<PAGE>
ABT GROWTH AND INCOME TRUST
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
MAY 3, 1995
Dear Shareholder:
On March 3, 1995, we agreed to sell certain of the assets of Palm Beach
Capital Management, Inc. ("PBCM"), currently utilized in its business as
investment adviser, administrator and accounting agent for the ABT Growth and
Income Trust ("the ABT Fund") to First Union National Bank of North Carolina, a
national banking association ("FUNB"). Your Board of Trustees is recommending
that you approve the Agreement and Plan of Reorganization (the "Plan") whereby
substantially all of the assets of the ABT Fund will be purchased by the First
Union Value Portfolio (the "First Union Fund"), a portfolio of First Union
Funds, in exchange for Class A Investment Shares ("Class A Shares") of the
First Union Fund. Class A Shares will be distributed to you in exchange for
your ABT Fund shares. In the opinion of counsel, the exchange of your shares
will be free from federal income tax to you and the ABT Fund.
The First Union Fund is a mutual fund with similar investment objectives and
policies which is advised by the Capital Management Group of FUNB. As of
December 31, 1994, FUNB and its subsidiaries served as investment adviser to 33
mutual funds with aggregate net assets of approximately $7 billion.
The Plan contains various terms and conditions which must be satisfied prior
to a closing. In addition, the agreement to sell certain assets of PBCM to FUNB
provides as a condition to the closing of the transaction that shareholders of
the other ABT funds approve similar agreements and plans of reorganization for
the sale of their assets.
If shareholders approve the Plan, upon consummation of the transaction
contemplated in the Plan, you will receive Class A Shares of the First Union
Fund with a value equal to the value of your then outstanding shares of the ABT
Fund. As a shareholder of the First Union Fund, you will have the ability to
exchange your shares for shares of the other funds in the First Union family of
funds comparable to your present right to exchange among the ABT family of
funds.
The Board of Trustees has called a special meeting of shareholders to be held
on June 19, 1995 to consider the Plan. WE STRONGLY URGE YOUR PARTICIPATION BY
ASKING YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Information about the Plan is contained in the enclosed proxy statement. I
thank you for your participation as a shareholder and urge you, please, to
exercise your right to vote by completing, dating and signing the enclosed
proxy card. A self-addressed, postage-paid envelope has been enclosed for your
convenience.
If you have any questions regarding the proposed transaction, please call 1-
800-553-7838.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
/s/ Edward W. Cook
Edward W. Cook, President
ABT Growth and Income Trust
<PAGE>
ABT GROWTH AND INCOME TRUST
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 19, 1995
Notice is hereby given that a Special Meeting of Shareholders (the "Meeting")
of ABT Growth and Income Trust (the "ABT Fund") will be held at the offices of
the ABT Fund, 340 Royal Palm Way, Palm Beach, Florida 33480 on June 19, 1995 at
10:00 a.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") dated as of March 15, 1995 providing for the acquisition of
substantially all of the assets of the ABT Fund by the First Union Value
Portfolio (the "First Union Fund"), a portfolio of First Union Funds in
exchange for Class A Investment Shares of the First Union Fund and the
assumption by the First Union Fund of certain identified liabilities of
the ABT Fund, and for distribution of such shares of the First Union
Fund to shareholders of the ABT Fund in liquidation of the ABT Fund. A
vote in favor of the Plan is a vote in favor of liquidation and
dissolution of the ABT Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of the ABT Fund have fixed the close of business on April 25,
1995 as the record date for the determination of shareholders of the ABT Fund
entitled to notice of and to vote at this Meeting or any adjournment thereof.
By order of the Board of Directors
Timothy Cox
Secretary
May 3, 1995
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY
WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AND VOTED AT THE MEETING. YOUR PROMPT ATTENTION
TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and 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:
<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
------------ ---------------
<S> <C>
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. John Doe
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
<CAPTION>
TRUST ACCOUNTS
<S> <C>
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
<CAPTION>
CUSTODIAL OR ESTATE ACCOUNTS
<S> <C>
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr. Executor
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED MAY 3, 1995
ACQUISITION OF ASSETS OF
ABT GROWTH AND INCOME TRUST
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
1-800-553-7838
BY AND IN EXCHANGE FOR SHARES OF
FIRST UNION VALUE PORTFOLIO
OF
FIRST UNION FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
This Prospectus/Proxy Statement is being furnished to shareholders of ABT
Growth and Income Trust (the "ABT Fund"), in connection with a proposed
Agreement and Plan of Reorganization (the "Plan"), to be submitted to
shareholders of the ABT Fund for consideration at a Special Meeting of
Shareholders to be held on June 19, 1995 at 10:00 a.m. Eastern Daylight Time,
at the offices of the ABT Fund, 340 Royal Palm Way, Palm Beach, Florida 33480
and any adjournments thereof (the "Meeting"). The Plan provides for
substantially all of the assets of the ABT Fund to be acquired by the First
Union Value Portfolio (the "First Union Fund"), a portfolio of First Union
Funds in exchange for Class A Investment Shares ("Class A Shares") of the First
Union Fund and the assumption by the First Union Fund of certain identified
liabilities of the ABT Fund (hereinafter referred to as the "Reorganization").
Following the Reorganization, Class A Shares of the First Union Fund will be
distributed to shareholders of the ABT Fund in liquidation of the ABT Fund, and
the ABT Fund will be liquidated. As a result of the proposed Reorganization,
each shareholder of the ABT Fund will receive that number of Class A Shares of
the First Union Fund having an aggregate net asset value equal to the aggregate
net asset value of such shareholder's shares of the ABT Fund, calculated as set
forth in the Plan. The Reorganization is being structured as a tax-free
reorganization for federal income tax purposes.
First Union Funds is an open-end diversified management investment company
comprised of 17 portfolios, one of which, the First Union Fund, is a party to
the Reorganization.
The First Union Fund seeks long-term capital growth with current income as a
secondary objective. The Fund will attempt to meet its objective by investing
at least 75% of its assets in equity securities of United States companies with
prospects for growth in earnings and dividends.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the First Union Fund that
shareholders of the ABT Fund should know before voting on the Reorganization or
investing in the First Union Fund. 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 May 3, 1995, relating to this Prospectus/Proxy Statement and
the Reorganization, incorporating by reference the financial statements of the
First Union Fund dated December 31, 1994 and the financial statements of the
ABT Fund dated November 30, 1994, 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 the First Union Fund at the address listed on
the cover page of this Prospectus/Proxy Statement or by calling toll-free 1-
800-326-3241.
<PAGE>
1. The Prospectus of the First Union Fund dated February 28, 1995 and its
Annual Report for the fiscal year ended December 31, 1994 are incorporated by
reference herein in their entirety, insofar as they relate to the First Union
Fund solely and not to any other fund described therein, and copies are
included for your information. Additional information about the First Union
Fund is contained in the Statement of Additional Information dated February
28, 1995 which has been filed with the SEC and is available upon request and
without charge by writing the First Union Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-
326-3241.
2. The Prospectus of the ABT Fund dated March 30, 1995 is incorporated
herein in its entirety by reference. A copy of the Prospectus, a Statement of
Additional Information dated the same date and the Annual Report for the
fiscal year ended November 30, 1994 are available upon request without charge
by writing the ABT Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-553-7838.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the Plan for the proposed Reorganization.
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 ARE NOT DEPOSITS OR OBLIGATIONS OF
FIRST UNION NATIONAL BANK OF NORTH CAROLINA OR ITS SUBSIDIARIES, ARE NOT
ENDORSED OR GUARANTEED BY FIRST UNION OR ITS SUBSIDIARIES, AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARISON OF EXPENSES..................................................... 1
SUMMARY.................................................................... 2
Proposed Reorganization................................................... 2
Tax Consequences.......................................................... 2
Investment Objectives and Policies........................................ 2
Total Return Performances of the Funds.................................... 3
Management; Advisory Fees and Expense Ratios.............................. 3
Distribution; Sales Charges............................................... 3
Purchase and Redemption Procedures........................................ 4
Exchange Privileges....................................................... 5
Dividend Policy........................................................... 5
RISKS...................................................................... 5
MANAGEMENT OF THE FIRST UNION FUND......................................... 6
DESCRIPTION OF THE ACQUISITION AGREEMENT................................... 6
Section 15(f) of the 1940 Act............................................. 7
INFORMATION ABOUT THE REORGANIZATION....................................... 8
Plan of Reorganization.................................................... 8
Capitalization............................................................ 9
BASIS FOR THE BOARD OF TRUSTEES' RECOMMENDATION FOR APPROVAL
OF THE PLAN............................................................... 9
DESCRIPTION OF SHARES OF THE FIRST UNION FUND AND THE ABT FUND............. 10
FEDERAL INCOME TAX CONSEQUENCES............................................ 10
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES........................... 11
Investment Objective...................................................... 12
Primary Investments....................................................... 12
Futures Transactions and Related Options.................................. 13
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS............................ 13
Form of Organization...................................................... 13
Capitalization............................................................ 13
Shareholder Liability..................................................... 13
Shareholder Meetings and Voting Rights.................................... 14
Liquidation or Dissolution................................................ 14
Liability and Indemnification of Trustees ................................ 14
Rights of Inspection...................................................... 14
ADDITIONAL INFORMATION..................................................... 15
ABT Fund.................................................................. 15
First Union Fund.......................................................... 15
OTHER BUSINESS............................................................. 15
VOTING INFORMATION......................................................... 15
Notice to Banks, Broker-Dealers and Voting Trustees and Their Nominees.... 16
FINANCIAL STATEMENTS AND EXPERTS........................................... 17
LEGAL MATTERS.............................................................. 17
</TABLE>
<PAGE>
COMPARISON OF EXPENSES
The following tables show for each Fund and for the First Union Fund,
assuming consummation of the Reorganization, the anticipated shareholder
transaction costs associated with an investment in Class A Shares of the First
Union Fund and the shares of the ABT Fund.
<TABLE>
<CAPTION>
FIRST UNION
FUND ABT FUND PRO FORMA
----------- -------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... 4.75% 4.75% 4.75%
Maximum Sales Load Imposed on Reinvested
Dividends
(as a percentage of offering price).......... None None None
Contingent Deferred Sales Charge.............. None None None
Exchange Fee.................................. None None None
Redemption Fees............................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees............................... .50% .50% .50%
12b-1 Fees.................................... .25%* .05%** .25%*
Other Expenses................................ .18% .39% .18%
----- ----- -----
Total Fund Operating Expenses................. .93% .94% .93%
----- ----- -----
</TABLE>
- --------
* The 12b-1 distribution plan of the First Union Fund permits payments at an
annual rate of up to .75% of the Fund's average daily net assets
attributable to Class A Shares. It is currently intended that annual 12b-1
fees will be limited for the foreseeable future to .25%.
** The 12b-1 distribution plan of the ABT Fund permits payments up to .25% of
the Fund's average daily net assets. Currently, because of a low level of
sales and the related limitation on such payments imposed by applicable
rules of the National Association of Securities Dealers, Inc., the ABT Fund
may pay only .05% of such assets for 12b-1 fees.
The foregoing and following tables show for each Fund and the First Union
Fund, assuming consummation of the Reorganization, the annual operating
expenses (as a percentage of average net assets) attributable to the Class A
Shares of the First Union Fund and the shares of the ABT Fund, together with
examples of the cumulative effect of such expenses on a $1,000 investment in
such shares for the periods specified, assuming (i) a 5% annual return, and
(ii) redemption at the end of such period. In these examples, the expenses of
the Class A Shares of the First Union Fund and the shares of the ABT Fund
assume deduction of the 4.75% sales charge at the time of purchase.
<TABLE>
<CAPTION>
FIRST UNION FUND
CLASS A SHARES ABT FUND SHARES PRO FORMA
---------------- --------------- ---------
<S> <C> <C> <C>
After 1 year......................... $ 57 $ 57 $ 57
After 3 years........................ $ 76 $ 76 $ 76
After 5 years........................ $ 97 $ 97 $ 97
After 10 years....................... $156 $157 $156
</TABLE>
The purpose of the foregoing tables is to assist an ABT Fund shareholder in
understanding the various costs and expenses that an investor in the Class A
Shares of the First Union Fund will bear directly and indirectly, as compared
with the various direct and indirect expenses that would be borne by an ABT
Fund shareholder. The amounts set forth in the foregoing tables and in the
examples are based on the experience of the First Union Fund's Class A Shares
for the fiscal year ended December 31, 1994 and the expenses of shares of the
ABT Fund for the fiscal year ended November 30, 1994. These examples should not
be considered a representation of past or future expenses or annual return.
Actual expenses and annual return may be greater or less than those shown.
1
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT (INCLUDING
THE DOCUMENTS INCORPORATED THEREIN BY REFERENCE), THE PROSPECTUS OF THE FIRST
UNION VALUE PORTFOLIO DATED FEBRUARY 28, 1995, THE PROSPECTUS OF THE ABT GROWTH
AND INCOME TRUST DATED MARCH 30, 1995, AND THE PLAN, A COPY OF WHICH IS
ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS EXHIBIT A.
PROPOSED REORGANIZATION. The Plan provides for the transfer of substantially
all of the assets of the ABT Growth and Income Trust ("the ABT Fund") in
exchange for Class A Shares of the First Union Value Portfolio ("the First
Union Fund"), a portfolio of First Union Funds, and the assumption by the First
Union Fund of certain identified liabilities of the ABT Fund. The Plan also
calls for the distribution of Class A Shares of the First Union Fund to the ABT
Fund shareholders in liquidation of the ABT Fund. (The transaction is referred
to in this Prospectus/Proxy Statement as the "Reorganization.") As a result of
the Reorganization, each shareholder of record of the ABT Fund will become the
record holder of that number of full and fractional Class A Shares of the First
Union Fund having an aggregate net asset value equal to the aggregate net asset
value of the shareholder's shares of the ABT Fund, calculated as set forth in
the Plan, as of the close of business on the date that the ABT Fund's assets
are exchanged for shares of the First Union Fund. See "Information About the
Reorganization."
The Board of Trustees of the ABT Fund, including the Trustees who are not
"interested persons," as that term is defined in the Investment Company Act of
1940, as amended (the "1940 Act"), has concluded that the interests of the
existing shareholders of the ABT Fund will not be diluted as a result of the
transactions contemplated by the Reorganization, and therefore has submitted
the Plan for the approval of the ABT Fund's shareholders.
THE BOARD OF TRUSTEES RECOMMENDS APPROVAL OF THE PLAN EFFECTING THE
REORGANIZATION. THE BOARD OF TRUSTEES OF FIRST UNION FUNDS HAS APPROVED THE
PLAN, AND ACCORDINGLY, THE FIRST UNION FUND'S PARTICIPATION IN THE
REORGANIZATION.
Approval of the Reorganization on the part of the ABT Fund will require the
affirmative vote of more than 50% of the outstanding voting securities. See
"Voting Information."
If the shareholders of the ABT Fund do not vote to approve the
Reorganization, the Board of Trustees will continue to operate the ABT Fund
under its existing arrangements.
TAX CONSEQUENCES. Prior to or at the completion of the Reorganization, the
ABT Fund will have received an opinion of counsel that the Reorganization has
been structured so that no gain or loss will be recognized by the ABT Fund or
its shareholders for federal income tax purposes as a result of the receipt of
shares of the First Union Fund in the Reorganization. The holding period and
aggregate tax basis of shares of the First Union Fund that are received by the
ABT Fund shareholders will be the same as the holding period and aggregate tax
basis of shares of the ABT Fund previously held by such shareholders, provided
that shares of the ABT Fund are held as capital assets. In addition, the
holding period and tax basis of the assets of the ABT Fund in the hands of the
First Union Fund as a result of the Reorganization will be the same as in the
hands of the ABT Fund immediately prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The investment objective of the First
Union Fund is to seek long-term capital growth with current income as a
secondary objective. The First Union Fund's investment objective is a
fundamental policy and cannot be changed without shareholder approval. The
First Union Fund seeks to achieve its investment objective by investing at
least 75% of its assets in equity securities of United
2
<PAGE>
States companies with prospects for growth in earnings and dividends. There can
be no assurance that the First Union Fund's investment objective will be
achieved.
The ABT Fund's investment objective is to achieve both dividend income and
capital appreciation by investing in all classes or types of securities. The
ABT Fund's investment adviser selects dividend-paying common, preferred and
convertible preferred stocks; however, if deemed in the best interest of
shareholders, the investment adviser may invest in non-dividend-paying common
stocks.
TOTAL RETURN PERFORMANCES OF THE FUNDS. The total return for the Class A
Shares of the First Union Fund for the fiscal year ended December 31, 1994 was
- -2.98%. The average annual total return for the five years ended December 31,
1994 was 6.71%. Since commencement of operations in April, 1985, the average
annual total return for the period ended December 31, 1994 was 11.06%. The
total return for the ABT Fund for the twelve months ended December 31, 1994 was
- -8.69%. The average annual total return for the five and ten years ended
December 31, 1994 was 2.90% and 9.78%, respectively. 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.
MANAGEMENT; ADVISORY FEES AND EXPENSE RATIOS. The business affairs of the ABT
Fund are managed by its Board of Trustees and the business affairs of the First
Union Fund are managed by the Board of Trustees of First Union Funds. Palm
Beach Capital Management, Inc. ("PBCM") serves as the investment adviser for
the ABT Fund for an annual fee of .50% on the first $100 million, .45% from
$100 to $200 million, .40% from $200 to $500 million, and .35% above $500
million of average daily net assets. The Capital Management Group of First
Union National Bank of North Carolina ("FUNB") serves as the investment adviser
to the First Union Fund for an annual fee of .50% of average daily net assets.
PBCM also acts as administrator and fund accounting agent for the ABT Fund for
an annual fee of .12% of average daily net assets. Federated Administrative
Services ("FAS") currently provides certain administrative services to the
First Union Fund, such as legal and accounting services. FAS receives from
First Union Funds a fee based on the aggregate daily net assets of First Union
Funds. The First Union Fund, for fiscal year ended December 31, 1994, paid FAS
a fee of .08% of its average daily net assets accounting agent may, in the
discretion of the Trustees of First Union Funds. As of July 1, 1995, Evergreen
Asset Management Corp., an indirect wholly-owned subsidiary of FUNB ("EAMC"),
will act as administrator pursuant to a contract approved by the Trustees of
First Union Funds on April 20, 1995. Under the contract, EAMC will receive the
following fees:
<TABLE>
<CAPTION>
AGGREGATE DAILY NET ASSETS OF FUNDS ADMINISTERED BY
ADMINISTRATIVE EAMC FOR WHICH EITHER EAMC OR FUNB
FEE SERVES AS INVESTMENT ADVISER
--------------- ---------------------------------------------------
<C> <S>
.050% on the first $7 billion
.035% on the next $3 billion
.030% on the next $5 billion
.020% on the next $10 billion
.015% on the next $5 billion
.010% on assets in excess of $30 billion
</TABLE>
The ratio of expenses to average daily net assets was 0.94% for the ABT Fund
(fiscal year ended November 30, 1994) and 0.93% for the First Union Fund
(fiscal year ended December 31, 1994). If the Funds had been consolidated for
the First Union Fund's fiscal year ended December 31, 1994, the pro forma
expense ratio of the First Union Fund would have been .93%.
DISTRIBUTION; SALES CHARGES. Federated Securities Corp. ("FSC"), a subsidiary
of Federated Investors, has acted as underwriter of the First Union Fund's
shares. As of July 1, 1995, Evergreen Funds Distributor, Inc., a wholly-owned
subsidiary of Furman Selz, will be the underwriter of the shares of the First
Union Fund pursuant to a contract approved by the Trustees of First Union Funds
on April 20,1995. The shares are issued in four classes: Class A Investment,
Class B Investment, Class C Investment and Y Shares. Each class has separate
distribution arrangements. No class bears the distribution expenses relating to
shares of
3
<PAGE>
any other class. Class A Shares, which will be received by the ABT Fund's
shareholders if the Reorganization is approved, are sold with an initial sales
charge ranging from 4.75% to .25%. No sales charge will be imposed on the Class
A Shares to be received by the ABT Fund's shareholders as part of the
Reorganization, but subsequent purchases of the First Union Fund's shares will
be subject to any applicable sales charges. For a description of the Class A,
Class B and Class C Shares issued by the First Union Fund see pages 19 and 20
of the First Union Fund's Prospectus. Y Shares are sold without a sales load or
distribution fee only to certain eligible investors as described in a separate
First Union Fund prospectus. The Class A Shares are subject to a Rule 12b-1
plan under which the First Union Fund may pay for distribution-related expenses
relating to the Class A Shares at an annual rate which may not exceed .75% of
aggregate average daily net assets attributable to the Class A Shares. Payments
under the 12b-1 plan with respect to Class A Shares are currently limited under
the First Union Fund's distribution agreement to .25% of average daily net
assets attributable to Class A Shares. The level of Rule 12b-1 distribution
payments may be increased and the distribution agreement may be amended by the
First Union Funds' Board of Trustees without shareholder approval.
ABT Financial Services, Inc. ("ABT Distributor") acts as underwriter of ABT
Fund shares. There is only one class of shares outstanding. The shares are sold
with an initial sales charge ranging from 4.75% to 1%. The ABT Fund has adopted
a Rule 12b-1 plan under which the Fund may reimburse distribution expenses
incurred by ABT Distributor in amounts up to .25% of aggregate average daily
net assets. Currently, ABT Distributor is reimbursed for distribution-related
expenses of .05% of average daily net assets.
The sales charge schedules for the ABT Fund and the First Union Fund are as
follows:
<TABLE>
<CAPTION>
INITIAL SALES CHARGE
FOR THE ABT FUND
-------------------------------
PUBLIC NET
OFFERING AMOUNT DEALER
AMOUNT OF INVESTMENT PRICE INVESTED REALLOWANCE
-------------------- -------- -------- -------------
<S> <C> <C> <C>
Less than $100,000.............................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000................. 4.25 4.44 3.60
$250,000 but less than $500,000................. 3.00 3.09 2.40
$500,000 but less than $1,000,000............... 2.25 2.30 1.85
$1,000,000 but less than $5,000,000............. 1.50 1.52 1.25
$5,000,000 or more.............................. 1.00 1.01 .90
<CAPTION>
INITIAL SALES CHARGE
FOR THE FIRST UNION FUND
-------------------------------
PUBLIC NET
OFFERING AMOUNT COMMISSION TO
AMOUNT OF PURCHASE PRICE INVESTED DEALER/AGENT
------------------ -------- -------- -------------
<S> <C> <C> <C>
less than $100,000.............................. 4.75% 4.99% 4.00%
$100,000-$249,999............................... 3.75 3.90 3.25
$250,000-$499,999............................... 3.00 3.09 2.50
$500,000-$999,999............................... 2.00 2.04 1.75
$1,000,000-$2,499,999........................... 1.00 1.01 1.00
Over $2,500,000................................. .25 .25 .25
</TABLE>
Since the First Union Fund's 12b-1 plan is a "compensation" type plan as
compared with the ABT Fund's plan, which is a "reimbursement" type plan, future
12b-1 fees may permit recovery of unreimbursed expenses by or may result in a
profit to the underwriter of the First Union Fund.
PURCHASE AND REDEMPTION PROCEDURES. The underwriter for the First Union Fund
shares distributes its shares through broker-dealers, banks (including FUNB) or
other financial intermediaries, or directly to investors. When the Class A
Shares are sold, the underwriter will normally pay a portion of the applicable
sales charge to a selling broker-dealer or other financial intermediary and may
also pay fees to banks from sales charges for services performed on behalf of
the bank's customers purchasing the Class A Shares. In
4
<PAGE>
addition, the underwriter may retain a portion of the sales charge paid. In
addition to the compensation at the time of sale, entities whose clients have
purchased Class A Shares may receive a fee equal to .25% of the average daily
net asset value on an annual basis of Class A Shares held by their clients.
This fee is paid by the underwriter from 12b-1 fees received from the First
Union Fund.
ABT Distributor, as agent for the ABT Fund, sells shares through broker-
dealers having sales agreements with ABT Distributor and retains a portion of
the sales charge.
The minimum initial purchase requirement for both the First Union Fund and
the ABT Fund is $1,000. The First Union Fund does not have a minimum for
subsequent purchases. The minimum subsequent purchase requirement for the ABT
Fund is $50.
Each Fund provides for mail or wire redemption of shares at net asset value
next determined after receipt of the redemption request on each day the New
York Stock Exchange is open for business. The First Union Fund also permits
redemptions by telephone (see page 24 of the First Union Fund's Prospectus).
The ABT Fund and the First Union Fund, after prior notice, may involuntarily
redeem shareholders' accounts that have less than $1,000 of invested funds.
EXCHANGE PRIVILEGES. Each Fund permits shareholders to exchange shares of the
First Union Fund or the ABT Fund for shares of other portfolios of the First
Union Funds or other funds in the ABT mutual fund family, respectively. Holders
of shares of a class of the First Union Fund generally may exchange their
shares for shares of the same class of any other portfolios of the First Union
Funds. Accordingly, with respect to shares of the First Union Fund received by
ABT Fund shareholders in the Reorganization, the exchange privilege is limited
to the Class A Shares of other portfolios of First Union Funds. In addition,
exchanges in the First Union Funds family may be limited to five exchanges per
calendar year, with a maximum of three per calendar quarter. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another First Union Fund must amount to at least $1,000.
After July 1, 1995 (or as soon thereafter as is reasonably practicable
subject to applicable laws), it is expected, although it cannot be assured,
that shareholders in each of the portfolios of the First Union Funds and
shareholders in mutual funds managed by Evergreen Asset Management Corp.
("EAMC") will be permitted to exchange their shares for shares of the same
Class (to the extent available) of all portfolios of First Union Funds and all
funds managed by EAMC. Although there is no present intention to do so, an
exchange privilege may be modified or terminated at any time. Currently, ABT
Fund shareholders may exchange their ABT Fund shares for shares of Prime Cash
Series ("PCS"), a money market fund for which Federated Investors, Pittsburgh,
Pennsylvania, is the investment adviser. It is anticipated that this exchange
privilege with PCS will be terminated following the Reorganization. Exchange
privileges, however, will be offered into the money market funds managed by
FUNB or EAMC.
DIVIDEND POLICY. The First Union Fund distributes its investment company
taxable income quarterly. The ABT Fund will distribute its net investment
income and may distribute net realized short-term capital gains quarterly. Each
Fund distributes net long-term capital gains annually. Income dividends and
capital gain distributions are automatically reinvested in additional shares,
unless the shareholder has made a written request for payment in cash.
Shareholders of ABT Fund that have elected, as of June 19, 1995, to receive
dividends and/or distributions in cash will continue to do so after the
Reorganization. After the Reorganization, former ABT Fund shareholders may
change their election with respect to receipt in cash or reinvestment of
dividends or distributions of the First Union Fund.
RISKS
Since the investment objectives and policies of each Fund are substantially
comparable, the risks involved in investing in each Fund's shares are similar.
There is no assurance that investment performances will be positive and that
the Funds will meet their investment objectives. In addition, both Funds may
employ for
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<PAGE>
hedging purposes the strategies of writing covered call and put options and
purchasing put and call options on national securities exchanges. The risks
involved in these strategies are described in the Prospectus of the First Union
Fund on pages 22 and 23.
The First Union Fund also may enter into futures contracts and options on
futures contracts for hedging purposes. However, the First Union Fund does not
currently engage in these investment strategies. See limitations discussed in
"Comparison of Investment Objectives and Policies." For a discussion of the
risks involved in entering into futures contracts and options on futures
contracts, see pages 17-18 of the First Union Fund's Prospectus.
The First Union Fund may invest in foreign securities or securities
denominated or indexed to foreign currencies. These may involve additional
risks. Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in
foreign countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company.
Foreign markets may be less liquid or more volatile than U.S. markets and may
offer less protection to investors. It may also be more difficult to enforce
contractual obligations abroad than would be the case in the United States
because of differences in the legal systems. Foreign securities may be subject
to foreign taxes, which may reduce yield, and be less marketable than
comparable U.S. securities. All these factors are considered by FUNB before
making any of these types of investments.
MANAGEMENT OF THE FIRST UNION FUND
The Capital Management Group of FUNB provides investment advisory services to
the First Union Fund. The address of FUNB is One First Union Center, 301 S.
College Street, Charlotte, North Carolina 28288. FUNB is a subsidiary of First
Union Corporation ("First Union"), one of the ten largest bank holding
companies in the United States.
First Union had $77.3 billion in consolidated assets as of December 31, 1994.
First Union and its subsidiaries provide a broad range of financial services to
individuals and businesses through offices in 42 states and two foreign
countries. FUNB's Capital Management Group employs an experienced staff of
professional investment analysts, portfolio managers, and traders, and uses
several proprietary computer-based systems in conjunction with fundamental
analysis to identify investment opportunities. The Capital Management Group has
been managing trust assets for over 50 years and currently oversees assets of
more than $51.2 billion. In addition, the Capital Management Group has advised
the First Union Funds since its inception in 1984.
William T. Davis, Jr. is a Vice President of FUNB and has been with FUNB
since 1986. Prior to that, Mr. Davis served as a securities analyst for Seibels
Bruce (Insurance) Group. Mr. Davis has served as the portfolio manager of the
First Union Fund since March 1991.
EAMC, together with its predecessors, has served as investment adviser to the
Evergreen family of funds since 1971.
DESCRIPTION OF THE ACQUISITION AGREEMENT
On March 3, 1995, Edward W. Cook ("Cook"), Edward W. Cook Revocable Trust,
dated September 26, 1989 ("Cook Trust"), Cook International, Inc., Palm Beach
Capital Management, Inc., a corporation organized under the laws of the State
of Florida and whose sole shareholder is Cook Trust ("PBCM") entered into an
Asset Purchase Agreement (the "Agreement") with FUNB. The Agreement provides
for the acquisition by FUNB of substantially all of the assets and none of the
liabilities of PBCM, including the right to use the names "American Birthright
Trust" and "ABT." In exchange for the assets being acquired, FUNB has agreed to
pay PBCM the sum of $9,000,000, subject to certain adjustments.
6
<PAGE>
The Agreement also contemplates that the ABT Fund, along with the ABT Utility
Income Fund, Inc., ABT Emerging Growth Fund, ABT Florida Tax-Free Fund and ABT
Florida High Income Municipal Bond Fund will consolidate with certain other
investment companies managed by FUNB. The ABT Fund has entered into an
Agreement and Plan of Reorganization in the form attached hereto as Exhibit A.
A similar Plan of Reorganization has also been entered into by each of the ABT
Utility Income Fund, Inc., ABT Emerging Growth Fund, ABT Florida Tax-Free Fund
and ABT Florida High Income Municipal Bond Fund (collectively, the "Other ABT
Funds").
The consummation of the reorganizations contemplated by the Agreement is
subject to a number of conditions, which include: (i) the receipt of all
necessary regulatory approvals; (ii) the approval by the shareholders of the
ABT Fund, and the Other ABT Funds, of the reorganizations contemplated in the
Agreement; (iii) the accuracy of the representations and warranties contained
in the Agreement; (iv) the absence of pending or threatened litigation relating
to the reorganizations contemplated by the Agreement; and (v) the receipt of
various legal opinions and accountants' letters. The Agreement may be
terminated under certain circumstances, including the failure of the
reorganizations contemplated thereby to close by July 15, 1995.
SECTION 15(F) OF THE 1940 ACT. Section 15(f) of the 1940 Act provides that an
investment adviser to a registered investment company may receive any amount or
benefit in connection with a sale of any interest in such adviser which results
in an assignment of an investment advisory contract if two conditions are
satisfied. One condition is that, for a period of three years after such
assignment, at least 75% of the board of directors of the investment company
cannot be "interested persons" (as defined in the 1940 Act) of the new
investment adviser or its predecessor. The second condition is that no "unfair
burden" be imposed on the investment company as a result of the assignment or
any express or implied terms, conditions or understandings applicable thereto.
In connection with the first condition of Section 15(f), FUNB has agreed in
the Agreement that, for a period of three years after the Closing Date, it will
use its reasonable best efforts, and will cause EAMC to use its reasonable best
efforts, (recognizing that the compositions of Boards of Trustees/Directors
remain within the control of Trustees/Directors and shareholders of the First
Union family of funds and the Evergreen family of funds) so that at least 75%
of the Trustees/Directors of each of the First Union or Evergreen Funds
involved in the consolidations (or any successor thereto by reorganization or
otherwise) are not "interested persons" of FUNB, EAMC or PBCM.
With respect to the second condition of Section 15(f), an "unfair burden" on
an investment company is defined in the 1940 Act to include any arrangement
relating to the transaction during the two-year period after any such
transaction occurs whereby the investment adviser or its predecessor or
successor, or any "interested person" of such adviser, predecessor or
successor, receives or is entitled to receive any compensation of two types,
either directly or indirectly. The first type is compensation from any person
in connection with the purchase or sale of securities or other property to,
from or on behalf of the investment company, other than bona fide ordinary
compensation as principal underwriter for such company. The second type is
compensation from the investment company or its security holders for other than
bona fide investment advisory or other services. In the Agreement, FUNB
represents that there is no express or implied understanding or agreement or
intention to impose an "unfair burden" within the meaning of Section 15(f) on
the ABT Fund or the Other ABT Funds or any of their successors as a result of
the transactions contemplated in the Agreement and from the date of the
Agreement to two years after the consummation of the transactions contemplated
thereby it will not take or recommend any action that would constitute an
"unfair burden" within the meaning of Section 15(f) on the ABT Fund, any Other
ABT Fund, any of the First Union or Evergreen Funds involved in the
consolidations or any successor thereto.
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<PAGE>
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the Plan is qualified in its
entirety by reference to the Plan (Exhibit A hereto). The Plan provides that
the First Union Fund will acquire substantially all of the assets of the ABT
Fund in exchange for Class A Shares of the First Union Fund and the assumption
by the First Union Fund of certain identified liabilities of the ABT Fund on
June 30, 1995 or such later date as may be agreed upon by the parties (the
"Closing Date"). Prior to the Closing Date, the ABT Fund will endeavor to
discharge all of its known liabilities and obligations. The First Union Fund
will not assume any liabilities or obligations of the ABT Fund other than those
liabilities reflected in an unaudited statement of assets and liabilities of
the ABT Fund prepared as of the close of regular trading on the New York Stock
Exchange, Inc. (the "NYSE"), currently 4:00 pm. Eastern Time, on the Closing
Date. The number of full and fractional Class A Shares of the First Union Fund
to be issued to the ABT Fund's shareholders will be determined on the basis of
the relative net asset values per share of the First Union Fund's Class A
Shares and the ABT Fund's shares, computed as of the close of regular trading
on the NYSE on the Closing Date. The net asset value per share of such shares
will be determined by dividing the respective assets, less liabilities, by the
total number of outstanding shares.
State Street Bank & Trust Company, the custodian for the First Union Fund,
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 First Union Fund's Prospectus and Statement of Additional Information,
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, the ABT Fund shall have declared a dividend
or dividends and distribution or distributions which, together with all
previous such dividends and distributions, shall have the effect of
distributing to the ABT Fund's shareholders all of the ABT Fund's investment
company taxable income for the taxable year 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 years ending on or prior to the
Closing Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the ABT Fund will
liquidate and distribute pro rata to shareholders of record as of the close of
business on the Closing Date the full and fractional Class A Shares of the
First Union Fund received by the ABT Fund. Such liquidation and distribution
will be accomplished by the establishment of accounts in the names of the ABT
Fund's shareholders on the share records of the First Union Fund's transfer
agent. Each account will represent the respective pro rata number of full and
fractional Class A Shares of the First Union Fund due to such ABT Fund's
shareholders. After such distribution and the winding up of its affairs, the
ABT Fund will be terminated.
The consummation of the Reorganization is subject to the conditions set forth
in the Plan, including approval by the ABT Fund's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel
including those matters referred to in "Federal Income Tax Consequences."
Notwithstanding approval of the ABT Fund's shareholders, the Plan may be
terminated at any time by the mutual agreement of both parties. In addition,
either party may, at its option, terminate the Plan at or prior to the Closing
Date because (a) 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 (b) a condition to the obligation
of the terminating party cannot be met.
FUNB will bear all the expenses of the First Union Fund in connection with
the Reorganization. Other than the fees and expenses of counsel to the ABT Fund
and counsel to its independent Trustees and expenses for officers and Trustees
ongoing insurance coverage (which will be paid by the ABT Fund), the expenses
of the Reorganization (including the cost of any proxy soliciting agents) will
be borne by PBCM and FUNB. No portion of such expenses shall be paid by the
First Union Fund. See "Voting Information."
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<PAGE>
If the Reorganization is not approved by shareholders of the ABT Fund, its
Board of Trustees will continue to operate the ABT Fund under its existing
arrangements.
CAPITALIZATION. The following table shows the capitalization of the First
Union Fund and the ABT Fund as of March 31, 1995 individually and on a pro
forma combined basis as of that date, giving effect to the proposed acquisition
of the ABT Fund's net assets at fair market value:
<TABLE>
<CAPTION>
CLASS A SHARES
FIRST UNION PRO FORMA FOR
CLASS A SHARES ABT FUND REORGANIZATION*
-------------- ----------- ---------------
<S> <C> <C> <C>
Net Assets........................... $201,720,264 $62,829,255 $264,549,519
Net Asset Value per share............ $ 18.22 $ 10.84 $ 18.22
Shares outstanding................... 11,068,335 5,796,340 14,516,871
</TABLE>
- --------
* The figures in this table include the consolidation related expenses
including the insurance premiums described below in "Basis for the Board of
Trustees' Recommendation for Approval of the Plans."
As of April 25, 1995, (the "Record Date"), there were 5,743,164.80
outstanding shares of beneficial interest of the ABT Fund.
As of the Record Date, the officers and Trustees of the ABT Fund beneficially
owned as a group less than 1% of the outstanding shares of the ABT Fund. To the
best knowledge of the ABT Fund's Trustees, as of the Record Date, no other
shareholder or "group" (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934 the ("Exchange Act")) beneficially owned more than 5% of
the ABT Fund's outstanding shares.
As of April 25, 1995, the number of shares of the First Union Fund
outstanding were: Class A Shares--11,014,507, Class B Shares--6,272,644, Class
C Shares--31,452, and Y Shares--34,262,945.
As of April 25, 1995, the officers and Trustees of the First Union Fund
beneficially owned as a group less than 1% of the outstanding shares of the
First Union Fund. To the best knowledge of the Trustees, as of April 25, 1995,
no other shareholder or "group" (as that term is used in Section 13(d) of the
Exchange Act) beneficially owned more than 5% of the First Union Fund's
outstanding shares other than First Union National Bank of North Carolina,
Charlotte, North Carolina, acting in various capacities for numerous accounts,
was the owner of record of approximately 34,092,923 Y Shares (99.5%).
BASIS FOR THE BOARD OF TRUSTEES'
RECOMMENDATION FOR APPROVAL OF THE PLAN
The independent Trustees/Directors of the Board of Trustees/Directors of the
ABT Fund and the Other ABT Funds requested and reviewed extensive information
from FUNB and EAMC in evaluating the effect of the consolidation on the
shareholders of the ABT Fund and the Other ABT Funds. The information
described: performance of FUNB and EAMC managed funds; the extensive investment
research, including credit analysis, available to FUNB and EAMC managed funds;
the expenses of the FUNB and EAMC managed funds in relation to other mutual
funds and to the ABT Fund and the Other ABT Funds; the possibility of a future
reduction in expenses per share as a result of the consolidation; the extensive
marketing channels available to the FUNB and EAMC managed funds; the quality
and variety of administrative services provided FUNB and EAMC managed funds and
the financial condition of the service providers; and the financial size of
FUNB giving it the capital necessary to develop the initiatives and responses
required as financial markets change.
The Trustees/Directors of the ABT Fund and the Other ABT Funds, including all
of the independent Trustees/Directors, visited the offices of FUNB. During the
visit, personnel from FUNB and EAMC were available to discuss operations of
their respective entities and to answer questions concerning the proposed
9
<PAGE>
consolidation. The independent Trustees/Directors of the ABT Fund and the Other
ABT Funds retained independent counsel to advise such Trustees/Directors with
respect to their fiduciary duties in connection with approval of the proposed
consolidation.
The Trustees/Directors evaluated the consolidation for the ABT Fund, as well
as the Other ABT Funds. The Trustees/Directors considered the advantages to the
ABT Fund's and the Other ABT Funds' shareholders from being associated with a
considerably larger mutual fund complex that offers shareholders more depth in
investment management. The Trustees/Directors also considered the benefits to
the ABT Fund's shareholders of being part of a larger group of mutual funds
with significantly greater net assets and more diverse investment objectives.
In particular, the Trustees/Directors noted that shareholders of the ABT Fund
will, after consummation of the Reorganization, enjoy the same exchange
privileges available currently to shareholders of the other mutual funds
managed by FUNB and EAMC.
In the proposed Reorganization on which you are being asked to approve, the
Trustees/Directors considered the similarity of the ABT and First Union Funds'
expense ratios individually and on a pro forma basis and the investment
performance of the First Union Fund as compared to the ABT Fund over a five
year period.
PBCM has advised the ABT Fund that after the closing, PBCM may pay the
independent Trustees/Directors of the ABT Fund and the Other ABT Funds a fee in
return for which the Trustees/Directors will make themselves available for two
years to consult on former ABT family of funds' matters. PBCM is not obligated
to pay such a fee. If paid, the amount is expected to be at a rate of $10,000
per year/per Trustee/Director.
The independent Trustees/Directors have voted to retain their ability to make
claims under their existing Officers and Directors insurance policy for a
period of three years following the consummation of the Reorganization. As with
the premium for the policy, the premium for the continuation will be paid by
the ABT Fund and the Other ABT Funds and is expected to be approximately
$133,000 ($17,596 of which will be paid by the ABT Fund) for the three years.
THE BOARD OF TRUSTEES OF THE ABT FUND RECOMMENDS THAT SHAREHOLDERS APPROVE
THE PLAN TO CONSOLIDATE THE ABT GROWTH AND INCOME TRUST WITH THE FIRST UNION
VALUE PORTFOLIO.
DESCRIPTION OF SHARES OF THE FIRST UNION FUND AND THE ABT FUND
Full and fractional Class A Shares of beneficial interest of the First Union
Fund will be distributed to the ABT Fund's shareholders in accordance with the
procedures detailed in the Plan. All issued and outstanding shares of the ABT
Fund, including those represented by certificates, if any, will be canceled.
The First Union Fund does not issue share certificates to shareholders.
Instead, the transfer agent for the First Union Fund maintains a share account
for each shareholder of record. The Class A Shares of the First Union Fund to
be issued will have no pre-emptive or conversion rights and are transferable
without restriction. See "Summary--Distribution; Sales Charges."
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 Internal Revenue Code of
1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, the ABT Fund will receive an opinion of counsel to the effect
that, on the basis of the existing provisions of the Code, U.S. Treasury
regulations issued thereunder, current administrative rules, pronouncements and
court decisions, for federal income tax purposes, upon consummation of the
Reorganization:
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<PAGE>
(1) The transfer of substantially all of the assets of the ABT Fund
solely in exchange for Class A Shares of the First Union Fund and the
assumption by the First Union Fund of certain liabilities, followed by the
distribution of the First Union Fund's Class A Shares by the ABT Fund in
dissolution and liquidation of the ABT Fund, will constitute a
"reorganization" within the meaning of section 368(a)(1)(C) of the Code,
and the First Union Fund and the ABT Fund 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 to the ABT Fund on the transfer of
its assets to the First Union Fund (except, possibly, with respect to
certain options, futures and forward contracts included in the assets
("Contracts")), solely in exchange for the First Union Fund's Class A
Shares and the assumption by the First Union Fund of liabilities or upon
the distribution (whether actual or constructive) of the First Union Fund's
Class A Shares to the ABT Fund's shareholders in exchange for their shares
of the ABT Fund;
(3) The tax basis of the assets transferred (with the possible exception
of the Contracts) will be the same to the First Union Fund as the tax basis
of such assets to the ABT Fund immediately prior to the Reorganization, and
the holding period of such assets (with the possible exception of the
Contracts) in the hands of the First Union Fund will include the period
during which the assets were held by the ABT Fund;
(4) No gain or loss will be recognized by the First Union Fund upon the
receipt of the assets from the ABT Fund solely in exchange for the Class A
Shares of the First Union Fund and the assumption by the First Union Fund
of certain liabilities;
(5) No gain or loss will be recognized by the ABT Fund's shareholders
upon the issuance of the Class A Shares of the First Union Fund to them,
provided they receive solely such Class A Shares (including fractional
shares) in exchange for their shares of the ABT Fund; and
(6) The aggregate tax basis of the Class A Shares of the First Union
Fund, including any fractional shares, received by each of the shareholders
of the ABT Fund pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of the ABT Fund held by such shareholder
immediately prior to the Reorganization, and the holding period of the
Class A Shares of the First Union Fund, including fractional shares,
received by each such shareholder will include the period during which the
shares of the ABT Fund exchanged therefor were held by such shareholder
(provided that the shares of the ABT Fund 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, the consequences described above would not be
applicable. Shareholders of the ABT Fund should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the ABT
Fund should also consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
It is not expected that the securities of the combined portfolio will be sold
in significant amounts in order to comply with the policies and investment
practices of the First Union Fund.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion compares the investment objectives, policies and
restrictions of the ABT Fund and the First Union Fund. This discussion is based
upon and qualified in its entirety by the respective investment objectives,
policies and restrictions stated in the Prospectuses and Statements of
Additional Information of both Funds. For a full discussion of the investment
objectives, policies and restrictions of the First Union Fund, refer to the
Prospectus of the First Union Growth and Income Funds under the caption
"Investment Objectives and Policies." The First Union Fund's Prospectus also
offers two additional funds
11
<PAGE>
advised by FUNB. These additional funds' investment objectives, policies and
restrictions are not discussed in this Prospectus/Proxy Statement as these
funds are not involved in the Reorganization, and no offering of shares of such
funds, or other classes of shares of the First Union Fund, are made hereby. For
a full discussion of the investment objectives, policies and restrictions of
the ABT Fund, refer to the Prospectus of the ABT Fund under the caption
"Investment Objective and Policies."
The investment objectives of the First Union Fund and the ABT Fund are
similar. Both Funds seek to achieve growth and income from their investments.
Both invest primarily in equity securities. However, the First Union Fund
places emphasis on those investments that have better prospects for capital
appreciation, with income a secondary consideration. The ABT Fund does not make
such a distinction when selecting its investments.
INVESTMENT OBJECTIVE. The First Union Fund seeks long-term capital growth,
with current income as a secondary objective. The First Union Fund attempts to
meet this objective by investing at least 75% of its assets in equity
securities of United States companies with prospects for growth in earnings and
dividends. The ABT Fund seeks to achieve both dividend income and capital
appreciation. The ABT Fund may invest in all classes and types of securities,
although under ordinary circumstances the ABT Fund will invest in dividend-
paying common, preferred and convertible-preferred stocks. There can be no
assurance that either the First Union Fund or the ABT Fund will meet their
investment objectives.
PRIMARY INVESTMENTS. The First Union Fund primarily invests in:
common and preferred stocks, bonds and convertible preferred stock of U.S.
companies with at least $100 million in equity, listed on the New York or
American Stock Exchanges or traded in over-the-counter markets. FUNB looks
for industries and companies which have potential primarily for capital
growth and secondarily for income;
American Depositary Receipts of foreign companies traded on the New York or
American Stock Exchanges or in the over-the-counter market;
foreign securities (either foreign or U.S. securities traded in foreign
markets). The First Union Fund may also invest in obligations denominated
in foreign currencies. In making these decisions, FUNB will consider such
factors as the condition and growth potential of various economies and
securities markets, currency and taxation considerations and other
pertinent financial, social, national and political factors;
convertible bonds rated at least BBB by Standard & Poor's Ratings Group
("S&P") or at least Baa by Moody's Investors Service, Inc. ("Moody's"), or,
if not rated, determined to be of comparable quality by FUNB;
money market instruments limited to prime commercial paper and insured bank
instruments;
fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock the First Union Fund may acquire rated at
least BBB by S&P or at least Baa by Moody's, or which, if not rated, are
determined to be of comparable quality by FUNB (up to 5% of its net
assets);
zero coupon bonds issued or guaranteed by the U.S. government, its agencies
or instrumentalities (up to 5% of its net assets);
obligations, including certificates of deposit and bankers' acceptances, of
banks or savings and loan associations having at least $1 billion in
deposits and insured by the Bank Insurance Fund or the Savings Association
Insurance Fund, including U.S. branches of foreign banks and foreign
branches of U.S. banks;
prime commercial paper, including master demand notes which are rated A-1
by S&P or Prime 1 by Moody's; and
repurchase agreements collateralized by eligible investments.
Bonds rated BBB by S&P or Baa by Moody's have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to weakened capacity to make principal and interest payments than higher rated
bonds. If any security invested in by the First Union Fund loses its rating or
has
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<PAGE>
its rating reduced after the Fund has purchased it, the Fund is not required to
sell or otherwise dispose of the security, but may consider doing so. For
temporary defensive purposes the First Union Fund may invest in fixed-income
securities and money market instruments.
The First Union Fund may also write covered put and call options and purchase
put and call options on securities. Although there are no restrictions on the
amount of assets which may be invested in such securities, the First Union Fund
does not currently intend to invest more than 5% of its net assets in options
transactions. See pages 16 and 17 of the Prospectus for the First Union Fund.
The ABT Fund invests primarily in dividend-paying common stock, preferred, and
convertible preferred stocks. However, the ABT Fund may invest in all types and
classes of securities without limitation. The ABT Fund may invest in bonds
rated at least BBB by S&P or at least Baa by Moody's, foreign securities (up to
10% of total assets), money market instruments (for temporary defensive
purposes), rights, warrants, put and call options on stock indices, and put
options traded on a national exchange. The ABT Fund may also write exchange
listed call options on securities that it owns.
FUTURES TRANSACTIONS AND RELATED OPTIONS. In addition to the above, the First
Union Fund, unlike the ABT Fund, may sell or purchase currency and other
financial futures contracts and may purchase exchange listed put options on
financial futures contracts for portfolio securities. The First Union Fund is
subject to Commodity Act regulations and limits margin deposits on futures
contracts and premiums paid for related options to 5% of its total assets. The
First Union Fund does not currently engage in these investment strategies,
which are described in detail on pages 16-18 of the First Union Fund's
Prospectus and in its Statement of Additional Information.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION. First Union Funds and the ABT Fund are open-end
management investment companies registered with the SEC under the 1940 Act
which continuously offer to sell shares at their current net asset value plus
any applicable sales loads. Each is organized as a Massachusetts business trust
and is governed by a Declaration of Trust, By-Laws, Board of Trustees, and
applicable Massachusetts law. The First Union Fund is a portfolio of First
Union Funds.
CAPITALIZATION. The beneficial interests in the Funds are represented by
shares with $1.00 par value per share for the ABT Fund and no par value per
share for the First Union Fund. The Declarations of Trust permit the respective
Board of Trustees to issue an unlimited number of shares of beneficial
interest. The Declaration of Trust of the First Union Funds permits the Board
of Trustees, without shareholder approval, to divide its shares into an
unlimited number of series and classes with the rights of such series and
classes to be determined by the Board of Trustees. Currently, the First Union
Fund consists of four classes of shares as described above. See "Summary--
Distribution; Sales Charges." Fractional shares may be issued. Each Fund's
shares have equal voting rights and represent equal proportionate interests in
the assets belonging to each Fund, and are entitled to receive dividends and
other amounts as determined by the First Union Funds' or the ABT Fund's Board
of Trustees, except in the case of the First Union Fund, where there are
different voting and other rights applicable to different classes of shares in
connection with or as a result of the classes' distribution and shareholder
servicing arrangements.
SHAREHOLDER LIABILITY. Under Massachusetts law, shareholders of a business
trust could, under certain circumstances, be held personally liable for the
obligations of the business trust. However, the Declarations of Trust of the
First Union Funds and the ABT Fund disclaim shareholder liability for acts or
obligations of the First Union Funds and the ABT Fund and require that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the First Union Funds and the ABT Fund or their Boards of
Trustees. The Declarations of Trust provide for indemnification out of the
First Union Funds' or the ABT Fund's property for all losses and expenses of
any shareholder held personally liable for the obligations of the First Union
Funds and the ABT Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is considered remote since it is
limited to circumstances in
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which a disclaimer is inoperative and the First Union Funds or the ABT Fund
itself would be unable to meet its respective obligations. A substantial number
of mutual funds in the United States are organized as Massachusetts business
trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS. Neither the First Union Fund nor the
ABT Fund are required to hold annual meetings of shareholders. Trustees of the
First Union Funds may be removed by a two-thirds vote of the number of Trustees
prior to such removal or by two-thirds vote of the shareholders at a special
meeting. First Union Funds is required to call a meeting of shareholders for
the purpose of voting upon the question of removal of a Trustee when requested
in writing to do so by the holders of at least 25% of the First Union Funds'
outstanding shares. The Declaration of Trust of the ABT Fund does not provide
for the removal of a Trustee. In addition, the ABT Fund and First Union Funds
are required to call a meeting of shareholders for the purpose of electing
Trustees if, at any time, less than a majority of the Trustees then holding
office were elected by shareholders. If Trustees of the ABT Fund fail or refuse
to call a meeting as required by the Declaration of Trust for a period of 30
days after a request in writing by shareholders holding an aggregate of at
least 10% of the shares outstanding, then shareholders holding 10% may call and
give notice of a shareholders meeting. The ABT Fund and First Union Funds
currently do not intend to hold regular shareholder meetings. Neither permits
cumulative voting. A majority of shares entitled to vote on a matter
constitutes a quorum for consideration of such matter. In either case, a
majority of the shares present 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). All shares of all classes of
each portfolio in the First Union Funds have equal voting rights, except that
in matters affecting only a particular portfolio or class (for example, a 12b-1
plan of that class) only shares of that portfolio or class are entitled to
vote.
LIQUIDATION OR DISSOLUTION. In the event of the liquidation of a Fund the
shareholders are entitled to receive, when, and as declared by the Trustees,
the excess of the assets belonging to such Fund over the liabilities belonging
to the Fund. In either case, the assets so distributable to shareholders of the
respective Fund will be distributed among the shareholders pro rata based on
the shares of the Fund held by them and recorded on the books of the Fund.
LIABILITY AND INDEMNIFICATION OF TRUSTEES. The Declarations of Trust provide
that no Trustee or officer of either the First Union Funds or the ABT Fund
shall be personally liable to any person for any action or failure to act,
except for his own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his duties. The Declarations of Trust provide that a
Trustee or officer is entitled to indemnification against liabilities and
expenses with respect to claims related to his position with either the First
Union Funds or the ABT Fund, unless such Trustee or officer shall have been
adjudicated to have acted with bad faith, willful misfeasance, or gross
negligence, or in reckless disregard of his duties, or not to have acted in
good faith in the reasonable belief that his action was in the best interest of
either the First Union Funds or the ABT Fund. The Declaration of Trust of First
Union Funds provides that a Trustee or officer is not entitled to
indemnification against liabilities in the event of settlement unless there has
been a determination that such Trustee or officer has not engaged in willful
misfeasance, bad faith, gross negligence, or reckless disregard of his duties.
RIGHTS OF INSPECTION. Shareholders of the respective Funds have the same
right to inspect in Massachusetts the governing documents, records of meetings
of shareholders, shareholder lists, share transfer records, accounts and books
of the Fund as are permitted shareholders of a corporation under the
Massachusetts corporation law. The purpose of inspection must be for interests
of shareholders relevant to the affairs of the Fund.
The foregoing is only a summary of certain characteristics of the operations
of the Declarations of Trust and By-Laws of First Union Funds and the ABT Fund,
and of Massachusetts and federal law. The foregoing is not a complete
description of those documents or laws. Shareholders should refer to the
provisions of the respective Declarations of Trust, By-Laws, and Massachusetts
and federal law directly for more complete information.
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ADDITIONAL INFORMATION
ABT FUND. Information about the ABT Fund is included in its current
Prospectus dated March 30, 1995, and in the Statement of Additional Information
of the same date that has been filed with the SEC, both of which are
incorporated herein by reference. A copy of the Prospectus and the Statement of
Additional Information and the Fund's Annual Report dated November 30, 1994 are
available upon request and without charge by writing to the ABT Fund at the
address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-553-7838.
FIRST UNION FUND. Information concerning the operation and management of the
First Union Fund is incorporated herein by reference from the Prospectus dated
February 28, 1995, a copy of which is enclosed, and Statement of Additional
Information dated February 28, 1995. A copy of such Statement of Additional
Information is available upon request and without charge by writing to the
First Union Fund, at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-326-3241.
The ABT Fund and First Union Funds are each subject to the informational
requirements of the Exchange Act and the 1940 Act, and in accordance therewith
files reports and other information including proxy material, reports 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 Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can also be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
OTHER BUSINESS
The Trustees of the ABT Fund 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.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of the ABT Fund to be used at
the Special Meeting of Shareholders to be held at 10:00 a.m. June 19, 1995, at
340 Royal Palm Way, Palm Beach, Florida 33480 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 on or about May 3, 1995. 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 shares outstanding 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
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. Since shares represented by "broker non-votes" are considered
outstanding shares, a "broker non-vote" has the same effect as a vote against
the Reorganization. A proxy may be revoked at any time at or before the Meeting
by written notice to the Secretary of the ABT Fund, 340 Royal Palm Way, Palm
Beach, Florida 33480. Unless revoked, all valid
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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.
Approval of the Plan will require the affirmative vote of more than 50% of
the outstanding voting securities of the ABT Fund. Each full share outstanding
is entitled to one vote and each fractional share outstanding is entitled to a
proportionate share of one vote.
If the shareholders do not vote to approve the Reorganization, the Board of
Trustees will continue to operate the ABT Fund under existing arrangements.
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 PBCM, its affiliates or officers and Trustees of the
ABT Fund (who will not be paid for their solicitation activities). PBCM has
retained Shareholder Communications Corporation to assist in the proxy
solicitation process. Proxies may be recorded pursuant to telephone or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized.
The ABT Fund will be responsible for the fees and expenses of its counsel and
counsel for the independent Trustees in connection with the Reorganization,
whether or not the Reorganization is consummated. With respect to the costs of
preparing this Prospectus/Proxy Statement and soliciting shareholders of the
ABT Fund, PBCM has agreed to bear such costs and FUNB shall reimburse PBCM 50%
of its costs up to a maximum reimbursement of $85,000.
In the event that sufficient votes to approve the Plan are not received by
June 19, 1995, 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.
A shareholder who objects to the proposed transaction will not be entitled
under either Massachusetts law or the Declaration of Trust of the ABT Fund 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 Class A Shares of the First Union Fund
which they received in the transaction at their then-current net asset value.
Shares of the ABT Fund may be redeemed at any time prior to the consummation of
the Reorganization. ABT Fund shareholders may wish to consult their tax
advisers as to any differing consequences of redeeming ABT Fund shares prior to
the Reorganization or exchanging such shares in the Reorganization.
The ABT Fund 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, if any,
should send their written proposals to the Secretary of the ABT Fund at the
address set forth on the cover of this Prospectus/Proxy Statement such that
they will be received by the ABT Fund in a reasonable period of time prior to
any such meeting.
The votes of the shareholders of the First Union Fund 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 the ABT Fund whether other persons are beneficial
owners of shares for which proxies are being solicited and, if so,
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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 audited financial statements of ABT Fund as of November 30, 1994 and the
financial highlights for the periods indicated therein, have been incorporated
by reference into this Prospectus/Proxy Statement in reliance on the reports of
Coopers & Lybrand L.L.P., independent accountants for the ABT Fund, given on
the authority of the firm as experts in accounting and auditing.
The audited financial statements of the First Union Fund as of December 31,
1994 and the financial highlights for the period indicated therein have been
incorporated by reference into this Prospectus/Proxy Statement in reliance on
the report of KPMG Peat Marwick LLP, independent accountants for the First
Union Fund, given on the authority of the firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the First Union
Fund will be passed upon by Sullivan & Worcester, Washington, D.C.
THE BOARD OF TRUSTEES OF THE ABT FUND, INCLUDING THE "NON-INTERESTED"
TRUSTEES, RECOMMENDS APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
----------------
May 3, 1995
17
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
this 15th day of March, 1995, by and between First Union Funds, a Massachusetts
business trust (the "Trust"), with its principal place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779, with respect to its First
Union Value Portfolio series (the "Acquiring Fund"), and ABT Growth and Income
Trust, a Massachusetts business trust, with its principal place of business at
340 Royal Palm Way, Palm Beach, Florida 33480 (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 (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Selling Fund in exchange solely for shares of beneficial
interest, no par value per share, of the Acquiring Fund (the "Acquiring Fund
Shares") and the assumption by the Acquiring Fund of certain stated liabilities
of the Selling Fund and 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 and the Acquiring Fund either are, or constitute
separate investment series of, open-end, registered investment companies of the
management type and the Selling Fund owns securities which 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
substantially all of the assets of the Selling Fund for Acquiring Fund Shares
and the assumption of certain stated liabilities by the Acquiring Fund on the
terms and conditions hereinafter set forth is in the best interests of the
Acquiring Fund shareholders and that the interests of the existing shareholders
of the Acquiring Fund will not be diluted as a result of the transactions
contemplated herein;
Whereas, the Trustees of the Selling Fund have determined that the Selling
Fund should exchange substantially all of its assets and certain of its
liabilities for Acquiring Fund 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 the Selling Fund's assets as set forth in paragraph 1.2
to the Acquiring Fund, and 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 dividing the value of
the Selling Fund's net assets computed in the manner and as of the time and
date set forth in paragraph 2.1 by the net asset value of one Acquiring Fund
Share computed in the manner and as of the time and date set forth in paragraph
2.2 and (ii) to assume certain liabilities of the
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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 futures interests and dividends or
interest receivable, which 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. The Selling Fund reserves the right to sell any of such securities
but will not, without the prior written approval of the Acquiring Fund, acquire
any additional securities other than securities of the type in which the
Acquiring Fund is permitted to invest. The Acquiring Fund will, within a
reasonable time prior to the Closing Date, furnish the Selling Fund with a
statement of the Acquiring Fund's investment objectives, policies and
restrictions and a list of the securities, if any, on the Selling Fund's list
referred to in the second sentence of this paragraph which do not conform to
the Acquiring Fund's investment objectives, policies, and restrictions. In the
event that the Selling Fund holds any investments which the Acquiring Fund may
not hold, the Selling 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.
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 by Palm Beach Capital Management, Inc., the investment adviser
and administrator 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.
1.4 Liquidation and Distribution. 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 Closing 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 Section 5.
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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 and Deregistration. The Selling Fund shall be terminated as a
Massachusetts business trust and deregistered as an investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
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
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 prospectus 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 of an Acquiring Fund Share 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 prospectus and statement of additional information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Selling Fund's assets
shall be determined by dividing the value of the assets of the Selling Fund
determined using the same valuation procedures referred to in paragraph 2.1 by
the net asset value of an Acquiring Fund Share determined in accordance with
paragraph 2.2.
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 Date shall be June 30, 1995 or such later date
as the parties may agree to in writing. All acts taking place at the Closing
shall be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 5:00
o'clock p.m. at the offices of Evergreen Asset Management Corp., 2500
Westchester Avenue, Purchase, New York 10577, or at such other time and/or
place as the parties may agree.
3.2 Custodian's Certificate. The Bank of New York, 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
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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.
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 Closing 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. Boston Financial Data Services, Inc., as
transfer agent for each of the Selling Fund and the Acquiring Fund shall
deliver at the Closing a certificate of an authorized officer stating that
their 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 a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of the Selling Fund, 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:
(a) The Selling Fund is a Massachusetts business trust duly organized,
validly existing and in good standing under the laws of The Commonwealth of
Massachusetts;
(b) The Selling Fund is a registered 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 1940 Act is in full force and effect;
(c) The current prospectus 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 materially 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 the Selling Fund's Declaration of Trust or
By-Laws or of any 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) which will be terminated with liability to it
prior to the Closing Date;
(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 which 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
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governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(g) The financial statements of the Selling Fund at November 30, 1994
have been audited by Coopers & Lybrand L.L.P., certified public
accountants, and 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 dates, and there are no known
contingent liabilities of the Selling Fund as of such dates not disclosed
therein;
(h) Since November 30, 1994, 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 shall have been paid so
far as due, or provision shall have been made for the payment thereof and
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 of the preceding six fiscal years 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 (except that, under Massachusetts
law, Selling Fund Shareholders could, under certain circumstances be held
personally liable for obligations of 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 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's 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 which 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 referred to 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.
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4.2 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 Massachusetts
business trust duly organized, validly existing and in good standing under
the laws of The Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of a Massachusetts
business trust that is registered as an investment company classified as a
management company of the open-end type 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 materially 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 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 to the Selling Fund and accepted by the
Selling Fund, no material 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 which
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 which materially and adversely affects its
business or its ability to consummate the transactions contemplated herein;
(f) The financial statements of the Acquiring Fund at December 31, 1994,
certified by KPMG Peat Marwick LLP, independent accountants, copies of
which have been furnished to the Selling Fund, fairly and accurately
reflect the financial condition of the Acquiring Fund as of such dates in
accordance with generally accepted accounting principles consistently
applied;
(g) Since December 31, 1994, 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 Acquiring Fund. For the purposes 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 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
and 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;
(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 (except that, under Massachusetts law, shareholders of
the Acquiring Fund could, under certain circumstances, be held personally
liable for obligations of the Acquiring Fund). 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;
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(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 (except
that, under Massachusetts law, shareholders of the Acquiring Fund could,
under certain circumstances, be held personally liable for obligations of
the Acquiring Fund);
(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 which 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;
(n) The Prospectus and Proxy Statement 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; and
(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.
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 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.
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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 which will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be certified by the Selling
Fund's President, its Treasurer and its independent auditors.
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 (the "Prospectus and Proxy Statement") which will
include the Prospectus and Proxy Statement, referred to in paragraph 4.1(o),
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.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
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 a form reasonably
satisfactory to the Selling Fund and dated as of the Closing Date, to such
effect and as to such other matters as the Acquiring Fund shall reasonably
request; and
6.2 The Selling Fund shall have received on the Closing Date an opinion from
Sullivan & Worcester, counsel to the Acquiring Fund, dated as of the Closing
Date, in a form reasonably satisfactory to the Selling Fund, covering the
following points:
That (a) the Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the
power to own all of its properties and assets and to carry on its business
as presently conducted; (b) the Agreement has been duly authorized,
executed and delivered by the Acquiring Fund, and, assuming that the
Prospectus, Registration Statement and Proxy Statement comply with the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
and, assuming due authorization, execution and delivery of the 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; (c) assuming that a
consideration therefor not less than the net asset value therefor 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
Agreement are duly authorized and upon such delivery will be legally issued
and outstanding and fully paid and non-assessable (except that, under
Massachusetts law, shareholders of the Acquiring Fund could, under certain
circumstances, be held personally liable for obligations of the Acquiring
Fund), and no shareholder of the Acquiring Fund has any preemptive rights
in respect thereof; (d) the execution and delivery of the 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
A-8
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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; (e) to the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the Commonwealth of Massachusetts, is required for the
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 such as may be required under state securities laws; (f) 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; (g) 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 as required; (h) the Acquiring Fund is a
separate investment series of a Massachusetts business trust registered as
an investment company under the 1940 Act and to such counsel's best
knowledge, such registration with the Commission as an investment company
under the 1940 Act is in full force and effect; and (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. In addition, 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
(f) 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 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 appropriate to render the opinions expressed.
In this paragraph 6.2, references to 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.
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 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
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Date a certificate executed in its name by Selling Fund's President or Vice
President and its 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; and
7.3 The Acquiring Fund shall have received on the Closing Date an opinion of
Charles Moore, Esq., counsel to the Selling Fund, in a form satisfactory to the
Acquiring Fund covering the following points:
That (a) the Selling Fund is a Massachusetts business trust duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and has the power to own all of its
properties and assets and to carry on its business as presently conducted;
(b) the Agreement has been duly authorized, executed and delivered by the
Selling Fund, and, assuming that the Prospectus, the Registration Statement
and the Prospectus and Proxy Statement comply with the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder and, assuming
due authorization, execution and delivery of the 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; (c) the execution and delivery of the Agreement did not,
and the consummation of the transactions contemplated hereby will not,
result in a violation of Selling Fund'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 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; (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 Commonwealth of Massachusetts is required for the
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 such as may be required under state securities laws; (e) only
insofar as they relate to the Selling 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; (f) such counsel does not know of any
legal or governmental proceedings, only 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; (g)
the Selling Fund is a separate investment series of a Massachusetts
business trust registered as an investment company under the 1940 Act and
to such counsel's best knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect; (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 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;
(i) assuming that a consideration therefor not less than the net asset
value therefor 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 (except that, under Massachusetts law, Selling Fund
Shareholders could, under certain circumstances be held personally liable
for obligations of the Selling Fund). Such counsel shall also state that
they have participated in conferences with officers and other
representatives of the Selling Fund at which the
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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 (e) of their above opinion), on the basis of the
foregoing (relying as to materiality to a large extent upon the opinions of
the Selling Fund's officers and other representatives of the Selling 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 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 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 Acquiring Fund, contained in the Prospectus and
Proxy Statement or Registration Statement, and that such opinion is solely
for the benefit of the Trust and the Acquiring Fund. Such opinion shall
contain such other assumptions and limitations as shall be in the opinion
of Charles Moore, Esq. appropriate to render the opinions expressed
therein.
In this paragraph 7.3, references to Prospectus and Proxy Statement include
and relate only to the text of such Prospectus and Proxy Statement and not to
any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THEACQUIRING 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 The 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
Declaration of Trust 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 and 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
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,
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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
investment company taxable income for all taxable years ending on or prior to
the Closing Date (computed without regard to any deduction for dividends paid)
and all of its net capital gain realized in all taxable years 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, addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for Federal income tax purposes:
(a) The transfer of substantially all of the Selling Fund assets in
exchange for the Acquiring Fund Shares and the assumption by the Acquiring
Fund of certain identified liabilities of the Selling Fund followed by the
distribution of the Acquiring Fund's 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 identified
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 identified 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; (d) no gain or loss will be recognized by 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); and (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 Coopers & Lybrand L.L.P. 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 (i) 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; (ii) in their opinion, the audited financial statements
and the per share data and ratios contained in the section entitled Financial
Highlights and provided in accordance with Item 3 of Form N-1A (the "Per Share
Data") of the Selling Fund included in or incorporated by reference into the
Registration Statement and Prospectus and Proxy Statement and previously
reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder; (iii) 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 which caused them to believe that (A) such
unaudited pro forma financial statements do not comply as to form in all
material respects with the applicable accounting
A-12
<PAGE>
requirements of the 1933 Act and the published rules and regulations
thereunder, or (B) said unaudited pro forma financial statements are not fairly
presented in conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited financial
statements; (iv) 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 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; and (v) 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 which 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 Trust's Declaration of Trust 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 (such procedures having been previously described to Coopers & Lybrand
L.L.P. in writing by the Acquiring Fund).
In addition, the Acquiring Fund shall have received from Coopers & Lybrand
L.L.P. 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) (i) the
data utilized in the calculations of the projected expense ratio appearing in
the Registration Statement and Prospectus and Proxy Statement agree with
underlying accounting records of the Selling Fund or to written estimates by
Selling Fund's management and were found to be mathematically correct; and (ii)
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 dated on the Closing Date, in form and substance
satisfactory to the Selling Fund, to the effect that (i) 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; (ii) in their opinion, the audited financial statements and the per
share data and ratios contained in the section entitled Financial Highlights
and provided in accordance with Item 3 of Form N-1A (the "Per Share Data") of
the Acquiring Fund included in or incorporated by reference into the
Registration Statement and Prospectus and Proxy Statement and previously
reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder; (iii) 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 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 Trust responsible for financial and accounting matters,
nothing came to their attention which caused them to believe that (A) such
unaudited pro forma financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the published rules and regulations thereunder, or (B) said unaudited pro
forma financial statements are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements; and (iv) 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
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.
In addition, the Selling Fund shall have received from KPMG Peat Marwick LLP
a letter addressed to the Selling Fund dated on the Closing Date, in form and
substance satisfactory to the Selling Fund, to the effect that 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
A-13
<PAGE>
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with underlying accounting records of the Acquiring Fund and
the Selling Fund or to written estimates by each Fund's management and were
found to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received from
Coopers & Lybrand L.L.P. a letter addressed to the Acquiring Fund and the
Selling Fund, dated on the Closing Date 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 or substantially 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 IX
BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Selling Fund each represents and warrants to
the other that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 (a) Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Acquiring Fund will
be borne by First Union National Bank of North Carolina ("FUNB"). The Selling
Fund will bear the expense of its own counsel and counsel to its Trustees in
connection with the transactions contemplated by this Agreement. All other
expenses of the transactions contemplated by this Agreement incurred by the
Selling Fund will be borne by Palm Beach Capital Management, Inc., subject to
the undertaking of FUNB to reimburse up to $85,000 of such expenses incurred by
Palm Beach Capital Management, Inc. in connection with this and all other
related transactions between investment companies for which it serves as
investment adviser and investment companies for which FUNB or its affiliates
serve as investment adviser. Such expenses include, without limitation, (i)
expenses incurred in connection with the entering into and the carrying out of
the provisions of this Agreement; (ii) 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; (iii) 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; (iv)
postage; (v) printing; (vi) accounting fees; (vii) legal fees; and (viii)
solicitation cost of the transactions. (b) Consistent with the provisions of
paragraph 1.3, the Selling Fund, prior to the Closing Date, shall pay for or
include in the audited statement of assets and liabilities prepared pursuant to
paragraph 1.3 all of its known and reasonably estimated expenses associated
with the transactions contemplated by this Agreement.
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 the
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 survive the consummation of the transactions contemplated
hereunder.
A-14
<PAGE>
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 or the Selling Fund, the Trust or their respective, Trustees or officers,
to the other party or its, Trustees or officers, but each shall bear the
expenses incurred by it incidental to the preparation and carrying out of this
Agreement as provided in paragraph 9.2.
ARTICLE XII
AMENDMENTS
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
NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, overnight courier or certified mail addressed to
the Acquiring Fund
First Union Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Attention: Peter J. Germaine, Esq.
or to the Selling Fund
ABT Growth and Income Trust
340 Royal Palm Way
Palm Beach, Florida
Attention: Timothy Cox, Esq
A-15
<PAGE>
ARTICLE XIV
HEADINGS; COUNTERPARTS; GOVERNING LAW;ASSIGNMENT; LIMITATION OF LIABILITY
14.1 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.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but 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.
14.5 It is expressly agreed to that the obligations of the Selling Fund and
the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Selling Fund and
the Trust, personally, but bind only the trust property of the Selling Fund and
the Trust, as provided in the Declarations of Trust of the Selling Fund and the
Trust. The execution and delivery of this Agreement have been authorized by the
Trustees of the Selling Fund and the Trust and signed by authorized officers of
the Selling Fund and the Trust on behalf of the Acquiring Fund, 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 Selling Fund and the Acquiring Fund as provided in the
Declarations of Trust of the Selling Fund and the Trust.
In Witness Whereof, the parties have duly executed and sealed this Agreement,
all as of the date first written above.
First Union Fundson behalf of First
Union Value Portfolio
/s/ Edward Gonzales
By: _________________________________
Name: Edward Gonzales
Title:President
(Seal)
ABT Growth & Income Trust
/s/ Edward W. Cook
By: _________________________________
Name: Edward W. Cook
Title:President
(Seal)
A-16
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
Please detach at perforation before mailing.
- --------------------------------------------------------------------------------
THE ABT GROWTH AND INCOME TRUST
SPECIAL MEETING OF SHAREHOLDERS -- JUNE 19, 1995
The undersigned hereby appoints Timothy W. Cox and Steven Eldredge and each of
them, attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of the ABT Growth and Income Trust (the "Fund"),
which the undersigned is entitled to vote at a Meeting of Shareholders of the
Fund to be held at 340 Royal Palm Way, Palm Beach, Florida 33480 on June 19,
1995, at 10:00 a.m., and any adjournments thereof (the "Meeting"). The
undersigned hereby acknowledges receipt of the Notice of Meeting and
Prospectus/Proxy Statement, and hereby instructs said attorneys and proxies to
vote said shares as indicated hereon. In their discretion, the proxies are
authorized to vote upon such other matters as may properly come before the
Meeting. A majority of the proxies present and acting at the Meeting in person
or by substitute (or, if only one shall be so present, then that one) shall have
and may exercise all of the powers and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
PLEASE SIGN, DATE AND RETURN
----------------------------
PROMPTLY IN THE ENCLOSED
------------------------
ENVELOPE. THIS PROXY IS SOLICITED
---------------------------------
ON BEHALF OF THE BOARD OF
-------------------------
TRUSTEES.
---------
Please sign exactly as your name
appears on this Proxy. If joint
owners, EITHER may sign this
Proxy. When signing as attorney,
executor, administrator, trustee,
guardian, or corporate officer,
please give your full title.
Date:____________________, 1995
_________________________
_________________________
Signature(s)
_________________________
Title(s), if applicable
E
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
In order to hold the Meeting, a quorum of a Fund's shares must be present in
person or by proxy. You can help reduce the cost of additional mailings by
promptly returning your signed proxy. No matter how many shares you own, your
vote counts!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing.
- --------------------------------------------------------------------------------
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THIS PROXY
WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE TAKEN ON
THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS PROXY
WILL BE VOTED IN FAVOR OF THE PROPOSALS.
1. To approve the proposed Agreement and FOR AGAINST ABSTAIN
Plan of Reorganization with the First [_] [_] [_]
Union Value Portfolio.
2. To consider and vote upon such other FOR AGAINST ABSTAIN
matters as may properly come before said [_] [_] [_]
meeting or any adjournment thereof.
These items are discussed in greater detail in the attached Prospectus/Proxy
Statement. The Board of Trustees of the Fund has fixed the close of business
on April 25, 1995, as the record date for the determination of shareholders
entitled to notice of and to vote at the meeting.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED
TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. INSTRUCTIONS FOR THE
PROPER EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
Timothy W. Cox
Secretary
May 3, 1995
In their discretion, the Proxies, and each of them, are authorized to vote
upon any other business that may properly come before the meeting, or any
adjournment(s) thereof, including any adjournment(s) necessary to obtain the
requisite quorums and for approvals.
E
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 3, 1995
Acquisition of the Assets of
ABT GROWTH AND INCOME TRUST
340 Royal Palm Way
Palm Beach, Florida 33480
1-800-553-7838
By and in Exchange for Shares of
FIRST UNION VALUE PORTFOLIO
of
First Union Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3775
1-800-326-3241
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets of the ABT Growth and Income Trust in exchange
for Class A Investment Shares of the First Union Value Portfolio, a portfolio of
First Union Funds, and the assumption by First Union Value Portfolio of certain
identified liabilities of the ABT Growth and Income Trust, is not a prospectus.
A Prospectus/Proxy Statement dated May 3, 1995 relating to the above-referenced
matter may be obtained from First Union Funds, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-37795. This Statement of Additional Information
relates to and should be read in conjunction with such Prospectus/Proxy
Statement.
This Statement of Additional Information incorporates by reference the
following documents, a copy of each of which accompanies this Statement of
Additional Information:
1. The Prospectus of the First Union Value Portfolio dated February 28,
1995. (Incorporated by reference to Post-Effective Amendment No. 39
to the First Union Funds' Registration Statement [File No. 2-94560]
filed with the Securities and Exchange Commission on February 28,
1995).
2. The Statement of Additional Information of the First Union Value
Portfolio dated February 28, 1995.
<PAGE>
(Incorporated by reference to Post-Effective Amendment No. 39 to the
First Union Funds' Registration Statement [File No. 2-94560] filed
with the Securities and Exchange Commission on February 28, 1995).
3. The Annual Report of the First Union Value Portfolio dated December
31, 1994.
4. The Prospectus of the ABT Growth and Income Trust dated March 30,
1995. (Incorporated by reference to Post-Effective Amendment No. 54
to the ABT Growth and Income Trust's Registration Statement [File No.
2-26236] filed with the Securities and Exchange Commission on March
28, 1995).
5. The Statement of Additional Information of the ABT Growth and Income
Trust dated March 30, 1995. (Incorporated by reference to Post-
Effective Amendment No. 54 to the ABT Growth and Income Trust's
Registration Statement [File No. 2-26236] filed with the Securities
and Exchange Commission on March 28, 1995).
6. The Annual Report of the ABT Growth and Income Trust dated November
30, 1994.
The following pro forma financial information relates to the ABT Growth and
Income Trust and the First Union Value Portfolio:
-2-
<PAGE>
Pro Forma Combining Portfolios of Investments of
First Union Value Portfolio and ABT Growth And Income Trust
December 31, 1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT Growth First Union ABT Growth
Value and Income Pro Forma Value and Income Pro Forma
Portfolio Trust Combined Portfolio Trust Combined
- ------------------------------------------------------------------------------------------------------------------
Shares Common Stocks Market Value
- ----------------------------------- ---------------------------------------- -------------------------------------
<C> <C> <C> <S> <C> <C> <C>
280,000 280,000 Air Products & Chemicals, Inc. $ 13,596,500 $ 13,596,500
65,000 65,000 American Barrick Resources Corp. $ 1,446,250 1,446,250
750,000 750,000 American Brands, Inc. 28,125,000 28,125,000
980,000 980,000 American General Corp. 27,685,000 27,685,000
20,000 20,000 American International Group, Inc. 1,960,000 1,960,000
990,000 990,000 American Stores Co. 26,606,250 26,606,250
510,000 510,000 Anheuser Busch Cos., Inc. 25,946,250 25,946,250
235,000 15,000 250,000 Atlantic Richfield Co. 23,911,250 1,526,250 25,437,500
36,000 36,000 Automatic Data Processing, Inc. 2,106,000 2,106,000
50,000 50,000 Avery Dennison Corp. 1,775,000 1,775,000
25,000 25,000 Avon Products Inc. 1,493,750 1,493,750
150,000 150,000 Ball Corp. 4,725,000 4,725,000
600,000 600,000 Black & Decker Corp. 14,250,000 14,250,000
575,000 575,000 Boatmen's Bancshares, Inc. 15,596,875 15,596,875
285,000 30,000 315,000 Boeing Co. 13,323,750 1,402,500 14,726,250
215,000 215,000 Bristol Myers Squibb Co. 12,443,125 12,443,125
505,000 505,000 Central Fidelity Banks, Inc. 12,246,250 12,246,250
585,000 585,000 Chevron Corp. 26,105,625 26,105,625
25,000 25,000 Chesapeake Corp. 825,000 825,000
40,000 40,000 Chemed Corp. 1,335,000 1,335,000
10,000 10,000 Comerica Inc. 243,750 243,750
45,000 45,000 Corning, Inc. 1,344,375 1,344,375
20,000 20,000 Cyprus Amax Minerals 522,500 522,500
203,150 203,150 CPC International, Inc. 10,817,737 10,817,737
480,000 480,000 Dillard Department Stores, Inc. 12,840,000 12,840,000
65,000 65,000 Dresser Industries, Inc. 1,226,875 1,226,875
13,000 13,000 Dun & Bradstreet Corp. 715,000 715,000
35,000 35,000 Eastman Kodak Co. 1,671,250 1,671,250
860,000 860,000 EG & G, Inc. 12,147,500 12,147,500
410,000 410,000 Exxon Corp. 24,907,500 24,907,500
70,000 70,000 EMC Corp. 1,513,750 1,513,750
38,000 38,000 Emerson Electric Co. 2,375,000 2,375,000
65,000 65,000 Equifax, Inc. 1,714,375 1,714,375
310,000 310,000 First Tennessee National Corp. 12,632,500 12,632,500
210,000 210,000 FMC Corp. 12,127,500 12,127,500
450,000 450,000 Ford Motor Co. 12,600,000 12,600,000
255,000 28,000 283,000 General Electric Co. 13,005,000 1,428,000 14,433,000
1,015,000 1,015,000 General Public Utilities Corp. 26,643,750 26,643,750
825,000 825,000 GTE Corp. 25,059,375 25,059,375
320,000 320,000 Harris Corp. 13,600,000 13,600,000
80,000 80,000 Hanson PLC 1,440,000 1,440,000
40,000 40,000 International Business Machines Corp. 2,940,000 2,940,000
24,000 24,000 John Alden Financial Corp. 690,000 690,000
30,000 30,000 Kennametal Inc. 735,000 735,000
50,000 50,000 KeyCorp 1,250,000 1,250,000
40,000 40,000 Mallinckrodt Group, Inc. 1,195,000 1,195,000
270,000 270,000 ITT Corp. 23,928,750 23,928,750
830,000 830,000 Melville Corp. 25,626,250 25,626,250
</TABLE>
<PAGE>
Pro Forma Combining Portfolios of Investments of
First Union Value Portfolio and ABT Growth And Income Trust
December 31, 1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT Growth First Union ABT Growth
Value and Income Pro Forma Value and Income Pro Forma
Portfolio Trust Combined Portfolio Trust Combined
- ------------------------------------------------------------------------------------------------------------------
Shares Common Stocks Market Value
- ----------------------------------- ---------------------------------------- -------------------------------------
<C> <C> <C> <S> <C> <C> <C>
375,100 375,100 National City Corp. 9,705,713 9,705,713
80,000 80,000 National Medical Enterprises, Inc. 1,130,000 1,130,000
1,120,000 1,120,000 NICOR, Inc. 25,480,000 25,480,000
415,000 415,000 Norfolk Southern Corp. 25,159,375 25,159,375
40,000 40,000 Omnicon Group Inc. 2,070,000 2,070,000
75,000 75,000 Owens & Minor, Inc. 1,068,750 1,068,750
44,000 44,000 J.C. Penney Co., Inc. 1,963,500 1,963,500
420,000 47,000 467,000 Philip Morris Cos., Inc. $24,150,000 $2,702,500 $26,852,500
790,000 790,000 Pitney Bowes, Inc. 25,082,500 25,082,500
820,000 820,000 Providian Corp. 25,317,500 25,317,500
400,000 400,000 Raytheon Co. 25,550,000 25,550,000
355,000 355,000 Schering-Plough Corp. 26,270,000 26,270,000
225,000 25,000 250,000 Sears, Roebuck & Co. 10,350,000 1,150,000 11,500,000
630,000 630,000 Southern Co. 12,600,000 12,600,000
90,900 90,900 Sunbeam-Oster Co., Inc. 2,340,675 2,340,675
15,000 15,000 St. John Knits, Inc. 429,375 429,375
160,000 160,000 Temple Inland, Inc. 7,220,000 7,220,000
30,000 30,000 Telefonos de Mexico ADR 1,230,000 1,230,000
410,000 410,000 Texaco, Inc. 24,548,750 24,548,750
520,000 520,000 Textron, Inc. 26,195,000 26,195,000
555,000 555,000 Union Pacific Corp. 25,321,875 25,321,875
80,000 80,000 Union Carbide Corp. 2,350,000 2,350,000
48,000 48,000 Unocal Corp. 1,308,000 1,308,000
40,000 40,000 Wellman Inc. 1,130,000 1,130,000
90,000 90,000 Wendy's International, Inc. 1,293,750 1,293,750
160,000 160,000 Warner Lambert Co. 12,320,000 12,320,000
20,000 20,000 Xerox Corp. 1,980,000 1,980,000
-------------------------------------
1,663,900 777,747,450 55,041,175 832,788,625
-------------------------------------
Convertible Preferred Stocks
----------------------------------------
45,000 45,000 AK Steel Holding Corp. 1,406,250 1,406,250
60,000 60,000 Glendale Federal Bank FSB, Series E,
8.75% 1,672,500 1,672,500
20,000 20,000 Reynolds Metals Co. Series D, 7.00% 967,500 967,500
-------------------------------------
-- 4,046,250 4,046,250
-------------------------------------
Principal Amount U.S. Treasury Securities
- ----------------------------------- ---------------------------------------- -------------------------------------
$10,000,000 $10,000,000 U. S. Treasury Notes, 6.50%, 11/30/96 9,796,860 9,796,860
-------------------------------------
Repurchase Agreements
----------------------------------------
20,090,000 20,090,000 Donaldson, Lufkin & Jenrette Securities
Corp., 5.875%, dated 12/30/94, due
1/3/95 (at amortized cost)* 20,090,000 20,090,000
$2,085,245 2,085,245 Prudential - Bache Securities Inc.,
(dated 12/30/94), 5.75%, due 1/3/95,
Collateral -- $1,195,369 U. S.
Treasury Bond, 14.25%, 2/15/02,
market value: $1,677,074; and $454,089
U. S. Treasury Notes, 6.875%, 7/31/99,
market value $50,085; Repurchase
</TABLE>
<PAGE>
Pro Forma Combining Portfolios of Investments of
First Union Value Portfolio and ABT Growth And Income Trust
December 31, 1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT Growth First Union ABT Growth
Value and Income Pro Forma Value and Income Pro Forma
Portfolio Trust Combined Portfolio Trust Combined
- ------------------------------------------------------------------------------------------------------------------
Shares Repurchase Agreements Market Value
- ----------------------------------- ---------------------------------------- -------------------------------------
<C> <C> <C> <S> <C> <C> <C>
proceeds $2,086,577 (cost $2,085,245) 2,085,245 2,085,245
-------------------------------------
20,090,000 2,085,245 22,175,245
-------------------------------------
Total Investments $807,634,310 $61,172,670 $868,806,980
=====================================
</TABLE>
*The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
See notes to pro forma financial Statements
<PAGE>
Pro Forma Combining Statement of Assets and Liabilities of
First Union Value Portfolio and ABT Growth and Income Trust
December 31, 1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT Growth
Value and Income Pro Forma
Portfolio Trust Combined
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Investments in securities at value
(cost $803,426,930; $55,905,980; and
$859,332,910, respectively) $807,634,310 $61,172,670 $868,806,980
Cash 743 297,497 298,240
Receivables:
Investment securities sold - 2,846,424 2,846,424
Fund shares sold 1,483,414 45,541 1,528,955
Dividends and Interest 2,751,133 229,815 2,980,948
Prepaid expenses - 14,836 14,836
------------ ----------- ------------
Total assets 811,869,600 64,606,783 876,476,383
------------ ----------- ------------
LIABILITIES
Payables:
Investment securities purchased 3,938,539 3,034,658 6,973,197
Fund shares redeemed 7,052,362 84,330 7,136,692
Accrued expenses 261,926 101,785 363,711
------------ ----------- ------------
Total liabilities 11,252,827 3,220,773 14,473,600
------------ ----------- ------------
Total net assets $800,616,773 $61,386,010 $862,002,783
============ =========== ============
Total net assets by class of shares
Class A $188,807,184 $61,386,010 $250,193,194
Class B 104,298,562 104,298,562
Class C 485,037 485,037
Y shares 507,025,990 507,025,990
Shares outstanding
Class A
Pre-merger 11,360,202 5,965,298 N/A
Post-merger 11,360,202 3,693,502 15,053,704
Class B 6,274,003 6,274,003
Class C 29,207 29,207
Y shares 30,516,178 30,516,178
Net asset value (total net assets / shares outstanding)
Class A
Pre-merger $16.62 $10.29 N/A
Post-merger $16.62 $16.62 $16.62
Class B $16.62 $16.62
Class C $16.61 $16.61
Y Shares $16.61 $16.61
</TABLE>
See notes to pro forma financial statements
<PAGE>
Pro Forma Combining Statement of Operations of
First Union Value Portfolio and ABT Growth and Income Trust
For the year ended December 31, 1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT Growth
Value and Income Pro Forma Pro Forma
Portfolio Trust Adjustments Combined
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividend $27,496,851 $1,748,248 $ $29,245,099
Interest 2,443,286 172,970 2,616,256
----------- ---------- ----------- -----------
Total Income 29,940,137 1,921,218 31,861,355
----------- ---------- ----------- -----------
Expenses:
Investment advisory fee 3,850,673 335,709 4,186,382
Trustees' fees 9,831 41,000 (40,500)(1) 10,331
Administrative personnel and services fees 649,487 45,747 10,876 (2) 706,110
Custodian and portfolio accounting fees 189,647 43,126 (33,800)(3) 198,973
Transfer and dividend disbursing agent fees and expenses 337,207 73,223 (26,790)(4) 383,640
Distribution services fee - Class A Investment Shares 473,347 23,573 496,920
Distribution services fee - Class B Investment Shares 621,330 621,330
Distribution services fee - Class C Investment Shares 716 716
Shareholder services fee - Class B Investment Shares 83,225 83,225
Shareholder services fee - Class C Investment Shares 239 239
Fund share registration costs 106,255 17,175 123,430
Auditing fees 12,406 17,754 (17,754)(1) 12,406
Legal fees 12,124 7,644 (6,994)(1) 12,774
Printing and postage 15,525 15,002 (13,500)(1) 17,027
Insurance premiums 16,923 10,304 (9,604)(1) 17,623
Miscellaneous 5,310 5,731 11,041
----------- ---------- ----------- -----------
Total expenses 6,384,245 635,988 (138,066) 6,882,167
----------- ---------- ----------- -----------
Net investment income 23,555,892 1,285,230 138,066 24,979,188
----------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments (identified cost
basis) 37,989,054 891,874 38,880,928
Net change in unrealized appreciation (depreciation)
on investments (46,787,958) (5,004,895) (51,792,853)
----------- ---------- ----------- -----------
Net realized and unrealized gain (loss) on
investments (8,798,904) (4,113,021) (12,911,925)
----------- ---------- ----------- -----------
Change in net assets resulting from operations $14,756,988 ($2,827,791) $ 138,066 $12,067,263
=========== ========== =========== ===========
</TABLE>
(1) Adjustment reflects expected savings when the two funds combine.
(2) Reflects an increase in administrative personnel and services fees based
on the surviving Fund's fee schedule.
(3) Based on First Union Value Portfolio custodian and portfolio accounting
contract
(4) Based on First Union Value Portfolio transfer agent and dividend
disbursing contract.
See notes to pro forma financial statements
<PAGE>
Notes to Pro Forma Financial Statements of
First Union Value Portfolio and ABT Growth and Income Trust
December 31, 1994
(unaudited)
1. Basis of Combination
The Pro Forma Combining Portfolio of Investments and Pro Forma Combining
Statement of Assets and Liabilities reflect the accounts of First Union Value
Portfolio (First Union) and ABT Growth and Income Trust (ABT) at December 31,
1994. The Pro Forma Combining Statement of Operations reflects the accounts of
First Union and ABT for the year ended December 31, 1994. These statements have
been derived from the annual report of First Union, dated December 31, 1994, and
from ABT's books and records utilized in calculating daily net asset value at
December 31, 1994.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of ABT in exchange for Class A investment shares of First
Union under generally accepted accounting principles. The historical cost of
investment securities will be carried forward to the surviving entity and the
results of operations of First Union for pre-combination periods will not be
restated. The pro forma statements do not reflect the expenses of either fund
in carrying out its obligations under the Agreement and Plan of Reorganization.
First Union National Bank of North Carolina (FUNB) will bear all the expenses of
the First Union in connection with the Reorganization. Other than the fees and
expenses of counsel to ABT and expenses for Officers and Trustees ongoing
insurance coverage (which will be paid by ABT), the expenses of the
Reorganization (including the cost of any proxy soliciting agents) will be borne
by Palm Beach Capital Management Corp. and FUNB. No portion of such expenses
shall be paid by First Union. The actual fiscal year of the combined fund will
be December 31, the fiscal year end of First Union.
The investment advisor of First Union will be retained as the investment
advisor of the combined fund. The expense structures of First Union will apply
to the combined fund subsequent to the merger. Following the merger ABT will be
terminated under state law and deregistered as an investment company under the
Investment Company Act of 1940. First Union will be the surviving entity.
The Pro Forma Combining Portfolio of Investments, the Pro Forma Combining
Statement of Assets and Liabilities and the Pro Forma Combining Statement of
Operations should be read in conjunction with the historical financial
statements of the funds included or incorporated by reference in the Statement
of Additional Information.
2. Shares of Beneficial Interest
The pro forma net asset value per share assumes the issuance of additional
shares of First Union Class A investment shares, which would have been issued at
December 31, 1994, in connection with the proposed reorganization.
3. Pro Forma Operations
The Pro Forma Statement of Operations assumes similar rates of gross
investment income for the investments of each Fund. Accordingly, the combined
gross investment income is equal to the sum of each
<PAGE>
Fund's gross investment income. Certain expenses have been adjusted to reflect
the expected expenses of the combined fund. Pro forma operating expenses include
the actual expenses of the Funds and the combined fund adjusted for certain
items.
4. Officers and Directors Insurance
The independent Trustees/Directors have voted to retain their ability to
make claims under their existing Officers and Directors insurance policy for a
period of three years following the consummation of the Reorganization. As with
the premium for the policy, the premium for the continuation will be paid by ABT
and the other ABT Funds prior to the consummation of the transaction and is
expected to be approximately $133,000 ($17,596 of which will be paid by ABT) for
the three years.
