1933 Act Registration No. 33-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
EVERGREEN INVESTMENT TRUST
(formerly First Union Funds)
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (914) 694-2020
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
-------------------------------------------
(Address of Principal Executive Offices)
Joseph J. McBrien, Esq.
c/o Evergreen Asset Management Corp.
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
Copies of All Correspondence to:
John A. Dudley, Esq.
SULLIVAN & WORCESTER
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940 (File No. 2-94560); accordingly, no fee is payable herewith.
Registrant is filing as an exhibit to this Registration Statement a copy of an
earlier declaration under Rule 24f-2. Pursuant to Rule 429, this Registration
Statement relates to the aforementioned registration on Form N-1A. A Rule 24f-2
Notice for the Registrant's most recent fiscal year ended December 31, 1994 was
filed with the Commission on or about February 15, 1995.
It is proposed that this filing will become effective on September 25, 1995
pursuant to Rule 488 of the Securities Act of 1933.
<PAGE>
EVERGREEN INVESTMENT TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Registration Statement Cross Reference Sheet; Cover Page
and Outside Front Cover Page
of Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Fee Table, Synopsis and Risk Factors Cover Page; Summary; Risks
4. Information About the Transaction Summary; Reasons for the
Reorganization; Description of the
Merger; Information about the
Reorganization; Distribution of
Shares; Federal Income Tax
Consequences; Comparative
Information on Shareholders' Rights
5. Information about the Registrant Cover Page; Summary; Comparison of
Investment Objectives and Policies;
Distribution of Shares;
Federal Income Tax Consequences;
Comparative Information on
Shareholders' Rights; Additional
Information
6. Information about the Company Cover Page; Summary; Comparison of
Being Acquired Investment Objective and Policies;
Distribution of Shares;
Federal Income Tax Consequences;
Comparative Information on
Shareholders' Rights; Additional
Information
7. Voting Information Cover Page; Summary; Information
about the Reorganization; Voting
Information Concerning the Meeting
8. Interest of Certain Persons Financial Statements and Experts;
and Experts Legal Matters
9. Additional Information Required for Inapplicable
Reoffering by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information About the Statement of Additional Information
Registrant of the Evergreen Investment Trust -
-2-
<PAGE>
Evergreen International Equity Fund
dated July 7, 1995
13. Additional Information about Statement of Additional Information
the Company Being Acquired of FFB Funds Trust - FFB Diversified
International Growth Fund dated
March 1, 1995
14. Financial Statements Incorporated by reference; Pro Forma
Financial Statements
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to Part A
Caption - "Comparative Information
on Shareholders' Rights - Liability
and Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
-3-
<PAGE>
FFB FUNDS TRUST
FFB DIVERSIFIED INTERNATIONAL GROWTH FUND
237 PARK AVENUE
NEW YORK, NEW YORK 10017
September 28, 1995
Dear Shareholders:
On June 18, 1995, First Fidelity Bancorporation agreed to merge (the
"Merger") with and into a wholly-owned subsidiary of First Union Corporation.
First Fidelity Bancorporation is the parent of First Fidelity Bank, N.A. ("First
Fidelity"), the investment adviser to a group of mutual funds with assets of
$2.55 billion as of June 30, 1995. Your Fund, the FFB Diversified International
Growth Fund ("FFB Fund"), is a fund included within the First Fidelity family of
mutual funds.
First Union National Bank of North Carolina ("FUNB") is a subsidiary of
First Union Corporation. The Capital Management Group ("CMG") of FUNB and
Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly-owned subsidiary
of FUNB, manage or otherwise oversee the investment of over $29.1 billion in
assets belonging to a wide-range of clients, including the Evergreen family of
mutual funds with assets of $8.7 billion as of June 30, 1995.
To facilitate the investment management of assets and the delivery of
shareholder services to the First Fidelity and Evergreen family of mutual funds,
the Trustees of your Fund are proposing to combine certain of the investment
companies in the First Fidelity family of mutual funds with investment companies
in the Evergreen family of mutual funds which have similar investment objectives
and policies.
The proposal contained in the accompanying Prospectus/Proxy Statement
provides following the Merger for a combination of your Fund with the Evergreen
International Equity Fund (the "Evergreen Fund"), a mutual fund advised by CMG.
Your Fund and the Evergreen Fund have substantially similar investment
objectives and policies. Under the proposed Agreement and Plan of Reorganization
(the "Plan"), the Evergreen Fund will acquire substantially all the assets of
your Fund in exchange for shares of the Evergreen Fund (the "Reorganization").
As of June 30, 1995, the FFB Diversified International Growth Fund had net
assets of approximately $26.1 million and the Evergreen Fund had approximately
$43.7 million of net assets. If the Reorganization had taken place as of June
30, 1995, the Evergreen Fund's net assets would have been approximately $69.7
million. I believe that the combination will achieve the goal of efficient
investment management and delivery of shareholder services.
Since the Merger will take place prior to the closing date for the
Reorganization and because the Merger by law terminates the investment advisory
contract between First Fidelity and your Fund and the sub-advisory agreement
between First Fidelity and Blairlogie Capital Management Ltd. ("Blairlogie"),
the Trustees of FFB Funds Trust are also seeking your
<PAGE>
approval of an Interim Investment Advisory Agreement with CMG and an Interim
Sub-Advisory Agreement between CMG and Blairlogie. The Interim Investment
Advisory Agreement and the Interim Sub-Advisory Agreement will have the same
terms and fees as the current investment advisory agreement between your Fund
and First Fidelity and the current sub-advisory agreement between First Fidelity
and Blairlogie and will be in effect for the period of time between the
effective date of the Merger and the closing date for the Reorganization. The
Reorganization is scheduled to take place on or about January 19, 1996.
If shareholders of the FFB Fund approve the Plan, upon consummation of the
transaction contemplated in the Plan, shareholders will receive Class Y shares
of the Evergreen Fund. Class Y shares are not charged any distribution-related
and shareholder servicing-related expenses. The proposed transaction will not
result in any federal income tax liability for you or for the FFB Fund. As a
shareholder of the Evergreen Fund you will have the ability to exchange your
shares for shares of the other funds in the Evergreen family of mutual funds
comparable to your present right to exchange among funds of the First Fidelity
family of mutual funds. Following completion of the Reorganization, your Fund
will be liquidated.
The Trustees of FFB Funds Trust have called a special meeting of
shareholders of the FFB Fund to be held on November 13, 1995 to consider the
proposed transaction. I STRONGLY INVITE YOUR PARTICIPATION BY ASKING YOU TO
REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Detailed information about the proposed transaction is described in the
enclosed Prospectus/Proxy Statement. I thank you for your participation as a
shareholder and urge you to please 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.
A copy of the Evergreen Fund Prospectus accompanies the Prospectus/Proxy
Statement. I urge you to read the Prospectus and retain it for future reference.
If you have any questions regarding the proposed transaction or if you
would like additional information about the Evergreen family of mutual funds,
please telephone 1-800-437-8790.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
-------------------------
Edmund A. Hajim, President
FFB Funds Trust
-2-
<PAGE>
[SUBJECT TO COMPLETION, AUGUST 25, 1995 PRELIMINARY COPY]
FFB FUNDS TRUST
FFB DIVERSIFIED INTERNATIONAL GROWTH FUND
237 PARK AVENUE
NEW YORK, NEW YORK 10017
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 13, 1995
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of the FFB Diversified International Growth Fund (the "FFB Fund"),
a series of FFB Funds Trust, will be held at the offices of FFB Funds Trust, 237
Park Avenue, New York, New York 10017 on November 13, 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 _______________, 1995, providing for the acquisition of
substantially all of the assets of the FFB Fund by the Evergreen International
Equity Fund (the "Evergreen Fund"), a series of Evergreen Investment Trust, in
exchange for Class Y shares of the Evergreen Fund, and the assumption by the
Evergreen Fund of certain identified liabilities of the FFB Fund. The Plan also
provides for distribution of such shares of the Evergreen Fund to shareholders
of the FFB Fund in liquidation and subsequent termination of the FFB Fund. A
vote in favor of the Plan is a vote in favor of the liquidation and dissolution
of the FFB Fund.
2. To consider and act upon the Interim Investment Advisory Agreement
between the FFB Fund and the Capital Management Group of First Union National
Bank of North Carolina.
3. To consider and act upon the Interim Sub-Advisory Agreement between
the Capital Management Group of First Union National Bank of North Carolina
and Blairlogie Capital Management Ltd.
4. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of FFB Funds Trust have fixed the close of business on
September , 1995 as the record date for the determination of shareholders of the
FFB Fund entitled to notice of and to vote at the Meeting or any adjournment
thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
<PAGE>
Joan V. Fiore
Secretary
September 28, 1995
-2-
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and may help to avoid the time and expense involved in validating your vote
if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the Registration on the
proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the
proxy card(s) should be indicated unless it is reflected in the form of
Registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr., Executor
-3-
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED SEPTEMBER 25, 1995
Acquisition of Assets of
FFB DIVERSIFIED INTERNATIONAL GROWTH FUND
OF
FFB FUNDS TRUST
237 Park Avenue
New York, New York 10017
By and in Exchange for Shares of
EVERGREEN INTERNATIONAL GROWTH FUND
OF
EVERGREEN INVESTMENT TRUST
2500 Westchester Avenue
Purchase, New York 10577
This Prospectus/Proxy Statement is being furnished to shareholders of FFB
Diversified International Growth Fund (the "FFB Fund"), a series of FFB Funds
Trust, in connection with a proposed Agreement and Plan of Reorganization (the
"Plan"), to be submitted to shareholders of the FFB Fund for consideration at a
Special Meeting of Shareholders to be held on November 13, 1995 at 10:00 a.m.
Eastern Time, at the offices of FFB Funds Trust, 237 Park Avenue, New York, New
York 10017, and any adjournments thereof (the "Meeting"). The Plan provides for
substantially all of the assets of the FFB Fund to be acquired by Evergreen
International Equity Fund (the "Evergreen Fund"), a series of Evergreen
Investment Trust, in exchange for Class Y shares of the Evergreen Fund and the
assumption by the Evergreen Fund of certain identified liabilities of the FFB
Fund (hereinafter referred to as the "Reorganization"). Following the
Reorganization, Class Y shares of the Evergreen Fund will be distributed to
shareholders of the FFB Fund in liquidation of the FFB Fund and the FFB Fund
will be terminated. As a result of the proposed Reorganization, shareholders of
the FFB Fund will receive that number of full and fractional Class Y shares of
the Evergreen Fund determined by dividing the value of the assets of the FFB
Fund to be acquired by the ratio of the net asset value per share of the
Evergreen Fund and the FFB Fund. The Reorganization is being structured as a
tax-free reorganization for federal income tax purposes.
Shareholders of the FFB Fund are also being asked to approve the Interim
Investment Advisory Agreement with the Capital Management Group of First Union
National Bank of North Carolina (the "Interim Advisory Agreement") with the same
terms and fees as the current advisory agreement between the FFB Fund and First
Fidelity Bank, N.A. and the Interim Sub- Advisory Agreement between the Capital
Management Group of First Union National Bank of North Carolina and Blairlogie
Capital Management Ltd. (the "Interim Sub-Advisory Agreement") with the same
terms and fees as the
<PAGE>
current sub-advisory agreement between First Fidelity Bank, N.A. and Blairlogie
Capital Management Ltd. The Interim Advisory Agreement and Interim Sub-Advisory
Agreement will be in effect for the period of time between the date on which the
merger of First Fidelity Bancorporation with and into a wholly-owned subsidiary
of First Union Corporation is effected (currently anticipated to be by January
1, 1996) and the date on which the Evergreen Fund and the FFB Fund are combined
together (scheduled for on or about January 19, 1996).
The FFB Funds Trust currently consists of FFB Fund and nine other series
with shares outstanding. As is the case with the FFB Fund, the shareholders of
certain of these series are being asked to approve similar Agreements and Plans
of Reorganization providing for the combination of such series with other
Evergreen Funds having similar investment objectives and policies. The FFB New
Jersey Tax-Free Income Fund and the FFB Pennsylvania Tax-Free Money Market Fund
will not be combined with any of the funds in the Evergreen family of mutual
funds and therefore shareholders of those Funds will vote on the approval of new
investment advisory agreements between the Funds and the Capital Management
Group of First Union National Bank of North Carolina and the election of new
Trustees for the FFB Funds Trust. The vote on the election of new Trustees will
take place after all the combinations of the FFB Funds and the Evergreen Funds
are effective.
Evergreen Investment Trust is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). Evergreen Investment Trust is comprised of 17 series, one of which,
the Evergreen Fund, is a party to the Reorganization. The Evergreen Fund seeks
to provide long-term capital appreciation by investing in the undervalued equity
securities of non-U.S. issuers.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Evergreen Fund that
shareholders of the FFB Fund should know before voting on the Reorganization.
Certain relevant documents listed below, which have been filed with the
Securities and Exchange Commission ("SEC"), are incorporated in whole or in part
by reference. A Statement of Additional Information dated September 25, 1995,
relating to this Prospectus/Proxy Statement and the Reorganization,
incorporating by reference the financial statements of the Evergreen Fund dated
December 31, 1994 and June 30, 1995 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 Evergreen Fund at 2500 Westchester Avenue,
Purchase, New York 10577 or by calling toll-free 1-800-807-2940.
The Prospectuses of the Evergreen Fund dated July 7, 1995, its Annual
Report for the fiscal year ended December 31, 1994 and its Semi-Annual Report
for the six months ended June 30, 1995 are incorporated herein by reference in
their entirety, insofar as they relate to the Evergreen Fund only, and not to
any other fund described therein. The two Prospectuses,
-2-
<PAGE>
which pertain (i) to Class Y shares and (ii) to Class A, Class B and Class C
shares, differ only insofar as they describe the separate distribution and
shareholder servicing arrangements applicable to the Classes. Shareholders of
the FFB Fund will receive, with this Prospectus/Proxy Statement, copies of the
Prospectus pertaining to the Class Y shares of the Evergreen Fund that they will
receive as a result of the consummation of the Reorganization. Additional
information about the Evergreen Fund is contained in its Statement of Additional
Information of the same date which has been filed with the SEC and which is
available upon request and without charge by writing to the Evergreen Fund at
the address listed in the preceding paragraph or by calling toll-free
1-800-807-2940.
The Prospectus of the FFB Fund dated March 1, 1995 is incorporated herein
in its entirety by reference. Copies of the Prospectus and a Statement of
Additional Information dated the same date are available upon request without
charge by writing to the FFB Fund at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-437-8790.
Included as Exhibit A of this Prospectus/Proxy Statement is a copy of the
Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF FIRST UNION CORPORATION ("FIRST UNION") OR ANY OF ITS
SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY OF ITS
SUBSIDIARIES, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
-3-
<PAGE>
TABLE OF CONTENTS
COMPARISON OF FEES AND EXPENSES.......................................
SUMMARY...............................................................
PROPOSED PLAN OF REORGANIZATION..............................
TAX CONSEQUENCES.............................................
INVESTMENT OBJECTIVES AND POLICIES OF THE
EVERGREEN FUND AND THE FFB FUND.........................
COMPARATIVE PERFORMANCE INFORMATION OF EACH FUND.............
MANAGEMENT OF THE FUNDS......................................
INVESTMENT ADVISERS, SUB-ADVISERS AND ADMINISTRATORS.........
PORTFOLIO MANAGEMENT.........................................
DISTRIBUTION OF SHARES.......................................
DISTRIBUTION-RELATED AND SHAREHOLDER
SERVICING-RELATED EXPENSES..............................
PURCHASE AND REDEMPTION PROCEDURES...........................
EXCHANGE PRIVILEGES..........................................
DIVIDEND POLICY..............................................
RISKS.................................................................
INFORMATION ABOUT THE REORGANIZATION..................................
DESCRIPTION OF THE MERGER....................................
REASONS FOR THE REORGANIZATION...............................
AGREEMENT AND PLAN OF REORGANIZATION.........................
FEDERAL INCOME TAX CONSEQUENCES..............................
PRO-FORMA CAPITALIZATION.....................................
SHAREHOLDER INFORMATION......................................
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES......................
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS.......................
FORM OF ORGANIZATION.........................................
CAPITALIZATION...............................................
SHAREHOLDER LIABILITY........................................
SHAREHOLDER MEETINGS AND VOTING RIGHTS.......................
LIQUIDATION OR DISSOLUTION...................................
LIABILITY AND INDEMNIFICATION OF TRUSTEES....................
RIGHTS OF INSPECTION.........................................
INFORMATION REGARDING THE PROPOSED INTERIM ADVISORY AGREEMENT.........
INTRODUCTION.................................................
COMPARISON OF THE INTERIM ADVISORY AGREEMENT
AND THE EXISTING ADVISORY AGREEMENT.....................
INFORMATION ABOUT THE FFB FUND'S CURRENT AND
PROPOSED INTERIM INVESTMENT ADVISERS....................
INFORMATION REGARDING THE PROPOSED INTERIM
SUB-ADVISORY AGREEMENT..................................
INTRODUCTION.................................................
-4-
<PAGE>
COMPARISON OF THE INTERIM SUB-ADVISORY AGREEMENT
AND THE EXISTING SUB-ADVISORY AGREEMENT.................
ADDITIONAL INFORMATION................................................
VOTING INFORMATION CONCERNING THE MEETING.............................
FINANCIAL STATEMENTS AND EXPERTS......................................
LEGAL MATTERS.........................................................
OTHER BUSINESS........................................................
-5-
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y shares of the Evergreen Fund set forth in the
following table and in the examples are based on the expenses of the Fund for
the fiscal year ended December 31, 1994. The amounts for the shares of the FFB
Fund set forth in the following table and in the examples are estimated based on
the expenses expected for the FFB Fund's first year of operations, in each case
adjusted for voluntary expense waivers. The amounts in the Evergreen Pro Forma
are based on the combined expenses expected for the twelve month period ended
June 30, 1995.
The following tables show for the Evergreen Fund and the FFB Fund the
shareholder transaction expenses and annual fund operating expenses associated
with an investment in the Class Y shares of the Evergreen Fund and shares of the
FFB Fund, and such costs and expenses associated with an investment in Class Y
shares of the Evergreen Fund assuming consummation of the Reorganization.
COMPARISON OF CLASS Y SHARES OF THE EVERGREEN FUND WITH
SHARES OF THE FFB FUND
EVERGREEN
EVERGREEN FUND
FUND FFB FUND PRO FORMA
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).... 0% 4.50% 0%
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 (applies only
after 4 exchanges per year)............ $5 None $5
Redemption Fees.......................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily
net assets)
Advisory Fees............................ 0.82% 1.06%(2) 0.82%
Administrative Fees...................... 0.06% 0.00% 0.06%
12b-1 Fees............................... ----- 0.00%(3) ----
Other Expenses........................... 0.29 0.69%(4) 0.29%
Annual Fund Operating Expenses........... 1.17%(1) 1.75%(5) 1.17%(6)
(1) The Evergreen Fund Class Y shares' Annual Fund Operating Expenses after
voluntary fee waivers were 1.06% for the period ended December 31, 1994.
Class Y shares' Annual Fund Operating Expenses for the Evergreen Fund,
-6-
<PAGE>
absent the voluntary waiver and expense reimbursements of 0.83% of average net
assets, would have been 1.89% for the period ended December 31, 1994. The Class
Y shares' Annual Fund Operating Expenses for the Evergreen Fund have been
adjusted to reflect current fee arrangements.
(2) Certain Advisory and Administrative Expenses will be waived and certain Fund
expenses will be reimbursed by the investment adviser. Absent such waiver and
reimbursements, which the investment adviser and administrator have agreed to
continue through at least August 31, 1995, Advisory and Administrative Expenses
would be 1.40%, which includes Administrative Expenses of 0.15% payable to the
administrator.
(3) Although the FFB Fund has adopted a 12b-1 Plan, which allows payments up to
0.50% of average net assets, no payments have been made to date and no payments
will be made during the FFB Fund's first year of operations.
(4) Certain Participating Organizations may receive additional fees from the FFB
Fund in amounts up to an annual rate of 0.35% of the daily net asset value of
the Fund's shares owned by shareholders with whom the Participating Organization
has a servicing relationship. The FFB Fund has agreed not to pay such fees to
any Participating Organizations during the Fund's first year of operations.
(5) Without waiver or reimbursement of certain Fund expenses, Annual Fund
Operating Expenses would be 2.09%.
(6) The Evergreen Fund Pro Forma Annual Operating Expenses after voluntary fee
waivers of 0.03% of average net assets would have been 1.14% for the twelve
months ended June 30, 1995.
EXAMPLES. The following tables show for each Fund, and for the Evergreen
Fund, assuming consummation of the Reorganization, examples of the cumulative
effect of shareholder transaction expenses and annual fund operating expenses
indicated above on a $1,000 investment in Class Y shares of the Evergreen Fund
and shares of the FFB Fund for the periods specified, assuming (i) a 5% annual
return, and (ii) redemption at the end of such period.
EVERGREEN EVERGREEN FUND
FUND CLASS Y FFB FUND CLASS Y SHARES
SHARES SHARES PRO FORMA
After 1 year............ $12 $62 $12
After 3 years........... $37 $98 $37
After 5 years........... $64 N/A $64
After 10 years.......... $142 N/A $142
The purpose of the foregoing examples is to assist an FFB Fund shareholder
in understanding the various costs and expenses that an investment in the Class
Y shares of the Evergreen Fund as a result of the
-7-
<PAGE>
Reorganization would bear directly and indirectly, as compared with the various
direct and indirect expenses currently borne by a shareholder in the FFB Fund.
These examples should not be considered a representation of past or future
expenses or annual return. Actual expenses may be greater or less than those
shown.
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, AND, TO THE
EXTENT NOT INCONSISTENT WITH SUCH ADDITIONAL INFORMATION, THE PROSPECTUSES OF
THE EVERGREEN FUND DATED JULY 7, 1995 AND THE PROSPECTUS OF THE FFB FUND DATED
MARCH 1, 1995 (WHICH ARE INCORPORATED HEREIN BY REFERENCE), THE PLAN, THE
INTERIM ADVISORY AGREEMENT AND THE SUB- ADVISORY AGREEMENT, FORMS OF WHICH ARE
ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS EXHIBITS A, B AND C,
RESPECTIVELY.
PROPOSED PLAN OF REORGANIZATION
The Plan provides for the transfer of substantially all of the assets of
the FFB Fund in exchange for Class Y shares of the Evergreen Fund and the
assumption by the Evergreen Fund of certain identified liabilities of the FFB
Fund. (The FFB Fund and the Evergreen Fund each may also be referred to in this
Prospectus/Proxy Statement as a "Fund" and together, as the "Funds"). The Plan
also calls for the distribution of Class Y shares of the Evergreen Fund to FFB
Fund shareholders in liquidation of the FFB Fund as part of the Reorganization.
As a result of the Reorganization, the shareholders of the FFB Fund will become
the owners of that number of full and fractional Class Y shares of the Evergreen
Fund determined by dividing the value of the assets of the FFB Fund to be
acquired by the ratio of the net asset value per share of the Evergreen Fund and
the FFB Fund as of the close of business on the date that the FFB Fund's assets
are exchanged for shares of the Evergreen Fund. See "Information About the
Reorganization."
The Trustees of FFB Funds Trust, including the Trustees who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganization would be in the best
interests of shareholders of the FFB Fund and that the interests of the
shareholders of the FFB Fund will not be economically diluted as a result of the
transactions contemplated by the Reorganization. Accordingly, the Trustees have
submitted the Plan for the approval of FFB Fund's shareholders. THE BOARD OF
TRUSTEES OF FFB FUNDS TRUST RECOMMENDS APPROVAL BY SHAREHOLDERS OF THE FFB FUND
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of the Evergreen Investment Trust have also approved the Plan,
and accordingly, the Evergreen Fund's participation in the Reorganization.
Approval of the Reorganization on the part of the FFB Fund will
require the affirmative vote of more than 50% of its outstanding voting
securities. See "Voting Information Concerning the Meeting."
-8-
<PAGE>
Since the merger (the "Merger") of First Fidelity Bancorporation ("FFB")
with and into a wholly-owned subsidiary of First Union Corporation ("First
Union") will take place prior to the closing date for the Reorganization and
because the Merger by law terminates the investment advisory contract between
First Fidelity Bank, N.A. ("First Fidelity") and the FFB Fund and the
sub-advisory agreement between First Fidelity and Blairlogie, arrangements have
been made to enter into the Interim Advisory Agreement with the Capital
Management Group of First Union National Bank of North Carolina ("CMG") and the
Interim Sub-Advisory Agreement between CMG and Blairlogie. The Interim Advisory
Agreement and the Interim Sub- Advisory Agreement will have the same terms and
fees as the current investment advisory agreement between the FFB Fund and First
Fidelity and the current sub-advisory agreement between First Fidelity and
Blairlogie, respectively, and will be in effect for the period of time between
the effective date of the Merger and the closing date for the Reorganization.
The Reorganization is scheduled to take place on or about January 19, 1996.
Approval of the Interim Advisory Agreement and Interim Sub-Advisory
Agreement requires the affirmative vote of (i) 67% or more of the shares of the
FFB Fund present in person or by proxy at the Meeting, if holders of more than
50% of the shares of the FFB Fund outstanding on the record date are present, in
person or by proxy, or (ii) more than 50% of the outstanding shares of the FFB
Fund, whichever is less. See "Voting Information Concerning the Meeting."
If the shareholders of the FFB Fund do not vote to approve the
Reorganization, the Trustees of FFB Funds Trust will consider other possible
courses of action in the best interests of shareholders. If the Merger is not
completed, the Reorganization of the FFB Fund and the Evergreen Fund will not be
completed regardless of the vote of the FFB Fund's shareholders.
TAX CONSEQUENCES
Prior to or at the completion of the Reorganization, the FFB 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 FFB Fund or its shareholders for
federal income tax purposes as a result of the receipt of shares of the
Evergreen Fund in the Reorganization. The holding period and aggregate tax basis
of Class Y shares of the Evergreen Fund that are received by FFB Fund
shareholders will be the same as the holding period and aggregate tax basis of
shares of the FFB Fund previously held by such shareholders, provided that
shares of the FFB Fund are held as capital assets. In addition, the holding
period and tax basis of the assets of the FFB Fund in the hands of the Evergreen
Fund as a result of the Reorganization will be the same as in the hands of the
FFB Fund immediately prior to the Reorganization and no gain or loss will be
recognized by the Evergreen Fund upon the receipt of the assets of the FFB Fund
in exchange for Class Y shares of the Evergreen Fund and the assumption by the
Evergreen Fund of certain identified liabilities.
-9-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE EVERGREEN FUND AND THE FFB FUND
The investment objective of the Evergreen Fund is long-term capital
appreciation. The Fund invests in securities of non-U.S. issuers. The Fund will
invest substantially in industrialized companies throughout the world that
comprise the Morgan Stanley Capital International EAFE (Europe, Australia and
the Far East) Index. In addition, the Fund intends to invest up to 10% of its
net assets in emerging market equity securities as defined by Morgan Stanley
Capital International Emerging Markets Free Index.
The investment objective of the FFB Fund is long-term growth of capital. In
pursuing this objective, the Fund invests in a diversified portfolio of
international equity securities comprised of at least 70% developed markets as
defined by the Morgan Stanley Capital International EAFE Index and at most 30%
emerging markets as defined by the Morgan Stanley Capital International Emerging
Markets Free Index. See "Comparison of Investment Objectives and Policies"
below.
COMPARATIVE PERFORMANCE INFORMATION OF EACH FUND
Discussions of the manner of calculation of total return are contained in
the respective Prospectuses and Statements of Additional Information of the
Funds. The total return of the Class Y shares of the Evergreen Fund and the
shares of the FFB Fund for the period from inception through June 30, 1995 are
set forth in the table below. The calculations of total return assume the
reinvestment of all dividends and capital gains distributions on the
reinvestment date and the deduction of all recurring expenses (including sales
charges) that were charged to shareholders' accounts.
AVERAGE ANNUALIZED COMPOUNDED TOTAL RETURN*
SINCE INCEPTION
INCEPTION DATE
Evergreen Fund
Class Y shares.................. -1.83%** 9/6/94
FFB Fund shares.................... 0.29%** 3/3/95
* Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average annual total
return during the periods would have been lower.
** Not annualized.
MANAGEMENT OF THE FUNDS
The overall management of the Evergreen Investment Trust and of FFB Funds
Trust is the responsibility of, and is supervised by, their respective Board of
Trustees.
INVESTMENT ADVISERS, SUB-ADVISERS AND ADMINISTRATORS
-10-
<PAGE>
Evergreen Fund. The Capital Management Group ("CMG"), a division of
the First Union National Bank of North Carolina ("FUNB"), serves as
investment adviser to the Evergreen 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, one of the ten largest banking holding
companies in the United States. Boston International Advisers, Inc.
("BIA") is sub-adviser to the Evergreen Fund.
First Union is a bank holding company headquartered in Charlotte, North
Carolina, which had $83.1 billion in consolidated assets as of June 30, 1995.
First Union and its subsidiaries provide a broad range of financial services to
individuals and businesses through offices in 36 states. CMG and Evergreen Asset
Management Corp. ("Evergreen Asset"), a wholly-owned subsidiary of FUNB, manage
or otherwise oversee the investment of over $29.1 billion in assets belonging to
a wide range of clients, including the Evergreen family of mutual funds. First
Union Brokerage Services, Inc., a wholly-owned subsidiary of FUNB, is a
registered broker-dealer that is principally engaged in providing retail
brokerage services consistent with its federal banking authorizations. First
Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a
registered broker-dealer principally engaged in providing, consistent with its
federal banking authorizations, private placement, securities dealing, and
underwriting services.
BIA has been in operation since 1986 and specializes in the management of
international equity portfolios. BIA currently manages twenty international
portfolios, including five group trust funds, for pension fund sponsors and
endowment plans worldwide. As of June 30, 1995, BIA managed a total of $ billion
in assets and served as sub-adviser to one other investment company with total
assets of $ million.
CMG, along with BIA, manages investments and supervises the daily business
affairs of the Evergreen Fund. As compensation therefor, CMG is entitled to
receive an annual fee from the Evergreen Fund equal to: 0.82% of the first $20
million of average daily net assets; 0.79% of the next $30 million of average
daily net assets; 0.76% of the next $50 million of average daily net assets; and
0.73% of average daily net assets in excess of $100 million. CMG has agreed to
pay the sub-adviser to the Evergreen Fund, BIA, a fee equal to: 0.32% of the
first $20 million of average daily net assets; 0.29% of the next $30 million of
average daily net assets; 0.26% of the next $50 million of average daily net
assets; and 0.23% of average daily net assets in excess of $100 million.
Evergreen Asset serves as administrator to the Evergreen Fund. Evergreen
Asset, with its predecessors, has served as investment adviser and administrator
to the Evergreen family of mutual funds since 1971.
In its capacity as administrator, Evergreen Asset is entitled to receive a
fee based on the average daily net assets of the Evergreen Fund at a rate based
on the total assets of the mutual funds administered by Evergreen Asset for
which CMG or Evergreen Asset also serve as investment
-11-
<PAGE>
adviser, calculated in accordance with the following schedule: 0.050% of the
first $7 billion; 0.035% on the next $3 billion; 0.030% on the next $5 billion;
0.020% on the next $10 billion; 0.015% on the next $5 billion; and 0.010% on
assets in excess of $30 billion. Furman Selz Incorporated ("Furman Selz"), an
affiliate of Evergreen Funds Distributor, Inc., distributor for the Evergreen
group of mutual funds, serves as sub- administrator to the Evergreen Fund and is
entitled to receive a fee from the Fund calculated on the average daily net
assets of the Fund at a rate based on the total assets of the mutual funds
administered by Evergreen Asset for which CMG or Evergreen Asset also serve as
investment adviser, calculated in accordance with the following schedule:
0.0100% of the first $7 billion; 0.0075% on the next $3 billion; 0.0050% on the
next $15 billion; and 0.0040% on assets in excess of $25 billion. The total
assets of the mutual funds administered by Evergreen Asset for which CMG or
Evergreen Asset serve as investment adviser as of June 30, 1995 were
approximately $8.7 billion. For further information regarding Evergreen Asset,
FUNB, BIA and First Union, see "Management of the Funds -- Investment Advisers"
in the Prospectus of the Evergreen Fund.
FFB Fund. First Fidelity Bank, N.A. ("First Fidelity") serves as the
investment adviser for the FFB Fund and provides investment guidance, either
directly or through others selected by First Fidelity, consistent with the
Fund's investment objective and policies and provides administrative assistance
in connection with the operation of the FFB Fund. First Fidelity also acts as
transfer agent, custodian and dividend disbursing agent for the FFB Fund. First
Fidelity has engaged Blairlogie Capital Management Ltd. ("Blairlogie") as the
Fund's sub-adviser. First Fidelity compensates Blairlogie from the advisory fee
(and not from the Fund).
Furman Selz acts as administrator of the FFB Fund. Furman Selz provides
personnel, office space and all management and administrative services
reasonably necessary for the operation of the FFB Funds Trust and the FFB Fund
(such as maintaining the FFB Fund's books and records, monitoring compliance
with various state and Federal laws and assisting the Trustees in the execution
of their duties) other than those services which are provided by First Fidelity.
As compensation for their investment advisory, administrative or management
services, First Fidelity and Furman Selz are paid a monthly fee at an annual
rate of 1.25% and 0.15%, respectively, of the FFB Fund's average daily net
assets.
PORTFOLIO MANAGEMENT
The portfolio managers of the Evergreen Fund are Maureen Ghublikian and
David A. Umstead, who are Managing Directors of BIA and have been associated
with BIA since prior to 1989.
DISTRIBUTION OF SHARES
-12-
<PAGE>
Evergreen Funds Distributor, Inc. ("EFD"), an affiliate of Furman Selz,
acts as underwriter of the Evergreen Fund's shares. EFD distributes the
Evergreen Fund shares directly or through broker-dealers, banks, including FUNB,
or other financial intermediaries. The Evergreen Fund offers four classes of
shares, Class A, Class B, Class C and Class Y. Each Class has separate
distribution arrangements. (See "Distribution-Related and Shareholder
Servicing-Related Expenses" below.) No Class bears the distribution expenses
relating to the shares of any other Class.
Class Y shares of the Evergreen Fund, which will be received by the FFB
Fund's shareholders if the Reorganization is approved, are sold without a sales
load or distribution fee only to (i) all shareholders of record in one or more
of the Evergreen family of funds for which Evergreen Asset serves as investment
adviser as of December 30, 1994, (ii) certain institutional investors and (iii)
investment advisory clients of CMG, Evergreen Asset or their affiliates. FFB
Fund shareholders who wish to make subsequent purchases of the Evergreen Fund's
shares will be able to purchase Class Y shares. Class A, Class B and Class C
shares of the Evergreen Fund are sold with either an initial or contingent
deferred sales charge and are subject to certain distribution-related and
shareholder servicing-related expenses. For a description of the Classes of
shares issued by the Evergreen Fund see "Purchase and Redemption of Shares" and
"General Information - Organization; Other Classes of Shares" in the Evergreen
Fund's Prospectus. Class A, Class B and Class C shares are further described in
a separate Evergreen Fund prospectus.
FFB Funds Distributor, Inc. ("FFB Funds Distributor"), an affiliate of
Furman Selz, acts as underwriter of the FFB Fund's shares. There is only one
class of shares outstanding. The shares are sold with an initial sales charge
ranging from 4.50% to 1%. Investors who purchase and redeem shares of the FFB
Fund through a customer account maintained at a Participating Organization may
be charged additional fees by such Participating Organization not to exceed
0.35% on an annualized basis of the average daily value during the month of FFB
Fund shares in the subaccounts of which the Participating Organization is record
owner as nominee for its customers. To date, no fees have been charged. The FFB
Fund has adopted a Rule 12b-1 distribution plan as described in
"Distribution-Related and Shareholder Servicing-Related Expenses" below.
DISTRIBUTION-RELATED AND SHAREHOLDER SERVICING-RELATED EXPENSES.
Evergreen Fund. The Evergreen Fund has not adopted a Rule 12b-1 plan
or shareholder servicing plan for its Class Y shares.
FFB Fund. The FFB Fund has adopted a Master Distribution Plan (the "FFB
Plan") pursuant to Rule 12b-1 of the 1940 Act. The FFB Plan provides for a
monthly payment by the FFB Fund to FFB Funds Distributor in such amounts that
FFB Funds Distributor may request for direct and indirect distribution expenses,
subject to periodic Board approval and to an overall expense limitation. Each
such payment is based on the average daily value of the FFB Fund's net assets
during the preceding month and is calculated
-13-
<PAGE>
at an annual rate not to exceed 0.50% per annum. No payments under the FFB Plan
will be made during the FFB Fund's first year of operations.
PURCHASE AND REDEMPTION PROCEDURES
Information concerning applicable sales charges, distribution-related fees
and shareholder servicing-related fees are described above. Class Y shares of
the Evergreen Fund are offered at net asset value, and the FFB Fund's shares are
offered at net asset value (plus any applicable sales charges), by their
respective distributors. Investments in the Funds are not insured. The minimum
initial purchase requirement for each Class of shares of each Fund is $1,000.
There is no minimum for subsequent purchases of Evergreen Fund shares. The
minimum for subsequent purchases of FFB Fund shares is $100. Each Fund provides
for telephone, mail or wire redemption of shares at net asset value as next
determined after receipt of a redemption request on each day the New York Stock
Exchange is open for trading. Additional information concerning purchases and
redemptions of shares, including how each Fund's net asset value is determined,
is contained in the respective Prospectuses for each Fund. The Evergreen Fund
and the FFB Fund each may involuntarily redeem shareholders' accounts that have
less than $1,000 and $500, respectively, of invested funds. For the FFB Fund,
there are no minimum investment requirements with respect to investments
effected through certain automatic purchase and redemption arrangements on
behalf of customer accounts maintained at Participating Organizations. The
minimum investment requirements in the FFB Fund may be waived or lowered for
investments effected on a group basis by certain other institutions and their
employees. All funds invested in each Fund are invested in full and fractional
shares. The Funds reserve the right to reject any purchase order.
EXCHANGE PRIVILEGES
The FFB Fund currently permits shareholders to exchange shares for shares
of the same Class of other funds managed by First Fidelity. Holders of shares of
a Class of the Evergreen Fund generally may exchange their shares for shares of
the same Class of any other funds of the Evergreen mutual fund family. The FFB
Fund shareholders will be receiving Class Y shares of the Evergreen Fund in the
Reorganization and, accordingly, with respect to shares of the Evergreen Fund
received by FFB Fund shareholders in the Reorganization, the exchange privilege
is limited to the Class Y shares of other funds of the Evergreen mutual fund
family. The Evergreen Fund imposes a fee of $5 per exchange on shareholders who
exchange in excess of four times per calendar year. No sales charge is imposed
on an exchange. An exchange which represents an initial investment in another
fund of the Evergreen mutual fund family must amount to at least $1,000. The
current exchange privileges, and the requirements and limitations attendant
thereto, are described in the Funds' respective Prospectuses and Statements of
Additional Information.
DIVIDEND POLICY
-14-
<PAGE>
The Evergreen Fund distributes its investment company taxable income
quarterly. The FFB Fund distributes its net investment income annually. Each
Fund distributes net long-term capital gains at least annually. Dividends and
distributions are reinvested in additional shares of the same Class of the
respective Fund, or paid in cash, as a shareholder has elected. See the
respective Prospectuses of the Funds for further information concerning
dividends and distributions.
After the Reorganization, shareholders of the FFB Fund that have elected
(or that so elect no later than November 13, 1995), to have their dividends
and/or distributions reinvested, will have dividends and/or distributions
received from the FFB Fund reinvested in shares of the Evergreen Fund.
Shareholders of the FFB Fund that have elected (or that so elect no later than
November 13, 1995) to receive dividends and/or distributions in cash will
receive dividends and/or distributions from the Evergreen Fund in cash after the
Reorganization, although they may, after the Reorganization, elect to have such
dividends and/or distributions reinvested in additional shares of the Evergreen
Fund.
Each Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). While so qualified, so long as each Fund distributes all
of its investment company taxable income and any net realized gains to
shareholders, it is expected that a Fund will not be required to pay any federal
income taxes on the amounts so distributed. A 4% nondeductible excise tax will
be imposed on amounts not distributed if a Fund does not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements.
RISKS
Investing in non-U.S. securities carries substantial risks in addition to
those associated with domestic investments. In an attempt to reduce some of
these risks, the Evergreen Fund diversifies investments broadly among foreign
countries which may include both developed and developing countries. At least
three different countries will always be represented. The Evergreen Fund may
take advantage of the unusual opportunities for higher returns available from
investing in developing countries. These investments carry considerably more
volatility and risk because they generally are associated with less mature
economies and less stable political systems.
Foreign securities are denominated in foreign currencies. Therefore, the
value in U.S. dollars of the Evergreen Fund's assets and income may be affected
by changes in exchange rates and regulations. Although the Evergreen Fund values
assets daily in U.S. dollars, it will not convert holdings of foreign currencies
to U.S. dollars daily. When the Evergreen Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers realize a
profit on the difference between the prices at which such dealers buy and sell
currencies.
-15-
<PAGE>
To the extent that securities purchased by the Evergreen Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect its net asset values, the value of interest
earned, gains and losses realized on the sale of securities, and net investment
income and capital gains, if any, to be distributed to shareholders. If the
value of a foreign currency rises against the U.S. dollar, the value of the
Evergreen Fund's assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the U.S.
dollar, the value of its assets denominated in that currency will decrease.
Other differences between investing in foreign and U.S. companies include:
less publicly available information about foreign companies; the lack of uniform
financial accounting standards applicable to foreign companies; less readily
available market quotations on foreign companies; differences in government
regulation and supervision of foreign stock exchanges, brokers, listed
companies, and banks; differences in legal systems which may affect the ability
to enforce contractual obligations or obtain court judgments; generally lower
foreign stock market volume; the likelihood that foreign securities may be less
liquid or more volatile; foreign brokerage commissions may be higher; unreliable
mail service between countries; and political or financial changes which
adversely affect investments in some countries. In the past, U.S. government
policies have discouraged or restricted certain investments abroad by investors
such as the Fund. Although the Evergreen Fund is unaware of any current
restrictions, investors are advised that these policies could be reinstituted.
INFORMATION ABOUT THE REORGANIZATION
DESCRIPTION OF THE MERGER
On June 18, 1995, First Union entered into an Agreement and Plan of Merger
(the "Merger Agreement") with FFB, the corporate parent of First Fidelity, which
provides, among other things, for the Merger of FFB with and into a wholly-owned
subsidiary of First Union, subject to the terms and conditions contained in the
Merger Agreement. It is currently expected that the Merger will be consummated
by January 1, 1996 subject to the satisfaction of various conditions of closing
set forth in the Merger Agreement. Consummation of the Merger is expected to
result in the nation's sixth largest bank holding company, with assets of
approximately $118.5 billion. Currently, First Union is the nation's ninth
largest bank holding company, with assets of $83.1 billion as of June 30, 1995,
and FFB is the 25th largest, having $35.4 billion in assets as of June 30, 1995.
Consummation of the Merger is subject to receipt of regulatory and
stockholder approvals, as well as other conditions set forth in the Merger
Agreement. No assurance can be given that the Merger will be consummated. In
connection with the execution of the Merger Agreement, Banco Santander, S.A.
("Santander"), the owner of approximately 30 percent of the outstanding shares
of FFB's common stock, agreed, among other things, to
-16-
<PAGE>
vote such shares in favor of the Merger Agreement. It is anticipated that
subsequent to the Merger, Santander will own approximately 11% of First Union's
outstanding shares. The Merger is not in any way conditioned upon the approval
by shareholders of any mutual fund currently managed by First Fidelity, and it
is expected that the Merger will take place whether or not the transaction
described herein is approved by such shareholders.
As a result of the Merger, it is expected that FUNB and Evergreen Asset
will succeed to the investment advisory and administrative functions currently
performed for the FFB Fund by various units of First Fidelity. It is also
expected that First Fidelity, or its successors, will no longer provide
investment advisory or administrative services to investment companies.
REASONS FOR THE REORGANIZATION
The Board of Trustees of FFB Funds Trust has considered and approved the
Reorganization, including entry by FFB Funds Trust on behalf of the FFB Fund
into the Plan, as in the best interests of the shareholders. In addition, the
Trustees have approved the Interim Advisory Agreement and Interim Sub-Advisory
Agreement with respect to the FFB Fund.
As noted above, FFB has agreed to merge with First Union. FFB is the parent
company of First Fidelity, investment adviser to the mutual funds which comprise
FFB Funds Trust. The Merger will cause, as a matter of law, termination of the
investment advisory agreement between each of the First Fidelity Funds and First
Fidelity and the sub-advisory agreement between First Fidelity and Blairlogie.
Accordingly, the Trustees have considered the recommendation of First Fidelity
that the Trustees approve the proposed Reorganization.
In making their recommendation to the Trustees, the representatives of the
respective banks reviewed with the Trustees various factors about the Funds and
the proposed Reorganization. There are substantial similarities between the
Evergreen Fund and the FFB Fund. Specifically, the Evergreen Fund and the FFB
Fund have substantially similar investment objectives and policies, and
comparable risk profiles. See, "Comparison of Investment Objectives and
Policies" below. In terms of total net assets the FFB Fund at June 30, 1995 had
net assets of approximately $26.1 million. The Evergreen Fund's net assets at
such date were approximately $43.7 million. If the Reorganization had taken
place as of June 30, 1995, the Evergreen Fund's net assets would have been
approximately $69.8 million and First Fidelity and FUNB expect that the
substantially increased assets of the Evergreen Fund will result in economies of
scale and more efficient investment management and shareholder services.
In addition, assuming that an alternative to the Reorganization would be to
propose that the FFB Fund be managed by Evergreen Asset or another affiliate of
FUNB following the consummation of the Merger, the FFB Fund would thereafter
share the same investment management resources and be offered through common
distribution channels with the substantially
-17-
<PAGE>
identical Evergreen Fund. The FFB Fund would also have to bear the cost of
maintaining its separate existence. First Fidelity and FUNB believe that the
prospect of dividing the resources of the FUNB/Evergreen mutual fund
organization between two substantially identical funds could result in both
funds being disadvantaged due to an inability to achieve optimum size,
performance levels and the greatest possible economies of scale. Accordingly,
for the reasons noted above and recognizing that there can be no assurance that
any economies of scale or other benefits will be realized, both First Fidelity
and FUNB believe that the proposed Reorganization would be in the best interest
of each Fund and its shareholders.
The Board of Trustees of FFB Funds Trust met and considered the
recommendation of First Fidelity and FUNB, and, in addition, considered among
other things, (i) the terms and conditions of the Reorganization; (ii) whether
the Reorganization would result in the economic dilution of shareholder
interests; (iii) expense ratios, fees and expenses of the FFB Fund and the
Evergreen Fund and of similar funds; the comparative performance records of each
of the Funds; compatibility of their investment objectives and policies; service
features available to shareholders in the respective funds; the investment
experience, expertise and resources of Evergreen Asset; the service and
distribution resources available to the Evergreen family of mutual funds and the
broad array of investment alternatives available to shareholders of the
Evergreen family of mutual funds, including the future marketing plans and
resources expected to be used in connection with the Evergreen family of mutual
funds; and the personnel and financial resources of First Union and its
affiliates; (iv) the fact that FUNB will bear the expenses incurred by the FFB
Fund in connection with the Reorganization; (v) the fact that the Evergreen Fund
will assume certain identified liabilities of the FFB Fund; and (vi) the
expected federal income tax consequences of the Reorganization.
The Trustees also considered the benefits to be derived by shareholders of
the FFB Fund from the sale of its assets to the Evergreen Fund. In this regard,
the Trustees considered the potential benefits of being associated with a larger
entity and the economies of scale that could be realized by the participation by
shareholders of the FFB Fund in the combined fund. In addition, the Trustees
considered that there are alternatives available to shareholders of the FFB
Fund, including the ability to redeem their shares, as well as the option to
vote against the Reorganization.
During their consideration of the Reorganization, the Trustees met with
Fund counsel as well as counsel to the Independent Trustees regarding the legal
issues involved. The Trustees of the Evergreen Investment Trust also concluded
at a regular meeting on July 27, 1995 that the proposed Reorganization would be
in the best interests of shareholders of the Evergreen Fund and that the
interests of the shareholders of the Evergreen Fund will not be diluted as a
result of the transactions contemplated by the Reorganization.
-18-
<PAGE>
THE TRUSTEES OF FFB FUNDS TRUST RECOMMEND THAT THE SHAREHOLDERS OF THE FFB
FUND APPROVE THE PROPOSED REORGANIZATION.
AGREEMENT AND PLAN OF REORGANIZATION
The following summary is qualified in its entirety by reference to the Plan
(Exhibit A hereto).
The Plan provides that the Evergreen Fund will acquire substantially all of
the assets of the FFB Fund in exchange for Class Y shares of the Evergreen Fund
and the assumption by the Evergreen Fund of certain identified liabilities of
the FFB Fund on or about January 19, 1996 or such other date as may be agreed
upon by the parties (the "Closing Date"). Prior to the Closing Date, the FFB
Fund will endeavor to discharge all of its known liabilities and obligations.
The Evergreen Fund will not assume any liabilities or obligations of the FFB
Fund other than those reflected in an unaudited statement of assets and
liabilities of the FFB Fund prepared as of the close of regular trading on the
New York Stock Exchange, Inc. (the "NYSE"), currently 4:00 p.m. Eastern Time, on
the Closing Date. The number of full and fractional Class Y shares of the
Evergreen Fund to be received by the shareholders of the FFB Fund will be
determined by dividing the value of the assets of the FFB Fund to be acquired by
the ratio of the net asset value per share of the Evergreen Fund and each Class
of the FFB Fund computed as of the close of regular trading on the NYSE on the
Closing Date. The net asset value per share of each Class will be determined by
dividing assets, less liabilities, in each case attributable to the respective
Class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for the Evergreen Fund,
will compute the value of the Funds' respective portfolio securities. The method
of valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of the Evergreen Fund, 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 FFB Fund shall have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the FFB Fund's shareholders (in shares of the FFB Fund, or in cash, as the
shareholder has previously elected) all of the FFB 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 FFB 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 Y shares of the
Evergreen Fund received by the FFB Fund. Such liquidation
-19-
<PAGE>
and distribution will be accomplished by the establishment of accounts in the
names of the FFB Fund's shareholders on the share records of the Evergreen
Fund's transfer agent. Each account will represent the respective pro rata
number of full and fractional Class Y shares of the Evergreen Fund due to the
FFB Fund's shareholders. All issued and outstanding shares of the FFB Fund,
including those represented by certificates, will be canceled. The Evergreen
Fund does not issue share certificates to shareholders. The shares of the
Evergreen Fund to be issued will have no preemptive or conversion rights. After
such distribution and the winding up of its affairs, the FFB Fund will be
terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by the FFB Fund's shareholders, accuracy
of various representations and warranties and receipt of opinions of counsel,
including opinions with respect to those matters referred to in "Federal Income
Tax Consequences" below. Notwithstanding approval of the FFB Fund's
shareholders, the Plan may be terminated (a) by the mutual agreement of the FFB
Fund and the Evergreen Fund; or (b) at or prior to the Closing Date by either
party (i) because of a breach by the other party of any representation,
warranty, or agreement contained therein to be performed at or prior to the
Closing Date if not cured within 30 days, or (ii) because a condition to the
obligation of the terminating party has not been met and it reasonably appears
that it cannot be met.
The expenses of the FFB Fund in connection with the Reorganization
(including the cost of any proxy soliciting agents) and the expenses of the
Evergreen Fund (other than securities registration fees) will be borne by FUNB.
Following the Reorganization, the Evergreen Fund will not be assuming any
liabilities or making any reimbursements in connection with the 12b-1 Plan or
shareholder servicing arrangements of the FFB Fund. No portion of such expenses
shall be borne directly or indirectly by the FFB Fund or its shareholders. If
the Merger is not completed, First Fidelity will bear the expenses of the FFB
Fund and FUNB will bear the expenses of the Evergreen Fund.
If the Reorganization is not approved by shareholders of the FFB Fund, the
Board of Trustees of the FFB Funds Trust will consider other possible courses of
action in the best interests of shareholders. If the Merger is not completed,
the Reorganization will not be completed regardless of the vote of the FFB
Fund's shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify for federal income tax purposes
as a tax-free reorganization under section 368(a) of the Code. As a condition to
the closing of the Reorganization, the FFB 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:
-20-
<PAGE>
(1) The transfer of substantially all of the assets of the FFB Fund
solely in exchange for shares of the Evergreen Fund and the assumption by the
Evergreen Fund of certain identified liabilities, followed by the distribution
of the Evergreen Fund's shares by the FFB Fund in dissolution and liquidation of
the FFB Fund, will constitute a "reorganization" within the meaning of section
368(a)(1)(C) of the Code, and the Evergreen Fund and the FFB 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 by the FFB Fund on the transfer
of substantially all of its assets to the Evergreen Fund solely in exchange for
the Evergreen Fund's shares and the assumption by the Evergreen Fund of certain
identified liabilities of the FFB Fund or upon the distribution of the Evergreen
Fund's shares to the FFB Fund's shareholders in exchange for their shares of the
FFB Fund;
(3) The tax basis of the assets transferred will be the same to the
Evergreen Fund as the tax basis of such assets to the FFB Fund immediately prior
to the Reorganization, and the holding period of such assets in the hands of the
Evergreen Fund will include the period during which the assets were held by the
FFB Fund;
(4) No gain or loss will be recognized by the Evergreen Fund upon the
receipt of the assets from the FFB Fund solely in exchange for the shares of the
Evergreen Fund and the assumption by the Evergreen Fund of certain identified
liabilities of the FFB Fund;
(5) No gain or loss will be recognized by the FFB Fund's shareholders
upon the issuance of the shares of the Evergreen Fund to them, provided they
receive solely such shares (including fractional shares) in exchange for their
shares of the FFB Fund; and
(6) The aggregate tax basis of the shares of the Evergreen Fund,
including any fractional shares, received by each of the shareholders of the FFB
Fund pursuant to the Reorganization will be the same as the aggregate tax basis
of the shares of the FFB Fund held by such shareholder immediately prior to the
Reorganization, and the holding period of the shares of the Evergreen Fund,
including fractional shares, received by each such shareholder will include the
period during which the shares of the FFB Fund exchanged therefor were held by
such shareholder (provided that the shares of the FFB 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, each FFB Fund shareholder would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her FFB Fund shares and the fair market value of the Evergreen
Fund shares he or she received. Shareholders of the FFB Fund should consult
their tax advisers regarding the effect, if any, of the proposed Reorganization
in light of their individual circumstances. Since
-21-
<PAGE>
the foregoing discussion relates only to the federal income tax consequences of
the Reorganization, shareholders of the FFB Fund should also consult their tax
advisers as to state and local tax consequences, if any, of the Reorganization.
PRO-FORMA CAPITALIZATION
The following tables show the capitalization of the Evergreen Fund and the
FFB Fund as of August 31, 1995 individually and on a pro forma basis as of that
date, giving effect to the proposed acquisition of assets at net asset value:
CAPITALIZATION OF THE FFB FUND AND THE EVERGREEN FUND
EVERGREEN FUND CLASS Y SHARES
CLASS Y PRO FORMA FOR
FFB FUND SHARES REORGANIZATION
Net Assets............
Shares Outstanding*..
Net Asset Value per
Share.................
* Had the Reorganization been consummated on August 31, 1995, the FFB Fund would
have received ________ Class Y shares of the Evergreen Fund, which would then be
available for distribution to shareholders. No assurance can be given as to how
many Class Y shares of the Evergreen Fund FFB Fund shareholders will receive on
the date that the Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of Class Y shares of the Evergreen Fund that
will actually be received on or after such date.
SHAREHOLDER INFORMATION.
As of September , 1995 (the "Record Date"), there were shares of beneficial
interest of the FFB Fund outstanding.
As of the Record Date, the officers and Trustees of FFB Funds Trust
beneficially owned as a group less than 1% of the outstanding shares of the FFB
Fund. To the FFB Funds Trust's knowledge, the following persons owned
beneficially or of record more than 5% of the FFB Fund's total outstanding
shares as of the Record Date:
PERCENTAGE OF
NUMBER OF TOTAL SHARES
NAME AND ADDRESS SHARES OUTSTANDING
[TO BE SUPPLIED]
As of September , 1995, the following number of each Class of the shares of
the Evergreen Fund were outstanding: Class A -- _____________;
-22-
<PAGE>
Class B -- ___________; Class C -- __________ and Class Y -- _____________.
As of the Record Date, the officers and Trustees of Evergreen Investment
Trust beneficially owned as a group less than 1% of the outstanding shares of
the Evergreen Fund. To the Evergreen Fund's knowledge, the following persons
owned beneficially or of record more than 5% of the Evergreen Fund's total
outstanding shares as of the Record Date:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS CLASS NUMBER OF SHARES PERCENTAGE OF CLASS TOTAL SHARES OUTSTANDING
<S> <C> <C> <C> <C>
First Union Y
National Bank
Trust Accounts
301 S. Tryon St.
Charlotte, NC 28288
First Union Y
National Bank
Trust Accounts
301 S. Tryon St.
Charlotte, NC 28288
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the respective Prospectuses and Statements of Additional
Information of the Funds. The investment objectives, policies and restrictions
of the Evergreen Fund can be found in the Prospectus of the Evergreen Fund under
the caption "Investment Objectives and Policies." The Evergreen Fund's
Prospectus also offers additional funds advised by Evergreen Asset or CMG. These
additional funds are not involved in the Reorganization, their investment
objectives, policies and restrictions are not discussed in this Prospectus/Proxy
Statement and their shares are not offered hereby. The investment objectives,
policies and restrictions of the FFB Fund can be found in the Prospectus of the
FFB Fund under the caption "Investment Objective and Policies."
The Evergreen Fund seeks to provide long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers. The Fund invests
primarily in foreign equity securities that BIA, the investment sub-adviser to
the Fund, determines to be undervalued compared to other securities in their
industries and countries. In most market conditions, the stocks comprising the
Fund's assets will exhibit traditional value characteristics, such as higher
than average dividend yields, lower than average price to book value, and will
include stocks of companies with unrecognized or undervalued assets. As a matter
of policy, the Fund will invest at least 65% of the value of its total assets in
equity securities of issuers located in at least three countries outside of the
United States.
-23-
<PAGE>
The Fund will emphasize value stocks, primarily of companies which are
listed on one or more of thirty-two stock markets; twenty developed markets and
twelve emerging markets. While the current intention of the Fund is to invest in
thirty-two stock markets, the Fund may invest in more or less, depending upon
market conditions as determined by the sub-adviser. The Fund will invest
substantially in industrialized companies throughout the world that comprise the
Morgan Stanley Capital International EAFE (Europe, Australia and the Far East)
Index (the "EAFE Index"). In addition, the Fund intends to invest up to 10% of
its assets in emerging country equity securities.
The Evergreen Fund invests primarily in:
1. common and preferred stocks, convertible securities and warrants of foreign
corporations. Although common stocks have a history of long-term growth in
value, their prices tend to fluctuate in the short-term, particularly those of
smaller capitalization companies. Smaller capitalization companies may have
limited product lines, markets, or financial resources. These conditions may
make them more susceptible to setbacks and reversals. Therefore, their
securities may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger companies;
2. obligations of foreign governments and supranational organizations;
3. corporate and foreign government fixed income securities denominated in
currencies other than U.S. dollars, rated, at the time of purchase, Baa or
higher by Moody's Investor Services, Inc. ("Moody's") or BBB or higher by
Standard & Poor's Ratings Group, ("S&P"), or which, if unrated, are considered
to be of comparable quality by the Fund's investment adviser or sub-adviser.
Bonds rated Baa by Moody's or BBB by S&P 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. Although the Fund does not intend to invest significantly in debt
securities, it should be noted that the prices of fixed income securities
fluctuate inversely to the direction of interest rates;
4. strategic investments, such as options and futures contracts on currency
transactions, securities index futures contracts, and forward foreign currency
exchange contracts. The Fund can use these techniques to increase or decrease
their exposure to changing security prices, interest rates, currency exchange
rates, or other factors that affect security values. (Although, of course, there
can be no assurance that these strategic investments will be successful in
protecting the value of the Funds' securities); and
5. securities of closed-end investment companies.
The Evergreen Fund may employ additional investment strategies which
-24-
<PAGE>
are discussed in the "Investment Practices and Restrictions" section of the
Evergreen Fund's Prospectus.
The investment objective of the FFB Fund is long-term growth of capital. In
pursuing this objective, the FFB Fund invests in a diversified portfolio of
international equity securities comprised of at least 70% developed markets as
defined by the EAFE Index and at most 30% emerging markets as defined by the
Morgan Stanley Capital International Emerging Markets Free Index (the "MSCI
Emerging Markets Free Index"). The FFB Fund is not limited to the countries and
weightings of either of these indices. Generally, the FFB Fund maintains
investments in companies located in approximately twenty-five to thirty
countries, including ten to fifteen emerging countries. The equity securities in
which the Fund invests are primarily common stocks, but may also include
preferred stocks, convertible securities and American Depositary Receipts
("ADRs").
Both the Evergreen Fund and the FFB Fund engage in foreign currency
transactions to settle securities transactions and to protect against adverse
changes in foreign currency exchange rates or exchange control regulations,
write covered call options and secured put options to generate income or to lock
in gains, enter into futures contracts involving foreign currency, securities
indices or options thereon and purchase and write put and call options on
foreign securities index futures contracts that are traded on regulated
exchanges.
The FFB Fund may borrow from banks or enter into reverse repurchase
agreements in amounts up to 10% of its net assets for leverage purposes and up
to 25% of its net assets for temporary purposes such as to facilitate
redemptions. The Evergreen Fund can borrow up to one-third of the value of its
total assets as a temporary measure to facilitate redemption requests or for
extraordinary or emergency purposes.
Unlike the Evergreen Fund, the FFB Fund may enter into equity index swap
agreements. By entering into an equity swap agreement as the index receiver, the
FFB Fund can gain exposure to the stocks making up an index of securities in a
foreign market without actually purchasing those stocks.
For defensive purposes, both the Evergreen Fund and the FFB Fund may invest
in money market instruments of U.S. and non-U.S. issuers, obligations of the
U.S. Government and its agencies as well as obligations of foreign governments,
engage in repurchase and reverse repurchase agreements, purchase securities on a
when-issued or delayed delivery basis, invest in illiquid securities, borrow
money as a temporary measure to facilitate redemption requests or for
extraordinary or emergency purposes, and lend portfolio securities in order to
generate income and to offset expenses.
The characteristics of each investment policy and the associated risks are
described in the Prospectus and Statement of Additional Information of each
Fund. Both the Evergreen Fund and the FFB Fund have
-25-
<PAGE>
other investment policies and restrictions which are also set forth in the
Prospectus and Statement of Additional Information of each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION
FFB Funds Trust and Evergreen Investment Trust are open-end management
investment companies registered with the SEC under the 1940 Act which
continuously offer shares to the public. Each is organized as a Massachusetts
business trust and is governed by a Declaration of Trust, By-Laws and Board of
Trustees. Both are also governed by applicable Massachusetts and Federal law.
The FFB Fund is a series of FFB Funds Trust. The Evergreen Fund is a series of
Evergreen Investment Trust.
CAPITALIZATION
The beneficial interests in the Evergreen Fund are represented by an
unlimited number of transferable shares of beneficial interest with no par value
per share. The beneficial interests in the FFB Fund are represented by an
unlimited number of transferable shares of beneficial interest with a $0.001 par
value. The respective Declarations of Trust under which each Fund has been
established permit the respective Trustees to allocate shares into an unlimited
number of series, and classes thereof, with rights determined by the Trustees,
all without shareholder approval. Fractional shares may be issued. Each Fund's
shares have equal voting rights with respect to matters affecting shareholders
of all classes of each Fund and each series of the Trust under which the Fund
has been established, and represent equal proportionate interests in the assets
belonging to the Funds. Shareholders of each Fund are entitled to receive
dividends and other amounts as determined by FFB Funds Trust's Trustees or
Evergreen Investment Trust's Trustees. Shareholders of each Fund vote
separately, by class, as to matters, such as approval or amendments of Rule
12b-1 distribution plans, that affect only their particular class and by series
as to matters, such as approval or amendments of investment advisory agreements
or proposed reorganizations, that affect only their particular series.
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 respective Declarations of Trust under which the
Funds were established disclaim shareholder liability for acts or obligations of
the series and require that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Funds or the
Trustees. The Declarations of Trust provide for indemnification out of the
series' property for all losses and expenses of any shareholder held personally
liable for the obligations of the series. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to
-26-
<PAGE>
circumstances in which a disclaimer is inoperative and the series itself would
be unable to meet its obligations. A substantial number of mutual funds in the
United States are organized as Massachusetts business trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
Neither Evergreen Investment Trust nor FFB Funds Trust, on behalf of the
Funds or any of their other series, is required to hold annual meetings of
shareholders. However, a meeting of shareholders for the purpose of voting upon
the question of removal of a Trustee must be called when requested in writing by
the holders of at least 10% (25% in the case of Evergreen Investment Trust) of
the outstanding shares. In addition, each is 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 Evergreen Investment Trust fail or refuse to call a meeting for a
period of 14 days after a request in writing by shareholders holding an
aggregate of at least 25% of the outstanding shares, then shareholders holding
said 25% may call and give notice of such meeting. Evergreen Investment Trust
and FFB Funds Trust 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 voting is sufficient to act on a matter
(unless otherwise specifically required by the applicable governing documents or
other law, including the 1940 Act).
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 or attributable to the class over the liabilities
belonging to the Fund or attributable to the class. In either case, the assets
so distributable to shareholders of the Fund will be distributed among the
shareholders in proportion to the number of shares of the Fund held by them and
recorded on the books of the Fund.
LIABILITY AND INDEMNIFICATION OF TRUSTEES
The Declaration of Trust of Evergreen Investment Trust provides that no
Trustee or officer shall be liable to the Fund or to any shareholder, Trustee,
officer, employee or agent of the Fund for any action or failure to act except
for his or her own bad faith, willful misfeasance, gross negligence or reckless
disregard of his or her duties. The Declaration of Trust provides that a Trustee
or officer is entitled to indemnification against liabilities and expenses with
respect to claims related to his or her position with Evergreen Investment Trust
unless such Trustee or officer shall have been adjudicated to have acted with
bad faith, willful misfeasance, gross negligence or reckless disregard of his or
her duties, or not to have acted in good faith that his or her action was in the
best interest of the Trust. The Declaration of Trust also provides that a
Trustee or officer is not entitled to indemnification against liabilities
-27-
<PAGE>
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 or her duties.
The Declaration of Trust of FFB Funds Trust provides that no Trustee,
officer or agent shall be personally liable to any person for any action or
failure to act, except for his or her own bad faith, willful misfeasance, or
gross negligence, or reckless disregard of his or her duties. The Declaration of
Trust provides that a Trustee or officer is entitled to indemnification against
liabilities and expenses with respect to claims related to his or her position
with FFB Funds Trust, 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 or her duties, or not to have acted in good faith in
the reasonable belief that his or her action was in the best interest of FFB
Funds Trust, or, in the event of settlement, unless there has been a
determination that such Trustee or officer has engaged in willful misfeasance,
bad faith, gross negligence, or reckless disregard of his or her 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 relative to the
affairs of the Fund.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws and Massachusetts law and is
not a complete description of those documents or law. Shareholders should refer
to the provisions of such respective Declarations of Trust, By-Laws, and
Massachusetts law directly for more complete information.
INFORMATION REGARDING THE PROPOSED INTERIM
ADVISORY AGREEMENT
INTRODUCTION
In view of the Merger Agreement discussed above, and the factors discussed
below, the Board of Trustees of FFB Funds Trust recommends that shareholders of
the FFB Fund approve the proposed Interim Advisory Agreement. The Interim
Advisory Agreement would become effective as of the consummation of the Merger
which, as noted earlier, is currently anticipated to occur by January 1, 1996.
The Interim Advisory Agreement would remain in effect until the closing date for
the Reorganization. The terms of the Interim Advisory Agreement are essentially
the same as the Existing Advisory Agreement (as defined below). The only
differences between the Existing Advisory Agreement and the Interim Advisory
Agreement,
-28-
<PAGE>
if approved by shareholders, are that the investment adviser would be CMG
instead of First Fidelity and the length of time each Agreement is in effect. A
description of the Interim Advisory Agreement pursuant to which CMG would become
the investment adviser to the FFB Fund, as well as the services to be provided
by CMG pursuant thereto is set forth below under "Advisory Services." The
description of the Interim Advisory Agreement in this Prospectus/Proxy Statement
is qualified in its entirety by reference to a Form of the Interim Advisory
Agreement, which will be used for the FFB Fund, attached hereto as Exhibit B.
First Fidelity, 765 Broad Street, Newark, New Jersey 07102, has served as
investment adviser to the FFB Fund since the commencement of operations of the
FFB Fund pursuant to a Master Advisory Contract, dated February 10, 1988 and
Advisory Contract Supplement, dated December 8, 1994. As used herein, the Master
Advisory Contract and the Advisory Contract Supplement for the FFB Fund, taken
together, are referred to, as the FFB Fund's "Existing Advisory Agreement." At a
meeting of the Board of Trustees of the FFB Funds Trust held on August 9, 1995,
the Trustees, including all of the Independent Trustees, approved the proposed
Interim Advisory Agreement for the FFB Fund.
The Trustees have authorized FFB Funds Trust, on behalf of the FFB Fund and
subject to shareholder approval of the Interim Advisory Agreement, to enter into
the Interim Advisory Agreement with CMG to become effective upon consummation of
the Merger. If the Interim Advisory Agreement for the FFB Fund is not approved
by shareholders, the Trustees will consider appropriate actions to be taken with
respect to the FFB Fund's investment advisory arrangements at that time. The
Existing Advisory Agreement was last approved by the Trustees, including a
majority of the Independent Trustees, on December 8, 1994.
COMPARISON OF THE INTERIM ADVISORY AGREEMENT AND THE EXISTING ADVISORY
AGREEMENT
Advisory Services. The management and advisory services to be provided by
CMG under the Interim Advisory Agreement are identical to those currently
provided by First Fidelity under the Existing Advisory Agreement. Under the
Existing Advisory Agreement, First Fidelity manages the FFB Fund and furnishes
to the FFB Fund investment guidance and policy direction in connection
therewith. First Fidelity provides to the FFB Fund, among other things,
information relating to portfolio composition, credit conditions and average
maturity of the portfolio of the FFB Fund. First Fidelity also furnishes to the
Trustees periodic reports on the investment performance of the FFB Fund.
Pursuant to the Existing Advisory Agreement, First Fidelity provides
administrative assistance in connection with the operations of the FFB Fund.
Administrative services provided by First Fidelity include, among other things,
(i) data processing, clerical and bookkeeping services required in connection
with maintaining the financial accounts and records for the Fund, (ii) compiling
statistical and research data required for the
-29-
<PAGE>
preparation of reports and statements which are periodically distributed to the
FFB Funds Trust's officers and the Trustees, (iii) handling general shareholder
relations with investors, such as advice as to the status of their accounts, the
current yield and dividends declared to date and assistance with other questions
related to their accounts and (iv) compiling information required in connection
with the FFB Funds Trust's filings with the SEC.
Furman Selz currently acts as administrator of the FFB Fund. Furman Selz
has its offices at 237 Park Avenue, New york, New York 10017. If the Interim
Advisory Agreement is approved by shareholders of the FFB Fund, Furman Selz will
continue during the term of the Interim Advisory Agreement as the FFB Fund's
administrator for the same compensation as currently received. See
"Summary-Investment Advisers, Sub-Advisers and Administrators."
Fees and Expenses. The investment advisory fees and expense
limitations for the FFB Fund under the Existing Advisory Agreement and the
proposed Interim Advisory Agreement are identical. See "Summary-Investment
Advisers, Sub-Advisers and Administrators."
Expense Reimbursement. The Existing Advisory Agreement includes a provision
calling for expense limitations equal to the most restrictive limitation imposed
from time to time by states where the FFB Fund's shares are qualified for sale.
Currently, the most restrictive state expense limitation provision applicable to
the FFB Fund limits the Fund's annual expenses to 2.5% of the first $30 million
of average net assets, 2.0% of the next $70 million of such assets and 1.5% of
any such assets in excess of $100 million. The Interim Advisory Agreement
contains an identical provision.
Payment of Expenses and Transaction Charges. Under the Existing Advisory
Agreement, the FFB Fund is responsible for all of its expenses and liabilities,
including compensation of the Independent Trustees of FFB Funds Trust; taxes and
governmental fees; interest charges; fees and expenses of the Fund's independent
accountants and legal counsel; trade association membership dues; fees and
expenses of any custodian (including fees and expenses for keeping books and
accounts and calculating the net asset value of shares of the Fund), transfer
agent, registrar and dividend disbursing agent of the Fund; expenses of issuing,
redeeming, registering and qualifying for sale the Fund's shares; expenses of
preparing and printing share certificates, prospectuses, shareholders' reports,
notices, proxy statements and reports to regulatory agencies; the cost of office
supplies; travel expenses of all officers, Trustees and employees; insurance
premiums; brokerage and other expenses of executing portfolio transactions;
expenses of shareholders' meetings; organizational expenses; and extraordinary
expenses.
The Interim Advisory Agreement contains an identical provision.
Limitation of Liability. The Existing Advisory Agreement provides
-30-
<PAGE>
that First Fidelity shall not be liable to the FFB Fund for any mistake in
judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in the Existing Advisory Agreement shall be deemed to
protect or purport to protect First Fidelity against the liability to FFB Funds
Trust or its shareholders to which First Fidelity would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of First Fidelity's duties under the Agreement or by reason of First Fidelity's
reckless disregard of its obligations and duties.
The Interim Advisory Agreement contains an identical provision in terms of
CMG's liability.
Term. If approved by the shareholders of the FFB Fund, the Interim Advisory
Agreement between the FFB Fund and CMG will become effective on the consummation
of the Merger. The Interim Advisory Agreement will be in effect for the period
of time between the effective date of the Merger and the Closing Date for the
Reorganization. The Existing Advisory Agreement provides for an initial term of
two years. Thereafter, the Existing Advisory Agreement will be continued from
year to year, provided that its continuation is specifically approved at least
annually (a) by the vote of a majority of the outstanding voting securities of
the FFB Fund (as defined in the 1940 Act) or by the Board of Trustees and (b) by
the vote, cast in person at a meeting called for the purpose, of a majority of
the Independent Trustees. The Existing Advisory Agreement for the FFB Fund
contains an identical provision.
Termination; Assignment. The Interim Advisory Agreement provides that it
may be terminated without penalty by vote of a majority of the outstanding
voting securities of the FFB Fund (as defined in the 1940 Act) or by a vote of a
majority of FFB Funds Trust's entire Board of Trustees on 60 days' written
notice to CMG or by CMG on 60 days' written notice to FFB Funds Trust. Also, the
Interim Advisory Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act). The Interim Advisory Agreement for the
FFB Fund contains identical provisions as to termination and assignment.
INFORMATION ABOUT THE FFB FUND'S CURRENT AND PROPOSED INTERIM INVESTMENT
ADVISERS
First Fidelity. First Fidelity currently serves as the investment adviser
for the FFB Fund. First Fidelity is a national banking association which
provides commercial banking and trust business services throughout New Jersey.
It is a wholly-owned subsidiary of First Fidelity Incorporated, originally
established in 1812, which, as a result of a reorganization with Fidelcor, Inc.,
a Pennsylvania bank holding company, is now a wholly-owned subsidiary of FFB.
FFB, a New Jersey corporation, provides financial and related services through
its subsidiary organizations. The investment advisory services of First Fidelity
are provided through the Asset Management Group of the Trust Division which, as
of June 30, 1995, had approximately $15 billion of client assets under
management. First Fidelity has provided investment advisory services to
-31-
<PAGE>
investment companies since 1986 and currently acts as investment adviser to the
First Fidelity family of mutual funds.
For the months ended , First Fidelity received an aggregate of $ in
management fees which is equal to an annual fee of $0. % of the FFB Fund's
average daily net assets. Absent voluntary waivers, First Fidelity, for such
period, would have received $ in management fees (0. % of the FFB Fund's average
daily net assets). First Fidelity also acts as custodian and transfer agent for
the FFB Fund. For these services, First Fidelity received fees of $ and $ ,
respectively, for the months ended . Absent voluntary waivers, First Fidelity
would have received in such capacities $ and $ , respectively. First Fidelity
will continue to act as the FFB Fund's custodian and transfer agent during the
term of the Interim Advisory Agreement.
CMG. For information about CMG, FUNB, Evergreen Asset and First Union, see
"Summary-Investment Advisers, Sub-Adviser and Administrators." The name, address
and principal occupation of the principal executive officers and directors of
FUNB are set forth in Appendix A to this Prospectus/Proxy Statement.
During the term of the Interim Advisory Agreement, CMG will receive
compensation for managing the FFB Fund at the same effective annual rate ( %) as
received by First Fidelity, pursuant to the Existing Advisory Agreement (net of
any waivers). CMG is the investment adviser to the Evergreen Fund which, if
approved by shareholders of the FFB Fund, will acquire substantially all of the
assets of the FFB Fund. CMG is entitled to receive an annual management fee
equal to 0.82% of the Evergreen Fund's average daily net assets. For the fiscal
year ended December 31, 1994, CMG, received $60,885 in management fees. Absent
voluntary waivers, CMG, for such period, would have received $105,813 in
management fees (0.82% of the Evergreen Fund's average daily net assets). See
"Summary-Investment Advisers, Sub-Adviser and Administrators."
The Board of Trustees considered the Interim Advisory Agreement as part of
its overall approval of the Plan. The Board of Trustees considered, among other
things, the factors set forth above in "Information about the Reorganization -
Reasons for the Reorganization." The Board of Trustees also considered the fact
that there were no material differences between the terms of the Interim
Advisory Agreement and the terms of the Existing Advisory Agreement.
INFORMATION REGARDING THE PROPOSED INTERIM SUB-ADVISORY AGREEMENT
INTRODUCTION
In view of the Merger Agreement discussed above, and the factors discussed
below, the Board of Trustees of FFB Funds Trust recommends that shareholders of
the FFB Fund approve the proposed Interim Sub-Advisory
-32-
<PAGE>
Agreement. The Interim Sub-Advisory Agreement would become effective as of the
consummation of the Merger which, as noted earlier, is currently anticipated to
occur by January 1, 1996. The Interim Sub-Advisory Agreement would remain in
effect until the closing date for the Reorganization. The terms of the Interim
Sub-Advisory Agreement are essentially the same as the Existing Sub-Advisory
Agreement (as defined below). The only differences between the Existing
Sub-Advisory Agreement and the Interim Sub-Advisory Agreement, if approved by
shareholders, are that the Agreement would be between CMG, rather than First
Fidelity, and Blairlogie and the length of time the Agreement is in effect. A
description of the Interim Sub-Advisory Agreement pursuant to which Blairlogie
would be the investment sub-adviser to the FFB Fund, as well as the services to
be provided by Blairlogie pursuant thereto is set forth below under
"Sub-Advisory Services." The description of the Interim Sub-Advisory Agreement
in this Prospectus/Proxy Statement is qualified in its entirety by reference to
a Form of the Interim Sub-Advisory Agreement, which will be used for the FFB
Fund, attached hereto as Exhibit C.
Blairlogie, 125 Princes Street, Edinburgh, EH2 4AD, Scotland has served as
investment adviser to the FFB Fund pursuant to a Sub-Advisory Contract, dated
February 17, 1995. See "Summary - Investment Advisers, Sub-Advisers and
Administrators." As used herein, the Sub-Advisory Contract for the FFB Fund, is
referred to, as the FFB Fund's "Existing Sub- Advisory Agreement." At a meeting
of the Board of Trustees of the FFB Funds Trust held on August 9, 1995, the
Trustees, including all of the Independent Trustees, approved the proposed
Interim Sub-Advisory Agreement for the FFB Fund.
The Trustees have authorized FFB Funds Trust, on behalf of the FFB Fund and
subject to shareholder approval of the Interim Sub-Advisory Agreement, to enter
into the Interim Sub-Advisory Agreement with CMG and Blairlogie to become
effective upon consummation of the Merger. If the Interim Sub-Advisory Agreement
for the FFB Fund is not approved by shareholders, the Trustees will consider
appropriate actions to be taken with respect to the FFB Fund's investment
sub-advisory arrangements at that time. The Existing Sub-Advisory Agreement was
last approved by the Trustees, including a majority of the Independent Trustees,
on December 8, 1994.
COMPARISON OF THE INTERIM SUB-ADVISORY AGREEMENT AND THE EXISTING SUB-
ADVISORY AGREEMENT
Sub-Advisory Services. The management and advisory services to be provided
by Blairlogie under the Interim Sub-Advisory Agreement are identical to those
currently provided by Blairlogie under the Existing Sub- Advisory Agreement.
Under the Existing Sub-Advisory Agreement, Blairlogie manages the FFB Fund and
makes investments for the account of the Fund in accordance with its best
judgment. Blairlogie advises the FFB Funds Trust's officers and Board of
Trustees, at such times as the Board of Trustees may specify, of investments
made for the Fund and when requested by FFB Funds Trust's officers or Board of
Trustees, supplies the reasons
-33-
<PAGE>
for making particular investment. Blairlogie also furnishes to the Trustees
periodic reports on the investment performance of the FFB Fund and on the
performance of its obligations under the Existing Sub-Advisory Agreement.
Fees and Expenses. The investment sub-advisory fees and expense limitations
for the FFB Fund under the Existing Sub-Advisory Agreement and the proposed
Interim Sub-Advisory Agreement are identical. As compensation for its
sub-advisory services under the Existing Sub-Advisory Agreement Blairlogie is
paid by First Fidelity a monthly fee at an annual rate of 0.75% of the FFB
Fund's average daily net assets. For the months ended [ ], Blairlogie received
an aggregate of $ in advisory fees which is equal to an annual fee of $0. % of
the FFB Fund's average daily net assets. Absent voluntary waivers, Blairlogie,
for such period, would have received $ in advisory fees (0. % of the FFB Fund's
average daily net assets).
If the Interim Investment Sub-Advisory Agreement is approved by
Shareholders, Blairlogie will continue to act as the Investment Sub-Adviser to
the FFB Fund for the same effective compensation rate described above. The name,
address and principal occupation of the principal executive officers and
directors of Blairlogie are set forth in Appendix B to this Prospectus/Proxy
Statement.
Expense Reimbursement. The Existing Sub-Advisory Agreement includes
provisions calling for expense limitations equal to the most restrictive
limitation imposed from time to time by states where the FFB Fund's shares are
qualified for sale and an overall expense limitation of 1.75% of the Fund's net
assets. The Existing Sub-Advisory Agreement provides that Blairlogie shall pay
First Fidelity an amount equal to 75/140 of that excess. The Interim
Sub-Advisory Agreement contains an identical provision as to the expense
reimbursement arrangement between Blairlogie and CMG.
Limitation of Liability. The Existing Sub-Advisory Agreement provides that
Blairlogie shall not be liable for any mistake in judgment or in any other event
whatsoever except for lack of good faith, provided that nothing in the Existing
Sub-Advisory Agreement shall be deemed to protect or purport to protect
Blairlogie against the liability to First Fidelity, FFB Funds Trust or its
shareholders to which Blairlogie would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of Blairlogie's
duties under the Agreement or by reason of Blairlogie's reckless disregard of
its obligations and duties. The Interim Sub-Advisory Agreement contains an
identical provision as to the arrangement between Blairlogie and CMG.
Term. If approved by the shareholders of the FFB Fund, the Interim
Sub-Advisory Agreement will become effective on the consummation of the
Merger. The Interim Sub-Advisory Agreement will be in effect for the
period of time between the effective date of the Merger and the Closing
Date for the Reorganization. The Existing Sub-Advisory Agreement provides
for an initial term of two years. Thereafter, the Existing Sub-Advisory
-34-
<PAGE>
Agreement provides for continuation from year to year, provided that its
continuation is specifically approved at least annually (a) by the vote of a
majority of the outstanding voting securities of the FFB Fund (as defined in the
1940 Act) or by the Board of Trustees and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Independent Trustees. The
Interim Advisory Agreement contains an identical provision.
Termination; Assignment. The Interim Sub-Advisory Agreement provides that
it may be terminated without penalty by vote of a majority of the outstanding
voting securities of the FFB Fund (as defined in the 1940 Act) or by a vote of a
majority of FFB Funds Trust's entire Board of Trustees on 60 days' written
notice to Blairlogie or by Blairlogie on 60 days' written notice to FFB Funds
Trust. Also, the Interim Sub-Advisory Agreement will automatically terminate in
the event of its assignment (as defined in the 1940 Act). The Existing
Sub-Advisory Agreement for the Fund contains identical provisions as to
termination and assignment.
The Board of Trustees considered the Interim Sub-Advisory Agreement as part
of its overall approval of the Plan. The Board of Trustees considered, among
other things, the factors set forth above in "Information about the
Reorganization - Reasons for the Reorganization." The Board of Trustees also
considered the fact that there were no material differences between the terms of
the Interim Sub-Advisory Agreement and the terms of the Existing Sub-Advisory
Agreement.
ADDITIONAL INFORMATION
Evergreen Fund. Information concerning the operation and management of the
Evergreen Fund is incorporated herein by reference from the Prospectus dated
July 7, 1995, a copy of which is enclosed, and Statement of Additional
Information dated July 7, 1995. A copy of such Statement of Additional
Information is available upon request and without charge by writing to the
Evergreen Fund, at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-807-2940.
FFB Fund. Information about the FFB Fund is included in its current
Prospectus dated March 1, 1995 and in the Statement of Additional Information of
the same date that have been filed with the SEC, all of which are incorporated
herein by reference. A copy of the Prospectus and Statement of Additional
Information and the Fund's Semi-Annual Report dated August 31, 1995 are
available upon request and without charge by writing to the FFB Fund at the
address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-437-8790.
Evergreen Investment Trust and FFB Funds Trust are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549,
-35-
<PAGE>
and at the SEC's Regional Offices located at Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60661-2511 and Seven World Trade
Center, Suite 1300, New York, New York 10048.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of FFB Funds Trust to be used
at the Special Meeting of Shareholders to be held at 10:00 a.m. November 13,
1995, at the offices of the FFB Fund, 237 Park Avenue, New York, New York 10017
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 September 28, 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, but will have the effect of
being counted as votes against the Plan. A proxy may be revoked at any time on
or before the Meeting by written notice to the Secretary of FFB Funds Trust, 237
Park Avenue, New York, New York 10017. Unless revoked, all valid proxies will be
voted in accordance with the specifications thereon or, in the absence of such
specifications, FOR approval of the Plan and the Reorganization contemplated
thereby.
Approval of the Plan will require the affirmative vote of more than 50% of
the outstanding voting securities, with all classes voting together as one
class. Approval of the Interim Advisory Agreement and Interim Sub- Advisory
Agreement will require the affirmative vote of (i) 67% or more of the
outstanding voting securities if holders of more than 50% of the outstanding
voting securities are present, in person or by proxy, at the Meeting, or (ii)
more than 50% of the outstanding voting securities, whichever is less, with all
classes voting together as one class. Each full share outstanding is entitled to
one vote and each fractional share outstanding is entitled to a proportionate
share of one vote.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone, telegraph or personal solicitations conducted by
officers and employees of FUNB or First Fidelity, their affiliates or other
representatives of FFB Funds Trust (who will not be paid for their solicitation
activities). has been
-36-
<PAGE>
engaged by First Fidelity to assist in soliciting proxies, and may contact
certain shareholders of the FFB Fund over the telephone. Shareholders that are
contacted by may be asked to cast their vote by telephonic proxy. Such proxies
will be recorded in accordance with the procedures set forth below. First
Fidelity believes these procedures are reasonably designed to ensure that the
identity of the shareholder casting the vote is accurately determined and that
the voting instructions of the shareholder are accurately reflected. has
received an opinion of that addresses the validity, under the applicable law of
the Commonwealth of Massachusetts, of a proxy given orally. The opinion given by
concludes that a Massachusetts court would find that there is no Massachusetts
law or Massachusetts public policy against the acceptance of proxies signed by
an orally-authorized agent.
In all cases where a telephonic proxy is solicited, the representative will
ask you for your full name, address, social security or employer identification
number, title (if you are authorized to act on behalf of an entity, such as a
corporation), and number of shares owned. If the information solicited agrees
with the information provided to
by First Fidelity, then the representative will explain the process, read the
proposals listed on the proxy card and ask for your instructions on each
proposal. The representative, although he or she will answer questions about the
process, will not recommend to the shareholder how he or she should vote, other
than to read any recommendations set forth in the proxy statement. Within 72
hours,
will send you a letter or mailgram to confirm your vote and asking you to
call immediately if your instructions are not correctly reflected in the
confirmation.
If you wish to participate in the Meeting, but do not wish to give your
proxy by telephone, you may still submit the proxy card included with this
Prospectus/Proxy Statement or attend in person. Any proxy given by you, whether
in writing or by telephone, is revocable.
In the event that sufficient votes to approve the Reorganization are not
received by November 13, 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 Reorganization will not be
entitled under either Massachusetts law or the Declaration of Trust of FFB Funds
Trust to demand payment for, or an appraisal of, his or her shares.
-37-
<PAGE>
However, shareholders should be aware that the Reorganization as proposed is not
expected to result in recognition of gain or loss to shareholders for federal
income tax purposes and that, if the Reorganization is consummated, shareholders
will be free to redeem the shares of the Evergreen Fund which they receive in
the transaction at their then-current net asset value. Shares of the FFB Fund
may be redeemed at any time prior to the consummation of the Reorganization. FFB
Fund shareholders may wish to consult their tax advisers as to any differing
consequences of redeeming FFB Fund shares prior to the Reorganization or
exchanging such shares in the Reorganization.
FFB Funds Trust does not hold annual shareholder meetings. If the
Reorganization is not approved, shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of FFB Funds Trust
at the address set forth on the cover of this Prospectus/Proxy Statement such
that they will be received by FFB Funds Trust in a reasonable period of time
prior to any such meeting.
The votes of the shareholders of the Evergreen 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 FFB Fund whether other persons are beneficial owners of shares
for which proxies are being solicited and, if so, the number of copies of this
Prospectus/Proxy Statement needed to supply copies to the beneficial owners of
the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Evergreen 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 Evergreen
Fund, given on the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the Evergreen
Fund will be passed upon by Sullivan & Worcester, Washington, D.C.
OTHER BUSINESS
The Trustees of FFB Funds Trust 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.
-38-
<PAGE>
THE BOARD OF TRUSTEES OF FFB FUNDS TRUST, INCLUDING THE INDEPENDENT
TRUSTEES, RECOMMENDS APPROVAL OF THE PLAN, THE INTERIM ADVISORY AGREEMENT AND
THE INTERIM SUB-ADVISORY AGREEMENT, AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN, THE
INTERIM ADVISORY AGREEMENT AND THE INTERIM SUB-ADVISORY AGREEMENT.
September 28, 1995
-39-
<PAGE>
APPENDIX A
The name, address and principal occupation of the principal executive
officers and directors of First Union National Bank of North Carolina are as
follows:
Principal Occupation
Name and Address During Past 5 Years
Directors:
Ben Mayo Boddie Chairman & CEO of
Boddie-Noell Enterprises, Inc. Boddie-Noell
P.O. Box 1908 Enterprises, Inc.
Rocky Mount, NC 27802
John F.A.V. Cecil President of Biltmore
Biltmore Dairy Farms, Inc. Dairy Farms, Inc.
P.O. Box 5355
Asheville, NC 28813
John Crosland, Jr. Chairman of the Board
The Crosland Group, Inc. of The Crosland Group
135 Scaleybark Road
Charlotte, NC 28209
------------------------------------
Frank H. Dunn Chairman and CEO of
First Union National Bank of FUNB
North Carolina
One First Union Center
Charlotte, NC 28288-0006
James F. Goodmon Capitol President & Chief
Broadcasting Company, Inc. Executive Officer of
2619 Eastern Blvd. Capitol Broadcasting
Raleigh, NC 27605 Company, Inc.
Charles L. Grace President of Cummins
President Atlantic, Inc.
Cummins Atlantic, Inc.
P.O. Box 240729
Charlotte, NC 28224-0729
Daniel W. Mathis Vice Chairman of FUNB
First Union National Bank of
North Carolina
One First Union Center
Charlotte, NC 28288-0006
Raymond A. Bryan, Jr. Chairman & CEO of
T.A. Loving Company T.A. Loving Company
P.O. Drawer 919
Goldsboro, NC 27530
<PAGE>
John W. Copeland President of Ruddick
Ruddick Corporation Corporation
2000 Two First Union Center
Charlotte, NC 28282
J. William Disher Chairman & President of
Lance Incorporated Lance Incorporated
P.O. Box 32368
Charlotte, NC 28232
Malcolm E. Everett, III President of FUNB
First Union National Bank of
North Carolina
310 S. Tryon Street
Charlotte, NC 28288-0156
Shelton Gorelick President of SGIC, Inc.
SGIC, Inc.
741 Kenilworth Ave., Suite 200
Charlotte, NC 28204
James E.S. Hynes Chairman of Hynes Sales
Hynes Sales Company, Inc. Company, Inc.
P.O. Box 220948
Charlotte, NC 28222
Earl N. Phillips, Jr. President of First
First Factors Corporation Factors Corporation
P.O. Box 2730
High Point, NC 27261
J. Gregory Poole, Jr. Chairman & President of
Gregory Poole Equipment Company Gregory Poole Equipment
P.O. Box 469 Company
Raleigh, NC 27602
Nelson Schwab, III Chairman & CEO of
Paramount Parks Paramount Parks
8720 Red Oak Boulevard
Suite 315
Charlotte, NC 28217
George Shinn Owner and Chairman of
Shinn Enterprises, Inc. Shinn Enterprises, Inc.
One Hive Drive
Charlotte, NC 28217
-2-
<PAGE>
John P. Rostan, III Senior Vice President
Waldensian Bakeries, Inc. of Waldensian Bakeries,
P.O. Box 220 Inc.
Valdese, NC 28690
Charles M. Shelton, Sr. Chairman & CEO of The
The Shelton Companies, Inc. Shelton Companies, Inc.
3600 One First Union Center
Charlotte, NC 28202
Harley F. Shuford, Jr. President and CEO of
Shuford Industries P.O. Box 608 Shuford Industries
Hickory, NC 28603
Principal Executive
Officers:
James Maynor President of First
Union Mortgage
Corporation
Austin A. Adams Executive Vice
President
Howard L. Arthur Senior Vice President
Robert T. Atwood Executive Vice
President and Chief
Financial Officer
Marion A. Cowell, Jr. Executive Vice
President, Secretary
and General Counsel
Edward E. Crutchfield, Jr. Chairman, CEO of First
Union Corporation
Frank H. Dunn, Jr. Chairman and CEO
Malcolm E. Everett, III President
John R. Georgius President of First
Union Corporation
-3-
<PAGE>
James Hatch Senior Vice President
and Corporate
Controller
Don R. Johnson Executive Vice
President
Mark Mahoney Senior Vice President
Barbara K. Massa Senior Vice President
Daniel W. Mathis Vice Chairman
H. Burt Melton Executive Vice
President
Malcolm T. Murray, Jr. Executive Vice
President
Alvin T. Sale Executive Vice
President
Louis A. Schmitt, Jr. Executive Vice
President
Ken Stancliff Senior Vice President
and Corporate Treasurer
Richard K. Wagoner Executive Vice
President and General
Fund Officer
Unless otherwise indicated, the address of each person listed above is
First Union National Bank of North Carolina, One First Union Center, Charlotte,
NC 28288.
-4-
<PAGE>
APPENDIX B
The name, address and principal occupation of the principal executive
officers and directors of Blairlogie Capital Management Ltd. are as follows:
Principal Occupation During
Past 5 Years
Name and Address
Directors:
Principal Executive
Officers:
<PAGE>
FFB INTERNATIONAL
Draft: 8-18-95 Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
day of August, 1995, by and between Evergreen Investment Trust, a Massachusetts
business trust (the "Evergreen Trust"), with its principal place of business at
2500 Westchester Avenue, Purchase, New York 10577, with respect to its Evergreen
International Equity Fund series (the "Acquiring Fund"), and FFB Funds Trust
(the "FFB Trust"), a Massachusetts business trust, with respect to its FFB
Diversified International Growth Fund series, with its principal place of
business at 237 Park Avenue, New York, New York 10017 (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 Class Y shares of beneficial
interest, without par value, 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 are 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 Evergreen Trust [Acquiring Fund] 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 FFB Trust 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
<PAGE>
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 ratio of the net asset value per share of the
shares of the Acquiring Fund and the Selling Fund 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 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 are 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 Furman Selz Incorported, the 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
-2-
<PAGE>
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.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Selling Fund
shares on the books of the Selling Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling Fund
is and shall remain the responsibility of the Selling Fund up to and including
the Closing Date and such later date on which the Selling Fund is terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following the
Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
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 Evergreen 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 each class of Acquiring Fund
Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Evergreen 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 of each class
to be issued (including fractional shares, if any) in exchange for the Selling
Fund's assets shall be determined by dividing the net asset value per share of
the Selling Fund attributable to each of its classes by the net asset value per
share of the respective classes of the Acquiring Fund determined in accordance
with paragraph 2.2.
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.
-4-
<PAGE>
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on January 19,
1996 or such other date as the parties may agree to in writing (the "Closing
Date"). All acts taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the Closing Date unless otherwise
provided. The Closing shall be held as of 9:00 o'clock a.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. First Fidelity Bank, N.A., as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that: (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to the
Acquiring Fund on the Closing Date and (b) all necessary taxes including all
applicable Federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
3.3 Effect of Suspension in Trading. In the event that on the Valuation Date (a)
the New York Stock Exchange or another primary trading market for portfolio
securities of the Acquiring Fund or the Selling Fund shall be closed to trading
or trading thereon shall be restricted, or (b) trading or the reporting of
trading on said Exchange or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the Selling
Fund is impracticable, the 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. First Fidelity Bank, N.A., as transfer agent
for the Selling Fund shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the Selling
Fund Shareholders and the number and percentage ownership of outstanding shares
owned by each such shareholder immediately prior to the Closing. The Acquiring
Fund shall issue and deliver or cause its transfer agent to issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Secretary of the FFB Trust , 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 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 Selling Fund is a separate investment series of a registered investment
company classified as a management company of the open-end type and its
registration with the Securities and Exchange
-5-
<PAGE>
Commission (the "Commission") as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act") is in full force and effect;
(c) The current 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 a violation of
any provision of the FFB Trust'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 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 June 30, 1995 are in
accordance with generally accepted accounting principles consistently applied,
and such statements (copies of which have been furnished to the Acquiring Fund)
fairly reflect the financial condition of the Selling Fund as of such date, and
there are no known contingent liabilities of the Selling Fund as of such date
not disclosed therein;
(h) Since June 30, 1995 there has not been any material adverse change in the
Selling Fund's financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any incurrence by the
Selling Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund. For the purposes of this subparagraph (h), a decline in the net
asset value of the Selling Fund shall not constitute a material adverse change;
(i) At the Closing Date, all Federal and other tax returns and reports of the
Selling Fund required by law to have been filed by such dates shall have been
filed, and all Federal and other taxes shown due on said returns and reports
shall have been paid, or provision shall have been made for the payment thereof
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 fiscal year of its operation, the Selling Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company and has distributed in each
-6-
<PAGE>
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 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.
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;
-7-
<PAGE>
(c) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(d) The Acquiring Fund is not, and the execution, delivery and performance of
this Agreement will not, result in a violation of Evergreen 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 in writing to the Selling Fund and accepted by
the Selling Fund, no litigation, administrative proceeding or investigation of
or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition and the conduct of its business or the ability of the
Acquiring Fund to carry out the transactions contemplated by this Agreement. The
Acquiring Fund knows of no facts 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, have
been audited by KPMG Peat Marwick LLP, 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 Selling Fund)
fairly reflect the financial condition of the Acquiring Fund as of such date,
and there are no known contingent liabilities affecting the Acquiring Fund as of
such date not disclosed therein;
(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 by such dates shall have been
filed, and all Federal and other taxes shown due on said returns and reports
shall have been paid or provision shall have been made for the payment thereof
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 and has distributed in each such year all net
investment income and realized capital gains;
(j) All issued and outstanding Acquiring Fund Shares are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid and
non-assessable (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
-8-
<PAGE>
outstanding any security convertible into any Acquiring Fund Shares;
(k) The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of the Acquiring Fund, and this
Agreement constitutes a valid and binding obligation of the Acquiring Fund
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to the Selling Fund,
for the account of the Selling Fund Shareholders, pursuant to the terms of this
Agreement will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Acquiring Fund Shares, and will
be fully paid and non-assessable (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 FFB Trust 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
-9-
<PAGE>
Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the Acquiring
Fund and the Selling Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Selling Fund shall furnish
the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring
Fund, a statement of the earnings and profits of the Selling Fund for Federal
income tax purposes 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 FFB Trust'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 which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act in connection
with the meeting of the Selling Fund Shareholders to consider approval of this
Agreement and the transactions contemplated herein.
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 Evergreen Trust's President or
Vice President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request; 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) this Agreement has been duly authorized, executed and
delivered by the Acquiring Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration 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 this Agreement by the Selling Fund, is
a valid and binding
-10-
<PAGE>
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 thereof has been paid,
the Acquiring Fund Shares to be issued and delivered to the Selling Fund on
behalf of the Selling Fund Shareholders as provided by this 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 this Agreement did not, and the consummation of the
transactions contemplated hereby will not, result in a violation of the
Evergreen Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound; (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 or filed 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
Evergreen Trust's officers and other representatives of the Acquiring Fund), no
facts have come to their attention that lead them to believe that the Prospectus
and Proxy Statement as of its date, as of the date of the Selling Fund
Shareholders' meeting, and as of the Closing Date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein regarding the Acquiring Fund or necessary, in the light of the
circumstances under which they were made, to make the statements therein
regarding the Acquiring Fund not misleading. Such opinion may state that such
counsel does not express any opinion or belief as to the financial statements or
any financial or statistical data, or as to the information relating to the
Selling Fund, contained in the Prospectus and Proxy Statement or the
Registration Statement, and that such opinion is solely for the benefit of the
-11-
<PAGE>
FFB Trust and 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 therein.
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.
6.3 The merger between First Union Corporation and First Fidelity Corporation
shall be completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants and warranties of the Selling Fund contained
in this Agreement shall be true and correct as of the date hereof and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date, and the Selling Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by the FFB Trust'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 FFB Trust; and
7.3 The Acquiring Fund shall have received on the Closing Date an opinion of
Baker & McKenzie, counsel to the Selling Fund, in a form satisfactory to the
Acquiring Fund covering the following points:
That (a) the Selling 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) this Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration 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 this Agreement by the Acquiring Fund,
is a valid and binding obligation of the Selling Fund enforceable against the
Selling Fund in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles; (c) the
execution and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, result in a violation of the FFB
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 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
-12-
<PAGE>
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 thereof has been paid, and assuming
that such shares were issued in accordance with the terms of the Selling Fund's
registration statement, or any amendment thereto, in effect at the time of such
issuance, all issued and outstanding shares of the Selling Fund are legally
issued and fully paid and non-assessable (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 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
FFB Trust'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 Evergreen Trust and the Acquiring Fund. Such
opinion shall contain such other assumptions and limitations as shall be in the
opinion of Baker & McKenzie appropriate to render the opinions expressed therein
and shall indicate, with respect to matters of Massachusetts law, that as Baker
& McKenzie are not admitted to the bar of Massachusetts, such opinions are based
either upon the review of published statutes, case and rules and regulations of
the Commonwealth of Massachusetts or upon an opinion of Massachusetts counsel.
In this paragraph 7.3, 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.
-13-
<PAGE>
7.4 The merger between First Union Corporation and First Fidelity Bancorporation
shall be completed prior to the Closing Date.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the FFB Trust'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 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, 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:
-14-
<PAGE>
(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 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 KPMG Peat Marwick LLP a letter
addressed to the Acquiring Fund, 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) 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 FFB Trust responsible
for financial and accounting matters, nothing came to their attention which
caused them to believe that such unaudited pro forma financial statements do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations thereunder;
or (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), 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; (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 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
Evergreen 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 KPMG Peat Marwick LLP in writing
by the Acquiring Fund); and
-15-
<PAGE>
(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 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.
In addition, the Acquiring Fund shall have received from KPMG Peat Marwick
LLP a letter addressed to the Acquiring Fund dated on the Closing Date, in form
and substance satisfactory to the Acquiring Fund, to the effect that on the
basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards) the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a letter
addressed to the Selling Fund, in form and substance satisfactory to the Selling
Fund, to the effect that (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) 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 Evergreen Trust
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that such unaudited pro forma financial
statements do not comply as to form in all material respects with the applicable
accounting 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), the Capitalization Table appearing in
the Registration Statement and Prospectus and Proxy Statement, has been obtained
from and is consistent with the accounting records of the Acquiring Fund; and
(iv) on the basis of limited procedures agreed upon by the Selling Fund (but not
an examination in accordance with generally accepted auditing standards) the
data utilized in the calculations of the projected expense ratio appearing in
the Registration Statement and Prospectus and Proxy Statement agree with
underlying accounting records of the Acquiring 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 KPMG
Peat Marwick LLP 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.
-16-
<PAGE>
9.2 Except as otherwise provided for herein, all expenses of the transactions
contemplated by this Agreement incurred by the Selling Fund and the Acquiring
Fund will be borne by First Union National Bank of North Carolina ("FUNB"). 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
transaction. Not withstanding the foregoing, the Acquiring Fund shall pay its
own Federal and state registration fees. In the event that the merger of First
Fidelity Bancorporation and First Union Corporation is not completed, this
Agreement shall terminate. In such event, all expenses of the transactions
contemplated by this Agreement incurred by the Acquiring Fund will be borne by
FUNB and all expenses of the transactions contempleted by this Agreement
incurred by the Selling Fund will be borne by First Fidelity Bank, N.A.
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.
ARTICLE XI
TERMINATION
11.1 In addition to the termination provisions set forth in paragraph 9.2, 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 Evergreen Trust or the FFB 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.
-17-
<PAGE>
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 FFB Trust 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
Evergreen Investment Trust
2500 Westchester Avenue
Purchase, New York 10577
Attention: Joseph J. McBrien, Esq.
or to the Selling Fund
FFB Funds Trust
237 Park Avenue
New York, New York 10017
Attention: Edmund A. Hajim
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
-18-
<PAGE>
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 FFB Trust or the
Evergreen Trust, personally, but bind only the trust property of the Selling
Fund and the Acquiring Fund, as provided in the Declarations of Trust of the FFB
Trust and the Evergreen Trust. The execution and delivery of this Agreement have
been authorized by the Trustees of the FFB Trust on behalf of the Selling Fund,
and the Evergreen Trust on behalf of the Acquiring Fund and signed by authorized
officers of the FFB Trust and the Evergreen Trust, acting as such, and neither
such authorization by such Trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the FFB Trust and the Evergreen Trust as provided in their
Declarations of Trust.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and sealed this Agreement,
all as of the date first written above.
EVERGREEN INVESTMENT TRUST
on behalf of Evergreen International Equity Fund
By:/s/ John J. Pileggi
Name: John J. Pileggi
Title: President
(Seal)
FFB FUNDS TRUST
on behalf of FFB Diversified International Growth Fund
By: /s/ Edmund A. Hajim
Name: Edmund A. Hajim
Title: President
-20-
<PAGE>
EXHIBIT B
INTERIM MASTER ADVISORY CONTRACT
FFB FUNDS TRUST
230 Park Avenue
New York, New York l0l69
December __, 1995
First Union National Bank of
North Carolina
One First Union
Charlotte, North Carolina 28288
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and First Union National Bank of North Carolina (the "Adviser") as follows:
1. The Trust is an open-end investment company organized as a
Massachusetts business trust, and consists of one or more separate investment
portfolios as may be established and designated by the Trustees from time to
time (the "Funds"). This contract shall pertain to any Fund as shall be
designated in a Supplement to this contract ("Supplement"), as further agreed
between the Trust and the Adviser. A separate class of shares of beneficial
interest of the Trust is offered to investors with respect to each Fund. The
Trust engages in the business of investing and reinvesting the assets of the
Funds in the manner and in accordance with the investment objective and
restrictions specified in the Trust's Declaration of Trust and the currently
effective Prospectus or Prospectuses (the "Prospectus") relating to the Trust
and the Funds included in the Trust's Registration Statement, as amended from
time to time (the "Registration Statement"), filed by the Trust under the
Investment Company Act of 1940 (the "1940 Act") and the Securities Act of 1933
(the "1933 Act"). Copies of the documents referred to in the preceding sentence
have been furnished to the Adviser. Any amendments to those documents shall be
furnished to the Adviser promptly.
2. The Trust employs the Adviser to provide the investment advisory
and administrative services specified elsewhere in this contract, and the
Adviser hereby accepts such employment. Pursuant to a Master Distribution
Contract (the "Master Distribution Contract") and a Master Administrative
Services Contract (the "Master Administrative Services Contract") between the
Trust and Furman Selz Mager Dietz & Birney Incorporated (the "Sponsor"), the
Trust has employed the Sponsor
<PAGE>
to act as distributor for the Funds and to provide to the Trust
management and other services.
3. (a) The Adviser shall, at its expense, (i) employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this contract and (ii) provide all advisory, administrative,
management and shareholder services, equipment, facilities and personnel
necessary to perform its obligations under this contract. The Trust recognizes
that in those cases where the Adviser makes arrangements with its correspondent
banks to maintain a subaccount for certain of their customers who invest in
shares of the Funds, such correspondent banks may also agree to provide services
to subaccount holders of the type provided by the Adviser to shareholders of
record. The Adviser shall obtain the Trust's prior written approval to each
arrangement whereby a correspondent bank agrees to provide such services. Such
correspondent banks will be compensated for such services exclusively by the
Adviser.
(b) Except as provided in subparagraph (a) in the Master
Administrative Services Contract, the Trust shall be responsible for all of its
expenses and liabilities, including compensation of its trustees who are not
affiliated with the Sponsor; taxes and governmental fees; interest charges; fees
and expenses of the Trust's independent accountants and legal counsel; trade
association membership dues; fees and expenses of any custodian (including fees
and expenses for keeping books and accounts and calculating the net asset value
of shares of the Funds), transfer agent, registrar and dividend disbursing agent
of the Trust; expenses of issuing, redeeming, registering and qualifying for
sale the Trust's shares; expenses of preparing and printing share certificates,
prospectuses, shareholders' reports, notices, proxy statements and reports to
regulatory agencies; the cost of office supplies; travel expenses of all
officers, trustees and employees; insurance premiums; brokerage and other
expenses of executing portfolio transactions; expenses of shareholders'
meetings; organizational expenses; and extraordinary expenses.
4. (a) The Adviser shall provide to the Trust investment guidance and
policy direction in connection with the management of the portfolios of the
Funds, including oral and written research analysis, advice, statistical and
economic data and information and judgments, of both a macroeconomic and
microeconomic character, concerning, among other things, interest rate trends,
portfolio composition, credit conditions of both a general and specific nature
and, where applicable, the average maturity of the portfolio of the Fund.
- 2 -
<PAGE>
(b) The Adviser shall also provide to the Trust's officers
administrative assistance in connection with the operation of the Trust for the
account of the Funds. Administrative services provided by the Adviser shall
include (i) data processing, clerical and bookkeeping services required in
connection with maintaining the financial accounts and records for the Trust and
the Funds, (ii) the compilation of statistical and research data required for
the preparation of periodic reports and statements of the Fund which are
distributed to the Trust's officers and Board of Trustees, (iii) handling, or
causing to be handled, general shareholder relations with Fund investors, such
as advice as to the status of their accounts, the current yield and dividends
declared to date and assistance with other questions related to their accounts,
(iv) the compilation of information required in connection with the Trust's
filings with the Securities and Exchange Commission and (v) such other services
as the Adviser shall from time to time determine, upon consultation with the
Sponsor, to be necessary or useful to the administration of the Trust and the
Funds.
(c) As manager of the assets of the Funds, the Adviser shall make
investments for the account of the Funds in accordance with the Adviser's best
judgment and within the investment objective and restrictions set forth in the
Trust's Declaration of Trust, the Prospectus, the 1940 Act and the provisions of
the Internal Revenue Code relating to regulated investment companies, subject to
policy decisions adopted by the Trust's Board of Trustees. The Adviser shall
advise the Trust's officers and Board of Trustees, at such times as the Trust's
Board of Trustees may specify, of investments made for the Funds and shall, when
requested by the Trust's officers or Board of Trustees, supply the reasons for
making particular investments. It is understood that the Adviser will not use
any inside information pertinent to investment decisions undertaken in
connection with this contract that may be in its possession or in the possession
of any of its affiliates, nor will the Adviser seek to obtain any such
information.
(d) The Adviser shall furnish to the Trust's Board of Trustees
periodic reports on the investment performance of the Funds and on the
performance of its obligations under this contract and shall supply such
additional reports and information as the Trust's officers or Board of Trustees
shall reasonably request.
(e) On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other customers, the
Adviser, to the extent permitted by applicable law, may aggregate the securities
to be so
- 3 -
<PAGE>
sold or purchased in order to obtain the best execution or lower brokerage
commissions, if any. The Adviser may also on occasion purchase or sell a
particular security for one or more customers in different amounts. On either
occasion, and to the extent permitted by applicable law and regulations,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to the Funds and to such other customers.
(f) The Adviser may cause the Funds to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting a securities transaction in excess of the amount another broker might
have charged. Such higher commissions may not be paid unless the Adviser
determines in good faith that the amount paid is reasonable in relation to the
services received in terms of the particular transaction or the Adviser's
overall responsibilities to the Fund and any other of the Adviser's clients.
5. The Adviser shall give the Trust the benefit of the Adviser's best
judgment and efforts in rendering services under this contract. As an inducement
to the Adviser's undertaking to render these services, the Trust agrees that the
Adviser shall not be liable under this contract for any mistake in judgment or
in any other event whatsoever except for lack of good faith, provided that
nothing in this contract shall be deemed to protect or purport to protect the
Adviser against the liability to the Trust or its shareholders to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of the Adviser's duties under this
contract or by reason of the Adviser's reckless disregard of its obligations and
duties hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Trust shall pay the Adviser a monthly fee ("fee") with
respect to each Fund on the first business day of each month, based upon the
average daily value (as determined on each business day at the time set forth in
the Prospectus for determining net asset value per share) of the net assets of
the Fund during the preceding month, at annual rates set forth in a Supplement
to this contract with respect to the Fund, provided, that no fee shall accrue or
be payable hereunder with respect to a Fund until the first day after the day
(the "Approval Date") on which this contract has been approved by the vote of a
majority of the outstanding voting securities of that Fund (as defined in the
1940 Act). If the fees payable to the Adviser pursuant to this paragraph 6 begin
to accrue before the end of any month or if this contract terminates before the
end of any month, the fees for the period from that date to the end of that
month or
- 4 -
<PAGE>
from the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion which the period bears to the full
month in which the effectiveness or termination occurs. For purposes of
calculating the monthly fees, the value of the net assets of a Fund shall be
computed in the manner specified in the Prospectus for the computation of net
asset value. For purposes of this contract, a "business day" is any day the New
York Stock Exchange is open for trading.
7. If the aggregate expenses of every character incurred by, or
allocated to, a Fund in any fiscal year, other than interest, taxes, brokerage
commissions and other portfolio transaction expenses, other expenditures which
are capitalized in accordance with generally accepted accounting principles and
any extraordinary expenses, but including the fees payable under the
Distribution Contract and the fees provided for in paragraph 6 ("includable
expenses") shall exceed the expense limitations applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser shall pay the Fund an amount
equal to 70% of that excess. With respect to portions of a fiscal year in which
this contract shall be in effect, the foregoing limitations shall be prorated
according to the proportion which that portion of the fiscal year bears to the
full fiscal year. At the end of each month of the Trust's fiscal year, the
Sponsor will review the includable expenses accrued during that fiscal year to
the end of the period and shall estimate the contemplated includable expenses
for the balance of that fiscal year. If as a result of that review and
estimation it appears likely that the includable expenses will exceed the
limitations referred to in this paragraph 7 for a fiscal year with respect to
the Fund, the monthly fees relating to the Fund payable to the Adviser under
this contract for such month shall be reduced, subject to a later adjustment, by
an amount equal to 70% of a pro rata portion (prorated on the basis of the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includable expenses for the fiscal year (less an amount
equal to the aggregate of actual reductions made pursuant to this provision with
respect to prior months of the fiscal year) are expected to exceed the
limitations provided for in this paragraph 7. For purposes of the foregoing, the
value of the net assets of the Fund shall be computed in the manner specified in
the penultimate sentence of paragraph 6, and any payments required to be made by
the Adviser shall be made once a year promptly after the end of the Trust's
fiscal year.
- 5 -
<PAGE>
8. This contract and any Supplement shall become effective with
respect to a Fund on the date specified in the Supplement, and shall thereafter
continue in effect with respect to the Fund until the earlier of the Closing
Date defined in the Agreement and Plan of Reorganization dated September __,
1995 approved by shareholders of the Fund or two years from such date only so
long as the continuance is specifically approved at least annually (a) by the
vote of a majority of the outstanding voting securities of the Fund (as defined
in the 1940 Act) or by the Trust's Board of Trustees and (b) by the vote, cast
in person at a meeting called for the purpose, of a majority of the Trust's
Trustees who are not parties to this contract or "interested persons" (as
defined in the 1940 Act) of any such party.
This contract and any Supplement thereto may be terminated with
respect to a Fund at any time, without the payment of any penalty, by a vote of
a majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) or by a vote of a majority of the Trust's entire Board of Trustees on
60 days' written notice to the Adviser or by the Adviser on 60 days' written
notice to the Trust. This contract shall terminate automatically in the event of
its assignment (as defined in the 1940 Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business, whether of a similar or dissimilar
nature, or to render services of any kind to any other corporation, firm,
individual or association.
10. This contract shall be construed and its provisions
interpreted in accordance with the laws of the state of New York.
11. This contract may be executed in counterparts, but
all of the copies, together, shall constitute one contract.
12. Any notice given by a party to this Agreement shall be
sufficiently given when sent by registered or certified mail to the other party
at the address of such party set forth above or at such other address as such
party may from time to time specify in writing to the other party.
13. The Declaration of Trust establishing the Trust, filed on March
25, 1987, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the Office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "FFB Funds Trust" refers to the trustees
under the
- 6 -
<PAGE>
Declaration collectively as trustees and not as individuals or personally, and
that no shareholder, trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
FFB FUNDS TRUST
By: __________________________
Title:
ACCEPTED:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: ________________________
Title:
- 7 -
<PAGE>
EXHIBIT C
INTERIM ADVISORY CONTRACT SUPPLEMENT
FFB Funds Trust
237 Park Avenue
New York, NY 10017
December __, 1995
First Union National Bank of
North Carolina
One First Union
Charlotte, North Carolina 28288
Re: FFB Diversified International Growth Fund
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and First
Union National Bank of North Carolina (the "Adviser") as follows:
1.The Trust is an open-end management investment company organized as a
Massachusetts business trust and consists of such separate investment portfolios
as have been or may be established by the Trustees of the Trust from time to
time. A separate class of shares of beneficial interest of the Trust is offered
to investors with respect to each investment portfolio. FFB Diversified
International Growth Fund (the "Fund") is a separate investment portfolio of the
Trust.
2. The Trust and the Adviser have entered into an Interim Master Advisory
Contract (the "Interim Master Advisory Contract") pursuant to which the Trust
has employed the Adviser to provide investment advisory and other services
specified in that contract, and the Adviser has accepted such employment.
3. As provided for in paragraph 1 of the Interim Master Advisory Contract,
the Trust hereby adopts the Interim Master Advisory Contract with respect to the
Fund, and the Adviser hereby acknowledges that the Interim Master Advisory
Contract shall pertain to the Fund, the terms and conditions of such Interim
Master Advisory Contract being hereby incorporated herein by reference.
4. The term "Fund" as used in the Interim Master Advisory Contract shall for
purposes of this Supplement pertain to the Fund.
5. As provided for in paragraph 6 of the Interim Master Advisory Contract
and subject to further conditions as set forth therein, the Trust shall with
respect to the Fund pay the adviser a monthly fee on the first business day of
each month at an annual rate of 1.25% of the average daily value (as determined
on
<PAGE>
each business day at the time set forth in the Prospectus for determining net
asset value per share) of the Fund's net assets during the preceding month.
6. (a) If the aggregate expenses of every character incurred by, or
allocated to, the Fund in any fiscal year, other than interest, taxes, expenses
under the Plan, brokerage commissions and other portfolio transaction expenses,
other expenditures which are capitalized in accordance with generally accepted
accounting principles and any extraordinary expenses, (including, without
limitation, litigation and indemnification expenses), but including the fees
payable under the Administrative Services Contract and the fees provided for in
paragraph 6 of the Interim Master Advisory Contract ("includable expenses"),
shall exceed the expense limitations applicable to the Fund imposed by state
securities laws or regulations thereunder, as these limitations may be raised or
lowered from time to time, the Adviser shall pay the Fund an amount equal to 77%
of that excess.
(b) With respect to portions of a fiscal year in which this Contract
shall be in effect, the limitation specified in paragraph 6(a) above shall be
prorated according to the proportion which that portion of the fiscal year bears
to the full fiscal year. At the end of each month of the Trust's fiscal year,
the Sponsor will review the includable expenses accrued during that fiscal year
to the end of the period and shall estimate the contemplated includable expenses
for the balance of that fiscal year. If, as a result of that review and
estimation, it appears likely that the includable expenses will exceed such
limitation for a fiscal year with respect to the Fund, the monthly fees relating
to the Fund payable to the Adviser under this Contract for such month shall be
reduced, subject to later adjustments at the end of each month through the end
of the fiscal year to reflect actual expenses, by an amount equal to 77% of a
pro rata portion (prorated on the basis of the remaining months of the fiscal
year, including the month just ended) of the amount by which the includable
expenses for the fiscal year (less an amount equal to the aggregate of actual
reductions made pursuant to this provision with respect to prior months of the
fiscal year) are expected to exceed such limitation. For purposes of the
foregoing, the value of the net assets of the Fund shall be computed in the
manner specified in the penultimate sentence of paragraph 6 of the Interim
Master Advisory Contract, and any payments required to be made by the Adviser
shall be made once a year promptly after the end of the Trust's fiscal year.
7. This Supplement and the Interim Master Advisory Contract (together, the
"Contract") shall become effective with respect to the Fund on December __, 1995
and shall thereafter continue in effect with respect to the Fund until the
earlier of the Closing Date defined in the Agreement and Plan of Reorganization
dated
- 2 -
<PAGE>
September __, 1995, approved by shareholders of the Fund or two years from such
date only so long as the continuance is specifically approved at least annually
(a) by the vote of a majority of the outstanding voting securities of the Fund
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
or by First Union National Bank of North Carolina, the Trust's Board of Trustees
and (b) by the vote, cast in person at a meeting called for that purpose, of a
majority of the Trust's Trustees who are not parties to this Contact or
"interested persons" (as defined in the 1940 Act) of any such party. This
Contract may be terminated with respect to the Fund at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by a vote of a majority
of the Trust's entire Board of Trustees on 60 days' written notice to the Trust.
This Contract shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).
If the foregoing correctly sets forth the agreement between the Trust and
the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
FFB FUNDS TRUST
By:__________________
Accepted:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:_________________________
- 3 -
<PAGE>
Exhibit D
INTERIM SUB-ADVISORY CONTRACT
First Union National Bank of North Carolina
One First Union
Charlotte, North Carolina 28288-1173
_______ __, 1995
Blairlogie Capital Management
125 Princes Street
Edinburgh
EH2 4 AD, Scotland
This will confirm the agreement between FFB Funds Trust (the
"Trust"), First Union National Bank of North Carolina ("First
Union") and Blairlogie Capital Management (the "Sub-Adviser") as
follows:
1. The Trust is an open-end investment company organized as a Massachusetts
business trust, and consists of one or more separate investment portfolios as
may be established and designated by the Trustees from time to time. This
contract shall pertain to the Diversified International Growth Fund portfolio of
the Trust (the "Fund"). The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Trust's Declaration of
Trust and the currently effective Prospectus or Prospectuses (the "Prospectus")
relating to the Trust and the Fund included in the Trust's Registration
Statement, as amended from time to time (the "Registration Statement"), filed by
the Trust under the Investment Company Act of 1940 (the "1940 Act") and the
Securities Act of 1933 (the "1933 Act"). Copies of the documents referred to in
the preceding sentence have been furnished to the Sub-Adviser. Any amendments to
those documents shall be furnished to the Sub-Adviser promptly.
2. The Trust employs First Union to provide the services specified in a
Master Advisory Contract and related Supplements. First Union hereby employs the
Sub-Adviser to provide the investment advisory and administrative services
specified elsewhere in this contract, and the Sub-Adviser hereby accepts such
employment.
3. The Sub-Adviser shall, at its expense, (i) employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this contract and (ii) provide all advisory, administrative,
management services,
<PAGE>
equipment facilities and personnel necessary to perform its
obligations under this contract.
4. As manager of the assets of the Fund, the Sub-Adviser shall make
investments for the account of the Fund in accordance with the Sub-Adviser's
best judgment and within the investment objective and restrictions set forth in
the Trust's Declaration of Trust, the Prospectus, the 1940 Act and the
provisions of the Internal Revenue Code relating to regulated investment
companies, subject to policy decisions adopted by the Trust's Board of Trustees.
The Sub-Adviser shall advise the Trust's officers and Board of Trustees, at such
times as the Trust's Board of Trustees may specify, of investments made for the
Fund and shall, when requested by the Trust's officers or Board of Trustees,
supply the reasons for making particular investments. It is understood that the
Sub-Adviser will not use any inside information pertinent to investment
decisions undertaken in connection with this contract that may be in its
possession or in the possession of any of its affiliates, nor will the
Sub-Adviser seek to obtain any such information.
(a) The Sub-Adviser shall furnished to the Trust's Board of Trustees
periodic reports on the investment performance of the Fund and on the
performance of its obligations under this contract and shall supply such
additional reports and information as the Trust's officers or Board of Trustees
shall reasonably request.
(b) On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other customers, the
Sub-Adviser, to the extent permitted by applicable laws, may aggregate the
securities to be so sold or purchased in order to obtain the best execution or
lower brokerage commissions, if any. The Sub-Adviser may also on occasion
purchase or sell a particular security for one or more customers in different
amounts. On either occasion, and to the extent permitted by applicable law and
regulations, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Funds and to such other customers.
(c) The Sub-Adviser may cause the Funds to pay a broker which provides
brokerage and research services to the Sub-Adviser a commission for effecting a
securities transaction in excess of the amount another broker might have
charged. Such higher commissions may not be paid unless the Sub-Adviser
determines in good faith that the amount paid is reasonable in relation to the
services received in terms of the particular transaction or the Sub-Adviser's
overall responsibilities to the Fund and any other of the Sub-Adviser's clients.
<PAGE>
(d) The Sub-Adviser may place business (including business on behalf
of the Trust) with persons or any of their associates or (at their or any such
associates' direction) any other person who provides the Sub-Adviser with
services the receipt of which is intended to result in an improvement of
investment performance. The Sub-Adviser is hereby authorized to effect
transactions for the Trust with such persons. Any such transactions will secure
for the Trust best execution, disregarding any benefit which might accrue
directly or indirectly to the Trust from such arrangements. A statement
containing particulars of each such arrangement in force will be sent to the
Trust annually insofar as there may be any material change in such particulars.
5. The Sub-Adviser shall give the Trust the benefit of the Sub-Advisers's
best judgment and efforts in rendering services under this contract. As an
inducement to the Sub-Adviser's undertaking to render these services, First
Union agrees that the Sub-Adviser shall not be liable under this contract for
any mistake in judgement or in any other event whatsoever except for lack of
good faith, provided that nothing in this contract shall be deemed to protect or
purport to protect the Sub-Adviser against the liability to First Union, the
Trust or its shareholders to which the Sub-Adviser would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Sub-Adviser's duties under this contract or by reason of the
Sub-Adviser's reckless disregard of its obligations and duties hereunder.
6. In consideration of the services to be rendered by the Sub-Adviser under
this contract, First Union shall pay the Sub- Adviser a monthly fee ("fee") with
respect to each Fund on the first business day of each month, based upon the
average daily value (as determined on each business day at the time set forth in
the Prospectus for determining net asset value per share) of the net assets of
the Fund during the preceding month, at annual rates equal to 0.75%, provided,
that no fee shall accrue or be payable hereunder with respect to a Fund until
the first day after the day (the "Approval Date") on which this contract has
been approved by the vote of a majority of the outstanding voting securities of
that Fund (as defined in the 1940 Act). If the fees payable to the Sub-Adviser
pursuant to this paragraph 6 begin to accrue before the end of any month or if
this contract terminates before the end of any month, the fees for the period
from that date to the end of that month or from the beginning of that month to
the date of termination, as the case may be, shall be prorated according to the
proportion which the period bears to the full month in which the effectiveness
of termination occurs. For purposes of calculating the monthly fees, the value
of the net assets of the Fund shall be computed in the manner specified in the
Prospectus for the computation of net asset value. For
-3-
<PAGE>
purposes of this contract, a "Business day" is any day the New York Stock
Exchange is open for trading.
7. If the aggregate expenses of every character incurred by, or allocated
to, the Fund in any fiscal year, other than interest, taxes, brokerage
commissions and other portfolio transaction expenses, other expenditures which
are capitalized in accordance with generally accepted accounting principles and
any extraordinary expenses, but including the fees payable under the
Administration, Advisory, 12b-1, servicing and related contracts and the fees
provided for in paragraph 6 ("includable expenses") shall exceed the expense
limitations applicable to the Fund imposed by state securities laws or
regulations thereunder, as these limitations may be raised or lowered from time
to time, the Sub-Adviser shall pay First Union an amount equal to 75/140 of that
excess. With respect to portions of a fiscal year in which this contract shall
be in effect, the foregoing limitations shall be prorated according to the
proportion which that portion of the fiscal year bears to the full fiscal year,
the Fund will review the includable expenses accrued during that fiscal year to
the end of the period and shall estimate the contemplated includable expenses
for the balance of that fiscal year. If as a result of that review and
estimation it appears likely that the includable expenses will exceed the
limitations referred to in this paragraph 7 for a fiscal year with respect to
the Fund, the monthly fees relating to the Fund payable to the Sub-Adviser under
this contract for such month shall be reduced, subject to a later adjustment, by
an amount equal to 75/140 of a pro rata portion (prorated on the basis on the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includable expenses for the fiscal year (less an amount
equal to the aggregate of actual reductions made pursuant to this provisions
with respect to prior months of the fiscal year) are expected to exceed the
limitations provided for in this paragraph 7. The total amount of includable
expenses payable by the Sub- Adviser shall not exceed the total amount of
sub-advisory fees paid by First Union to the Sub-Adviser. For purposes of the
foregoing, the value of the net assets of the Fund shall be computed in the
manner specified in the penultimate sentence of paragraph 6, and any payments
required to be made by the Sub- Adviser shall be made once a year promptly after
the end of the Trust's fiscal year.
8.If the aggregate expenses of every character incurred by, or allocated
to, the Fund in any fiscal year ("includable expenses") shall exceed 1.75%, the
Sub-Adviser shall pay to First Union an amount equal to 75/140 of that excess.
With respect to portions of a fiscal year in which this contract shall be in
effect, the foregoing limitations shall be prorated according to the proportion
which that portion of the fiscal year bears to the full fiscal year, the Fund
will review the includable expenses accrued during that fiscal year to the end
of the period and
-4-
<PAGE>
shall estimate the contemplated includable expenses for the balance of that
fiscal year. If as a result of that review and estimation it appears likely that
the includable expenses will exceed the limitations referred to in this
paragraph 8 for a fiscal year with respect to the Fund, the monthly fees
relating to the Fund payable to the Sub-Adviser under this contract of such
month shall be reduced, subject to a later adjustment, by an amount equal to
75/140 of a pro rata portion (prorated on the basis of the remaining months of
the fiscal year, including the month just ended) of the amount by which the
includable expenses for the fiscal year (less an amount equal to the aggregate
of actual reductions made pursuant to this provision with respect to prior
months of the fiscal year) are expected to exceed the limitations provided for
in this paragraph 8. The total amount of includable expenses payable by the
Sub-Adviser shall not exceed the total amount of sub-advisory fees paid by First
Union to the Sub-Adviser. For purposes of the foregoing, the value of the net
assets of the Fund shall be computed in the manner specified in the penultimate
sentence of paragraph 6, and any payments required to be made by the Sub-Adviser
shall be made once a year promptly after the end of the Trust's fiscal year.
9. This contract shall become effective with respect to the date hereof,
and shall thereafter continue in effect with respect to the Fund until the
earlier of the Closing Date defined in the Agreement and Plan of Reorganization
dated September __, 1995, approved by shareholders of the Fund or two years from
such date only so long as the continuance is specifically approved at least
annually (a) by the vote of a majority of the outstanding voting securities of
the Fund (as defined in the 1940 Act) or by the Trust's Board of Trustees and
(b) by the vote, cast in person at a meeting called for the purpose, of a
majority of the Trust's Trustees who are not parties to this contract or
"interested persons" (as defined in the 1940 Act) of any such party.
This contract and any Supplement thereto may be terminated with respect to
the Fund at any time, without the payment of any penalty, by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) or by a vote of a majority of the Trust's entire Board of Trustees on
60 days' written notice to the Sub-Adviser or by the Sub-Adviser on 60 days'
written notice to the Sub-Adviser or by the Sub-Adviser on 60 days' written
notice to the Trust. This contract shall terminate automatically in the event of
its assignment (as defined in the 1940 Act).
-5-
<PAGE>
10. Except to the extent necessary to perform the Sub- Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub- Adviser, to engage in any other business, whether of a
similar or dissimilar corporation, firm, individual or association.
11. This contract shall be construed and its provisions
interpreted in accordance with the laws of the state of New York.
12. This contract may be executed in counterparts, but all
of the copies, together, shall constitute one contract.
13. Any notice given by a party to this Agreement shall be sufficiently
given when sent by registered or certified mail to the other party at the
address of such party set forth above or at such other address as such party may
from time to time specify in writing to the other party.
14. The Declaration of Trust establishing the Trust, filed on March 25,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "FFB Funds Trust " refers to the trustees under the
Declaration collectively as trustees and not as individuals or personally, and
that no shareholder, trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
-6-
<PAGE>
If the foregoing correctly sets forth the agreement between First Union and
the Sub-Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: ________________________
Title:
ACCEPTED:
BLAIRLOGIE CAPITAL MANAGEMENT
By: Blairlogie Holdings Limited,
General Partner
Signature: _______________________
Title:____________________________
FFB FUNDS TRUST
By: ____________________________
Title: Vice President
-7-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 25, 1995
Acquisition of the Assets of
FFB DIVERSIFIED INTERNATIONAL GROWTH FUND
OF
FFB FUNDS TRUST
237 Park Avenue
New York, New York 10017
1-800-437-8790
By and in Exchange for Shares of
EVERGREEN INTERNATIONAL EQUITY FUND
OF
EVERGREEN INVESTMENT TRUST
2500 Westchester Avenue
Purchase, NY 10577
1-800-807-2940
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets of the FFB Diversified International Growth
Fund, a series of FFB Funds Trust, in exchange for Class Y shares of Evergreen
International Equity Fund, a series of Evergreen Investment Trust, and the
assumption by Evergreen International Equity Fund of certain identified
liabilities of the FFB Diversified International Growth Fund, is not a
prospectus. A Prospectus/Proxy Statement dated September 25, 1995 relating to
the above-referenced matter may be obtained from Evergreen International Equity
Fund, 2500 Westchester Avenue, Purchase, New York 10577 or by calling toll-free
1-800-807-2940. 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 Evergreen International Equity
Fund dated July 7, 1995.
2. The Statement of Additional Information of the
Evergreen International Equity Fund dated July 7, 1995.
3. The Annual Report of the First Union International
Equity Fund (now known as Evergreen International
Equity Fund) dated December 31, 1994.
<PAGE>
4. The Semi-Annual Report of the First Union International
Equity Fund (now known as Evergreen International
Equity Fund) dated June 30, 1995.
5. The Prospectus of the FFB Diversified International
Growth Fund dated March 1, 1995.
6. The Statement of Additional Information of the FFB
Diversified International Growth Fund dated March 1,
1995.
The following pro forma financial information relates to the FFB
Diversified International Growth Fund and the Evergreen
International Equity Fund:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EVERGREEN INTERNATIONAL FFB DIVERSIFIED
EQUITY FUND INTERNATIONAL GROWTH FUND PRO FORMA COMBINED
June 30, 1995 June 30, 1995
SECURITY DESCRIPTION % Shares Value Shares Value Adjustments Shares Value
<C> <C> <C> <C> <C> <C> <C>
COMMON STOCK 82.2%
ARGENTINA 0.7%
BANCO GALICIA Y BUENOS AIRES 11,100 $ 44,400 11,100 $ 44,400
CIA NAVIERZ PEREZ COMPANY 12,530 108,009 12,530 108,009
INVERSIONES Y REPRESENT 2,100 48,825 2,100 48,825
MOLINOS RIO DE LA PLATA 8,500 48,535 8,500 48,535
TELEFONICA DE ARGENTINA 4,600 113,850 4,600 113,850
TPF SOCIEDAD ANONI ADR 5,800 109,475 5,800 109,475
TOTAL ARGENTINA 473,094 473,094
AUSTRALIA 2.9%
ADELAIDE BRIGHTON LIMITED 111,800 104,887 111,800 104,887
AMPOLEX LTD. 50,900 115,764 50,900 115,764
AUSTRALIAN AND NEW ZEALAND BANK GROUP 54,400 193,319 54,400 193,319
CALTEX AUSTRALIA 115,900 331,967 115,900 331,967
COMMONWEALTH BANK OF AUSTRALIA 22,200 147,211 22,200 147,211
CSR LIMITED 17,900 55,977 17,900 55,977
DOMINION MINING 246,500 45,551 246,500 45,551
GENERAL PROP TRUST 146,600 247,981 146,600 247,981
GOODMAN FIELDERLT 59,900 49,810 59,900 49,810
HARDIE (JAMES) INDS 39,100 61,693 39,100 61,693
NEWS CORPORATION 13,750 68,115 13,750 68,115
NORMANDY MINING LTD 6,600 8,162 6,600 8,162
PANCONTINENTAL MNG 45,500 61,443 45,500 61,443
PIONEER INTERNATIONAL LTD 33,000 82,090 33,000 82,090
PUBLISHING AND BROADCASTING 700 2,060 700 2,060
SCHRODERS PTY FUND 55,400 84,655 55,400 84,655
WESTFIELD TRUST 59,800 104,554 59,800 104,554
WESTPAC BANK CORP. 66,300 239,849 66,300 239,849
TOTAL AUSTRALIA 2,005,087 2,005,087
AUSTRIA 0.9%
BK AUSTRIA AG 1,000 83,273 1,000 83,273
CREDITANSTALT BANK 3,050 179,984 3,050 179,984
OMV AG 3,200 369,446 3,200 369,446
TOTAL AUSTRIA 632,703 632,703
BELGIUM 1.7%
ARBED SA 1,667 243,593 1,667 243,593
BANQUE NATIONALE DE BELGIQUE 200 272,359 200 272,359
ELECTRABEL SA 235 49,952 235 49,952
GENERALA DE BANQUE 262 85,105 262 85,105
GIB HOLDINGS LTD 1,460 69,159 1,460 69,159
SOCIETE GENERALA DE BELGIQUE 5,434 388,416 5,434 388,416
SOLVAY SA - A 90 49,411 90 49,411
TOTAL BELGIUM 904,368 253,627 1,157,995
BRAZIL 0.6%
CIA PAULISTA DE FORCA E LUZ 2,220,000 111,181 2,220,000 111,181
TELECOMUNICACOES BRASILEIRAS SA 6,916 234,937 6,916 234,937
TOTAL BRAZIL 346,118 346,118
COLUMBIA 0.5%
CARULLA SA 10,300 185,400 10,300 185,400
NEW CASTLE DE TOYSRUS 4.25% 2/1/14 7,100 207,675 7,100 207,675
TOTAL COLUMBIA 393,075 393,075
DENMARK 1.3%
DEN DANSKE BANK 9,650 606,311 9,650 606,311
UNIDANMARK 5,900 289,779 5,900 289,779
TOTAL DENMARK 896,090 896,090
FINLAND 1.8%
ENSO GUTZEIT OY 6,300 57,076 6,300 57,076
ENSO-GUTZEIT "R" 13,800 126,252 13,800 126,252
FINNAIR OY 12,500 85,036 12,500 85,036
KANSALLIS YMTYMA 294,180 320,232 294,180 320,232
UNITAS 140,300 453,248 140,300 453,248
VALMET 4,000 89,141 4,000 89,141
WERNER SODERSTROM 1,000 93,833 1,000 93,833
TOTAL FINLAND 830,556 394,262 1,224,818
FRANCE 6.4%
ALCATEL ALSTHOM 1,400 126,287 1,400 126,287
AXA 2,695 145,817 2,695 145,817
BANQUES NATIONAL DE PARIS 2,950 142,242 4,820 232,922 7,770 375,164
C.S.F. (THOMPSON) 6,750 151,190 6,750 151,190
CARREFOUR SUPERMARCHE 275 141,126 275 141,126
CHRISTIAN DIOR 883 77,729 883 77,729
CIE DE SUEZ 814,761 814,761
CIE FIN PARIBAS 3,100 186,268 3,100 186,268
CIE GENERALE DES EAUX 1,425 158,912 1,425 158,912
COMPAGNIE BANCAIRE 1,276 152,499 1,276 152,499
CREDIT LYONNAIS 2,350 135,296 2,350 135,296
ELF AQUITAINE 2,130 157,695 2,130 157,695
ERINDANIA BEGHIN SA 400 61,653 400 61,653
EURAFRANCE 473 155,975 473 155,975
GAN GRP 4,650 147,462 4,650 147,462
GAZ ET EAUX 102 39,724 102 39,724
GROUPE DANONE 690 116,275 690 116,275
LAGARGE-COPPEE 2,480 193,184 2,480 193,184
LVMH MOET HENNESSY LOUIS 333 59,903 333 59,903
PEUGOT SA 1,700 235,751 1,700 235,751
PSA PEUGEOT CITROEN 1,150 159,831 1,150 159,831
ROUSSEL-UCLAFF 610 95,362 610 95,362
SOCIETE ELF AQUITAINE 4,100 302,875 4,100 302,875
SOCIETE GENERALE 1,800 210,303 1,800 210,303
TOTAL 1,000 60,169 1,000 60,169
TOTAL FRANCE 2,933,800 1,527,411 4,461,211
GERMANY 5.3%
ALLIANZ AG HOLDING 39 69,607 39 69,607
ALLIANZ AG HOLDINGS RIGHTS 9 670 9 670
BANKGESELLSCHAFT BERLIN 460 121,691 460 121,691
BASF AG 1,830 390,735 1,830 390,735
BAYER AG 870 216,321 345 85,826 1,215 302,147
BAYER VEREINSBK 1,750 530,629 1,750 530,629
BAYERISCHE MOTOREN WERKE 80 43,969 80 43,969
BERLINER KRAFT AND LIGHT 2,160 532,389 2,160 532,389
BHF BANK 1,140 299,111 1,140 299,111
BREMER VULKAN VERBUNDAG 1,510 87,315 1,510 87,315
COMMERZBANK AG 1,380 329,963 580 138,750 1,960 468,713
DRESDNER BANK AG 2,100 60,716 2,100 60,716
GEA AG 200 70,546 200 70,546
KARSTADT AG 200 87,793 200 87,793
MANNESMANN AG 415 126,649 415 126,649
MUENCHENER RUECKVER AG 35 76,439 35 76,439
SIEMENS AG 285 141,490 285 141,490
VEBA AG 310 121,731 310 121,731
VOLKSWAGON AG 530 153,043 530 153,043
TOTAL GERMANY 2,792,459 892,924 3,685,383
GREAT BRITAIN 8.4%
3I GROUP 28,800 167,193 28,800 167,193
ABBEY NATIONAL PLC 18,000 134,279 18,000 134,279
ANGLIAN WATER 9,900 78,887 9,900 78,887
BAA 22,300 174,888 22,300 174,888
BASS 14,300 136,806 14,300 136,806
BAT INDUSTRIES 1,000 7,666 1,000 7,666
BOOTS COMPANY PLC 16,600 134,155 16,600 134,155
BRITISH LAND CO. 20,160 128,098 20,160 128,098
BRITISH PETROLEUM 4,900 35,110 23,200 166,599 28,100 201,709
BRITISH SKY BROADCASTING 31,300 136,955 31,300 136,955
BRITISH STEEL 127,000 346,924 127,000 346,924
BRITISH TELECOM 41,000 258,119 22,800 142,466 63,800 400,585
BTR 29,300 149,221 29,300 149,221
FORTE 80,200 290,195 80,200 290,195
GENERAL ACCIDENT 27,600 252,851 27,600 252,851
GUINESS PLC 17,700 133,452 17,700 133,452
HSBC HOLDINGS 10,200 131,941 10,200 131,941
LADBROKE GROUP 40,800 109,668 40,800 109,668
LAND SECURITIES 45,900 443,864 45,900 443,864
LLOYDS BANK PLC 12,700 126,322 12,700 126,322
MEPC 14,700 89,430 14,700 89,430
PILKINGTON PLC 47,000 130,732 47,000 130,732
ROYAL INSURANCE 24,900 122,375 24,900 122,375
RTZ CORP. PLC- REG 9,500 124,173 9,500 124,173
SCOTTISH POWER PLC 25,300 130,664 25,300 130,664
SEVERN TRENT 23,200 199,996 23,200 199,996
SHELL TRANSPORTATION AND TRADING 10,700 127,893 10,700 127,893
SOUTHERN WATER 10,600 101,577 10,600 101,577
SUN ALLIANCE GROUP 26,400 140,974 26,400 140,974
TESCO 14,700 67,803 38,600 178,433 53,300 246,236
THAMES WATER 18,200 137,643 18,200 137,643
WHITEBREAD 23,700 226,169 23,700 226,169
ZENECA GROUP 23,900 404,588 23,900 404,588
TOTAL GREAT BRITAIN 3,328,267 374,800 2,539,842 5,868,109
HONG KONG 4.3%
AMOY PROPERTIES 65,000 57,123 65,000 57,123
CHINESE ESTATE HOLDINGS 134,000 96,114 134,000 96,114
GREAT EAGLE HOLDINGS 78,200 166,755 78,200 166,755
HANG SENG BANK 27,900 212,784 27,900 212,784
HARBOUR CENTRE DEV 38,000 40,761 38,000 40,761
HONG KONG & SHANG HOTEL 131,000 161,682 131,000 161,682
HOPEWELL HOLDINGS 59,000 49,944 59,000 49,944
HUTCHINSON WHAMPOA 43,000 207,885 43,000 207,885
HYSAN DEVELOPMENT 120,000 274,500 120,000 274,500
MIRAMAR HOTEL & INV 52,000 106,181 52,000 106,181
NEW WORLD DEVELOPMENT 55,000 183,032 55,000 183,032
REGAL HOTELS INTERNATIONAL 130,000 25,705 130,000 25,705
SUN HUNG KAI PROPERTIES 30,000 222,014 30,000 222,014
SWIRE PACIFIC LTD 17,500 133,438 29,500 224,987 47,000 358,425
WHARF HOLDINGS 118,000 385,063 118,000 385,063
WHEELOOCK & CO. 289,000 479,942 289,000 479,942
TOTAL HONG KONG 2,160,240 867,670 3,027,910
INDIA 1.2%
BAJAJ AUTO LIMITED 4,100 117,363 4,100 117,363
EAST INDIA HOTELS 2,450 39,200 2,450 39,200
HINDALCO INDUSTRIES 2,750 81,125 2,750 81,125
INDIAN RAYON & INDS 8,650 126,550 8,650 126,550
LARSEN & TOUBRO LTD. 9,100 179,088 9,100 179,088
RELIANCE INDUSTRIES 10,800 199,800 10,800 199,800
TATA ENGINEERING & LOCOM. 6,300 124,425 6,300 124,425
TOTAL INDIA 44,150 867,550 44,150 867,550
INDONESIA 1.0%
PT ASTRA INTERNATIONAL 51,500 91,365 51,500 91,365
PT BANK INTL INDONESIA 42,500 131,232 42,500 131,232
PT INDAH KIAT PULP & PAPER 94,000 139,322 94,000 139,322
PT INDOFOOD SUKES MAKMUR 32,000 137,974 32,000 137,974
PT SEMEN GRESEK 26,000 174,579 26,000 174,579
TOTAL INDONESIA 246,000 674,472 246,000 674,472
IRELAND 1.5%
ALLIED IRISH BANK 10,601 50,103 10,601 50,103
BANK OF IRELAND 69,000 394,852 9,300 53,423 78,300 448,275
CREAN (JAMES) 45,200 164,801 45,200 164,801
CRH PLC 11,700 78,539 11,700 78,539
KERRY GROUP PLC-A 5,900 39,218 5,900 39,218
SMURFIT (JEFFERSON) 64,400 194,794 12,800 38,865 77,200 233,659
TOTAL IRELAND 754,447 260,148 1,014,595
ITALY 1.8%
BCO DI ROMA 438,500 401,175 438,500 401,175
CIR COMPAGNIE INDUSTRIES 156,300 75,135 156,300 75,135
COFIDE 183,400 63,454 183,400 63,454
CREDITO ITALIANO 145,100 167,921 64,000 74,686 209,100 242,607
FIAT SPA 12,000 42,349 12,000 42,349
FINNECCANICA SPA 128,700 80,940 128,700 80,940
GAIC 78,300 23,447 78,300 23,447
GRASSETTO SPA 65,100 32,371 65,100 32,371
MONTEFIBRE 70,000 39,008 70,000 39,008
PARMALAT FINANZIARIA SPA 66,500 57,349 66,500 57,349
RINASCENTE 11,000 62,535 11,000 62,535
STET-SOCIETA FINANZ. STEIM 45,500 125,925 45,500 125,925
TOTAL ITALY 883,451 362,843 1,246,294
JAPAN 19.6%
AIDA ENGINEERING 6,000 40,825 6,000 40,825
AISIN SEIKO CO. 8,000 91,321 8,000 91,321
AMADA CO. 17,000 145,342 17,000 145,342
AOKI CORP. 22,000 79,906 22,000 79,906
ASAHI DENKA KOGYO 21,000 174,835 21,000 174,835
CHUBU ELECTRICAL POWER 6,000 164,151 6,000 164,151
CHUGOKU BANK 3,000 55,896 3,000 55,896
DAICEL CHEMICAL INDUSTRIES 13,000 66,533 13,000 66,533
DAIWA SECURITIES CO. 25,000 264,028 25,000 264,028
FUJI PHOTO FILM CO. 19,000 450,354 19,000 450,354
FUJISAWA PHARMECEUTICAL 42,000 440,591 42,000 440,591
FUJISTI 26,000 259,080 26,000 259,080
GAKKEN CO. 11,000 67,583 11,000 67,583
HANWA CO. 18,000 47,123 18,000 47,123
HASEKO CORP. 38,000 179,245 38,000 179,245
HITACHI 75,000 737,340 28,000 279,504 103,000 1,016,844
HITACHI MAXELL 7,000 98,231 7,000 98,231
HOKKAIDO BANK 36,000 127,358 36,000 127,358
HOKKAIDO TAKUSHOKO BANK 46,000 125,849 46,000 125,849
HONDA MOTOR CORP. 11,000 168,632 11,000 168,632
HYOGO BANK 20,000 37,972 20,000 37,972
INAX CORP. 9,000 86,710 9,000 86,710
KAO CORP. 11,000 132,546 11,000 132,546
KOMATSU 9,000 68,667 9,000 68,667
KOYO SEIKO CO. 7,000 52,005 7,000 52,005
KUMAGAI GUMI CORP. 53,000 221,875 53,000 221,875
MARUBENI CORP. 9,000 45,743 9,000 45,743
MARUDAI FOOD CO. 21,000 140,413 21,000 140,413
MATSUSHITA ELECTRIC INDUSTRIES 41,000 638,208 41,000 638,208
MATSUSHITA ELECTRIC WORKS 21,000 226,745 21,000 226,745
MAZDA MOTOR CORP. 18,000 63,255 59,000 207,703 77,000 270,958
MITSUBISHI CHEMICAL CORP. 57,000 244,430 57,000 244,430
MITSUBISHI ELECTRIC CORP. 29,000 203,821 29,000 203,821
MITSUBISHI TRUST BANK 6,000 55,189 6,000 55,189
MITSUI ENGINEER & SHIPBUILDING 85,000 184,761 85,000 184,761
MITSUI FUDOSAN 21,000 240,886 21,000 240,886
NICHIEI CO. 25,000 100,236 25,000 100,236
NIPPON OIL CO. 46,000 289,127 46,000 289,127
NIPPON TELEGRAPH & TEL CORP. 26 218,074 26 218,074
NISSAN MOTOR CO. 67,000 428,231 67,000 428,231
NISSINBO INDUSTRIES, INC. 17,000 134,116 17,000 134,116
NKK CORPORATION 102,000 239,787 102,000 239,787
NOMURA SECURITIES 14,000 244,340 14,000 244,340
OBAYASHI CORP 34,000 261,878 34,000 261,878
RENOWN, INC. 36,000 106,132 36,000 106,132
RICOH CO. 5,000 42,925 5,000 42,925
ROYAL CO. 7,000 97,406 7,000 97,406
SANWA BANK 8,000 151,211 8,000 151,211
SANYO ELECTRIC C0. 25,000 122,936 25,000 122,936
SEINO TRANSPORTATION 6,000 101,179 6,000 101,179
SEKISUI HOUSE 27,000 344,316 27,000 344,316
SETTSU CORP. 24,000 73,585 24,000 73,585
SHISEIDO CO. 28,000 315,330 28,000 315,330
SONY CORP. 8,000 383,962 8,000 383,962
SUMITOMO BANK 12,000 208,387 12,000 208,387
SUMITOMO CORP. 26,000 236,698 26,000 236,698
SUMITOMO METAL INDUSTRIES 35,000 91,215 20,000 147,903 55,000 239,118
SUMITOMO REALTY & DEVELOPMENT 18,000 107,406 18,000 107,406
SUMITOMO TRUST & BANKING 19,000 231,187 19,000 231,187
TAKASHIMAYA CO 16,000 215,475 16,000 215,475
TDK CORP 1,000 45,519 6,000 273,597 7,000 319,116
TOKAI BANK 15,000 166,274 15,000 166,274
TOKYO ELECTRIC POWER 3,800 116,716 3,800 116,716
TOKYO STEEL MFG 11,600 198,701 11,600 198,701
TOKYU CORP. 36,000 231,353 36,000 231,353
TOYOTA MOTOR CORP. 28,000 554,717 28,000 554,717
YAMAICHI SECURITIES CO. 40,000 214,151 40,000 214,151
YASUDA TRUST & BANKING CO. 8,000 52,358 8,000 52,358
TOTAL JAPAN 8,945,621 4,715,464 13,661,085
MALAYSIA 4.9%
AOKAM PERDANA BERHAD 25,000 62,056 25,000 62,056
BERJAYA GROUP BERHAD 83,000 72,840 83,000 72,840
FABER GROUP BERHAD 93,000 89,625 93,000 89,625
GOLDEN HOPE PLANTS 86,000 157,999 86,000 157,999
HIGHLANDS & LOWLANDS BERHAD 43,000 82,526 43,000 82,526
KUALA LUMPUR KEPG 47,000 149,375 47,000 149,375
LAND & GENERAL HOLDINGS 49,000 163,849 49,000 163,849
MALAY AIRLINE SYSTEMS TRANS.- SHIPPING 108,000 365,389 108,000 365,389
MALAYAN BANKING BERHAD 26,000 205,883 26,000 205,883
MALAYAN UNITED INDUSTRIES 64,000 110,232 64,000 110,232
MALAYSIA MINING CORP. BERHAD 88,000 159,508 88,000 159,508
MALAYSIAN INTERNATIONAL SHIPPING UTILITIES 39,000 114,353 39,000 114,353
MALAYSIAN MOSAICS 14,000 19,405 14,000 19,405
PERLIS PLANTATIONS 46,000 152,799 46,000 152,799
RENONG BERHAD 146,000 271,823 146,000 271,823
ROAD BUILDER HOLDINGS BERHAD 53,000 176,138 53,000 176,138
SIME DARBY BERHAD 20,000 55,772 20,000 55,772
TECHNOLOGY RESOURCES INDUSTRY 42,000 120,625 42,000 120,625
TELEKOM MALAYSIA 27,000 204,940 27,000 204,940
TELEKOM MALAYSIA BERHAD TRANS. - AIRLINE 3,000 22,760 3,000 22,760
TENAGA NASIONAL 111,000 452,922 111,000 452,922
UNITED ENGINEERS BERHAD 28,000 178,066 28,000 178,066
TOTAL MALAYSIA 2,277,328 1,111,558 3,388,886
MEXICO 0.5%
CIFRA SA SER. B 54,000 75,115 54,000 75,115
GRUPO MEXICO S.A. SER. B 5,500 27,015 5,500 27,015
GRUPO TELEVISA S.A. 2,700 55,013 2,700 55,013
KIMBERLY-CLARK DE MEXICO 4,300 49,271 4,300 49,271
TELEFONOS DE MEXICO 3,600 106,650 3,600 106,650
VITRO SOCIEDAD ANONIMA 3,200 27,600 3,200 27,600
TOTAL MEXICO 340,664 340,664
NETHERLANDS 2.4%
ABN-AMRO HOLDINGS NV INSURANCE 18,650 719,761 1,660 64,168 20,310 783,929
AKZO NOBEL 680 81,407 680 81,407
ELSEVIER NV 7,200 85,171 7,200 85,171
FORTIS AMEV NV 1,500 81,933 1,500 81,933
INTERNATIONAL NEDERLANDE 5,050 279,306 5,050 279,306
KONINKLIJKE AHOLD NV 2,420 86,820 2,420 86,820
PHILIPS ELECTRIC 2,030 86,081 2,030 86,081
POLYGRAM NV 1,220 72,159 1,220 72,159
ROYAL PTT NEDERLAND NV 2,410 86,772 2,410 86,772
VNU-VER NED UITGEV 500 59,955 500 59,955
TOTAL NETHERLANDS 999,067 704,466 1,703,533
NEW ZEALAND 0.7%
CARTER HOLT HARVEY LTD. 49,450 363,902 49,450 363,902
FLETCHER CHALLENGE MULIT-INDUSTRY 129,900 120,718 129,900 120,718
TOTAL NEW ZEALAND 484,620 484,620
NORWAY 1.7%
AHER AS 14,120 189,107 14,120 189,107
DEN NORSKE BANKE 35,600 96,004 35,600 96,004
HAFSLUND NYC AS B 4,500 104,173 4,500 104,173
KVAERNER 1,680 76,964 1,680 76,964
NORSKE SKOGSINDUST MULTI-INDUSTRY 8,400 294,545 8,400 294,545
ORKLA A/S 6,920 310,052 6,920 310,052
SAGA PETROLEUM 7,500 106,610 7,500 106,610
TOTAL NORWAY 793,704 383,751 1,177,455
PAKISTAN 0.4%
DEWAN SALMAN FIBRE 19,300 63,483 19,300 63,483
DG KAHN CEMENT 27,000 38,093 27,000 38,093
FAUJI FERTILIZER 23,000 45,243 23,000 45,243
HUB POWER CO-GDR 2,700 39,501 2,700 39,501
PAKISTAN STATE OIL 6,000 72,557 6,000 72,557
TOTAL PAKISTAN 258,877 258,877
SINGAPORE 3.6%
AURIC PACIFIC GP 80,000 127,221 80,000 127,221
CEREBOS PACIFIC LTD 6,000 35,206 6,000 35,206
CHUAN HUP HOLDINGS 264,000 215,587 264,000 215,587
CITY DEVELOPMENTS 18,000 110,125 18,000 110,125
DBS LAND 34,000 106,562 34,000 106,562
DEVELOPMENT BANK OF SINGAPORE 6,000 68,338 6,000 68,338
FRASER & NEAVE 19,000 219,126 19,000 219,126
PARKWAY HOLDINGS 43,000 104,112 43,000 104,112
PRIMA 30,000 111,748 30,000 111,748
SINGAPORE AIRLINES LTD 24,000 221,777 7,000 64,615 31,000 286,392
SINGAPORE LAND 53,000 347,385 53,000 347,385
STRAITS STEAMSHIP LAND 45,000 156,017 45,000 156,017
TIMES PUBLISHING 52,000 128,883 52,000 128,883
UNITED O/S BANK-FOREIGN 10,800 102,011 10,800 102,011
UTD INDUSTRIAL CP 312,000 301,719 312,000 301,719
WBL CORP. LTD. 49,000 110,215 49,000 110,215
TOTAL SINGAPORE 2,112,128 418,519 2,530,647
SOUTH AFRICA 0.5%
AMALGAMATED BANKS OF SOUTH AFRICA 9,200 35,034 9,200 35,034
BARLOW LIMITED 6,200 63,926 6,200 63,926
DE BEERS-CENTENARY LINKED 3,000 79,186 3,000 79,186
G.C. SMITH LIMITED 9,800 55,238 9,800 55,238
GENERAL MINING UNION 19,600 67,363 19,600 67,363
SOUTH AFRICAN BREWERIES LTD 2,100 60,338 2,100 60,338
TOTAL SOUTH AFRICA 361,086 361,086
SOUTH KOREA 0.6%
KOREA FUND 21,000 412,125 21,000 412,125
TOTAL SOUTH KOREA 412,125 412,125
SPAIN 2.6%
ARGENTARIA CORP BC 1,700 62,919 1,700 62,919
AUMAR (AUT DEL MAR) 6,900 82,462 6,900 82,462
BANCA POPULAR ESPANA 800 119,097 800 119,097
EMPRESA NAC DE ELEC 1,921 95,009 1,921 95,009
FUERZAS ELECTRIC CATAL 32,900 191,418 32,900 191,418
IBERDROLA SA 38,400 289,428 8,600 64,868 47,000 354,296
REPSOL SA 3,600 113,440 3,600 113,440
SEVILLANA DE ELECTRICIDAD 49,700 306,004 49,700 306,004
TELEFONICA DE ESPANA SA 16,200 208,860 16,200 208,860
UNION ELECTRIC FENOSA 49,900 234,241 49,900 234,241
URALITA SA 6,200 74,866 6,200 74,866
TOTAL SPAIN 1,229,951 612,660 1,842,611
SWEDEN 1.8%
MO OCH DOMSJO AB 2,550 147,142 2,550 147,142
SKAND ENSKILDA BANKING 16,950 88,131 16,950 88,131
STORA KOPPARBERGS, SERIES A 8,250 111,778 8,250 111,778
STORA KOPPARBERGS, SERIES B 11,500 154,230 11,500 154,230
SVENSKA CELLULOSA AB-SCA 16,350 303,611 16,350 303,611
SVENSKA HANDELSBK, SERIES A 5,900 83,184 5,900 83,184
SVENSKA HANDELSBK, SERIES B 10,200 152,228 10,200 152,228
SYDKRAFT AB, SERIES A 8,750 137,208 8,750 137,208
SYDKRAFT AB, SERIES C 5,900 79,938 5,900 79,938
TOTAL SWEDEN 1,257,450 1,257,450
SWITZERLAND 2.1%
BALOISE HOLDINGS 95 216,471 95 216,471
RIETER HOLDINGS AG 375 112,305 375 112,305
SCHWEIZERISCHE BANKGESELLSCH 110 113,915 110 113,915
SCHWEIZERISCHE BANKVEREIN 690 244,375 690 244,375
WINTERHUR 200 120,139 200 120,139
ZURICH VERSICHERUN BR 350 439,627 350 439,627
ZURICH VERSICHERUN REG 180 226,094 180 226,094
TOTAL SWITZERLAND 1,472,926 1,472,926
THAILAND 0.3%
BANGKOK BANK 4,000 44,075 4,000 44,075
IND FIN THAILAND 17,000 44,764 17,000 44,764
KRUNG THAI BANK PUB 17,000 68,868 17,000 68,868
THAI FARMERS BANK CO 4,300 41,110 4,300 41,110
TOTAL THAILAND 198,817 198,817
VENEZUELA 0.3%
CORIMON SA ADR 11,400 74,100 11,400 74,100
MAVESA-ADR 31,095 85,511 31,095 85,511
SIDER VENEZOLANA 53,400 80,100 53,400 80,100
TOTAL VENEZUELA 239,711 239,711
TOTAL COMMON STOCK 37,694,264 19,610,733 57,304,997
PREFERRED STOCK 3.6%
AUSTRALIA 0.6%
NEWS CORPORATION LIMITED 55,100 307,808 55,100 307,808
PUBLISHING & BROADCASTING 44,900 132,434 44,900 132,434
TOTAL AUSTRALIA 440,242 440,242
AUSTRIA 0.4%
CREDITANSTALT BANK 4,150 239,349 4,150 239,349
MBIA AG 200 8,759 200 8,759
TOTAL AUSTRIA 248,108 248,108
BELGIUM 0.1%
COCKERILL SAMBRE 12,432 79,232 12,432 79,232
TOTAL BELGIUM 79,232 79,232
BRAZIL 1.5%
ARACRUZ CELULOSE SA 58,469 136,565 58,469 136,565
BANCO ITAU SA 450,000 136,882 450,000 136,882
CENTRAIS ELECTRICAS 1,166,000 310,342 1,166,000 310,342
CIA VALE DO RIO DOCE 1,173,000 177,129 1,173,000 177,129
PARANAPANEMA SA 8,629,000 158,894 8,629,000 158,894
USINAS SIDER MINAS GERAIS 111,000,000 125,410 111,000,000 125,410
TOTAL BRAZIL 1,045,222 1,045,222
COLUMBIA 0.3%
BANCO GANADERO "C" 8,400 175,475 8,400 175,475
TOTAL COLUMBIA 8,400 175,475 8,400 175,475
GERMANY 0.7%
VOLKSWAGON AG 1,550 341,706 1,550 341,706
GEA AG 550 176,509 550 176,509
TOTAL GERMANY 518,215 518,215
ITALY 0.0%
ALITALIA LINEE AEREE ITALY 103,456 34,528 103,456 34,528
TOTAL ITALY 34,528 34,528
TOTAL PREFERRED STOCK 1,320,325 1,220,697 2,541,022
Principal Value Principal Value Principal Value
CORPORATE BONDS 0.1%
INDIA
ESSAR GUJARAT CONV NTS 5.5% 8/05/98 85,000 93,128 85,000 93,130
TOTAL CORPORATE BONDS 93,128 93,130
MUTUAL FUNDS 5.9%
ARGENTINA FUND, INC. 24,400 274,500 24,400 274,500
BRAZIL FUND, INC. 10,670 268,084 10,670 268,084
CHILE FUND, INC. 5,272 283,370 5,272 283,370
FIRST PHILLIPPINE FUND, INC. 16,050 268,838 16,050 268,838
INDIA GROWTH FUND,INC. 14,343 263,553 14,343 263,553
INDONESIA FUND, INC. 23,100 256,988 23,100 256,988
KOREA FUND, INC. 14,600 286,526 14,600 286,526
MALAYSIA FUND, INC. 13,200 255,750 13,200 255,750
MEXICO FUND, INC. 17,425 287,513 17,425 287,513
PAKISTAN INVT, INC. 41,500 280,125 41,500 280,125
PORTUGAL FUND, INC. 19,600 264,600 19,600 264,600
R.O.C. TAWAIN FUND, INC. 25,900 284,900 25,900 284,900
JARDINE STRATEGIC 13,000 41,860 13,000 41,860
HONG KONG LAND HOLDINGS 76,000 138,320 76,000 138,320
MORGAN STANLEY AFRICAN INVESTMENT 10,700 123,050 10,700 123,050
THAI CAPITAL FUND, INC. 15,100 262,362 15,100 262,362
TURKISH INVESTMENTS FUND, INC. 42,000 267,750 42,000 267,750
TOTAL MUTUAL FUNDS 4,108,089 4,108,089
REPURCHASE AGREEMENT 0.5%
STATE STREET BANK & TRUST 382,000 382,000
5.5% Dated 6/30/95, due 7/3/95
TOTAL INVESTMENTS (COST $63,968,144) + 91.9% 43,504,678 20,924,562 64,429,346
OTHER ASSETS & LIABILITIES 0.0% 178,356 5,129,620 5,307,977
TOTAL NET ASSETS 100.0% $43,683,140 $ 26,054,182 $69,737,323
69,690,611
</TABLE>
+Also represents cost for federal tax purposes.
(See Notes which are an integral part of the Pro Forma Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
First Union FFB Diversified Pro Forma
Int'l Equity Int'l Growth Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (Cost $63,968,144) $ 43,504,784 $ 20,924,562 $64,429,346
Cash and foreign currencies 55,843 8,072,202 46,712(1) 8,174,757
Receivable for foreign currency sold 1,678 0 1,678
Dividend and interest receivable 204,279 45,761 250,040
Receivable for Fund shares sold 17,663 0 17,663
Receivable for investment securities sold 0 1,019,426 1,019,426
Unamortized organization costs 0 46,712 (46,712)(1) 0
Prepaid and other assets 77,587 369 77,956
TOTAL ASSETS 43,861,834 30,109,032 0 73,970,866
LIABILITIES:
Payable for investment securities purchased 124,466 3,775,014 3,899,480
Due to broker for forward currency contracts 0 162,871 162,871
Payable for foreign currency purchased 1,678 0 1,678
Investment advisory fee payable 0 20,128 20,128
Accrued expenses and other payables 52,550 96,837 149,387
TOTAL LIABILITIES 178,694 4,054,860 0 4,233,554
NET ASSETS $ 43,683,140 $ 26,054,182 0 $ 69,737,322
NET ASSETS CONSIST OF:
Paid in capital $ 43,383,420 25,515,065 68,898,485
Undistributed net income 395,498 10,872 406,370
Accumulated net realized gain/loss on investments (96,930) 244,937 148,007
Net unrealized appreciation of investments and foreign currencies 1,152 283,308 284,460
NET ASSETS $ 43,683,140 $ 26,054,182 0 $ 69,737,322
Net asset value and offering price per share:
Class A $ 9.79 $ - $ 9.79
Maximum offering price (4.75% sales charge) $ 10.28 $ - $ 10.281
Class B $ 9.76 $ - $ 9.76
Class C $ 9.76 $ - $ 9.76
Class Y $ 9.80 $ $10.50 $ 9.80
Net Assets:
Class A 3,009,345 - 3,009,345
Class B 6,651,792 - 6,651,792
Class C 243,837 - 243,837
Class Y 33,778,166 26,054,182 33,778,166
Shares outstanding:
Class A 307,510 - 307,510
Class B 681,753 - 681,753
Class C 24,980 - 24,980
Class Y 3,447,917 2,482,174 176,412(2) 3,447,917
</TABLE>
(See Notes which are an integral part of the Pro Forma Financial Statements)
(1) Reflects the elimination of deferred organizational costs.
(2) Reflects additional shares issued as a result of the merger
<PAGE>
<TABLE>
<CAPTION>
First Union FFB Diversified Pro Forma
Int'l Equity Int'l Growth Adjustments Combined
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income (Net of $35,738 withholding tax $746,003 $105,501 $851,504
Interest income 44,316 12,014 56,330
790,319 117,515 907,834
OPERATING EXPENSES:
Investment advisory fee 215,397 73,472 (28,632)(1) 260,237
Trustees' fees 0 2,046 (1,546)(2) 500
Administrative personnel and service fees 32,123 8,817 (27,219)(1) 16,435
Custodian and portfolio accounting fees 108,269 17,827 (11,096)(3) 115,000
Shareholder servicing fees 10,938 1,961 (12,899)(4) 0
Transfer and dividend disbursing agent fees 21,051 4,239 (4,221)(2) 21,069
Distribution fee-class A 37,524 0 0 37,524
Distribution fee-class B 0 0 0
Distribution fee-class C 0 0 0
Fund share registration costs 15,359 5,449 20,808
Professional fees 13,473 13,518 (10,150)(2) 16,841
Printing & Postage 8,063 0 161 (6) 8,224
Insurance premiums 3,049 86 (86)(5) 3,049
Miscellaneous 25,855 7,415 (952)(5) 32,318
TOTAL OPERATING EXPENSES 491,101 134,830 (96,640) 532,005
Less fee waivers and expense reimbursements (187,403) (28,186) 164,866 (50,723)
NET EXPENSES 303,698 106,644 68,226 481,282
NET INVESTMENT INCOME 486,621 10,871 (68,226) 426,552
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized (loss) gain on investments (124,699) 244,937 120,238
Net increase in unrealized (depreciation)
appreciation of investments (1,096,619) 283,318 (813,301)
Net (loss) gain on investments (1,221,318) 528,255 0 (693,063)
Net (decrease) increase in net assets
resulting from operations ($734,697) $539,126 ($68,226) ($266,511)
</TABLE>
(See Notes which are an integral part of the Pro Forma Financial Statements)
(1)Reflects a decrease in investment advisory fee and a decrease in
administrative personnel and service fees based on the surviving Fund's
fee schedul
(2)Reflects elimination of duplicate service fees.
(3)Based on surviving Fund's contract in effect for custodian and portfolio
accounting services
(4)Reflects the elimination of a shareholder service fee that is not
applicable under the surviving Fund's fee structure
(5)Adjustment reflects the expected cost savings when the Funds combine.
(6)Reflects anticipated expenses of the combined fund.
Evergreen International Equity Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
June 30, 1995
1. Basis of Combination - The Pro forma Statement of Assets and
Liabilities, including the Pro Forma Portfolio of Investments, and the
related Pro Forma Statement of Operations ("Pro forma Statements")
reflects the accounts of the Evergreen International Equity Fund
("Evergreen") and FFB Diversified International Growth Fund ("FFB")
at June 30, 1995 and for the period from September 2, 1994 (Commencement
of operations) through June 30, 1995.
The Pro forma Statements give effect to the proposed transfer of
all assets and liabilities of FFB in exchange for shares of
Evergreen. The Pro forma Statements do not reflect the expense of
each Fund in carrying out its obligations under the Agreement and
Plan of Reorganization. The actual fiscal year end of the combined
Fund will be October 31, the fiscal year end of Evergreen.
The Reorganization will be accomplished through the acquisition of
substantially all of the assets of FFB by Evergreen, and the
assumption by Evergreen of certain identified liabilities of FFB.
Thereafter there will be a distribution of such shares of Evergreen
to shareholders of FFB in liquidation of and subsequent termination
of FFB. The information contained herein is based on the
experience of each fund for the period ended June 30, 1995 and is
designed to permit shareholders of FFB to evaluate the financial
effect of the proposed Reorganization. The expenses of Evergreen
and FFB in connection with the Reorganization (including the
cost of any proxy soliciting agents), will be borne by First Union
Bank of North Carolina.
The Pro forma Statements should be read in conjunction with the
historical financial statements of each Fund incorporated by
reference in the Statement of Additional Information.
Page 1
<PAGE>
2. Shares of Beneficial Interest - The pro forma net asset value per
share assumes the issuance of additional shares of Evergreen Class
Y shares and which would have been issued at
June 30, 1995 in connection with the proposed reorganization. The
amount of additional shares assumed to be issued was calculated
based on the June 30, 1995 net assets of FFB totaling $26,054,182
and the net asset value per share of Evergreen of $9.80.
The pro forma shares outstanding of 307,510 Class A, 681,753
Class B, 24,980 Class C, and 6,106,503 Class Y consist of 187,312
additional shares of Class Y to be issued in the proposed
reorganization, as calculated above in addition to shares of
Evergreen outstanding as of June 30, 1995.
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 Fund's gross investment income. Pro forma operating
expenses include the actual expenses of the Funds and the combined Fund,
with certain expenses adjusted to reflect the expected expenses of the
combined entity. The investment advisory fee, administrative personnel and
service fees and distribution service fees have been charged to the
combined Fund based on the fee schedule in effect for Evergreen at the
combined level of average net assets for the period ended June 30, 1995.
Additionally, the Adviser may, at its discretion, waive its fee or
reimburse the Fund for certain of its expenses in order to reduce the
Fund's expense ratio. An adjustment has been made to the combined Fund's
expenses to increase the waiver of investment advisory fee based on the
voluntary advisory fee waiver in effect for Evergreen for the period ended
June 30, 1995. The Adviser may, at its discretion, revise or cease this
voluntary fee waiver at any time.
Page 2
<PAGE>
<PAGE>
EVERGREEN INVESTMENT TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to
"Liability and Indemnification of Trustees" under the caption "Comparative
Information on Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1(a). Declaration of Trust. Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed on November 13, 1984 -
Registration No. 33-16706 ("Form N-1A Registration Statement")
1(b). Certificate of Amendment to Declaration of Trust. Incorporated by
reference to Post-Effective Amendment No. 28 to the Registrant's Form N-1A
Registration Statement filed on April 15, 1993.
1(c). Instrument providing for the Establishment and Designation of
Classes. Incorporated by reference to Post-Effective Amendment No. 28 to
the Registrant's Form N-1A Registration Statement filed on April 15, 1993.
1(d). Certificate of Amendment to Declaration of Trust. Incorporated by
reference to Post-Effective Amendment No. 40 to the Registrant's Form N-1A
Registration Statement filed on July 6, 1995.
2(a). Bylaws. Incorporated by reference to the Form N-1A Registration
Statement.
2(b). Amendment to the Bylaws. Incorporated by reference to Post-
Effective Amendment No. 3 to the Registrant's Form N-1A Registration
Statement filed on July 30, 1987.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus
contained in Part A of this Registration Statement.
5. Not applicable.
6(a). Investment advisory agreement between First Union National Bank of
North Carolina and the Registrant. Incorporated by reference to Post-
Effective Amendment No. 38 to the Registrant's Form N-1A Registration
Statement filed on December 30, 1994.
6(b). Exhibit to Investment Advisory Agreement. Incorporated by reference
to Post-Effective Amendment No. 38 to the Registrant's Form N-1A
Registration Statement filed on December 30, 1994.
6(c). Investment sub-advisory agreement between First Union National Bank
of North Carolina and Boston International Advisers, Inc. Incorporated by
reference to Post-Effective Amendment No. 38 to the Registrant's Form N-1A
Registration Statement filed on December 30, 1994.
6(d). Interim Investment Advisory Agreement. Exhibit B to Prospectus
contained in Part A of this Registration Statement.
6(e). Interim Sub-Advisory Agreement. Exhibit C to Prospectus contained
in Part A of this Registration Statement.
7. Distribution Agreement between Evergreen Funds Distributor, Inc. and
the Registrant. Incorporated by reference to Post-Effective Amendment No.
40 to the Registrant's Form N-1A Registration Statement filed on July 6,
1995.
8. Not applicable.
9(a). Custody Agreement between State Street Bank and Trust Company and
Registrant. Incorporated by reference to Post-Effective Amendment No. 38
to the Registrant's Form N-1A Registration Statement filed on December 30,
1994.
9(b). Amendment to Custody Agreement. Incorporated by reference to Post-
Effective No. 38 to the Registrant's From N-1A Registration Statement filed
on December 30, 1994.
10. Not Applicable.
11. Opinion and consent of Sullivan & Worcester. Filed herewith.
12. Tax opinion and consent of Sullivan & Worcester. Filed herewith.
13. Not applicable.
14. Consent of KPMG Peat Marwick LLP, independent accountants, as to the use of
their report dated February 13, 1995 concerning the financial statements of the
Evergreen International Equity Fund for the fiscal year ended December 31, 1994.
Filed herewith.
15. Not applicable.
17(a). Form of Proxy Card. Filed herewith.
17(b). Registrant's Rule 24f-2 Declaration. Filed herewith.
Item 17. Undertakings.
-2-
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
-3-
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the Registrant, in the City of New York
and State of New York, on the 20th day of August, 1995.
Evergreen Investment Trust
By: /s/ John J. Pileggi
----------------------
Name: John J. Pileggi
Title: President
Each person whose signature appears below hereby authorizes John J.
Pileggi, Joan V. Fiore and Joseph J. McBrien, as attorney-in-fact, to sign on
his behalf, any amendments to this Registration Statement and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission and any
state securities commission.
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/John J. Pileggi President (Principal August 20, 1995
------------------ Executive Officer)
John J. Pileggi and Treasurer
(Principal Financial
and Accounting Officer)
/s/James Howell Trustee August 20, 1995
---------------
James Howell
/s/Gerald McDonnell Trustee August 20, 1995
-------------------
Gerald McDonnell
/s/Thomas L. McVerry Trustee August 20, 1995
--------------------
Thomas L. McVerry
/s/William W. Pettit Trustee August 20, 1995
--------------------
William W. Pettit
/s/Russell A Salton, III Trustee August 20, 1995
------------------------
Russell A. Salton, III
/s/Michael S. Scofield Trustee August 20, 1995
----------------------
Michael S. Scofield
-4-
INDEX TO EXHIBITS
N-14 EXHIBIT NO. Page
11. Opinion and Consent of Sullivan & Worcester.
12. Tax Opinion and Consent of Sullivan & Worcester
14 Consent of KPMG Peat Marwick LLP
17(a) Form of Proxy
17(b) Registrant's Rule 24f-2 Declaration
OTHER EXHIBITS*
Prospectus dated March 1, 1995 of FFB Diversified International Growth
Fund.
Statement of Additional Information dated March 1, 1995 of FFB
Diversified International Growth Fund.
-------------------
*Incorporated by Reference into Form N-14 Registration Statement.
<PAGE>
SULLIVAN & WORCESTER
1025 CONNECTICUT AVENUE. N.W.
WASHINGTON, D.C. 20038
(202) 775-8190
TELECOPIER NO. 202-293-2275
IN BOSTON, MASSACHUSETTS IN NEW YORK CITY
ONE POST OFFICE SQUARE 767 THIRD AVENUE
BOSTON, MASSACHUSETTS 02100 NEW YORK, NEW YORK 10017
(617) 338-2800 (212) 486-8200
TELECOPIER NO. 617-338-2880 TELECOPIER NO. 212-756-2151
TWX: 710-321-1976
August 23, 1995
Evergreen Investment Trust
2500 Westchester Avenue
Purchase, NY 10577
Ladies and Gentlemen:
We have been requested by the Evergreen Investment Trust, a Massachusetts
business trust with transferable shares and currently consisting of 15 series
(the "Trust") established under a Declaration of Trust dated August 30, 1984 as
amended (the "Declaration"), for our opinion with respect to certain matters
relating to the Evergreen International Equity Fund (the "Acquiring Fund"), a
series of the Trust. We understand that the Trust is about to file a
Registration Statement on Form N-14 for the purpose of registering shares of the
Trust under the Securities Act of 1933, as amended (the "1933 Act"), in
connection with the proposed acquisition by the Acquiring Fund of substantially
all of the assets of the FFB Diversified International Growth Fund (the
"Acquired Fund"), a series of FFB Funds Trust, a Massachusetts business trust
with transferable shares, in exchange solely for shares of the Acquiring Fund
and the assumption by the Acquiring Fund of certain liabilities of the Acquired
Fund pursuant to an Agreement and Plan of Reorganization the form of which is
included in the Form N-14 Registration Statement (the "Plan").
We have, as counsel, participated in various business and other proceedings
relating to the Trust. We have examined copies of either certified or otherwise
proved to be genuine to our satisfaction, of the Trust's Declaration and
By-Laws, and other documents relating to its organization, operation, and
proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgment, are necessary or appropriate to enable us to
render the opinion expressed below.
Based upon the foregoing, and assuming the approval by shareholders of the
Acquired Fund of certain matters scheduled for their consideration at a meeting
presently anticipated to be held on November 13, 1995, it is our opinion that
the shares of the Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws,
<PAGE>
Evergreen Investment Trust
August 23, 1995
Page 2
will be legally issued, fully paid and non-assessable by the Trust, subject to
compliance with the 1933 Act, the Investment Company Act of 1940, as amended and
applicable state laws regulating the offer and sale of securities.
With respect to the opinion stated in the paragraph above, we note that
shareholders of a Massachusetts business trust may under some circumstances be
subject to assessment at the instance of creditors to pay the obligations of
such trust in the event that its assets are insufficient for the purpose.
We hereby consent to the filing of this opinion with and as a part of the
Registration Statement on Form N-14 and to the reference to our firm under the
caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of the
Registration Statement. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER
------------------------
SULLIVAN & WORCESTER
SULLIVAN & WORCESTER
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
TELECOPIER NO. 617-338-2880
TWX: 710-321-1976
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE. N.W. 767 THIRD AVENUE
WASHINGTON, D.C. 20038 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
TELECOPIER NO. 202-293-2275 TELECOPIER NO. 212-756-2151
August 23, 1995
Evergreen International Equity Fund
2500 Westchester Avenue
Purchase, New York 10577
FFB Diversified International Growth Fund
237 Park Avenue
New York, New York 10017
Re: Acquisition of Assets of FFB Diversified
International Growth Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain tax
consequences of the proposed acquisition of assets of FFB
Diversified International Growth Fund ("Selling Fund"), a
series of FFB Funds Trust, a Massachusetts business trust, by
Evergreen International Equity Fund ("Acquiring Fund"), a
series of Evergreen Investment Trust, a Massachusetts business
trust, in exchange for voting shares of Acquiring Fund (the
"Reorganization").
In rendering our opinion, we have reviewed and relied
upon the draft Prospectus/Proxy Statement and associated form
of Agreement and Plan of Reorganization (the "Reorganization
Agreement") expected to be filed with the Securities and
Exchange Commission on or about August 23, 1995. We have
relied, without independent verification, upon the factual
statements made therein, and assume that there will be no
change in material facts disclosed therein between the date of
this letter and the date of closing of the Reorganization. We
further assume that the Reorganization will be carried out in
accordance with the Reorganization Agreement. We have also
relied upon the following representations, each of which has
been made to us by officers of Evergreen Investment Trust on
behalf of Acquiring Fund or of FFB Funds Trust on behalf of
Selling Fund:
The Reorganization will be consummated
substantially as described in the Reorganization Agreement.
Acquiring Fund will acquire from Selling
Fund at least 90% of the fair market value of the net assets
and at least 70%
<PAGE>
Evergreen International Equity Fund
FFB Diversified International Growth Fund
August 23, 1995
Page 2
of the fair market value of the gross assets held by Selling
Fund immediately prior to the Reorganization. For purposes of
this representation, assets of Selling Fund used to pay
reorganization expenses, cash retained to pay liabilities, and
redemptions and distributions (except for regular and normal
distributions) made by Selling Fund immediately preceding the
transfer which are part of the plan of reorganization, will be
considered as assets held by Selling Fund immediately prior to
the transfer.
To the best of the knowledge of management
of Selling Fund, there is no plan or intention on the part of
the shareholders of Selling Fund to sell, exchange, or
otherwise dispose of a number of Acquiring Fund shares
received in the Reorganization that would reduce the former
Selling Fund shareholders' ownership of Acquiring Fund shares
to a number of shares having a value, as of the date of the
Reorganization (the "Closing Date"), of less than 50 percent
of the value of all of the formerly outstanding shares of
Selling Fund as of the same date. For purposes of this
representation, Selling Fund shares exchanged for cash or
other property will be treated as outstanding Selling Fund
shares on the Closing Date. There are no dissenters' rights in
the Reorganization, and no cash will be exchanged for Selling
Fund shares in lieu of fractional shares of Acquiring Fund.
Moreover, shares of Selling Fund and shares of Acquiring Fund
held by Selling Fund shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the
Reorganization will be considered in making this
representation.
Selling Fund has not redeemed and will not
redeem the shares of any of its shareholders in connection
with the Reorganization except to the extent necessary to
comply with its legal obligation to redeem its shares.
The management of Acquiring Fund has no plan
or intention to redeem or reacquire any of the Acquiring Fund
shares to be received by Selling Fund shareholders in
connection with the Reorganization, except to the extent
necessary to comply with its legal obligation to redeem its
shares.
The management of Acquiring Fund has no plan
or intention to sell or dispose of any of the assets of
Selling Fund which will be acquired by Acquiring Fund in the
Reorganization, except for dispositions made in the ordinary
course of business, and to the extent necessary to enable
Acquiring Fund to comply with its legal obligation to redeem
its shares.
Following the Reorganization, Acquiring Fund
will continue the historic business of Selling Fund in a
substantially unchanged manner as part of the regulated
investment company business of Acquiring Fund, or will use a
significant portion of Selling Fund's historic business assets
in a business.
<PAGE>
Evergreen International Equity Fund
FFB Diversified International Growth Fund
August 23, 1995
Page 3
There is no intercorporate indebtedness
between Acquiring Fund and Selling Fund.
Acquiring Fund does not own, directly or
indirectly, and has not owned in the last five years, directly
or indirectly, any shares of Selling Fund. Acquiring Fund will
not acquire any shares of Selling Fund prior to the Closing
Date.
Acquiring Fund will not make any payment of
cash or of property other than shares to Selling Fund or to
any shareholder of Selling Fund in connection with the
Reorganization.
Pursuant to the Reorganization Agreement,
the shareholders of Selling Fund will receive solely Acquiring
Fund voting shares in exchange for their voting shares of
Selling Fund.
The fair market value of the Acquiring Fund
shares to be received by the Selling Fund shareholders will be
approximately equal to the fair market value of the Selling
Fund shares surrendered in exchange therefor.
Subsequent to the transfer of Selling Fund's
assets to Acquiring Fund pursuant to the Reorganization
Agreement, Selling Fund will distribute the shares of
Acquiring Fund, together with other assets it may have, in
final liquidation as expeditiously as possible.
Selling Fund is not under the jurisdiction
of a court in a Title 11 or similar case within the meaning of
ss. 368(a)(3)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
Selling Fund is treated as a corporation for
federal income tax purposes and at all times in its existence
has qualified as a regulated investment company, as defined in
ss. 851 of the Code.
Acquiring Fund is treated as a corporation
for federal income tax purposes and at all times in its
existence has qualified as a regulated investment company, as
defined in ss. 851 of the Code.
The sum of the liabilities of Selling Fund
to be assumed by Acquiring Fund and the expenses of the
Reorganization does not exceed twenty percent of the fair
market value of the assets of Selling Fund.
The foregoing representations are true on
the date of this letter and will be true on the date of
closing of the Reorganization.
<PAGE>
Evergreen International Equity Fund
FFB Diversified International Growth Fund
August 23, 1995
Page 4
Based on and subject to the foregoing, and our
examination of the legal authority we have deemed to be
relevant, it is our opinion that for federal income tax
purposes:
The acquisition by Acquiring Fund of substantially
all of the assets of Selling Fund solely in exchange for
voting shares of Acquiring Fund followed by the distribution
by Selling Fund of said Acquiring Fund shares to the
shareholders of Selling Fund in exchange for their Selling
Fund shares will constitute a reorganization within the
meaning of ss. 368(a)(1)(C) of the Code, and Acquiring Fund
and Selling Fund will each be "a party to a reorganization"
within the meaning of ss. 368(b) of the Code.
No gain or loss will be recognized to Selling Fund
upon the transfer of substantially all of its assets to
Acquiring Fund solely in exchange for Acquiring Fund voting
shares and assumption by Acquiring Fund of certain identified
liabilities of Selling Fund, or upon the distribution of such
Acquiring Fund voting shares to the shareholders of Selling
Fund in exchange for all of their Selling Fund shares.
No gain or loss will be recognized by Acquiring
Fund upon the receipt of the assets of Selling Fund (including
any cash retained initially by Selling Fund to pay liabilities
but later transferred) solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of certain
identified liabilities of Selling Fund.
The basis of the assets of Selling Fund acquired by
Acquiring Fund will be the same as the basis of those assets
in the hands of Selling Fund immediately prior to the
transfer, and the holding period of the assets of Selling Fund
in the hands of Acquiring Fund will include the period during
which those assets were held by Selling Fund.
The shareholders of Selling Fund will recognize no
gain or loss upon the exchange of all of their Selling Fund
shares solely for Acquiring Fund voting shares. Gain, if any,
will be realized by Selling Fund shareholders who in exchange
for their Selling Fund shares receive other property or money
in addition to Acquiring Fund shares, and will be recognized,
but not in excess of the amount of cash and the value of such
other property received. If the exchange has the effect of the
distribution of a dividend, then the amount of gain recognized
that is not in excess of the ratable share of undistributed
earnings and profits of Selling Fund will be treated as a
dividend.
The basis of the Acquiring Fund voting shares to be
received by the Selling Fund shareholders will be the same as
the basis of the Selling Fund shares surrendered in exchange
therefor.
<PAGE>
Evergreen International Equity Fund
FFB Diversified International Growth Fund
August 23, 1995
Page 5
The holding period of the Acquiring Fund voting
shares to be received by the Selling Fund shareholders will
include the period during which the Selling Fund shares
surrendered in exchange therefor were held, provided the
Selling Fund shares were held as a capital asset on the date
of the exchange.
This opinion letter is delivered to you in
satisfaction of the requirements of Paragraph 8.6 of the
Reorganization Agreement. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement on
Form N-14 and to use of our name and any reference to our firm
in the Registration Statement or in the Prospectus/Proxy
Statement constituting a part thereof. In giving such consent,
we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER
------------------------
SULLIVAN & WORCESTER
<PAGE>
Consent of Independent Accountants
The Board of Trustees
Evergreen Investment Trust:
We consent to the use of our report dated February 13, 1995, on the
Evergreen International Equity Fund (formerly First Union International Equity
Portfolio of First Union Funds) incorporated herein by reference, to the
reference to our firm under the heading "Financial Statements and Experts" in
the Registration Statement on Form N-14 and to the references to our firm under
the heading "Financial Highlights" in the prospectus filed with the Securities
and Exchange Commission, incorporated herein by reference, in this Registration
Statement on Form N-14.
/s/KPMG Peat Marwick
KPMG Peat Marwick
Pittsburgh, Pennsylvania
August 23, 1995
Consent of Independent Accountants
The Board of Trustees
FFB Funds Trust:
We consent to the reference to our firm under the heading "Independent
Accountants" in the Statement of Additional Information incorporated herein by
reference in the Prospectus/Proxy Statement and included in this Registration
Statement on Form N-14 with respect to the FFB Diversified International Fund of
FFB Funds Trust.
/s/KPMG Peat Marwick
KPMG Peat Marwick
New York, New York
August 23, 1995
INTERNATIONAL
Draft: 8-18-95
VOTE THIS PROXY CARD TODAY
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
................................................................
FFB FUNDS TRUST - FFB DIVERSIFIED INTERNATIONAL GROWTH FUND
SPECIAL MEETING OF SHAREHOLDERS -- NOVEMBER 13, 1995
The undersigned hereby appoints , and
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 FFB
Diversified International Growth Fund (the "Fund"), which the undersigned is
entitled to vote at a Meeting of Shareholders of the Fund to be held at 237 Park
Avenue, New York, New York, 10017 on November 13, 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.
NOTE: 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
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
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 Plan of Reorganization
with the Evergreen International Equity Fund.
o YES o NO o ABSTAIN
2. To approve the proposed Interim Investment Advisory
Agreement with the Capital Management Group of First Union
National Bank of North Carolina.
o YES o NO o ABSTAIN
3. To approve the proposed Interim Sub-Advisory Agreement between the Capital
Management Group of First Union National Bank of North Carolina and Blairlogie
Capital Management Ltd.
o YES o NO o ABSTAIN
4. To consider and vote upon such other matters as may properly come before said
meeting or any adjournments thereof.
o YES o NO o ABSTAIN
These items are discussed in greater detail in the attached
Prospectus/Proxy Statement. The Board of Trustees of FFB Funds Trust has fixed
the close of business on September , 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.
Joan V. Fiore
Secretary
September 28, 1995
-2-
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.
As filed with the Securities and Exchange Commission on November 13, 1984
File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Pre-Effective Amendment No.
Post-Effective Amendment No.
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
Amendment No.
SALEM FUNDS
(Exact name of Registrant as specified in Charter)
99 High Street Boston Massachusetts
Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, including Area Code:
Roger T. Wickers, Esq., 99 High Street, Boston, Massachusetts 02110
(Name and Address of Agent for Service)
It is proposed that this filing will become effective immediately upon
filing pursuant to paragraph (b) on (date) pursuant to paragraph (b) 60
days after filing pursuant to paragraph (a) on (date) pursuant to
paragraph (a) of rule 485
Approximate date of proposed Public offering : As soon as possible after the
effective date of this Registration statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed
Maximum Proposed
Offering Maximum
Title of Price Aggregate Amount of
securities Amount Being Per Offering Registration
Being Registered Registered Unit Price Fee
Shares of bene- * $1.00 * $500
ficial Interest,
without par value
Registrant seeks to hereby register an indefinite number of securities of
Registrant.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
File a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
[LOGO]
DIVERSIFIED INTERNATIONAL GROWTH FUND
237 Park Avenue, New York, New York 10017
General and Account Information: (800) 437-8790
FIRST FIDELITY BANK, N.A., NEW JERSEY -- INVESTMENT ADVISER
FFB FUNDS DISTRIBUTOR, INC. -- SPONSOR AND DISTRIBUTOR
FFB FUNDS TRUST (the "Trust") is an open-end, diversified management
investment company which currently consists of twelve separate portfolios with
different investment objectives. FFB Diversified International Growth Fund (the
"Fund") is described in this Prospectus. The Fund's investment objective is
long-term growth of capital. In pursuing this objective, the Fund invests in a
diversified portfolio of international equity securities comprised of at least
70% developed markets as defined by the Morgan Stanley Capital International
Europe, Australia, Far East Stock Market Index and at most 30% emerging markets
as defined by the Morgan Stanley Capital International Emerging Markets Free
Index.
INVESTMENTS IN THE FUND ARE NOT GUARANTEED OR INSURED BY THE UNITED STATES
GOVERNMENT. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SHARES OF THE FUND ARE
NOT AN OBLIGATION OF OR GUARANTEED BY FIRST FIDELITY BANK OR ITS AFFILIATES. IN
ADDITION, SUCH SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY, AND MAY
INVOLVE INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
Shares of the Fund are offered for sale by FFB Funds Distributor, Inc. (the
"Distributor") as an investment vehicle for institutions, corporations,
fiduciaries and individuals. The Fund is sold with a sales charge or load; the
Fund may pay certain expenses related to the distribution of its shares. Certain
banks, financial institutions and corporations (the "Participating
Organizations") may agree to act as shareholder servicing agents for investors
who maintain accounts at these Participating Organizations and to perform
certain services for the Fund.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
(the "SAI") dated March 1, 1995 containing additional and more detailed
information about the Fund has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. It is
available without charge and can be obtained by writing or calling the Trust at
the address and general information number printed above.
------------------------------
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR INFORMATION ABOUT THE FUND.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
MARCH 1, 1995
FUND EXPENSES
The following table illustrates estimated projections of the expenses and
fees that a shareholder of the Fund will incur.+
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load imposed on Purchases (as a percentage of offering price)..... 4.50%
Sales Load imposed on Reinvested Dividends...................................... None
Redemption Fees................................................................. None
Exchange Fees................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory & Administrative Expenses (after expense waivers and
reimbursements)*............................................................. 1.06%
12b-1 Fees (after waiver)**..................................................... 0.00%
Other Expenses***............................................................... 0.69%
-----------
TOTAL FUND OPERATING EXPENSES (AFTER EXPENSE WAIVERS AND REIMBURSEMENTS)****.... 1.75%
==========
</TABLE>
+ Investors who purchase and redeem shares of the Fund through a customer
account maintained at a Participating Organization may be charged additional
fees not to exceed 0.25%. (See pages 8 and 13 of the Prospectus for additional
information.) In order to avoid such additional fees, shareholders may always
elect to purchase shares directly from the Trust through the Distributor.
* Certain Advisory and Administrative Expenses will be waived and certain
Fund expenses will be reimbursed by the Adviser. Absent such waiver and
reimbursements, which service providers have agreed to continue for the first
six months of the Fund's operation, Advisory and Administrative expenses would
be 1.40%.
** Although the Fund has adopted a 12b-1 Plan which allows payments up to
0.50%, the Distributor has agreed not to impose 12b-1 fees during the Fund's
first year of operation. If 12b-1 fees are imposed, long-term shareholders may
pay more than the economic equivalent of the maximum front-end sales charges
permitted by the National Association of Securities Dealers.
*** Certain Participating Organizations may receive additional fees from
the Fund in amounts up to an annual rate of 0.35% of the daily net asset value
of the Fund's shares owned by shareholders with whom the Participating
Organization has a servicing relationship. The Fund has agreed not to pay such
fees to any Participating Organizations during the Fund's first year of
operation. See "Servicing Agreements" on Page 8.
**** Without waiver or reimbursement of certain Fund expenses, Total Fund
Operating Expenses of the Fund would be 2.09%.
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
gross annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
<S> <C>
1 year........................................................... $62
3 years.......................................................... $98
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES
WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS
HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
ANNUAL RETURN; ACTUAL RETURN MAY BE GREATER OR LESS THAN THE ASSUMED AMOUNT.
The purpose of this table is to assist the shareholder in understanding the
various costs and expenses that an investor in a fund will bear. For a more
complete description of the Annual Fund Operating Expenses, see "Management of
the Fund."
2
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is long-term growth of capital. In
pursuing this objective, the Fund invests in a diversified portfolio of
international equity securities comprised of at least 70% developed markets as
defined by the Morgan Stanley Capital International Europe, Australia, Far East
Stock Market Index ("EAFE Index"). The Fund is not limited to the countries and
weightings of the EAFE Index. The Fund will invest approximately 30% of its
assets in common stocks of companies located in countries identified as
"emerging market" countries. The Morgan Stanley Capital International Emerging
Markets Free Index ("MSCI Emerging Markets Free Index") is used as a basis for
choosing the emerging market countries in which the Fund invests, however, the
Fund is not limited to the countries and weightings of these indices. Generally,
the Fund will normally maintain investments in companies located in
approximately 25 to 30 countries, including 10 to 15 emerging countries. There
can be no assurance that the Fund will achieve its investment objectives. The
equity securities in which the Fund invests will be primarily common stocks, but
may also include preferred stocks, convertible securities and American
Depository Receipts ("ADRs") and other similar arrangements.
The Fund's investment adviser is First Fidelity Bank, N.A., New Jersey
("First Fidelity" or the "Adviser"). The Adviser has retained Blairlogie Capital
Management Ltd. ("Blairlogie" or the "Sub-Adviser") to manage the Fund as
sub-adviser. The Adviser applies two levels of screening in selecting
investments for the Fund. First, an active country selection model analyzes
world markets and assigns a relative value ranking, or "favorability weighting,"
to each country in the relevant country universe to determine markets which are
relatively undervalued. Second, at the stock selection level, quality analysis
and value analysis are applied to each security, assessing variables such as
balance sheet strength and earnings growth (quality factors) and performance
relative to the industry, price to earnings ratios and price to book ratios
(value factors). This two-level screening method identifies undervalued
securities for purchasing as well as provides a sell discipline for fully valued
securities. In selecting securities, the Adviser considers to the extent
practicable, and on the basis of information available to it for research, a
company's environmental business practices and how they might affect their
long-term liabilities.
For purposes of allocating the Fund's investments, a company will be
considered to be located in the country in which the company is domiciled, and
in which it is primarily traded.
For purposes of its investment objective, the Fund follows the emerging
market definition of the International Finance Corporation ("IFC"), a member of
the World Bank Group. The IFC states that an emerging market could refer to any
market in a developing economy, with the implication that all such economies
have the potential for development. Further, regardless of an economy's
particular stage of development, all economies in developing countries are
considered emerging.
The Fund intends to invest the emerging markets portion of the Fund
primarily in some or all of the following emerging countries:
<TABLE>
<S> <C> <C>
Argentina Jordan Portugal
Brazil Malaysia South Korea
Chile Mexico Sri Lanka
Colombia Pakistan Turkey
Greece Peru Venezuela
India Philippines
</TABLE>
Most of the foreign securities in which the Fund invests will be
denominated in foreign currencies. The Fund may engage in foreign currency
derivatives transactions to protect itself against fluctuations in currency
exchange rates in relation to the U.S. dollar or to the weighting of a
particular foreign currency on the EAFE
3
Index or MSCI Emerging Markets Free Index. Such foreign currency transactions
may include forward foreign currency contracts, currency exchange transactions
on a spot (i.e., cash) basis, put and call options on foreign currencies, and
foreign exchange futures contracts. For a description of several of these
techniques, see "Investment Policies" in the SAI.
The Fund may invest up to 20% of its assets in derivatives including stock
index futures contracts, foreign exchange futures contracts, and options
thereon. The Fund may sell (write) call and put options. The Fund may also buy
or sell put and call options on foreign currencies either on exchanges or in the
over-the-counter market. See "Options", "Futures Contracts and Options on
Futures Contracts", "Foreign Currency Options", "Forward Foreign Currency
Contracts", and related sections in the section of the SAI on "Investment
Policies" for more information. The Fund may also engage in equity index swap
transactions and warrants. See "Equity Index Swap Agreements" and "Warrants" in
the section of the SAI on "Investment Policies."
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. For a
description of these risks, see "Foreign Securities" in the section of this
Prospectus on "Investment Practices and Restrictions; Risk Factors." Investment
in emerging market countries presents risks in greater degree than, and in
addition to, those presented by investment in foreign issuers in general. A
number of emerging market countries restrict, to varying degrees, foreign
investment in stocks. Repatriation of investment income, capital, and the
proceeds of sales of foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies of
developing countries have experienced significant declines against the U.S.
dollar in recent years, and devaluation may occur subsequent to investments in
these currencies by the Fund. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effect on the economies and
securities markets of certain emerging market countries.
The Fund will invest primarily in common stocks. The Fund may maintain a
portion of its assets, which will usually not exceed 10%, in U.S. Government
securities, and money market obligations, and in cash to provide for payment of
the Fund's expenses and to permit the Fund to meet redemption requests. The Fund
may invest in money market obligations issued by U.S. and foreign issuers and
that are both U.S. dollar-denominated and denominated in foreign currency
including bank obligations, commercial paper, variable and floating rate
securities and repurchase agreements. The Fund may temporarily not be invested
primarily in equity securities after receipt of significant new monies. The Fund
may temporarily not contain the number of stocks in which the Fund normally
invests if the Fund does not have sufficient assets to be fully invested, or
pending the Adviser's ability to prudently invest new monies.
It is the policy of the Fund to be as fully invested in common stock and
related derivatives as practicable at all times. This policy precludes the Fund
from investing in debt securities as a defensive investment posture (although
the Fund may invest in such securities to provide for payment of expenses and
meet redemption requests). Accordingly, investors in the Fund bear the risk of
general declines in stock prices, and bear any risk the Fund's exposure to such
declines cannot be lessened by investment in debt securities.
The Fund has adopted certain fundamental investment policies (i.e.,
policies which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined under "Other Information"), as well as certain
investment policies which are not fundamental, and therefore may be changed by
the Board of Trustees without shareholder approval. For a more complete
discussion of all these policies, see "Investment Practices and Restrictions;
Risk Factors" in this Prospectus and "Investment Policies" in the SAI. The
Fund's investment objectives and those investment restrictions specifically
identified as such are fundamental policies of the Fund. The Adviser's
discretion to make use of a particular investment practice or technique
described in this Prospectus and in the SAI is, however, not fundamental.
4
INVESTMENT PRACTICES AND RESTRICTIONS; RISK FACTORS
FOREIGN SECURITIES. The Fund may invest directly in foreign equity
securities; certificates of deposit, fixed time deposits and bankers'
acceptances issued by foreign banks; obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies and
supranational entities; and securities represented by American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), or Global Depository
Receipts ("GDRs"). ADRs are dollar-denominated receipts issued generally by
domestic banks and representing the deposit with the bank of a security of a
foreign issuer, and are publicly traded on exchanges or over-the-counter in the
United States. EDRs and GDRs are receipts similar to ADRs. EDRs are issued and
traded in Europe, and GDRs are issued and traded in several international
financial markets.
Investing in the securities of issuers in any foreign country involves
special risks and considerations not typically associated with investing in U.S.
companies. These include differences in accounting, auditing and financial
reporting standards; generally higher commission rates on foreign portfolio
transactions; the possibility of nationalization, expropriating or confiscatory
taxation; adverse changes in investment or exchange control regulations (which
may include suspension of the ability to transfer currency from a country);
government interference, including government ownership of companies in certain
sectors, wage and price controls, or imposition of trade barriers and other
protectionist measures; political instability which could affect U.S.
investments in foreign countries; and potential restrictions on the flow of
international capital. Additionally, foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
foreign witholding taxes, and other foreign taxes may apply with respect to
securities transactions. Transactions in foreign securities may involve greater
time from the trade date until the settlement date than for domestic securities
transactions, and may involve the risk of possible losses through the holding of
securities in custodians and securities depositories in foreign countries.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additional costs
associated with an investment in foreign securities may include higher
transaction costs and the cost of forcing currency conversions. Changes in
foreign exchange rates will also affect the value of securities denominated or
quoted in currencies other than the U.S. dollar. The Fund and its shareholders
may encounter substantial difficulties in obtaining and enforcing judgments
against non-U.S. resident individuals and companies. Securities issued by
companies located in emerging market countries may carry a greater degree of
exposure to these and other risks, as described in "Investment Objectives and
Policies".
LOW CAPITALIZATION STOCKS. The Fund may invest in the common stock of
companies with market capitalization of less than $500 million. Investments in
larger companies present certain advantages in that such companies generally
have greater financial resources, more extensive research and development,
manufacturing, marketing and service capabilities, and more stability and
greater depth of management and technical personnel. Investments in smaller,
less seasoned companies may present greater opportunities for growth but also
may involve greater risks than customarily are associated with more established
companies. The securities of smaller companies may be subject to more abrupt or
erratic market movements than larger, more established companies. These
companies may have limited product lines, markets or financial resources, or
they may be dependent upon a limited management group. Their securities may be
traded only in the over-the-counter market or on a regional securities exchange.
As a result, the disposition by a portfolio of securities to meet redemptions
may require the Fund to sell those securities at a disadvantageous time, or at
disadvantageous prices, or to make many small sales over a lengthy period of
time.
5
BORROWING. The Fund may borrow from banks up to certain limits. The Fund
may not borrow if, as a result of such borrowing, the total amount of all money
borrowed, including reverse repurchase agreements, exceeds 10% of the value of
its net assets (at the time of such borrowing), or if borrowing for temporary
purposes, such as to facilitate redemptions, 25% of the value of its net assets.
This borrowing may be unsecured. Borrowing may result in leveraging the Fund,
which will exaggerate the effect of any increase or decrease in the value of
portfolio securities on the Fund's net asset value. Money borrowed will be
subject to interest and other costs (which may include commitment fees and/or
the cost of maintaining minimum average balances), which may or may not exceed
the income received from any securities purchased with borrowed funds. The use
of borrowing tends to result in a faster than average movement, up or down, in
the net asset value of the Fund's shares. The Fund may also be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
The Fund may, in connection with permissible borrowings, transfer as collateral,
securities owned by the Fund.
ADDITIONAL INVESTMENT RESTRICTIONS. The Fund may purchase firm commitment
and when-issued securities and illiquid securities and may loan portfolio
securities as described in the SAI. The Fund will not, with respect to 75% of
its assets, invest more than 5% of its assets (taken at market value at the time
of such investment) in securities of any one issuer, except that this
restriction does not apply to U.S. Government securities. The Fund will not,
with respect to 75% of its assets, invest in more than 10% (taken at market
value at the time of such investment) of any one issuer's outstanding voting
securities, except that this restriction does not apply to U.S. Government
securities. The Fund will not concentrate more than 25% of its assets in any
particular industry, except that this restriction does not apply to U.S.
Government securities.
MANAGEMENT OF THE FUND
The property, affairs and business of the Fund are managed by the Board of
Trustees. The Trustees elect officers who are charged with the responsibility
for the day-to-day operations of the Fund and the execution of policies
formulated by the Trustees. Detailed information about the Trustees and their
affiliations may be found in the SAI under "Management of the Fund".
ADVISER
First Fidelity serves as the Investment Adviser to the Fund. The offices of
the Adviser are located at 765 Broad Street, Newark, New Jersey 07102. The
Adviser is a national banking association which provides commercial banking and
trust business services throughout New Jersey. It is a wholly-owned subsidiary
of First Fidelity Incorporated, originally established in 1812, which, as a
result of a reorganization with Fidelcor, Inc., a Pennsylvania bank holding
company, is now a wholly-owned subsidiary of First Fidelity Bancorporation.
First Fidelity Bancorporation, a New Jersey corporation, provides financial and
related services through its subsidiary organizations. The advisory services of
the Adviser are provided through the Asset Management Group of the Adviser's
Trust Division. As of December 31, 1994, the Trust Division had approximately
$17 billion of client assets under management. The Adviser has provided
investment advisory services to investment companies since 1986 and currently
acts as Adviser to all Funds within FFB Funds Trust.
Under the International Fund Investment Advisory Agreement, First Fidelity,
subject to the supervision of the Board of Trustees, is responsible for
providing advice and guidance with respect to the Fund and for managing, either
directly or through others selected by the Adviser, the investments of the Fund.
6
First Fidelity has engaged Blairlogie as Sub-Adviser for the Fund pursuant
to a Sub-Advisory Agreement, and First Fidelity compensates Blairlogie from its
advisory fee (and not from the Fund). Under the Sub-Advisory Agreement, the
Sub-Adviser has full investment discretion and makes all determinations with
respect to the investment of the Fund's assets, and makes all determinations
respecting the purchase and sale of the Fund's securities and other investments.
James Smith, who has been with the Sub-Adviser since 1992, is primarily
responsible for the day-to-day management of the Fund. Mr. Smith is the Chief
Investment Officer and is responsible for managing an investment team of seven
professionals, who, in turn, specialize in selection of stock within Europe,
Asia, The Americas and in currency and derivatives. He previously served, from
1987 to 1992, as a senior portfolio manager at Murray Johnstone in Glasgow,
Scotland, responsible for international investment management for North American
clients and at Schroder Investment Management in London. Mr. Smith received his
bachelor's degree in Economics from London University and his MBA from Edinburgh
University. He is an Associate of the Institute of Investment Management and
Research.
Blairlogie commenced operations in 1992. Blairlogie is a limited partner of
PIMCO Advisors, L.P., a master limited partnership. PIMCO Advisers, L.P. manages
$60 billion in assets. Accounts managed by Blairlogie had combined assets as of
December 31, 1994 of approximately $500 million. Blairlogie's address is 4th
Floor, 125 Princes Street, Edinburgh EH2 4AD, Scotland. Blairlogie is registered
as an investment adviser with the Securities and Exchange Commission (the "SEC")
of the United States and the Investment Management Organization ("IMRO") of the
United Kingdom. Registration as an investment adviser with the SEC does not
involve supervision by the SEC over investment advice. The Sub-Advisory
Agreement is not exclusive, and Blairlogie may provide, and currently provides,
investment management services to other clients.
Pursuant to the Master Advisory Contract (the "Advisory Contract"), First
Fidelity provides administrative assistance in connection with the operation of
the Fund. First Fidelity also acts as Transfer and Dividend Disbursing Agent and
Custodian for the Fund, as described in the Statement of Additional Information.
First Fidelity intends to receive its customary managing agency account
fees or any other account fees it imposes on accounts of its bank customers with
respect to customer assets invested in the Fund where permitted by applicable
federal, state and local laws; this may result in the receipt by First Fidelity
of customer account fees in addition to advisory fees from the Fund with respect
to assets in certain customer accounts, and a corresponding reduction in the
total yield for the Fund realized by customers who hold Fund shares in regular
accounts with First Fidelity. Neither First Fidelity nor any of its affiliates
nor any of their employees will make loans for the purpose of purchasing or
carrying shares of the Fund or make loans to the Fund. Prospectuses and sales
material for the Fund can be obtained from FFB Funds Distributor, Inc., the
Sponsor and Distributor.
SPONSOR AND DISTRIBUTOR
FFB Funds Distributor, Inc. (the "Sponsor" or "FFB Funds Distributor"), the
Sponsor and Distributor, has its principal office at 237 Park Avenue, New York,
New York 10017. The Distributor is an affiliate of Furman Selz Incorporated
("Furman Selz").
Pursuant to a Master Distribution Contract (the "Distribution Contract"),
the Distributor is responsible for the distribution of Fund shares. The
Distributor receives no compensation for services rendered to the Fund pursuant
to the Distribution Contract.
7
ADMINISTRATOR
Pursuant to a Master Administrative Services Contract (the "Administrative
Services Contract"), Furman Selz acts as the Administrator of the Fund and has
its office at 237 Park Avenue, New York, New York 10017. It provides personnel,
office space and all management and administrative services reasonably necessary
for the operation of the Trust and the Fund (such as maintaining the Fund's
books and records, monitoring compliance with all State and Federal laws and
assisting the Trustees in the execution of their duties), other than those
services which are provided by First Fidelity pursuant to the Advisory Contract.
Furman Selz receives from the Fund a monthly fee based on the net assets of the
Fund as compensation for its provision of administrative services to the Fund.
See "Fees and Expenses".
DISTRIBUTION PLAN
The Fund has adopted a Master Distribution Plan (the "Plan") pursuant to
Rule 12b-1 of the Investment Company Act of 1940, as amended, after having
concluded that there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders. The Plan provides for a monthly payment by the Fund
to the Distributor in such amounts that the Distributor may request for direct
and indirect distribution expenses, subject to periodic Board approval, and to
an overall expense limitation. These expenses include the printing and
distribution of prospectuses sent to prospective investors, the preparation,
printing and distribution of sales literature and expenses associated with media
advertisements, telephone services and payments to financial intermediaries for
introducing assets to and retaining assets in the Fund. The Distributor may also
make payments to itself and other broker-dealers or financial intermediaries for
assistance in distributing shares of the Fund and otherwise promoting the sale
of Fund shares. Each such payment is based on the average daily value of the
Fund's net assets during the preceding month and is calculated at an annual rate
not to exceed 0.50%.
The Fund is permitted to pay banks and other depository institutions under
the Plan for performing additional administrative and shareholder servicing
functions. The Fund believes that such services are permissible activities under
present banking laws and regulations and will take appropriate actions (which
should not adversely affect the Fund or its shareholders) in the future to
maintain compliance with applicable laws should any changes occur.
The Plan provides for the Distributor to prepare and submit to the Board of
Trustees on a quarterly basis written reports of all amounts expended pursuant
to the Plan and the purpose for which such expenditures were made. The Plan may
not be amended to increase materially the amount spent for distribution expenses
without approval by a majority of the Fund's outstanding shares and approval of
a majority of the non-interested Trustees. The Fund will not be liable for
distribution expenditures made by the Distributor in any given year in excess of
the maximum amount payable under the Plan for that Fund year.
SERVICING AGREEMENTS
First Fidelity, as Transfer Agent, may enter into agreements (the
"Servicing Agreements") with certain banks, financial institutions and
corporations (the "Participating Organizations") under which each Participating
Organization handles recordkeeping and provides certain administrative services
for its customers who invest in the Fund through accounts maintained at that
Participating Organization. These administrative services may include the
maintenance of account records in the name of each shareholder (reflecting
purchases, redemptions and dividends paid or reinvested), the processing of
dividends, reinvestments, purchase and redemption requests, the preparation and
mailing of periodic account statements, the addressing
8
and mailing of Fund communications to shareholders (financial reports, proxy
information and tax reports) and other related services. In such cases, the
Participating Organization or one of its nominees will be the shareholder of
record as nominee for its customers and will maintain sub-accounts for its
customers. Pursuant to a separate agreement between a Participating Organization
and its customers, customers may grant, or may already have granted to a
Participating Organization, the power to vote proxies relating to their shares
of the Fund. Any customer of a Participating Organization may become the
shareholder of record upon written request to its Participating Organization or
First Fidelity, as Transfer Agent.
Each Participating Organization will receive monthly payments which will be
based upon expenses that the Participating Organization has incurred in the
performance of its services under the Servicing Agreement. The payments will not
exceed, on an annualized basis, an amount equal to 0.35% of the average daily
value during the month of Fund shares in the sub-accounts of which the
Participating Organization is record owner as nominee for its customers. Such
payments will be separately negotiated with each Participating Organization and
will vary depending upon such factors as the services provided and the costs
incurred by each Participating Organization. The payments may be more or less
than the fees payable to First Fidelity pursuant to the Agency Agreement for
similar services. Participating Organizations will not be paid any amounts under
the Fund's Distribution Plan (see "Distribution Plan"); the net assets of the
Fund used for purposes of calculating the maximum amount payable under its
Distribution Plan will, however, include assets of persons who purchase shares
through Participating Organizations.
The payments will be made by the Fund to First Fidelity which will, in
turn, pay the Participating Organizations pursuant to the Servicing Agreements.
First Fidelity will not keep any portion of the payments, and will not receive
any compensation as transfer or dividend disbursing agent with respect to the
sub-accounts maintained by Participating Organizations. The Board of Trustees
will review, at least quarterly, the amounts paid and the purposes for which
such expenditures were made pursuant to the Servicing Agreements.
GLASS-STEAGALL ACT
The Glass-Steagall Act and other applicable laws generally prohibit banks
that are members of the Federal Reserve System from engaging in the business of
underwriting, selling or distributing securities. The Board, based upon advice
from counsel, believes that First Fidelity may perform the services for the Fund
contemplated by its Advisory Contract without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. However, it is possible
that future changes in either Federal or state statutes and regulations
concerning the permissible activities of banks or trust companies, as well as
further judicial or administrative decisions and interpretations of present and
future statutes and regulations, might prevent First Fidelity from continuing to
perform such services for the Fund. If First Fidelity were prohibited from
acting as adviser to the Fund, it is expected that the Trustees of the Trust
would recommend to the shareholders of the Fund that they approve the Fund's
entering into a new Advisory Contract with another qualified adviser to be
selected by the Trustees.
FEES AND EXPENSES
As compensation for its advisory and management services, First Fidelity is
paid a monthly fee at an annual rate of 1.25% of average daily net assets of the
Fund. Pursuant to the Sub-Advisory Agreement between the Adviser and the
Sub-Adviser, First Fidelity (and not the Fund) pays Blairlogie a fee equal to
0.75% of the average daily net assets of the Fund. First Fidelity also receives
a fee for serving as Custodian and Transfer Agent for the Fund. See "Custodian,
Transfer Agent and Dividend Disbursing Agent" in the SAI.
9
As compensation for its administrative services, Furman Selz is paid a
monthly fee at an annual rate of 0.15% of average daily net assets of the Fund.
Except for the expenses paid by First Fidelity, the Distributor and Furman
Selz, the Trust bears all costs of its operations, such as legal and accounting
expenses and Trustees' fees and expenses. Fees for the Fund are higher than fees
for most investment companies, but comparable to other funds of this type.
FUND TRANSACTIONS
Pursuant to the Advisory Contracts, the Adviser places orders for the
purchase and sale of portfolio investments for the Fund's accounts with brokers
or dealers selected by it in its discretion. In effecting purchases and sales of
portfolio securities for the account of the Fund, the Adviser will seek the best
execution of the Fund's orders. In doing so, the Fund may pay higher commission
rates than the lowest available when the Adviser believes it is reasonable to do
so in light of the value of the brokerage and research services provided by the
broker effecting the transaction. Brokerage commissions on foreign securities
exchanges are generally fixed and, therefore, Fund expenses for foreign
securities transactions may be higher than those for comparable transactions on
domestic exchanges. Brokerage commissions may be allocated to Furman Selz to the
extent and in the manner permitted by applicable law, provided that, in the
judgment of the Adviser, the use of Furman Selz is likely to result in an
execution at least as favorable as that of other qualified brokers. In all
trades directed to Furman Selz, the Fund will be charged the most favorable
commission rate Furman Selz charges its unaffiliated customers in similar
transactions, and the Fund's orders will be accorded priority over those
received from Furman Selz for its own account or from any of its directors,
officers or employees. The Fund will not deal with Furman Selz in any
transaction in which Furman Selz acts as principal and will not deal in
over-the-counter securities with Furman Selz acting as either principal or
agent.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Trustees may determine, the Adviser may also consider sales of
shares of the portfolio as a factor in the selection of brokers or dealers to
execute Fund transactions for the Fund. Consistent with its policy of seeking
best execution of portfolio transactions, the Fund may place orders to purchase
or sell securities with First Fidelity Brokers, Inc. First Fidelity Brokers,
Inc. will not, however, execute as principal, any transactions for or with the
Fund. The Fund has adopted procedures under Rule 17e-1 of the Investment Company
Act of 1940, as amended governing brokerage transactions with affiliates.
Some securities considered for investment for the Fund may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of the Fund and one or more
of these clients served by the Adviser is considered at or about the same time,
transactions in such securities will be allocated among the Fund and clients in
a manner deemed fair and reasonable by the Adviser. Although there is no
specified formula for allocating such transactions, the various allocation
methods used and the results of such allocations are subject to periodic review
by the Fund's Adviser and Board of Trustees.
The Fund has no restrictions upon portfolio turnover but it is not expected
ordinarily to exceed 100% annually. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs which
are borne directly by the Fund, and results in the recognition of greater
amounts of income and gain which the Fund must distribute in order to maintain
its status as a regulated investment company under Subchapter M of the Internal
Revenue Code, as amended.
10
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share for the purpose of pricing purchase
and redemption orders is determined at 4:00 p.m. (Eastern Standard time) on each
day the New York Stock Exchange is open for trading except for holidays, which
include New Year's Day, Martin Luther King Jr.'s Birthday, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day. The net asset value per share of the Fund is
computed by dividing the value of the net assets of the Fund (i.e., the value of
the assets less the liabilities) by the total number of shares outstanding. All
expenses, including the advisory and administrative fees, are accrued daily and
taken into account for the purpose of determining the net asset value.
Fund securities and other assets for which market quotations are readily
available are stated at market value. Market value is determined on the basis of
the last reported sales price or, if no sales are reported, as is the case for
most securities traded over-the-counter, the mean between the representative bid
and the asked quotations obtained from a quotation reporting system or from the
established market markets.
The value of the portfolio securities that are traded on exchanges outside
the United States is based upon the price on the exchange as of the close of
business of the exchange immediately preceding the time of valuation (or as of
4:00 P.M. New York time, if that is earlier). Quotations of foreign securities
in foreign currency are converted to U.S. dollar equivalents using the foreign
exchange quotation in effect at the time net asset value is computed. The
calculation of the net asset value of the Fund may not take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and 4:00 P.M. New York
City time, and at other times may not be reflected in the calculation of net
asset value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at fair value as
determined by management and approved in good faith by the Board of Trustees.
Short-term investments having a maturity of 60 days or less are valued at
amortized cost, unless the amortized cost does not approximate market value.
Subject to the foregoing, securities for which market quotations are not readily
available are valued at fair value as determined in good faith under the
direction of the Board of Trustees.
PURCHASE OF SHARES
Shares of the Fund are offered by the Distributor as an investment vehicle
for institutions, corporations, fiduciaries and individuals. Orders for
purchases of shares will be executed at the net asset value per share plus any
applicable sales charge (the "public offering price") next determined after an
order has been received. The sales charge for purchases of shares of the Fund
may range from 4.50% to 1.00% of the public offering
11
price (which is equal to 4.71% to 1.01% of the net amount invested) with the
amount of the sales charge varying with the size of the purchase made according
to the following schedule:
<TABLE>
<CAPTION>
AMOUNT OF SALES CHARGE
PUBLIC NET REALLOWED TO DEALERS
OFFERING AMOUNT AS A PERCENTAGE OF
AMOUNT OF INVESTMENT PRICE INVESTED PUBLIC OFFERING PRICE
---------------------------------------------------------- -------- -------- ----------------------
<S> <C> <C> <C>
Less than $100,000........................................ 4.50% 4.71% 4.00%
$100,000 but less than $250,000........................... 3.50% 3.63% 3.00%
$250,000 but less than $500,000........................... 2.60% 2.67% 2.25%
$500,000 but less than $1,000,000......................... 2.00% 2.04% 1.75%
$1,000,000 and over....................................... 1.00% 1.01% 0.90%
</TABLE>
The initial sales load will not apply to shares purchased by (i) trust,
investment management and other fiduciary accounts managed or administered by
the Trust or the Adviser or Sub-Adviser pursuant to a written agreement, (ii)
Furman Selz, the Distributor or any of their affiliates, (iii) Trustees or
Officers of the Fund, (iv) directors and officers of Furman Selz, the
Distributor, the Adviser, the Sub-Adviser or their affiliates or bona fide
full-time employees of any of the foregoing who have acted as such for not less
than 90 days (including members of their immediate families), (v) plans for
which a depository institution, which is a client or customer of the Adviser,
Sub-Adviser or Distributor, serves as custodian or trustee, or to any trust or
other benefit plan for such persons so long as such shares are purchased through
the Distributor. The initial sales load also does not apply to shares sold to
representatives of selling brokers and members of their immediate families.
The Distributor, at its own expense, may from time to time pay a bonus or
other incentives to dealers which employ a registered representative who sells a
minimum dollar amount of the shares of the Fund and/or other Funds distributed
by the Distributor during a specific period of time. Such bonus or other
incentives may take the form of payment for travel expenses, including lodging
incurred in connection with trips taken by qualifying registered representatives
and members of their families to places within or outside the United States or
other bonuses such as gift certificates or the cash equivalent of such bonuses.
The Distributor has established special promotional incentive programs with
First Fidelity Securities Group.
QUANTITY DISCOUNTS IN THE SALES CHARGES
RIGHT OF ACCUMULATION
The schedule of reduced sales charges will be applicable once the
accumulated value of the account has reached $100,000. For this purpose, the
dollar amount of the qualifying concurrent or subsequent purchase is added to
the net asset value of any other shares of the Fund owned at the time by the
investor. The sales charge imposed on the shares being purchased will then be at
the rate applicable to the aggregate of shares purchased. For example, if the
investor held shares of the Fund valued at $100,000 and purchased an additional
$20,000 of Fund shares (totalling an investment of $120,000), the sales charge
for the $20,000 purchase would be at the next lower sales charge on the schedule
(i.e., the sales charge for purchases over $100,000 but less than $250,000).
There can be no assurance that investors will receive the cumulative discounts
to which they may be entitled unless, at the time of placing their purchase
order, the investors or their dealers make a written request for the discount.
The cumulative discount program may be amended or terminated at any time. This
particular privilege does not entitle the investor to any adjustment in the
sales
12
charge paid previously on purchases of shares of the Fund. If the investor knows
that they will be making additional purchases of shares in the future, they may
wish to consider executing a Letter of Intent.
LETTER OF INTENT
The schedule of reduced sales charges is also available to investors who
enter into a written Letter of Intent providing for the purchase, within a
13-month period, of shares of the Fund. Shares of the Fund previously purchased
during a 90 day period prior to the date of receipt by the Distributor of the
Letter of Intent which are still owned by the shareholder may also be included
in determining the applicable reduction, provided the shareholder or the dealer
notifies the Distributor of such prior purchases.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of investments over a 13 month period. Each
investment made during the period will receive the reduced sales commission
applicable to the amount represented by the goal as if it were a single
investment. A number of shares totalling 5% of the dollar amount of the Letter
of Intent will be held in escrow by the Distributor in the name of the
shareholder. The initial purchase under a Letter of Intent must be equal to at
least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, or the
Fund to sell, the indicated amount. In the event the Letter of Intent's goal is
not achieved within the 13 month period, the investor is required to pay the
difference between the sales charge otherwise applicable to the purchases made
during this period and sales charges actually paid. The Distributor is
authorized by the shareholder to liquidate a sufficient number of escrowed
shares to obtain such difference. If the goal is exceeded and purchases pass the
next sales charge level, the sales charge on the entire amount of the purchase
that results in passing that level and on subsequent purchases will be subject
to further reduced sales charges in the same manner as set forth under "Right of
Accumulation," but there will be no retroactive reduction of sales charges on
previous purchases. At any time while a Letter of Intent is in effect, a
shareholder may, by written notice to the Distributor, increase the amount of
the stated goal. In that event, shares purchased during the previous 90 day
period and still owned by the shareholder will be included in determining the
applicable sales charge reduction. The 5% escrow and minimum purchase
requirements will be applicable to the new stated goal. Investors electing to
purchase Fund shares pursuant to a Letter of Intent should carefully read the
application for Letter of Intent which is available from the Distributor.
The minimum initial investment is $1,000. The minimum subsequent investment
is $100. There are no minimum investment requirements with respect to
investments effected through certain automatic purchase and redemption
arrangements on behalf of customer accounts maintained at Participating
Organizations. The minimum investment requirements may be waived or lowered for
investments effected on a group basis by certain other institutions and their
employees. All funds will be invested in full and fractional shares. The Trust
reserves the right to reject any purchase order.
Orders for shares will be executed at the net asset value per share next
determined after an order has become effective. Orders will become effective
when received in good order by the Fund. If payment is transmitted by wire, the
order will become effective upon receipt of Federal funds. Federal Reserve wire
transmissions may be subject to delays of up to several hours, in which case
execution of an order will be delayed for a like period of time. Payments
transmitted by a bank wire other than the Federal Reserve Wire System may take
longer to be converted into Federal funds. Banks may charge a service fee for
transfers by wire. Checks must be payable in United States dollars and will be
accepted subject to collection at full face value.
13
PROSPECTIVE INVESTORS WHO WISH TO OBTAIN ADDITIONAL INFORMATION CONCERNING
INVESTMENT PROCEDURES SHOULD CONTACT THE DISTRIBUTOR AT: (800) 437-8790.
DIRECT PURCHASES THROUGH FFB FUNDS DISTRIBUTOR, INC.
PURCHASE BY WIRE
1. Telephone: (800) 437-8790. Give the name(s) in which shares of the
Fund are to be registered, address, social security or tax identification number
(where applicable), dividend payment election, amount to be wired, name of the
wiring bank and name and telephone number of the person to be contacted in
connection with the order. An account number will be assigned.
2. Instruct the wiring bank to transmit the specified amount in Federal
funds ($1,000 or more) to:
Investors Fiduciary Trust Company ("IFTC") Kansas City, MO 64105 ABA
Routing Number: 101003621 Account Number 7512996 International Fund
Account Name(s) (in which to be registered) Account Number (as assigned
by telephone)
3. Fill in a New Account Application and mail to:
FFB Funds Distributor, Inc.
P.O. Box 4499
Grand Central Station
New York, NY 10164-2294
A COMPLETED NEW ACCOUNT APPLICATION MUST BE RECEIVED BY FFB FUNDS
DISTRIBUTOR BEFORE THE EXPEDITED REDEMPTION SERVICE CAN BE USED.
PURCHASE BY MAIL
1. Complete a New Account Application. Indicate the services to be used.
2. Mail the New Account Application and a check for $1,000 or more payable
to FFB Diversified International Growth Fund to FFB Funds Distributor.
ADDITIONAL PURCHASES BY WIRE AND MAIL
Additional purchases of shares may be made by wire by instructing the
wiring bank to transmit the amount ($100 or more) of any additional purchase in
Federal funds to IFTC along with your account name and number. Call the Fund at
800-437-8790 to place such purchases. Additional purchases may also be made by
mail by making a check ($100 or more) payable to the Fund indicating your
account number on the check and mailing it to FFB Funds Distributor.
14
AUTOMATIC INVESTMENT PLAN
The Fund provides a convenient method by which an investor can have amounts
sent directly from his or her checking account for investment in the Fund. The
minimum initial and subsequent investment pursuant to this program is $100 per
Fund on a monthly or quarterly basis.
PURCHASE THROUGH CUSTOMER ACCOUNTS
Purchases of shares also may be made through customer accounts maintained
at Participating Organizations including qualified Individual Retirement and
Keogh Plan accounts. Purchases through customer accounts may be subject to
additional procedural requirements and are governed by the terms of the
agreement between the customer and the Participating Organization itself. All
such procedural requirements must, however, be consistent with the Investment
Company Act of 1940, as amended. Purchases will be made through a customer
account only as directed by or on behalf of the customer in a direction form
executed prior to the customer's first purchase of shares of the Fund. For
example, a customer with an account at a Participating Organization may instruct
the Participating Organization to invest money in excess of a level agreed upon
between the customer in shares of the Fund periodically or give other
instructions to the Participating Organization within limits prescribed by that
Participating Organization.
BY PAYROLL DIRECT DEPOSITS
Investors may set up a payroll direct deposit arrangement for amounts to be
automatically invested in the Fund. Participants in the Payroll Direct Deposit
program may make periodic investments of a least $20.00 per pay period. Contact
FFB Funds Distributor for more information about Payroll Direct Deposit.
REDEMPTION OF SHARES
Upon receipt by FFB Funds Distributor of a redemption request in proper
form, shares of the Fund will be redeemed at its next determined net asset
value. See "Determination of Net Asset Value". For the shareholder's
convenience, the Trust has established several different direct redemption
procedures. No payment of proceeds of a redemption of shares purchased by check
will be permitted until the check has cleared, which may take up to 15 days
after those shares have been credited to the shareholder's account.
DIRECT REDEMPTION THROUGH FFB FUNDS DISTRIBUTOR
REDEMPTION BY MAIL
1. Write a letter of instruction. Indicate the dollar amount or number of
shares to be redeemed. Refer to the shareholder's Fund account number.
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $25,000 or more, the
signature(s) must be guaranteed by a commercial bank which is a member of the
Federal Deposit Insurance Corporation, a trust company, a member firm of a
domestic stock exchange or a foreign branch of any of the foregoing or an
approved savings bank or savings and loan association. A signature guarantee by
a non-approved savings bank or a notary public is not acceptable. Further
documentation, such as copies of corporate resolutions and instruments of
authority,
15
may be requested from corporations, administrators, executors, personal
representatives, trustees or custodians to evidence the authority of the person
or entity making the redemption request.
4. Mail the letter to FFB Funds Distributor at the address set forth
under "Purchase of Shares".
Checks for redemption proceeds will normally be mailed within seven days to
the shareholder's address of record.
Upon request, the proceeds of a redemption amounting to $1,000 or more will
be sent by wire to the shareholder's predesignated bank account. When proceeds
of a redemption are to be paid to someone other than the shareholder either by
wire or check, the signature(s) on the letter of instruction must be guaranteed
regardless of the amount of the redemption.
REDEMPTION BY EXPEDITED REDEMPTION SERVICE
If shares are held in book entry form and the Expedited Redemption Service
has been elected on the New Account Application on file with FFB Funds
Distributor, redemption of shares may be requested on any day the Fund is open
for business by telephone or letter. (See "Determination of Net Asset Value" for
days the Fund is open.) A signature guarantee is not required.
1. Telephone the request to FFB Funds Distributor at (800) 437-8790.
2. Mail the request to FFB Funds Distributor at the address set forth
under "Purchase of Shares".
Proceeds of Expedited Redemptions of $1,000 or more will be wired to the
shareholder's bank indicated in the New Account Application. If an Expedited
Redemption request is received by FFB Funds Distributor by 4:15 p.m. (Eastern
Standard time) on any day the Fund is open for business, the redemption proceeds
will be transmitted to the shareholder's bank the following day. A check for
proceeds of less than $1,000 will be mailed to the shareholder's address of
record.
FFB Funds Distributor employs reasonable procedures to confirm that
instructions communicated by telephone are genuine. If FFB Funds Distributor
fails to employ such reasonable procedures, FFB Funds Distributor may be liable
for any loss, damage or expense arising out of any telephone transactions
purporting to be on a shareholder's behalf. In order to assure the accuracy of
instructions received by telephone, FFB Funds Distributor requires some form of
personal identification prior to acting upon instructions received by telephone,
records telephone instructions and provides written confirmation to investors of
such transactions.
REDEMPTION BY CHECK REDEMPTION SERVICE
If the Check Redemption Service has been elected on the Purchase
Application, you will be sent a Check Redemption Signature Card to be completed.
Once the Signature Card is on file with FFB Funds Distributor redemptions of
shares may be made by using redemption checks provided by the Fund. There is no
charge for this service. Checks must be written for amounts of $500 or more and
may be payable to anyone and negotiated in the normal way. If more than one
shareholder owns the shares in the Fund account, all must sign the check unless
an election has been made to require only one signature on checks and that
election has been filed with FFB Funds Distributor.
When honoring a redemption check, FFB Funds Distributor will cause the Fund
to redeem exactly enough full and fractional shares from a Fund account to cover
the amount of the check. The Check Redemption Service may be terminated at any
time by FFB Funds Distributor or the Fund.
16
REDEMPTION THROUGH CUSTOMER ACCOUNTS
Investors who purchase shares through customer accounts maintained at
Participating Organizations may redeem those shares only through the
Participating Organization. Customers of Participating Organizations should
inquire at the Participating Organization as to any additional procedures
governing the processing of redemption requests by the Participating
Organization. All such procedures must be consistent with the Investment Company
Act of 1940, as amended. In some cases, a customer may instruct the
Participating Organization which maintains the account through which the
customer purchases shares to redeem shares periodically as required to bring the
customer's account balance up to a level agreed upon between the customer and
the Participating Organization. If a redemption request with respect to such an
automatic redemption arrangement is received from a Participating Organization
by the Transfer Agent by 12:00 Noon (Eastern Standard time) on a day the Funds
are open for business, the redemption proceeds determined at the next calculated
net asset value will be transmitted that same day to the investor's customer
account unless otherwise specified by the Participating Organization. Some
customers may be able to instruct their Participating Organization to arrange
for proceeds to be transmitted other than to their customer account.
SYSTEMATIC WITHDRAWAL PLAN
An owner of $12,000 or more of shares in the Fund may elect to have
periodic redemptions from his or her account to be paid on a monthly, quarterly
or annual basis. The maximum payment per year is 12% of the account value at the
time of the election. The minimum periodic payment is $100. A sufficient number
of shares to make the scheduled redemption will normally be redeemed on the 25th
day of each month. Depending on the size of the payment requested and
fluctuation in the net asset value, if any, of the shares redeemed, redemptions
for the purpose of making such payments may reduce or even exhaust the account.
A shareholder may request that these payments be sent to a predesignated bank or
other designated party. Capital gains and dividend distributions paid to the
account will automatically be reinvested at net asset value on the distribution
payment date. The Fund reserves the right to amend the Systematic Withdrawal
Plan on 30 days' notice. The Plan may be terminated at any time by the
shareholder. It should be noted that it may be to a shareholder's disadvantage
to buy shares with a sales charge while concurrently making systematic
redemptions under this Plan.
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in the Fund for at
least fifteen days may exchange shares of the Fund for shares (at their next
determined relative net asset value) of other Funds for which First Fidelity is
the Adviser and FFB Funds Distributor is also the Distributor. Shareholders
should call or write the Distributor for additional information about exchanges
and a copy of the prospectus for any additional Fund into which they wish to
make an exchange before investing. Exchanges may be made by writing FFB Funds
Distributor or through a Participating Organization. For shareholders to whom
the minimum investment restrictions apply, the minimum amount which may be
exchanged into another Fund in which shares not held is $1,000; no partial
exchange may be made if, as a result, such shareholder's interest in the Fund
would be reduced to less than $1,000. There is no charge for exchanges. Before
effecting an exchange, shareholders should review the Prospectus (and, if
applicable, the Prospectus for any other Fund).
An exchange of shares is taxable as a redemption on which gain or loss may
be recognized for Federal income tax purposes. In the case of transactions
subject to a sales charge, the charge will be assessed on an exchange of shares,
equal to the excess of the sales load applicable to the shares to be acquired,
over the
17
amount of any sales load previously paid on the shares to be exchanged. See
"Federal Taxes" for an explanation of circumstances in which the sales load paid
to acquire shares of the Fund may not be taken into account in determining gain
or loss on the disposition of those shares. The exchange privilege may be
modified or terminated upon 60 days' written notice. See the SAI for further
details.
ACCOUNT SERVICES
All transactions in shares of the Fund will be reflected in a statement for
each shareholder which will be mailed at least twice per year. In those cases
where a Participating Organization or its nominee is shareholder of record of
shares purchased for its customer, the Trust has been advised that the statement
may be transmitted to the customer in the discretion of the Participating
Organization. Individual transactions will not be separately reported.
Shareholders can write or call FFB Funds Distributor at (800) 437-8790 (or their
Participating Organization, as the case may be) with any questions relating to
their investments in Fund shares.
Participating Organizations or their nominees may be the shareholders of
record as nominee for their customers and may maintain subaccounts for those
customers. Any such customer may become the shareholder of record upon written
request to the Participating Organization or FFB Funds Distributor.
FFB Funds Distributor will transmit promptly to all shareholders of record
copies of all reports to shareholders, proxy statements and other Trust
communications. The Trust's arrangements with FFB Funds Distributor and the
subaccounting arrangements require Participating Organizations to grant
investors who purchase shares through customer accounts the opportunity to vote
their shares by proxy at all shareholder meetings of the Trust. In certain
cases, a customer of a Participating Organization may have given his
Participating Organization the power to vote shares on his behalf. Customers
with accounts at Participating Organizations should consult their Participating
Organization for information concerning their rights to vote shares.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare and pay as a dividend substantially all of its
net investment income annually and to distribute any net realized long-term
capital gains at least annually. Dividend and capital gains distributions are
made on a per-share basis. After every distribution, the value of a share
declines by the amount of the distribution. Purchases made shortly before a
distribution include in the purchase price the amount of the distribution which
will be returned to the investor in the form of a taxable dividend or capital
gains distribution.
Dividends will be invested automatically in additional shares of the Fund
at the next determined net asset value credited to the shareholder's account on
the payment date or, at the shareholder's election, paid in cash. For all
investments elected through customer accounts maintained at First Fidelity or
Participating Organizations (see "Purchase of Shares -- Purchase through
Customer Accounts"), dividend payments in cash will be transmitted to the
investor's account through which the shares were purchased or, if a
Participating Organization so specified, to it for crediting to its customer's
account. Dividend checks will be mailed to all other shareholders who elect to
be paid in cash within five business days after the payable date.
18
Investors who redeem all or a portion of shares of the Fund prior to a
dividend payment date but after the record date and ex-dividend date will be
entitled to all dividends declared but unpaid on those shares on the dividend
payment date.
FEDERAL TAXES
The Fund has elected to be treated as a regulated investment company,
qualified as such for its last taxable year and intends to continue to so
qualify by complying with the provisions of the Internal Revenue Code (the
"Code") applicable to regulated investment companies so that it will not be
liable for Federal income tax with respect to amounts distributed to
shareholders in accordance with the timing requirements of the Code. Such
qualification may, however, limit the Fund's ability to engage in certain
transactions, such as those involving options. The Fund intends to distribute
substantially all of its net investment income and net realized capital gains to
its shareholders for each taxable year.
Dividends derived from the Fund's net investment income and the excess of
net short-term capital gain over net long-term capital loss will be taxable to
shareholders at ordinary income rates, whether such dividends are invested in
additional shares or received in cash. A portion of the Fund's dividends will
normally qualify for the dividends-received deductions for corporations. In
general, the amount so qualifying will depend primarily on the portion of the
Fund's gross income that is represented by dividends received by the Fund from
stock in domestic corporations held by the Fund for at least 46 days and not
treated as debt financed under the Code. The dividends-received deductions will
be reduced to the extent shares of the Fund are treated as debt-financed and
will be eliminated if such shares are held for less than 46 days.
Distributions of the excess of net long-term capital gain over the net
short-term capital loss designated by the Fund as capital gains dividends will
be taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares, whether invested in additional shares of the
Fund or received in cash. Long-term capital gain distributions do not qualify
for the dividends-received deduction available to corporations.
Amount not distributed in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To avoid application
of the excise tax, the Fund intends to make its distributions in accordance with
the calendar year distribution requirement. For this purpose, a distribution
will be treated as paid on December 31 of a calendar year if it is declared by
the Fund in October, November or December of that year to shareholders of record
on a date in such a month and paid by the Fund during January of the following
calendar year. Such distributions will be treated as received by shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Shareholders will be notified each year of the amounts of dividends and
distributions, including the amounts (if any) for that year which have been
designated as long-term capital gain distributions. Dividends and distributions
may also be subject to state or local taxes. Investors should consult their tax
advisers for specific information on the tax consequences of particular types of
distributions.
Any loss realized upon the redemption of shares held (or treated as held)
for six months or less will be treated as a long-term capital loss to the extent
of any long-term capital gains dividends received on the redeemed shares. All or
a portion of a loss realized upon the redemption of shares may be disallowed to
the extent shares are purchased (including shares acquired by means of
reinvested dividends) within 30 days before or after such redemption.
19
The Fund generally will be required to withhold Federal income tax at a
rate of 31% ("backup withholding") from distributions (including redemption)
paid to non-corporate shareholders if (a) the shareholder fails to furnish and
certify his correct taxpayer identification number or social security number,
(b) the Internal Revenue Service (the "IRS") or a broker notifies the Fund or
the shareholder that the shareholder has failed to report properly certain
interest and dividend income to the IRS and to respond to notices to that
effect, or (c) when required to do so, the shareholder fails to certify that he
is not subject to backup withholding.
Applications and purchase orders without a certified taxpayer
identification number may be returned to the investor. The Fund reserves the
right to close by redemption, accounts without correct certified taxpayer
identification numbers.
Under certain circumstances, the sales charge incurred in acquiring shares
of the Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of the Fund are
exchanged within 90 days after the date they were purchased and new shares of
the Fund are acquired without a sales charge or at a reduced sales charge. In
that case, the gain or loss recognized on the exchange will be determined by
excluding from the tax basis of the shares exchanged all or a portion of the
sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales load with respect to the newly
acquired shares is reduced as a result of having incurred a sales load
initially. The portion of the sales load affected by this rule will be treated
as a sales load paid for the new shares.
Many of the options transactions and currency trading activities in which
the Fund may engage will result in "straddles" for Federal income tax purposes.
The straddle rules may affect the character of gains or losses realized by the
Fund on straddle positions. In addition, gains or losses realized by the Fund on
straddle positions may be deferred or accelerated under the straddle rules
rather than being taken into account in calculating the taxable income for the
taxable year in which such losses are realized. The Fund may make one or more of
the elections applicable to straddles. If any of the elections are made, the
amount, character and timing of the recognition of gains and losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. Because only a few of the regulations implementing the
straddle rules have been promulgated, the tax consequences of straddle
transactions to the Fund are not entirely clear. In order to insure that it
qualifies as a regulated investment company, the Fund may have to limit the
amount of its straddle activities.
Special rules may apply if the Fund invests in certain foreign companies,
the bulk of the gross income of which is derived from investment activity, or at
least half of the assets of which are investment assets (such companies are
classified under the Code as passive foreign investment companies ("PFIC")).
Pursuant to these rules, among other things, (i) the Fund may be subject to
federal income tax (and interest charge) on distributions from, or on the gain
from the sale of the stock of, such foreign companies, even though the Fund
distributes the corresponding income to shareholder, and (ii) gain from the sale
of the stock of such foreign companies may be treated as ordinary income. For a
further discussion of these special rules, including certain tax elections that
may be available, see the SAI under "Taxation."
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency denominated debt securities or
payables or receivables denominated in a foreign currency are subject to Section
988 of the Code which causes such gains and losses to be treated as ordinary
income and losses rather than capital gains and losses and may affect the
amount, timing and character of distributions to shareholders.
20
If the Fund invests in certain PFIC's which do not distribute their income
on a regular basis, it could be subject to Federal income tax (and possibly
additional interest charges) on a portion of any "excess distribution" or gain
from the disposition of such shares even if it distributes such income to its
shareholders. If the Fund elects to treat the PFIC as a "qualified electing
fund" ("QEF") and the PFIC furnishes the Fund certain financial information in
the required form, the Fund would instead be required to include in income each
year a portion of the ordinary earnings and net capital gains of the QEF,
regardless of whether received, and such amounts would be subject to the various
distribution requirements described above.
It is expected that dividends and interest from non-U.S. sources received
by the Fund will be subject to non-U.S. withholding taxes. Such withholding
taxes may be reduced or eliminated under the terms of applicable United States
income tax treaties, and the Fund intends to undertake any procedural steps
required to claim the benefits of such treaties. With respect to any non-U.S.
taxes (including withholding taxes) actually paid by the Fund, if more than 50%
in value of the Fund's total assets at the close of any taxable year consists of
stocks or securities of any non-U.S. corporations, the Fund may elect to treat
any non-U.S. taxes paid by it as paid by its shareholders. If the Fund does not
make the election permitted under Section 853, any foreign taxes paid or accrued
will represent an expense to the Fund which will reduce its investment company
taxable income. Absent this election, shareholders will not be able to claim
either a credit or a deduction for their pro rata portion of such taxes paid by
the Fund, nor will shareholders be required to treat as part of the amounts
distributed to them their pro rata portion of such taxes paid.
In the event the Fund makes the election described above to pass through
non-U.S. taxes to shareholders, shareholders will be required to include in
income (in addition to any distributions received) their proportionate portion
of the amount of non-U.S. taxes paid by the Fund and will be entitled to claim
either a credit or deduction for their portion of such taxes in computing their
U.S. Federal income tax liability. Availability of such a credit or deduction is
subject to certain limitations. Shareholders will be informed each year in which
the Fund makes the election regarding the amount and nature of foreign taxes to
be included in their income for U.S. Federal income tax purposes.
Each year the Fund will notify shareholders of the Federal income tax
status of its dividends and distributions. Depending on the residence of the
shareholder for tax purposes, such dividends and distributions may also be
subject to state, local or foreign tax consequences of ownership of Fund shares
in their particular circumstances.
Shareholders who are not U.S. persons under the Code should also consult
their tax advisers as to the possible application of U.S. taxes, including a 30%
U.S. withholding tax (or lower treaty rate) on dividends.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
Pursuant to an Agency Agreement, First Fidelity acts as the Fund's Transfer
and Dividend Disbursing Agent and is responsible for maintaining account records
detailing ownership of Fund shares and for crediting income, capital gains and
other changes in share ownership to investors' accounts. First Fidelity is also
the Fund's Custodian. Furman Selz acts as the Fund's Sub-Transfer Agent pursuant
to a Sub-Transfer Agency Agreement.
21
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total return in advertisements
or reports to shareholders or prospective investors. Quotations of average
annual total return for the Fund will be expressed in terms of the average
annual compounded rate of return of a hypothetical investment in the Fund over a
period of 1, 5 and 10 years (up to the life of the Fund). Total return
quotations reflect the deduction of the maximum sales load and a proportional
share of Fund expenses (on an annual basis), and assume that all dividends and
distributions are reinvested when paid.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, the EAFE Index, the MSCI Emerging Markets Free Index, or
other unmanaged indices so that investors may compare the Fund's results with
those of a group of unmanaged securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of mutual
funds tracked by Lipper Analytical Services, a widely used independent research
firm which ranks mutual funds by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons who
rank mutual funds on overall performance or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objective and policies, characteristics and
quality of the portfolio, and the market conditions during a given time period,
and should not be considered as a representation of what may be achieved in the
future. For a description of the method used to calculate total return for the
Fund, see the SAI.
Investors who purchase and redeem shares of the Fund through a customer
account maintained at a Participating Organization may be charged one or more of
the following types of fees as agreed upon by the Participating Organization and
the investor with respect to the customer services provided by the Participating
Organization; account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the asset in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the total return for
those investors.
OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on March 25, 1987
as a successor to FFB Money Trust which was organized on December 4, 1985 and
currently consists of twelve separate portfolios. The Board of Trustees may
establish additional portfolios in the future. The capitalization of FFB Funds
Trust consist of 15,100,000,000 authorized shares of beneficial interest with a
par value of $0.001 each. When issued, shares of the Fund are fully paid,
non-assessable and will have no preemptive rights. All shares of the Trust have
equal voting rights and will be voted in the aggregate, and not by class, except
where voting by class is required by law or where the matter involved affects
only one class. For more details concerning the voting rights of shareholders,
see the SAI.
22
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders. Trustees or
Officers of the Trust for acts or obligations of the Trust which are binding
only on the assets and property of the Trust and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations
and should be considered remote.
23
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
-------------------------------------------- -------------------------
FFB FUNDS TRUST FFB
237 PARK AVENUE -------------------------
NEW YORK, NEW YORK 10017 FUNDS
-------------------------
GENERAL AND ACCOUNT INFORMATION:
(800) 437-8790
INVESTMENT ADVISER
First Fidelity Bank, N.A., New Jersey
765 Broad Street, Newark, New Jersey 07102
ADMINISTRATOR
Furman Selz Incorporated
237 Park Avenue, New York, New York 10017
SPONSOR AND DISTRIBUTOR
FFB Funds Distributor, Inc.
237 Park Avenue, New York, New York 10017
CUSTODIAN, TRANSFER AGENT Diversified International Growth
AND DIVIDEND DISBURSING AGENT Fund
First Fidelity Bank, N.A., New Jersey
765 Broad Street, Newark, New Jersey 07102
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick
345 Park Avenue, New York, New York 10154
LEGAL COUNSEL
Baker & McKenzie
805 Third Avenue, New York, New York 10022
----------------------------------------
TABLE OF CONTENTS
Fund Expenses........................... 2
Investment Objective and Policies....... 3
Investment Practices and Restrictions;
Risk Factors............................ 5
Management of the Fund.................. 6
Determination of Net Asset Value........ 11
Purchase of Shares...................... 11
Redemption of Shares.................... 15
Exchange Privilege...................... 17
Account Services........................ 18
Dividends and Distributions............. 18
Federal Taxes........................... 19 PROSPECTUS
Transfer and Dividend Disbursing Agent FEBRUARY , 1995
and Custodian........................... 21
Performance Information................. 22
Other Information....................... 22
--------------------------------------------
No dealer, salesman, or other person has been authorized to give any
information or to make any representations, other than those contained
in the Prospectus, in connection with the offer contained in this
Prospectus, and, if given or made, such
other information or representations must Managed by:
not be relied upon as having been authorized First Fidelity Bank, N.A., New
by the Trust, the Distributor or the Jersey
Investment Adviser. This Prospectus does not
constitute an offering in any state in which Sponsored and Distributed By:
such offering may not lawfully be made. FFB Funds Distributor, Inc.
</TABLE>
FFB DIVERSIFIED INTERNATIONAL GROWTH FUND
237 Park Avenue, New York, New York 10017
General and Account
Information: (800) 437-8790
STATEMENT OF ADDITIONAL INFORMATION
FFB DIVERSIFIED INTERNATIONAL GROWTH FUND (the "Fund" or "Portfolio") is
a portfolio of FFB Funds Trust (the "Trust"). The Diversified International
Growth Fund seeks long-term growth of capital by investing in a diversified
portfolio of international equity securities, comprised of at least 70%
developed markets as defined by the Morgan Stanley Capital International
Europe, Australia, Far East Stock Market Index and no more than 30% in common
stocks of companies located in countries identified as emerging market
countries, as defined by the Morgan Stanley Capital International Emerging
Markets Free Index.
SHARES OF THE FUND ARE OFFERED FOR SALE BY FFB FUNDS DISTRIBUTOR, INC.
(THE "SPONSOR AND DISTRIBUTOR") AS AN INVESTMENT VEHICLE FOR INSTITUTIONS,
CORPORATIONS, FIDUCIARIES AND INDIVIDUALS. THE FUND IS SOLD WITH A SALES
CHARGE OR LOAD; THE FUND MAY PAY CERTAIN EXPENSES RELATED TO THE DISTRIBUTION
OF ITS SHARES. CERTAIN BANKS, FINANCIAL INSTITUTIONS AND CORPORATIONS
("PARTICIPATING ORGANIZATIONS") MAY AGREE TO ACT AS SHAREHOLDER SERVICING
AGENTS FOR INVESTORS WHO MAINTAIN ACCOUNTS AT THOSE BANKS AND TO PERFORM
CERTAIN SERVICES FOR THE FUND.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Fund's
Prospectus dated March 1, 1995 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus, additional copies of which may be obtained without charge from the
Distributor at 237 Park Avenue, New York, New York 10017 (telephone: (800)
437-8790).
MARCH 1, 1995
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Policies.........2 Determination of Net Asset
Investment Restrictions....27 Value....................45
Management.................30 Other Information..........46
Performance Information....36 Principal Shareholders.....47
Portfolio Transactions.....37 Custodian, Transfer Agent
Federal Income Taxes.......39 and Dividend Disbursing
Exchange Privilege.........44 Agent....................48
Redemptions................44 Servicing Agreements.......49
Independent Accountants....50
</TABLE>
INVESTMENT POLICIES
The following information supplements the discussion found under
"Investment Objectives and Policies" and "Investment Practices and
Restrictions" in the Prospectus.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities. U.S. Government
securities are obligations of, or guaranteed by, the U.S. Government, its
agencies, or instrumentalities. Treasury bills, notes, and bonds are direct
obligations of the U.S. Treasury, and they differ with respect to certain
items such as coupons, maturities, and dates of issue. Treasury bills have a
maturity of one year or less. Treasury notes have maturities of one to ten
years and Treasury bonds generally have a maturity of greater than ten years.
Securities guaranteed by the U.S. Government include federal agency
obligations guaranteed as to principal and interest by the U.S. Treasury (such
as GNMA certificates (described below) and Federal Housing Administration
("FHA") debentures). In these securities, the payment of principal and
interest is unconditionally guaranteed by the U.S. Government, and thus they
are of the highest possible credit quality. Such direct obligations or
guaranteed securities are subject to variation in market value due to
fluctuations in interest rates, but, if held to maturity, the U.S. Government
is obligated to or guarantees to pay them in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another:
some are backed by specific types of collateral; some are supported by the
issuer's right to borrow from the U.S. Treasury; some are supported by the
- 2 -
discretionary authority of the U.S. Treasury to purchase certain obligations
of the issuer; others are supported only by the credit of the issuing
government agency or instrumentality. These agencies and instrumentalities
include, but are not limited to Federal National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks Farmers Home Administration, Central Bank
for Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank,
Farm Credit Banks, and the Tennessee Valley Authority.
PREFERRED STOCKS
The Fund may invest in preferred stocks with a minimum rating of A.
Preferred stock is a form of equity ownership in a publicly held corporation.
The dividend on a preferred stock is a fixed payment. In these securities,
the firm is not legally bound to pay the dividend. Certain classes of
preferred stock are convertible, meaning the preferred stock is convertible
into shares of common stock of the issuing company. By holding convertible
preferred stock, a Portfolio can receive a steady stream of dividends and
still have the option to convert it to common stock.
CONVERTIBLE BONDS
The Fund may invest in convertible bonds with a minimum rating of A. A
convertible bond can be exchanged for a specified amount of common stock in
the issuing firm. The amount of common stock that can be acquired is
determined by the conversion ratio of the convertible bond. Convertible bonds
offer the relatively safe income of a bond as well as the opportunity for
capital gains should the price of the stock increase. The risk associated
with convertible bonds is that they tend to be subordinated debentures, which
have a somewhat residual claim on the firm's income and assets in the case of
liquidation.
VARIABLE AND FLOATING RATE SECURITIES
The Fund may invest in variable and floating rate securities. Variable and
floating rate securities provide for a periodic adjustment in the interest
paid on the obligations. The terms of such obligations must provide that
interest rates are adjusted periodically based upon some appropriate interest
rate adjustment index as provided in the respective obligations. The
adjustment intervals may be regular, and range from daily up to annually, or
may be event based, such as based on a change in the prime rate.
COMMERCIAL PAPER
The Fund may invest in commercial paper. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations and finance companies. The commercial paper
purchased by the Fund consists of U.S. dollar-denominated obligations of
domestic issuers, or foreign currency-denominated obligations of domestic or
foreign issuers
- 3 -
which, at the time of investment, are (i) rated "P-1" or "P-2" by Moody's or
"A-1" or "A-2" or better by S&P, (ii) issued or guaranteed as to principal and
interest by issuers or guarantors having an existing debt security rating of
"A" or better by Moody's or "A" or better by S&P, or (iii) securities which,
if not rated, are, in the opinion of the Portfolio Manager, of an investment
quality comparable to rated commercial paper in which the Portfolio may
invest. The rate of return on commercial paper may be linked or indexed to
the level of exchange rates between the U.S. dollar and a foreign currency or
currencies.
REPURCHASE AGREEMENTS
If the Fund acquires securities from a bank or broker-dealer, it may
simultaneously enter into a repurchase agreement with the seller wherein the
seller agrees at the time of sale to repurchase the security at a mutually
agreed-upon time and price. The term of such an agreement is generally quite
short, possibly overnight or for a few days, although it may extend over a
number of months (up to one year) from the date of delivery. The resale price
is in excess of the purchase price by an amount which reflects an agreed-upon
market rate of return, effective for the period of time the Portfolio is
invested in the security. This results in a fixed rate of return protected
from market fluctuations during the period of the agreement. This rate is not
tied to the coupon rate on the security subject to the repurchase agreement.
Under the Investment Company Act of 1940, as amended ("1940 Act"),
repurchase agreements are considered to be loans by the purchaser
collateralized by the underlying securities. The Portfolio Manager to a the
Fund monitors the value of the underlying securities at the time the
repurchase agreement is entered into and at all times during the term of the
agreement to ensure that its value always equals or exceeds the agreed-upon
repurchase price to the paid to the Portfolio. The Portfolio Manager, in
accordance with procedures established by the Board of Trustees, also
evaluates the creditworthiness and financial responsibility of the banks and
brokers or dealers with which the Portfolio enters into repurchase agreements.
The Fund may not enter into a repurchase agreement having more than seven
days remaining to maturity if, as a result, such agreements, together with any
other securities which are not readily marketable, would exceed 15% of the net
assets of the Portfolio. If the seller should become bankrupt or default on
its obligations to repurchase the securities, the Fund may experience delay or
difficulties in exercising its rights to the securities held as collateral and
might incur a loss if the value of the securities should decline. The Fund
also might incur disposition costs in connection with liquidating the
securities.
- 4 -
BORROWING
The Fund may borrow for temporary administrative or emergency purposes
subject to the limits described below under "Reverse Repurchase Agreements and
Other Borrowing." This borrowing may be unsecured. The 1940 Act requires a
the Fund to maintain continuous asset coverage of 300% of the amount borrowed.
If the 300% asset coverage should decline as a result of market fluctuations
or other reasons, the Fund may be required to sell some of its portfolio
holdings within three days to reduce the debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint
to sell securities at that time. Borrowing may exaggerate the effect on net
asset value of any increase or decrease in the market value of the Fund.
Money borrowed will be subject to interest costs which may or may not be
recovered by an appreciation of the securities purchased. The Fund may also
be required to maintain minimum average balances in connection with such
borrowing or to pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate. The Fund may, in connection with permissible
borrowings, transfer as collateral securities owned by the Portfolio. For
discussion of other limits on borrowing, see below under "Reverse Repurchase
Agreements and Other Borrowings."
Reverse repurchase agreements will be included as borrowing subject to the
borrowing limitations described above.
REVERSE REPURCHASE AGREEMENTS AND OTHER BORROWINGS
Among the forms of borrowing in which each of the Fund may engage is the
entry into a reverse repurchase agreement, which involves the sale of a
security held by the Portfolio, with an agreement whereby the Portfolio will
repurchase the security at a stated price, date, and interest payment.
The Fund will use the proceeds of a reverse repurchase agreement to
purchase other money market instruments which either mature at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement or which are held under an agreement to resell maturing as of that
time. The Fund will enter into a reverse repurchase agreement only when the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. However,
reverse repurchase agreements involve the risk that the market value of
securities retained by the Portfolio may decline below the repurchase price of
the securities sold by the Portfolio which it is obligated to repurchase.
Under the 1940 Act, reverse repurchase agreements may be considered to be
borrowings by the seller. The Fund may enter into reverse repurchase
agreements with banks or broker-dealers. Entry into such agreements requires
the creation and maintenance of a
- 5 -
segregated account consisting of U.S. Government securities or cash or cash
equivalents equal in value to its obligations in respect of reverse repurchase
agreements.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Fund may enter firm commitment agreements for the purchase of
securities at an agreed-upon price on a specified future date. The Fund may
purchase new issues of securities on a "when-issued" basis. Such transactions
may be entered into, for example, when the Portfolio Manager anticipates a
decline in the yield of securities of a given issuer and is able to obtain a
more advantageous yield by committing currently to purchase securities to be
issued or delivered later.
The Fund will not enter into such a transaction for the purpose of
investment leverage. Liability for the purchase price--and all the rights
and risks of ownership of the securities--accrue to the Portfolio at the time
it becomes obligated to purchase such securities, although delivery and
payment occur at a later date. Accordingly, if the market price of the
security should decline, the effect of the agreement would be to obligate the
Portfolio to purchase the security at a price above the current market price
on the date of delivery and payment. During the time the Portfolio is
obligated to purchase such securities it will maintain in a segregated account
U.S. Government securities, high-grade debt obligations, or cash or cash
equivalents of an aggregate current value sufficient to make payment for the
securities.
LOANS OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Fund may make secured
loans of its portfolio securities to broker-dealers or U.S. banks provided:
(i) such loans are secured continuously by collateral consisting of cash, cash
equivalents, or U.S. Government securities maintained on a daily
marked-to-market basis in an amount or at a market value at least equal to the
current market value of the securities loaned; (ii) the Portfolio may at any
time call such loans and obtain the securities loaned within five business
days; (iii) the Portfolio will receive an amount in cash at least equal to the
interest or dividends paid on the loaned securities; and (iv) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of the Portfolio. In addition, it is anticipated that the
Portfolio may share with the borrower some of the income received on the
collateral for the loan or that it will be paid a premium for the loan. Cash
collateral will be invested in short-term, liquid debt instruments. It should
be noted that in connection with the lending of its Portfolio securities, the
Portfolio is exposed to the risk of delay in recovery of the securities loaned
or possible loss of rights in the collateral should the borrower become
insolvent. In determining whether to lend securities, the
- 6 -
Portfolio Manager considers all relevant facts and circumstances including the
creditworthiness of the borrower. There is no assurance that a borrower will
return any securities loaned; however, as discussed above, a borrower of
securities from the Fund must maintain with the Portfolio cash or U.S.
Government securities equal to at least 100% of the market value of the
securities borrowed. Voting rights attached to the loaned securities may pass
to the borrower with the lending of Portfolio securities. However, the
Portfolio intends to call loaned voting securities if important shareholder
meetings are imminent. The Fund will not lend portfolio securities to the
Adviser, any Portfolio Manager, or any person that is affiliated with the
Fund.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities. The Fund may invest in
securities that are illiquid because they are subject to legal or contractual
restrictions on resale, in repurchase agreements maturing in more than seven
days, or other securities which are illiquid if, as a result of such
investment, no more than 15% of the net assets of the Portfolio (taken at
market value at the time of such investment) would be invested in such
securities.
With respect to private placements, which are generally subject to legal or
contractual restrictions on resale, if an exemption from registration under
the Securities Act of 1933 is not available, registration may be required to
dispose of the security. Where registration is required, the Portfolio may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Portfolio might obtain a less favorable price than prevailed when
it decided to sell. Restricted securities will be priced at fair value as
determined in good faith under the supervision of the Board of Trustees. If
through the appreciation of restricted securities or the depreciation of
unrestricted securities, the Portfolio should be in a position where more than
10% of the value of its total assets are invested in illiquid assets,
including restricted securities, or more than 5% on the value of its total
assets are invested in securities that are illiquid because they are subject
to legal or contractual restraints on resale, the Portfolio will take
appropriate steps to assure liquidity.
BANK OBLIGATIONS
The Fund may invest in bank obligations. Bank obligations in which the
Portfolio may invest include certificates of deposit, bankers' acceptances,
and fixed time deposits. The Portfolio may also hold funds on deposit with
its sub-custodian bank in an interest-bearing account for temporary purposes.
- 7 -
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on
demand by the investor, but may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed time deposit to a third party, although there
is no market for such deposits. The Fund will not invest in fixed time
deposits which are (i) not subject to prepayment or (ii) which provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in
the aggregate, more than 15% of its net assets would be invested in such
deposits, repurchase agreements maturing in more than seven days and other
illiquid assets.
The Fund limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have
more than $1 billion in total assets at the time of investment and are members
of the Federal Reserve System or are examined by the Comptroller of the
Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation. The Fund may also invest in certificates of deposit and other
obligations of savings and loan associations (federally or state chartered and
federally insured) having total assets in excess of $1 billion.
The Fund limit their investments in foreign bank obligations to United
States dollar-or foreign currency- denominated obligations of foreign banks
(including United States branches of foreign banks) which at the time of
investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches, or agencies (limited purpose
offices which do not offer all banking services) in the United States; and
(iv) in the opinion of the Portfolio Manager, are of an investment quality
comparable to obligations of U.S. banks in which the Portfolio may invest.
Subject to the Fund's limitation on concentration of no more than 25% of its
assets in the securities of issuers in a particular industry, there is no
limitation on the amount of the Fund's assets which may be invested in
obligations of foreign banks which meet the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of U.S. banks, including the possibilities
that their liquidity could be impaired
- 8 -
because of future political and economic developments; that their obligations
may be less marketable than comparable obligations of U.S. banks; that a
foreign jurisdiction might impose withholding taxes on interest income payable
on those obligations; that foreign deposits may be seized or nationalized;
that foreign governmental restrictions, such as exchange controls, may be
adopted which might adversely affect the payment of principal and interest on
those obligations; and that the selection of those obligations may be more
difficult because there may be less publicly available information concerning
foreign banks or the accounting, auditing and financial reporting standards,
practices and requirements applicable to foreign banks may differ from those
applicable to U.S. banks. Foreign banks are not generally subject to
examination by any U.S. Government agency or instrumentality.
OPTIONS
The Fund may purchase put options on securities to protect holdings in an
underlying or related security against a substantial decline in market value.
Securities are considered related if their price movements generally correlate
to one another. The Fund may purchase call options on securities to protect
against substantial increases in prices of securities the Fund intends to
purchase pending its ability to invest in such securities in an orderly
manner. The Fund may purchase put and call options on securities indexes to
protect against price movements in the stock market generally (or in
particular segments of the market) rather than in individual stocks. Gains or
losses on the Fund's transactions in securities index options depend primarily
on price movements in the stock market generally (or, for narrow markets
indexes, in a particular industry or segment of the market) rather than the
price movements of individual securities held by the Fund. The Fund may sell
put or call options it has previously purchased, which could result in a net
gain or loss depending on whether the amount realized on the sale is more or
less than the premium and other transaction costs paid on the put or call
option which is sold. The Fund may write a call or put option only if the
option is "covered" by the Fund holding a position in the underlying
securities. Prior to exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option on the same security or securities
index. The Fund will enter only into options that are standardized and traded
on a U.S. or foreign exchange or board of trade, or for which an established
over-the-counter market exists. The Fund also may purchase and sell foreign
currency options for purposes of increasing exposure to a foreign currency or
to shift exposure to foreign currency fluctuations from one country to
another. If other types of options, futures contracts, or futures options are
traded in the future, the Fund may also use those investments, provided that
the Fund's Board of Trustees determines that their use is consistent with the
Portfolio's investment objective, and provided that their use is consistent
with restrictions applicable to options and futures contracts currently
eligible for use by the Fund (i.e., that
- 9 -
written call or put options will be "covered" or "secured" and that futures
and futures options will be used only for hedging purposes).
The Fund may, as specified in the above paragraph, purchase and sell both
put and call options on debt or other securities or securities indexes in
standardized contracts traded on foreign or national securities exchanges,
boards of trade, or an established over-the-counter market, and agreements,
sometimes called cash puts, which may accompany the purchase of a new issue of
bonds from a dealer. The Fund will treat options traded on an over-the-counter
market as illiquid assets.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium paid, the right to buy from (in the case
of a call) or sell to (in the case of a put) the seller ("writer") of the
option the security underlying the option (or the cash value of the index) at
a specified exercise price at any time during the term of the option. The
writer of an option on a security has the obligation upon exercise of the
option to deliver the underlying security upon payment of the exercise price
or to pay the exercise price upon delivery of the underlying security. Upon
exercise, the writer of an option on an index is obligated to pay the
difference between the closing price of the index and the exercise price of
the option, expressed in dollars, times a specified multiple (the
"multiplier"). (An index is designed to reflect specified facets of a
particular financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are placed in a segregated account by its custodian) upon
conversion or exchange of other securities held by the Portfolio. For a call
option on an index, the option is covered if the Portfolio maintains with its
custodian cash or cash equivalents equal to the contract value. A call option
is also covered if the Portfolio holds a call on the same security or index as
the call written where the exercise price of the call held is (i) equal to or
less than the exercise price of the call written, or (ii) greater than the
exercise price of the call written, provided the difference is maintained by
the Portfolio in cash or cash equivalents in a segregated account with its
custodian. A put option on a security or an index is "covered" if the
Portfolio maintains cash or cash equivalents equal to the exercise price in a
segregated account with its custodian. A put option is also covered if the
Portfolio holds a put on the same security or index as the put written where
the exercise price of the put held is (i) equal to or greater than the
exercise price of the put written, or
- 10 -
(ii) less than the exercise price of the put written, provided the difference
is maintained by the Portfolio in cash or cash equivalents in a segregated
account with its custodian.
If an option written by the Fund expires, the Portfolio generally realizes
a gain equal to the premium received at the time the option was written. If
an option purchased by the Fund expires unexercised, the Portfolio generally
realizes a loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration).
There can be no assurance, however, that a closing purchase or sale
transaction can be effected when the Portfolio desires.
The Fund will generally realize a gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from
writing the option, or, if it is more, the Portfolio will generally realize a
loss. If the premium received from a closing sale transaction is more than
the premium paid to purchase the option, the Portfolio will generally realize
a gain, or if it is less, the Portfolio will generally realize a loss. The
principal factors affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the underlying
security or index in relation to the exercise price of the option, the
volatility of the underlying security or index, and the time remaining until
the expiration date.
The premium paid for a put or call option purchased by the Fund is an asset
of the Portfolio. The premium received for an option written by the Fund is
recorded as a deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the exchange on
which it is traded or, if not traded on an exchange or no closing price is
available, at the mean between the last bid and asked prices.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES
The purchase and writing of options involves certain risks. During the
option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying securities or securities index above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security or securities index decline. The
writer of an option has no control over the time when it may be required to
fulfill its obligation as a writer of the option. With respect to options on
securities, once an option writer has received an exercise notice, it cannot
effect a closing purchase transaction in order to terminate its obligation
under the option and must deliver
- 11 -
the underlying securities at the exercise price. If a put or cal option
purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security or securities index, in the case of a
put, remains equal to or greater than the exercise price, or in the case of a
call, remains less than or equal to the exercise price the Fund will lose its
entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. Similarly, where a put or call option on a
particular index is purchased to hedge against market-wide (or sector- or
industry-wide) price movements, the price of the put or call option may move
more or less than the portfolio securities. In this regard, index options can
never be a perfect hedge against the risk of a stock position except where the
stock position and the index are composed of exactly the same stocks, in the
same proportion. There can be no assurance that a liquid market will exist
when the Fund seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options market, the Fund may be
unable to close out a position. With respect to options on securities, if the
Fund cannot effect a closing transaction, it will not be able to sell the
underlying security while the previously written option remains outstanding,
even if it might otherwise be advantageous to do so.
There is no assurance that a liquid secondary market will exist for any
particular foreign currency option, or at any particular time. In the event
no liquid secondary market exists, it might not be possible to effect closing
transactions in particular options. If the Fund cannot close out an option
which it holds, it would have to exercise its option in order to realize any
profit and would incur transactional costs on the sale of the underlying
assets. For more information on options on securities and currencies,
including a description of these instruments, see the Statement of Additional
Information under "Options and Futures."
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out
an option it had purchased on a security, it would have to exercise the option
to realize any profit or the option may expire worthless. If the Fund were
unable to close out
- 12 -
a covered call option it had written on a security, it would not be able to
sell the underlying security unless the option expired without exercise. As a
writer of a covered call option, the Fund forgoes, during the option's life,
the opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the exercise price
of the call.
If trading were suspended in an option purchased by the Fund, the Portfolio
would not be able to close out the option. If restrictions on exercise were
imposed, the Portfolio might be unable to exercise an option it has purchased.
Except to the extent that a call option on an index written by the Portfolio
is covered by an option on the same index purchased by the Portfolio,
movements in the index may result in a loss to the Portfolio; however, such
losses may be mitigated by changes in the value of the Portfolio's securities
during the period the option was outstanding.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may invest in stock index futures contracts and options and
foreign exchange futures contracts and options thereon. The Fund may engage
in such futures transactions as an adjunct to their securities activities.
The Fund may only enter into a futures contract (1) for bona fide hedging
purposes and (2) for other purposes if, immediately thereafter, the initial
margin deposits for futures contracts held by the Fund plus premiums paid by
it for open futures option positions, less the amount by which any such
positions are "in-the-money," would not exceed 5% of the Fund's total assets.
The Fund may invest in foreign currency futures contracts and options
thereon. An interest rate or foreign currency futures contract provides for
the future sale by one party and purchase by another party of a specified
quantity of a financial instrument or foreign currency at a specified price
and time. A public market exists in futures contracts covering various
financial instruments including U.S. Treasury bonds, U.S. Treasury notes, GNMA
certificates, three-month U.S. Treasury bills, 90-day commercial paper, bank
certificates of deposit, and Eurodollar certificates of deposit. A futures
contract on an index (such as the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500")) is an agreement between two parties (buyer and seller) to
take or make delivery of an amount of cash equal to the difference between the
value of the index at the close of the last trading day of the contract and
the price at which the index contract was originally written. In the case of
futures contracts traded on U.S. exchanges, the exchange itself or an
affiliated clearing corporation assumes the opposite side of each transaction
(i.e., as buyer or seller). Frequently, using futures to effect a particular
strategy instead of using the underlying or related security or index will
result in lower
- 13 -
transaction costs being incurred. It is expected that other futures contracts
will be developed and traded in the future.
The Portfolios may purchase and sell (write) call and put futures options.
Futures options possess many of the same characteristics as options on
securities. A futures option gives the holder the right, in return for the
premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price at any time during the period
of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
The Fund will comply with regulations of the Commodity Futures Trading
Commission to qualify for an exclusion from being a "commodity pool" under
which the Fund may engage in futures transactions for "bona fide hedging"
purposes or which require the Fund to set aside cash and short-term
obligations with respect to long positions in a futures contract or futures
option. The Fund might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Portfolio's securities or the price of the securities which the Portfolio
intends to purchase. The Portfolio's hedging may include sales of futures
contracts as an offset against the effect if expected increases in interest
rates and purchases of futures contracts as an offset against the effect of
expected declines in interest rates. Although other techniques could be used
to reduce that Portfolio's exposure to interest rate fluctuations, the Fund
may be able to hedge its exposure more effectively and perhaps at a lower cost
by using futures contracts and futures options. Other requirements of the
Commodity Futures Trading Commission are described below under "Limitations."
The Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or in the case of futures options, for which an established
over-the-counter market exists.
When a purchase or sale of a futures contract is made by the Fund, the
Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange
on which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Portfolio expects to earn interest income on its initial
margin deposits. A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is traded. Each day the
Portfolio pays
- 14 -
or receives cash, called the "variation margin," equal to the daily change in
value of the futures contract. This process is known as "marking to market."
Variation margin does not represent a borrowing or loan by the Fund but is
instead settlement between the Portfolio and the broker of the amount one
would owe the other if the futures contract expired. In computing daily net
asset value, the Portfolio will mark-to- market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Portfolio.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security, and delivery month). If an offsetting purchase
price is less than the original sale price, the Portfolio generally realizes a
gain, or if it is more, the Portfolio generally realizes a loss. Conversely,
if an offsetting sale price is more than the original purchase price, the
Portfolio generally realizes a gain, or if it is less, the Portfolio generally
realizes a loss. The transaction costs must also be included in these
calculations.
FOREIGN CURRENCY OPTIONS
The Fund may buy or sell put and call options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which Fund's securities may be denominated.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Fund to reduce foreign currency risk
using such options. Over-the-counter options differ from traded options in
that they are two-party contracts with price and other terms negotiated
between buyer and seller and generally do not have as much market liquidity as
exchange-traded options. Employing hedging strategies with options on
currencies does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore such hedging transactions reduce or preclude the opportunity for
gain if the value of the hedged currency should change relative to the U.S.
dollar (or other hedged currency). The Fund will not speculate in options on
foreign currencies. The Fund may buy or sell put and call options on foreign
currencies either on exchanges or in the over-the-counter market. A put
option on a foreign currency gives the purchaser of the option the right to
sell a foreign currency at the exercise price until the option expires. A
call option on a foreign currency gives the purchaser of the option the right
to purchase the currency at the exercise price until the option expires. Some
options on currencies are
- 15 -
traded on a domestic exchange, including options on the British pound,
Canadian dollar, German mark, Japanese yen, French franc, and Swiss franc.
The Portfolio may enter into closing transactions with respect to such
options, exercise them, or permit them to expire. Currency options traded on
U.S. or other exchanges may be subject to position limits which may limit the
ability of the Fund to reduce foreign currency risk using such options.
Over-the-counter options differ from traded options in that they are two-party
contracts with price and other terms negotiated between buyer and seller, and
generally do not have as much market liquidity as exchange-traded options.
The Fund will treat such options as illiquid assets.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which a hedge is desired, the hedge may be obtained by purchasing or selling
an option on a "surrogate" currency, i.e., a currency where there is tangible
evidence of a direct correlation in the trading value of the two currencies.
A surrogate currency is a currency that can act, for hedging purposes, as a
substitute for a particular currency because the surrogate currency's exchange
rate movements parallel those of the primary currency. Surrogate currencies
are used to hedge an illiquid currency risk, when liquid hedge instruments in
world currency markets for the primary currency are limited.
RISKS OF FUTURES TRANSACTIONS
There are several risks associated with the use of futures contracts.
While the Fund's use of futures contracts for hedging may protect the Fund
against adverse movements in the general level of interest rates, securities
prices, or currency values, such transactions could also preclude the
opportunity to benefit from favorable movements in the level of interest rates
or securities prices or currency values. There can be no guarantee that there
will be a correlation between price movements in the hedging vehicle and in
the securities or currencies being hedged. An incorrect correlation could
result in a loss on both the hedged securities or currencies held by the Fund
and the hedging vehicle so that the Fund return might have been better had
hedging not been attempted.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures contract or futures option position.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent the Fund from
liquidating an unfavorable
- 16 -
position and the Fund would remain obligated to meet margin requirements until
the position is closed.
The Fund will only enter into futures contracts or futures options which
are standardized and traded on a U.S. or foreign exchange or board of trade,
or similar entity, or quoted on an automated quotation system. The Fund may
trade futures contracts and options on futures contracts not only on U.S.
domestic markets, but also on exchanges located outside of the United States.
Foreign markets may offer advantages such as trading in indices that are not
currently traded in the United States. Foreign markets, however, may have
greater risk potential than domestic markets. Unlike trading on domestic
commodity exchanges, trading on foreign commodity exchanges is not regulated
by the Commodity Futures Trading Commission (the "CFTC") and may be subject to
greater risk than trading on domestic exchanges. For example, some foreign
exchanges as principal markets so that no common clearing facility exists and
a trader may look only to the broker for performance of the contract. Trading
in foreign futures or foreign options contracts may not be afforded certain of
the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations, and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received for foreign
futures or foreign options transactions may not be provided the same
projections as funds received in respect of transactions on United States
futures exchanges. In addition, any profits that the Fund might realize in
trading could be eliminated by adverse changes in the exchange rate of the
currency in which the transaction is denominated, or the Fund could incur
losses as a result of changes in the exchange rate. Transactions on foreign
exchanges may include both commodities that are traded on domestic exchanges
or boards of trade and those that are not.
A purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract. There can be no guarantee that
there will be a correlation between price movements in the hedging vehicle and
in the Portfolio securities being hedged. In addition, there are significant
differences between the securities and futures markets that could result in an
imperfect correlation between the markets, causing a given hedge not to
achieve its objectives. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for futures and
fixtures option on securities, including technical influences in futures
trading and futures options, and differences between the financial instruments
being hedged and the instruments underlying the standard contracts available
for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when, and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge
may be unsuccessful to
- 17 -
some degree because of market behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract, subject to the limit, no more trades may be made on that day at a
price beyond that limit. The daily limit governs only price movements during
a particular trading day and therefore does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out futures or a futures option position, and that
Portfolio would remain obligated to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a
result, there can be no assurance than an active secondary market will develop
or continue to exist.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward currency contracts. A forward currency
contract is an obligation to purchase or sell a currency against another
currency at a future date and price as agreed upon by the parties. The Fund
may either accept or make delivery of the currency at the maturity of the
forward contract, or prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. The Fund will
engage in forward currency transactions in anticipation of or to protect
itself against fluctuations in currency exchange rates. The Fund might sell a
particular currency forward, for example, when it wants to hold stocks
denominated in that currency but anticipated, or wished to be protected
against, a decline in the currency against the dollar (or other currency).
Similarly the Fund might purchase a currency forward to "lock in" the dollar
price of securities denominated in that currency which it anticipated
purchasing.
The precise matching of forward contracts and the value of the securities
involved will not generally be possible since the future value of the
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. Projection of short-term
hedging strategy is highly uncertain. There can be no assurance that new
forward contracts or
- 18 -
offsets will always be available to the Funds. This type of hedge minimizes
the effect of currency appreciation as well as depreciation, and does not
protect against a decline in the security's value relative to other securities
denominated in a particular currency. Furthermore, such hedging transactions
reduce or preclude the opportunity for gain if the value of the hedged
currency should change relative to the U.S. dollar (or other hedged currency).
ADDITIONAL RISKS OF OPTIONS ON SECURITIES, FUTURES CONTRACTS, OPTIONS
ON
FUTURES CONTRACTS, AND FORWARD FOREIGN CURRENCY CONTRACTS AND
OPTIONS THEREON
Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in
the United States; may not involve a clearing mechanism and related
guarantees; and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities. The value of such positions
also could be adversely affected by (i) other complex foreign political, legal
and economic factors, (ii) lesser availability than in the United States of
data on which to make trading decisions, (iii) delays in the Portfolio's
ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures on margin requirements than in
the United States, and (v) lesser trading volume.
LIMITATIONS
The Portfolio may only enter into a futures contract (1) for bona fide
hedging purposes and (2) for other purposes if, immediately thereafter, the
initial margin deposits for futures contracts held by the Portfolio plus
premiums paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," would not exceed 5% of the
Portfolio's total assets. A call option is "in-the-money" if the value of the
futures contracts that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price exceeds the value
of the futures contract that is the subject of the option.
When purchasing a futures contract, the Fund must maintain with its
custodian (or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Portfolio similarly will
maintain with its custodian cash or cash equivalents (including any margin)
equal to the amount such option is "in-the-money" until the option expires or
is closed out by the Portfolio.
- 19 -
The Fund may not maintain open short positions in futures contracts or call
options written on futures contracts if, in the aggregate, the market value of
all such open positions exceeds the current value of its portfolio securities,
plus or minus unrealized gains and losses on the open positions, adjusted for
the historical relative volatility of the relationship between the Portfolio
and the positions. For this purpose, to the extent the Portfolio has written
call options on specific securities it owns, the value of those securities
will be deducted from the current market value of the securities portfolio.
In order to comply with applicable regulations of the Commodity Futures
Trading Commission pursuant to which the Portfolio avoids being deemed a
"commodity pool," the "underlying commodity value" (the size of the contract
multiplied by the daily settlement price of the contract) of each long
position in a futures contract or commodity option contract in which the Fund
invests will not at any time exceed the sum of:
(i) The value of short-term U.S. debt obligations or other U.S.
dollar-denominated high quality short-term money market instruments and cash
set aside in an identifiable manner, plus any funds deposited as margin on the
contract;
(ii) Unrealized appreciation on the contract held by the broker; and
(iii) Cash proceeds from existing investments due in not more than 30
days.
The requirements for qualification as a regulated investment company also
may limit the extent to which the Fund may enter into futures, futures
options, or forward contracts. See "Taxation."
The Fund reserves the right to engage in other types of futures
transactions in the future and to use futures and related options for other
than hedging purposes to the extent permitted by regulatory authorities. If
other types of options, futures contracts, or futures options are traded in
the future, the Fund may also use such investment techniques, provided that
the Board of Trustees determines that their use is consistent with the
Portfolio's investment objective.
EQUITY INDEX SWAP AGREEMENTS
The Fund may enter into equity index swap agreements. In a standard equity
index swap agreement, one party agrees to pay another party the return on a
stock index in return for a specified interest rate, usually a floating rate
based on the London Interbank Offered Rate ("LIBOR"). By entering into an
equity swap agreement as the index receiver, the Fund can gain exposure to the
stocks making up an index of securities in a foreign market without actually
purchasing those stocks.
- 20 -
The returns to be exchanged between the parties are calculated with respect
to a "notional amount," which is a basis on which to calculate the obligations
that the parties to a swap agreement have agreed to exchange. Typically, the
counterparty will agree to pay the Portfolio the amount, if any, by which the
notional amount of the equity swap agreement would have increased in value had
it been invested in the stocks comprising a specified index in proportion to
the composition of the index, plus the dividends that would have been received
on those stocks. The Portfolio will agree to pay to the counterparty a rate
of interest (typically a floating rate based on the LIBOR) on the notional
amount of the equity swap agreement plus the amount, if any, by which that
notional amount would have decreased in value had it been invested in such
stocks. Therefore, the return to the Portfolio on an equity index swap
agreement should be the gain or loss on the notional amount plus dividends on
the stocks comprising the specified index (as if the Portfolio had invested
the notional amount in stocks comprising that index) less the interest paid by
the Portfolio on the notional amount. The Portfolio will normally enter into
equity swap agreements on a net basis, i.e., the two parties' obligations are
netted out, with the Portfolio paying or receiving, as the case may be, only
the net amount of any payments on payment dates that are agreed upon by the
parties.
The Fund may from time to time enter into the opposite side of equity swap
agreements (i.e., where the Portfolio is obligated to pay the increase (net of
interest) or receive the decrease (plus interest) on an index) to reduce the
amount of the Portfolio's equity market exposure consistent with the
Portfolio's objective.
The Fund will only enter into equity swap agreements that qualify for an
exemption from regulation under the Commodities Exchange Act. The Fund may
enter into a swap transaction only with counterparties deemed by the Portfolio
Manager to be creditworthy. Under procedures adopted by the Fund's Board of
Trustees, a counterparty must have shareholders' equity in excess of
$200,000,000, and have outstanding securities rated Aa or better by Moody's or
AA or better by S&P, or, if the counterparty has no rated securities
outstanding, the counterparty must have issued securities of equivalent
quality in the Portfolio Manager's judgement or represent equivalent
creditworthiness. Alternatively, these creditworthiness standards may be met
by the provision of an unconditional letter of credit or other unconditional
guarantee.
Generally, equity swap agreements entered into by the Fund will be treated
as illiquid. Consequently, while the Fund (and SEC staff) maintain this
position, the Fund will not invest in equity swap agreements, if as a result
of the investment, the total value of such investments together with that of
all other illiquid assets which the Portfolio owns would exceed 15% of the
Portfolio's net assets.
- 21 -
The net amount of the excess, if any, of the Portfolio's obligations over
its entitlement with respect to each equity swap agreement will be accrued on
a daily basis and an amount of cash, U.S. Government Securities or other
liquid high quality debt securities having an aggregate market value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's custodian.
RISKS OF SWAP TRANSACTIONS
An equity index swap agreement involves not only the risk associated with
investment in securities represented on an index, but also the risk that the
performance of such securities, including dividends, will not exceed the
return on the interest rate that the Portfolio will be committed to pay.
Generally, swap agreements have a fixed maturity date that will be agreed
upon by the parties. The agreement can be terminated prior to the maturity
date only under limited circumstances, such as upon default by one of the
parties or insolvency, among others, and can be transferred by a party only
with the prior written consent of the other party. The Fund may be able to
effectively limit fixture obligations under a swap agreement by entering into
another swap agreement in which it takes the reverse position (i.e., if the
Portfolio was the index receiver in the original swap agreement, it would
become the interest rate receiver in the reverse swap agreement). However,
because the market for swap agreements is limited, there can be no assurance
that the Fund would be able to enter into such a reverse swap agreement, in
which event it would continue to be committed to meet its obligations under
the original swap agreement. Therefore, the Portfolio may be inhibited from
limiting potential losses from a swap agreement until its maturity date.
The Fund bears the risk of loss of the amount expected to be received under
a swap agreement in the event of the default or bankruptcy of a swap agreement
counterparty. If there is a default by the counterparty to an equity swap
agreement, the Portfolio will be limited to contractual remedies pursuant to
the agreements related to the transaction. There is no assurance that equity
swap agreement counterparties will be able to meet their obligations pursuant
to equity swap agreements or that, in the event of default, the Portfolio will
succeed in pursuing contractual remedies. The Portfolio thus assumes the risk
that it may be delayed in or prevented from obtaining payments owned to it
pursuant to equity swap agreements. The Portfolio Manager will closely
monitor the creditworthiness of equity swap agreement counterparties in order
to minimize this risk.
Certain restrictions imposed on the Portfolios by the Internal Revenue Code
may limit the Portfolios' ability to use swap agreements. The swap market is
a relatively new market and is largely unregulated. It is possible that
developments in the swap
- 22 -
market, including potential government regulation or legal developments, could
adversely affect the Fund's ability to terminate existing swap agreements, to
enter into reverse swap agreements, or to realize amounts to be received under
such agreements. See "Taxation" for information regarding the tax
considerations relating to swap agreements.
FOREIGN SECURITIES
The Fund may invest in U.S. dollar- or foreign currency-denominated
corporate debt securities of foreign issuers; preferred securities of foreign
issuers; certain foreign bank obligations (see "Bank Obligations," above); and
U.S. dollar- or foreign currency-denominated obligations of foreign
governments or their subdivisions, agencies and instrumentalities,
international agencies and supranational entities. The Fund may also invest
in common stocks issued by foreign companies or in securities represented by
European Depository Receipts ("EDRs"), American Depository Receipts ("ADRs"),
or Global Depository Receipts ("GDRs"). ADRs are dollar-denominated receipts
issued generally by domestic banks and represent the deposit with the bank of
a security of a foreign issuer. ADRs are publicly traded on exchanges or
over-the-counter in the United States. EDRs are foreign currency-denominated.
GDRs are issued and traded in several international financial markets. There
are certain risks associated with investments in unsponsored ADR programs.
Because the non-U.S. company does not actively participate in the creation of
the ADR program, the underlying agreement for service and payment will be
between the depository and the shareholders. The company issuing the stock
underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors
directly bear the expenses associated with certificate transfer, custody and
dividend payment. In an unsponsored ADR program, there also may be several
depositories with no defined legal obligations to the non-U.S. company. The
duplicate depositories may lead to marketplace confusion because there would
be no central source of information to buyers, sellers and intermediaries.
The efficiency of centralization gained in a sponsored program can greatly
reduce the delays in delivery of dividends and annual reports. In addition,
with respect to all ADRs and EDRs, there is always the risk of loss due to
currency fluctuations.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies.
These include differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation, nationalization, or
confiscatory taxation, adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country), government interference (including government ownership of
companies in certain sectors,
- 23 -
wage and price controls, or imposition of trade barriers and other
protectionist measures), political instability (which can affect U.S.
investments in foreign countries), and potential restrictions of the flow of
international capital. It may be more difficult to obtain and enforce
judgments against foreign entities. In addition, foreign securities and
dividends and interest payable on those securities may be subject to foreign
taxes, including foreign withholding taxes, and other foreign taxes may apply
with respect to securities transactions. Transactions on foreign exchanges or
over-the-counter markets may involve greater time from the trade date until
settlement than for domestic securities transactions and, if the securities
are held abroad, may involve the risk of possible losses through the holding
of securities in custodians and depositories in foreign countries. Foreign
securities open trade with less frequency and volume than domestic securities
and therefore may exhibit greater price volatility. Changes in foreign
exchange rates will affect the value of those securities which are denominated
or quoted in currencies other than the U.S. dollar. Investing in ADRs may
involve many of the same special risks associated with investing in securities
of foreign issuers other than liquidity risks.
There is generally less publicly available information about foreign
companies comparable to reports and ratings that are published about companies
in the United States. Foreign companies are also generally not subject to
uniform accounting and auditing and financial reporting standards, practices,
and requirements comparable to those applicable to U.S. companies.
The Fund may invest in foreign obligations issued or guaranteed by foreign
governments. Supranational entities include international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and
related government agencies. Supranational entities, the obligations of which
may be purchased by the Fund, are the International Bank for Reconstruction
and Development (the World Bank), the Inter-American Development Bank, The
International Finance Corporation, the European Investment Bank, The European
Coal and Steel Community, the Nordic Investment Bank and the Asian Development
Bank. In general, supranational entities have no taxing authority and are
dependent upon their members for payments of interest and principal.
Moreover, the lending activities of supranational entities are limited to a
percentage of their total capital (including "callable capital" contributed by
a member at an entity's call), reserves and net income.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in
which the respective principal offices of the issuers of the various
securities are located, if that is the best available market. The Fund will
not invest in securities sold in foreign over-the-counter markets unless the
dealers effecting such
- 24 -
transactions have a minimum net worth of $20 million or more. Stock markets
in many foreign countries are not as developed or efficient as those in the
United States. While growing in volume, they usually have substantially less
volume than the New York Stock Exchange, and securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies. Similarly, volume and liquidity in most foreign bond markets is
less than in the United States and at times, volatility of price can be
greater than in the United States. Fixed commissions on foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund will endeavor to achieve the most favorable net results on
its portfolio transactions. There is generally less government supervision
and regulation of stock exchanges, brokers, and listed companies than in the
United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations,
nationalization, expropriation, or confiscatory taxation, limitations on the
removal of funds or other assets of the Fund, political or social instability,
or diplomatic developments which could affect United States investments in
those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the United States economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments position.
The investment by the Fund in emerging market countries presents risks in
addition to those presented by investment in foreign issuers in general. A
number of emerging market countries restrict, to varying degrees, foreign
investment in stocks. Repatriation of investment income, capital, and the
proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies
of developing countries have experienced significant declines against the U.S.
dollar in recent years and devaluation may occur subsequent to investments in
these currencies by the Portfolio. Many emerging market countries have
experienced substantial, and in some periods, extremely high rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries.
Many of the emerging securities markets are relatively small, have low
trading volumes, suffer periods of relative illiquidity, and are characterized
by significant price volatility. There is a risk in emerging market countries
that a future economic or political crisis could lead to price controls,
forced mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies, any of which may have a
detrimental effect on the Portfolio's investment.
- 25 -
The income and gains from certain foreign portfolio securities may be
subject to foreign withholding taxes, thus reducing the net amount available
for distribution.
The Fund also may purchase and sell foreign currency options and foreign
currency futures contracts and related options (see "Options and Futures,"
above), and enter into forward foreign currency contracts in order to protect
against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. The Fund may use foreign currency options
and forward foreign currency contracts to increase exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one
country to another.
A forward foreign currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts may be bought or sold to protect
the Portfolio against a possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S. dollar, or to increase
exposure to a particular foreign currency. Open positions in forward
contracts are covered by the segregation with the Portfolio's custodian of
high quality short-term investments and are marked-to-market daily. Although
such contracts are intended to minimize the risk of loss due to a decline in
the value of the hedged currencies, at the same time, they tend to limit any
potential gain which might result should the value of such currencies
increase.
The U.S. Government has, from time to time in the past, imposed
restrictions, through taxation and otherwise, on foreign investments by U.S.
investors such as the Portfolios. If such restrictions should be
reinstituted, it might become necessary for the Fund to invest all, or
substantially all, of its assets in U.S. short-term securities. In such
event, the Portfolio would review its investment objective and investment
policies to determine whether changes are appropriate.
WARRANTS
The Fund may invest in warrants; however, the Fund's investment in warrants
(other than warrants acquired by the Portfolio as part of a unit or attached
to securities at the time of purchase), valued to the lower of cost or market,
may not exceed S% of the value of the Portfolio's net assets, of which not
more than 2% of the Portfolio's net assets may be invested in warrants not
listed on a recognized U.S. or foreign stock exchange. Warrants may be
considered speculative in that they have no voting rights, pay no dividends,
and have no rights with respect to the assets of the corporation issuing them.
Warrants basically are options to purchase equity securities at a specific
price valid for
- 26 -
a specific period of time. They do not represent ownership of the securities,
but only the right to buy them. Warrants differ from call options in that
warrants are issued by the issuer of the security and may be purchased on
their exercise, whereas, call options may be written or issued by anyone. The
prices of warrants do not necessarily move parallel to the prices of the
underlying secants.
INVESTMENT RESTRICTIONS
The Portfolio's investment objective as set forth under "Investment
Objectives and Policies," in the Prospectus together with the investment
restrictions set forth below, unless otherwise indicated, are fundamental
policies of the Portfolio and may not be changed without the approval of a
majority of the outstanding voting shares of the Portfolio. Under these
restrictions, the Fund may not:
(i) invest in a security if, as a result of such investment, more than
25% of its total assets (taken at market value at the time of such investment)
would be invested in the securities of issuers in any particular industry,
except that this restriction does not apply to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities (or repurchase
agreements with respect thereto);
(ii) invest in a security if, with respect to 75% of its total assets,
more than 5% of its total assets (taken at market value at the time of such
investment) would be invested in the securities of any one issuer, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(iii) invest in a security if, with respect to 75% of its total assets,
the Portfolio would own more than 10% (taken at the time of such investment)
of the outstanding voting securities of any one issuer, except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(iv) purchase or sell real estate, except that the Fund may purchase
securities secured by real estate or interests therein, or securities issued
by companies in the real estate industry or which invest in real estate or
interests therein;
(v) purchase or sell commodities or commodities contracts, (which, for
the purpose of this restriction, shall not include foreign currency or forward
foreign currency contracts), except that any Portfolio may engage in interest
rate futures contracts, stock index futures contracts, futures contracts based
on other financial instruments or one or more groups of instruments, and on
options on such futures contracts;
- 27 -
(vi) purchase securities on margin, except for use of short-term credit
necessary for clearance or purchases and sales of Portfolio securities, except
that the Fund may make margin deposits in connection with transactions in
options, futures and options on futures, and except that effecting short sales
will be deemed not to constitute a margin purchase for purposes of this
restriction;
(vii) borrow money, or pledge, mortgage or hypothecate its assets,
except that the Fund may (a) borrow from banks or enter into reverse
repurchase agreements, but only if immediately after each borrowing and
continuing thereafter there is asset coverage of 300% and (b) enter into
reverse repurchase agreements and transactions in options, futures, options on
futures and forward foreign currency contracts as described in the Prospectus
and in the Statement of Additional Information (the deposit of assets in
escrow in connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis and
collateral arrangements with respect to initial or variation margin deposits
for futures contracts, options on futures contracts, and forward foreign
currency contracts will not be deemed to be pledges of the Fund's assets);
(viii) issue senior securities, except insofar as the Fund may be deemed
to have issued a senior security by reason of borrowing money in accordance
with the Portfolio's borrowing policies, and except for purposes of this
investment restriction, collateral, escrow, or margin or other deposits with
respect to the making of short sales, the purchase or sale of futures
contracts or related options, purchase or sale of forward foreign currency
contracts, and the writing of options on securities are not deemed to be an
issuance of a senior security;
(ix) lend any funds or other assets, except that the Fund may, consistent
with its investment objectives and policies: (a) invest in debt obligations,
including bonds, debentures, or other debt securities, bankers' acceptances
and commercial paper, even though the purchase of such obligations may be
deemed to be the making of loans; (b) enter into repurchase agreements; and
(c) lend its portfolio securities in an amount not to exceed 1/3 of the value
of its total assets; and
(x) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the federal securities laws.
The Portfolio is also subject to the following restrictions and policies
that are not fundamental and may, therefore, be changed by the Board of
Trustees (without shareholder approval) relating to the investment of its
assets and activities. Unless otherwise indicated, the Fund may not:
- 28 -
(i) invest for the purpose of exercising control or management;
(ii) sell securities or property short, except short sales against the
box;
(iii) purchase, write, or sell puts, calls, straddles, spreads, or
combinations thereof, except that this restriction does not apply to puts that
are a feature of or floating rate securities or to puts that are a feature of
other corporate debt securities, and except that the Portfolio may engage in
options on securities, options on securities indexes, options on foreign
currencies, options on futures contracts, and options on other financial
instruments or one or more groups of instruments;
(iv) invest in securities that are illiquid because they are subject to
legal or contractual restrictions on resale, in repurchase agreements maturing
in more than seven days, or other securities which are illiquid if, as a
result of such investment, more than 15% of the net assets of the Portfolio
(taken at market value at the time of such investment) would be invested in
such securities;
(v) invest in oil, gas or other mineral exploration or development
programs (including oil, gas, or other mineral leases), except that the Fund
may invest in the securities of companies that invest in or sponsor those
programs;
(vi) purchase any security if, as a result, the Portfolio will then have
more than 5% of its total assets invested in securities of companies
(including predecessor companies) that have been in continuous operation for
less than three years;
(vii) purchase or retain securities of any issuer if, to the knowledge
of the Portfolio, any of the Fund's officers or trustees, or any officer or
director of PFAMCo or the Portfolio Manager of the Portfolio, individually
owns more than 1/2 of 1% of the outstanding securities of the issuer and
together own beneficially more than 5% of such issuer's securities;
(viii) invest in warrants (other than warrants acquired by the Portfolio
as part of a unit or attached to securities at the time of purchase) if, as a
result, the investment in warrants (valued to the lower of cost or market)
would exceed 5% of the value of the Portfolio's net assets, of which not more
than 2% of the Portfolio's net assets may be invested in warrants not listed
on a recognized U.S. or foreign stock exchange;
(ix) invest in securities sold in foreign over-the-counter markets unless
the foreign dealers effecting such transactions have a minimum net worth of
$20 million;
- 29 -
(x) invest in securities of another open-end investment company;
(xi) invest in a security if, with respect to 100% of the total assets,
the Portfolio would own more than 10% (taken at the time of such investment)
of the outstanding voting securities of any one issuer, except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities;
(xii) borrow money for investment in securities, excluding borrowing for
temporary purposes; and
(xiii) acquire or retain or sell real estate, including limited
partnership interests, except that the Fund may purchase readily marketable
interests in real estate investment trusts, readily marketable securities of
companies which invest in real estate or interests therein, securities secured
by real estate or interests therein, or securities issued by companies in the
real estate industry.
For purposes of fundamental investment restriction number (v), swap
agreements will not be deemed to be commodities contracts. Unless otherwise
indicated, as in the restriction for borrowing or hypothecating assets of the
Fund, for example, all percentage limitations listed above apply to each
Portfolio only at the time into which a transaction is entered. Accordingly,
if a percentage restriction is adhered to at the time of investment, a later
increase or decrease in the percentage which results from a relative change in
values or from a change in the Fund's net assets will not be considered a
violation.
MANAGEMENT
TRUSTEES AND OFFICERS. The principal occupations of the Trustees and
executive officers of the Trust for at least the past five years are listed
below. The address of each, unless otherwise indicated, is 237 Park Avenue,
New York, New York 10017. Trustees deemed to be "interested persons" of the
Trust for purposes of the Investment Company Act of 1940, as amended, are
indicated by an asterisk.
*EDMUND A. HAJIM, Chairman of the Board of Trustees - Chairman of the Board of
Furman Selz Incorporated since 1983; Chairman of the Board and President of
Furman Selz Capital Management, Inc. since 1984; Chairman of the Board and
Chief Executive Officer, Lehman Management Co., Inc. from 1980 to 1983;
Managing Director, Lehman Brothers Kuhn Loeb incorporated from 1977 to 1983;
Chairman of the Board, President and Director or Trustee of various mutual
funds affiliated with Furman Selz Incorporated.
- 30 -
*ROBERT H. DUNKER, Trustee, 303 Washington Boulevard, Sea Girt, New Jersey
08750 - (Retired); formerly, Executive Vice President, Trust Administration,
First Fidelity Bank, N.A., New Jersey; Director, E.J. Brooks Co.; Director,
Faber-Castell Corp.; Trustee, Hanover Funds, Inc. (registered investment
company).
ROBERT F. KANE, Trustee, 105 Glenside Avenue, Scotch Plains, New Jersey 07076
- (Retired); Vice Chairman, Monroe Systems for Business, Inc. (business
systems) from 1984 to 1986; President, Monroe Systems for Business, a Division
of Litton Industries from 1974 to 1986.
*WALTER J. NEPPL, Trustee, The Enclave, 5345 Annabel Lane, Plano, Tx 75093 -
(Retired); Management Consultant since 1982; Director, Sun Company, Inc. since
1976; Trustee, Geraldine R. Dodge Foundation since 1975; Vice Chairman of the
Board, J.C. Penney Company (retail merchandising) from 1981 to 1982; President
and Chief Operating Officer, J.C. Penney Company from 1976 to 1981.
T. BROCK SAXE, Trustee, 930 Oenoke Ridge, New Canaan, Connecticut 06840 -
President of Tombrock Corporation (restaurant organization) since 1962;
Director of New Canaan Bank and Trust Company.
STEVEN D. BLECHER, Executive Vice President - Executive Vice President and
Director of the Sponsor since 1983; Vice President, Secretary and Treasurer of
Furman Selz Capital Management, Inc. since 1984.
MICHAEL C. PETRYCKI, Executive Vice President - Executive Vice President of
the Sponsor since 1984; First Vice President, Drexel Burnham Lambert
Incorporated from 1983 to 1984.
JOAN V. FIORE, Vice President and Secretary - Managing Director and
Counsel of Mutual Funds Division of Furman Selz Incorporated since 1991.
Attorney with the Securities and Exchange Commission from 1986 to 1991.
ROBERT A. HERING, Vice President - Managing Director of the Sponsor since
1986; Assistant Secretary of the Bank of New York from 1984 to 1986.
SHERYL HIRSCHFELD, Assistant Secretary - Director of Corporate Secretarial
Services, Furman Selz Incorporated since 1994; Assistant to the Corporate
Secretary and General Counsel of The Dreyfus Corporation from 1982 to 1994.
JOHN J. PILEGGI, Vice President and Treasurer - Senior Managing Director of
the Sponsor since 1984.
Trustees of the Trust not affiliated with Furman Selz receive from the
Trust an annual fee of $6,000 and a fee of $1,000 for each Board of Trustees
and Board committee meeting attended and are reimbursed for all out-of-pocket
expenses relating to
- 31 -
attendance at meetings. Trustees who are affiliated with Furman Selz do not
receive compensation from the Trust but are reimbursed for all out-of-pocket
expenses relating to attendance at meetings. As of the date of this Statement
of Additional Information, the Trustees and officers, as a group, owned less
than 1% of the outstanding shares of the Fund.
ADVISER. The Trust retains First Fidelity Bank, National Association,
New Jersey to act as the adviser for the Fund pursuant to a Master Advisory
Contract and Supplement with respect to the Fund ("Advisory Contract"). First
Fidelity also acts as custodian and transfer agent for the Fund. See
"Custodian, Transfer Agent and Dividend Disbursing Agent".
The Adviser is a national banking association which provides commercial
banking and trust business services throughout New Jersey. The Adviser is a
wholly-owned subsidiary of First Fidelity Bancorporation, whose principal
business is providing financial and related services through its subsidiary
organizations. The advisory services of the Adviser are provided through the
Asset Management Group of the Adviser's Trust Division which as of December
31, 1994 had approximately $17 billion of client assets under management.
The Advisory Contract provides that First Fidelity will manage the
portfolio of the Fund and will furnish to the Trust investment guidance and
policy direction in connection therewith. Pursuant to the Advisory Contract,
First Fidelity also furnishes to the Trust's Board of Trustees periodic
reports on the investment performance of the Fund.
Pursuant to a Portfolio Management Agreement between the Adviser and
Blairlogie Capital Management Ltd. ("Blairlogie"), a wholly owned, indirect
subsidiary of PFAMCo, Blairlogie is the Portfolio Manager and provides
investment advisory services to the Fund. For the services provided, First
Fidelity (and not the Fund) pays Blairlogie a fee equal to 0.75% of the
average daily net assets of the Portfolio.
Blairlogie commenced operations in 1992 and is located at 4th Floor, 125
Princes Street, Edinburgh EH2 4AD, Scotland. It provides investment
management services to a limited number of large accounts such as employee
benefit plans, college endowment funds and foundations. Accounts managed by
Blairlogie have combined assets of approximately $500 million.
First Fidelity has also agreed in the Advisory Contract to provide
administrative assistance in connection with the operation of the Trust and
the Fund. Administrative services provided by First Fidelity include, among
other things, (i) data processing, clerical and bookkeeping services required
in connection with maintaining the financial accounts and records for the
Trust and the Fund, (ii) compiling statistical and research data required for
- 32 -
the preparation of reports and statements which are periodically distributed
to the Trust's Officers and Trustees, (iii) handling general shareholder
relations with Fund investors, such as advice as to the status of their
accounts, the current yield and dividends declared to date and assistance with
other questions related to their account and (iv) compiling information
required in connection with the Trust's filings with the Securities and
Exchange Commission.
For its services, the Fund pays the Adviser a monthly fee at an annual
rate of 1.25% of the Fund's average daily net assets.
SPONSOR AND DISTRIBUTOR. Shares of the Fund are offered on a continuous
basis and with a sales charge of 4.50% to 1.00% of the public offering price
through FFB Funds Distributor, Inc., which acts as the Fund's distributor.
The Distributor is not obligated to sell any specific amount of shares.
ADMINISTRATOR. Pursuant to a Master Administrative Services Contract
and Supplement thereto ("Administrative Services Contract"), Furman Selz
Incorporated ("Furman Selz") (i) provides all management and administrative
services reasonably necessary for the operation of the Trust and the Fund,
other than those services which are provided by First Fidelity pursuant to the
Advisory Contract; (ii) provides the Trust with office space and office
facilities reasonably necessary for the operation of the Trust and the Fund;
(iii) employs or associates with itself such persons as it believes
appropriate to assist it in performing its obligations under the
Administrative Services Contract; (iv) provides the Trust with certain persons
satisfactory to the Trust's Board of Trustees to serve as trustees, officers
and employees of the Trust, including a president, one or more vice
presidents, a secretary and a treasurer; and (v) pays the entire compensation
of all of the Trust's officers and employees and the entire compensation of
the Trustees of the Trust who are affiliated persons of Furman Selz.
For its services to the Fund, Furman Selz receives a monthly fee at the
annual rate of 0.15% of the Fund's average daily net assets.
DISTRIBUTION PLAN. The Trustees of the Fund have voted to adopt a
Master Distribution Plan (the "Plan") pursuant to Rule l2b-1 of the Investment
Company Act of 1940 (the "1940 Act") after having concluded that there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Plan provides for a monthly payment by the Fund to the
Distributor in such amounts that the Distributor may request or for direct
payment by the Fund, for certain costs incurred under the Plan, subject to
periodic Board approval, provided that each such payment is based on the
average daily value of the Fund's net assets during the preceding month and is
calculated at an annual rate not to exceed 0.50%. (Certain expenses of the
Fund may be reduced in accordance with applicable state expense limitations.
See "Fees and
- 33 -
Expenses"). The Distributor will use all amounts received under the Plan for
payments to broker-dealers or financial institutions (but not including banks)
for their assistance in distributing shares of the Fund and otherwise
promoting the sale of Fund shares, including payments in amounts based on the
average daily value of Fund shares owned by shareholders in respect of which
the broker-dealer or financial institution has a distributing relationship.
The Distributor may also use all or any portion of such fees to pay Fund
expenses such as the printing and distribution of prospectuses sent to
prospective investors; the preparation, printing and distribution of sales
literature and expenses associated with media advertisements.
The Plan provides for the Distributor to prepare and submit to the Board
of Trustees on a quarterly basis written reports of all amounts expended
pursuant to the Plan and the purpose for which such expenditures were made.
The Plan provides that it may not be amended to increase materially the costs
which the Fund may bear pursuant to the Plan without shareholder approval and
that other material amendments of the Plan must be approved by the Board of
Trustees, and by the Trustees who neither are "interested persons" (as defined
in the 1940 Act) of the Trust nor have any direct or indirect financial
interest in the operation of the Plan or in any related agreement, by vote
cast in person at a meeting called for the purpose of considering such
amendments. The selection and nomination of the Trustees of the Trust has
been committed to the discretion of the Trustees who are not "interested
persons" of the Trust. The Plan and the related Administrative Services
Contract between the Trust and the Sponsor have been approved, and are subject
to annual approval, by the Board of Trustees and by the Trustees who neither
are "interested persons" nor have any direct or indirect financial interest in
the operation of the Plan or in the Administrative Services Contract, by vote
cast in person at a meeting called for the purpose of voting on the Plan. The
Board of Trustees and the Trustees who are not "interested persons" and who
have no direct or indirect financial interest in the operation of the Plan or
in the Administrative Services Contract voted to approve the Plan at a meeting
held on December 8, 1994. The Plan was submitted to the shareholders of the
Fund and approved at a special meeting held on December 8, 1994. The Plan is
terminable with respect to the Fund at any time by a vote of a majority of the
Trustees who are not "interested persons" of the Trust and who have no direct
or indirect financial interest in the operation of the Plan or in the
Administrative Services Contract or by vote of the holders of a majority of
the shares of the Fund.
- 34 -
FEES AND EXPENSES. As compensation for their advisory, administrative
and management services, First Fidelity and Furman Selz are each paid a
monthly fee at the following annual rates:
<TABLE>
<CAPTION>
Fee Rate
First
Fidelity Furman Selz
<S> <C> <C>
Portion of average daily
value of net assets of the
Fund ....................... 1.25% 0.15%
</TABLE>
Certain of the states in which shares of the Fund are qualified for sale
impose limitations on the expenses of the Fund. The Advisory Contract and the
Administrative Services Contract provide that if, in any fiscal year, the
total expenses of the Fund (excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses (such as dealer markups),
distribution fees, other expenditures which are capitalized in accordance with
generally accepted accounting principles and extraordinary expenses, but
including the advisory and administrative services fees) exceed the expense
limitations applicable to the Fund imposed by the securities regulations of
any state, First Fidelity, Furman Selz and the Sub-Adviser will reimburse the
Fund quarterly in an amount equal to 50/140, 15/140, and 75/140, respectively,
of that excess. Although there is no certainty that these limitations will be
in effect in the future, the most restrictive of these limitations on an
annual basis with respect to the Fund are currently 2.5% of the first
$30 million of average daily net assets, 2.0% of the next $70 million of
average daily net assets and 1.5% of the remaining average daily net assets.
During the year ended February 28, 1994, there were no payments or
reimbursements required as a result of these expense limitations.
The Advisory Contract and the Administrative Services Contract will
continue in effect with respect to the Fund from year to year provided such
continuance is approved annually (i) by the holders of a majority of the
outstanding voting securities of the Fund or by the Trust's Board of Trustees
and (ii) by a majority of the Trustees of the Trust who are not parties to
such contracts or "interested persons" (as defined in the 1940 Act) of any
such party. The Contracts were approved initially by the Board of Trustees,
including a majority of the Trustees who are not parties to the Contracts or
interested persons of such parties, at a meeting held on December 8, 1994 and
were approved by shareholders of the Fund at a special meeting held on
December 8, 1994. Each Contract may be terminated with respect to the Trust
at any time, without the payment of any penalty, by a vote of a majority of
the outstanding voting securities of the Trust (as defined in the 1940 Act) or
by a vote of a majority of the Trust's entire Board of Trustees on 60 days'
written notice to First Fidelity, or by First Fidelity on 60 days' written
notice to the Fund. The Advisory
- 35 -
Contract provides that it shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
PERFORMANCE INFORMATION
The Fund may, from time to time, include its total return in
advertisements or reports to shareholders or prospective investors.
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5 and 10 years (up to the life of
the Fund), calculated pursuant to the following formula: P (1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = average annual total
return, n = the number of years, and ERV = the ending redeemable value of the
hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of the maximum sales load and a
proportional share of Fund expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow
Jones Industrial Average, the MSCI EAFE Index, the MSCI Emerging Markets Free
Index or other unmanaged indices so that investors may compare the Fund's
results with those of a group of unmanaged securities widely recorded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment of the Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objectives and policies, characteristics and
quality of the portfolio and the market conditions during the given time
period, and should not be considered as a representation of what may be
achieved in the future.
- 36 -
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the Fund and for the
other investment advisory clients of First Fidelity are made with a view to
achieving their respective investment objectives. Investment decisions are the
product of many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for
certain clients even though it could have been bought or sold for other
clients at the same time. Likewise, a particular security may be bought for
one or more clients when one or more clients are selling the security. In
some instances, one client may sell a particular security to another client.
It also sometimes happens that two or more clients simultaneously purchase or
sell the same security, in which event each day's transactions in such
security are, insofar as possible, averaged as to price and allocated between
such clients in a manner which in First Fidelity's opinion is equitable to
each and in accordance with the amount being purchased or sold by each. There
may be circumstances when purchases or sales of portfolio securities for one
or more clients will have an adverse effect on other clients. Consistent with
its policy of seeking best execution of portfolio transactions, the Fund may
place orders to purchase or sell securities with First Fidelity Brokers, Inc.
First Fidelity Brokers, Inc. will not, however, execute as principal, any
transactions for or with the Fund. The Fund has adopted procedures under Rule
17e-1 of the 1940 Act governing brokerage transactions with affiliates.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock exchanges
and other agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. Also,
a particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
securities generally involve the payment of fixed brokerage commissions, which
are generally higher than those in the United States. There is generally no
stated commission in the case of securities traded in the over-the-counter
markets, but the price paid by the Fund usually includes an undisclosed dealer
commission or markup. In underwritten offerings, the price paid by the Fund
includes an undisclosed, fixed commission or discount retained by the
underwriter or dealer.
First Fidelity places all orders for the purchase and sale of portfolio
securities for the Fund and buys and sells securities for the Fund through a
substantial number of brokers and dealers. In so doing, First Fidelity uses
its best efforts to obtain for the Fund the most favorable price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, First Fidelity, having in mind the Fund's best interests, considers
all factors it deems relevant, including, by way of illustration, price, the
size of the transact-
- 37 -
ion, the nature of the market for the security, the amount of the commission,
the timing of the transaction taking into account market prices and trends,
the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions. The Fund will not deal with Furman Selz in any transaction in
which Furman Selz acts as principal and will not effect transactions in the
over-the-counter market using Furman Selz as either principal or agent.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive research services from broker-dealers which execute
portfolio transactions for the clients of such advisers. Consistent with this
practice, First Fidelity receives research services from many broker-dealers
with which First Fidelity places the Fund's portfolio transactions. These
services, which in some cases may also be purchased for cash, include such
matters as general economic and security market reviews, industry and company
reviews, evaluations of securities and recommendations as to the purchase and
sale of securities. Some of these services are of value to First Fidelity in
advising various of its clients (including the Fund), although not all of
these services are necessarily useful and of value in managing the Fund. The
management fee paid by the Fund is not reduced because First Fidelity and its
affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
(the "Act"), First Fidelity may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the Act) to First
Fidelity an amount of disclosed commission for effecting a securities
transaction for the Fund in excess of the commission which another
broker-dealer would have charged for effecting that transaction.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price
and execution available and such other policies as the Trustees may determine,
First Fidelity may consider sales of shares of the Fund as a factor in the
selection of broker-dealers to execute portfolio transactions for the Fund.
The Fund has no restrictions upon portfolio turnover. Portfolio
turnover is expected to be 100%.
- 38 -
FEDERAL INCOME TAXES
The Fund has elected to be treated as a regulated investment company and
qualified as such for its last fiscal year. The Fund intends to continue to
so qualify by complying with the provisions of the Internal Revenue Code (the
"Code") applicable to regulated investment companies so that it will not be
liable for Federal income tax with respect to amounts distributed to
shareholders in accordance with the timing requirements of the Code.
In order to qualify as a regulated investment company for a taxable
year, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock or
securities and gains from the sale or other disposition of stock or securities
or foreign currency gains related to investments in stock or securities or
other income (including gains from options or forward contracts) derived with
respect to the business of investing in stock, securities or currency; (b)
derive less than 30% of its gross income from the sale or other disposition of
stock or securities or certain other investments held less than three months
(excluding some amounts included in income as a result of certain hedging
transactions); and (c) diversify its holdings so that, at the end of each
quarter of its taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other securities
limited, in the case of other securities for purposes of this calculation, in
respect of any one issuer, to an amount not greater than 5% of its assets or
10% of the voting securities of the issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies). As such, and by complying with the applicable provisions of the
Code, the Fund will not be subject to Federal income tax on taxable income
(including realized capital gains) which is distributed to shareholders in
accordance with the timing requirements of the Code. Compliance with the "30%
test" described in clause (b) above may, in particular, limit the Fund's
ability to engage in some transactions involving options and short-term
trading.
The amount of capital gains, if any, realized in any given year will
result from sales of securities made with a view to the maintenance of a
portfolio believed by the Fund's management to be most likely to attain the
Fund's investment objective. Such sales and any resulting gains or losses,
may therefore vary considerably from year to year. Since at the time of an
investor's purchase of shares, a portion of the per share net asset value by
which the purchase price is determined may be represented by realized or
unrealized appreciation in the Fund's portfolio or undistributed income of the
Fund, subsequent distributions (or portions thereof) on such shares may be
taxable to such investor
- 39 -
even if the net asset value of his shares is, as a result of the
distributions, reduced below his cost for such shares and the distributions
(or portions thereof) represent a return of a portion of his investment.
The Fund is required to report to the IRS all distributions of dividends
and capital gains, as well as the gross proceeds of share redemptions. The
Fund may be required to withhold Federal income tax at a rate of 31% ("backup
withholding") from dividends (including capital gain dividends) and the
proceeds of redemptions of shares paid to non-corporate shareholders who have
not furnished the Fund with a correct taxpayer identification number and made
certain required certifications or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. In addition, the
Fund may be required to withhold Federal income tax at a rate of 31% if it is
notified by the IRS or a broker that the taxpayer identification number is
incorrect or that backup withholding applies because of underreporting of
interest or dividend income.
Distributions of net investment income and net realized capital gains
will be taxable as described in the Prospectus whether made in shares or in
cash. To the extent that such distributions are attributable to qualifying
dividends received by the Fund and designated as dividends derived from
domestic corporations by the Fund, they will be eligible for the
dividends-received deduction available to the corporations. In determining
amounts of net realized capital gains to be distributed, any capital loss
carryovers from prior years will be applied against capital gains.
Shareholders receiving distributions in the form of additional shares will
have a cost basis for Federal income tax purposes in each share so received
equal to the net asset value of a share of the Fund on the reinvestment date.
Fund distributions will also be included in individual and corporate
shareholders' income on which the alternative minimum tax may be imposed.
Shareholders will be notified annually as to the Federal tax status of
distributions.
Any loss realized upon the redemption of shares held (or treated as
held) for six months or less will be treated as a long-term capital loss to
the extent of any long-term capital gains dividends received on the redeemed
shares. All or a portion of a loss realized upon the redemption of shares may
be disallowed to the extent shares are purchased (including shares acquired by
means of reinvested dividends) within 30 days before or after such redemption.
Exchanges are treated as redemptions for Federal tax purposes.
Different tax treatment, including a penalty on early distributions, is
accorded to accounts maintained as IRAs. Shareholders should consult their
tax advisers for more information.
- 40 -
Gains or losses on sales of stock or securities by the Fund will
ordinarily be long-term capital gains or losses if the stock or securities
have been held by it for more than one year. However, if the Fund writes a
covered call option which has an exercise price below the price of the
underlying stock or security at the time the call is written, or if it
acquires a put option with respect to stock or securities which have been held
for less than the applicable capital gain holding period, the holding period
of such stock or securities will be terminated or suspended for purposes of
determining long-term capital gains treatment and will start again only when
the Fund enters into a closing transaction with respect to such option or when
such option expires.
For purposes of the dividends-received deduction available to
corporations, dividends received by the Fund from taxable domestic
corporations in respect of any share of stock treated as debt-financed under
the Code or held by the Fund for 45 days or less (90 days or less in the case
of certain preferred stock) will not be treated as qualifying dividends. For
purposes of the dividends-received deduction, the holding period of any share
of stock will not include any period during which the Fund has an option or a
contractual obligation to sell, or has granted certain call options with
respect to, substantially identical stock or securities or, under Treasury
regulations to be promulgated, the Fund has diminished its risk of loss by
holding one or more other positions with respect to substantially similar or
related property. It is anticipated that these rules will operate so as to
reduce the portion of distributions paid by the Fund that will be eligible for
the dividends-received deduction available to corporate shareholders of the
Fund. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under the Code and is eliminated if the shares are deemed to
have been held for less than 46 days.
Corporate shareholders should also note that their basis in shares of
the Fund may be reduced by the untaxed portion (i.e., the portion qualifying
for the dividends-received deduction) of an "extraordinary dividend" if the
shares have not been held for at least two years prior to declaration of the
dividend. Extraordinary dividends are dividends paid during a prescribed
period which equal or exceed 10% of a corporate shareholder's basis in its
Fund shares or which satisfy an alternative test based on the fair market
value of the shares. To the extent dividend payments received by corporate
shareholders of the Fund constitute extraordinary dividends, such
shareholders' basis in their Fund shares will be reduced and any gain realized
upon a subsequent disposition of such shares will therefore be increased. The
untaxed portion of dividends received by such shareholders is also included in
adjusted alternative minimum taxable income in determining shareholders'
liability under the alternative minimum tax.
- 41 -
The Fund is subject to a 4% nondeductible excise tax to the extent that
it fails to distribute to its shareholders during each calendar year an amount
equal to (a) at least 98% of its ordinary investment income (excluding
long-term and short-term capital gain income) for the calendar year; plus (b)
at least 98% of its capital gain net income for the one year period ending on
October 31 of such calendar year; plus (c) any ordinary investment income or
capital gain net income from the preceding calendar year which was neither
distributed to shareholders nor taxed to the Fund during such year. The Fund
intends to distribute to shareholders each year an amount sufficient to avoid
the imposition of such excise tax.
The Fund's use of equalization accounting, if such method of tax
accounting is used for any taxable year, may affect the amount, timing and
character of its distributions to shareholders.
Certain of the options and forward foreign currency exchange contracts
in which the Fund may invest are so-called "section 1256 contracts". With
certain exceptions, gains or losses on section 1256 contracts generally are
considered 60% long-term and 40% short-term capital gains or losses ("60/40").
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and, generally, for purposes of the 4% excise tax, on October 31 of each
year) are "marked-to-market" with the result that unrealized gains or losses
are treated as though they were realized and the resulting gain or loss is
treated as 60/40 gain or loss.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on a position that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by the Fund which is taxed as ordinary income when
distributed to stockholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from
the affected straddle positions will be determined under rules that vary
according to the election(s) made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the
- 42 -
recognition of gains or losses from the affected straddle positions, the
amount which must be distributed to shareholders, and will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a fund that did not engage in such
hedging transactions.
Certain requirements that must be met under the Code in order for a Fund
to qualify as a regulated investment company may limit the extent to which a
Fund will be able to engage in transactions in options and forward contracts.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain forward contracts, gains or losses attributable
to fluctuations in the value of foreign currency between the date of
acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "section 988" gains or losses, may increase, decrease, or
eliminate the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
If the Fund invests in shares of an investment company organized outside
of the United States and which is classified under the Code as a "passive
foreign investment company," the Fund (or possibly, the shareholders) may be
subject to U.S. Federal income tax on a portion of an "excess distribution"
from, or of the gain from the sale of part or all of the shares in, such
company. In addition, an interest charge may be imposed with respect to
deferred taxes arising from such distributions or gains.
The foregoing discussion relates only to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). Distributions by
the Fund also may be subject to state and local taxes, and their treatment
under state and local income tax laws may differ from the Federal income tax
treatment. Shareholders should consult their tax advisers with respect to
particular questions of Federal, state and local taxation. Shareholders who
are not U.S. persons should consult their tax advisers regarding U.S. and
foreign tax consequences of ownership of shares of the Fund, including the
likelihood that distributions to them would be subject to withholding of U.S.
tax at a rate of 30% (or at a lower rate under a tax treaty).
- 43 -
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in the Fund for
at least seven days may exchange those shares for shares (at their relative
asset value) of other funds for which First Fidelity is Adviser and FFB Funds
Distributor, Inc. is the Sponsor and Distributor. Call or write the Sponsor
for prospectuses and further information on these funds and on exchanges.
Exchanges may be made by writing FFB Funds Distributor or through a
Participating Organization and are limited to three during every twelve-month
period for each shareholder. For shareholders to whom the minimum investment
restrictions apply, the minimum amount which may be exchanged into one of the
funds in which shares are not held is $1,000; no partial exchange may be made
if, as a result, such shareholder's interest in the fund from which the
exchange is made would be reduced to less than $1,000. There is no charge for
exchanges. Before effecting an exchange, shareholders should review the
Prospectus (and, if applicable, the prospectus for any other fund). The
exchange privilege may be modified or terminated at any time.
Exercise of the exchange privilege is treated as a sale for Federal
income tax purposes and, depending on the circumstances, a short or long-term
capital gain or loss may be realized by the shareholder.
Participating Organizations may impose additional procedural
requirements on exchanges. Any such additional requirements must comply with
the 1940 Act. Customers of Participating Organizations should consult their
organization for further details.
REDEMPTIONS
Payment of redemption proceeds may be made in securities, subject to
regulation by some state securities commissions. The Trust may suspend the
right of redemption during any period when (i) trading on the New York Stock
Exchange is restricted or that Exchange is closed, other than customary
weekend and holiday closings, (ii) the Securities and Exchange Commission has
by order permitted such suspension or (iii) an emergency, as defined by rules
of the Securities and Exchange Commission, exists making disposal of portfolio
securities or determination of the value of the net assets of the Trust not
reasonably practicable.
The proceeds of redemption may be more or less than the amount invested
and, therefore, a redemption may result in a gain or loss for Federal income
tax purposes. However, if a shareholder redeems shares which he has held for
less than 36 months, any short-term capital loss realized on the redemption of
such shares will be disallowed for Federal income tax purposes to the extent
of
- 44 -
any tax-exempt distributions which the shareholder has received on the
redeemed shares.
A shareholder's account with the Fund generally remains open for
approximately 6 to 18 months following complete redemption and all costs
during the period will be borne by the Trust. This permits an investor to
resume investments in the Fund during the period in an amount of $100 or more.
To be in a position to eliminate excessive shareholder expense burdens,
the Trust reserves the right to adopt a policy pursuant to which it may redeem
upon not less than 30 days' notice shares of the Fund in an account which has
a value, reduced through redemption, below $500. However, any shareholder
affected by the exercise of this right will be allowed to make additional
investments prior to the date fixed for redemption to avoid liquidation of the
account.
DETERMINATION OF NET ASSET VALUE
As indicated under "Determination of Net Asset Value" in the Prospectus,
the Fund's net asset value per share for the purpose of pricing purchase and
redemption orders is determined at 4:15 P.M. (Eastern time) on each day the
New York Stock Exchange is open for trading with the exception of certain bank
holidays. Net asset value will not be determined on the following holidays:
New Year's Day, Martin Luther King's Birthday, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Columbus Day, Election Day, Veteran's Day,
Thanksgiving Day and Christmas Day. The net asset value per share is computed
by dividing the value of the assets of the Fund, less its liabilities, by the
number of shares of the Fund outstanding.
When the Fund writes an option, an amount equal to the premium received
by the Fund is included in the Fund's Statement of Assets and Liabilities as
an asset and as an equivalent liability. The amount of the liability will be
subsequently market-to-market daily to reflect the current market value of the
option written. The current market value of a written option is the last sale
on the principal exchange on which such option is traded or, in the absence of
a sale, the last offering price.
The premium paid by the Fund for the purchase of a put option will be
deducted from its assets and an equal amount will be included in the asset
section of the Fund's Statement of Assets and Liabilities as an investment and
subsequently adjusted to the current market value of the option. For example,
if the current market value of the option exceeds the premium paid, the excess
would be unrealized appreciation and, conversely, if the premium exceeds the
current market value, such excess would be unrealized depreciation. The
current market value of a purchased option will be the last sale price on the
principal exchange on which the option is traded or, in the absence of a sale,
the last bid price.
- 45 -
The value of portfolio securities that are traded on stock exchanges
outside the United States are based upon the price on the exchange as of the
close of business of the exchange immediately preceding the time of valuation.
Securities traded in over-the-counter markets in European and Pacific Basin
countries is normally completed well before 4:00 P.M. New York time. In
addition, European and Pacific Basin securities trading may not take place on
all business days in New York. Furthermore, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days which are
not business days in New York and on which net asset value of these Portfolio
is not calculated. The calculation of the net asset value of the Portfolio
may not take place contemporaneously with the determination of the prices of
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined
and 4:00 P.M. New York City time, and at other times may not be reflected in
the calculation of net asset value of the Portfolio. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at fair value as determined by the management and
approved in good faith by the Board of Trustees.
OTHER INFORMATION
The Trust was organized as a Massachusetts business trust on March 25,
1987 as a successor to FFB Money Trust, which was organized on December 4,
1985. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest with par value of
$0.001 per share and which may be issued in series or classes. Pursuant to
that authority, the Board of Trustees has authorized the issuance of multiple
series of shares, one of which represents shares in the Fund. The Board of
Trustees may, in the future, authorize the issuance of other series of stock
representing shares of additional investment portfolios. Pending receipt of
regulatory approval by the Securities and Exchange Commission, the Trust may
in the future begin to offer multiple classes of shares within each investment
portfolio.
Generally, all shares of the Fund have equal voting rights and will be
voted in the aggregate, and not by series, except where voting by series is
required by law or where the matter involved affects only one series. The
Trust does not intend to hold annual meetings of shareholders. The Trustees
may call special meetings of shareholders for action by shareholder vote,
including the removal of any or all of the Trustees, as may be required by
either the Declaration of Trust or the Investment Company Act of 1940. The
Trustees shall call a meeting of shareholders for the purpose of voting upon
the removal of any Trustee when requested in writing to do so by the record
holders of not less than 10% of the Trust's outstanding shares. As used in
the Prospectus and in this Statement of Additional Information, the term
"majority of the outstanding voting securities," when
- 46 -
referring to the approvals to be obtained from shareholders in connection with
general matters affecting the Fund and all additional investment portfolios
(e.g., election of Trustees and ratification of independent accountants),
means the vote of the lesser of (i) 67% of the Trust's shares represented at a
meeting if the holders of more than 50% of the outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Trust's outstanding
shares. The term "majority," when referring to the approvals to be obtained
from shareholders in connection with matters affecting the Fund or any other
single portfolio (e.g., annual approval of investment management contracts),
means the vote of the lesser of (i) 67% of the shares of the portfolio
represented at a meeting if the holders of more than 50% of the outstanding
shares of the portfolio are present in person or by proxy or (ii) more than
50% of the outstanding shares of the portfolio. Shareholders are entitled to
one vote for each full share held and fractional votes for fractional shares
held.
Each share of a portfolio of the Trust represents an equal proportionate
interest in that portfolio with each other share of the same portfolio and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that portfolio as are declared in the discretion of the
Trust's Board of Trustees. In the event of the liquidation or dissolution of
the Trust, shares of a portfolio are entitled to receive the assets
attributable to that portfolio which are available for distribution, and a
proportionate distribution, based upon the relative net assets of the
portfolios, of any general assets not belonging to a portfolio which are
available for distribution.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Trust.
PRINCIPAL SHAREHOLDERS
As of December 31, 1994, the Distributor owned of record or beneficially
100% of the Fund's shares.
- 47 -
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
First Fidelity has been retained to act as custodian, transfer agent and
dividend disbursing agent for the Fund pursuant to a Master Custodian
Agreement ("Custodian Agreement") and a Master Agency Agreement ("Agency
Agreement"), First Fidelity's address is 765 Broad Street, Newark, New Jersey
07102.
Under the Custodian Agreement, First Fidelity maintains a custody
account or accounts in the name of the Fund; receives and delivers all assets
for the Fund upon purchase and upon sale or maturity; collects and receives
all income and other payments and distributions on account of the assets of
the Fund; pays all expenses of the Fund; receives and pays out cash for
purchases and redemptions of shares of the Fund and pays out cash if requested
for dividends on shares of the Fund; calculates the daily value of the assets
of the Fund; determines the daily net asset value per share, net investment
income and daily dividend rate for the Fund; and maintains records for the
foregoing services. Under the Custodian Agreement, the Trust has agreed to
pay First Fidelity for furnishing custodian services a fee with respect to the
Fund at an annual rate of 1/15th of 1% on the first $20 million, 1/30th of 1%
on the next $80 million and 1/100th of 1% on all over $100 million of average
daily net assets plus certain transaction changes and out-of-pocket expenses.
Pursuant to a sub-custody agreement between First Fidelity and The Bank of
New York ("BONY"), BONY serves as subcustodian of the Fund for the custody of
the foreign securities acquired by the Portfolio. Under the agreement, BONY
may hold the foreign securities at its principal office and at its branches,
and subject to approval by the Board of Trustees, at a foreign branch of a
qualified U.S. bank, an eligible foreign subcustodian, or an eligible foreign
securities depository.
Pursuant to rules or other exemptions under the 1940 Act, the Fund may
maintain foreign securities and cash in the custody of certain eligible
foreign banks and securities depositories. There is a risk of possible losses
through holding securities in custodians and securities depositories in
foreign countries. The Fund has entered into a Custody Agreement with First
Fidelity, which has entered into a Subcustodial Agreement with BONY, under
which BONY, together with certain of its foreign branches and agencies and
foreign banks and securities depositories acting as subcustodian to BONY, will
maintain custody of the securities and other assets of foreign issuers. Under
these agreements, BONY and First Fidelity has agreed to use reasonable care in
the safekeeping of these securities and to indemnify and hold harmless the
Fund from and against any loss which shall occur as a result of the failure of
a foreign bank or securities depository holding such securities to exercise
reasonable care in the safekeeping of such securities to the same extent as if
the securities were held in New
- 48 -
York. Pursuant to requirements of the Securities and Exchange Commission,
BONY is required to use reasonable care in the selection of foreign
subcustodians, and to consider the financial strength of the foreign
subcustodian, its general reputation and standing in the country in which it
is located, its ability to provide efficiently the custodial services
required, and the relative costs for the services to be rendered by it. Each
of the contracts with foreign subcustodians to be used for the Portfolio has
been approved by the Board of Trustees, and the Board of Trustees will review
annually the continuance of foreign custodial arrangements. No assurance can
be given that expropriation, nationalization, freezes, or confiscation of
assets that would impact assets of the Fund will not occur, and shareholders
bear the risk of losses arising from these or other events.
Under the Agency Agreement, First Fidelity performs general transfer
agency and dividend disbursing services. It maintains an account in the name
of each shareholder of record in the Fund reflecting purchases, redemptions,
daily dividend accruals and monthly dividend disbursements, processes purchase
and redemption requests, issues and redeems shares of the Fund, addresses and
mails all communications by the Trust to its shareholders, including financial
reports, other reports to shareholders, dividend and distribution meetings,
and maintains records for the foregoing services. Under the Agency Agreement,
the Trust has agreed to pay $15.00 per account and subaccount (whether
maintained by First Fidelity or a correspondent bank of First Fidelity (which
does not include Participating Organizations)) per annum. In addition, the
Trust has agreed to pay First Fidelity certain transaction charges, wire
charges and out-of-pocket expenses incurred by First Fidelity.
SERVICING AGREEMENTS
The Agency Agreement further provides that First Fidelity may enter into
agreements (the "Servicing Agreements") with Participating Organizations
(which will perform certain administrative and subaccounting services for
investors who maintain accounts at the Participating Organizations in lieu of
First Fidelity's transfer agency and dividend disbursing services. Each
Participating Organization will receive monthly payments which in some cases
may be based upon expenses that the Participating Organization has incurred in
the performance of its services under the Servicing Agreement. The payments
will not exceed on an annualized basis an amount equal to 0.25% of the average
daily value during the month of Fund shares owned by customers in subaccounts
of which the Participating Organization is record owner as nominee for its
customers. Such payments will be separately negotiated with each
Participating Organization and will vary depending upon such factors as the
services provided and the costs incurred by each Participating Organization.
The payments may be more or less than the fees payable to First Fidelity for
similar services.
- 49 -
The payments will be made by the Fund to First Fidelity which will, in
turn, pay the Participating Organizations pursuant to the Servicing
Agreements. First Fidelity will not keep any portion of the payments, and
will not receive any compensation as transfer or dividend disbursing agent
with respect to the subaccounts maintained by the Participating Organization.
The Board of Trustees will review, at least quarterly, the amounts paid and
the purposes for which such expenditures were made pursuant to the Servicing
Agreements.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick serves as the independent accountants for the Trust.
KPMG Peat Marwick provides audit services, tax return preparation and
assistance and consultation in connection with review of Securities and
Exchange Commission filings. KPMG Peat Marwick's address is 345 Park Avenue,
New York, New York 10154.
- 50 -
