<PAGE>
ABT SOUTHERN MASTER TRUST
ABT FLORIDA TAX-FREE FUND
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
MAY 3, 1995
Dear Shareholder:
On March 3, 1995, we agreed to sell certain of the assets of Palm Beach
Capital Management, Inc. ("PBCM"), currently utilized in its business as
investment adviser, administrator and accounting agent for the ABT Florida Tax-
Free Fund ("the ABT Fund"), a portfolio of ABT Southern Master Trust, to First
Union National Bank of North Carolina, a national banking association ("FUNB").
The Board of Trustees is recommending that you approve the Agreement and Plan
of Reorganization (the "Plan") whereby substantially all of the assets of the
ABT Fund will be purchased by the First Union Florida Municipal Bond Portfolio
(the "First Union Fund"), a portfolio of First Union Funds, in exchange for
Class A Investment Shares ("Class A Shares") of the First Union Fund. Class A
Shares will be distributed to you in exchange for your ABT Fund shares. In the
opinion of counsel, the exchange of your shares will be free from federal
income tax to you and the ABT Fund.
The First Union Fund is a mutual fund with similar investment objectives and
policies which is advised by the Capital Management Group of FUNB. As of
December 31, 1994, FUNB and its subsidiaries served as investment adviser to 33
mutual funds with aggregate net assets of approximately $7 billion.
The Plan contains various terms and conditions which must be satisfied prior
to a closing. In addition, the agreement to sell certain assets of PBCM to FUNB
provides as a condition to the closing of the transaction that shareholders of
the other ABT funds approve similar agreements and plans of reorganization for
the sale of their assets.
If shareholders approve the Plan, upon consummation of the transaction
contemplated in the Plan, you will receive Class A Shares of the First Union
Fund with a value equal to the value of your then outstanding shares of the ABT
Fund. As a shareholder of the First Union Fund, you will have the ability to
exchange your shares for shares of the other funds in the First Union family of
funds comparable to your present right to exchange among the ABT family of
funds.
The Board of Trustees has called a special meeting of shareholders to be held
on June 19, 1995 to consider the Plan. WE STRONGLY URGE YOUR PARTICIPATION BY
ASKING YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Information about the Plan is contained in the enclosed proxy statement. I
thank you for your participation as a shareholder and urge you, please, to
exercise your right to vote by completing, dating and signing the enclosed
proxy card. A self-addressed, postage-paid envelope has been enclosed for your
convenience.
If you have any questions regarding the proposed transaction, please call 1-
800-553-7838.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
/s/ Edward W. Cook
Edward W. Cook, President
ABT Southern Master Trust
<PAGE>
ABT SOUTHERN MASTER TRUST
ABT FLORIDA TAX-FREE FUND
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 19, 1995
Notice is hereby given that a Special Meeting of Shareholders (the "Meeting")
of ABT Florida Tax-Free Fund (the "ABT Fund"), a portfolio of ABT Southern
Master Trust (the "Trust"), will be held at the offices of the Trust, 340 Royal
Palm Way, Palm Beach, Florida 33480 on June 19, 1995 at 10:00 a.m. for the
following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") dated as of March 15, 1995 providing for the acquisition of
substantially all of the assets of the ABT Fund by the First Union
Florida Municipal Bond Portfolio (the "First Union Fund"), a portfolio
of First Union Funds, in exchange for Class A Investment Shares of the
First Union Fund and the assumption by the First Union Fund of certain
identified liabilities of the ABT Fund, and for distribution of such
shares of the First Union Fund to shareholders of the ABT Fund in
liquidation of the ABT Fund. A vote in favor of the Plan is a vote in
favor of liquidation and dissolution of the ABT Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of the Trust have fixed the close of business on April 25, 1995
as the record date for the determination of shareholders of the ABT Fund
entitled to notice of and to vote at this Meeting or any adjournment thereof.
By order of the Board of Trustees
Timothy Cox
Secretary
May 3, 1995
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY
WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AND VOTED AT THE MEETING. YOUR PROMPT ATTENTION
TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense involved in validating your vote if you fail
to sign your proxy card(s) properly.
1. Individual Accounts: Sign your name exactly as it appears in the
Registration on the proxy card(s).
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to a name shown in the Registration on the proxy
card(s).
3. All Other Accounts: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of
Registration. For example:
<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURE
------------ ---------------
<S> <C>
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. John Doe
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
<CAPTION>
TRUST ACCOUNTS
<S> <C>
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
<CAPTION>
CUSTODIAL OR ESTATE ACCOUNTS
<S> <C>
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr. Executor
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED MAY 3, 1995
ACQUISITION OF ASSETS OF
ABT FLORIDA TAX-FREE FUND
OF
ABT SOUTHERN MASTER TRUST
340 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
1-800-553-7838
BY AND IN EXCHANGE FOR SHARES OF
FIRST UNION FLORIDA MUNICIPAL BOND PORTFOLIO
OF
FIRST UNION FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
This Prospectus/Proxy Statement is being furnished to shareholders of ABT
Florida Tax-Free Fund (the "ABT Fund"), a portfolio of ABT Southern Master
Trust (the "Trust"), in connection with a proposed Agreement and Plan of
Reorganization (the "Plan"), to be submitted to shareholders of the ABT Fund
for consideration at a Special Meeting of Shareholders to be held on June 19,
1995 at 10:00 a.m. Eastern Daylight Time, at the offices of the Trust, 340
Royal Palm Way, Palm Beach, Florida 33480 and any adjournments thereof (the
"Meeting"). The Plan provides for substantially all of the assets of the ABT
Fund to be acquired by the First Union Florida Municipal Bond Portfolio (the
"First Union Fund"), a portfolio of First Union Funds in exchange for Class A
Investment Shares ("Class A Shares") of the First Union Fund and the assumption
by the First Union Fund of certain identified liabilities of the ABT Fund
(hereinafter referred to as the "Reorganization"). Following the
Reorganization, Class A Shares of the First Union Fund will be distributed to
shareholders of the ABT Fund in liquidation of the ABT Fund, and the ABT Fund
will be liquidated. As a result of the proposed Reorganization, each
shareholder of the ABT Fund will receive that number of Class A Shares of the
First Union Fund having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares of the ABT Fund, calculated as set
forth in the Plan. The Reorganization is being structured as a tax-free
reorganization for federal income tax purposes.
First Union Funds is an open-end diversified management investment company
comprised of 17 portfolios, one of which, the First Union Fund, is a party to
the Reorganization.
The First Union Fund seeks current income exempt from federal regular income
tax consistent with preservation of capital. In addition, the Fund intends to
qualify as an investment exempt from the Florida state intangibles tax. The
Fund will attempt to meet its objective by normally investing its assets so
that at least 80% of its net assets are invested in obligations which provide
interest income exempt from federal regular income taxes. In addition, at least
65% of the value of the First Union Fund's total assets will be invested in
Florida municipal bonds. To qualify as an investment exempt from the Florida
state intangibles tax, the First Union Fund's portfolio must consist entirely
of investments exempt from the Florida state intangibles tax on the last
business day of the calendar year.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the First Union Fund that
shareholders of the ABT Fund should know before voting on the Reorganization or
investing in the First Union Fund. Certain relevant documents listed below,
which
<PAGE>
have been filed with the Securities and Exchange Commission ("SEC"), are
incorporated in whole or in part by reference. A Statement of Additional
Information dated May 3, 1995, relating to this Prospectus/Proxy Statement and
the Reorganization, incorporating by reference the financial statements of the
First Union Fund dated December 31, 1994 and the financial statements of the
ABT Fund dated April 30, 1994 and October 31, 1994, has been filed with the
SEC and is incorporated by reference in its entirety into this
Prospectus/Proxy Statement. A copy of such Statement of Additional Information
is available upon request and without charge by writing to the First Union
Fund at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-326-3241.
1. The Prospectus of the First Union Fund dated February 28, 1995 and its
Annual Report for the fiscal year ended December 31, 1994 are incorporated by
reference herein in their entirety, insofar as they relate to the First Union
Fund solely and not to any other fund described therein, and copies are
included for your information. Additional information about the First Union
Fund is contained in the Statement of Additional Information dated February
28, 1995 which has been filed with the SEC and is available upon request and
without charge by writing the First Union Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-
326-3241.
2. The Prospectus of the ABT Fund dated August 29, 1994 is incorporated
herein in its entirety by reference. A copy of the Prospectus, a Statement of
Additional Information dated the same date, the Annual Report for the fiscal
year ended April 30, 1994 and the Semi-Annual Report for the six months ended
October 31, 1994 are available upon request without charge by writing the ABT
Fund at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-553-7838.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the Plan for the proposed Reorganization.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/ PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
FIRST UNION NATIONAL BANK OF NORTH CAROLINA OR ITS SUBSIDIARIES, ARE NOT
ENDORSED OR GUARANTEED BY FIRST UNION OR ITS SUBSIDIARIES, AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARISON OF EXPENSES..................................................... 1
SUMMARY.................................................................... 3
Proposed Reorganization................................................... 3
Tax Consequences.......................................................... 3
Investment Objectives and Policies........................................ 3
Total Return and Yield Performances of the Funds.......................... 4
Management; Advisory Fees and Expense Ratios.............................. 4
Distribution; Sales Charges............................................... 5
Purchase and Redemption Procedures........................................ 6
Exchange Privileges....................................................... 7
Dividend Policy........................................................... 7
RISKS...................................................................... 7
MANAGEMENT OF THE FIRST UNION FUND......................................... 8
DESCRIPTION OF THE ACQUISITION AGREEMENT................................... 8
Section 15(f) of the 1940 Act............................................. 9
INFORMATION ABOUT THE REORGANIZATION....................................... 9
Plan of Reorganization.................................................... 9
Capitalization............................................................ 10
BASIS FOR THE BOARD OF TRUSTEES' RECOMMENDATION FOR APPROVAL
OF THE PLAN............................................................... 11
DESCRIPTION OF SHARES OF THE FIRST UNION FUND AND THE ABT FUND............. 12
FEDERAL INCOME TAX CONSEQUENCES............................................ 12
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES........................... 13
Investment Objective...................................................... 13
Primary Investments....................................................... 14
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS............................ 15
Form of Organization...................................................... 15
Capitalization............................................................ 15
Shareholder Liability..................................................... 15
Shareholder Meetings and Voting Rights.................................... 16
Liquidation or Dissolution................................................ 16
Liability and Indemnification of Trustees................................. 16
Rights of Inspection...................................................... 16
ADDITIONAL INFORMATION..................................................... 17
ABT Fund.................................................................. 17
First Union Fund.......................................................... 17
OTHER BUSINESS............................................................. 17
VOTING INFORMATION......................................................... 17
Notice to Banks, Broker-Dealers and Voting Trustees and Their Nominees.... 18
FINANCIAL STATEMENTS AND EXPERTS........................................... 19
LEGAL MATTERS.............................................................. 19
</TABLE>
<PAGE>
COMPARISON OF EXPENSES
The following tables show for each Fund and for the First Union Fund,
assuming consummation of the Reorganization, the anticipated shareholder
transaction costs associated with an investment in Class A Shares of the First
Union Fund and the shares of the ABT.
<TABLE>
<CAPTION>
FIRST UNION
FUND ABT FUND PRO FORMA
----------- -------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... 4.75% 4.75% 4.75%
Maximum Sales Load Imposed on Reinvested
Dividends
(as a percentage of offering price).......... None None None
Contingent Deferred Sales Charge.............. None None None
Exchange Fee.................................. None None None
Redemption Fees............................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
Management Fees............................... .01%(a) .30% .30%(a)
12b-1 Fees.................................... .25%(b) .00%(c) .09%(b)
Other Expenses................................ .48%(d) .24% .21%
----- ----- -----
Total Fund Operating Expenses................. .74%(e) .54% .60%(f)
----- ----- -----
</TABLE>
- --------
(a) The management fee has been reduced to reflect the voluntary waiver by
FUNB. This voluntary waiver may be terminated by FUNB at any time in its
sole discretion. The maximum management fee is .50%. It is FUNB's intention
that, following the Reorganization, for at least one year, the management
fee will not exceed .30%.
(b) The 12b-1 distribution plan of the First Union Fund permits payments at an
annual rate of up to .75% of the Fund's average daily net assets
attributable to Class A Shares. It is currently intended that, following
the Reorganization, for the foreseeable future, no 12b-1 fees will be paid
if the effect of such payment would be to cause the Fund's total operating
expenses for Class A Shares to exceed the ABT Fund's ratio of expenses to
average daily net assets for its fiscal year ended April 30, 1995, and that
annual 12b-1 fees, if any are charged, will be limited for the foreseeable
future to .25%.
(c) The 12b-1 distribution plan of the ABT Fund permits payments up to .25% of
the Fund's average daily net assets. During the fiscal year ended April 30,
1995, no 12b-1 fees were expended.
(d) Other Expenses would be 0.65% absent the voluntary waiver by the
administrator and reimbursement of other expenses by FUNB.
(e) Total Fund Operating Expenses, absent the waivers described above in notes
(a) and (d) would be 1.40%.
(f) Following the Reorganization, FUNB anticipates that Total Fund Operating
Expenses, absent the waivers and limitations described in notes (a) and (b)
are expected to be 0.96%.
The foregoing and following tables show for each Fund and for the First Union
Fund, assuming consummation of the Reorganization, the annual operating
expenses (as a percentage of average net assets) attributable to the Class A
Shares of the First Union Fund and the shares of the ABT Fund, together with
examples of the cumulative effect of such expenses on a $1,000 investment in
such shares for the periods specified, assuming (i) a 5% annual return, and
(ii) redemption at the end of such period. In these examples, the expenses of
the Class A Shares of the First Union Fund and the shares of the ABT Fund
assume deduction of the 4.75% sales charge at the time of purchase.
1
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION FUND
CLASS A SHARES ABT FUND SHARES PRO FORMA
---------------- --------------- ---------
<S> <C> <C> <C>
After 1 year......................... $ 55 $ 53 $ 53
After 3 years........................ $ 70 $ 64 $ 66
After 5 years........................ $ 87 $ 76 $ 79
After 10 years....................... $135 $112 $119
</TABLE>
The purpose of the foregoing tables is to assist an ABT Fund shareholder in
understanding the various costs and expenses that an investor in the Class A
Shares of the First Union Fund will bear directly and indirectly, as compared
with the various direct and indirect expenses that would be borne by an ABT
Fund shareholder. The amounts set forth in the foregoing tables and in the
examples are based on the experience of the First Union Fund's Class A Shares
for the fiscal year ended December 31, 1994 and the expenses of shares of the
ABT Fund for the fiscal year ended April 30, 1995. These examples should not be
considered a representation of past or future expenses or annual return. Actual
expenses and annual return may be greater or less than those shown.
2
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT (INCLUDING
THE DOCUMENTS INCORPORATED THEREIN BY REFERENCE), THE PROSPECTUS OF THE FIRST
UNION FLORIDA MUNICIPAL BOND PORTFOLIO DATED FEBRUARY 28, 1995, THE PROSPECTUS
OF THE ABT FLORIDA TAX-FREE FUND DATED AUGUST 29, 1994, AND THE PLAN, A COPY
OF WHICH IS ATTACHED TO THIS PROSPECTUS/ PROXY STATEMENT AS EXHIBIT A.
PROPOSED REORGANIZATION. The Plan provides for the transfer of substantially
all of the assets of the ABT Florida Tax-Free Fund ("the ABT Fund"), a
portfolio of ABT Southern Master Trust (the "Trust"), in exchange for Class A
shares of the First Union Florida Municipal Bond Portfolio ("the First Union
Fund"), a portfolio of First Union Funds, and the assumption by the First
Union Fund of certain identified liabilities of the ABT Fund. The Plan also
calls for the distribution of Class A Shares of the First Union Fund to the
ABT Fund shareholders in liquidation of the ABT Fund. (The transaction is
referred to in this Prospectus/Proxy Statement as the "Reorganization.") As a
result of the Reorganization, each shareholder of record of the ABT Fund will
become the record holder of that number of full and fractional Class A Shares
of the First Union Fund having an aggregate net asset value equal to the
aggregate net asset value of the shareholder's shares of the ABT Fund,
calculated as set forth in the Plan, as of the close of business on the date
that the ABT Fund's assets are exchanged for shares of the First Union Fund.
See "Information About the Reorganization."
The Board of Trustees of the Trust, including the Trustees who are not
"interested persons," as that term is defined in the Investment Company Act of
1940, as amended (the "1940 Act"), has concluded that the interests of the
existing shareholders of the ABT Fund will not be diluted as a result of the
transactions contemplated by the Reorganization, and therefore has submitted
the Plan for the approval of the ABT Fund's shareholders.
THE BOARD OF TRUSTEES RECOMMENDS APPROVAL OF THE PLAN EFFECTING THE
REORGANIZATION. THE BOARD OF TRUSTEES OF FIRST UNION FUNDS HAS APPROVED THE
PLAN, AND ACCORDINGLY, THE FIRST UNION FUND'S PARTICIPATION IN THE
REORGANIZATION.
Approval of the Reorganization on the part of the ABT Fund will require the
affirmative vote of more than 50% of the outstanding voting securities. See
"Voting Information."
If the shareholders of the ABT Fund do not vote to approve the
Reorganization, the Trust's Board of Trustees will continue to operate the ABT
Fund under its existing arrangements.
TAX CONSEQUENCES. Prior to or at the completion of the Reorganization, the
ABT Fund will have received an opinion of counsel that the Reorganization has
been structured so that no gain or loss will be recognized by the ABT Fund or
its shareholders for federal income tax purposes as a result of the receipt of
shares of the First Union Fund in the Reorganization. The holding period and
aggregate tax basis of shares of the First Union Fund that are received by the
ABT Fund shareholders will be the same as the holding period and aggregate tax
basis of shares of the ABT Fund previously held by such shareholders, provided
that shares of the ABT Fund are held as capital assets. In addition, the
holding period and tax basis of the assets of the ABT Fund in the hands of the
First Union Fund as a result of the Reorganization will be the same as in the
hands of the ABT Fund immediately prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The investment objective of the First
Union Fund is to seek current income exempt from federal regular income tax
consistent with preservation of capital. In addition, the Fund intends to
qualify as an investment exempt from the Florida state intangibles tax. The
First Union Fund's investment objective is a fundamental policy and cannot be
changed without shareholder approval.
3
<PAGE>
The First Union Fund seeks to achieve its investment objective by normally
investing its assets so that at least 80% of its net assets are invested in
obligations which provide interest income which is exempt from federal regular
income taxes. In addition, at least 65% of the value of the First Union Fund's
total assets will be invested in Florida municipal bonds. To qualify as an
investment exempt from the Florida state intangibles tax, the First Union
Fund's portfolio must consist entirely of investments exempt from the Florida
state intangibles tax at the end of the calendar year. There can be no
assurance that the First Union Fund's investment objective will be achieved.
The municipal bonds in which the First Union Fund will invest will be
investment grade.
The ABT Fund's investment objective is to seek to provide as high a level of
current income which is exempt from federal income tax as is consistent with
preservation of capital. Under normal circumstances, the ABT Fund will invest
at least 80% of its net assets in municipal obligations of which at least 90%
will be Florida municipal obligations. The ABT Fund may only invest in
investment grade securities.
The ABT Fund has not invested in municipal securities issued to finance such
projects as airports, housing projects, resource recovery programs, solid waste
disposal facilities, student loan programs and water and sewage projects.
Interest income from these so-called "private activity bonds" becomes an item
of tax preference subject to the alternative minimum tax. Although the First
Union Fund has no stated investment limitations, it has in the past invested up
to 20% of its net assets in "private activity bonds." See the discussion of the
tax consequences of investing in such securities under the caption "Tax
Information" on pages 32 and 33 of the First Union Fund's Prospectus
accompanying this Prospectus/Proxy Statement.
TOTAL RETURN AND YIELD PERFORMANCES OF THE FUNDS. The total return for the
Class A Shares of First Union Fund for the fiscal year ended December 31, 1994
was -9.14%. Since commencement of operations in July, 1993, the average annual
total return for the period ended December 31, 1994 was -5.86%. The total
return for the ABT Fund for the twelve months ended December 31, 1994 was -
9.58%. The average annual total return for the five years ended December 31,
1994 and the period from commencement of operations in May, 1988 through
December 31, 1994 was 6.29% and 6.75%, respectively. The calculations of total
return assume the reinvestment of all dividends and capital gains distributions
on the reinvestment date and the deduction of all recurring expenses (including
sales charges) that were charged to shareholders' accounts.
The ABT Fund's 30-day yield as of December 31, 1994 was 5.85%. The First
Union Fund's 30-day yield as of December 31, 1994 was 5.55%.
MANAGEMENT; ADVISORY FEES AND EXPENSE RATIOS. The business affairs of the ABT
Fund are managed by the Board of Trustees of the Trust and the business affairs
of the First Union Fund are managed by the Board of Trustees of First Union
Funds. Palm Beach Capital Management, Inc. ("PBCM") serves as the investment
adviser for the ABT Fund for an annual fee of .30% on the first $200 million
and .25% above $200 million of average daily net assets. The Capital Management
Group of First Union National Bank of North Carolina ("FUNB") serves as the
investment adviser to the First Union Fund for an annual fee of .50% of average
daily net assets. Currently, FUNB has voluntarily reduced its annual management
fee to .01% of average daily net assets. FUNB may terminate this voluntary
waiver at any time in its sole discretion. PBCM also acts as administrator and
fund accounting agent for the ABT Fund for an annual fee of .12% of average
daily net assets. Federated Administrative Services ("FAS") currently provides
certain administrative services to the First Union Fund, such as legal and
accounting services. FAS receives from First Union Funds a fee based on the
aggregate daily net assets of First Union Funds. The First Union Fund, for
fiscal year ended December 31, 1994, incurred a fee payable to FAS of .08% of
its average daily net assets, all of which was waived. As of July 1, 1995,
Evergreen Asset Management Corp., an indirect wholly-owned subsidiary of FUNB
("EAMC"), will act as administrator pursuant to a contract approved by the
Trustees of First Union Funds on April 20, 1995. Under the contract, EAMC will
receive the following fees:
4
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE DAILY NET ASSETS
OF FUNDS ADMINISTERED BY EAMC
ADMINISTRATIVE FOR WHICH EITHER EAMC OR FUNB
FEE SERVES AS INVESTMENT ADVISER
-------------- ----------------------------------
<S> <C>
.050% on the first $7 billion
.035% on the next $3 billion
.030% on the next $5 billion
.020% on the next $10 billion
.015% on the next $5 billion
.010% on assets in excess of $30 billion
</TABLE>
The ratio of expenses to average daily net assets was 0.56% for the ABT Fund
(fiscal year ended April 30, 1994) and 0.64% for the First Union Fund (fiscal
year ended December 31, 1994). The ABT Fund's expense ratio reflects the fact
that no payments were made under the Fund's 12b-1 plan which permits payments
up to .25% of the Fund's average daily net assets. In the case of the First
Union Fund, absent the voluntary waivers of the management fee and the
administrative fee and the absorption of other Fund expenses by FUNB, the ratio
of expenses to average daily net assets would have been 1.40% for the fiscal
year ended December 31, 1994. The waiver of fees and absorption of expenses
described in the previous sentence is entirely voluntary and may be
discontinued at any time without notice. However, it is FUNB's intention that,
following the Reorganization, for at least one year, the management fee will
not exceed .30%. Furthermore, for the foreseeable future, following the
Reorganization, no 12b-1 fees will be paid with respect to the First Union
Fund's Class A Shares if the effect of such payment would be to cause the First
Union Fund's total operating expenses, including any 12b-1 fees, to exceed the
ABT Fund's ratio of expenses to average daily net assets for its fiscal year
ended April 30, 1995. Furthermore, FUNB will not, for the foreseeable future,
recommend to the First Union Funds' Board of Trustees that the First Union
Fund's 12b-1 fees be increased in excess of .25%.
DISTRIBUTION; SALES CHARGES. Federated Securities Corp. ("FSC"), a subsidiary
of Federated Investors, has acted as underwriter of the First Union Fund's
shares. As of July 1, 1995, Evergreen Funds Distributor, Inc., a wholly-owned
subsidiary of Furman Selz, will be the underwriter of the shares of the First
Union Fund pursuant to a contract approved by the Trustees of First Union Funds
on April 20, 1995. The shares are issued in three classes: Class A Investment,
Class B Investment, and Y Shares. Each class has separate distribution
arrangements. No class bears the distribution expenses relating to shares of
any other class. Class A Shares, which will be received by the ABT Fund's
shareholders if the Reorganization is approved, are sold with an initial sales
charge ranging from 4.75% to .25%. No sales charge will be imposed on the Class
A Shares to be received by the ABT Fund's shareholders as part of the
Reorganization, but subsequent purchases of the First Union Fund's shares will
be subject to any applicable sales charges. For a description of the Class A
and Class B Shares issued by the First Union Fund see page 22 of the First
Union Fund's Prospectus. Y Shares are sold without a sales load or distribution
fee only to certain eligible investors as described in a separate First Union
Fund prospectus. The Class A Shares are subject to a Rule 12b-1 plan under
which the First Union Fund may pay for distribution-related expenses relating
to the Class A Shares at an annual rate which may not exceed .75% of aggregate
average daily net assets attributable to the Class A Shares. Payments under the
12b-1 plan with respect to Class A Shares are currently limited under the First
Union Fund's distribution agreement to .25% of average daily net assets
attributable to Class A Shares. The level of Rule 12b-1 distribution payments
may be increased and the distribution agreement may be amended by the First
Union Funds' Board of Trustees without shareholder approval.
5
<PAGE>
ABT Financial Services, Inc. ("ABT Distributor") acts as underwriter of ABT
Fund shares. There is only one class of shares outstanding. The shares are sold
with an initial sales charge ranging from 4.75% to 1%. The ABT Fund has adopted
a Rule 12b-1 plan under which the Fund may reimburse distribution expenses
incurred by ABT Distributor in amounts up to .25% of aggregate average daily
net assets. Currently, ABT Distributor is not reimbursed for distribution-
related expenses.
The sales charge schedules for the ABT Fund and the First Union Fund are as
follows:
<TABLE>
<CAPTION>
INITIAL SALES CHARGE
FOR THE ABT FUND
-------------------------------
PUBLIC NET
OFFERING AMOUNT DEALER
AMOUNT OF INVESTMENT PRICE INVESTED REALLOWANCE
-------------------- -------- -------- -------------
<S> <C> <C> <C> <C>
Less than $100,000......................... 4.75% 4.99% 4.00%
$100,000 but less than $250,000............ 4.25 4.44 3.60
$250,000 but less than $500,000............ 3.00 3.09 2.40
$500,000 but less than $1,000,000.......... 2.25 2.30 1.85
$1,000,000 but less than $5,000,000........ 1.50 1.52 1.25
$5,000,000 or more......................... 1.00 1.01 .90
<CAPTION>
INITIAL SALES CHARGE FOR
THE FIRST UNION FUND
-------------------------------
PUBLIC NET
AMOUNT OF OFFERING AMOUNT COMMISSION TO
PURCHASE PRICE INVESTED DEALER/AGENT
--------- -------- -------- -------------
<S> <C> <C> <C> <C>
Less than $100,000......................... 4.75% 4.99% 4.25%
$100,000-$249,999.......................... 3.75 3.90 3.25
$250,000-$499,999.......................... 3.00 3.09 2.50
$500,000-$999,999.......................... 2.00 2.04 1.75
$1,000,000-$2,499,999...................... 1.00 1.01 1.00
Over $2,500,000............................ .25 .25 .25
</TABLE>
Since the First Union Fund's 12b-1 plan is a "compensation" type plan as
compared with the ABT Fund's plan, which is a "reimbursement" type plan, future
12b-1 fees may permit recovery of unreimbursed expenses by or may result in a
profit to the underwriter of the First Union Fund.
PURCHASE AND REDEMPTION PROCEDURES. The underwriter for the First Union Fund
shares distributes its shares through broker-dealers, banks (including FUNB) or
other financial intermediaries, or directly to investors. When the Class A
Shares are sold, the underwriter will normally pay a portion of the applicable
sales charge to a selling broker-dealer or other financial intermediary and may
also pay fees to banks from sales charges for services performed on behalf of
the bank's customers purchasing the Class A Shares. In addition, the
underwriter may retain a portion of the sales charge paid. In addition to the
compensation at the time of sale, entities whose clients have purchased Class A
Shares may receive a fee equal to .25% of the average daily net asset value on
an annual basis of Class A Shares held by their clients. This fee is paid by
the underwriter from 12b-1 fees received from the First Union Fund.
ABT Distributor, as agent for the ABT Fund, sells shares through broker-
dealers having sales agreements with ABT Distributor and retains a portion of
the sales charge.
The minimum initial purchase requirement for both the First Union Fund and
the ABT Fund is $1,000. The First Union Fund does not have a minimum for
subsequent purchases. The minimum subsequent purchase requirement for the ABT
Fund is $100.
Each Fund provides for mail or wire redemption of shares at net asset value
next determined after receipt of the redemption request on each day the New
York Stock Exchange is open for business. The First Union Fund also permits
redemptions by telephone (see page 27 of the First Union Fund's Prospectus).
6
<PAGE>
The ABT Fund and the First Union Fund may, after prior notice, involuntarily
redeem shareholders' accounts that have less than $500 and $1,000,
respectively, of invested funds.
EXCHANGE PRIVILEGES. Each Fund permits shareholders to exchange shares of the
First Union Fund or the ABT Fund for shares of other portfolios of the First
Union Funds or other funds in the ABT mutual fund family, respectively. Holders
of shares of a class of the First Union Fund generally may exchange their
shares for shares of the same class of any other portfolios of the First Union
Funds. Accordingly, with respect to shares of the First Union Fund received by
ABT Fund shareholders in the Reorganization, the exchange privilege is limited
to the Class A Shares of other portfolios of First Union Funds. In addition,
exchanges in the First Union Funds family may be limited to five exchanges per
calendar year, with a maximum of three per calendar quarter. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another portfolio of the First Union Funds must amount to at least $1,000.
After July 1, 1995 (or as soon thereafter as is reasonably practicable
subject to applicable laws), it is expected, although it cannot be assured,
that shareholders in each of the portfolios of the First Union Funds and
shareholders in mutual funds managed by EAMC will be permitted to exchange
their shares for shares of the same Class (to the extent available) of all
portfolios of First Union Funds and all funds managed by EAMC. Although there
is no present intention to do so, an exchange privilege may be modified or
terminated at any time. Currently, ABT Fund shareholders may exchange their ABT
Fund shares for shares of Prime Cash Series ("PCS"), a money market fund for
which Federated Investors, Pittsburgh, Pennsylvania, is the investment adviser.
It is anticipated that this exchange privilege with PCS will be terminated
following the Reorganization. Exchange privileges, however, will be offered
into the money market funds managed by FUNB or EAMC.
DIVIDEND POLICY. The First Union Fund and the ABT Fund each distributes its
net investment income monthly. Each Fund distributes net long-term capital
gains annually. Income dividends and capital gain distributions are
automatically reinvested in additional shares, unless the shareholder has made
a written request for payment in cash. Shareholders of ABT Fund that have
elected, as of June 19, 1995, to receive dividends and/or distributions in cash
will continue to do so after the Reorganization. After the Reorganization,
former ABT Fund shareholders may change their election with respect to receipt
in cash or reinvestment of dividends or distributions of the First Union Fund.
RISKS
Since the investment objective and policies of each Fund are substantially
comparable, the risks involved in investing in each Fund's shares are similar.
Bond yields are dependent on several factors including market conditions, the
size of an offering, the maturity of the bond, ratings of the bond and the
ability of issuers to meet their obligations. There is no limit on the maturity
of the bonds purchased by the Funds. Because the prices of bonds fluctuate
inversely in relation to the direction of interest rates, the prices of longer
term bonds fluctuate more widely in response to market interest rate changes.
Each Fund's concentration in securities issued by Florida and Florida's
political subdivisions provides a greater level of risk than a fund which is
diversified across numerous states and municipal entities. An expanded
discussion of the risks associated with the purchase of Florida's municipal
bonds is contained in the Statement of Additional Information for the First
Union Fund. See also "Comparison of Investment Objectives and Policies" herein
for a discussion of the ratings of municipal obligations which the Funds may
purchase including investments in lower rated obligations. There is no
assurance that investment performances will be positive and that the Funds will
meet their investment objectives.
In addition, both Funds may employ for hedging purposes the strategies of
writing covered call and put options, purchasing put and call options on
national securities exchanges and may enter into future contracts and options
on futures contracts. However, the First Union Fund does not currently engage
in future contracts and options transactions. See limitations discussed in
"Comparison of Investment Objectives and Policies." The risks involved in these
strategies are described in the Prospectus of the First Union Fund on pages 20
and 21.
7
<PAGE>
MANAGEMENT OF THE FIRST UNION FUND
The Capital Management Group of FUNB provides investment advisory services to
the First Union Fund. The address of FUNB is One First Union Center, 301 S.
College Street, Charlotte, North Carolina 28288. FUNB is a subsidiary of First
Union Corporation ("First Union"), one of the ten largest bank holding
companies in the United States.
First Union had $77.3 billion in consolidated assets as of December 31, 1994.
First Union and its subsidiaries provide a broad range of financial services to
individuals and businesses through offices in 42 states and two foreign
countries. FUNB's Capital Management Group employs an experienced staff of
professional investment analysts, portfolio managers, and traders, and uses
several proprietary computer-based systems in conjunction with fundamental
analysis to identify investment opportunities. The Capital Management Group has
been managing trust assets for over 50 years and currently oversees assets of
more than $51.2 billion. In addition, the Capital Management Group has advised
the First Union Funds since its inception in 1984.
Steven P. Eldredge, the current manager of the ABT Fund, has been offered a
position with the Capital Management Group. As of the date of this
Prospectus/Proxy Statement, FUNB is negotiating with Mr. Eldredge. If Mr.
Eldredge joins FUNB following the Reorganization, it is anticpated that he will
manage the First Union Fund.
EAMC, together with its predecessors, has served as investment adviser to the
Evergreen family of funds since 1971.
DESCRIPTION OF THE ACQUISITION AGREEMENT
On March 3, 1995, Edward W. Cook ("Cook"), Edward W. Cook Revocable Trust,
dated September 26, 1989 ("Cook Trust"), Cook International, Inc., Palm Beach
Capital Management, Inc., a corporation organized under the laws of the State
of Florida and whose sole shareholder is Cook Trust ("PBCM") entered into an
Asset Purchase Agreement (the "Agreement") with FUNB. The Agreement provides
for the acquisition by FUNB of substantially all of the assets and none of the
liabilities of PBCM, including the right to use the names "American Birthright
Trust" and "ABT." In exchange for the assets being acquired, FUNB has agreed to
pay PBCM the sum of $9,000,000, subject to certain adjustments.
The Agreement also contemplates that the ABT Fund, along with the ABT Utility
Income Fund, Inc., ABT Emerging Growth Fund (a portfolio of ABT Investment
Series, Inc.), ABT Growth and Income Trust and ABT Florida High Income
Municipal Bond Fund (another portfolio of the Trust) will consolidate with
certain other investment companies managed by FUNB. The ABT Fund has entered
into an Agreement and Plan of Reorganization in the form attached hereto as
Exhibit A. A similar Plan of Reorganization has also been entered into by each
of the ABT Utility Income Fund, Inc., ABT Emerging Growth Fund, ABT Growth and
Income Trust and ABT Florida High Income Municipal Bond Fund (collectively, the
"Other ABT Funds").
The consummation of the reorganizations contemplated by the Agreement is
subject to a number of conditions, which include: (i) the receipt of all
necessary regulatory approvals; (ii) the approval by the shareholders of the
ABT Fund, and the Other ABT Funds, of the reorganizations contemplated in the
Agreement; (iii) the accuracy of the representations and warranties contained
in the Agreement; (iv) the absence of pending or threatened litigation relating
to the reorganizations contemplated by the Agreement; and (v) the receipt of
various legal opinions and accountants' letters. The Agreement may be
terminated under certain circumstances, including the failure of the
reorganizations contemplated thereby to close by July 15, 1995.
8
<PAGE>
SECTION 15(F) OF THE 1940 ACT. Section 15(f) of the 1940 Act provides that an
investment adviser to a registered investment company may receive any amount or
benefit in connection with a sale of any interest in such adviser which results
in an assignment of an investment advisory contract if two conditions are
satisfied. One condition is that, for a period of three years after such
assignment, at least 75% of the board of directors of the investment company
cannot be "interested persons" (as defined in the 1940 Act) of the new
investment adviser or its predecessor. The second condition is that no "unfair
burden" be imposed on the investment company as a result of the assignment or
any express or implied terms, conditions or understandings applicable thereto.
In connection with the first condition of Section 15(f), FUNB has agreed in
the Agreement that, for a period of three years after the Closing Date, it will
use its reasonable best efforts and will cause EAMC to use its reasonable best
efforts (recognizing that the compositions of Boards of Trustees/Directors
remain within the control of Trustees/Directors and shareholders of the First
Union family of funds and the Evergreen family of funds) so that at least 75%
of the Trustees/Directors of each of the First Union or Evergreen Funds
involved in the consolidations (or any successor thereto by reorganization or
otherwise) are not "interested persons" of FUNB, EAMC or PBCM.
With respect to the second condition of Section 15(f), an "unfair burden" on
an investment company is defined in the 1940 Act to include any arrangement
relating to the transaction during the two-year period after any such
transaction occurs whereby the investment adviser or its predecessor or
successor, or any "interested person" of such adviser, predecessor or
successor, receives or is entitled to receive any compensation of two types,
either directly or indirectly. The first type is compensation from any person
in connection with the purchase or sale of securities or other property to,
from or on behalf of the investment company, other than bona fide ordinary
compensation as principal underwriter for such company. The second type is
compensation from the investment company or its security holders for other than
bona fide investment advisory or other services. In the Agreement, FUNB
represents that there is no express or implied understanding or arrangement or
intention to impose an "unfair burden" within the meaning of Section 15(f) on
the ABT Fund or the Other ABT Funds or any of their successors as a result of
the transactions contemplated in the Agreement and from the date of the
Agreement to two years after the consummation of the transactions contemplated
thereby it will not take or recommend any action that would constitute an
"unfair burden" within the meaning of Section 15(f) on the ABT Fund, any Other
ABT Fund, any of the First Union or Evergreen Funds involved in the
consolidations or any successor thereto.
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the Plan is qualified in its
entirety by reference to the Plan (Exhibit A hereto). The Plan provides that
the First Union Fund will acquire substantially all of the assets of the ABT
Fund in exchange for Class A Shares of the First Union Fund and the assumption
by the First Union Fund of certain identified liabilities of the ABT Fund on
June 30, 1995 or such later date as may be agreed upon by the parties (the
"Closing Date"). Prior to the Closing Date, the ABT Fund will endeavor to
discharge all of its known liabilities and obligations. The First Union Fund
will not assume any liabilities or obligations of the ABT Fund other than those
liabilities reflected in an unaudited statement of assets and liabilities of
the ABT Fund prepared as of the close of regular trading on the New York Stock
Exchange, Inc. (the "NYSE"), currently 4:00 pm. Eastern Time, on the Closing
Date. The number of full and fractional Class A Shares of the First Union Fund
to be issued to the ABT Fund's shareholders will be determined on the basis of
the relative net asset values per share of the First Union Fund's Class A
Shares and the ABT Fund's shares, computed as of the close of regular trading
on the NYSE on the Closing Date. The net asset value per share of such shares
will be determined by dividing the respective assets, less liabilities, by the
total number of outstanding shares.
State Street Bank & Trust Company, the custodian for the First Union Fund,
will compute the value of each Fund's respective portfolio securities. The
method of valuation employed will be consistent with the
9
<PAGE>
procedures set forth in the First Union Fund's Prospectus and Statement of
Additional Information, Rule 22c-1 under the 1940 Act, and with the
interpretations of such rule by the SEC's Division of Investment Management.
At or prior to the Closing Date, the ABT Fund shall have declared a dividend
or dividends and distribution or distributions which, together with all
previous such dividends and distributions, shall have the effect of
distributing to the ABT Fund's shareholders all of the ABT Fund's investment
company taxable income for the taxable year ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable years ending on or prior to the
Closing Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the ABT Fund will
liquidate and distribute pro rata to shareholders of record as of the close of
business on the Closing Date the full and fractional Class A Shares of the
First Union Fund received by the ABT Fund. Such liquidation and distribution
will be accomplished by the establishment of accounts in the names of the ABT
Fund's shareholders on the share records of the First Union Fund's transfer
agent. Each account will represent the respective pro rata number of full and
fractional Class A Shares of the First Union Fund due to such ABT Fund's
shareholders. After such distribution and the winding up of its affairs, the
ABT Fund will be terminated.
The consummation of the Reorganization is subject to the conditions set forth
in the Plan, including approval by the ABT Fund's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel
including those matters referred to in "Federal Income Tax Consequences."
Notwithstanding approval of the ABT Fund's shareholders, the Plan may be
terminated at any time by the mutual agreement of both parties. In addition,
either party may, at its option, terminate the Plan at or prior to the Closing
Date because (a) of a breach by the other party of any representation,
warranty, or agreement contained therein to be performed at or prior to the
Closing Date, if not cured within 30 days, or (b) a condition to the obligation
of the terminating party cannot be met.
FUNB will bear all the expenses of the First Union Fund in connection with
the Reorganization. Other than the fees and expenses of counsel to the ABT Fund
and counsel to the independent Trustees of the Trust and expenses for officers
and Trustees ongoing insurance coverage (which will be paid by the ABT Fund),
the expenses of the Reorganization (including the cost of any proxy soliciting
agents) will be borne by PBCM and FUNB. No portion of such expenses shall be
paid by the First Union Fund. See "Voting Information."
If the Reorganization is not approved by shareholders of the ABT Fund, the
Trust's Board of Trustees will continue to operate the ABT Fund under its
existing arrangements.
CAPITALIZATION. The following table shows the capitalization of the First
Union Fund and the ABT Fund as of March 31, 1995 individually and on a pro
forma combined basis as of that date, giving effect to the proposed acquisition
of the ABT Fund's net assets at fair market value:
<TABLE>
<CAPTION>
CLASS A SHARES
FIRST UNION PRO FORMA FOR
CLASS A SHARES ABT FUND REORGANIZATION*
-------------- ------------ ---------------
<S> <C> <C> <C>
Net Assets.......................... $8,639,482 $174,283,185 $182,922,667
Net Asset Value per share........... $ 9.58 $ 10.95 $ 9.58
Shares outstanding.................. 901,981 15,923,514 19,102,657
</TABLE>
- --------
* The figures in this table include the consolidation related expenses
including the insurance premiums described below in "Basis for the Board of
Trustees' Recommendation for Approval of the Plan."
As of April 25, 1995, (the "Record Date"), there were 15,606,062.474
outstanding shares of beneficial interest of the ABT Fund.
10
<PAGE>
As of the Record Date, the officers and Trustees of the Trust beneficially
owned as a group less than 1% of the outstanding shares of the ABT Fund. To the
best knowledge of the Trustees of the Trust, as of the Record Date, no other
shareholder or "group" (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934 the ("Exchange Act")) beneficially owned more than 5% of
the ABT Fund's outstanding shares.
As of April 25, 1995, the number of shares of the First Union Fund
outstanding were: Class A Shares--881,594, Class B Shares--2,678,698 and Y
Shares--232,691.
As of April 25, 1995, the officers and Trustees of the First Union Fund
beneficially owned as a group less than 1% of the outstanding shares of the
First Union Fund. To the best knowledge of the Trustees, as of April 25, 1995,
no other shareholder or "group" (as that term is used in Section 13(d) of the
Exchange Act) beneficially owned more than 5% of the First Union Fund's
outstanding shares other than First Union National Bank of North Carolina,
Charlotte, North Carolina, acting in various capacities for numerous accounts,
was the owner of record of approximately 234,044 Y Shares (75.34%).
BASIS FOR THE BOARD OF TRUSTEES'
RECOMMENDATION FOR APPROVAL OF THE PLAN
The independent Trustees/Directors of the Board of Trustees/Directors of the
Trust and the Other ABT Funds requested and reviewed extensive information from
FUNB or EAMC in evaluating the effect of the consolidation on the shareholders
of the ABT Fund and the Other ABT Funds. The information described: performance
of FUNB and EAMC managed funds; the extensive investment research, including
credit analysis, available to FUNB and EAMC managed funds; the expenses of the
FUNB and EAMC managed funds in relation to other mutual funds and to the ABT
Fund and the Other ABT Funds; the possibility of a future reduction in expenses
per share as a result of the consolidation; the extensive marketing channels
available to the FUNB and EAMC managed funds; the quality and variety of
administrative services provided FUNB and EAMC managed funds and the financial
condition of the service providers; and the financial size of FUNB, giving it
the capital necessary to develop the initiatives and responses required as
financial markets change.
The Trustees/Directors of the Trust and the Other ABT Funds, including all of
the independent Trustees/Directors, visited the offices of FUNB. During the
visit, personnel from FUNB and EAMC were available to discuss operations of
their respective entities and to answer questions concerning the proposed
consolidation. The independent Trustees/Directors of the Trust and the Other
ABT Funds retained independent counsel to advise such Trustees/Directors with
respect to their fiduciary duties in connection with approval of the proposed
consolidation.
The Trustees/Directors evaluated the consolidation for the ABT Fund, as well
as the Other ABT Funds. The Trustees/Directors considered the advantages to the
ABT Fund's and the Other ABT Funds' shareholders from being associated with a
considerably larger mutual fund complex that offers shareholders more depth in
investment management. The Trustees/Directors also considered the benefits to
the ABT Fund's shareholders of being part of a larger group of mutual funds
with significantly greater net assets and more diverse investment objectives.
In particular, the Trustees/Directors noted that shareholders of the ABT Fund
will, after consummation of the Reorganization, enjoy the same exchange
privileges available currently to shareholders of the other mutual funds
managed by FUNB and EAMC.
In the proposed Reorganization on which you are being asked to approve, the
Trustees/Directors considered the ABT and First Union Funds' expense ratios
individually and on a pro forma basis, and the investment performance of the
First Union Fund as compared to the ABT Fund since the commencement of their
respective operations.
11
<PAGE>
PBCM has advised the ABT Fund that after the closing, PBCM may pay the
independent Trustees/Directors of the Trust and the Other ABT Funds a fee in
return for which the Trustees/Directors will make themselves available for two
years to consult on former ABT family of funds' matters. PBCM is not obligated
to pay such a fee. If paid, the amount is expected to be at a rate of $10,000
per year/per Trustee/Director.
The independent Trustees/Directors have voted to retain their ability to make
claims under their existing Officers and Directors insurance policy for a
period of three years following the consummation of the Reorganization. As with
the premium for the policy, the premium for the continuation will be paid by
the ABT Fund and the Other ABT Funds and is expected to be approximately
$133,000 ($50,633 of which will be paid by the ABT Fund) for the three years.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT SHAREHOLDERS APPROVE THE
PLAN TO CONSOLIDATE THE ABT FLORIDA TAX-FREE FUND WITH THE FIRST UNION FLORIDA
MUNICIPAL BOND PORTFOLIO.
DESCRIPTION OF SHARES OF THE FIRST UNION FUND AND THE ABT FUND
Full and fractional Class A Shares of beneficial interest of the First Union
Fund will be distributed to the ABT Fund's shareholders in accordance with the
procedures detailed in the Plan. All issued and outstanding shares of the ABT
Fund, including those represented by certificates, if any, will be canceled.
The First Union Fund does not issue share certificates to shareholders except
upon request from investors who invest $1,000,000 or more in Class A Shares.
Instead, the transfer agent for the First Union Fund maintains a share account
for each shareholder of record. The Class A Shares of the First Union Fund to
be issued will have no pre-emptive or conversion rights and are transferable
without restriction. See "Summary--Distribution; Sales Charges."
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify for federal income tax purposes as
a tax-free reorganization under section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, the ABT Fund will receive an opinion of counsel to the effect
that, on the basis of the existing provisions of the Code, U.S. Treasury
regulations issued thereunder, current administrative rules, pronouncements and
court decisions, for federal income tax purposes, upon consummation of the
Reorganization:
(1) The transfer of substantially all of the assets of the ABT Fund
solely in exchange for Class A Shares of the First Union Fund and the
assumption by the First Union Fund of certain liabilities, followed by the
distribution of the First Union Fund's Class A Shares by the ABT Fund in
dissolution and liquidation of the ABT Fund, will constitute a
"reorganization" within the meaning of section 368(a)(1)(D) of the Code,
and the First Union Fund and the ABT Fund will each be a "party to a
reorganization" within the meaning of section 368(b) of the Code;
(2) No gain or loss will be recognized by the ABT Fund on the transfer of
its assets to the First Union Fund (except, possibly, with respect to
certain options, futures and forward contracts included in the assets
("Contracts")), solely in exchange for the First Union Fund's Class A
Shares and the assumption by the First Union Fund of liabilities or upon
the distribution (whether actual or constructive) of the First Union Fund's
Class A Shares to the ABT Fund's shareholders in exchange for their shares
of the ABT Fund;
(3) The tax basis of the assets transferred (with the possible exception
of the Contracts) will be the same to the First Union Fund as the tax basis
of such assets to the ABT Fund immediately prior to the Reorganization, and
the holding period of such assets (with the possible exception of the
Contracts) in the hands of the First Union Fund will include the period
during which the assets were held by the ABT Fund;
(4) No gain or loss will be recognized by the First Union Fund upon the
receipt of the assets from the ABT Fund solely in exchange for the Class A
Shares of the First Union Fund and the assumption by the First Union Fund
of certain liabilities;
12
<PAGE>
(5) No gain or loss will be recognized by the ABT Fund's shareholders
upon the issuance of the Class A Shares of the First Union Fund to them,
provided they receive solely such Class A Shares (including fractional
shares) in exchange for their shares of the ABT Fund; and
(6) The aggregate tax basis of the Class A Shares of the First Union
Fund, including any fractional shares, received by each of the shareholders
of the ABT Fund pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of the ABT Fund held by such shareholder
immediately prior to the Reorganization, and the holding period of the
Class A Shares of the First Union Fund, including fractional shares,
received by each such shareholder will include the period during which the
shares of the ABT Fund exchanged therefor were held by such shareholder
(provided that the shares of the ABT Fund were held as a capital asset on
the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service or the
courts. If the Reorganization is consummated but does not qualify as a tax-free
reorganization under the Code, the consequences described above would not be
applicable. Shareholders of the ABT Fund should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the ABT
Fund should also consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
It is not expected that the securities of the combined portfolio will be sold
in significant amounts in order to comply with the policies and investment
practices of the First Union Fund.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion compares the investment objectives, policies and
restrictions of the ABT Fund and the First Union Fund. This discussion is based
upon and qualified in its entirety by the respective investment objectives,
policies and restrictions stated in the Prospectuses and Statements of
Additional Information of both Funds. For a full discussion of the investment
objectives, policies and restrictions of the First Union Fund, refer to the
Prospectus of the First Union Tax-Free Funds under the caption "Investment
Objectives and Policies." The First Union Fund's Prospectus also offers five
additional funds advised by FUNB. These additional funds' investment
objectives, policies and restrictions are not discussed in this
Prospectus/Proxy Statement as these funds are not involved in the
Reorganization, and no offering of shares of such funds, or other classes of
shares of the First Union Fund, are made hereby. For a full discussion of the
investment objectives, policies and restrictions of the ABT Fund, refer to the
Prospectus of the ABT Fund under the caption "Investment Objective and
Policies."
Both the First Union and the ABT Fund seek to achieve current income exempt
from federal taxes, consistent with the preservation of capital. In addition,
the First Union Fund seeks to achieve current income exempt from the Florida
state intangibles tax. Both the First Union Fund and the ABT Fund seek to
achieve their objectives by investing at least 80% of their net assets in
municipal securities. However, while the First Union Fund invests at least 65%
of the value of its total assets in Florida municipal securities, the ABT Fund
invests at least 72% of the value of its total assets in Florida municipal
securities.
INVESTMENT OBJECTIVE. The First Union Fund seeks current income exempt from
federal regular income tax consistent with the preservation of capital. In
addition, the First Union Fund intends to qualify as an investment exempt from
the Florida state intangibles tax. This investment objective cannot be changed
without shareholder approval. As a matter of fundamental investment policy, the
First Union Fund will normally invest its assets so that at least 80% of its
net assets are invested in obligations which provide interest income which is
exempt from federal regular income taxes. In addition, at least 65% of the
value of the First Union Fund's total assets will be invested in municipal
bonds of Florida. To qualify as an investment exempt from the Florida state
intangibles tax, the First Union Fund's portfolio must consist entirely of
investments exempt from the Florida state intangibles tax on the last business
day of the calendar year.
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The ABT Fund seeks to provide as high a level of current income which is
exempt from federal income tax as is consistent with preservation of capital.
The ABT Fund will, under normal market conditions, invest at least 80% of its
assets in municipal obligations and at least 90% of the 80% of assets invested
in municipal obligations will be invested in Florida obligations. Florida
obligations are defined as obligations of the State of Florida, its political
subdivisions, agencies, instrumentalities and authorities, or other Florida
entities, where the interest on the securities is exempt from federal income
taxes.
There can be no assurance that either the First Union Fund or the ABT Fund
will meet its investment objective.
PRIMARY INVESTMENTS. Both Funds seek to achieve their investment objective by
investing principally in municipal obligations, including industrial
development bonds, of Florida. In addition, both Funds may invest in
obligations issued by or on behalf of any state, territory, or possession of
the United States, including the District of Columbia, or their political
subdivisions or agencies and instrumentalities, the interest from which is
exempt from federal regular income tax. It is likely that shareholders who are
subject to the alternative minimum tax will be required to include interest
from a portion of the municipal securities owned by the Funds in calculating
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.
The municipal bonds in which the Funds will invest are subject to one or more
of the following quality standards: rated Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group
("S&P") or, if unrated, determined by the Fund's adviser to be of comparable
quality to such ratings. The First Union Fund may purchase municipal bonds
insured by a municipal bond insurance company which is rated Aaa by Moody's or
AAA by S&P; guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest; or fully collateralized by an escrow of U.S.
government securities. The ABT Fund may purchase municipal obligations that are
insured by AMBAC Indemnity Corporation, Municipal Bond Investors Assurance
Corporation, Financial Guaranty Insurance Corporation or Capital Guaranty
Insurance Corporation.
Bonds rated BBB by S&P or Baa by Moody's have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead
to weakened capacity to make principal and interest payments than higher rated
bonds. If any security owned by a Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
Other types of investments of the First Union Fund and the ABT Fund include:
participation interests in any of the above obligations. (Participation
interests may be purchased from financial institutions such as commercial
banks, savings and loan associations and insurance companies, and give the
First Union Fund an undivided interest in particular municipal securities);
variable rate municipal securities. (Variable rate securities offer
interest rates which are tied to a money market rate, usually a published
interest rate or interest rate index or the 90-day U.S. Treasury bill rate.
Many of these securities are subject to prepayment of principal on demand
by the First Union Fund, usually in seven days or less); and
municipal leases issued by state and local governments or authorities to
finance the acquisition of equipment and facilities. The First Union Fund
may purchase municipal securities in the form of participation interests
which represent undivided proportional interests in lease payments by a
governmental or nonprofit entity. The lease payments and other rights under
the lease provide for and secure the payments on the certificates. Lease
obligations may be limited by municipal charter or the nature of the
appropriation for the lease. In particular, lease obligations may be
subject to periodic appropriation. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such
payments. Furthermore, a lease may provide that the certificate trustee
cannot accelerate lease obligations upon default. The trustee would only be
able to enforce lease payments as
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they became due. In the event of a default or failure of appropriation, it
is unlikely that the trustee would be able to obtain an acceptable
substitute source of payment or that the substitute source of payment would
generate tax-exempt income.
During periods when, in FUNB's opinion, a temporary defensive position in the
market is appropriate, the First Union Fund may temporarily invest in short-
term tax-exempt or taxable investments. These temporary investments include:
notes issued by or on behalf of municipal or corporate issuers; obligations
issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; other debt securities; commercial paper; bank certificates
of deposit; shares of other investment companies; and repurchase agreements.
There are no rating requirements applicable to temporary investments. However,
FUNB will limit temporary investments to those it considers to be of comparable
quality to the First Union Fund's primary investments.
Although the First Union Fund is permitted to make taxable, temporary
investments, there is no current intention of generating income subject to
federal regular income tax. However, certain temporary investments will
generate income which is subject to state taxes.
Both Funds may invest in options and futures; however, neither Fund has
engaged in these practices to date. There are no limitations on the percentage
of assets which may be invested in such assets except that the First Union Fund
does not intend to commit more than 5% of its assets to premiums for options or
margin deposits on futures contracts. For a discussion of these investment
strategies and the risks involved, see pages 19, 20 and 21 of the First Union
Fund's Prospectus accompanying this Prospectus/Proxy Statement.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION. First Union Funds and the Trust are open-end management
investment companies registered with the SEC under the 1940 Act which
continuously offer to sell shares at their current net asset value plus any
applicable sales loads. Each is organized as a Massachusetts business trust and
is governed by a Declaration of Trust, By-Laws, Board of Trustees, and
applicable Massachusetts law. The First Union Fund is a portfolio of First
Union Funds. The ABT Fund is a portfolio of the Trust.
CAPITALIZATION. The beneficial interests in the Funds are represented by
shares with $.01 par value per share for the ABT Fund and no par value per
share for the First Union Fund. The Declarations of Trust permit the respective
Board of Trustees to issue an unlimited number of shares of beneficial
interest. The Declaration of Trust of the First Union Funds permits the Board
of Trustees, without shareholder approval, to divide its shares into an
unlimited number of series and classes with the rights of such series and
classes to be determined by the Board of Trustees. Currently, the First Union
Fund consists of three classes of shares as described above. See "Summary-
Distribution; Sales Charges." Fractional shares may be issued. Each Fund's
shares have equal voting rights and represent equal proportionate interests in
the assets belonging to each Fund, and are entitled to receive dividends and
other amounts as determined by the First Union Funds' or the Trust's Board of
Trustees, except in the case of the First Union Fund, where there are different
voting and other rights applicable to different classes of shares in connection
with or as a result of the classes' distribution and shareholder servicing
arrangements.
SHAREHOLDER LIABILITY. Under Massachusetts law, shareholders of a business
trust could, under certain circumstances, be held personally liable for the
obligations of the business trust. However, the Declarations of Trust of the
First Union Funds and the Trust disclaim shareholder liability for acts or
obligations of the First Union Funds and the Trust and require that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the First Union Funds and the Trust or their Boards of
Trustees. The Declarations of Trust provide for indemnification out of the
First Union Funds' or the Trust's property for all losses and expenses of any
shareholder held personally liable for the obligations of the First Union Funds
and the Trust. Thus, the risk of a shareholder incurring financial loss on
account of shareholder
15
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liability is considered remote since it is limited to circumstances in which a
disclaimer is inoperative and the First Union Funds or the Trust itself would
be unable to meet its respective obligations. A substantial number of mutual
funds in the United States are organized as Massachusetts business trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS. Neither the First Union Funds nor the
Trust are required to hold annual meetings of shareholders. Trustees of the
First Union Funds may be removed by a two-thirds vote of the number of Trustees
prior to such removal or by two-thirds vote of the shareholders at a special
meeting. Trustees of the Trust may be removed by a two-thirds vote of the
shareholders at a special meeting. First Union Funds and the Trust are required
to call a meeting of shareholders for the purpose of voting upon the question
of removal of a Trustee when requested in writing to do so by the holders of at
least 25% of the First Union Funds' outstanding shares and 10% of the Trust's
outstanding shares. In addition, the Trust and First Union Funds are required
to call a meeting of shareholders for the purpose of electing Trustees if, at
any time, less than a majority of the Trustees then holding office were elected
by shareholders. If Trustees of the Trust fail or refuse to call a meeting as
required by the Declaration of Trust for a period of 30 days after a request in
writing by shareholders holding an aggregate of at least 10% of the shares
outstanding, then shareholders holding 10% may call and give notice of a
shareholders meeting. The Trust and First Union Funds currently do not intend
to hold regular shareholder meetings. Neither permits cumulative voting. A
majority of shares entitled to vote on a matter constitutes a quorum for
consideration of such matter. In either case, a majority of the shares present
and entitled to vote is sufficient to act on a matter (unless otherwise
specifically required by the applicable governing documents or other law,
including the 1940 Act). All shares of all classes of each portfolio in the
First Union Funds have equal voting rights, except that in matters affecting
only a particular portfolio or class (for example, a 12b-1 plan of that class)
only shares of that portfolio or class are entitled to vote.
LIQUIDATION OR DISSOLUTION. In the event of the liquidation of a Fund the
shareholders are entitled to receive, when, and as declared by the Trustees,
the excess of the assets belonging to such Fund over the liabilities belonging
to the Fund. In either case, the assets so distributable to shareholders of the
respective Fund will be distributed among the shareholders pro rata based on
the shares of the Fund held by them and recorded on the books of the Fund.
LIABILITY AND INDEMNIFICATION OF TRUSTEES. The Declarations of Trust provide
that no Trustee or officer of either the First Union Funds or the Trust shall
be personally liable to any person for any action or failure to act, except for
his own bad faith, willful misfeasance, gross negligence, or reckless disregard
of his duties. The Declarations of Trust provide that a Trustee or officer is
entitled to indemnification against liabilities and expenses with respect to
claims related to his position with either the First Union Funds or the 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 duties, or not to have acted in good faith in the reasonable belief that
his action was in the best interest of either the First Union Funds or the
Trust or, in the event of settlement, unless there has been a determination
that such Trustee or officer has not engaged in willful misfeasance, bad faith,
gross negligence, or reckless disregard of his duties.
RIGHTS OF INSPECTION. Shareholders of the respective Funds have the same
right to inspect in Massachusetts the governing documents, records of meetings
of shareholders, shareholder lists, share transfer records, accounts and books
of the Fund as are permitted shareholders of a corporation under the
Massachusetts corporation law. The purpose of inspection must be for interests
of shareholders relevant to the affairs of the Fund.
The foregoing is only a summary of certain characteristics of the operations
of the Declarations of Trust and By-Laws of First Union Funds and the Trust,
and of Massachusetts and federal law. The foregoing is not a complete
description of those documents or laws. Shareholders should refer to the
provisions of the respective Declarations of Trust, By-Laws, and Massachusetts
and federal law directly for more complete information.
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ADDITIONAL INFORMATION
ABT FUND. Information about the ABT Fund is included in its current
Prospectus dated August 29, 1994, and in the Statement of Additional
Information of the same date that has been filed with the SEC, both of which
are incorporated herein by reference. A copy of the Prospectus, the Statement
of Additional Information, the Fund's Annual Report dated April 30, 1994 and
the Fund's Semi-Annual Report dated October 31, 1994 are available upon request
and without charge by writing to the ABT Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-
553-7838.
FIRST UNION FUND. Information concerning the operation and management of the
First Union Fund is incorporated herein by reference from the Prospectus dated
February 28, 1995, a copy of which is enclosed, and Statement of Additional
Information dated February 28, 1995. A copy of such Statement of Additional
Information is available upon request and without charge by writing to the
First Union Fund, at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-326-3241.
The Trust and First Union Funds are each subject to the informational
requirements of the Exchange Act and the 1940 Act, and in accordance therewith
files reports and other information including proxy material, reports and
charter documents with the SEC. These items can be inspected and copies
obtained at the Public Reference Facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
OTHER BUSINESS
The Trustees of the 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.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of the Trust to be used at the
Special Meeting of Shareholders of the ABT Fund, a portfolio of the Trust, to
be held at 10:00 a.m. June 19, 1995, at 340 Royal Palm Way, Palm Beach, Florida
33480 and at any adjournments thereof. This Prospectus/Proxy Statement, along
with a Notice of the Meeting and a proxy card, is first being mailed to
shareholders of the ABT Fund on or about May 3, 1995. Only shareholders of
record as of the close of business on the Record Date will be entitled to
notice of, and to vote at, the Meeting or any adjournment thereof. The holders
of a majority of the shares outstanding at the close of business on the Record
Date present in person or represented by proxy will constitute a quorum for the
Meeting. If the enclosed form of proxy is properly executed and returned in
time to be voted at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed Reorganization and FOR any
other matters deemed appropriate. Proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
Since shares represented by "broker non-votes" are considered outstanding
shares, a "broker non-vote" has the same effect as a vote against the
Reorganization. A proxy may be revoked at any time at or before the Meeting by
written notice to the Secretary of the Trust, 340 Royal Palm Way, Palm Beach,
Florida 33480. 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.
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Approval of the Plan will require the affirmative vote of more than 50% of
the outstanding voting securities of the ABT Fund. Each full share outstanding
is entitled to one vote and each fractional share outstanding is entitled to a
proportionate share of one vote.
If the shareholders do not vote to approve the Reorganization, the Board of
Trustees of the Trust will continue to operate the ABT Fund under existing
arrangements.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone, telegraph or personal solicitations conducted by
officers and employees of PBCM, its affiliates or officers and Trustees of the
Trust (who will not be paid for their solicitation activities). Proxies may be
recorded pursuant to telephone or electronically transmitted instructions
obtained pursuant to procedures reasonably designed to verify that such
instructions have been authorized. PBCM has retained Shareholder Communications
Corporation to assist in the proxy solicitation process.
The ABT Fund will be responsible for the fees and expenses of its counsel and
counsel for the independent Trustees in connection with the Reorganization,
whether or not the Reorganization is consummated. With respect to the costs of
preparing this Prospectus/Proxy Statement and soliciting shareholders of the
ABT Fund, PBCM has agreed to bear such costs and FUNB shall reimburse PBCM 50%
of its costs up to a maximum reimbursement of $85,000.
In the event that sufficient votes to approve the Plan are not received by
June 19, 1995, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon such
adjournment after consideration of all circumstances which may bear upon a
decision to adjourn the Meeting.
A shareholder who objects to the proposed transaction will not be entitled
under either Massachusetts law or the Declaration of Trust of the Trust to
demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Reorganization as proposed is not
expected to result in recognition of gain or loss to shareholders for federal
income tax purposes and that, if the Reorganization is consummated,
shareholders will be free to redeem the Class A Shares of the First Union Fund
which they received in the transaction at their then-current net asset value.
Shares of the ABT Fund may be redeemed at any time prior to the consummation of
the Reorganization. ABT Fund shareholders may wish to consult their tax
advisers as to any differing consequences of redeeming ABT Fund shares prior to
the Reorganization or exchanging such shares in the Reorganization.
The 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, if any,
should send their written proposals to the Secretary of the Trust at the
address set forth on the cover of this Prospectus/Proxy Statement such that
they will be received by the Trust in a reasonable period of time prior to any
such meeting.
The votes of the shareholders of the First Union Fund are not being solicited
by this Prospectus/Proxy Statement and are not required to carry out the
Reorganization.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR
NOMINEES. Please advise the Trust whether other persons are beneficial owners
of ABT Fund 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.
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FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of ABT Fund as of April 30, 1994 and the
financial highlights for the periods indicated therein, have been incorporated
by reference into this Prospectus/Proxy Statement in reliance on the reports of
Tait, Weller & Baker, independent accountants for the ABT Fund, given on the
authority of the firm as experts in accounting and auditing.
The audited financial statements of the First Union Fund as of December 31,
1994 and financial highlights for the period indicated therein have been
incorporated by reference into this Prospectus/Proxy Statement in reliance on
the report of KPMG Peat Marwick LLP, independent accountants for the First
Union Fund, given on the authority of the firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the First Union
Fund will be passed upon by Sullivan & Worcester, Washington, D.C.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING THE "NON-INTERESTED" TRUSTEES,
RECOMMENDS APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS
TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
----------------
May 3, 1995
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
this 15th day of March, 1995, by and between First Union Funds, a Massachusetts
business trust (the "First Union Trust"), with its principal place of business
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, with respect
to its First Union Florida Municipal Bond Portfolio series (the "Acquiring
Fund"), and ABT Southern Master Trust (the "ABT Trust"), a Massachusetts
business trust, with respect to its ABT Florida Tax-Free Fund series, with its
principal place of business at 340 Royal Palm Way, Palm Beach, Florida 33480
(the "Selling Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368 (a)(1)(D) of the United
States Internal Revenue Code of 1986 (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Selling Fund in exchange solely for shares of beneficial
interest, no par value per share, of the Acquiring Fund (the "Acquiring Fund
Shares") and the assumption by the Acquiring Fund of certain stated liabilities
of the Selling Fund and the distribution, after the Closing Date hereinafter
referred to, of the Acquiring Fund Shares to the shareholders of the Selling
Fund in liquidation of the Selling Fund as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement.
Whereas, the Selling Fund and the Acquiring Fund 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 First Union Trust have determined that the
exchange of substantially all of the assets of the Selling Fund for Acquiring
Fund Shares and the assumption of certain stated liabilities by the Acquiring
Fund on the terms and conditions hereinafter set forth is in the best interests
of the Acquiring Fund shareholders and that the interests of the existing
shareholders of the Acquiring Fund will not be diluted as a result of the
transactions contemplated herein;
Whereas, the Trustees of the ABT 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
1.1 The Exchange. Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer the Selling Fund's assets as set forth in paragraph 1.2
to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor
(i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by dividing the value of
the Selling Fund's net assets computed in the manner and as of the time and
date set forth in paragraph 2.1 by the net asset value of one Acquiring Fund
Share computed in the manner and as of the time and date set forth in paragraph
2.2 and (ii) to assume certain liabilities of the
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Selling Fund, as set forth in paragraph 1.3. Such transactions shall take place
at the closing provided for in paragraph 3.1 (the "Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by
the Acquiring Fund shall consist of all property, including without limitation
all cash, securities, commodities and futures interests and dividends or
interest receivable, which is owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date. The Selling Fund has provided the Acquiring Fund with its most
recent audited financial statements which contain a list of all of Selling
Fund's assets as of the date thereof. The Selling Fund hereby represents that
as of the date of the execution of this Agreement there have been no changes in
its financial position as reflected in said financial statements other than
those occurring in the ordinary course of its business in connection with the
purchase and sale of securities and the payment of its normal operating
expenses. The Selling Fund reserves the right to sell any of such securities
but will not, without the prior written approval of the Acquiring Fund, acquire
any additional securities other than securities of the type in which the
Acquiring Fund is permitted to invest. The Acquiring Fund will, within a
reasonable time prior to the Closing Date, furnish the Selling Fund with a
statement of the Acquiring Fund's investment objectives, policies and
restrictions and a list of the securities, if any, on the Selling Fund's list
referred to in the second sentence of this paragraph which do not conform to
the Acquiring Fund's investment objectives, policies, and restrictions. In the
event that the Selling Fund holds any investments which the Acquiring Fund may
not hold, the Selling Fund will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose
of a sufficient amount of such investments as may be necessary to avoid
violating such limitations as of the Closing Date.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges
and reserves reflected on a Statement of Assets and Liabilities of the Selling
Fund prepared by Palm Beach Capital Management, Inc., the investment adviser
and administrator of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement
of Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
1.4 Liquidation and Distribution. As soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Closing Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1. and (b) the Selling Fund will thereupon proceed to dissolve
as set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund, to open
accounts on the share records of the Acquiring Fund in the names of the Selling
Fund Shareholders and representing the respective pro rata number of the
Acquiring Fund Shares due such shareholders. All issued and outstanding shares
of the Selling Fund will simultaneously be canceled on the books of the Selling
Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be shown on
the books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund
will be issued in the manner described in the combined Prospectus and Proxy
Statement on Form N-14 to be distributed to shareholders of the Selling Fund as
described in Section 5.
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1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Selling Fund
shares on the books of the Selling Fund as of that time shall, as a condition
of such issuance and transfer, be paid by the person to whom such Acquiring
Fund Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 Termination. 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 First Union Trust's
Declaration of Trust and the Acquiring Fund's then current prospectus and
statement of additional information or such other valuation procedures as shall
be mutually agreed upon by the parties.
2.2 Valuation of Shares. The net asset value of an Acquiring Fund Share shall
be the net asset value per share computed as of the close of business on the
New York Stock Exchange on the Valuation Date, using the valuation procedures
set forth in the First Union Trust's Declaration of Trust and the Acquiring
Fund's then current prospectus and statement of additional information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Selling Fund's assets
shall be determined by dividing the value of the assets of the Selling Fund
determined using the same valuation procedures referred to in paragraph 2.1 by
the net asset value of an Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 Determination of Value. All computations of value shall be made by State
Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing Date shall be June 30, 1995 or such later date
as the parties may agree to in writing. All acts taking place at the Closing
shall be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 5:00
o'clock p.m. at the offices of Evergreen Asset Management Corp., 2500
Westchester Avenue, Purchase, New York 10577, or at such other time and/or
place as the parties may agree.
3.2 Custodian's Certificate. The Bank of New York, as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of
an authorized officer stating that: (a) the Selling Fund's portfolio
securities, cash, and any other assets shall have been delivered in proper form
to the Acquiring Fund on the Closing Date and (b) all necessary taxes including
all applicable Federal and state
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stock transfer stamps, if any, shall have been paid, or provision for payment
shall have been made, in conjunction with the delivery of portfolio securities.
3.3 Effect of Suspension in Trading. In the event that on the Valuation Date
(a) the New York Stock Exchange or another primary trading market for portfolio
securities of the Acquiring Fund or the Selling Fund shall be closed to trading
or trading thereon shall be restricted, or (b) trading or the reporting of
trading on said Exchange or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the Selling
Fund is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Boston Financial Data Services, Inc., as
transfer agent for each of the Selling Fund and the Acquiring Fund shall
deliver at the Closing a certificate of an authorized officer stating that
their records contain the names and addresses of the Selling Fund Shareholders
and the number and percentage ownership of outstanding shares owned by each
such shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of the ABT 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 Commission (the
"Commission") as an investment company under the Investment Company Act of
1940 (the "1940 Act") is in full force and effect;
(c) The current prospectus and statement of additional information of the
Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended, (the "1933 Act")
and the 1940 Act and the rules and regulations of the Commission thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not materially misleading;
(d) The Selling Fund is not, and the execution, delivery and performance
of this Agreement (subject to shareholder approval) will not, result in
violation of any provision of the ABT 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
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governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(g) The financial statements of the Selling Fund at April 30, 1994 have
been audited by Tait, Weller & Baker, certified public accountants, and are
in accordance with generally accepted accounting principles consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Selling Fund
as of such dates, and there are no known contingent liabilities of the
Selling Fund as of such dates not disclosed therein;
(h) Since April 30, 1994, there has not been any material adverse change
in the Selling Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed
to and accepted by the Acquiring Fund. For the purposes of this
subparagraph (h), a decline in the net asset value of the Selling Fund
shall not constitute a material adverse change;
(i) At the Closing Date, all Federal and other tax returns and reports of
the Selling Fund required by law to have been filed by such dates shall
have been filed, and all Federal and other taxes shall have been paid so
far as due, or provision shall have been made for the payment thereof and
to the best of the Selling Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(j) For each of the preceding six fiscal years of its operation the
Selling Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and has
distributed in each such year all net investment income and realized
capital gains;
(k) All issued and outstanding shares of the Selling Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Selling Fund (except that, under Massachusetts
law, Selling Fund Shareholders could, under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued
and outstanding shares of the Selling Fund will, at the time of the Closing
Date, be held by the persons and in the amounts set forth in the records of
the transfer agent as provided in paragraph 3.4. The Selling Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Selling Fund shares, nor is there outstanding any
security convertible into any of the Selling Fund shares;
(l) At the Closing Date, the Selling Fund will have good and marketable
title to the Selling Fund's assets to be transferred to the Acquiring Fund
pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto, subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the 1933 Act,
other than as disclosed to the Acquiring Fund and accepted by the Acquiring
Fund;
(m) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Selling Fund
and, subject to approval by the Selling Fund's shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(n) The information to be furnished by the Selling Fund for use in no-
action letters, applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with Federal
securities and other laws and regulations thereunder applicable thereto;
(o) The proxy statement of the Selling Fund to be included in the
Registration Statement referred to in paragraph 5.7 (other than information
therein that relates to the Acquiring Fund) will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements were made, not misleading.
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4.2 Representations of the Acquiring Fund. The Acquiring Fund represents and
warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Massachusetts
business trust duly organized, validly existing and in good standing under
the laws of The Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of a Massachusetts
business trust that is registered as an investment company classified as a
management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;
(c) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not, result in violation of the First
Union Trust's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound;
(e) Except as otherwise disclosed to the Selling Fund and accepted by the
Selling Fund, no material litigation, administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets which, if adversely determined, would materially
and adversely affect its financial condition and the conduct of its
business or the ability of the Acquiring Fund to carry out the transactions
contemplated by this Agreement. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated herein;
(f) The financial statements of the Acquiring Fund at December 31, 1994,
certified by KPMG Peat Marwick LLP, independent accountants, copies of
which have been furnished to the Selling Fund, fairly and accurately
reflect the financial condition of the Acquiring Fund as of such date in
accordance with generally accepted accounting principles consistently
applied;
(g) Since December 31, 1994, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund. For the purposes of this
subparagraph (g), a decline in the net asset value of the Acquiring Fund
shall not constitute a material adverse change;
(h) At the Closing Date, all Federal and other tax returns and reports of
the Acquiring Fund required by law then to be filed shall have been filed,
and all Federal and other taxes shown due on said returns and reports shall
have been paid or provision shall have been made for the payment thereof
and to the best of the Acquiring Fund's knowledge, no such return is
currently under audit and no assessment has been asserted with respect to
such returns;
(i) For each fiscal year of its operation the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company;
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable (except that, under Massachusetts law, shareholders of
the Acquiring Fund could, under certain circumstances, be held personally
liable for obligations of the Acquiring Fund). The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares;
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(k) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquiring Fund,
and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(l) The Acquiring Fund Shares to be issued and delivered to the Selling
Fund, for the account of the Selling Fund Shareholders, pursuant to the
terms of this Agreement will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued
Acquiring Fund Shares, and will be fully paid and non-assessable (except
that, under Massachusetts law, shareholders of the Acquiring Fund could,
under certain circumstances, be held personally liable for obligations of
the Acquiring Fund);
(m) The information to be furnished by the Acquiring Fund for use in no-
action letters, applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with Federal
securities and other laws and regulations applicable thereto;
(n) The Prospectus and Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not misleading; and
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 Operation in Ordinary Course. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 Approval of Shareholders. The ABT 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 Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement, including any actions required to be taken after the Closing
Date.
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5.6 Statement of Earnings and Profits. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Selling Fund shall furnish
the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring
Fund, a statement of the earnings and profits of the Selling Fund for Federal
income tax purposes which will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be certified by the ABT
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 (the "Prospectus and Proxy Statement") which will
include the Prospectus and Proxy Statement, referred to in paragraph 4.1(o),
all to be included in a Registration Statement on Form N-14 of the Acquiring
Fund (the "Registration Statement"), in compliance with the 1933 Act, the
Securities Exchange Act of 1934, as amended, (the "1934 Act") and the 1940 Act
in connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the First Union Trust's President or
Vice President and its Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Selling Fund and dated as of the Closing Date, to such
effect and as to such other matters as the Acquiring Fund shall reasonably
request; and
6.2 The Selling Fund shall have received on the Closing Date an opinion from
Sullivan & Worcester, counsel to the Acquiring Fund, dated as of the Closing
Date, in a form reasonably satisfactory to the Selling Fund, covering the
following points:
That (a) the Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the
power to own all of its properties and assets and to carry on its business
as presently conducted; (b) the Agreement has been duly authorized,
executed and delivered by the Acquiring Fund, and, assuming that the
Prospectus, Registration Statement and Proxy Statement comply with the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
and, assuming due authorization, execution and delivery of the Agreement by
the Selling Fund, is a valid and binding obligation of the Acquiring Fund
enforceable against the Acquiring Fund in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights
generally and to general equity principles; (c) assuming that a
consideration therefor not less than the net asset value therefor has been
paid, the Acquiring Fund Shares to be issued and delivered to the Selling
Fund on behalf of the Selling Fund Shareholders as provided by this
Agreement are duly authorized and upon such delivery will be legally issued
and outstanding and fully paid and non-assessable (except that, under
Massachusetts law, shareholders of the Acquiring Fund could, under certain
circumstances, be held personally liable for obligations of the Acquiring
Fund), and no shareholder of the Acquiring Fund has any preemptive rights
in respect thereof; (d) the execution and delivery of the Agreement did
not, and the consummation of the transactions contemplated hereby will not,
result in a violation of the First Union 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
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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 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 First Union Trust's
officers and other representatives of the Acquiring Fund), no facts have
come to their attention that lead them to believe that the Prospectus and
Proxy Statement as of its date, as of the date of the Selling Fund
Shareholders' meeting, and as of the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein regarding the Acquiring Fund or necessary, in the
light of the circumstances under which they were made, to make the
statements therein regarding the Acquiring Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief
as to the financial statements or any financial or statistical data, or as
to the information relating to the Selling Fund, contained in the
Prospectus and Proxy Statement or Registration Statement, and that such
opinion is solely for the benefit of the ABT 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.
In this paragraph 6.2, references to Prospectus and Proxy Statement include
and relate to only the text of such Prospectus and Proxy Statement and not to
any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing
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Date a certificate executed in its name by the ABT 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 ABT Trust; and
7.3 The Acquiring Fund shall have received on the Closing Date an opinion of
Charles Moore, Esq., counsel to the Selling Fund, in a form satisfactory to the
Acquiring Fund covering the following points:
That (a) the Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the
power to own all of its properties and assets and to carry on its business
as presently conducted; (b) the Agreement has been duly authorized,
executed and delivered by the Selling Fund, and, assuming that the
Prospectus, the Registration Statement and the Prospectus and Proxy
Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder and, assuming due authorization, execution
and delivery of the Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles; (c)
the execution and delivery of the Agreement did not, and the consummation
of the transactions contemplated hereby will not, result in a violation of
the ABT 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 any penalty, under any agreement, judgment, or decree to
which the Selling Fund is a party or by which it is bound; (d) to the
knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States, or the
Commonwealth of Massachusetts is required for the consummation by the
Selling Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such
as may be required under state securities laws; (e) only insofar as they
relate to the Selling Fund, the descriptions in the Prospectus and Proxy
Statement of statutes, legal and governmental proceedings and material
contracts, if any, are accurate and fairly present the information required
to be shown; (f) such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Selling Fund existing on or
before the date of mailing of the Prospectus and Proxy Statement and the
Closing Date, required to be described in the Prospectus and Proxy
Statement or to be filed as an exhibit to the Registration Statement which
are not described or filed as required; (g) the Selling Fund is a separate
investment series of a Massachusetts business trust registered as an
investment company under the 1940 Act and to such counsel's best knowledge,
such registration with the Commission as an investment company under the
1940 Act is in full force and effect; (h) to the knowledge of such counsel,
no litigation or administrative proceeding or investigation of or before
any court or governmental body is presently pending or threatened as to the
Selling Fund or any of its respective properties or assets and the Selling
Fund is neither a party to nor subject to the provisions of any order,
decree or judgment of any court or governmental body, which materially and
adversely affects its business other than as previously disclosed in the
Prospectus and Proxy Statement; (i) assuming that a consideration therefor
not less than the net asset value therefor has been paid, and assuming that
such shares were issued in accordance with the terms of the Selling Fund's
registration statement, or any amendment thereto, in effect at the time of
such issuance all issued and outstanding shares of the Selling Fund are
legally issued and fully paid and non-assessable (except that, under
Massachusetts law, Selling Fund Shareholders could, under certain
circumstances be held personally liable for obligations of the Selling
Fund). Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Selling Fund at
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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 ABT 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 First Union Trust and the
Acquiring Fund. Such opinion shall contain such other assumptions and
limitations as shall be in the opinion of Charles Moore, Esq. appropriate
to render the opinions expressed therein.
In this paragraph 7.3, references to Prospectus and Proxy Statement include
and relate only to the text of such Prospectus and Proxy Statement and not to
any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THEACQUIRING FUND AND THE
SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the ABT 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 and securities authorities, including any
necessary "no-action" positions of and exemptive orders from such Federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto,
A-11
<PAGE>
no investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act;
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of
distributing to the Selling Fund Shareholders all of the Selling Fund's
investment company taxable income for all taxable years ending on or prior to
the Closing Date (computed without regard to any deduction for dividends paid)
and all of its net capital gain realized in all taxable years ending on or
prior to the Closing Date (after reduction for any capital loss carryforward);
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester, addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for Federal income tax purposes:
(a) The transfer of substantially all of the Selling Fund assets in
exchange for the Acquiring Fund Shares and the assumption by the Acquiring
Fund of certain identified liabilities of the Selling Fund followed by the
distribution of the Acquiring Fund's shares to the Selling Fund in
dissolution and liquidation of the Selling Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code and
the Acquiring Fund and the Selling Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (b) no
gain or loss will be recognized by the Acquiring Fund upon the receipt of
the assets of the Selling Fund solely in exchange for the Acquiring Fund
Shares and the assumption by the Acquiring Fund of certain identified
liabilities of the Selling Fund; (c) no gain or loss will be recognized by
the Selling Fund upon the transfer of the Selling Fund assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption
by the Acquiring Fund of certain identified liabilities of the Selling Fund
or upon the distribution (whether actual or constructive) of the Acquiring
Fund Shares to Selling Fund Shareholders in exchange for their shares of
the Selling Fund; (d) no gain or loss will be recognized by Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the
Acquiring Fund Shares in liquidation of the Selling Fund; (e) the aggregate
tax basis for the Acquiring Fund Shares received by each Selling Fund
Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the Selling Fund shares held by such shareholder
immediately prior to the Reorganization, and the holding period of the
Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor
were held by such shareholder (provided the Selling Fund shares were held
as capital assets on the date of the Reorganization); and (f) the tax basis
of the Selling Fund assets acquired by the Acquiring Fund will be the same
as the tax basis of such assets to the Selling Fund immediately prior to
the Reorganization, and the holding period of the assets of the Selling
Fund in the hands of the Acquiring Fund will include the period during
which those assets were held by the Selling Fund. Notwithstanding anything
herein to the contrary, neither the Acquiring Fund nor the Selling Fund may
waive the conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from Tait, Weller & Baker a letter
addressed to the Acquiring Fund dated on the Closing Date, in form and
substance satisfactory to the Acquiring Fund, to the effect that (i) they are
independent certified public accountants with respect to the Selling Fund
within the meaning of the 1933 Act and the applicable published rules and
regulations thereunder; (ii) in their opinion, the audited financial statements
and the per share data and ratios contained in the section entitled Financial
Highlights and provided in accordance with Item 3 of Form N-1A (the "Per Share
Data") of the Selling Fund included in or incorporated by reference into the
Registration Statement and Prospectus and Proxy Statement and previously
reported on by them comply as to form in all material respects with the
applicable accounting requirements of the l933 Act and the published rules and
regulations thereunder; (iii) on the basis of limited procedures agreed upon by
the Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of the ABT Trust responsible for financial and accounting matters,
nothing came to their attention which caused them to believe that (A) such
unaudited pro forma financial statements do not comply as to form in all
material respects with the applicable accounting
A-12
<PAGE>
requirements of the 1933 Act and the published rules and regulations
thereunder, or (B) said unaudited pro forma financial statements are not fairly
presented in conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited financial
statements; (iv) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization
Table appearing in the Registration Statement and Prospectus and Proxy
Statement, has been obtained from and is consistent with the accounting records
of the Selling Fund; and (v) on the basis of limited procedures agreed upon by
the Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the pro forma financial
statements which are included in the Registration Statement and Prospectus and
Proxy Statement, were prepared based on the valuation of the Selling Fund's
assets in accordance with the First Union 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
Tait, Weller & Baker in writing by the Acquiring Fund).
In addition, the Acquiring Fund shall have received from Tait, Weller & Baker
a letter addressed to the Acquiring Fund dated on the Closing Date, in form and
substance satisfactory to the Acquiring Fund, to the effect that on the basis
of limited procedures agreed upon by the Acquiring Fund (but not an examination
in accordance with generally accepted auditing standards) (i) the data utilized
in the calculations of the projected expense ratio appearing in the
Registration Statement and Prospectus and Proxy Statement agree with underlying
accounting records of the Selling Fund or to written estimates by Selling
Fund's management and were found to be mathematically correct; and (ii) the
calculation of net asset value per share of the Selling Fund as of the
Valuation Date was determined in accordance with generally accepted accounting
practices and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a letter
addressed to the Selling Fund dated on the Closing Date, in form and substance
satisfactory to the Selling Fund, to the effect that (i) they are independent
certified public accountants with respect to the Acquiring Fund within the
meaning of the 1933 Act and the applicable published rules and regulations
thereunder; (ii) in their opinion, the audited financial statements and the per
share data and ratios contained in the section entitled Financial Highlights
and provided in accordance with Item 3 of Form N-1A (the "Per Share Data") of
the Acquiring Fund included in or incorporated by reference into the
Registration Statement and Prospectus and Proxy Statement and previously
reported on by them comply as to form in all material respects with the
applicable accounting requirements of the l933 Act and the published rules and
regulations thereunder; (iii) on the basis of limited procedures agreed upon by
the Selling Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of the First Union Trust responsible for financial and accounting
matters, nothing came to their attention which caused them to believe that (A)
such unaudited pro forma financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the published rules and regulations thereunder, or (B) said unaudited pro
forma financial statements are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements; and (iv) on the basis
of limited procedures agreed upon by the Selling Fund and described in such
letter (but not an examination in accordance with generally accepted auditing
standards), the Capitalization Table appearing in the Registration Statement
and Prospectus and Proxy Statement, has been obtained from and is consistent
with the accounting records of the Acquiring Fund.
In addition, the Selling Fund shall have received from KPMG Peat Marwick LLP
a letter addressed to the Selling Fund dated on the Closing Date, in form and
substance satisfactory to the Selling Fund, to the effect that on the basis of
limited procedures agreed upon by the Selling Fund (but not an examination in
accordance with generally accepted auditing standards) the data utilized in the
calculations of the projected
A-13
<PAGE>
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with underlying accounting records of the Acquiring Fund and
the Selling Fund or to written estimates by each Fund's management and were
found to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received from
Tait, Weller & Baker a letter addressed to the Acquiring Fund and the Selling
Fund, dated on the Closing Date in form and substance satisfactory to the
Funds, setting forth the Federal income tax implications relating to Capital
Loss Carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all or substantially all of the assets of the
Selling Fund to the Acquiring Fund and the ultimate dissolution of the Selling
Fund, upon the shareholders of the Selling Fund.
ARTICLE IX
BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Selling Fund each represents and warrants to
the other that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
9.2 (a) Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Acquiring Fund will
be borne by First Union National Bank of North Carolina ("FUNB"). The Selling
Fund will bear the expense of its own counsel and counsel to its Trustees in
connection with the transactions contemplated by this Agreement. All other
expenses of the transactions contemplated by this Agreement incurred by the
Selling Fund will be borne by Palm Beach Capital Management, Inc., subject to
the undertaking of FUNB to reimburse up to $85,000 of such expenses incurred by
Palm Beach Capital Management, Inc. in connection with this and all other
related transactions between investment companies for which it serves as
investment adviser and investment companies for which FUNB or its affiliates
serve as investment adviser. Such expenses include, without limitation, (i)
expenses incurred in connection with the entering into and the carrying out of
the provisions of this Agreement; (ii) expenses associated with the preparation
and filing of the Registration Statement under the 1933 Act covering the
Acquiring Fund Shares to be issued pursuant to the provisions of this
Agreement; (iii) registration or qualification fees and expenses of preparing
and filing such forms as are necessary under applicable state securities laws
to qualify the Acquiring Fund Shares to be issued in connection herewith in
each state in which the Selling Fund Shareholders are resident as of the date
of the mailing of the Prospectus and Proxy Statement to such shareholders; (iv)
postage; (v) printing; (vi) accounting fees; (vii) legal fees; and (viii)
solicitation cost of the transactions. (b) Consistent with the provisions of
paragraph 1.3, the Selling Fund, prior to the Closing Date, shall pay for or
include in the audited statement of assets and liabilities prepared pursuant to
paragraph 1.3 all of its known and reasonably estimated expenses associated
with the transactions contemplated by this Agreement.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that the
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.
A-14
<PAGE>
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty or agreement
contained herein to be performed at or prior to the Closing Date, if not
cured within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful default,
there shall be no liability for damages on the part of either the Acquiring
Fund or the Selling Fund, the First Union Trust or the ABT Trust or their
respective, Trustees or officers, to the other party or its, Trustees or
officers, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.2.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may
be mutually agreed upon in writing by the authorized officers of the Selling
Fund and the Acquiring Fund: provided, however, that following the meeting of
the Selling Fund Shareholders called by the ABT 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
First Union Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Attention: Peter J. Germaine, Esq.
or to the Selling Fund
ABT Southern Master Trust
340 Royal Palm Way
Palm Beach, Florida
Attention: Timothy Cox, Esq.
A-15
<PAGE>
ARTICLE XIV
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed to that the obligations of the Selling Fund and
the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the First Union Trust
or the ABT 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
First Union Trust or the ABT Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of the First Union Trust and the
ABT Trust on behalf of the Acquiring Fund and the Selling Fund, respectively,
and signed by authorized officers of the First Union Trust and the ABT 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 First Union Trust and the ABT
Trust as provided in their Declarations of Trust.
In Witness Whereof, the parties have duly executed and sealed this Agreement,
all as of the date first written above.
First Union Fundson behalf of First
Union Florida Municipal Bond
Portfolio
/s/ Edward Gonzales
By: _________________________________
Name: Edward Gonzales
Title:President
(Seal)
ABT Southern Master Trust on behalf
of ABT Florida Tax-Free Fund
/s/ Edward W. Cook
By: _________________________________
Name: Edward W. Cook
Title:President
(Seal)
A-16
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
Please detach at perforation before mailing.
+ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +
+
THE ABT SOUTHERN MASTER TRUST +
SPECIAL MEETING OF SHAREHOLDERS -- JUNE 19, 1995
The undersigned hereby appoints Timothy W. Cox and Steven Eldredge and each of
them, attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of the ABT Florida Tax-Free Fund (the "Fund"), a
portfolio of ABT Southern Master Trust (the "Trust"), which the undersigned is
entitled to vote at a Meeting of Shareholders of the Fund to be held at 340
Royal Palm Way, Palm Beach, Florida 33480 on June 19, 1995, at 10:00 a.m., and
any adjournments thereof (the "Meeting"). The undersigned hereby acknowledges
receipt of the Notice of Meeting and Prospectus/Proxy Statement, and hereby
instructs said attorneys and proxies to vote said shares as indicated hereon.
In their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the Meeting. A majority of the proxies present and
acting at the Meeting in person or by substitute (or, if only one shall be so
present, then that one) shall have and may exercise all of the powers and
authority of said proxies hereunder.
The undersigned hereby revokes any proxy previously given.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
--------------------------------------------
ENCLOSED ENVELOPE. THIS PROXY IS SOLICITED ON
---------------------------------------------
BEHALF OF THE BOARD OF TRUSTEES.
-------------------------------
Please sign exactly as your name appears on
this Proxy. If joint owners, EITHER may sign
this Proxy. When signing as attorney,
executor, administrator, trustee, guardian, or
corporate officer, please give your full
title.
Date:_______________________, 1995
____________________________
____________________________
Signature(s)
____________________________
Title(s), if applicable
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
In order to hold the Meeting, a quorum of a Fund's shares must be present in
person or by proxy. You can help reduce the cost of additional mailings by
promptly returning your signed proxy. No matter how many shares you own, your
vote counts!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
Please detach at perforation before mailing.
+ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +
+
+ PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION
TO BE TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY
SPECIFICATION, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
FOR AGAINST ABSTAIN
1. To approve the proposed Agreement and Plan of [_] [_] [_]
Reorganization with the First Union Florida
Municipal Bond Portfolio.
FOR AGAINST ABSTAIN
2. To consider and vote upon such other matters as may [_] [_] [_]
properly come before said meeting or any adjournments
thereof.
These items are discussed in greater detail in the attached
Prospectus/Proxy Statement. The Board of Trustees of the Trust has fixed
the close of business on April 25, 1995, as the record date for the
determination of shareholders entitled to notice of and to vote at the
meeting.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED
TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. INSTRUCTIONS FOR THE
PROPER EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
Timothy W. Cox
Secretary
May 3, 1995
In their discretion, the Proxies, and each of them, are authorized to vote
upon any other business that may properly come before the meeting, or any
adjournment(s) thereof, including any adjournment(s) necessary to obtain
the requisite quorums and for approvals.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 3, 1995
Acquisition of the Assets of
ABT FLORIDA TAX-FREE FUND
OF
ABT SOUTHERN MASTER TRUST
340 Royal Palm Way
Palm Beach, Florida 33480
1-800-553-7838
By and in Exchange for Shares of
FIRST UNION FLORIDA MUNICIPAL BOND PORTFOLIO
of
First Union Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3775
1-800-326-3241
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets of the ABT Florida Tax-Free Fund, a portfolio of
ABT Southern Master Trust, in exchange for Class A Investment Shares of the
First Union Florida Municipal Bond Portfolio, a portfolio of First Union Funds,
and the assumption by First Union Florida Municipal Bond Portfolio of certain
identified liabilities of the ABT Florida Tax-Free Fund, is not a prospectus. A
Prospectus/Proxy Statement dated May 3, 1995 relating to the above-referenced
matter may be obtained from First Union Funds, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-37795. This Statement of Additional Information
relates to and should be read in conjunction with such Prospectus/Proxy
Statement.
This Statement of Additional Information incorporates by reference the
following documents, a copy of each of which accompanies this Statement of
Additional Information:
1. The Prospectus of the First Union Florida Municipal Bond Portfolio
dated February 28, 1995. (Incorporated by reference to Post-Effective
Amendment No. 39 to the Registration Statement [File No. 2-94560] of
First
<PAGE>
Union Funds filed with the Securities and Exchange Commission on
February 28, 1995).
2. The Statement of Additional Information of the First Union Florida
Municipal Bond Portfolio dated February 28, 1995. (Incorporated by
reference to Post-Effective Amendment No. 39 to the Registration
Statement [File No. 2-94560] of First Union Funds filed with the
Securities and Exchange Commission on February 28, 1995).
3. The Annual Report of the First Union Florida Municipal Bond Portfolio
dated December 31, 1994.
4. The Prospectus of the ABT Florida Tax-Free Fund dated March 30, 1995.
(Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement [File No. 33-14202) of ABT Southern Master
Trust as filed with the Securities and Exchange Commission on
September 1, 1994.
5. The Statement of Additional Information of the ABT Florida Tax Free
Fund dated March 30, 1995. (Incorporated by reference to Post-
Effective Amendment No. 14 to the Registration Statement [File No. 33-
14202) of ABT Southern Master Trust as filed with the Securities and
Exchange Commission on September 1, 1994.
6. The Annual Report of the ABT Florida Tax-Free Fund dated April 30,
1994.
7. The Semi-Annual Report of the ABT Florida Tax-Free Fund dated October
31, 1994.
The following pro forma financial information relates to the ABT Florida
Tax-Free Fund and the First Union Florida Municipal Bond Portfolio:
-2-
<PAGE>
Pro Forma Combining Portfolios of Investments of
First Union Florida Municipal Bond Portfolio and ABT Florida Tax-Free Fund
December 31,1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT
Florida Florida
Municipal Tax-Free Pro Forma
Bond Portfolio Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Amount Municipal Bonds
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S>
$ $1,500,000 $1,500,000 Alachua County Health Facilities Authority Rev. (Mental Health
Services Project) -- OGIC
1,600,000 1,600,000 Boynton Beach Water & Sewer Rev. -- AMBAC
950,000 950,000 Brevard County HFA, Single Family Mortgage Rev. -- FSA
1,300,000 1,300,000 Brevard County, Sales Tax Revenue Bonds, (MBIA Insured)
1,500,000 1,500,000 Brevard County, Utility Revenue Refunding Bonds,(AMBAC Insured)
1,500,000 1,500,000 Broward County G.O.
4,000,000 4,000,000 Broward County Health Facilities Authority Rev. (North Beach Hospital) -- MBIA
2,925,000 2,925,000 Broward County Health Facilities Authority Rev. (North Beach Hospital) -- MBIA
205,000 205,000 Broward County HFA, Home Mortgage Rev., GNMA Collateralized
1,375,000 1,375,000 Broward County HFA, Home Mortgage Rev., GNMA/FNMA Collateralized
1,240,000 1,240,000 Broward County Resource Recovery Rev. (Broward Waste Energy Co., L.P. -- North Project)
3,740,000 3,740,000 Broward County Resource Recovery Rev. (SES Broward Co., L.P. -- South Project)
1,000,000 1,000,000 Casselberry, Utility System Revenue Refunding Bonds -- FGIC Insured
2,000,000 2,000,000 Charlotte County Health Facilities Authority Rev. (Bon Secours Hospital) -- FSA
105,000 105,000 Charlotte County Special Assessment Rev. (Peachland Municipal Taxing Unit) -- MBIA
1,000,000 1,000,000 Charlotte County Utility System Rev. -- FGIC
1,000,000 1,000,000 Coconut Creek, Capital Improvement Revenue Refunding Bonds -- MBIA
500,000 500,000 Collier County, Health Facilities Authority Revenue Refunding Bonds, (The Moorings,
Inc. Project)
1,000,000 1,000,000 Cooper City Sales Tax Rev.
2,070,000 2,070,000 Dade County Educ. Facilities Authority Rev. (Florida International Univ.) -- MBIA
2,600,000 2,600,000 Dade County Educ. Facilities Authority Rev. (St. Thomas University), LOC -- Sun Bank
5,505,000 5,505,000 Dade County Educ. Facilities Authority Rev. (St. Thomas University), LOC -- Sun Bank
255,000 255,000 Dade County Health Facilities Authority Rev. (South Shore Hospital)
500,000 500,000 Dade County HFA, Single Family Mortgage Rev. -- FSA
285,000 285,000 Dade County HFA, Single Family Mortgage Rev., GNMA Collateralized
135,000 135,000 Dade County HFA, Single Family Mortgage Rev., GNMA/FNMA Collateralized
5,000,000 5,000,000 Dade County Public Facilities Rev. (Jackson Memorial Hospital)
85,000 85,000 Dade County Public Facilities Rev. (Jackson Memorial Hospital) -- MBIA
665,000 665,000 Dade County Public Facilities Rev.' (Jackson Memorial Hospital) -- MBIA
1,000,000 1,000,000 Dade County Solid Waste System Rev.
2,000,000 2,000,000 Dade County, Educational Facilities Authority, Revenue Refunding Bonds, (St. Thomas
University)
1,250,000 1,250,000 Dade County, Professional Sports Franchise Facilities, Tax Revenue Bonds -- FGIC
1,720,000 1,720,000 Dade County, Special Obligations, Revenue Bonds, (Courthouse Center Project)
215,000 215,000 Duval County HFA, Single Family Mortgage Rev., GNMA Collateralized
840,000 840,000 Duval County HFA, Single Family Mortgage Rev., GNMA Collateralized -- FGIC
3,000,000 3,000,000 Escambia County PCR (Gulf Power Co. Project)
3,000,000 3,000,000 Escambia County, Pollution Control Revenue Bonds, (Champion International Corp.
Project)
2,000,000 2,000,000 Florida Department of Natural Resources, Preservation 2000 Rev. -- AMBAC
1,895,000 1,895,000 Florida HFA, Multi-Family Housing Rev. (Bloomingdale Woods Project)
3,300,000 3,300,000 Florida Municipal Power Agency Rev. (Stanton II Proj.) -- AMBAC
6,350,000 6,350,000 Florida Municipal Power Agency Rev. (Stanton II Proj.) -- AMBAC
3,000,000 3,000,000 Florida State Board of Education Capital Outlay
1,480,000 1,480,000 Florida State Board of Education Capital Outlay
5,200,000 5,200,000 Florida State Board of Education Capital Outlay
2,500,000 2,500,000 Florida State Board of Regents (Univ. System Imp. Rev.) -- AMBAC
200,000 200,000 Florida State Department of General Services, Facilities Management Rev.
1,000,000 1,000,000 Florida State Department of General Services, Facilities Management Rev.
200,000 200,000 Florida State Department of General Services, Facilities Management Rev.
1,500,000 1,500,000 Florida State G.O.
$ $2,000,000 $2,000,000 Florida State University Financial Assistance Inc., Educational Rev., LOC -- Sun Bank
<CAPTION>
First Union
Florida
Municipal
Interest Maturity Bond Portfolio
- -------------------------------------------------------------------------------------- --------------
Municipal Bonds Rate Date
- ----------------------------------------------------------------------------------------------- -------- --------------
<S> <C> <C> <C>
Alachua County Health Facilities Authority Rev. (Mental Health
Services Project) -- CGI 7.750% 07/01/10 $
Boynton Beach Water & Sewer Rev. -- AMBAC 7.400 11/01/15
Brevard County HFA, Single Family Mortgage Rev. -- FSA 7.000 03/01/13
Brevard County, Sales Tax Revenue Bonds, (MBIA Insured) 5.750 12/01/10 1,210,188
Brevard County, Utility Revenue Refunding Bonds,(AMBAC Insured) 5.250 03/01/14 1,277,060
Broward County G.O. 6.900 07/01/09
Broward County Health Facilities Authority Rev. (North Beach Hospital) -- MBIA 6.750 08/15/06
Broward County Health Facilities Authority Rev. (North Beach Hospital) -- MBIA 7.000 08/15/11
Broward County HFA, Home Mortgage Rev., GNMA Collateralized 7.750 03/01/15
Broward County HFA, Home Mortgage Rev., GNMA/FNMA Collateralized 7.125 03/01/17
Broward County Resource Recovery Rev. (Broward Waste Energy Co., L.P. -- North Project) 7.950 12/01/08
Broward County Resource Recovery Rev. (SES Broward Co., L.P. -- South Project) 7.950 12/01/08
Casselberry, Utility System Revenue Refunding Bonds -- FGIC Insured 5.250 10/01/10 853,657
Charlotte County Health Facilities Authority Rev. (Bon Secours Hospital) -- FSA 5.858 08/15/27
Charlotte County Special Assessment Rev. (Peachland Municipal Taxing Unit) -- MBIA 7.250 10/01/10
Charlotte County Utility System Rev. -- FGIC 7.000 10/01/14
Coconut Creek, Capital Improvement Revenue Refunding Bonds -- MBIA 5.900 10/01/14 920,131
Collier County, Health Facilities Authority Revenue Refunding Bonds, (The Moorings,
Inc. Project) 7.000 12/01/19 487,887
Cooper City Sales Tax Rev. 7.250 10/01/11
Dade County Educ. Facilities Authority Rev. (Florida International Univ.) -- MBIA 7.100 10/01/16
Dade County Educ. Facilities Authority Rev. (St. Thomas University), LOC -- Sun Bank 7.650 01/01/14
Dade County Educ. Facilities Authority Rev. (St. Thomas University), LOC -- Sun Bank 6.125 01/01/19
Dade County Health Facilities Authority Rev. (South Shore Hospital) 7.600 08/01/24
Dade County HFA, Single Family Mortgage Rev. -- FSA 6.950 12/15/12
Dade County HFA, Single Family Mortgage Rev., GNMA Collateralized 7.500 09/01/13
Dade County HFA, Single Family Mortgage Rev., GNMA/FNMA Collateralized 7.100 03/01/17
Dade County Public Facilities Rev. (Jackson Memorial Hospital) 5.250 06/01/23
Dade County Public Facilities Rev. (Jackson Memorial Hospital) -- MBIA 7.300 06/01/12
Dade County Public Facilities Rev.' (Jackson Memorial Hospital) -- MBIA 7.300 06/01/96
Dade County Solid Waste System Rev. 7.125 10/01/06
Dade County, Educational Facilities Authority, Revenue Refunding Bonds, (St. Thomas
University) 6.000 01/01/14 1,858,866
Dade County, Professional Sports Franchise Facilities, Tax Revenue Bonds -- FGIC 6.000 10/01/17 1,162,145
Dade County, Special Obligations, Revenue Bonds, (Courthouse Center Project) 6.250 04/01/09 1,664,719
Duval County HFA, Single Family Mortgage Rev., GNMA Collateralized 7.500 06/01/15
Duval County HFA, Single Family Mortgage Rev., GNMA Collateralized -- FGIC 7.350 07/01/24
Escambia County PCR (Gulf Power Co. Project) 8.250 06/01/17
Escambia County, Pollution Control Revenue Bonds, (Champion International Corp.
Project) 5.875 06/01/22 2,410,998
Florida Department of Natural Resources, Preservation 2000 Rev. -- AMBAC 6.750 07/01/13
Florida HFA, Multi-Family Housing Rev. (Bloomingdale Woods Project) 6.875 10/01/12
Florida Municipal Power Agency Rev. (Stanton II Proj.) -- AMBAC 5.100 10/01/24
Florida Municipal Power Agency Rev. (Stanton II Proj.) -- AMBAC 4.500 10/01/27
Florida State Board of Education Capital Outlay 7.000 06/01/19
Florida State Board of Education Capital Outlay 7.250 06/01/23
Florida State Board of Education Capital Outlay 5.800 06/01/24
Florida State Board of Regents (Univ. System Imp. Rev.) -- AMBAC 6.700 07/01/12
Florida State Department of General Services, Facilities Management Rev. 7.290 09/01/10
Florida State Department of General Services, Facilities Management Rev. 7.750 09/01/16
Florida State Department of General Services, Facilities Management Rev. 7.000 09/01/20
Florida State G.O. 7.375 07/01/19
Florida State University Financial Assistance Inc., Educational Rev., LOC -- Sun Bank 6.750% 10/01/16 $
<CAPTION>
ABT
Florida
Tax-Free Pro Forma
Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
Municipal Bonds Market Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alachua County Health Facilities Authority Rev. (Mental Health
Services Project) -- CGI $1,633,125 $1,633,125
Boynton Beach Water & Sewer Rev. -- AMBAC 1,764,000 1,764,000
Brevard County HFA, Single Family Mortgage Rev. -- FSA 958,313 958,313
Brevard County, Sales Tax Revenue Bonds, (MBIA Insured) 1,210,188
Brevard County, Utility Revenue Refunding Bonds,(AMBAC Insured) 1,277,060
Broward County G.O. 1,584,375 1,584,375
Broward County Health Facilities Authority Rev. (North Beach Hospital) -- MBIA 4,175,000 4,175,000
Broward County Health Facilities Authority Rev. (North Beach Hospital) -- MBIA 3,020,063 3,020,063
Broward County HFA, Home Mortgage Rev., GNMA Collateralized 212,431 212,431
Broward County HFA, Home Mortgage Rev., GNMA/FNMA Collateralized 1,388,750 1,388,750
Broward County Resource Recovery Rev. (Broward Waste Energy Co., L.P. -- North Project) 1,329,900 1,329,900
Broward County Resource Recovery Rev. (SES Broward Co., L.P. -- South Project) 4,011,150 4,011,150
Casselberry, Utility System Revenue Refunding Bonds -- FGIC Insured 853,657
Charlotte County Health Facilities Authority Rev. (Bon Secours Hospital) -- FSA 1,797,500 1,797,500
Charlotte County Special Assessment Rev. (Peachland Municipal Taxing Unit) -- MBIA 111,038 111,038
Charlotte County Utility System Rev. -- FGIC 1,085,000 1,085,000
Coconut Creek, Capital Improvement Revenue Refunding Bonds -- MBIA 920,131
Collier County, Health Facilities Authority Revenue Refunding Bonds, (The Moorings,
Inc. Project) 487,887
Cooper City Sales Tax Rev. 1,032,500 1,032,500
Dade County Educ. Facilities Authority Rev. (Florida International Univ.) -- MBIA 2,258,888 2,258,888
Dade County Educ. Facilities Authority Rev. (St. Thomas University), LOC -- Sun Bank 2,856,750 2,856,750
Dade County Educ. Facilities Authority Rev. (St. Thomas University), LOC -- Sun Bank 5,023,313 5,023,313
Dade County Health Facilities Authority Rev. (South Shore Hospital) 262,650 262,650
Dade County HFA, Single Family Mortgage Rev. -- FSA 505,625 505,625
Dade County HFA, Single Family Mortgage Rev., GNMA Collateralized 286,781 286,781
Dade County HFA, Single Family Mortgage Rev., GNMA/FNMA Collateralized 135,844 135,844
Dade County Public Facilities Rev. (Jackson Memorial Hospital) 4,100,000 4,100,000
Dade County Public Facilities Rev. (Jackson Memorial Hospital) -- MBIA 87,444 87,444
Dade County Public Facilities Rev.' (Jackson Memorial Hospital) -- MBIA 698,250 698,250
Dade County Solid Waste System Rev. 1,038,750 1,038,750
Dade County, Educational Facilities Authority, Revenue Refunding Bonds, (St. Thomas
University) 1,858,866
Dade County, Professional Sports Franchise Facilities, Tax Revenue Bonds -- FGIC 1,162,145
Dade County, Special Obligations, Revenue Bonds, (Courthouse Center Project) 1,664,719
Duval County HFA, Single Family Mortgage Rev., GNMA Collateralized 216,075 216,075
Duval County HFA, Single Family Mortgage Rev., GNMA Collateralized -- FGIC 857,850 857,850
Escambia County PCR (Gulf Power Co. Project) 3,183,750 3,183,750
Escambia County, Pollution Control Revenue Bonds, (Champion International Corp.
Project) 2,410,998
Florida Department of Natural Resources, Preservation 2000 Rev. -- AMBAC 2,032,500 2,032,500
Florida HFA, Multi-Family Housing Rev. (Bloomingdale Woods Project) 1,902,106 1,902,106
Florida Municipal Power Agency Rev. (Stanton II Proj.) -- AMBAC 2,607,000 2,607,000
Florida Municipal Power Agency Rev. (Stanton II Proj.) -- AMBAC 4,445,000 4,445,000
Florida State Board of Education Capital Outlay 3,120,000 3,120,000
Florida State Board of Education Capital Outlay 1,546,600 1,546,600
Florida State Board of Education Capital Outlay 4,628,000 4,628,000
Florida State Board of Regents (Univ. System Imp. Rev.) -- AMBAC 2,531,250 2,531,250
Florida State Department of General Services, Facilities Management Rev. 208,250 208,250
Florida State Department of General Services, Facilities Management Rev. 1,062,500 1,062,500
Florida State Department of General Services, Facilities Management Rev. 203,000 203,000
Florida State G.O. 1,633,125 1,633,125
Florida State University Financial Assistance Inc., Educational Rev., LOC -- Sun Bank $2,132,500 $2,132,500
</TABLE>
<PAGE>
Pro Forma Combining Portfolios of Investments of
First Union Florida Municipal Bond Portfolio and ABT Florida Tax-Free Fund
December 31,1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT
Florida Florida
Municipal Tax-Free Pro Forma
Bond Portfolio Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Amount Municipal Bonds
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S>
1,000,000 1,000,000 Florida Sunshine Skyway Rev.
250,000 250,000 Fort Myers Special Assessment District Rev.
1,000,000 1,000,000 Fort Myers Special Assessment District Rev.
1,500,000 1,500,000 Gainesville, FL, Utilities System Revenue Refunding Bonds, (Series B)
1,235,000 1,235,000 Hialeah, Capital Improvement Revenue Bonds,
1,000,000 1,000,000 Hillsborough County Aviation Rev. (Tampa International Airport) -- AMBAC
3,000,000 3,000,000 Hillsborough County IDA (Tampa Electric Co. Project)
1,965,000 1,965,000 Hillsborough County IDA (Tampa Electric Co. Project)
1,000,000 1,000,000 Hillsborough County, Capital Improvement Program Revenue Bonds -- FGIC Insured
2,000,000 2,000,000 Hillsborough County, IDA Revenue Refunding Bonds, (University Community Hospital) -- MB
1,000,000 1,000,000 Hillsborough County, IDA Revenue Refunding Bonds,(University Community Hospital) -- MBI
1,000,000 1,000,000 Homestead Excise Tax Rev. -- MBIA
2,135,000 2,135,000 Jacksonville Electric Authority Rev., (Bulk Power Supply)
2,500,000 2,500,000 Jacksonville Electric Authority Rev., (St. John's River Power System)
3,000,000 3,000,000 Jacksonville Electric Authority Rev., (St. John's River Power System)
1,000,000 1,000,000 Jacksonville Excise Tax Rev. -- MBIA
2,000,000 2,000,000 Jacksonville Health Facilities Authority Rev. (Daughters of Charity, Inc.)
1,500,000 1,500,000 Jacksonville Health Facilities Authority Rev. (St. Luke's Hospital)
1,500,000 1,500,000 Jacksonville Health Facilities Authority Rev. (St. Luke's Hospital)
4,250,000 4,250,000 Jacksonville Hospital Rev. (University Medical Center Project, Inc.) -- CLIC
1,000,000 1,000,000 Jacksonville, Electric Authority Revenue Refunding Bonds, (St. Johns River-
Issue 2)/(Series S)
1,000,000 1,000,000 Kissimmee, Utility Authority, Electric System Revenue Refunding Bonds -- FGIC Insured
1,700,000 1,700,000 Lake County, Resource Recovery Revenue Refunding Bonds, (Series 1993A)
1,375,000 1,375,000 Lake County, Resource Recovery Revenue Refunding Bonds, (Series 1993A)
1,000,000 1,000,000 Lakeland Electric & Water Rev.
1,000,000 1,000,000 Manatee County Community Redevelopment Rev. -- MBIA
3,500,000 3,500,000 Manatee County Public Utility System Rev. -- MBIA
1,500,000 1,500,000 Martin County Health Facilities Authority Rev. (Martin Memorial Hospital) -- MBIA
2,400,000 2,400,000 Miami Sports & Exhibition Rev. -- FGIC
1,000,000 1,000,000 No. Tampa Housing, MFM Rev., (Country Oaks' Apts.), FHA Insured, FNMA Collateralized
1,000,000 1,000,000 Okaloosa County, Water & Sewer Revenue Bonds, -- AMBAC Insured
1,000,000 1,000,000 Orlando & Orange County Expressway Authority, Senior Lien Revenue Refunding Bonds - FGI
8,750,000 8,750,000 Orlando Utility Commission Water & Electric Rev.
1,460,000 1,460,000 Orlando Utility Commission Water & Electric Rev.
1,000,000 1,000,000 Orlando, Utilities, Common Water & Electric Revenue Refunding Bonds, (Sub-Series D)
9,500,000 9,500,000 Orlando/Orange County Expressway Authority Rev.
2,500,000 2,500,000 Palm Beach County Airport System Rev. -- MBIA
3,000,000 3,000,000 Palm Beach County Criminal Justice Facilities Rev. -- FGIC
4,440,000 4,440,000 Palm Beach County HFA, Single Family Mortgage Rev., GNMA Collateralized
7,500,000 7,500,000 Palm Beach Health Facilities Authority Rev. (Good Samaritan Hospital)
860,000 860,000 Polk County HFA, Single Family Mortgage Rev., GNMA Collateralized
1,000,000 1,000,000 Port Everglades, Port Authority Revenue Bonds, (Escrowed to Maturity)
1,230,000 1,230,000 Puerto Rico Commonwealth, G.O. UT Refunding Bonds, (Series A)
3,500,000 3,500,000 Puerto Rico Electric Authority Rev. (Power Rev.)
3,500,000 3,500,000 Puerto Rico Electric Authority Rev. (Power Rev.)
1,250,000 1,250,000 Puerto Rico Municipal Finance Agency, Revenue Bonds, (Series A)
1,500,000 1,500,000 Reedy Creek, Import Distribution, 5.00% Utility Revenue Refunding Bonds, (Series 1) --
500,000 500,000 Sarasota County, Solid Waste System Revenue Refunding Bonds
$1,000,000 $ $1,000,000 Sarasota County, Utility System Revenue Bonds, -- FGIC Insured
3,590,000 3,590,000 Seacoast Utilities Water & Sewer Rev. - FGIC
<CAPTION>
First Union
Florida
Municipal
Interest Maturity Bond Portfolio
- -------------------------------------------------------------------------------------- --------------
Municipal Bonds Rate Date
- ----------------------------------------------------------------------------------------------- -------- --------------
<S> <C> <C> <C>
Florida Sunshine Skyway Rev. 6.600 07/01/08
Fort Myers Special Assessment District Rev. 7.100 07/01/06
Fort Myers Special Assessment District Rev. 7.050 07/05/05
Gainesville, FL, Utilities System Revenue Refunding Bonds, (Series B) 5.500 10/01/13 1,328,223
Hialeah, Capital Improvement Revenue Bonds, 5.500 10/01/13 1,011,876
Hillsborough County Aviation Rev. (Tampa International Airport) -- AMBAC 6.900 10/01/11
Hillsborough County IDA (Tampa Electric Co. Project) 8.000 05/01/22
Hillsborough County IDA (Tampa Electric Co. Project) 7.875 08/01/21
Hillsborough County, Capital Improvement Program Revenue Bonds -- FGIC Insured 6.625 08/01/12 1,009,005
Hillsborough County, IDA Revenue Refunding Bonds, (University Community Hospital) -- MB 6.500 08/15/19 1,975,620
Hillsborough County, IDA Revenue Refunding Bonds,(University Community Hospital) -- MBI 5.750 08/15/10 929,777
Homestead Excise Tax Rev. -- MBIA 7.150 10/01/11
Jacksonville Electric Authority Rev., (Bulk Power Supply) 7.000 10/01/12
Jacksonville Electric Authority Rev., (St. John's River Power System) 7.000 10/01/09
Jacksonville Electric Authority Rev., (St. John's River Power System) 5.250 10/01/28
Jacksonville Excise Tax Rev. -- MBIA 6.500 10/01/08
Jacksonville Health Facilities Authority Rev. (Daughters of Charity, Inc.) 7.500 11/01/15
Jacksonville Health Facilities Authority Rev. (St. Luke's Hospital) 6.750 11/15/13
Jacksonville Health Facilities Authority Rev. (St. Luke's Hospital) 7.125 11/15/20
Jacksonville Hospital Rev. (University Medical Center Project, Inc.) -- CLIC 6.600 02/01/21
Jacksonville, Electric Authority Revenue Refunding Bonds, (St. Johns River-
Issue 2)/(Se 5.500 10/01/13 882,539
Kissimmee, Utility Authority, Electric System Revenue Refunding Bonds -- FGIC Insured 5.500 10/15/15 871,445
Lake County, Resource Recovery Revenue Refunding Bonds, (Series 1993A) 5.850 10/01/09 1,471,073
Lake County, Resource Recovery Revenue Refunding Bonds, (Series 1993A) 5.950 10/01/13 1,153,599
Lakeland Electric & Water Rev. 7.000 10/01/09
Manatee County Community Redevelopment Rev. -- MBIA 7.000 04/01/08
Manatee County Public Utility System Rev. -- MBIA 6.750 10/01/13
Martin County Health Facilities Authority Rev. (Martin Memorial Hospital) -- MBIA 7.100 11/15/20
Miami Sports & Exhibition Rev. -- FGIC 7.200 10/01/20
No. Tampa Housing, MFM Rev., (Country Oaks' Apts.), FHA Insured, FNMA Collateralized 6.900 01/01/24
Okaloosa County, Water & Sewer Revenue Bonds, -- AMBAC Insured 6.000 07/01/11 952,753
Orlando & Orange County Expressway Authority, Senior Lien Revenue Refunding Bonds - FGI 5.500 07/01/18 862,112
Orlando Utility Commission Water & Electric Rev. 6.750 10/01/17
Orlando Utility Commission Water & Electric Rev. 7.000 10/01/23
Orlando, Utilities, Common Water & Electric Revenue Refunding Bonds, (Sub-Series D) 6.750 07/01/18 1,018,588
Orlando/Orange County Expressway Authority Rev. 5.950 07/01/23
Palm Beach County Airport System Rev. -- MBIA 7.750 10/01/10
Palm Beach County Criminal Justice Facilities Rev. -- FGIC 7.200 06/01/15
Palm Beach County HFA, Single Family Mortgage Rev., GNMA Collateralized 7.600 03/01/23
Palm Beach Health Facilities Authority Rev. (Good Samaritan Hospital) 6.300 10/01/22
Polk County HFA, Single Family Mortgage Rev., GNMA Collateralized 7.000 09/01/15
Port Everglades, Port Authority Revenue Bonds, (Escrowed to Maturity) 7.125 11/01/16 1,063,180
Puerto Rico Commonwealth, G.O. UT Refunding Bonds, (Series A) 6.250 07/01/10 1,178,265
Puerto Rico Electric Authority Rev. (Power Rev.) 5.500 07/01/20
Puerto Rico Electric Authority Rev. (Power Rev.) 6.375 07/01/24
Puerto Rico Municipal Finance Agency, Revenue Bonds, (Series A) 5.800 07/01/07 1,206,938
Reedy Creek, Import Distribution, 5.00% Utility Revenue Refunding Bonds, (Series 1) -- 5.000 10/01/19 1,193,723
Sarasota County, Solid Waste System Revenue Refunding Bonds 5.625 10/01/13 432,707
Sarasota County, Utility System Revenue Bonds, -- FGIC Insured 6.500 10/01/14 $ 998,766
Seacoast Utilities Water & Sewer Rev. - FGIC 5.500 03/01/18
<CAPTION>
ABT
Florida
Tax-Free Pro Forma
Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
Municipal Bonds Market Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Florida Sunshine Skyway Rev. 1,010,000 1,010,000
Fort Myers Special Assessment District Rev. 254,375 254,375
Fort Myers Special Assessment District Rev. 1,021,250 1,021,250
Gainesville, FL, Utilities System Revenue Refunding Bonds, (Series B) 1,328,223
Hialeah, Capital Improvement Revenue Bonds, 1,011,876
Hillsborough County Aviation Rev. (Tampa International Airport) -- AMBAC 1,028,750 1,028,750
Hillsborough County IDA (Tampa Electric Co. Project) 3,311,250 3,311,250
Hillsborough County IDA (Tampa Electric Co. Project) 2,146,762 2,146,762
Hillsborough County, Capital Improvement Program Revenue Bonds -- FGIC Insured 1,009,005
Hillsborough County, IDA Revenue Refunding Bonds, (University Community Hospital) -- MB 1,975,620
Hillsborough County, IDA Revenue Refunding Bonds,(University Community Hospital) -- MBI 929,777
Homestead Excise Tax Rev. -- MBIA 1,050,000 1,050,000
Jacksonville Electric Authority Rev., (Bulk Power Supply) 2,303,131 2,303,131
Jacksonville Electric Authority Rev., (St. John's River Power System) 2,590,625 2,590,625
Jacksonville Electric Authority Rev., (St. John's River Power System) 2,445,000 2,445,000
Jacksonville Excise Tax Rev. -- MBIA 1,011,250 1,011,250
Jacksonville Health Facilities Authority Rev. (Daughters of Charity, Inc.) 2,215,000 2,215,000
Jacksonville Health Facilities Authority Rev. (St. Luke's Hospital) 1,443,750 1,443,750
Jacksonville Health Facilities Authority Rev. (St. Luke's Hospital) 1,498,125 1,498,125
Jacksonville Hospital Rev. (University Medical Center Project, Inc.) -- CLIC 4,207,500 4,207,500
Jacksonville, Electric Authority Revenue Refunding Bonds, (St. Johns River-
Issue 2)/(Series S) 882,539
Kissimmee, Utility Authority, Electric System Revenue Refunding Bonds -- FGIC Insured 871,445
Lake County, Resource Recovery Revenue Refunding Bonds, (Series 1993A) 1,471,073
Lake County, Resource Recovery Revenue Refunding Bonds, (Series 1993A) 1,153,599
Lakeland Electric & Water Rev. 1,016,250 1,016,250
Manatee County Community Redevelopment Rev. -- MBIA 1,058,750 1,058,750
Manatee County Public Utility System Rev. -- MBIA 3,749,375 3,749,375
Martin County Health Facilities Authority Rev. (Martin Memorial Hospital) -- MBIA 1,545,000 1,545,000
Miami Sports & Exhibition Rev. -- FGIC 2,607,000 2,607,000
No. Tampa Housing, MFM Rev., (Country Oaks' Apts.), FHA Insured, FNMA Collateralized 991,250 991,250
Okaloosa County, Water & Sewer Revenue Bonds, -- AMBAC Insured 952,753
Orlando & Orange County Expressway Authority, Senior Lien Revenue Refunding Bonds - FGI 862,112
Orlando Utility Commission Water & Electric Rev. 9,034,375 9,034,375
Orlando Utility Commission Water & Electric Rev. 1,573,150 1,573,150
Orlando, Utilities, Common Water & Electric Revenue Refunding Bonds, (Sub-Series D) 1,018,588
Orlando/Orange County Expressway Authority Rev. 8,514,375 8,514,375
Palm Beach County Airport System Rev. -- MBIA 2,756,250 2,756,250
Palm Beach County Criminal Justice Facilities Rev. -- FGIC 3,180,000 3,180,000
Palm Beach County HFA, Single Family Mortgage Rev., GNMA Collateralized 4,551,000 4,551,000
Palm Beach Health Facilities Authority Rev. (Good Samaritan Hospital) 6,468,750 6,468,750
Polk County HFA, Single Family Mortgage Rev., GNMA Collateralized 864,300 864,300
Port Everglades, Port Authority Revenue Bonds, (Escrowed to Maturity) 1,063,180
Puerto Rico Commonwealth, G.O. UT Refunding Bonds, (Series A) 1,178,265
Puerto Rico Electric Authority Rev. (Power Rev.) 2,975,000 2,975,000
Puerto Rico Electric Authority Rev. (Power Rev.) 3,285,625 3,285,625
Puerto Rico Municipal Finance Agency, Revenue Bonds, (Series A) 1,206,938
Reedy Creek, Import Distribution, 5.00% Utility Revenue Refunding Bonds, (Series 1) -- 1,193,723
Sarasota County, Solid Waste System Revenue Refunding Bonds 432,707
Sarasota County, Utility System Revenue Bonds, -- FGIC Insured $ $ 998,766
Seacoast Utilities Water & Sewer Rev. - FGIC 3,172,662 3,172,662
</TABLE>
<PAGE>
Pro Forma Combining Portfolios of Investments of
First Union Florida Municipal Bond Portfolio and ABT Florida Tax-Free Fund
December 31,1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT
Florida Florida
Municipal Tax-Free Pro Forma
Bond Portfolio Fund Combined
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Amount Municipal Bonds
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S>
1,035,000 1,035,000 Sebastian, Utility System Revenue Bonds, -- MBIA Insured
1,000,000 1,000,000 South Broward Hospital District Rev. -- MBIA
750,000 750,000 St. John's County Solid Waste Disposal Rev. -- FGIC
1,000,000 1,000,000 St. Petersburg Health Facilities Authority Rev. (St. Mary's Hospital) -- MBIA
1,000,000 1,000,000 St. Petersburg, Public Utility Revenue Bonds,
3,500,000 3,500,000 Tallahassee Consolidated Utility System Rev.
2,050,000 2,050,000 Tampa Capital Improvement Program Rev.
425,000 425,000 Tampa Capital Improvement Program Rev.
750,000 750,000 Tampa Guaranteed Entitlement Rev. -- AMBAC
1,000,000 1,000,000 Tampa, Revenue Refunding Bonds, (Allegheny Health System-St. Mary's Hospital)
540,000 540,000 University Florida Community Hospital
1,750,000 1,750,000 Winter Haven Housing Authority MFHR, FHA Insured (Abbey Lane Apts.)
850,000 850,000 Winter Haven Housing Authority, MFHR, FHA Insured (Abbey Lane Apts.)
Total Investments
<CAPTION>
ABBREVIATIONS
<C> <C> <S>
AMBAC -- AMBAC Indemnity Corporation
CGIC -- Capital Guaranty Insurance Company
CLIC -- Connie Lee Insurance Company
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
G.O. -- General Obligation
HFA -- Housing Finance Authority
HFC -- Housing Finance Commission
IDA -- Industrial Development Authority
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MFHR -- Multi-Family Housing Revenue
MFM -- Multi-Family Mortgage
PCR -- Pollution Control Revenue
PFR -- Public Facility Revenue
VRDN -- Variable Rate Demand Notes
See notes to pro forma financial statements
<CAPTION>
First Union
Florida
Municipal
Interest Maturity Bond Portfolio
- -------------------------------------------------------------------------------------- --------------
Municipal Bonds Rate Date
- ----------------------------------------------------------------------------------------------- -------- --------------
<S> <C> <C> <C>
Sebastian, Utility System Revenue Bonds, -- MBIA Insured 5.400 10/10/13 899,382
South Broward Hospital District Rev. -- MBIA 7.250 05/01/06
St. John's County Solid Waste Disposal Rev. -- FGIC 7.250 11/01/10
St. Petersburg Health Facilities Authority Rev. (St. Mary's Hospital) -- MBIA 7.000 12/01/21
St. Petersburg, Public Utility Revenue Bonds, 5.600 10/01/15 885,687
Tallahassee Consolidated Utility System Rev. 6.900 10/01/14
Tampa Capital Improvement Program Rev. 8.375 10/01/18
Tampa Capital Improvement Program Rev. 8.250 10/01/18
Tampa Guaranteed Entitlement Rev. -- AMBAC 7.050 10/01/07
Tampa, Revenue Refunding Bonds, (Allegheny Health System-St. Mary's Hospital) 5.750 12/01/07 950,963
University Florida Community Hospital 7.500 09/01/11
Winter Haven Housing Authority MFHR, FHA Insured (Abbey Lane Apts.) 7.000 07/01/24
Winter Haven Housing Authority, MFHR, FHA Insured (Abbey Lane Apts.) 7.000 07/01/12
-----------
Total Investments $34,121,872
===========
<CAPTION>
ABT
Florida
Tax-Free Pro Forma
Fund Combined
- -----------------------------------------------------------------------------------------------------------------------
Municipal Bonds Market Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sebastian, Utility System Revenue Bonds, -- MBIA Insured 899,382
South Broward Hospital District Rev. -- MBIA 1,047,500 1,047,500
St. John's County Solid Waste Disposal Rev. -- FGIC 792,187 792,187
St. Petersburg Health Facilities Authority Rev. (St. Mary's Hospital) -- MBIA 1,028,750 1,028,750
St. Petersburg, Public Utility Revenue Bonds, 885,687
Tallahassee Consolidated Utility System Rev. 3,578,750 3,578,750
Tampa Capital Improvement Program Rev. 2,126,875 2,126,875
Tampa Capital Improvement Program Rev. 439,344 439,344
Tampa Guaranteed Entitlement Rev. -- AMBAC 800,625 800,625
Tampa, Revenue Refunding Bonds, (Allegheny Health System-St. Mary's Hospital) 950,963
University Florida Community Hospital 596,700 596,700
Winter Haven Housing Authority MFHR, FHA Insured (Abbey Lane Apts.) 1,758,750 1,758,750
Winter Haven Housing Authority, MFHR, FHA Insured (Abbey Lane Apts.) 859,562 859,562
----------------------------
Total Investments $171,575,869 $205,697,741
============================
</TABLE>
<PAGE>
Pro Forma Combining Statement of Assets and Liabilities of
First Union Florida Municipal Bond Portfolio and ABT Florida Tax-Free Fund
December 31, 1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT
Florida Florida
Municipal Tax-Free Pro Forma
Bond Portfolio Fund Combined
-------------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Investments in securities at value
(cost $36,767,689; $172,604,123; and
209,371,812, respectively) $34,121,872 $171,575,869 $205,697,741
Cash 234,240 433,322 667,562
Receivables:
Investment securities sold 2,033,751 --- 2,033,751
Fund shares sold 105,012 374,263 479,275
Interest 667,506 3,416,390 4,083,896
Prepaid expenses 16,289 28,837 45,126
------------ ------------ ------------
Total assets 37,178,670 175,828,681 213,007,351
------------ ------------ ------------
LIABILITIES
Payables:
Investment securities purchased 1,204,682 --- 1,204,682
Fund shares redeemed 657,374 823,220 1,480,594
Dividends 80,173 --- 80,173
Accrued expenses 27,159 72,673 99,832
------------ ------------ ------------
Total liabilities 1,969,388 895,893 2,865,281
------------ ------------ ------------
Total net assets $35,209,282 $174,932,788 $210,142,070
============ ============ ============
Total net assets by class of shares
Class A $ 8,689,087 $174,932,788 $183,621,875
Class B 24,756,282 --- 24,756,282
Y Shares 1,763,913 --- 1,763,913
Shares outstanding
Class A
Pre-merger 974,131 16,859,989 N/A
Post-merger 974,131 19,611,299 20,585,430
Class B 2,775,663 --- 2,775,663
Y Shares 197,806 --- 197,806
Net asset value (total net assets / shares outstanding)
Class A
Pre-merger $8.92 $10.38 N/A
Post-merger $8.92 $8.92 $8.92
Class B $8.92 --- $8.92
Y Shares $8.92 --- $8.92
</TABLE>
See notes to pro forma financial statements
<PAGE>
Pro Forma Combining Statement of Operations of
First Union Florida Municipal Bond Portfolio and ABT Florida Tax-Free Fund
For the year ended December 31, 1994
(unaudited)
<TABLE>
<CAPTION>
First Union ABT
Florida Florida
Municipal Tax-Free Pro Forma Pro Forma
Bond Portfolio Fund Adjustments Combined
-------------- -------- ----------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Income:
Interest $2,002,836 $12,149,728 $ $14,152,564
---------- ----------- ----------- -----------
Expenses:
Investment advisory fee 171,732 586,764 391,176 (1) 1,149,672
Trustees' fees 25,864 (23,364)(2) 2,500
Administrative personnel and services fees 75,397 131,782 (16,333)(3) 190,846
Custodian and portfolio accounting fees 52,298 133,872 (94,158)(4) 92,012
Transfer and dividend disbursing agent fees and expenses 28,573 130,124 (46,391)(5) 112,306
Distribution services fee - Class A Investment Shares 23,034 71,796 (6) 94,830
Distribution services fee - Class B Investment Shares 178,862 178,862
Shareholder services fee - Class B Investment Shares 19,489 19,489
Fund share registration costs 24,849 10,148 34,997
Auditing fees 12,134 16,897 (16,897)(2) 12,134
Legal fees 1,784 26,247 (22,247)(2) 5,784
Printing and postage 19,929 16,988 (14,988)(2) 21,929
Insurance premiums 5,146 32,380 (31,780)(2) 5,746
Miscellaneous 4,184 13,344 (7,344)(2) 10,184
---------- ----------- ----------- -----------
Total expenses 617,411 1,124,410 189,470 1,931,291
---------- ----------- ----------- -----------
Less:
Waiver of investment advisory fee (171,732) (288,381)(7) (460,113)
Waiver of administrative personnel and services fee (75,397) 75,397 (8)
Reimbursement of other expenses (14,821) 14,821 (8)
---------- ----------- ----------- -----------
Total waivers (261,950) (198,163) (460,113)
---------- ----------- ----------- -----------
Net expenses 355,461 1,124,410 (8,693) 1,471,178
---------- ----------- ----------- -----------
Net investment income 1,647,375 11,025,318 8,693 12,681,386
---------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (identified cost basis) (2,059,403) (1,115,230) (3,174,633)
Net change in unrealized appreciation (depreciation) on
investments (3,012,525) (21,206,264) (24,218,789)
---------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on investments (5,071,928) (22,321,494) (27,393,422)
---------- ----------- ----------- -----------
Change in net assets resulting from operations ($3,424,553) ($11,296,176) $8,693 ($14,712,036)
---------- ----------- ----------- -----------
</TABLE>
(1) Reflects an increase in investment advisory fees based on the surviving
Fund's fee schedule.
(2) Adjustment reflects expected savings when the two funds combine.
(3) Reflects a decrease in administrative personnel and services fees based
on the surviving Fund's fee schedule.
(4) Based on First Union Florida Municipal Bond Portfolio custodian and
portfolio accounting contract
(5) Based on First Union Florida Municipal Bond Portfolio transfer agent and
dividend disbursing contract.
(6) Reflects increase in Class A distribution servcice fees based on surviving
fund's fee schedule and voluntary expense limitations in effect for Class A
investment shares.
(7) Reflects the increase in the waiver of the investment advisory fee based
upon the voluntary agreement to limit the investment advisory fees to 0.30%
of average net assets.
(8) Reflects the change in the waiver of the administrative personnel and
services fees and reimbursement of other expenses by the investment advisor
based on the expected expense ratios due to the economies of scale realized
with the additional assets after the merger.
See notes to pro forma financial statements
<PAGE>
Notes to Pro Forma Financial Statements of
First Union Florida Municipal Bond Portfolio and ABT Florida Tax-Free Fund
December 31, 1994
(unaudited)
1. Basis of Combination
The Pro Forma Combining Portfolio of Investments and Pro Forma Combining
Statement of Assets and Liabilities reflect the accounts of First Union Florida
Municipal Bond Portfolio (First Union) and ABT Florida Tax-Free Fund (ABT) at
December 31, 1994. The Pro Forma Combining Statement of Operations reflects the
accounts of First Union and ABT for the year ended December 31, 1994. These
statements have been derived from the annual report of First Union dated
December 31, 1994, and from ABT's books and records utilized in calculating
daily net asset value at December 31, 1994.
The pro forma statements give effect to the proposed transfer of the assets
and stated liabilities of ABT in exchange for Class A investment shares of First
Union under generally accepted accounting principles. The historical cost of
investment securities will be carried forward to the surviving entity and the
results of operations of First Union for pre-combination periods will not be
restated. The pro forma statements do not reflect the expenses of either fund
in carrying out its obligations under the Agreement and Plan of Reorganization.
First Union National Bank of North Carolina (FUNB) will bear all the expenses of
the First Union in connection with the Reorganization. Other than the fees and
expenses of counsel to ABT and expenses for Officers and Trustees ongoing
insurance coverage (which will be paid by ABT), the expenses of the
Reorganization (including the cost of any proxy soliciting agents) will be borne
by Palm Beach Capital Management Corp. and FUNB. No portion of such expenses
shall be paid by First Union. The actual fiscal year of the combined fund
will be December 31, the fiscal year of First Union.
The Pro Forma Combining Portfolio of Investments, the Pro Forma Combining
Statement of Assets and Liabilities and the Pro Forma Combining Statement of
Operations should be read in conjunction with the historical financial
statements of the funds included or incorporated by reference in the Statement
of Additional Information.
2. Shares of Beneficial Interest
The pro forma net asset value per share assumes the issuance of additional
shares of First Union Class A investment shares, which would have been issued at
December 31, 1994, in connection with the proposed reorganization.
3. Pro Forma Operations
The Pro Forma Statement of Operations assumes similar rates of gross
investment income for the investments of each Fund. Accordingly, the combined
gross investment income is equal to the sum of each Fund's gross investment
income. Certain expenses have been adjusted to reflect the expected expenses of
the combined fund. Pro forma operating expenses include the actual expenses of
the Funds and the combined fund adjusted for certain items. An adjustment has
been made to the combined fund expense to decrease the waiver of investment
advisory fee, and eliminate the waiver of administrative personnel and services
fee and reimbursement of other expenses based on the voluntary waivers and
reimbursements in effect for First Union for the year ended December 31, 1994.
4. Officers and Directors Insurance
The independent Trustees/Directors have voted to retain their ability to
make claims under their existing Officers and Directors insurance policy for a
period of three years following the consummation of the Reorganization. As with
the premium for the policy, the premium for the continuation will be paid by ABT
and the other ABT Funds prior to the consummation of the transaction and is
expected to be approximately $133,000 ($50,633 of which will be paid by ABT) for
the three years.
