
further notice to the other party,  it is agreed that the address of the Manager
for this purpose shall be 707 East Main Street, Suite 1300,  Richmond,  Virginia
23219,  that of the  Corporation  for this purpose shall be Federated  Investors
Tower,  Pittsburgh,  Pennsylvania  15222-3779,  and the address of the Portfolio
Manager for this purpose shall be 4100 Yonge Street, Willowdale, Ontario M2P 2B6
Canada.                                                                         

         15. Questions of Interpretation. Any questions of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or  provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any  controlling  decision of any such
court, by rules, regulations or orders of the Securities and Exchange Commission
issued  pursuant to said Act. In addition,  where the effect of a requirement of
the 1940 Act  reflected in the  provision of this  Agreement is revised by rule,
regulation or order of the  Securities and Exchange  Commission,  such provision
shall be deemed to incorporate the effect of such rule, regulation or order.    

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in  duplicate  by their  respective  officers on the day and year first
above written.                                                                  

Attest:                                  VIRTUS CAPITAL MANAGEMENT, INC.        

    By

Title: Senior Vice President             Title:  Vice President                 

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Attest:                                       CAVELTI CAPITAL MANAGEMENT, LTD.  

              By
Title:                                        Title:                            

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                                                           EXHIBIT D

PAGE 3                                                                          

A Discussion With 
Your Fund Manager 

[Photo of 
       John C. Madden, Jr.
Goes Here]

JOHN C. MADDEN, JR. IS A VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER OF   
KEYSTONE PRECIOUS METALS HOLDINGS, INC. AND KEYSTONE GLOBAL RESOURCES AND 
DEVELOPMENT FUND. A CHARTERED FINANCIAL ANALYST, MR. MADDEN HAS MORE THAN 
30 YEARS OF EXPERIENCE IN INVESTMENT RESEARCH AND MANAGEMENT, SPECIALIZING
IN PRECIOUS METALS, NATURAL RESOURCES AND ENERGY. HE HOLDS A BA FROM YALE 
UNIVERSITY.                                                               

(Q) GIVEN THE RECENT WEAKNESS IN THE GOLD MARKET, WHAT ARE THE REASONS TO OWN A 
FUND THAT INVESTS PRIMARILY IN GOLD-RELATED SECURITIES?                         

(A) Despite recent negative returns, we believe a long-term investment in       
gold-related securities adds valuable diversification to any portfolio. Holding 
gold-related stocks can help offset market fluctuations, because their          
performance generally differs from that of broader stock and bond market        
indexes. We've seen ample evidence of this contrarian performance during the    
current strong economic cycle. Gold mining stocks can also provide a hedge      
against inflation and currency uncertainties. We continue to believe that the   
best way to take advantage of the unpredictable nature of these markets is to   
maintain exposure to high quality gold stocks.                                  

(Q) WHAT FACTORS CONTRIBUTED TO THE LOW PRICE OF GOLD DURING THE PERIOD?        

(A) Real and rumored central bank sales have had a negative effect on bullion   
prices since early 1996, related largely to moves by European countries toward  
monetary union. But the specific catalyst for the July downturn-- the           
announcement by the Australian central bank that they had sold 160 tonnes of    
gold, accounting for two-thirds of their holdings-- had an inordinate impact    
because it was so unexpected. Australia is not directly associated with the EMU,
and it is also a large gold producer. Bearish gold speculators responded        
accordingly. It's also important to remember that market conditions for most    
other investments have remained unusually strong this year, diminishing gold's  
attraction as a valuable investment.                                            

[Performance Graph Goes Here]                                             

Comparative  performance  of Keystone  Precious  Metals  Holdings,  Inc. and key
market indexes, February 28 - August 31, 1997.                                  

Percentage                                                                      

Spot Gold                KPMH*             Lipper Gold Fund Index               
-10.8%                   -23.2%            -26.9%                               

Financial Times Index:                                                          

North America                 Australia           Africa                        
-20.7%                        -27.9%              -38.1%                        

North American gold stocks had the best relative performance.                   
*Includes reinvested dividends.                                                 

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PAGE 4                                                                          
KEYSTONE PRECIOUS METALS HOLDINGS, INC.                                         

                                                                · Download Table

ASSET ALLOCATION                                              
(AS A PERCENTAGE OF                                           
PORTFOLIO ASSETS)                                             

                                                              
                          AUGUST 31, 1997    FEBRUARY 28, 1997
North America                   65%                 59%       
South Africa                    23%                 27%       
Australia                       12%                 14%       

(Q) DID GEOGRAPHIC DIVERSIFICATION HELP THE FUND'S PERFORMANCE?                 

(A) Yes, the Fund's overweighting in North American gold stocks helped          
performance. All gold-related stocks fared considerably worse than the metal,   
but performance varied widely by region. As you can see from the chart, South   
African gold stocks declined almost twice as much as stocks of North American   
companies, which in turn declined more than the price of gold. North American   
companies accounted for 65% of the Fund's holdings as of August 31, 1997.       

(Q) WHAT CHANGES DID YOU MAKE IN THE FUND'S PORTFOLIO?                          

(A) We increased the percentage of North American stocks and pared back holdings
in Australia and South Africa. Some of the shift is due to the differential     
performance of these regions, but we did actively increase our exposure to the  
stronger North American market during the period. We also expanded the non-gold 
holdings of the Fund, specifically in platinum and diamond producers.           

(Q) PLEASE DESCRIBE ONE OF THE NON-GOLD HOLDINGS.                               

(A) Stillwater Mining is a North American miner of palladium and platinum,      
metals used in jewelry, electronics and automobile catalytic converters. With   
substantial reserves, Stillwater is the largest primary source of platinum and  
palladium outside of South Africa. Production is from the Stillwater Complex, a 
unique deposit in southern Montana. The stock has underperformed recently, due  
to management changes and operating difficulties, but a recently completed      
expansion will double ore throughput to 2,000 tons per day next year and reduce 
costs, which we believe should help stock performance. A second mine on the same
ore body is also under development, which has the potential of doubling output  
again by early in the next decade.                                              

(Q) WHAT ABOUT GOLD STOCKS?                                                     

(A) In the gold area, we have added to our holdings of a relatively small U.S.  
producer, Canyon Resources. This past spring, Canyon successfully brought on    
stream the Briggs mine in southern California, with planned production of 75,000
ounces per year at a cash cost of $240 per ounce. While other prospects for     
development exist in the vicinity of Briggs, our main interest in Canyon        
involves its joint venture with Phelps Dodge: the MacDonald project in Montana. 
The location of this project, along the scenic Blackfoot River, has made the    
permitting process quite arduous. However, if the mine goes forward, Canyon will
be a 28% owner of a 300,000 ounce operation to which the stock market is        
currently assigning little value.                                               

(Q) WHAT IS YOUR STRATEGY FOR MANAGING THE FUND?                                

(A) The Fund's objective is to seek long-term capital appreciation and          
protection of purchasing power by investing in common stocks of gold-oriented or
other precious metal and minerals companies. As a sector fund, it is likely to  
experience greater price fluctuation than more diversified investments, but we  
rely on a conservative strategy to reduce the level of volatility. We focus on  
companies with growing reserves and expanding production that may have a greater
ability to maintain their value during periods of lower gold prices. We believe 
this approach offers Fund investors the advantages of ongoing exposure to the   
potential of gold stocks, but with reduced downside risk.                       

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PAGE 5                                                                          

TOP 10 HOLDINGS                                                                 

AS OF AUGUST 31, 1997                                                           

                                                                · Download Table

                                                PERCENTAGE OF
STOCK (COUNTRY)                                  NET ASSETS  
                                                             
Newmont Mining Corp. (United States)                     11.3
Euro Nevada Mining (Canada)                               8.8
Franco Nevada Mining (Canada)                             8.5
Pioneer Group (United States)                             5.5
Homestake Mining (United States)                          4.8
Getchell Gold (Canada)                                    4.7
Newmont Gold (United States)                              4.5
Stillwater Mining (United States)                         3.6
Prime Resources Group (Canada)                            3.2
Normandy Mining (Australia)                               3.1

Growth of an Investment 
[Performance Growth Graph Goes Here]

Growth of an investment in Keystone Precious Metals Holdings, Inc.              
In Thousands                                                                    

A $10,000  investment in Keystone Precious Metals Holdings,  Inc. made on August
31, 1987 with all distributions  reinvested was worth $8,350 on August 31, 1997.
Past performance is no guarantee of future results.                             

(Q) WHAT IS YOUR OUTLOOK FOR THE GOLD MARKET?                                   

(A) Over the past few years, gold investments have had a difficult time         
competing against a strong U.S. economy, a long bull market for stocks, a strong
dollar and minimal inflation. Under these circumstances, investors haven't      
needed what gold has to offer, and without investment appeal, the price has     
languished. While demand, particularly in emerging countries, is still positive,
gold as an investment will only move up substantially when its perceived value  
relative to other financial assets improves. Looking ahead, we do not expect the
lows we saw this past summer to continue, and believe the price will recover    
modestly by the end of the year. Longer term, any number of economic or         
investment scenarios could improve the environment for gold. In particular,     
forthcoming decisions regarding the European Monetary Union will be critical.   
We believe the companies in your Fund's portfolio are in a good position to     
benefit from even modest increases in the price of the metal.                   

* 

THIS COLUMN IS INTENDED TO ANSWER QUESTIONS ABOUT YOUR FUND.
IF YOU HAVE A QUESTION YOU WOULD LIKE ANSWERED, PLEASE WRITE TO:
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
ATTN: SHAREHOLDER COMMUNICATIONS
201 SOUTH COLLEGE STREET, SUITE 400 
CHARLOTTE, N.C. 28288-1195

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PAGE 6                                                                          
KEYSTONE PRECIOUS METALS HOLDINGS, INC.                                         

SCHEDULE OF INVESTMENTS-- AUGUST 31, 1997 (UNAUDITED)                           

                                                                · Download Table

 SHARES                                               VALUE    
                                                               
COMMON STOCKS-- 99.0%                                          
                                                               
                 AUSTRALIA-- 12.3%                             
2,899,200   *    Acacia Resources Ltd............  $  3,190,932
  800,000        Delta Gold NL...................       986,160
3,381,582        Normandy Mining Ltd.............     4,094,039
3,500,000   *    Perilya Mines NL................     1,515,194
1,052,000        Plutonic Resources NL...........     2,994,992
1,376,304        Ross Mining NL..................       787,693
  799,600        Sons of Gwalia Ltd..............     2,522,838
                                                     16,091,848
                 CANADA-- 33.7%                                
  100,100   *    Aber Resources Ltd..............     1,312,314
   26,000        Agnico Eagle Mines Ltd..........       227,553
  104,700        Barrick Gold Corp...............     2,368,147
  400,000   *    Bema Gold Corp..................     2,103,368
  750,000        Euro Nevada Mining Ltd..........    11,480,281
  470,000        Franco Nevada Mining Ltd........    11,155,411
  179,700   *    Getchell Gold Corp..............     6,109,800
   50,000   *    International Precious Metals                 
                   Corp..........................       353,125
  150,000   *    Kinross Gold Corp...............       646,875
  337,100   *    Orvana Minerals Corp............     1,214,118
  524,800   *    Prime Resources Group Inc.......     4,233,935
  300,000   *    Repadre Capital Corp............     1,620,745
  185,300   *    TVX Gold Inc....................       961,244
  429,000   *    Vengold Inc.....................       154,511
                                                     43,941,427
                 SOUTH AFRICA-- 22.6%                          
  289,520   *    Ashanti Goldfields Ltd. GDR**...     3,003,770
2,932,916   *    Avgold Ltd. ADR.................     2,675,665
  150,000        Avmin Ltd. ADR..................     1,837,500
  110,000        De Beers Centenary..............     3,505,275
   45,200        De Beers Consolidated Mines Ltd.              
                   ADR...........................     1,446,400
  300,000        Elandsrand Gold Mining Ltd.                   
                   ADR...........................     1,023,120

 SHARES                                               VALUE    
                                                               

COMMON STOCKS-- CONTINUED                                      
                                                               
                 SOUTH AFRICA-- CONTINUED                      
  283,000        Free St Consolidated Gold Mines               
                   Ltd. ADR......................  $  1,432,687
   75,000        Free State Consolidated Gold                  
                   Mines Ltd.....................       379,676
  267,000   *    Harmony Gold Mining Ltd ADR.....     1,294,710
  150,000   *    Harmony Gold Mining Ltd.........       727,379
  300,000   *    Randgold & Exploration Co.                    
                   Ltd...........................     1,055,100
   70,000        Randgold Resources Inc.**.......       962,500
   72,800        Rustenberg Platinum Holdings....     1,237,515
   18,500        Vaal Reefs Exploration & Mining               
                   Ltd...........................       922,733
  638,000        Vaal Reefs Exploration & Mining               
                   Ltd. ADR......................     3,209,937
  288,585   *    Western Areas Gold Mining Ltd.                
                   ADR...........................     2,414,331
   20,900        Western Deep Levels Ltd.........       501,172
   75,000        Western Deep Levels Ltd. ADR....     1,809,375
                                                     29,438,845
                 UNITED STATES-- 30.4%                         
  499,000   *    Canyon Resource Corp............     1,122,750
  448,000        Homestake Mining Co.............     6,272,000
  135,000        Newmont Gold Co.................     5,838,750
  347,650        Newmont Mining Corp.............    14,709,941
  220,000        Pioneer Group Inc...............     7,136,250
  220,900   *    Stillwater Mining Company.......     4,638,900
                                                     39,718,591
                 TOTAL COMMON STOCKS                           
                 (COST $136,134,202).............   129,190,711
TOTAL LONG-TERM INVESTMENTS                                    
  (COST $136,134,202)............................   129,190,711

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 STATEMENT OF ADDITIONAL INFORMATION

Acquisition of the Assets of

BLANCHARD PRECIOUS METALS FUND, INC.
 Federated Investors Tower
 Pittsburgh, Pennsylvania 15222-3779
(800) 829-3863

By and In Exchange For Shares of

 KEYSTONE PRECIOUS METALS HOLDINGS

 a Series of

 EVERGREEN INTERNATIONAL TRUST
 200 Berkeley Street
 Boston, Massachusetts 02116
(800) 343-2898

         This Statement of Additional Information,  relating specifically to the
proposed  transfer of the assets and  liabilities of Blanchard  Precious  Metals
Fund, Inc. ("Precious Metals"),  to Keystone Precious Metals Holdings ("Keystone
Precious Metals"),  a series of Evergreen  International  Trust, in exchange for
Class A shares of beneficial  interest,  $.001 par value per share,  of Keystone
Precious  Metals,  consists  of this  cover  page  and the  following  described
documents,  each of which is  attached  hereto  and  incorporated  by  reference
herein:                                                                         

         (1)      The Statement of Additional  Information of Keystone  Precious
Metals dated April 30, 1997 , as amended;   

         (2)      The Statement of  Additional  Information  of Precious  Metals
dated November 30, 1997;                    

         (3)      Annual Report of Precious  Metals for the year ended September
30, 1997;                                   

         (4)      Annual Report of Keystone  Precious  Metals for the year ended
October 31, 1997; and                       

         (5)      Pro Forma Combining  Financial  Statements  (unaudited)  dated
October 31, 1997.                           

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         This  Statement of Additional  Information,  which is not a prospectus,
supplements,  and  should  be read in  conjunction  with,  the  Prospectus/Proxy
Statement of Keystone Precious Metals and Precious Metals dated January 6, 1998.
A copy of the  Prospectus/Proxy  Statement  may be  obtained  without  charge by
calling  or  writing  to  Keystone  Precious  Metals or  Precious  Metals at the
telephone numbers or addresses set forth above.                                 

         The date of this  Statement  of  Additional  Information  is January 6,
1998.                                                                           

 STATEMENT OF ADDITIONAL INFORMATION

 KEYSTONE PRECIOUS METALS HOLDINGS, INC.

APRIL 30, 1997

         This  statement of  additional  information  is not a  prospectus,  but
relates to, and should be read in  conjunction  with, the prospectus of Keystone
Precious  Metals   Holdings,   Inc.  (the  "Fund")  dated  April  30,  1997,  as
supplemented from time to time. You may obtain a copy of the prospectus from the
Fund's principal  underwriter,  Evergreen  Keystone  Distributor,  Inc., or your
broker-dealer.                                                                  

 TABLE OF CONTENTS

                                                                          Page

       The Fund............................................................2
       Service Providers...................................................2
       Investment Restrictions.............................................3
       Distributions and Taxes.............................................6
       Valuation of Securities.............................................7
       Brokerage...........................................................8
       Sales Charge........................................................9
       Distribution Plan..................................................11
       Directors and Officers.............................................12
       Investment Adviser.................................................16
       Consultant.........................................................17
       Principal Underwriter..............................................18
       Sub-administrator..................................................19
       Expenses...........................................................19
Standardized Total Return and                                 
         Yield Quotations.................................................20
       Financial Statements...............................................21
       Additional Information.............................................21
       Appendix..........................................................A-1

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

THE FUND

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

         The Fund's primary investment objective is to provide shareholders with
long-term  capital  appreciation  and with protection of the purchasing power of
their  capital.  Obtaining  current  income is a secondary  objective.  Keystone
Investment  Management  Company  ("Keystone")  serves as the  Fund's  investment
adviser.                                                                        

         Certain information about the Fund is contained in its prospectus. This
statement of additional  information  ("SAI")  provides  additional  information
about the Fund that may be of interest to some investors.                       

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

 SERVICE PROVIDERS

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

                                                        · Enlarge/Download Table

SERVICE                                    PROVIDER                                                               
-----------------------------------------  -----------------------------------------------------------------------
                                                                                                                  
Investment  adviser (referred to           Keystone  Investment  Management  Company,  200                        
Berkeley  in  this  SAI  as  "Keystone")   Street,  Boston,  Massachusetts  02116 (Keystone is a wholly-owned     
                                           subsidiary of First Union Keystone, Inc. ("First                       
                                           Union Keystone"), also located at 200 Berkeley Street,                 
                                           Boston, Massachusetts 02116)                                           

Principal underwriter (referred            Evergreen Keystone Distributor, Inc. (formerly Evergreen               
to in this SAI as "EKD")                   Funds Distributor, Inc.), 125 W. 55th Street, New York,                
                                           New York 10019                                                         

Marketing services agent and               Evergreen Keystone Investment Services, Inc. (formerly                 
predecessor to EKD (referred to            Keystone Investment Distributors Company), 200 Berkeley                
in this SAI as "EKIS")                     Street, Boston, Massachusetts 02116                                    

Sub-administrator (referred to in          The BISYS Group, Inc., or an affiliate, 3435 Stelzer Road,             
this SAI as "BISYS")                       Columbus, Ohio 43219                                                   

Transfer and dividend disbursing           Evergreen Keystone Service Company (formerly Keystone                  
agent (referred to in this SAI as          Investor Resource Center, Inc.), 200 Berkeley Street,                  
"EKSC")                                    Boston, Massachusetts 02116 (EKSC is a wholly-owned                    
                                           subsidiary of Keystone)                                                

Independent auditors                       KPMG Peat Marwick LLP, 99 High Street, Boston,                         
                                           Massachusetts 02110, Certified Public Accountants                      

Custodian                                  State Street Bank and Trust Company, 225 Franklin Street,              
                                           Boston, Massachusetts 02110                                            

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

 INVESTMENT RESTRICTIONS

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

FUNDAMENTAL INVESTMENT RESTRICTIONS                                             

         The investment restrictions set forth below are fundamental and may not
be changed  without  the vote of a majority  of the  Fund's  outstanding  voting
shares (as defined in the Investment  Company Act of 1940, as amended (the "1940
Act")).  Unless  otherwise  stated,  all  references to the Fund's assets are in
terms of current market value.                                                  

The Fund may not do the following:                            

(1) issue any senior securities;                              

         (2) sell securities  short,  unless at the time it owns an equal amount
of such  securities or, by virtue of ownership of  convertible  or  exchangeable
securities,  it has the right to obtain  through  conversion or exchange of such
other securities an amount equal to the securities sold short, in which case the
Fund will retain such securities as long as it is in a short position;          

         (3)  purchase  or sell  securities  on margin,  but it may obtain  such
short-term  credits as may be necessary  for the clearance of purchased and sold
securities;                                                                     

         (4) invest in oil and gas interests,  puts, calls,  straddles,  spreads
and options,  except that the Fund may write covered call options  traded on the
London Stock Exchange,  a national securities  exchange or the  over-the-counter
market and purchase call options to close out  previously  written call options;
this  restriction  shall not apply to the extent the  investments of one or more
domestic or foreign  wholly-owned  subsidiaries in metals or minerals  contracts
might be considered options;                                                    

         (5) borrow money,  except that the Fund may (a) borrow money from banks
for emergency or extraordinary purposes in aggregate amounts up to 5% of its net
assets and (b) enter into reverse repurchase agreements;                        

         (6) underwrite  the  securities of other issuers,  except to the extent
that, in connection  with the  disposition of securities of the type referred to
in subparagraph  (12) below,  the Fund may be deemed to be an underwriter  under
certain U.S. securities laws;                                                   

         (7) invest more than 5% of its total  assets  taken at market  value in
the  securities  of any  one  issuer,  not  including  securities  of  the  U.S.
government and its  instrumentalities and the securities of one or more domestic
or foreign wholly-owned subsidiaries;                                           

         (8)  purchase or sell real estate or  interests  therein or real estate
mortgages,  provided  that  the  foregoing  shall  not  prevent  the  Fund  from
purchasing  or selling (a) readily  marketable  securities  which are secured by
interests  in real estate and (b) readily  marketable  securities  of  companies
which deal in real estate, including real estate investment trusts;             

         (9) purchase or sell  commodities or commodity  contracts,  except that
the Fund  may  invest  in the  securities  of one or more  domestic  or  foreign
wholly-owned  subsidiaries  which  deal in  precious  metals  and  minerals  and
contracts relating thereto subject to the limitation that no such investment may
be made if at the time thereof the fair value of all such  investments  exceeds,
or by virtue of such investment would exceed, an amount equal to 25% of the then
market  value of the Fund's  total  assets,  and  except  also that the Fund may
engage in currency or other financial futures and related options transactions; 

         (10) make loans to other  persons,  except through the investment of up
to 25% of the  total  assets  of the  Fund in one or more  domestic  or  foreign
wholly-owned subsidiaries; for the purposes of this restriction, the purchase of
a  portion  of an  issue  of  bonds,  notes,  debentures  or  other  obligations
distributed  publicly,  whether or not the  purchase  is made upon the  original
issuance of such securities, will not be deemed to be the making of a loan;     

         (11) 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;                                                       

         (12)  invest  more than 15% of its net assets in  securities  for which
market  quotations  are  not  readily  available,  or in  repurchase  agreements
maturing in more than seven days;  except that this restriction  shall not apply
to the  Fund's  investments  in one or more  domestic  or  foreign  wholly-owned
subsidiaries,  and  except  also that the Fund may write  covered  call  options
traded on the  over-the-counter  market and  purchase  call options to close out
existing positions;                                                             

         (13) invest more than 5% of the value of the Fund's total assets in the
securities  of any  issuers  which  have a  record  of  less  than  three  years
continuous  operation,  including  the similar  operations  of  predecessors  or
parents,  or equity  securities  of issuers  which are not  readily  marketable,
except that this restriction shall not apply to the Fund's investments in one or
more domestic or foreign wholly-owned subsidiaries;                             

         (14) purchase the securities of any other  investment  company,  except
that it may make such a purchase (a) in the open market  involving no commission
or profit to a sponsor or dealer,  other than the customary broker's commission,
and (b) as part of a merger,  consolidation  or acquisition of assets;  provided
that  immediately  after any such  purchase  (a) not more than 10% of the Fund's
total  assets would be invested in such  securities  and (b) not more than 3% of
the voting stock of such company would be owned by the Fund;                    

         (15)  purchase or retain the  securities of any issuer if the Treasurer
of the Fund has knowledge  that those officers  and/or  Directors of the Fund or
its  investment  adviser  who  own  individually  more  than  1/2  of 1% of  the
securities  of such issuer  together own more than 5% of the  securities of such
issuer;                                                                         

         (16)  invest in  companies  for the  purpose of  exercising  control or
management,   except  for  one  or  more   domestic   or  foreign   wholly-owned
subsidiaries; or                                                                

         (17)  acquire,  directly  or  indirectly,  more than 10% of the  voting
securities of any issuer other than one or more domestic or foreign wholly-owned
subsidiaries.                                                                   

         For purposes of  Investment  Restriction  (1) the  definition of senior
securities  is deemed not to include  the  borrowings  described  in  Investment
Restriction (5) and reverse repurchase agreements.                              

         The Fund's  purchase of securities of other  investment  companies,  as
described in Investment  Restriction (14),  results in the layering of expenses,
such that shareholders  indirectly bear a proportionate share of the expenses of
those investment companies,  including operating costs,  investment advisory and
administrative fees.                                                            

         As a matter of practice,  the Fund treats reverse repurchase agreements
as  borrowings  subject  to  the  limitations  of  the  1940  Act.  For  further
information about reverse repurchase agreements,  see the section on "Additional
Investment Information" in the Fund's prospectus. Also, as a matter of practice,
the Fund does not pledge its assets except in the course of portfolio trading.  

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS                                         

         Additional  restrictions  adopted by the Fund,  which may be changed by
the  Fund's  Board  of  Directors  and  which  are  more  restrictive  than  the
fundamental  restrictions adopted by the Fund's  shareholders,  provide that (1)
the Fund shall not  purchase the  securities  of any other  investment  company,
including unit investment  trusts;  (2) assets of the Fund may not be pledged or
otherwise  encumbered nor  transferred or assigned for the purpose of securing a
debt, except in the course of portfolio trading; and (3) the Fund may not borrow
money,  except that it may borrow from banks on a temporary  basis to facilitate
the redemption of shares or for  extraordinary  purposes and with the consent of
the Fund's  custodian bank with respect to the conditions of the loan.          

      If a  percentage  limit  is  satisfied  at the  time of  investment,
a later  increase or decrease  resulting from a change in value of a            
security or a decrease in Fund assets is not a violation of the limit.          

         The  Fund   pursues  its   objectives   by   investing,   under  normal
circumstances, at least 80% of its assets in common stocks of companies that are
engaged  in, or  receive  at least 50% of their  revenue  from  other  companies
engaged in, exploration,  mining, processing or dealing in gold, gold bullion or
other  precious  metals and minerals  such as silver,  platinum,  palladium  and
diamonds.  (A company will be considered to be engaged in a business or activity
if at least 50% of its assets,  reserves  or profits  are from that  business or
activity.)                                                                      

         The Fund invests in securities of South African  mining  companies only
after  considering such factors as profitability of operations,  adequacy of ore
reserves  and the  prices  at  which  the  metals  and  minerals  mined by these
companies are selling in the free market.                                       

         When  investing  in  securities  of South  African  companies  or other
foreign issuers,  the Fund may purchase American  Depositary  Receipts ("ADRs").
ADRs are  negotiable  certificates  issued  by a  United  States  ("U.S.")  bank
representing  the right to receive  securities of a foreign issuer  deposited in
that  bank  or  a  correspondent   bank.   While  there  are  variations  as  to
marketability,  ADRs  representing  shares  of most of the  better  known  South
African gold mining and mining finance companies are characterized by relatively
active trading markets.  The Fund may purchase the foreign  securities  directly
when it is in its best  interests to do so. The Fund will  purchase only foreign
securities  that  are  listed  on  recognized  domestic  or  foreign  securities
exchanges.                                                                      

         The Fund's  normal  expectation  in  purchasing  a security is that its
anticipated  performance  level will be  reached  over the  longer  rather  than
shorter  term,  although the rate of portfolio  turnover  will not be a limiting
factor  when  portfolio  changes  are  deemed  appropriate.  It is  anticipated,
however,   that  the  Fund's  annual  portfolio  turnover  rate,   exclusive  of
investments made in or by any subsidiary, will not exceed 100%. A 100% portfolio
turnover  rate would occur,  for example,  if the value of the lesser of cost of
purchases or proceeds from sales of portfolio  securities for a particular  year
equaled the average  monthly  value of  portfolio  securities  owned during such
year, excluding in each case short-term  securities.  The turnover rate may also
be affected by cash  requirements  for redemptions of the Fund's shares.  A high
turnover  rate  would  result  in  increased  costs to the  Fund  for  brokerage
commissions or their equivalent.                                                

         The Fund will not invest  directly in precious  metals and  minerals or
contracts relating thereto.  Any wholly-owned  subsidiary of the Fund,  however,
may invest in precious  metals and minerals,  subject to the limitation  that no
investment  in  precious  metals and  minerals  may be made by any  wholly-owned
subsidiary or  subsidiaries  of the Fund if at the time thereof the market value
of all such investments by subsidiaries exceeds, or by virtue of such investment
would  exceed,  an amount  equal to 25% of the then  market  value of the Fund's
total assets. In the event that,  because of fluctuations in the market value of
a subsidiary's investments or in the market value of the Fund's total assets, or
other reasons, the Fund's investments in a subsidiary or subsidiaries  represent
more than 25% of the market value of the Fund's total assets,  the Fund will not
be required to take any action to reduce such  investments,  although it will do
so when it is in its best interests.                                            

         In making  purchases of precious  metals and minerals,  a  wholly-owned
subsidiary  may  utilize  contracts  that  contemplate  delivery of the metal or
mineral at a future date,  provided in each case that it instructs the custodian
of its assets to segregate and maintain in a separate account cash or short-term
U.S.  government  securities at least equal to the aggregate contract price less
the  aggregate  margin  deposit.  A wholly-owned  subsidiary may, from time     
to time, engage in short-term  trading in metals and minerals,  that is, selling
metals and  minerals  held for a relatively  brief period of time,  usually less
than three months. Short-term trading will be used primarily to preserve capital
when a subsidiary anticipates there will be a market decline, or to realize gain
after a market increase when a subsidiary  anticipates that continued  increases
are unlikely.  A wholly-owned  subsidiary will engage in short-term trading only
if it believes that the  transaction,  net of costs,  including any commissions,
will be in the best  interest of the Fund.  Whether  short-term  trading will be
advantageous to a subsidiary will depend on its  anticipation  and evaluation of
relevant  market  factors.  A  wholly-owned  subsidiary  will not  engage in any
activity  other than  investing in precious  metals and  minerals,  or contracts
relating thereto.                                                               

         A wholly-owned  subsidiary will not incur any obligations for which the
Fund  may be  directly  or  indirectly  liable.  The  assets  of a  wholly-owned
subsidiary will be held either by the Fund's custodian or by a foreign branch of
a major U.S. banking institution.                                               

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

 DISTRIBUTIONS AND TAXES

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

         The Fund will make  distributions to its shareholders of dividends from
net investment income and net realized capital gains, if any, annually in shares
or, at the option of the shareholder, in cash. (Distributions or ordinary income
may be eligible in whole or in part for the  corporate  70%  dividends  received
deduction.)  Shareholders  who have not opted,  prior to the record date for any
distribution,  to  receive  cash will  have the  number  of  distributed  shares
determined on the basis of the Fund's net asset value per share  computed at the
end of the  ex-dividend  day after  adjustment for the  distribution.  Net asset
value is used in  computing  the  number  of shares  in both  gains  and  income
distribution  reinvestments.  Account  statements and/or checks, as appropriate,
will be  mailed  to  shareholders  within  seven  days  after  the Fund pays the
distribution.  Unless the Fund  receives  instructions  to the  contrary  from a
shareholder  before the record date, it will assume that the shareholder  wishes
to receive  that  distribution  and future  gains and  income  distributions  in
shares. Instructions continue in effect until changed in writing.               

         Distributed  long-term  capital  gains  are  taxable  as  such  to  the
shareholder regardless of how long the shareholder has held Fund shares. If such
shares  are held less than six  months  and  redeemed  at a loss,  however,  the
shareholder  will  recognize  a long- term  capital  loss on such  shares to the
extent of the long-term  capital gain  distribution  received in connection with
such  shares.  If the net asset  value of the Fund's  shares is reduced  below a
shareholder's cost by a capital gains  distribution,  such distribution,  to the
extent of the  reduction,  would be a return of  investment  though  taxable  as
stated above. Since  distributions of capital gains depend upon profits actually
realized from the sale of securities by the Fund, they may or may not occur. The
foregoing  comments relating to the taxation of dividends and distributions paid
on the Fund's shares relate solely to federal  income  taxation.  Such dividends
and distributions may also be subject to state and local taxes.                 

         Any capital gains realized by any wholly-owned subsidiary and paid as a
dividend by such  subsidiary to the Fund will be treated as ordinary income (and
not as capital gains) by the Fund and taken into  consideration in computing the
Fund's net income.                                                              

         When the Fund makes a  distribution,  it intends to distribute only its
net capital gains and such income as has been predetermined,  to the best of the
Fund's ability, to be taxable as ordinary income.  Shareholders of the Fund will
be advised annually of the federal income tax status of distributions.          

         If more than 50% of the value of the Fund's  total assets at the end of
a fiscal year is represented by securities of foreign  corporations and the Fund
elects to make  foreign  tax credits  available  to the Fund's  shareholders,  a
shareholder  will be  required  to  include  in his  gross  income  both  actual
dividends  and the amount the Fund advises him is his pro rata portion of income
taxes  withheld by foreign  governments  from interest and dividends paid on the
Fund's  investments.  The  shareholder  will be entitled,  however,  to take the
amount of his share of such  foreign  taxes  withheld  as a credit  against  his
United  States  income tax, or to treat his share of the foreign tax withheld as
an itemized deduction from his gross income, if that should be to his advantage.
In  substance,  this policy  enables the  shareholder  to benefit  from the same
foreign tax credit or deduction  that he would have  received if he had been the
individual  owner of foreign  securities  and had paid foreign income tax on the
income therefrom.  As in the case of individuals  receiving income directly from
foreign  sources,  the above  described tax credit and deductions are subject to
certain limitations.                                                            
--------------------------------------------------------------------------------

 VALUATION OF SECURITIES

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

         Current  values for the Fund's  portfolio  securities are determined as
follows:                                                                        

         (1)  Investments,  including  ADRs,  are usually  valued at the closing
sales price or, in the absence of sales and for over-the-counter securities, the
mean of bid and asked quotations.  Management values the following securities at
prices it deems in good  faith to be fair:  (a)  securities  for which  complete
quotations  are not  readily  available;  and (b) listed  securities  if, in the
opinion of management,  the last sales price does not reflect a current value or
if  no  sale  occurred.  ADRs,  certificates   representing  shares  of  foreign
securities  deposited  in domestic and foreign  banks,  are traded and valued in
U.S. dollars. Those securities traded in foreign currency amounts are translated
into United States dollars as follows:  market value of investments,  assets and
liabilities at the daily rate of exchange;  purchases and sales of  investments,
income and expenses at the rate of exchange  prevailing on the respective  dates
of  such  transactions.  Net  unrealized  foreign  exchange  gains/losses  are a
component of unrealized appreciation/depreciation on investments.               

         (2) Short-term investments maturing in sixty days or less are valued at
amortized cost (original  purchase cost as adjusted for  amortization of premium
or  accretion  of  discount),   which,  when  combined  with  accrued  interest,
approximates  market.  Short-term  investments  maturing in more than sixty days
when purchased that are held on the sixtieth day prior to maturity are valued at
amortized  cost (market value on the sixtieth day adjusted for  amortization  of
premium or accretion of discount),  which,  when combined with accrued interest,
approximates market.                                                            

         (3) The Fund's Board of Directors  values the  following  securities at
prices it deems in good faith to be fair: (a) securities,  including  restricted
securities,  for which complete quotations are not readily available; (b) listed
securities if, in the Board's  opinion,  the last sales price does not reflect a
current  market value or if no sale occurred;  (c) the Fund's  investment in any
subsidiary; and (d) other assets.                                               

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

 BROKERAGE

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

SELECTION OF BROKERS                                                            

         In  effecting  transactions  in  portfolio  securities  for  the  Fund,
Keystone  seeks  the best  execution  of orders  at the most  favorable  prices.
Keystone  determines  whether a broker has provided the Fund with best execution
and price in the  execution of a securities  transaction  by  evaluating,  among
other things:                                                                   

1.       overall direct net economic result to the Fund,      

 2.       the efficiency with which the transaction is effected,

       3.       the broker's ability to effect the transaction where a large
block is involved,                          

  4.       the broker's readiness to execute potentially difficult
transactions in the future,                 

5.       the financial strength and stability of the broker,  

         6.       the receipt of research services, such as analyses and reports
                concerning issuers, industries, securities, economic factors
            and trends and other statistical and factual information
("research services"), and                  

7.       the Fund's management weighs these considerations in 
           determining the overall reasonableness of the brokerage
commissions paid.                           

         Should the Fund or Keystone  receive  services from a broker,  the Fund
would  consider  such  services  to be in  addition  to, and not in lieu of, the
services Keystone is required to perform under the Advisory Agreement.  Keystone
believes  that the cost,  value and specific  application  of such  services are
generally  indeterminable  and cannot be practically  allocated between the Fund
and its other clients who may indirectly  benefit from the  availability of such
information.  Similarly,  the Fund may indirectly  benefit from information made
available as a result of  transactions  effected for  Keystone's  other clients.
Under the 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.      

         The Fund's Board of Directors has determined that the Fund may consider
sales of Fund shares as a factor  when  selecting  brokers to execute  portfolio
transactions, subject to the requirements of best execution described above.    

BROKERAGE COMMISSIONS                                                           

         The  Fund  expects  that  purchases  and  sales of  securities  will 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.                          

GENERAL BROKERAGE POLICIES                                                      

         In order  to take  advantage  of the  availability  of  lower  purchase
prices, the Fund may participate,  if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities.                       

         Keystone makes  investment  decisions for the Fund  independently  from
those of its other clients.  It may frequently develop,  however,  that Keystone
will make the same  investment  decision for more than one client.  Simultaneous
transactions  are  inevitable  when  the  same  security  is  suitable  for  the
investment  objective of more than one account.  When two or more of its clients
are engaged in the purchase or sale of the same security, Keystone will allocate
the  transactions  according  to a  formula  that  is  equitable  to each of its
clients. Although, in some cases, this system could have a detrimental effect on
the price or volume of the Fund's  securities,  the Fund  believes that in other
cases its ability to  participate  in volume  transactions  will produce  better
executions.                                                                     

         The Fund does not purchase portfolio  securities from or sell portfolio
securities to Keystone,  EKD, or any of their affiliated  persons, as defined in
the 1940 Act.                                                                   

         The  Board of  Directors  periodically  reviews  the  Fund's  brokerage
policy. In the event of further regulatory developments affecting the securities
exchanges and brokerage practices generally,  the Board of Directors may change,
modify or eliminate any of the foregoing practices.                             

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

SALES CHARGE

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

         The Fund may charge a contingent  deferred sales charge (a "CDSC") when
you redeem  certain of its shares within four calendar  years after the month in
which you purchase  the shares.  The Fund  charges a CDSC as  reimbursement  for
certain expenses, such as commissions or shareholder servicing fees, that it has
incurred in connection with the sale of its shares (see "Distribution Plan"). If
imposed,  the Fund  deducts  the CDSC  from the  redemption  proceeds  you would
otherwise  receive.  CDSCs  attributable  to  your  shares  are,  to the  extent
permitted by the National Association of Securities Dealers, Inc. ("NASD"), paid
to EKD or its predecessor.                                                      

CALCULATING THE CDSC                                                            

         The CDSC is a declining  percentage  of the lesser of (1) the net asset
value of the shares you redeemed, or (2) the net asset value at time of purchase
of such shares. The CDSC is calculated according to the following schedule:     

REDEMPTION TIMING                                        CDSC 

During the calendar year of purchase....................4.00% 
During the first calendar year after the                      
 year of purchase......................................3.00%
During the second calendar                                    
 year after the year of purchase.......................2.00%
During the third calendar year                                
 after the year of purchase............................1.00%
Thereafter..............................................0.00% 

         In  determining  whether a CDSC is payable  and, if so, the  percentage
charge  applicable,  the Fund will first redeem shares not subject to a CDSC and
will then redeem shares you have held the longest.                              

         CDSC  WAIVERS.  The Fund does not impose a CDSC when the amount you are
redeeming represents:                                                           

         1.       an  increase  in the value of the  shares  redeemed  above the
                  total  cost of such  shares due to  increase  in the net asset
value per share of the Fund;                

         2.       certain  shares for which the Fund did not pay a commission on
                  issuance,  including shares acquired  through  reinvestment of
    dividend income and capital gains distributions;

         3.       shares  you  have  held  for all or part  of  more  than  four
consecutive calendar years;                 

         4.       shares that are held in the accounts of a shareholder  who has
died or become disabled;                    

         5.       a lump-sum  distribution  from a 401(k) plan or other  benefit
                  plan qualified under the Employee  Retirement  Income Security
Act of 1974 ("ERISA");                      

         6.       automatic withdrawals from the ERISA plan of a shareholder who
is a least 59 1/2 years old;                

         7.       shares in an  account  that the Fund has  closed  because  the
                 account has an aggregate net asset value of less than $1,000;

         8.       automatic withdrawals under a Systematic Withdrawal Plan of up
    to 1% per month of your initial account balance;

         9.       withdrawals  consisting of loan proceeds to a retirement  plan
participant;                                

         10.      financial  hardship  withdrawals  made  by a  retirement  plan
participant;                                

         11.      withdrawals  consisting of returns of excess  contributions or
      excess deferral amounts made to a retirement plan;

         12.      shares  purchased  by a bank  or  trust  company  in a  single
                  account  in the name of such bank or trust  company as trustee
                  if the  initial  investment  in shares of the Fund,  any other
                  Keystone  Classic Fund and/or any Evergreen  Keystone Fund, is
                  at least $500,000 and any commission paid by the Fund and such
                  other fund at the time of such purchase is not more than 1% of
the amount invested;                        

         13.     shares purchased by certain Directors, Trustees, officers and
             employees of the Fund, Keystone, EKD and certain of their
                affiliates, and to members of the immediate families of such
persons; and                                

        14.     shares purchased by registered representatives of firms with
dealers agreements with EKD.                

         EXCHANGES.  The Fund  does not  charge a CDSC on  exchanges  of  shares
between funds in the Keystone Classic Fund Family that have adopted distribution
plans  pursuant to Rule 12b-1  under the 1940 Act. If you do exchange  shares of
one such fund for shares of another  such fund,  the Fund will deem the calendar
year of the exchange, for purposes of any future CDSC, to be the year the shares
tendered for exchange were originally purchased.                                

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

 DISTRIBUTION PLAN

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

         Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear the expenses of  distributing  their shares if
they comply with various  conditions,  including the adoption of a  distribution
plan containing  certain provisions set forth in Rule 12b-1. The Fund bears some
of the costs of selling its shares under a distribution plan adopted pursuant to
Rule 12b-1 (the "Distribution Plan").                                           

         The Fund's  Distribution  Plan  provides that the Fund may expend up to
0.3125% quarterly  (approximately 1.25% annually) of the average daily net asset
value of its shares to pay distribution costs for sales of its shares and to pay
shareholder  service fees. The NASD limits such annual expenditures to 1.00%, of
which 0.75% may be used to pay such distribution  costs and 0.25% may be used to
pay shareholder service fees. The NASD also limits the aggregate amount that the
Fund may pay for such distribution costs to 6.25% of gross share sales since the
inception of the Fund's  Distribution  Plan plus interest at the prime rate plus
1.00% on unpaid amounts  thereof (less any CDSCs paid by  shareholders to EKD or
EKIS).                                                                          

         Payments under the  Distribution  Plan are currently made to EKD (which
may reallow all or part to others,  such as  broker-dealers)  (1) as commissions
for Fund  shares  sold;  (2) as  shareholder  service  fees in respect of shares
maintained  by the recipient  and  outstanding  on the Fund's books for specific
periods;  and (3) as  interest.  Amounts  paid or accrued to EKD and EKIS in the
aggregate may not exceed the annual limitation  referred to above. EKD generally
reallows to  broker-dealers  or others a commission  equal to 4.00% of the price
paid  for  each  Fund  share  sold.  In  addition,  EKD  generally  reallows  to
broker-dealers or others a shareholder  service fee at a rate of 0.25% per annum
of the net asset value of shares maintained by such recipient and outstanding on
the books of the Fund for specified periods.                                    

         If the Fund is unable to pay EKD a commission on a new sale because the
annual  maximum  (0.75% of  average  daily net  assets)  has been  reached,  EKD
intends, but is not obligated, to continue to accept new orders for the purchase
of Fund shares and to pay  commissions  and service  fees to  broker-dealers  in
excess of the amount it currently receives from the Fund ("Advances"). While the
Fund is under no  contractual  obligation to reimburse  such  Advances,  EKD and
EKIS, its predecessor,  intend to seek full  reimbursement for Advances from the
Fund  (together  with interest at the prime rate plus 1.00%) at such time in the
future as, and to the extent that,  payment  thereof by the Fund would be within
permitted limits.  If the Fund's  Independent  Directors  (Directors who are not
interested  persons,  as  defined  in the 1940  Act,  and who have no  direct or
indirect financial interest in the operation of the Fund's  Distribution Plan or
any agreement  related thereto)  authorize such payments,  the effect will be to
extend the period of time during  which the Fund  incurs the  maximum  amount of
costs allowed by the Distribution Plan.                                         

         The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum  Distribution Plan limit specified above, and the amounts
and purposes of expenditures under the Distribution Plan must be reported to the
Independent  Directors  quarterly.  The Independent Directors may               
require  or  approve  changes  in  the   implementation   or  operation  of  the
Distribution Plan, and may require that total expenditures by the Fund under the
Distribution  Plan be kept within limits lower than the maximum amount permitted
by the  Distribution  Plan as stated above. If such costs are not limited by the
Independent Directors, such costs could, for some period of time, be higher than
such costs permitted by most other plans presently  adopted by other  investment
companies.                                                                      

         The  Distribution  Plan  may be  terminated  at any time by vote of the
Independent Directors, or by vote of a majority of the outstanding shares of the
Fund.  If the  Distribution  Plan is  terminated,  EKD will ask the  Independent
Directors to take whatever action they deem appropriate  under the circumstances
with respect to payment of Advances.                                            

         Any change in the Distribution Plan that would materially  increase the
distribution expenses of the Fund provided for in the Distribution Plan requires
shareholder approval.  Otherwise,  the Distribution Plan may be amended by votes
of both (1) the  Fund's  Board of Directors  and (2) the  Independent  Directors
cast in person at a meeting called for the purpose of voting on such amendment. 

         While the  Distribution  Plan is in  effect,  the Fund is  required  to
commit the selection and nomination of candidates for  Independent  Directors to
the discretion of the Independent Directors.                                    

         The Independent Directors of the Fund have determined that the sales of
the Fund's shares  resulting  from  payments  under the  Distribution  Plan have
benefitted the Fund.                                                            

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

DIRECTORS AND OFFICERS

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

         The Directors and officers of the Fund, their principal occupations and
some of their affiliations over the last five years are as follows:             

FREDERICK AMLING:           Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Professor,  Finance  Department,  George  Washington
                            University;  President, Amling & Company (investment
                            advice); and former Member,  Board of Advisers,  Cre
dito Emilano (banking). 

LAURENCE B. ASHKIN:         Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Trustee or  Director  of all funds in the  Evergreen
                            Family  of Funds  other  than  Evergreen  Investment
                            Trust;   real  estate   developer  and  construction
                            consultant;  and  President of Centrum  Equities and
Centrum Properties, Inc.

CHARLES A. AUSTIN III:      Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Investment Counselor to Appleton Partners, Inc.; and
                            former   Managing   Director,   Seaward   Management
        Corporation (investment advice).

FOSTER BAM:                Director  of the Fund;  Trustee or  Director  of all 
                            other  funds  in the  Keystone  Families  of  Funds;
                            Trustee  or   Director  of  all  the  funds  in  the
                            Evergreen  Family  of  Funds  other  than  Evergreen
                            Investment  Trust;   Partner  in  the  law  firm  of
                            Cummings  &  Lockwood;  Director,   Symmetrix,  Inc.
                            (sulphur company) and Pet Practice, Inc. (veterinary
                            services); and former Director, Chartwell Group Ltd.
                            (manufacturer    of    office     furnishings    and
                            accessories),  Waste Disposal Equipment  Acquisition
                            Corporation   and   Rehabilitation   Corporation  of
           America (rehabilitation hospitals).

*GEORGE S. BISSELL:         Chief Executive  Officer of the Fund and each of the
                            other  funds  in the  Keystone  Families  of  Funds;
                            Chairman  of the  Board  and  Director  of the Fund;
                            Chairman of the Board and Trustee or Director of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            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, Director
                            and Chief Executive Officer of Keystone Investments.

EDWIN D. CAMPBELL:          Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Principal,  Padanaram  Associates,  Inc.; and former
                            Executive Director,  Coalition of Essential Schools,
Brown University.       

CHARLES F. CHAPIN:          Director  of the Fund;  Trustee or  Director  of all
                            other funds in the Keystone  Families of Funds;  and
                      former Director, Peoples Bank (Charlotte, NC).

K. DUN GIFFORD:             Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Trustee,  Treasurer  and  Chairman  of  the  Finance
                            Committee,  Cambridge College; Chairman Emeritus and
                            Director,  American  Institute  of  Food  and  Wine;
                            Chairman and  President,  Oldways  Preservation  and
                            Exchange Trust  (education);  former Chairman of the
                            Board,  Director, and Executive Vice Presi dent, The
                            London Harness  Company;  former  Managing  Partner,
                            Roscommon  Capital  Corp.;  former  Chief  Executive
                            Officer,   Gifford  Gifts  of  Fine  Foods;   former
                            Chairman,    Gifford,   Drescher   &   Asso   ciates
                            (environmental  consulting);  and  former  Director,
                Keystone Investments, Inc. and Keystone.

JAMES S. HOWELL:            Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Chairman and Trustee or Director of all the funds in
                            the Evergreen  Family of Funds;  former  Chairman of
                            the Distribution  Foundation for the Carolinas;  and
                            former   Vice   President   of  Lance   Inc.   (food
manufacturing).         

LEROY KEITH, JR.:           Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Chairman of the Board and Chief  Executive  Officer,
                            Carson Products  Company;  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.:         Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Chairman  and Of  Counsel,  Keyser,  Crowley & Meub,
                            P.C.;  Member,  Governor's (VT) Council of Eco nomic
                            Advisers;   Chairman  of  the  Board  and  Director,
                            Central Vermont Public Service Corporation and Lahey
                            Hitchcock Clinic;  Director,  Vermont Yankee Nuclear
                            Power Corporation,  Grand Trunk  Corporation,  Grand
                            Trunk Western Railroad,  Union Mutual Fire Insurance
                            Company,  New England  Guaranty  Insurance Com pany,
                            Inc., and the Investment Company  Institute;  former
                            Director and  President,  Associated  Industries  of
                            Vermont;   former  Director  of  Keystone,   Central
                            Vermont  Railway,   Inc.,  S.K.I.  Ltd.,  and  Arrow
                            Financial Corp.; and former Director and Chairman of
                        the Board, Proctor Bank and Green Mountain Bank.

GERALD M. MCDONNELL:        Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Trustee  or   Director  of  all  the  funds  in  the
                            Evergreen Family of Funds; and Sales  Representative
                 with Nucor-Yamoto, Inc. (steel producer).

THOMAS L. MCVERRY:          Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Trustee  or   Director  of  all  the  funds  in  the
                            Evergreen Family of Funds; former Vice President and
                            Director of Rexham Corporation;  and former Director
                     of Carolina Cooperative Federal Credit Union.

*WILLIAM WALT PETTIT:       Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Trustee  or   Director  of  all  the  funds  in  the
                            Evergreen  Family of Funds;  and  Partner in the law
        firm of Holcomb and Pettit, P.A.

DAVID M. RICHARDSON:        Director  of the Fund;  Trustee or  Director  of all
                            other funds in the Keystone  Families of Funds; Vice
                            Chair  and  former  Executive  Vice  President,  DHR
                            International,  Inc. (executive recruitment); former
                            Senior Vice  President,  Boyden  International  Inc.
                            (executive recruit ment); and Director, Commerce and
                            Industry    Association    of   New   Jersey,    411
                      International, Inc., and J&M Cumming Paper Co.

RUSSELL A. SALTON, III MD:  Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Trustee  or   Director  of  all  the  funds  in  the
                            Evergreen Family of Funds;  Medical  Director,  U.S.
                            Health  Care/Aetna   Health  Services;   and  former
                            Managed Health Care  Consultant;  former  President,
Primary Physician Care. 

MICHAEL S. SCOFIELD:        Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Trustee  or   Director  of  all  the  funds  in  the
                            Evergreen Family of Funds; and Attorney, Law Offices
of Michael S. Scofield. 

RICHARD J. SHIMA:           Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Chairman,  Environmental  Warranty,  Inc. (insurance
                            agency);  Executive  Consultant,  Drake Beam  Morin,
                            Inc.   (executive    outplacement);    Director   of
                            Connecticut   Natural  Gas   Corporation,   Hartford
                            Hospital,  Old State  House  Association,  Middlesex
                            Mutual  Assurance  Company,  and  Enhance  Financial
                            Services,   Inc.;   Chairman,   Board  of  Trustees,
                            Hartford Graduate Center; Trustee,  Greater Hartford
                            YMCA;  former  Director,  Vice  Chairman  and  Chief
                            Investment  Officer,  The  Travelers  Corpora  tion;
                            former Trustee,  Kingswood-Oxford School; and former
                            Managing  Director and  Consultant,  Russell Miller,
Inc.                    

ANDREW J. SIMONS:           Director  of the Fund;  Trustee or  Director  of all
                            other  funds  in the  Keystone  Families  of  Funds;
                            Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky
                            &  Armentano,  P.C.;  Adjunct  Professor  of Law and
                            former Associate Dean, St. John's  University School
                            of Law;  Adjunct  Professor  of Law,  Touro  College
                            School of Law; and former  President,  Nassau County
Bar Association.        

JOHN J. PILEGGI:            President and  Treasurer of the Fund;  President and
                            Treasurer   of  all  other  funds  in  the  Keystone
                            Families of Funds;  President  and  Treasurer of all
                            the funds in the Evergreen  Family of Funds;  Senior
                            Managing  Director,  Furman  Selz  LLC  since  1992;
                            Managing  Director  from  1984 to 1992;  Consultant,
                            BISYS Fund  Services  since 1996;  230 Park  Avenue,
Suite 910, New York, NY.

GEORGE O. MARTINEZ:         Secretary of the Fund;  Secretary of all other funds
                            in the Keystone Families of Funds;  Secretary of all
                            of the  funds  in the  Evergreen  Family  of  Funds;
                            Senior Vice President and Director of Administration
                            and Regulatory  Services,  BISYS Fund Services since
                            1995;  Vice  President/Assistant   General  Counsel,
                            Alliance Capital  Management from 1988 to 1995; 3435
     Stelzer Road, Columbus, Ohio.

*  This Director may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.                                                        

         The  Fund  does  not pay any  direct  remuneration  to any  officer  or
Director who is an "affiliated person" of Keystone or any of its affiliates. See
"Investment  Adviser."  During the fiscal  year ended  February  28,  1997,  the
unaffiliated Directors received retainers or fees totaling $7,175 from the Fund.
For the year December 31, 1996, aggregate  compensation  received by Independent
Trustees on a fund complex wide basis (which  includes over 30 mutual funds) was
$411,000.  As of March 31, 1997, the Directors and officers  beneficially  owned
less than 1.00% of the Fund's then outstanding shares.                          

         Except as set forth above,  the address of all of the Fund's  Directors
and the  address  of the  Fund is 200  Berkeley  Street,  Boston,  Massachusetts
02116-5034.                                                                     

         Set forth  below for each of the  Independent  Directors  receiving  in
excess of $60,000 for the fiscal  period of March 1, 1996  through  February 28,
1997 is the aggregate  compensation  paid to such  Independent  Directors by the
Evergreen Keystone Funds:                                                       

     Total
            Compensation
    From
Aggregate    Registrant   
Compensation and Fund     
from         Complex Paid 
Name                       Registrant   To Director                             
-------------------------  ------------ -------------                           
James S. Howell            $0           $66,000                                 
Russell A Salton, III M.D. $0           $61,000                                 
Michael S. Scofield        $0           $61,000                                 

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

INVESTMENT ADVISER

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

INVESTMENT ADVISER                                                              

         Subject to the general  supervision  of the Fund's Board of  Directors,
Keystone provides investment advice,  management and administrative  services to
the Fund.                                                                       

         On  December  11,  1996,  the  predecessor  corporation  to First Union
Keystone,  Keystone  Investments,  Inc. ("Keystone  Investments") and indirectly
each subsidiary of Keystone Investments,  including Keystone, were acquired (the
"Acquisition")  by First  Union  National  Bank of North  Carolina  ("FUNB"),  a
wholly-owned  subsidiary of First Union.  Keystone  Investments  was acquired by
FUNB by merger into a wholly-owned subsidiary of FUNB, which entity then assumed
the First Union  Keystone name and succeeded to the business of the  predecessor
corporation. Contemporaneously with the Acquisition, the Fund entered into a new
investment  advisory  agreement with Keystone and into a principal  underwriting
agreement with EKD, an indirect wholly-owned subsidiary of The BISYS Group, Inc.
("BISYS").  The new investment advisory agreement (the "Advisory Agreement") was
approved  by the  shareholders  of the Fund on  December  9,  1996,  and  became
effective on December 11, 1996.                                                 

         First Union Keystone and each of its subsidiaries,  including Keystone,
are now  indirectly  owned by First  Union.  First  Union  is  headquartered  in
Charlotte,  North Carolina,  and had $140 billion in  consolidated  assets as of
December 31,  1996.  First Union and its  subsidiaries  provide a broad range of
financial  services to individuals and businesses  throughout the United States.
The Capital  Management  Group of FUNB,  Keystone and Evergreen Asset Management
Corp.,  a  wholly-owned  subsidiary  of FUNB,  manage or  otherwise  oversee the
investment  of over $60 billion in assets  belonging to a wide range of clients,
including the Evergreen Family of Funds.                                        

         Pursuant to the Advisory  Agreement and subject to the  supervision  of
the  Fund's  Board of  Directors,  Keystone  furnishes  to the  Fund  investment
advisory,   management  and  administrative  services,  office  facilities,  and
equipment in  connection  with its services  for  managing  the  investment  and
reinvestment  of the  Fund's  assets.  Keystone  pays  for  all of the  expenses
incurred in connection with the provision of its services.                      

         The  Fund  pays  for  all  charges  and  expenses,   other  than  those
specifically referred to as being borne by Keystone,  including, but not limited
to (1) custodian  charges and expenses;  (2) bookkeeping and auditors'  charges 
and expenses;  (3) transfer agent charges and expenses; (4) fees and expenses of
Independent Directors;  (5) brokerage  commissions,  brokers' fees and expenses;
(6) issue and  transfer  taxes;  (7) costs and expenses  under the  Distribution
Plan; (8) taxes and trust fees payable to governmental  agencies;  (9) the cost 
of  share  certificates;   (10)  fees  and  expenses  of  the  registration  and
qualification  of the Fund and its shares with the Securities and Exchange      
Commission ("SEC")or under state or                                             
other  securities  laws;  (11)  expenses  of  preparing,  printing  and  mailing
prospectuses,  statements of additional information,  notices, reports and proxy
materials  to  shareholders  of the Fund;  (12)  expenses of  shareholders'  and
Directors' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent  Directors of the Fund on matters  relating to the Fund; and
(14) charges and expenses of filing annual and other reports with the SEC and   
other authorities, and all extraordinary charges and expenses of the Fund.      

         The Fund pays  Keystone a fee for its  services  at the annual rate set
forth below:                                                                    

                                                         Aggregate Net
                                                   Asset Value of Fund
Management Fee                                                       Shares     
--------------------------------------------------------------------------      

3/4 of 1% of the first                                $  100,000,000, plus      
5/8 of 1% of the next                                 $  100,000,000, plus      
1/2 of 1% of amounts over                             $  200,000,000.           

Keystone's  fee is computed as of the close of business  each  business  day and
payable monthly.                                                                

         The  Advisory  Agreement  continues  in effect  for two years  from its
effective  date and,  thereafter,  from year to year only if  approved  at least
annually by the Board of Directors of the Fund or by a vote of a majority of the
Fund's  outstanding  shares (as defined in the 1940 Act).  In either  case,  the
terms of the Advisory Agreement and continuance  thereof must be approved by the
vote of a  majority  of the  Independent  Directors  cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated,  without penalty,  on 60 days' written notice by the Fund's Board of
Directors  or by a vote  of a  majority  of  outstanding  shares.  The  Advisory
Agreement will terminate automatically upon its assignment.                     

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

CONSULTANT

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

         Since  August 1, 1995,  Harbor  Capital has served as a  consultant  to
Keystone with respect to the Fund and its subsidiary pursuant to a Consultant   
Agreement.  In accordance  with the terms of the  Consultant  Agreement,  Harbor
Capital  provides  Keystone  with monthly  reports  discussing  the world's gold
bullion markets and gold stock markets,  and advice  regarding  economic factors
and trends in the precious metals sectors. For its services under the Consultant
Agreement, Harbor Capital receives from Keystone a fee at the annual rate of    
0.10% of the Fund's average daily net assets.                                   

         The Consultant  Agreement shall continue in effect from year to year if
the parties thereto agree. The Consultant  Agreement may be terminated by either
party,  without penalty, on 60 days' written notice to the other party.  Neither
party may assign  the  Consultant  Agreement  without  the  consent of the other
party.                                                                          

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

 PRINCIPAL UNDERWRITER

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

         The Fund has  entered  into a  Principal  Underwriting  Agreement  (the
"Underwriting  Agreement")  with EKD. EKD,  which is not  affiliated  with First
Union,  replaces EKIS as the Fund's  principal  underwriter.  EKIS may no longer
serve  as  principal  underwriter  of the Fund  due to  regulatory  restrictions
imposed by the  Glass-Steagall  Act upon  national  banks such as FUNB and their
affiliates,  that  prohibit such  entities  from acting as the  underwriters  of
mutual fund shares.  While EKIS may no longer serve as principal  underwriter of
the Fund as discussed above, EKIS may continue to receive  compensation from the
Fund or EKD in respect of underwriting and distribution services performed prior
to the termination of EKIS as principal underwriter.  In addition, EKIS may also
be compensated by EKD for the provision of certain marketing support services to
EKD at an annual  rate of up to 0.75% of the  average  daily  net  assets of the
Fund, subject to certain restrictions.                                          

         EKD, as agent,  has agreed to use its best  efforts to find  purchasers
for  the  shares.   EKD  may  retain  and  employ   representatives  to  promote
distribution  of the shares  and may  obtain  orders  from  broker-dealers and  
others,  acting as  principals,  for sales of shares to them.  The  Underwriting
Agreement  provides that EKD will bear the expense of preparing,  printing,  and
distributing  advertising and sales literature and  prospectuses  used by it. In
its capacity as principal underwriter, EKD or EKIS, its predecessor, may receive
payments from the Fund pursuant to the Fund's Distribution Plan.                

         The  Underwriting  Agreement  provides that it will remain in effect as
long as its terms  and  continuance  are  approved  annually  (1) by a vote of a
majority  of the  Independent  Directors,  and (2) by vote of  majority of the  
Directors, in each case, cast in person at a meeting called for that purpose.   

         The Underwriting  Agreement may be terminated,  without penalty,  on 60
days'  written  notice by the Board of  Directors  or by a vote of a majority of
outstanding shares. The Underwriting Agreement will terminate automatically upon
its assignment.                                                                 

         From time to time, if, in EKD's judgment, it could benefit the sales of
Fund shares, EKD may provide to selected  broker-dealers  promotional  materials
and selling aids,  including,  but not limited to, personal  computers,  related
software, and Fund data files.                                                  

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

 SUB-ADMINISTRATOR

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

         BISYS, or an affiliate,  provides personnel to serve as officers of the
Fund,  and provides  certain  administrative  services to the Fund pursuant to a
sub-administrator  agreement.  For its  services  under  that  agreement,  BISYS
receives from Keystone a fee based on the aggregate  average daily net assets of
the Fund at a rate based on the total assets of all mutual funds administered by
BISYS  for  which  FUNB  affiliates  also  serve  as  investment  adviser.   The
sub-administrator fee is calculated in accordance with the following schedule:  

                            Aggregate Average Daily Net Assets Of Mutual Funds
Sub-Administrator            Administered By BISYS For Which Any Affiliate Of   
Fee                          FUNB Serves As Investment Adviser                  
--------------------------------------------------------------------------------
0.0100%                      on the first $7 billion                            
0.0075%                      on the next $3 billion                             
0.0050%                      on the next $15 billion                            
0.0040%                      on assets in excess of $25 billion                 

         The total  assets of the mutual  funds for which FUNB  affiliates  also
serve as investment advisers were approximately $29.2 billion as of February 28,
1997.                                                                           

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

EXPENSES

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

INVESTMENT ADVISORY FEE                                                         

         For each of the Fund's last three fiscal  years,  the table below lists
the  total  dollar  amounts  paid by the  Fund to  Keystone  for  investment    
advisory services rendered. For more information, see "Investment Adviser."     

   Percent of Fund's         Fee Paid to
      Average Net Assets        Keystone under
    represented by            the Advisory
Fiscal Year Ended      Keystone's Fee            Agreement                      
-------------------    -----------------------   -----------------------        
February 28, 1997             0.69%              $1,322,411                     
February 29, 1996             0.69%              $1,354,605                     
February 28, 1995             0.68%              $1,396,523                     

DISTRIBUTION PLAN EXPENSES                                                      

         For the fiscal year ended February 28, 1997,  the Fund paid  $1,923,248
to  EKD  or  EKIS  under  its  Distribution  Plan.  For  more  information,  see
"Distribution Plan."                                                            

UNDERWRITING COMMISSIONS                                                        

         For each of the Fund's last three fiscal  years,  the table below lists
the  aggregate  dollar  amounts of  underwriting  commissions  (front-end  sales
charges,  plus  distribution  fees,  plus CDSCs) paid with respect to the public
distribution of the Fund's shares. The table also indicates the aggregate dollar
amount  of  underwriting   commissions   retained  by  EKD  or  EKIS.  For  more
information, see "Principal Underwriter" and "Sales Charges."                   

                                                    Aggregate Dollar Amount of
                   Aggregate Dollar Amount of     Underwriting Commissions
Fiscal Year Ended     Underwriting Commissions       Retained by EKD or EKIS    
------------------    ---------------------------    -------------------------- 
February 28, 1997             $2,088,781                  $1,058,137            
February 29, 1996             $2,102,338                  $920,700              
February 28, 1995             $2,179,660                  $255,046              

BROKERAGE COMMISSIONS                                                           

Fiscal Year Ended                      Brokerage Commissions Paid               
-------------------------              --------------------------------------   
February 28, 1997                      $477,545                                 
February 29, 1996                      $438,893                                 
February 28, 1995                      $523,800                                 

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

STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS

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

         Total  return  quotations  for the Fund as they may appear from time to
time in  advertisements  are calculated by finding the average annual compounded
rates of return over the one, five and ten year periods on a hypothetical $1,000
investment  which  would  equate  the  initial  amount  invested  to the  ending
redeemable value. To the initial  investment all dividends and distributions are
added, and all recurring fees charged to all shareholder  accounts are deducted.
The ending  redeemable  value  assumes a complete  redemption  at the end of the
relevant periods.                                                               

         The cumulative total returns of the Fund for the one, five and ten year
periods  ended  February  28, 1997 were  -7.89%  (including  CDSCs),  64.62% and
66.16%, respectively. The compounded average annual rates of return for the one,
five and ten year periods ended February 28, 1997 were -7.89% (including CDSCs),
10.48% and 5.21%, respectively.                                                 

         Current  yield  quotations  as they  may  appear  from  time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund,  computed by dividing the net
investment  income per share  earned  during the period by the maximum  offering
price per share on the last day of the base period.  The Fund presently does not
intend to advertise current yield.                                              

         Any given  total  return or  current  yield  quotations  should  not be
considered  representative  of the Fund's total return or current  yield for any
future period.                                                                  

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

FINANCIAL STATEMENTS

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

         The  following  financial  statements of the Fund are  incorporated  by
reference herein from the Fund's Annual Report, as filed with the SEC:          

Schedule of Investments as of February 28, 1997;              

         Financial Highlights for each of the years in the ten-year period ended
February 28, 1997;                                            

Statement of Assets and Liabilities as of February 28, 1997;  

Statement of Operations for the year ended February 28, 1997; 

         Statements  of  Changes  in Net  Assets  for  each of the  years in the
two-year period ended February 28, 1997;                      

Notes to Financial Statements; and                            

Independent Auditors' Report dated March 31, 1997.            

         A copy of the Fund's Annual  Report will be furnished  upon request and
without charge.  Requests may be made in writing to EKSC, P.O. Box 2121, Boston,
Massachusetts 02106-2121, or by calling EKSC toll free at 1-800-343-2898.       

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

ADDITIONAL INFORMATION

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

         To the  best  of the  Fund's  knowledge,  as of  March  31,  1997,  the
following  was the only  shareholder  of record  who owned 5% or more the Fund's
outstanding shares:                                                             

                                     % OF FUND
Merrill Lynch Pierce Fenner & Smith                      13.42%                 
For Sole Benefit of Its Customers                                               
Attn: Fund Administration                                                       
4800 Deer Lake Drive East, 3rd Floor                                            
Jacksonville, FL 32246-6484                                                     

         Except as otherwise  stated in its  prospectus  or required by law, the
Fund  reserves  the  right to  change  the  terms  of the  offer  stated  in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.                                                     

         If conditions  arise that would make it undesirable for the Fund to pay
for all  redemptions  in  cash,  the Fund may  authorize  payment  to be made in
portfolio securities or other property. The Fund has obligated itself,  however,
under the 1940 Act, to redeem for cash all shares  presented  for  redemption by
any one  shareholder  up to the  lesser of  $250,000  or 1.00% of the Fund's net
assets in any 90-day  period.  Securities  delivered  in payment of  redemptions
would be valued at the same value  assigned to them in  computing  the net asset
value  per  share  and  would,  to the  extent  permitted  by  law,  be  readily
marketable.  Shareholders  receiving such securities would incur brokerage costs
upon sale of the securities.                                                    

         No  dealer,  salesman  or  other  person  is  authorized  to  give  any
information  or  to  make  any   representation  not  contained  in  the  Fund's
prospectus,  this statement of additional  information or in supplemental  sales
literature  issued by the Fund or EKD,  and no person is entitled to rely on any
information or representation not contained therein.                            

         The Fund's prospectus and this statement of additional information omit
certain information contained in the registration  statement filed with the SEC,
which may be obtained from the SEC's principal  office in Washington,  D.C. upon
payment of the fee  prescribed by the rules and  regulations  promulgated by the
SEC.                                                                            

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APPENDIX

MONEY MARKET INSTRUMENTS

         The Fund's  investments in commercial  paper are limited to those rated
A-1 by  Standard & Poor's Ratings Group ("S&P"),  PRIME-1  by Moody's  Investors
Service ("Moody's") or F-1 by Fitch Investors Service,  Inc.  ("Fitch").        
These ratings and other money market instruments are described as follows:      

COMMERCIAL PAPER RATINGS                                                        

         Commercial  paper rated A-1 by S&P has the  following  characteristics:
Liquidity ratios are adequate to meet cash requirements.  The issuer's long-term
senior  debt is rated A or better,  although  in some cases BBB  credits  may be
allowed. The issuer has access to at least two additional channels of borrowing.
Basic  earnings  and cash flow  have an upward  trend  with  allowance  made for
unusual circumstances.  Typically, the issuer's industry is well established and
the issuer has a strong position within the industry.                           

         The rating PRIME-1 is the highest  commercial  paper rating assigned by
Moody's.  Among the factors  considered by Moody's in assigning  ratings are the
following:  (1)  evaluation  of the  management  of  the  issuer;  (2)  economic
evaluation  of  the  issuer's   industry  or  industries  and  an  appraisal  of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's  products in relation to competition and customer  acceptance;  (4)
liquidity;  (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten  years;  (7)  financial  strength  of a parent  company  and the
relationships which exist with the issuer; and (8) recognition by the management
of  obligations  which  may be  present  or may  arise  as a  result  of  public
preparations  to meet such  obligations.  Relative  strength  or weakness of the
above  factors  determines  how the  issuer's  commercial  paper is rated within
various categories.                                                             

         The rating  F-1 is the  highest  rating  assigned  by Fitch.  Among the
factors  considered  by Fitch in  assigning  this rating are:  (1) the  issuer's
liquidity;  (2) its standing in the industry;  (3) the size of its debt; (4) its
ability to service its debt;  (5) its  profitability;  (6) its return on equity;
(7) its  alternative  sources of  financing;  and (8) its  ability to access the
capital markets.  Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1.        

UNITED STATES GOVERNMENT SECURITIES                                             

         Securities issued or guaranteed by the U.S government include a variety
of Treasury securities that differ only in their interest rates,  maturities and
dates of issuance.  Treasury bills have maturities of one year or less. Treasury
notes have  maturities of one to ten years,  and Treasury  bonds  generally have
maturities of greater than ten years at the date of issuance.                   

         Securities issued or guaranteed by the U.S.  government or its agencies
or  instrumentalities  include  direct  obligations  of the  U.S.  Treasury  and
securities issued or guaranteed by the Federal Housing  Administration,  Farmers
Home  Administration,  Export-Import  Bank of the United States,  Small Business
Administration,  Government  National  Mortgage  Association,  General  Services
Administration,  Central Bank for Cooperatives, Federal Home Loan Banks, Federal
Loan Mortgage  Corporation,  Federal  Intermediate  Credit  Banks,  Federal Land
Banks,  Maritime  Administration,  The Tennessee Valley  Authority,  District of
Columbia Armory Board and Federal National Mortgage Association.                

10787                                                                           

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         Some  obligations of U.S.  government  agencies and  instrumentalities,
such as Treasury bills and Government  National  Mortgage  Association  ("GNMA")
pass-through  certificates,  are  supported  by the full faith and credit of the
U.S.; others, such as securities of Federal Home Loan Banks, by the right of the
issuer to borrow from the Treasury;  still  others,  such as bonds issued by the
Federal National Mortgage Association, a private corporation, are supported only
by the  credit  of the  instrumentality.  Because  the  U.S.  government  is not
obligated by law to provide support to an instrumentality it sponsors,  the Fund
will  invest  in the  securities  issued  by such an  instrumentality  only when
Keystone  determines  that the credit risk with  respect to the  instrumentality
does not make its securities unsuitable investments.  U.S. government securities
will not include  international  agencies or instrumentalities in which the U.S.
government,  its agencies or  instrumentalities  participate,  such as the World
Bank,  the Asian  Development  Bank or the  InterAmerican  Development  Bank, or
issues insured by the Federal Deposit Insurance Corporation.                    

CERTIFICATES OF DEPOSITS                                                        

         Certificates  of deposit are receipts  issued by a bank in exchange for
the  deposit  of funds.  The  issuer  agrees to pay the  amount  deposited  plus
interest to the bearer of the receipt on the date specified on the  certificate.
The certificate usually can be traded in the secondary market prior to maturity.

         Certificates  of deposit  will be  limited  to U.S.  dollar-denominated
certificates of U.S. banks, including their branches abroad and of U.S. branches
of foreign banks, which are members of the Federal Reserve System or the Federal
Deposit  Insurance  Corporation,  and have at least $1 billion in deposits as of
the date of their most recently published  financial  statements.  The Fund will
not acquire time deposits or obligations  issued by the  International  Bank for
Reconstruction and Development, the Asian Development Bank or the Inter-American
Development Bank.  Additionally,  the Fund currently does not intend to purchase
such foreign  securities  (except to the extent that  certificates of deposit of
foreign  branches of U.S.  banks may be deemed  foreign  securities) or purchase
certificates  of deposit,  bankers'  acceptances  or other  similar  obligations
issued by foreign banks.                                                        

BANKERS' ACCEPTANCES                                                            

         Bankers'   acceptances   typically   arise   from   short-term   credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions.  Generally,  an  acceptance  is a time draft drawn on a bank by an
exporter or an importer to obtain a stated  amount of funds to pay for  specific
merchandise.  The  draft  is  then  "accepted"  by the  bank  that,  in  effect,
unconditionally  guarantees  to pay the  face  value  of the  instrument  on its
maturity  date.  The  acceptance  may then be held by the  accepting  bank as an
earning  asset or it may be sold in the  secondary  market at the going  rate of
discount for a specific maturity.  Although maturities for acceptances can be as
long as 270  days,  most  acceptances  have  maturities  of six  months or less.
Bankers'  acceptances  acquired  by the Fund  must have  been  accepted  by U.S.
commercial banks,  including foreign branches of U.S.  commercial banks,  having
total  deposits  at the time of  purchase  in excess of $1  billion  and must be
payable in U.S. dollars.                                                        

OPTIONS TRANSACTIONS

     The Fund is  authorized  to write (i.e.,  sell) covered call options and to
purchase call options,  including  purchasing  call options to close out covered
call options  previously  written.  A call option obligates a writer to sell and
gives a  purchaser  the  right  to buy the  underlying  security  at the  stated
exercise price at any time until the stated expiration date.                    

         The Fund will only write call  options  that are  covered,  which means
that the Fund will own the  underlying  security (or other  securities,  such as
convertible securities, which are acceptable for escrow) when it writes the call
option and until the Fund's obligation to sell the underlying security is       

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extinguished  by exercise or  expiration of the call option or the purchase of a
call option covering the same  underlying  security and having the same exercise
price and  expiration  date.  The Fund may write a call option on any  portfolio
security  for which call  options are  available  and listed on the London Stock
Exchange or a national securities exchange.  The Fund will receive a premium for
writing  a call  option  but will  give  up,  until  the  expiration  date,  the
opportunity to profit from an increase in the underlying  security's price above
the exercise price. The Fund will retain the risk of loss from a decrease in the
price of the  underlying  security.  The  writing of covered  call  options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked options which the Fund will not do) but capable
of enhancing the Fund's total returns.                                          

         The premium received by the Fund for writing a covered call option will
be recorded as a liability in the Fund's  statement  of assets and  liabilities.
This  liability  will be adjusted  daily to the option's  current  market value,
which will be the latest  sale price at the time as of which the net asset value
per share of the Fund is  computed  (the close of the New York Stock  Exchange),
or, in the absence of such sale, at the latest bid quotation. The liability will
be  extinguished  upon  expiration  of the option,  the purchase of an identical
option in a closing  transaction  or delivery of the  underlying  security  upon
exercise of the option.                                                         

         The London Options Clearing House is the issuer of, and the obligor on,
every option traded on the London Stock  Exchange and will be the issuer of, and
the obligor on, those covered call options  written by the Fund which are traded
on the  London  Stock  Exchange.  The  Fund  will be  required  to  make  escrow
arrangements to secure its obligation to deliver to the London Options  Clearing
House the  underlying  security of each such  covered call option which the Fund
writes.                                                                         

         The Options Clearing  Corporation is the issuer of, and the obligor on,
every option traded on a national securities exchange and will be the issuer of,
and the obligor on, those  covered  call  options  written by the Fund which are
traded on a national  securities  exchange.  The Fund will be  required  to make
escrow  arrangements to secure its obligation to deliver to The Options Clearing
Corporation  the underlying  security of each such covered call option which the
Fund writes.                                                                    

         Options  traded in the  over-the-counter  market involve the additional
risk that securities  dealers  participating in such transactions  would fail to
meet their  obligations  to the Fund.  In  addition,  the  abililty to terminate
over-the-counter  option  positions  may be more  limited  than  in the  case of
exchange   traded  options   positions.   The  use  of  options  traded  in  the
over-the-counter  market may be subject to limitations  imposed by certain state
securities authorities.                                                         

         The Fund will  purchase call options to close out a covered call option
it has written.  When it appears that a covered call option  written by the Fund
is likely to be exercised,  the Fund may consider it appropriate to avoid having
to sell the underlying  security.  Or, the Fund may wish to extinguish a covered
call  option,  which it has  written in order to be free to sell the  underlying
security,  to realize a profit on the previously written call option or to write
another covered call option on the underlying  security.  In all such instances,
the Fund can close out the  previously  written call option by purchasing a call
option  on the  same  underlying  security  with  the same  exercise  price  and
expiration  date.  (The Fund may, under certain  circumstances,  also be able to
transfer a previously  written call  option.) The Fund will realize a short-term
capital  gain if the amount  paid to purchase  the call option plus  transaction
costs is less than the premium received for writing the covered call option. The
Fund will realize a  short-term  capital loss if the amount paid to purchase the
call option plus  transaction  costs is greater  than the premium  received  for
writing the covered call option.                                                

         A  previously  written call option can be closed out by  purchasing  an
identical call option only in a secondary  market for the call option.  Although
the Fund will  generally  write only those options for which there appears to be
an active secondary market, there is no assurance that a liquid secondary       

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market will exist for any particular option at any particular time, and for some
options no secondary market may exist. In such event it might not be possible to
effect a closing  transaction in a particular  option.  If the Fund as a covered
call option writer is unable to effect a closing purchase  transaction,  it will
not be able to sell the  underlying  securities  until the option  expires or it
delivers the underlying securities upon exercise.                               

         If a  substantial  number of the call  options  written by the Fund are
exercised,  the Fund's rate of portfolio  turnover may exceed historical levels.
This would result in higher transaction costs,  including brokerage commissions.
The Fund will pay  brokerage  commissions  in  connection  with the  writing  of
covered call  options and the  purchase of call options to close out  previously
written  options.  Such  brokerage  commissions  are normally  higher than those
applicable to purchases and sales of portfolio securities.                      

         In the past the Fund has  qualified  for,  and elected to receive,  the
special tax treatment afforded regulated investment companies under Subchapter M
of the Code.  Although  the Fund  intends to  continue  to qualify  for such tax
treatment,  in order to do so it must, among other things,  derive less than 30%
of its gross income from gains from the sale or other  disposition of securities
held for less than three months.  Because of this, the Fund may be restricted in
the writing of call options where the underlying  securities have been held less
than three  months,  in the writing of covered call options which expire in less
than three months and in  effecting  closing  purchases  with respect to options
which were  written less than three months  earlier.  As a result,  the Fund may
elect to forego otherwise  favorable  investment  opportunities and may elect to
avoid or delay effecting closing purchases or selling portfolio securities, with
the risk that a  potential  loss may be  increased  or a  potential  gain may be
reduced or turned into a loss.                                                  

         Under the Code, gain or loss attributable to a closing  transaction and
premiums  received  by the Fund for writing a covered  call option  which is not
exercised may constitute  short-term  capital gain or loss.  Under provisions of
the Tax Reform Act of 1986,  effective for taxable years beginning after October
22,  1986, a gain on an option  transaction  which  qualifies  as a  "designated
hedge"  transaction  under  Treasury  regulations  may be offset by  realized or
unrealized  losses on such designated  transaction.  The netting of gain against
such  losses   could  result  in  a  reduction  in  gross  income  from  options
transactions for purposes of the 30 percent test.                               

FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS

         The Fund  intends to enter into  currency and other  financial  futures
contracts  as a hedge  against  changes  in  prevailing  levels of  interest  or
currency exchange rates to seek relative stability of principal and to establish
more  definitely  the  effective  return on  securities  held or  intended to be
acquired by the Fund or as a hedge  against  changes in the prices of securities
or currencies held by the Fund or to be acquired by the Fund. The Fund's hedging
may  include  sales of  futures  as an offset  against  the  effect of  expected
increases  in interest  or  currency  exchange  rates or  securities  prices and
purchases  of futures as an offset  against the effect of  expected  declines in
interest or currency exchange rates.                                            

         For example,  when the Fund anticipates a significant  market or market
sector  advance,  it will  purchase a stock  index  futures  contract as a hedge
against not  participating  in such advance at a time when the Fund is not fully
invested.  The purchase of a futures  contract serves as a temporary  substitute
for the  purchase of  individual  securities  which may then be  purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, the Fund
would sell stock index  futures  contracts  in  anticipation  of or in a general
market or market sector  decline that may  adversely  affect the market value of
the Fund's  portfolio.  To the extent that the Fund's portfolio changes in value
in correlation with a given index,  the sale of futures  contracts on that index
would substantially reduce the risk to the portfolio of a market                

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decline or change in interest rates, and, by doing so, provide an alternative to
the liquidation of the Fund's securities positions and the resulting transaction
costs.                                                                          

         The Fund intends to engage in options  transactions that are related to
currency and other financial  futures  contracts for the hedging purposes and in
connection with the hedging strategies described above.                         

         Although techniques other than sales and purchases of futures contracts
and related options  transactions could be used to reduce the Fund's exposure to
interest  rate  and/or  market  fluctuations,  the Fund may be able to hedge its
exposure  more  effectively  and perhaps at a lower cost through  using  futures
contracts and related  options  transactions.  While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.            

FUTURES CONTRACTS                                                               

         Futures  contracts are  transactions in the commodities  markets rather
than in the securities  markets. A futures contract creates an obligation by the
seller to deliver to the buyer the  commodity  specified  in the  contract  at a
specified  future time for a specified  price.  The futures  contract creates an
obligation  by the buyer to accept  delivery  from the  seller of the  commodity
specified at the specified future time for the specified  price. In contrast,  a
spot transaction  creates an immediate  obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve  transactions in fungible goods such as wheat,  coffee
and  soybeans.  However,  in the last  decade an  increasing  number of  futures
contracts have been developed which specify currencies, financial instruments or
financially based indexes as the underlying commodity.                          

         U.S. futures  contracts are traded only on national  futures  exchanges
and are  standardized as to maturity date and underlying  financial  instrument.
The principal  financial futures exchanges in the U.S. are The Board of Trade of
the City of Chicago, the Chicago Mercantile Exchange, the International Monetary
Market (a division of the Chicago  Mercantile  Exchange),  the New York  Futures
Exchange  and  the  Kansas  City  Board  of  Trade.  Each  exchange   guarantees
performance  under  contract  provisions  through  a  clearing  corporation,   a
nonprofit  organization  managed  by the  exchange  membership,  which  is  also
responsible for handling daily  accounting of deposits or withdrawals of margin.
A futures commission  merchant ("Broker") effects each transaction in connection
with futures  contracts  for a  commission.  Futures  exchanges  and trading are
regulated  under the  Commodity  Exchange Act by the Commodity  Futures  Trading
Commission ("CFTC") and National Futures Association ("NFA").                   

INTEREST RATE FUTURES CONTRACTS                                                 

         The sale of an interest rate futures  contract creates an obligation by
the Fund, as seller,  to deliver the type of financial  instrument  specified in
the contract at a specified  future time for a specified  price. The purchase of
an  interest  rate  futures  contract  creates  an  obligation  by the Fund,  as
purchaser, to accept delivery of the type of financial instrument specified at a
specified future time for a specified price. The specific  securities  delivered
or accepted,  respectively,  at settlement  date, are not determined until at or
near  that  date.  The  determination  is in  accordance  with the  rules of the
exchange on which the futures contract sale or purchase was made.               

         Currently  interest rate futures  contracts can be purchased or sold on
90-day U.S.  Treasury  bills,  U.S.  Treasury  bonds,  U.S.  Treasury notes with
maturities between 6 1/2 and 10 years, GNMA  certificates,  90-day domestic bank
certificates  of  deposit,   90-day  commercial  paper,  and  90-day  Eurodollar
certificates  of  deposit.  It is expected  that  futures  contracts  trading in
additional financial instruments will be authorized.  The standard contract size
is $100,000 for futures contracts in U.S. Treasury bonds, U.S.                  

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Treasury notes and GNMA  certificates,  and $1,000,000 for the other  designated
contracts.  While U.S.  Treasury bonds,  U.S.  Treasury bills and U.S.  Treasury
notes are backed by the full faith and  credit of the U.S.  government  and GNMA
certificates are guaranteed by a U.S.  government  agency, the futures contracts
in U.S. government securities are not obligations of the U.S. Treasury.         

INDEX BASED FUTURES CONTRACTS/STOCK INDEX FUTURES CONTRACTS                     

         A stock index assigns  relative values to the common stocks included in
the index.  The index fluctuates with changes in the market values of the common
stocks so included.  A stock index futures contract is a bilateral  agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified  dollar amount times the  difference  between the closing value of the
stock index on the  expiration  date of the  contract and the price at which the
futures  contract is  originally  made. No physical  delivery of the  underlying
stocks in the index is made.                                                    

         Currently stock index futures contracts can be purchased or sold on the
S&P  Index of 500  Stocks,  the S&P  Index  of 100  Stocks,  the New York  Stock
Exchange Composite Index, the Value Line Index and the Major Market Index. It is
expected  that futures  contracts  trading in  additional  stock indices will be
authorized. The standard contract size is $500 times the value of the index.    

         The Fund does not  believe  that  differences  between  existing  stock
indices will create any  differences  in the price  movements of the stock index
futures  contracts in relation to the movements in such indices.  However,  such
differences  in the  indices may result in  differences  in  correlation  of the
futures with movements in the value of the securities being hedged.             

OTHER INDEX BASED FUTURES CONTRACTS                                             

         It is  expected  that  bond  index and other  financially  based  index
futures  contracts will be developed in the future.  It is anticipated that such
index based futures  contracts will be structured in the same way as stock index
futures  contracts  but will be measured by changes in interest  rates,  related
indexes or other  measures,  such as the consumer price index. In the event that
such futures  contracts are developed the Fund will sell interest rate index and
other index based futures  contracts to hedge against changes which are expected
to affect the Fund's portfolio.                                                 

         The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received.  Instead, to
initiate trading an amount of cash, cash equivalents,  money market  instruments
or U.S.  Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be  deposited  by the Fund with the Broker.  This amount is known as
initial  margin.  The  nature of  initial  margin in  futures  transac-tions  is
different from that of margin in security transactions.  Futures contract margin
does not  involve  the  borrowing  of  funds  by the  customer  to  finance  the
transactions.  Rather, the 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.  The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be  significantly  modified
from time to time by the exchange during the term of the contract.              

         Subsequent payments called variation margin, to the Broker and from the
Broker,  are made on a daily basis as the value of the underlying  instrument or
index  fluctuates  making the long and short  positions in the futures  contract
more or less valuable, a process known as mark-to-market.  For example, when the
Fund has purchased a futures contract and the price of the underlying  financial
instrument or index has risen,  that position will have increased in value,  and
the Fund will receive from the Broker a variation  margin  payment equal to that
increase in value.  Conversely,  where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined,  the
position                                                                        

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would be less  valuable,  and the Fund  would be  required  to make a  variation
margin  payment to the Broker.  At any time prior to  expiration  of the futures
contract,  the Fund may elect to close the position.  A final  determination  of
variation  margin is then made,  additional  cash is  required  to be paid to or
released by the Broker, and the Fund realizes a loss or gain.                   

         The Fund intends to enter into arrangements with its Custodian and with
Brokers to enable its initial  margin and any  variation  margin to be held in a
segregated account by its custodian on behalf of the Broker.                    

         Although interest rate futures contracts by their terms call for actual
delivery  or  acceptance  of  financial  instruments  and  index  based  futures
contracts  call for the  delivery  of cash equal to the  difference  between the
closing value of the index on the expiration  date of the contract and the price
at which the futures  contract is  originally  made,  in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery.  Closing out a futures  contract  sale is effected by an offsetting
transaction  in which the Fund enters into a futures  contract  purchase for the
same aggregate amount of the specific type of financial  instrument or index and
same delivery date. If the price in the sale exceeds the price in the offsetting
purchase,  the Fund is paid the  difference  and thus  realizes  a gain.  If the
offsetting  purchase price exceeds the sale price,  the Fund pays the difference
and realizes a loss.  Similarly,  the closing out of a futures contract purchase
is effected by an offsetting transaction in which the Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase  price exceeds the offsetting  sale price,  the
Fund realizes a loss.  The amount of the Fund's gain or loss on any  transaction
is reduced or increased,  respectively,  by the amount of any transaction costs,
incurred by the Fund.                                                           

         As an example of an offsetting transaction, the contractual obligations
arising  from the sale of one contract of September  U.S.  Treasury  bills on an
exchange  may be  fulfilled  at any time  before  delivery  of the  contract  is
required (i.e., on a specified date in September,  the "delivery  month") by the
purchase of one contract of September U.S.  Treasury bills on the same exchange.
In such instance the difference  between the price at which the futures contract
was sold and the price paid for the  offsetting  purchase,  after  allowance for
transaction costs represents the profit or loss to the Fund.                    

         There can be no assurance, however, that the Fund will be able to enter
into an  offsetting  transaction  with  respect to a  particular  contract  at a
particular  time.  If  the  Fund  is  not  able  to  enter  into  an  offsetting
transaction,  the Fund will  continue  to be  required  to  maintain  the margin
deposits on the contract and to complete the contract according to its terms.   

OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES                                 

         The Fund intends to purchase call and put options on currency and other
financial  futures  contracts  and sell such  options to  terminate  an existing
position.  Options on currency and other financial futures contracts are similar
to options on stocks  except  that an option on a  currency  or other  financial
futures  contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures  contract (a long  position if the option is a
call and a short  position  if the option is a put)  rather  than to purchase or
sell  currency or other  instruments  making up a financial  futures  index at a
specified  exercise  price at any time  during  the period of the  option.  Upon
exercise of the option,  the  delivery of the futures  position by the writer of
the option to the holder of the option  will be  accompanied  by delivery of the
accumulated  balance  in  the  writer's  futures  margin  account.  This  amount
represents  the  amount by which the market  price of the  futures  contract  at
exercise exceeds,  in the case of a call, or is less than, in the case of a put,
the  exercise  price of the  option  on the  futures  contract.  If an option is
exercised the last trading day prior to the expiration  date of the option,  the
settlement  will be made  entirely in cash equal to the  difference  between the
exercise price of the option and value of the futures contract.                 

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         The Fund intends to use options on currency and other financial futures
contracts in connection with hedging strategies.  In the future the Fund may use
such options for other purposes.                                                

PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS                                    

         The purchase of protective  put options on currency or other  financial
futures  contracts is analagous to the purchase of protective puts on individual
stocks,  where  an  absolute  level  of  protection  is  sought  below  which no
additional  economic  loss would be  incurred  by the Fund.  Put  options may be
purchased  to hedge a portfolio of stocks or debt  instruments  or a position in
the futures contract upon which the put option is based.                        

PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS                                   

         The purchase of a call option on a currency or other financial  futures
contract   represents  a  means  of  obtaining   temporary  exposure  to  market
appreciation  at limited  risk. It is analogous to the purchase of a call option
on an individual stock,  which can be used as a substitute for a position in the
stock  itself.  Depending  on the  pricing of the option  compared to either the
futures