<PAGE>
EVERGREEN ASSET MANAGEMENT CORP.
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
May 2, 1995
Dear Shareholders of Evergreen U.S. Government Securities Fund:
As you are aware, Evergreen Asset Management Corp. ("Evergreen Asset"),
investment adviser to Evergreen U.S. Government Securities Fund ("Evergreen
Government"), and Lieber & Company, which provides sub-advisory services to
Evergreen Asset in connection with its activities as investment adviser to
Evergreen Government, were acquired on June 30, 1994 by First Union National
Bank of North Carolina ("FUNB-NC"). As I have mentioned before, one of the
expected benefits of the transaction with FUNB-NC to existing shareholders in
the Evergreen Funds, was the prospect that Evergreen Asset and FUNB-NC would be
able to combine their investment management resources and thereby complement
each other's strengths. The proposal contained in the accompanying proxy
statement provides, in effect, for the combination of Evergreen Government and
First Union U.S. Government Portfolio ("First Union Government"), a series of
First Union Funds, funds with substantially similar investment objectives and
policies. Under the proposed Agreement and Plan of Reorganization (the "Plan"),
First Union Government will acquire substantially all of the assets of Evergreen
Government in exchange for shares of First Union Government. I believe this
combination achieves our goal and serves the interests of Evergreen Government's
shareholders.
As discussed more fully in the proxy statement, Rollin C. Williams, the
current manager of First Union Government, will be primarily responsible for the
ongoing management of the combined fund. As a result of the proposed
combination, the full resources of the combined Evergreen/First Union capital
management team will be harnessed for the benefit of Evergreen Government's
current shareholders.
If shareholders of Evergreen Government approve the Plan, upon consummation
of the transaction contemplated in the Plan, you will receive shares of a class
of First Union Government with the same letter designation and the same
distribution-related and shareholder servicing-related expenses and contingent
deferred sales charges, if any, and having a value equal to the value of your
then outstanding shares of Evergreen Government. The proposed transaction will
not result in any federal income tax liability for you or for Evergreen
Government. As a shareholder of First Union Government 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 Evergreen family
of funds.
The Trustees of Evergreen Fixed Income Trust have called a special meeting
of shareholders of Evergreen Government to be held June 15, 1995 to consider the
proposed transaction. As a shareholder of Evergreen Government, I will be voting
to approve the transactions. I STRONGLY INVITE YOUR PARTICIPATION BY ASKING YOU
TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. I thank you for your participation as a shareholder
and urge you to please exercise your right to vote by completing, dating and
signing the enclosed proxy card. A self-addressed, postage-paid envelope has
been enclosed for your convenience.
If you have any questions regarding the proposed transaction, please call
1-800-326-3241.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
(Signature of Stephen A. Lieber appears here)
STEPHEN A. LIEBER
CHAIRMAN
<PAGE>
EVERGREEN FIXED INCOME TRUST -- EVERGREEN U.S. GOVERNMENT SECURITIES FUND
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 15, 1995
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of the Evergreen U.S. Government Securities Fund ("Evergreen
Government"), a series of Evergreen Fixed Income Trust (the "Trust"), will be
held at the offices of First Union Corporation, Two First Union Center, 301 S.
Tryon Street, Charlotte, N.C. 28288 on June 15, 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 21, 1995, providing for the acquisition of
substantially all of the assets of Evergreen Government by the First
Union U.S. Government Portfolio ("First Union Government"), a portfolio
of First Union Funds, in exchange for shares of First Union Government,
and the assumption by First Union Government of certain identified
liabilities of Evergreen Government. The Plan also provides for
distribution of such shares of First Union Government to shareholders of
Evergreen Government in liquidation and subsequent termination of
Evergreen Government. A vote in favor of the Plan is a vote in favor of
liquidation and dissolution of Evergreen Government.
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 17,
1995 as the record date for the determination of shareholders of Evergreen
Government entitled to notice of and to vote at this Meeting or any adjournment
thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By order of the Board of Trustees
JOAN V. FIORE
SECRETARY
May 2, 1995
<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
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr. Executor
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED MAY 2, 1995
ACQUISITION OF ASSETS OF
EVERGREEN U.S. GOVERNMENT SECURITIES FUND,
A SERIES OF EVERGREEN
FIXED INCOME TRUST
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
BY AND IN EXCHANGE FOR SHARES OF
FIRST UNION U.S. GOVERNMENT PORTFOLIO,
A PORTFOLIO OF FIRST UNION FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
This Prospectus/Proxy Statement is being furnished to shareholders of
Evergreen U.S. Government Securities Fund ("Evergreen Government"), a series of
Evergreen Fixed Income Trust (the "Trust"), in connection with a proposed
Agreement and Plan of Reorganization (the "Plan"), to be submitted to
shareholders of Evergreen Government for consideration at a Special Meeting of
Shareholders to be held on June 15, 1995 at 10:00 a.m. Eastern Daylight Time, at
the offices of First Union Corporation, Two First Union Center, 301 S. Tryon
Street, Charlotte, N.C. 28288, and any adjournments thereof (the "Meeting"). The
Plan provides for substantially all of the assets of Evergreen Government to be
acquired by the First Union U.S. Government Portfolio ("First Union
Government"), a portfolio of First Union Funds, in exchange for shares of First
Union Government and the assumption by First Union Government of certain
identified liabilities of Evergreen Government (hereinafter referred to as the
"Reorganization"). Following the Reorganization, shares of First Union
Government will be distributed to shareholders of Evergreen Government in
liquidation of Evergreen Government, and Evergreen Government will be
terminated. Holders of shares in Evergreen Government will receive shares of the
Class of First Union Government (the "Corresponding Shares") having the same
letter designation and the same distribution-related fees, shareholder
servicing-related fees and sales charges, including contingent deferred sales
charges ("CDSCs"), if any, as the shares of the Class of Evergreen Government
held by them prior to the Reorganization (see "Summary -- Distribution of
Shares"). As a result of the proposed Reorganization, shareholders of Evergreen
Government will receive that number of full and fractional Corresponding Shares
of First Union Government having an aggregate net asset value equal to the
aggregate net asset value of such shareholder's shares of Evergreen Government.
The Reorganization is being structured as a tax-free reorganization for federal
income tax purposes.
First Union Government is a diversified portfolio of First Union Funds, an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act"). First Union Funds currently comprises
17 portfolios, including First Union Government.
First Union Government seeks to achieve as high a level of current income
as is consistent with the stability of principal. First Union Government pursues
this objective by investing primarily in obligations issued or guaranteed by the
United States government or its agencies or instrumentalities ("U.S. Government
Securities"). As a matter of policy, at least 65% of the value of the total
assets of First Union Government will be invested in U.S. Government Securities.
The shares of First Union Government are presently issued in four Classes: Class
A Investment, Class B Investment, Class C Investment and Y Shares (herein
referred to as "Class A," "Class B," "Class C" and "Class Y," respectively).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about First Union Government
that shareholders of Evergreen Government should know before voting on the
Reorganization. Certain relevant documents listed below, which have been filed
with the Securities and Exchange Commission ("SEC"), are incorporated in whole
or in part by reference. A Statement of Additional Information dated May 2,
1995, relating to this Prospectus/Proxy Statement and the Reorganization,
incorporating by reference the financial statements of First Union Government
dated December 31, 1994 and the financial statements of Evergreen Government for
the fiscal period ended March 31, 1994 and for the six month period ended
September 30, 1994, has been filed with the SEC and is incorporated by reference
in its entirety into this Prospectus/Proxy Statement. A copy of such Statement
of Additional Information is available upon request and without charge by
writing to First Union Funds at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-326-3241. In order to
expedite delivery, any such request should refer to "First Union
Government -- Prospectus/Proxy Statement/Statement of Additional Information."
The Prospectuses of First Union Government dated February 28, 1995 and its
Annual Report for the fiscal year ended December 31, 1994 are incorporated
herein by reference in their entirety, insofar as they relate to First Union
Government
<PAGE>
only, and not to any other fund described therein. The two Prospectuses, which
pertain (i) to Class Y shares and (ii) to Class A, Class B and Class C shares,
differ only insofar as they pertain to the separate distribution and shareholder
servicing arrangements applicable to the Classes. Shareholders of Evergreen
Government will receive, with this Prospectus/Proxy Statement, copies of the
Prospectus pertaining to the respective Class of First Union Government that
they will receive as a result of the consummation of the Reorganization.
Additional information about First Union Government is contained in its
Statement of Additional Information of the same date which has been filed with
the SEC and is available upon request and without charge by writing to First
Union Government at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-326-3241.
The Prospectuses of Evergreen Government dated January 3, 1995, insofar as
they relate to Evergreen Government only, and not to any other fund described
therein, are incorporated herein in their entirety by reference. Copies of the
Prospectuses and a Statement of Additional Information dated the same date are
available upon request without charge by writing to Evergreen Government at the
address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-326-3241.
Included as Exhibit A of this Prospectus/Proxy Statement is a copy of the
Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED
OR GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT
INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
COMPARISON OF FEES AND EXPENSES........................................................................................ 4
Expense Ratios....................................................................................................... 9
SUMMARY................................................................................................................ 11
Proposed Reorganization.............................................................................................. 11
Tax Consequences..................................................................................................... 11
Investment Objectives and Policies -- First Union Government......................................................... 11
Investment Objectives and Policies -- Evergreen Government........................................................... 12
Comparative Performance Information of Each Fund..................................................................... 13
Management of the Funds.............................................................................................. 13
Distribution of Shares............................................................................................... 15
Purchase and Redemption Procedures................................................................................... 17
Exchange Privileges.................................................................................................. 17
Dividend Policy...................................................................................................... 17
RISKS.................................................................................................................. 18
INFORMATION ABOUT THE REORGANIZATION................................................................................... 18
Reasons For The Reorganization....................................................................................... 18
Agreement and Plan of Reorganization................................................................................. 18
Federal Income Tax Consequences...................................................................................... 19
Recommendation of the Board.......................................................................................... 20
Pro Forma Capitalization............................................................................................. 21
Shareholder Information.............................................................................................. 21
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES....................................................................... 22
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS........................................................................ 25
Form of Organization................................................................................................. 25
Capitalization....................................................................................................... 25
Shareholder Liability................................................................................................ 25
Shareholder Meetings and Voting Rights............................................................................... 25
Liquidation or Dissolution........................................................................................... 26
Liability and Indemnification of Trustees............................................................................ 26
Rights of Inspection................................................................................................. 26
ADDITIONAL INFORMATION................................................................................................. 26
VOTING INFORMATION CONCERNING THE MEETING.............................................................................. 26
FINANCIAL STATEMENTS AND EXPERTS, LEGAL MATTERS........................................................................ 27
OTHER BUSINESS......................................................................................................... 28
</TABLE>
3
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for each class of First Union Government set forth in the
following tables and examples are based on the expenses expected for the fiscal
year ended December 31, 1995. The amounts for Class A, Class B and Class C
shares of Evergreen Government set forth in the following tables and in the
examples are estimated based on the experience of Evergreen Government Class Y
shares for the fiscal period ended March 31, 1994 and the amounts for Class Y
shares are based on the experience of the Class Y shares for the fiscal period
ended March 31, 1994, in each case adjusted for reduction in voluntary expense
reimbursements by Evergreen Asset. Class A shares, Class B shares and Class C
shares of Evergreen Government were first offered to the public as of January 3,
1995.
The following tables show for First Union Government and Evergreen
Government the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the respective comparable Classes of
shares of First Union Government and shares of Evergreen Government, and such
costs and expenses associated with an investment in each Class of shares of
First Union Government assuming consummation of the Reorganization.
COMPARISON OF CLASS Y SHARES OF FIRST UNION GOVERNMENT WITH CLASS Y SHARES OF
EVERGREEN GOVERNMENT
<TABLE>
<CAPTION>
FIRST
FIRST UNION
UNION EVERGREEN GOVERNMENT
GOVERNMENT GOVERNMENT PRO FORMA
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................................. None None None
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 (only applies after 4 exchanges per calendar year).................... None $ 5 None
Redemption Fees.................................................................... None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average daily net assets)
Advisory Fee....................................................................... 0.50% 0.50% 0.50%
12b-1 Fees......................................................................... None None None
Other Expenses..................................................................... 0.27% 0.75% 0.27%
Annual Fund Operating Expenses....................................................... 0.77%(1) 1.25%(2) 0.77%
</TABLE>
(1) First Union Government Class Y shares Annual Fund Operating Expenses were
0.71% for the fiscal year ended December 31, 1994. Class Y shares Annual
Fund Operating Expenses for First Union Government, absent the voluntary
waiver of the advisory fee by CMG, would have been 0.75% for the fiscal year
ended December 31, 1994. The Class Y shares Annual Fund Operating Expenses
for First Union Government and the combined First Union Government Pro Forma
in the table above are based on expenses expected during the fiscal year
ending December 31, 1995.
(2) Annual Fund Operating Expenses for Class Y shares of Evergreen Government do
not reflect a voluntary advisory fee waiver by Evergreen Asset (defined
below) of .50% of average net assets and a voluntary reimbursement of
Evergreen Government's other expenses representing .75% of average net
assets for the fiscal year ending March 31, 1994. Evergreen Asset has agreed
to reimburse Evergreen Government to the extent that its aggregate operating
expenses (including Evergreen Asset's fee, but excluding taxes, interest,
brokerage commissions, Rule 12b-1 distribution-related fees and shareholder
servicing-related fees and extraordinary expenses) exceed 1.25% of average
net assets. From time to time Evergreen Asset may, at its discretion, also
reduce or waive its fees or reimburse Evergreen Government for certain of
its other expenses in order to reduce its expense ratio. Evergreen Asset may
cease these voluntary waivers and reimbursements at any time.
4
<PAGE>
COMPARISON OF CLASS A SHARES OF FIRST UNION GOVERNMENT WITH CLASS A SHARES OF
EVERGREEN GOVERNMENT
<TABLE>
<CAPTION>
FIRST
FIRST UNION
UNION EVERGREEN GOVERNMENT
GOVERNMENT GOVERNMENT 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)
Advisory Fee....................................................................... 0.50% 0.50% 0.50%
12b-1 Fees(1)...................................................................... 0.25% 0.25% 0.25%
Other Expenses..................................................................... 0.27% 0.75% 0.27%
Annual Fund Operating Expenses....................................................... 1.02%(2) 1.50%(3) 1.02%
</TABLE>
(1) The Class A shares can pay up to 0.75 of 1% of Class A shares' average daily
net assets as a Rule 12b-1 fee. For the foreseeable future, the Funds plan
to limit the Class A shares' Rule 12b-1 payments to 0.25 of 1% of Class A
shares' average daily net assets. Evergreen Government began accruing Rule
12b-1 fees effective January, 1995.
(2) The First Union Government Class A shares Annual Fund Operating Expenses
were 0.96% for the fiscal year ended December 31, 1994. Class A Annual Fund
Operating Expenses for First Union Government, absent the voluntary waiver
of the advisory fee by CMG, would have been 1.00% for the fiscal year ended
December 31, 1994. Class A shares Annual Fund Operating Expenses for First
Union Government and the First Union Government Pro Forma in the table above
are based on expenses expected during the fiscal year ending December 31,
1995.
(3) Annual Fund Operating Expenses for Class A shares of Evergreen Government do
not reflect a voluntary advisory fee waiver by Evergreen Asset of .50% of
average net assets and a voluntary reimbursement of Evergreen Government's
other expenses representing .75% of average net assets for the fiscal year
ending March 31, 1994. Evergreen Asset has agreed to reimburse Evergreen
Government to the extent that its aggregate operating expenses (including
Evergreen Asset's fee, but excluding taxes, interest, brokerage commissions,
Rule 12b-1 distribution-related fees and shareholder servicing-related fees
and extraordinary expenses) exceed 1.25% of average net assets. From time to
time Evergreen Asset may, at its discretion, also reduce or waive its fees
or reimburse Evergreen Government for certain of its other expenses in order
to reduce its expense ratio. Evergreen Asset may cease these voluntary
waivers and reimbursements at any time.
5
<PAGE>
COMPARISON OF CLASS B SHARES OF FIRST UNION GOVERNMENT WITH CLASS B SHARES OF
EVERGREEN GOVERNMENT
<TABLE>
<CAPTION>
FIRST UNION FIRST UNION
GOVERNMENT EVERGREEN GOVERNMENT GOVERNMENT PRO FORMA
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as
a percentage of offering price)......... None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage
of offering price)...................... None None None
Contingent Deferred Sales Charge........... 5% during 1st year, 5% during 1st year, 5% during 1st year,
4% during 2nd year, 4% during 2nd year, 4% during 2nd year,
3% during 3rd year, 3% during 3rd year, 3% during 3rd year,
3% during 4th year, 3% during 4th year, 3% during 4th year,
2% during 5th year, 2% during 5th year, 2% during 5th year,
1% during 6th year, 1% during 6th year, 1% during 6th year,
1% during 7th year, 1% during 7th year, 1% during 7th year,
and 0% after 7th year and 0% after 7th year and 0% after 7th year
Exchange Fee............................... None None None
Redemption Fees............................ None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE DAILY NET ASSETS)
Advisory Fee............................... 0.50% 0.50% 0.50%
12b-1 Fees(1).............................. 0.75% 0.75% 0.75%
Other Expenses including .25% shareholder
service fee(2).......................... 0.52% 1.00% 0.52%
Annual Fund Operating Expenses............... 1.77%(3) 2.25%(4) 1.77%
</TABLE>
(1) Class B shares of Evergreen Government began accruing Rule 12b-1 fees
effective January, 1995 at the maximum rate of 0.75%.
(2) Class B shares of First Union Government began accruing shareholder service
fees in September, 1994 at the maximum rate of 0.25%. The shareholder
service fee for First Union Government amounted to 0.08% for the fiscal year
ended December 31, 1994. Class B shares of Evergreen Government began
accruing shareholder service fees in January, 1995 at the maximum rate of
.25%. Evergreen Government's shareholder service fees are paid under its
Rule 12b-1 Plan.
(3) First Union Government Class B shares Annual Fund Operating Expenses were
1.54% for the year ended December 31, 1994. Class B shares Annual Fund
Operating Expenses for First Union Government, absent the voluntary waiver
of the advisory fee by CMG would have been 1.58% for the year ended December
31, 1994. Class B shares Annual Fund Operating Expenses for First Union
Government and the First Union Government Pro Forma in the table above are
based on expenses expected during the fiscal year ending December 31, 1995.
(4) Annual Fund Operating Expenses for Class B shares of Evergreen Government do
not reflect a voluntary advisory fee waiver by Evergreen Asset of .50% of
average net assets and a voluntary reimbursement of Evergreen Government's
other expenses representing .75% of average net assets for the fiscal year
ending March 31, 1994. Evergreen Asset has agreed to reimburse Evergreen
Government to the extent that its aggregate operating expenses (including
Evergreen Asset's fee, but excluding taxes, interest, brokerage commissions,
Rule 12b-1 distribution-related fees and shareholder servicing-related fees
and extraordinary expenses) exceed 1.25% of average net assets. From time to
time Evergreen Asset may, at its discretion, also reduce or waive its fees
or reimburse Evergreen Government for certain of its other expenses in order
to reduce its expense ratio. Evergreen Asset may cease these voluntary
waivers and reimbursements at any time.
6
<PAGE>
COMPARISON OF CLASS C SHARES OF FIRST UNION GOVERNMENT WITH CLASS C SHARES OF
EVERGREEN GOVERNMENT
<TABLE>
<CAPTION>
FIRST UNION GOVERNMENT
FIRST UNION GOVERNMENT EVERGREEN GOVERNMENT PRO FORMA
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES LOAD IMPOSED ON
PURCHASES (AS A PERCENTAGE
OF OFFERING PRICE)......... NONE NONE NONE
MAXIMUM SALES LOAD IMPOSED ON
REINVESTED DIVIDENDS (AS A
PERCENTAGE OF OFFERING
PRICE)..................... NONE NONE NONE
CONTINGENT DEFERRED SALES
CHARGE..................... 1% DURING 1ST YEAR, 1% DURING 1ST YEAR, 1% DURING 1ST, YEAR
AND 0% AFTER 1ST YEAR AND 0% AFTER 1ST YEAR AND 0% AFTER 1ST YEAR
EXCHANGE FEE.................. NONE NONE NONE
REDEMPTION FEES............... NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
daily net assets)
Advisory Fee.................. 0.50% 0.50% 0.50%
12b-1 Fees (1)................ 0.75% 0.75% 0.75%
Other Expenses including a
.25% shareholder service
fee (2).................... 0.52% 1.00% 0.52%
Annual Fund Operating
Expenses...................... 1.77%(3) 2.25%(4) 1.77%
</TABLE>
(1) Class C shares of Evergreen Government began accruing Rule 12b-1 fees
effective January, 1995 at the maximum rate of 0.75%.
(2) Class C shares of Evergreen Government began accruing shareholder service
fees in January, 1995 at the maximum rate of .25%. Evergreen Government's
shareholder service fees are paid under its Rule 12b-1 Plan.
(3) First Union Government Class C shares Annual Fund Operating Expenses were
1.71% for the year ended December 31, 1994. Class C shares Annual Fund
Operating Expenses for First Union Government, absent the voluntary waiver
of the advisory fee by CMG, would have been 1.75% for the year ended
December 31, 1994. Class C shares Annual Fund Operating Expenses for First
Union Government and the First Union Government Pro Forma in the table above
are based on expenses expected during the fiscal year ended December 31,
1995.
(4) Annual Fund Operating Expenses for Class C shares of Evergreen Government do
not reflect a voluntary advisory fee waiver by Evergreen Asset of .50% of
average net assets and a voluntary reimbursement of Evergreen Government's
other expenses representing .75% of average net assets for the fiscal year
ending March 31, 1994. Evergreen Asset has agreed to reimburse Evergreen
Government to the extent that its aggregate operating expenses (including
Evergreen Asset's fee, but excluding taxes, interest, brokerage commissions,
Rule 12b-1 distribution-related fees and shareholder servicing-related fees
and extraordinary expenses) exceed 1.25% of average net assets. From time to
time Evergreen Asset may, at its discretion, also reduce or waive its fees
or reimburse Evergreen Government for certain of its other expenses in order
to reduce its expense ratio. Evergreen Asset may cease these voluntary
waivers and reimbursements at any time.
Because of the asset-backed sales charge, long-term shareholders of Class
A, Class B and Class C shares may pay more than the economic equivalent of the
maximum front-end sales loads permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLES. The following tables show for the respective Classes of shares of
each Fund, and for First Union Government, assuming consummation of the
Reorganization, examples of the cumulative effect of shareholder transaction
expenses
7
<PAGE>
and annual fund operating expenses indicated above 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 and, additionally for Class B and Class C
shares, no
redemption at the end of each period.
In the following examples (i) the expenses for Class A Shares assume
deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the
expenses for Class B and Class C Shares assume deduction at the time of
redemption (if applicable) of the maximum CDSC applicable for that time period,
and (iii) the expenses for Class B Shares reflect the conversion to Class A
Shares seven years after purchase (years eight through ten, therefore, reflect
Class A expenses).
CLASS Y SHARES
<TABLE>
<CAPTION>
FIRST
FIRST UNION
UNION EVERGREEN GOVERNMENT
GOVERNMENT GOVERNMENT PRO FORMA
<S> <C> <C> <C>
After 1 year......................................................................... $ 8 $ 13 $ 8
After 3 years........................................................................ $ 25 $ 40 $ 25
After 5 years........................................................................ $ 43 $ 69 $ 43
After 10 years....................................................................... $ 95 $151 $ 95
</TABLE>
CLASS A SHARES
<TABLE>
<CAPTION>
FIRST
FIRST UNION
UNION EVERGREEN GOVERNMENT
GOVERNMENT GOVERNMENT PRO FORMA
<S> <C> <C> <C>
After 1 year......................................................................... $ 57 $ 62 $ 57
After 3 years........................................................................ $ 78 $ 93 $ 78
After 5 years........................................................................ $101 $125 $101
After 10 years....................................................................... $166 $218 $166
</TABLE>
CLASS B SHARES
ASSUMING REDEMPTION AT END OF PERIOD
<TABLE>
<CAPTION>
FIRST
FIRST UNION
UNION EVERGREEN GOVERNMENT
GOVERNMENT GOVERNMENT PRO FORMA
<S> <C> <C> <C>
After 1 year......................................................................... $ 70 $ 73 $ 70
After 3 years........................................................................ $ 89 $100 $ 89
After 5 years........................................................................ $119 $140 $119
After 10 years....................................................................... $179 $231 $179
</TABLE>
CLASS B SHARES
ASSUMING NO REDEMPTION AT END OF PERIOD
<TABLE>
<CAPTION>
FIRST
FIRST UNION
UNION EVERGREEN GOVERNMENT
GOVERNMENT GOVERNMENT PRO FORMA
<S> <C> <C> <C>
After 1 year......................................................................... $ 18 $ 23 $ 18
After 3 years........................................................................ $ 56 $ 70 $ 56
After 5 years........................................................................ $ 96 $120 $ 96
After 10 years....................................................................... $179 $231 $179
</TABLE>
8
<PAGE>
CLASS C SHARES
ASSUMING REDEMPTION AT END OF PERIOD
<TABLE>
<CAPTION>
FIRST
FIRST UNION
UNION EVERGREEN GOVERNMENT
GOVERNMENT GOVERNMENT PRO FORMA
<S> <C> <C> <C>
After 1 year......................................................................... $ 28 $ 33 $ 28
After 3 years........................................................................ $ 56 $ 70 $ 56
After 5 years........................................................................ $ 96 $120 $ 96
After 10 years....................................................................... $208 $258 $208
</TABLE>
CLASS C SHARES
ASSUMING NO REDEMPTION AT END OF PERIOD
<TABLE>
<CAPTION>
FIRST
FIRST UNION
UNION EVERGREEN GOVERNMENT
GOVERNMENT GOVERNMENT PRO FORMA
<S> <C> <C> <C>
After 1 year......................................................................... $ 18 $ 23 $ 18
After 3 years........................................................................ $ 56 $ 70 $ 56
After 5 years........................................................................ $ 96 $120 $ 96
After 10 years....................................................................... $208 $258 $208
</TABLE>
The purpose of the foregoing examples is to assist an Evergreen Government
shareholder in understanding the various costs and expenses that an investment
in the respective Classes of shares of First Union Government as a result of the
Reorganization would bear directly and indirectly, as compared with the various
direct and indirect expenses borne by a Evergreen Government shareholder. 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.
EXPENSE RATIOS
The expense ratios for the respective twelve month periods ended December
31, 1994 are as follows:
<TABLE>
<CAPTION>
FIRST
UNION EVERGREEN
GOVERNMENT GOVERNMENT
<S> <C> <C>
Class Y Shares.................................................................................. .71 of 1% .43 of 1%
Class A Shares.................................................................................. .96 of 1% .68 of 1%*
Class B Shares.................................................................................. 1.54 of 1% 1.43 of 1%*
Class C Shares.................................................................................. 1.71 of 1% 1.43 of 1%*
</TABLE>
This above-mentioned expense ratios are net of voluntary advisory fee
waivers and expense reimbursements by each Fund's investment adviser. If no
voluntary advisory fee waivers and reimbursements had been made, these expense
ratios would have been as follows:
<TABLE>
<CAPTION>
FIRST
UNION EVERGREEN
GOVERNMENT GOVERNMENT
<S> <C> <C>
Class Y Shares.................................................................................. .75 of 1% 1.25 of 1%
Class A Shares.................................................................................. 1.00 of 1% 1.50 of 1%*
Class B Shares.................................................................................. 1.58 of 1% 2.25 of 1%*
Class C Shares.................................................................................. 1.75 of 1% 2.25 of 1%*
</TABLE>
If the Funds were consolidated, and based upon the level of advisory fee
waiver on the part of First Union in effect for the fiscal year ended December
31, 1994, the pro forma expense ratios for the fiscal year ended December 31,
1994 would have been as follows:
<TABLE>
<CAPTION>
FIRST
UNION
GOVERNMENT
PRO FORMA
<S> <C>
Class Y Shares.................................................................................................. .71 of 1%
Class A Shares.................................................................................................. .96 of 1%
Class B Shares.................................................................................................. 1.54 of 1%
Class C Shares.................................................................................................. 1.71 of 1%
</TABLE>
9
<PAGE>
The annualized expense ratios of Evergreen U.S. Government for the fiscal
period ended March 31, 1994 and for the six months ended September 30, 1994 are
as follows:
Expense ratios net of voluntary advisory fee waivers and expense
reimbursements:
<TABLE>
<CAPTION>
JUNE 14, 1993
SIX MONTHS ENDED (COMMENCEMENT OF OPERATIONS)
SEPTEMBER 30, 1994 TO MARCH 31, 1994
<S> <C> <C>
Class Y Shares............................................................... .45 of 1% .0 of 1%
Class A Shares............................................................... .70 of 1%* .0 of 1%*
Class B Shares............................................................... 1.45 of 1%* .0 of 1%*
Class C Shares............................................................... 1.45 of 1%* .0 of 1%*
</TABLE>
Expense ratios without taking into account voluntary advisory fee waivers
and expense reimbursements:
<TABLE>
<CAPTION>
JUNE 14, 1993
SIX MONTHS ENDED (COMMENCEMENT OF OPERATIONS)
SEPTEMBER 30, TO MARCH 31, 1994
<S> <C> <C>
Class Y Shares............................................................... 1.25 of 1% 1.25 of 1%
Class A Shares............................................................... 1.50 of 1%* 1.50 of 1%*
Class B Shares............................................................... 2.25 of 1%* 2.25 of 1%*
Class C Shares............................................................... 2.25 of 1%* 2.25 of 1%*
</TABLE>
* Expense ratios for Evergreen Government Class A, Class B and Class C
shares are estimated based upon the expense ratios of the Class Y shares
adjusted for 12b-1 distribution and shareholder servicing fees. Class A, Class B
and Class C shares commenced operations on January 4, 1995.
10
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, AND, TO THE
EXTENT NOT INCONSISTENT WITH SUCH ADDITIONAL INFORMATION, THE PROSPECTUSES OF
FIRST UNION GOVERNMENT DATED FEBRUARY 28, 1995 AND THE PROSPECTUSES OF EVERGREEN
GOVERNMENT DATED JANUARY 3, 1995 (WHICH ARE INCORPORATED HEREIN BY REFERENCE),
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
Evergreen Government in exchange for shares of First Union Government and the
assumption by First Union Government of certain identified liabilities of
Evergreen Government. (Evergreen Government and First Union Government each may
also be referred to in this Prospectus/Proxy Statement as a "Fund" and
collectively as the "Funds"). The Plan also calls for the distribution of
Corresponding Shares (as defined above) of First Union Government to Evergreen
Government shareholders in liquidation of Evergreen Government as part of the
Reorganization. As a result of the Reorganization, each shareholder of Evergreen
Government will become the owner of that number of full and fractional
Corresponding Shares of First Union Government having an aggregate net asset
value equal to the aggregate net asset value of the shareholder's shares of
Evergreen Government as of the close of business on the date that Evergreen
Government's assets are exchanged for shares of First Union Government. See
"Information About the Reorganization."
The Trustees of the Trust, including the Trustees who are not "interested
persons," as that term is defined in the 1940 Act (the "Independent Trustees"),
have concluded that the Reorganization would be in the best interests of
shareholders of Evergreen Government and that the interests of the shareholders
of Evergreen Government will not be diluted as a result of the transactions
contemplated by the Reorganization. Accordingly, the Trustees have submitted the
Plan for the approval of Evergreen Government's shareholders.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS APPROVAL OF THE PLAN
EFFECTING THE REORGANIZATION
The Board of Trustees of First Union Funds has also approved the Plan, and
accordingly, First Union Government's participation in the Reorganization.
Approval of the Reorganization on the part of Evergreen Government will
require the affirmative vote of more than 50% of its outstanding voting
securities, with shares of all classes voting together as one class. See "Voting
Information Concerning The Meeting."
If the shareholders of Evergreen Government do not vote to approve the
Reorganization, the Trustees of the Trust will continue to operate Evergreen
Government under existing arrangements, or consider other alternatives,
including liquidation of Evergreen Government.
TAX CONSEQUENCES
Prior to or at the completion of the Reorganization, Evergreen Government
will have received an opinion of counsel that the Reorganization has been
structured so that no gain or loss will be recognized by Evergreen Government or
its shareholders for federal income tax purposes as a result of the receipt of
shares of First Union Government in the Reorganization. The holding period and
aggregate tax basis of Corresponding Shares of First Union Government that are
received by Evergreen Government shareholders will be the same as the holding
period and aggregate tax basis of shares of Evergreen Government previously held
by such shareholders, provided that shares of Evergreen Government are held as
capital assets. In addition, the holding period and tax basis of the assets of
Evergreen Government in the hands of First Union Government as a result of the
Reorganization will be the same as in the hands of Evergreen Government
immediately prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES -- FIRST UNION GOVERNMENT
First Union Government seeks a high level of current income consistent with
stability of principal. The Fund seeks to attain its objective by investing
primarily in obligations issued or guaranteed by the United States government or
its agencies or instrumentalities ("U.S. Government Securities"). At least 65%
of the Fund's total assets will normally be invested in U.S. Government
Securities. In addition, the Fund may invest in privately issued,
mortgage-backed securities (including collateralized mortgage obligations) and
asset-backed securities as well as other types of investments described in
"Comparison of Investment Objectives and Policies." The Fund is not subject to
any maturity restrictions or restrictions on its dollar weighted average
portfolio maturity.
11
<PAGE>
U.S. Government Securities include direct obligations of the U.S. Treasury
(such as Treasury bills, Treasury notes and Treasury bonds) or securities issued
or guaranteed by U.S. government agencies or instrumentalities. Agencies and
instrumentalities which issue or guarantee securities include: the Farm Credit
System, including the National Bank for Cooperatives, Farm Credit Banks, and
Banks for Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage Association;
Government National Mortgage Association; Student Loan Marketing Association;
Tennessee Valley Authority; Export-Import Bank of the United States; Commodity
Credit Corporation; Federal Financing Bank; and National Credit Union
Administration.
U.S. Government Securities have different kinds of government support. Some
of these securities, such as U.S. Treasury securities, are supported by the full
faith and credit of the United States government and others are supported only
by the credit of the agency or instrumentality. Agencies or instrumentalities
whose securities are supported by the full faith and credit of the United States
include, but are not limited to, the Farmers Home Administration, Export-Import
Bank of the United States, Small Business Administration and Government National
Mortgage Association. Agencies or instrumentalities whose securities are
supported only by the credit of the agency or instrumentality include the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation.
The Fund may invest in U.S. Government Securities, such as Government
National Mortgage Association Certificates, known as "mortgage-backed"
securities and may purchase certificates of accrual or similar instruments
evidencing undivided ownership interests in interest payments or principal
payments, or both, in U.S. Treasury securities. These certificates of accrual
and similar instruments, sometimes referred to as "asset-backed" securities,
along with "mortgage-backed" securities, may be more volatile than the Fund's
other investments.
INVESTMENT OBJECTIVES AND POLICIES -- EVERGREEN GOVERNMENT
The investment objective of Evergreen Government is to seek a high level of
return from a combination of current income and capital appreciation, consistent
with prudent investment risk and security of principal. The Fund seeks to attain
its objective by investing primarily in U.S. Government Securities, and in
certificates representing undivided interests in the interest or principal of
U.S. Treasury securities. At least 65% of the Fund's total assets will normally
be invested in U.S. government securities. The Fund has no maturity
restrictions. Its dollar weighted average portfolio maturity, however, is
generally expected to be between ten and thirty years. It may be less than ten
years if the Fund's investment adviser determines it is necessary to preserve
principal. As a matter of policy, the Trustees will not change Evergreen
Government's investment objective without shareholder approval.
The U.S. Government Securities in which the Fund may invest are described
above.
Certain U.S. Government Securities in which Evergreen Government may
invest, such as Government National Mortgage Association Certificates, are known
as "mortgage-backed" securities. Interest and principal payments on the
mortgages underlying mortgage-backed U.S. Government Securities are passed
through to the holders of the security. If the Fund purchases mortgage backed
securities at a discount or a premium, the Fund will recognize a gain or loss
when the payments of principal, through prepayment or otherwise, are passed
through to it. If the payment occurs in a period of falling interest rates, the
Fund may not be able to reinvest the payment at as favorable an interest rate.
As a result of these principal prepayment features, mortgage-backed securities
are generally more volatile investments than many other fixed income securities.
In addition to investing directly in U.S. Government Securities, the Fund
may purchase certificates of accrual or similar instruments evidencing undivided
ownership interests in interest payments or principal payments, or both, in U.S.
Treasury securities. These certificates of accrual and similar instruments may
be more volatile than the Fund's other investments.
The Fund may invest in U.S. Government Securities of any maturity.
Generally, the Fund's average maturity will be shorter when interest rates in
the U.S. are expected to rise and longer when interest rates are expected to
fall.
Up to 35% of the total assets of the Fund may be committed to investments
other than U.S. Government Securities. See "Comparison of Investment Objectives
and Policies" below.
12
<PAGE>
COMPARATIVE PERFORMANCE INFORMATION OF EACH FUND
Discussions of the manner of calculation of total return and yield are
contained in the respective Prospectuses and Statements of Additional
Information of the Funds. The yield of each Class of Shares of First Union
Government Fund and the Class Y Shares of Evergreen Government Fund for the 30
day period ended December 31, 1994 and the total return of each such Class for
the one year period ended December 31, 1994 and the period from inception
through December 31, 1994 are set forth in the table below.
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED COMPOUNDED TOTAL RETURN
30 DAY SINCE INCEPTION
SEC YIELD 1 YEAR INCEPTION DATE
<S> <C> <C> <C> <C>
First Union Government Fund
Class Y Shares................................................................. 7.10% -2.94 % -1.83% 08/25/93
Class A Shares................................................................. 6.52% -7.77 % -0.48% 01/11/93
Class B Shares................................................................. 6.08% -8.50 % -0.59% 01/11/93
Class C Shares................................................................. 6.08% -- -2.28% 09/02/94
Evergreen Government Fund
Class Y Shares................................................................. 6.91% -7.65 % -2.20% 06/14/93
Class A Shares................................................................. -- -- -- 01/04/95*
Class B Shares................................................................. -- -- -- 01/04/95*
Class C Shares................................................................. -- -- -- 01/04/95*
</TABLE>
* Class A, Class B and Class C shares of Evergreen Government Fund were not
offered as of December 31, 1994.
Sales charges on the Class A, Class B and Class C shares of Evergreen
Government Fund are the same as the sales charges on the Class A, Class B and
Class C shares of First Union Government Fund.
Discussions of those factors that materially affected the respective
performance of each Fund during its most recently completed fiscal year,
including a line graph comparison of the Fund's performance with an appropriate
broad-based securities market index, are contained in the annual report of First
Union Government for its fiscal year ended December 31, 1994 and, for Evergreen
Government, in its Prospectus dated January 3, 1995.
MANAGEMENT OF THE FUNDS
The overall management of each of the First Union Funds and of the Trust is
the responsibility of, and is supervised by, its Trustees.
INVESTMENT ADVISERS AND ADMINISTRATORS.
FIRST UNION GOVERNMENT. The Capital Management Group ("CMG"), a division of
First Union National Bank of North Carolina ("FUNB-NC"), One First Union Center,
301 S. College Street, Charlotte, North Carolina 28288, serves as investment
adviser to First Union Government and is responsible for the management of its
investments and supervision of the Fund's daily business affairs. CMG is
entitled to receive an annual fee with respect to First Union Government under
its investment advisory agreement with First Union Funds at an annual rate equal
to .50 of 1% of the Fund's average daily net assets.
Federated Administrative Services ("FAS") acts as administrator and fund
accounting agent for First Union Government and the other portfolios of First
Union Funds and provides First Union Government with certain administrative
personnel and services necessary to operate the Fund. For its services, FAS is
entitled to receive a fee at an annual rate based on the average daily net
assets of First Union Funds, computed as follows: .15 of 1% of the first $250
million; .125 of 1% of the next $250 million; .10 of 1% of the next $250
million; and .075 of 1% of assets in excess of $750 million. Unless waived, the
minimum administration fee during a fiscal year shall aggregate at least $50,000
per portfolio of First Union Funds. Federated Services Company will serve as the
transfer agent and dividend disbursing agent for First Union Government until on
or about July 1, 1995 and Boston Financial Data Services, Inc. will serve in
that capacity thereafter. Commencing on July 1, 1995, Evergreen Asset Management
Corp. ("Evergreen Asset") will become the administrator of First Union Funds
pursuant to a contract approved by the Trustees of First Union Funds on April
20, 1995. After July 1, 1995, First Union Government will pay an administrative
fee to Evergreen Asset based on average daily net assets on an annual basis in
accordance with the following schedule:
13
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE DAILY NET ASSETS OF
FUNDS ADMINISTERED BY EVERGREEN ASSET
FOR WHICH EVERGREEN ASSET OR FIRST UNION
ADMINISTRATIVE NATIONAL BANK OF NORTH CAROLINA
FEE SERVE AS INVESTMENT ADVISER
<C> <S>
.050% on the first $7 billion
.035% on the next $3 billion
.030% on the next $5 billion
.020% on the next $10 billion
.015% on the next $5 billion
.010% on assets in excess of $30 billion
</TABLE>
First Union Government commenced operations on January 11, 1993. First
Union Government had $232 million in aggregate net assets as of March 1, 1995.
EVERGREEN GOVERNMENT. Evergreen Asset is the investment adviser of
Evergreen Government and, as such, manages its investments, provides various
administrative services and supervises the Fund's daily business affairs. Under
its investment advisory agreement with Evergreen Government, Evergreen Asset is
entitled to receive an annual fee equal to .50 of 1% of the Fund's average daily
net assets. Evergreen Asset has engaged Lieber & Company to provide certain
sub-advisory services to Evergreen Asset in connection with its activities as
investment adviser to Evergreen Government. The address of Evergreen Asset and
of Lieber & Company is 2500 Westchester Avenue, Purchase, New York 10577. All
reimbursements to Lieber & Company in respect of such services are borne by
Evergreen Asset and does not result in any additional expense to Evergreen
Government.
Evergreen Government commenced operations on June 14, 1993. As of March 1,
1995 Evergreen Government had total net assets of $4 million.
CERTAIN INFORMATION REGARDING CMG, EVERGREEN ASSET AND FUNB-NC. CMG has
advised First Union Funds since First Union Funds' inception in 1984. CMG has
been managing trust assets for over 50 years and currently oversees assets of
more than $51.2 billion. CMG 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. In addition to First Union Government, CMG
manages two other portfolios of First Union Funds that invest primarily in
taxable fixed-income securities. Including First Union Government, CMG acts as
investment adviser to mutual funds which invest principally in taxable
fixed-income securities having assets of approximately $710 million as of March
1, 1995.
Evergreen Asset, together with its predecessors, has served as investment
adviser to the complex of mutual funds comprising the Evergreen Funds since
1971. Since June 30, 1994, Evergreen Asset has been a wholly-owned subsidiary of
FUNB-NC. Stephen A. Lieber and Nola Maddox Falcone serve as the chief investment
officers of Evergreen Asset and, along with Theodore J. Israel, Jr., were the
owners of Evergreen Asset's predecessor of the same name and the former general
partners of Lieber & Company. Evergreen does not manage any other funds
investing primarily in taxable fixed-income securities except for one money
market fund.
FUNB-NC is a subsidiary of First Union Corporation ("First Union"), a bank
holding company headquartered in Charlotte, North Carolina, with $77.3 billion
in total 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. First Union
Brokerage Services, Inc., a wholly-owned subsidiary of FUNB-NC, is a registered
broker-dealer that is principally engaged in providing retail brokerage services
consistent with its federal banking authorizations. First Union Capital Markets
Corp., a wholly-owned subsidiary of First Union, is a registered broker-dealer
principally engaged in providing, consistent with its federal banking
authorizations, private placement, securities dealing, and underwriting
services.
PORTFOLIO MANAGEMENT. Rollin C. Williams, who is a Vice President of FUNB,
currently manages First Union Government and will continue to do so after the
Reorganization. Mr. Williams was the head of Fixed Income Investments at
Dominion Trust Company until its acquisition by First Union Corporation and has
been the portfolio manager of First Union Government since its inception in
January 1993. The portfolio manager of Evergreen Government is James T. Colby,
III. Mr. Colby has been associated with Evergreen Asset and its predecessor
since 1992 and has served as portfolio manager of Evergreen Government since its
inception. Prior to joining Evergreen Asset, Mr. Colby served as Vice
President-Investments at American Express Company from 1987 to 1992.
14
<PAGE>
DISTRIBUTION OF SHARES
Evergreen Funds Distributor, Inc. ("EFD"), a wholly-owned subsidiary of
Furman Selz Incorporated acts as underwriter of Evergreen Government's shares.
Federated Securities Corp. ("FSC"), a subsidiary of Federated Investors, has
acted as distributor of First Union Government's shares. Commencing on July 1,
1995, EFD will become the distributor of First Union Government's shares
pursuant to a contract approved by the Trustees of First Union Funds on April
20, 1995. FSC and EFD distribute Fund shares directly or through broker-dealers,
banks, including FUNB-NC, or other financial intermediaries.
The respective shares of each Fund with the same Class Letter designation
have substantially identical sales charges (including CDSCs),
distribution-related fees and shareholder servicing-related fees, if any. The
following is a description of such charges and fees for each of the different
Classes of shares. More detailed descriptions of the distribution arrangements
applicable to the Classes of shares are contained in the respective First Union
Government Prospectuses and Evergreen Government Prospectuses and in each Fund's
respective Statement of Additional Information.
CLASS Y SHARES.
Class Y shares are sold without any sales charges and are not subject to
distribution-related fees or shareholder servicing-related fees.
CLASS A SHARES.
Class A shares are sold with an initial sales charge ranging from 4.75% to
.25%, as indicated in the following chart. In addition, Class A shares are
subject to distribution-related fees as described below.
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE
AMOUNT OF TRANSACTION OF PUBLIC OFFERING PRICE
<S> <C>
$ 0-$ 99,999..................................................... 4.75%
$ 100,000-$ 249,999....................................................... 3.75%
$ 250,000-$ 499,999....................................................... 3.00%
$ 500,000-$ 999,999....................................................... 2.00%
$1,000,000-$2,499,999..................................................... 1.00%
$2,500,000 and above...................................................... 0.25%
</TABLE>
No sales charges will be imposed in respect of the Class A shares of First
Union Government to be issued to Evergreen Government and ultimately distributed
to shareholders who currently hold Class A shares of Evergreen Government.
No sales charges are imposed on reinvestment of dividends or distributions
and in other circumstances described in each Fund's respective Prospectuses.
Each Fund has similar programs such as rights of accumulation and letters of
intention that enable investors to pay reduced sales charges under certain
circumstances. See the Funds' respective Statements of Additional Information
for information concerning those programs.
When Class A shares are sold, the underwriter will normally retain a
portion of the applicable sales charge and may also pay fees to banks from sales
charges for services performed on behalf of the banks' customers purchasing the
Class A shares.
CLASS B SHARES.
Class B shares are sold without any front end sales charges but are subject
to a contingent deferred sales charge ("CDSC") if shares are redeemed during the
first seven years after purchase. In addition, Class B shares are subject to
distribution-related fees and shareholder servicing-related fees as described
below. Class B shares held for seven years are expected to automatically convert
to Class A shares at the month end after expiration of the seven year period
The amount of the CDSCs applicable to redemptions of Class B shares (which
is charged as a percentage of the lesser of the current net asset value or
original cost) will vary according to the number of years from the purchase in
the manner set forth below.
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CONTINGENT DEFERRED SALES CHARGE
<S> <C>
First................................................................. 5%
Second................................................................ 4%
Third and Fourth...................................................... 3%
Fifth................................................................. 2%
Sixth and Seventh..................................................... 1%
</TABLE>
15
<PAGE>
The CDSC is deducted from the amount of the redemption and is paid to the
respective Fund's distributor. Class B shares of each Fund obtained from
dividend or distribution reinvestment are not subject to a CDSC. For purposes of
determining the schedule of CDSCs, and the time of conversion to Class A shares,
applicable to Class B shares of First Union Government received by Evergreen
Government shareholders in the Reorganization, First Union Government will treat
such shares as having been sold on the date the shares of Evergreen Government
were originally purchased by the Evergreen Government shareholder.
CDSCs will be waived on redemptions of shares, following the death or
disability of a shareholder, to meet distribution requirements for certain
qualified retirement plans or in the case of certain redemptions made under a
Fund's Systematic Cash Withdrawal Plan.
For purposes of conversion to Class A shares, Class B shares received
through the reinvestment of dividends and distributions paid on Class B shares
in a shareholder's account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's account (other
than those in the sub-account) convert to Class A shares, an equal pro rata
portion of the Class B shares in the sub-account will also convert to Class A
shares.
Class B shares are subject to higher distribution-related fees than Class A
shares of a Fund for a period of approximately seven years (after which they are
expected to convert to Class A shares). The higher fees mean a higher expense
ratio, so Class B shares pay correspondingly lower dividends and may have a
lower net asset value than Class Y or Class A shares of the Fund.
At the time Class B shares are sold, the underwriter may pay a commission,
from its own resources (which funds may be obtained pursuant to certain
financing arrangements established for the purpose of enabling it to pay such
commissions at the time of sale) to the broker or other financial intermediary
responsible for making the sale. Financing arrangements with respect to
commissions have been entered into with First Union.
CLASS C SHARES.
Class C shares are sold without any front end sales charges but are subject
to a CDSC of 1% of the lesser of the current net asset value or original cost if
such shares are redeemed during the first year after purchase. In addition,
Class C shares are subject to distribution-related fees and shareholder
servicing-related fees, as described below. Class C shares do not automatically
convert to shares of any other Class.
The CDSC is deducted from the amount of the redemption and is paid to the
Fund's underwriter. Class C shares of each Fund obtained from dividend or
distribution reinvestment are not subject to a CDSC. For purposes of determining
the applicability of the CDSC to Class C shares of First Union Government
received by Evergreen Government shareholders in the Reorganization, First Union
Government will treat such shares as having been sold on the date the shares of
Evergreen Government were originally purchased by the Evergreen Government
shareholder.
The CDSC will be waived on redemptions of shares, following the death or
disability of a shareholder, to meet distribution requirements for certain
qualified retirement plans or in the case of certain redemptions made under a
Fund's Systematic Cash Withdrawal Plan.
Class C shares are subject to higher distribution-related fees than Class A
shares and Class Y shares of a Fund, but unlike Class B shares do not convert to
shares of another Class. The higher fees mean a higher expense ratio, so Class C
shares, like Class B shares, pay correspondingly lower dividends and may have a
lower net asset value than Class Y or Class A shares of a Fund.
At the time Class C shares are sold, the underwriter may pay a commission,
from its own resources (which funds may be obtained pursuant to certain
financing arrangements established for the purpose of enabling it to pay such
commissions at the time of sale) to the broker or other financial intermediary
responsible for making the sale. Financing arrangements with respect to
commissions have been entered into with First Union.
DISTRIBUTION-RELATED AND SHAREHOLDER SERVICING-RELATED EXPENSES.
Each Fund has adopted Rule 12b-1 plans with respect to its Class A shares,
Class B shares and Class C shares under which a Class may pay for
distribution-related expenses at an annual rate which may not exceed .75 of 1%
of average daily net assets attributable to the Class. Payments with respect to
Class A shares of each Fund are currently limited to .25 of 1% of average daily
net assets attributable to the Class, which amount may be increased to the full
plan rate for a Fund by its
16
<PAGE>
Trustees without shareholder approval. The 12b-1 fee to be charged to Class A
Shares of First Union Government, .25 of 1%, will be in place for at least one
year.
The Class B and Class C Rule 12b-1 plans for Evergreen Government provide
for the payment in respect of "shareholder services," as that term is defined in
the NASD Rule (as defined below), at annual rates which may not exceed .25 of 1%
(making total Rule 12b-1 fees for Class B shares and Class C shares of Evergreen
Government payable at a maximum annual rate of 1.00%). The Trustees of First
Union Funds have adopted Shareholder Services Plans with respect to Class B
shares and Class C shares of First Union Government under which payments may be
made to compensate organizations, which may include FUNB-NC or its affiliates,
and which may or may not be a broker or other financial intermediary responsible
for the sale of such Class B shares or Class C shares, for personal services
rendered to Class B or Class C shareholders, and/or the maintenance of
shareholder accounts, at annual rates not to exceed .25 of 1%.
The payment of fees under the respective Rule 12b-1 plans may from time to
time be limited to the extent any amounts payable thereunder exceed the
limitations contained under Section 26(d) of Article III of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. ("NASD Rule").
The NASD Rule provides that the rate of payments of "asset based sales charges"
shall not exceed .75 of 1% of average annual net assets and, to the extent that
payments are made in respect of "shareholder services," the rate of such
payments shall be limited to .25 of 1% of average annual net assets. In
addition, the payment of such fees and the Funds' sales charges (including
CDSCs) may from time to time be limited by certain other provisions of the NASD
Rule.
PURCHASE AND REDEMPTION PROCEDURES
Information concerning applicable sales charges, distribution-related fees
and shareholder servicing-related fees are described above. Shares of each Fund
are sold at the net asset value (plus any applicable sales charges) next
determined after receipt of a purchase order. The minimum initial purchase
requirement for Evergreen Government and First Union Government is $1,000; there
is no minimum for subsequent purchases. Each Fund provides for telephone, mail
or wire redemption of shares at net asset value (subject, in the case of Class B
shares and Class C shares, to any applicable CDSC) as next determined after
receipt of a redemption request on each day the New York Stock Exchange is open
for trading. Additional information concerning purchases and redemptions of
shares, including how the Funds' net asset values are determined, is contained
in the respective Prospectuses for each Fund. Each Fund may involuntarily redeem
shareholders' accounts that have less than $1,000 of invested funds.
EXCHANGE PRIVILEGES
Holders of shares of each Class of First Union Government currently are
permitted to exchange such shares for shares of the same Class of other
portfolios of First Union Funds. Holders of shares of each Class of Evergreen
Government currently are permitted to exchange such shares for shares of the
same Class of other funds in the Evergreen mutual fund complex. The current
exchange privileges, and the requirements and limitations attendant thereto, are
described in the Funds' respective Prospectuses and Statements of Additional
Information. After July 1, 1995 (or as soon thereafter as is reasonably
practicable, and subject to applicable laws), it is expected, although it cannot
be assured, that shareholders in each of First Union Funds and the Evergreen
mutual fund complex 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 in the Evergreen mutual fund complex. Although there is no present
intention to do so, the exchange privilege may be modified or terminated at any
time.
DIVIDEND POLICY
Each Fund declares income dividends daily and pays such dividends monthly.
Distributions of any net realized capital gains of a Fund will be made at least
annually. Dividends and distributions are reinvested in additional shares of the
same Class of the respective Fund, or paid in cash, as a shareholder has
elected. See the respective Prospectuses of the Funds for further information
concerning dividends and distributions.
After the Reorganization, shareholders of Evergreen Government that have
elected (or that so elect no later than June 15, 1995), to have their dividends
and/or distributions reinvested, will have dividends and/or distributions
received from First Union Government reinvested in shares of First Union
Government. Shareholders of Evergreen Government that have elected (or that so
elect no later than June 15, 1995) to receive dividends and/or distributions in
cash will receive dividends and/or distributions from First Union Government in
cash after the Reorganization, although they may, after the Reorganization,
elect to have such dividends and/or distributions reinvested in additional
shares of First Union Government.
Each Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). While so qualified, so long as each Fund distributes all
of its investment company taxable income and any net realized gains to
shareholders, it is expected that the Fund will not be required to pay any
federal income taxes on the amounts so distributed. A 4% nondeductible excise
tax will be imposed on amounts not distributed if a Fund does not meet certain
distribution requirements with respect to the end of each calendar year. Each
Fund anticipates meeting such distribution requirements.
17
<PAGE>
RISKS
In general, an investment in either of the Funds entails substantially the
same risks. Although U.S. Government Securities generally do not involve the
credit risks associated with other types of fixed income securities, the market
values of U.S. Government Securities do go up and down as interest rates change.
Thus, for example, the value of an investment in U.S. Government Securities may
fall during times of rising interest rates. Yields on U.S. Government Securities
tend to be lower than those of corporate securities of comparable maturities.
See "Comparison Of Investment Objectives And Policies."
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
There are substantial similarities between Evergreen Government and First
Union Government. Specifically, Evergreen Government and First Union Government
have similar investment objectives and policies, and comparable risk profiles.
See, "Comparison of Investment Objectives and Policies," below. In addition, the
investment records of each Fund are comparable. See, "Comparative Performance
Information for Each Fund." In terms of total net assets there is, however, a
significant difference between the two Funds: as of March 1, 1995, Evergreen
Government had net assets of $4 million, whereas First Union Government had net
assets of $232 million.
Evergreen Government has not, since its inception in 1993, achieved asset
levels on a continuing basis that would permit it, without a significant waiver
of fees and reimbursement of expenses by Evergreen Asset (the continuance of
which voluntary waivers and reimbursements cannot be assured) to operate
economically and generate a competitive yield. First Union Government, however,
has already reached viable asset levels since its inception in 1993. Given the
substantial similarities between the Funds, and the fact that Evergreen
Government and First Union Government are now managed by affiliated entities and
offered through certain common distribution channels, Evergreen Asset believes
that Evergreen Government will not be able to achieve significant increases in
asset levels in the foreseeable future. In addition, the prospect of dividing
the resources of the Evergreen/First Union mutual fund advisory organizations
between two substantially identical funds could result in both Funds being
disadvantaged due to an inability to achieve optimum size, performance levels
and the greatest possible economies of scale. There can be no assurance any
anticipated economies of scale in connection with the Reorganization will be
realized.
AGREEMENT AND PLAN OF REORGANIZATION
The following summary is qualified in its entirety by reference to the Plan
(Exhibit A hereto).
The Plan provides that First Union Government will acquire all or
substantially all of the assets of Evergreen Government in exchange for shares
of First Union Government and the assumption by First Union Government of
certain identified liabilities of Evergreen Government on June 30, 1995 or such
later date as may be agreed upon by the parties (the "Closing Date"). Prior to
the Closing Date, Evergreen Government will endeavor to discharge all of its
known liabilities and obligations. First Union Government will not assume any
liabilities or obligations of Evergreen Government other than those reflected in
an unaudited statement of assets and liabilities of Evergreen Government
prepared as of the close of regular trading on the New York Stock Exchange, Inc.
(the "NYSE"), currently 4:00 p.m. Eastern Time, on the Closing Date. The number
of full and fractional common shares of each Class of First Union Government to
be received by Evergreen Government will be determined on the basis of the
relative net asset values per share of each respective Class of First Union
Government's shares and the net asset values attributable to each Class of
shares of Evergreen Government, computed as of the close of regular trading on
the NYSE on the Closing Date. The net asset value per share of each Class will
be determined by dividing assets, less liabilities, in each case attributable to
the respective Class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for each Fund, will
compute the value of the Funds' respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
Prospectuses
and Statement of Additional Information of First Union Government, 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, Evergreen Government shall have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
Evergreen Government's shareholders (in shares of Evergreen Government, or in
cash, as the shareholder has previously elected) all of Evergreen Government's
investment company taxable income for the taxable year ending on or prior to the
Closing Date
18
<PAGE>
(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, Evergreen
Government will liquidate and distribute pro rata to shareholders of record as
of the close of business on the Closing Date the full and fractional
Corresponding Shares of First Union Government received by Evergreen Government.
Such liquidation and distribution will be accomplished by the establishment of
accounts in the names of Evergreen Government's shareholders on the share
records of First Union Government's transfer agent. Each account will represent
the respective pro rata number of full and fractional Corresponding Shares of
First Union Government due to Evergreen Government's shareholders. All issued
and outstanding shares of Evergreen Government, including those represented by
certificates, will be canceled. First Union Government does not issue share
certificates to shareholders. The shares of First Union Government to be issued
will have no pre-emptive or conversion rights. After such distribution and the
winding up of its affairs, Evergreen Government will be terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by Evergreen Government's shareholders,
accuracy of various representations and warranties and receipt of opinions of
counsel, including those matters referred to in "Federal Income Tax
Consequences" below. Notwithstanding approval of Evergreen Government's
shareholders, the Plan may be terminated (a) by the mutual agreement of both
parties; or (b) at or prior to the Closing Date by either party (i) because of a
breach by the other party of any representation, warranty, or agreement
contained therein to be performed at or prior to the Closing Date if not cured
within 30 days, or (ii) because a condition to the obligation of the terminating
party has not been met and it reasonably appears that it cannot be met.
The expenses of Evergreen Government in connection with the Reorganization
(including the cost of any proxy soliciting agents), will be borne by Evergreen
Asset. The expenses of First Union Government incurred in connection with the
Reorganization will be borne by FUNB-NC. Following the reorganization, First
Union Government will not be assuming any liabilities or making any
reimbursements in connection with the 12b-1 Plan of Evergreen Government. No
portion of such expenses shall be borne directly or indirectly by Evergreen
Government or its shareholders.
If the Reorganization is not approved by shareholders of Evergreen
Government, the Board of Trustees of the Trust will continue to operate
Evergreen Government under existing arrangements, or consider other possible
courses of action, including liquidation of Evergreen Government.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify for federal income tax purposes
as a tax-free reorganization under section 368(a) of the Code. As a condition to
the closing of the Reorganization, Evergreen Government 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 Evergreen
Government solely in exchange for shares of First Union Government and the
assumption by First Union Government of certain identified liabilities,
followed by the distribution of First Union Government's shares by
Evergreen Government in dissolution and liquidation of Evergreen
Government, will constitute a "reorganization" within the meaning of
section 368(a)(1)(C) of the Code, and First Union Government and Evergreen
Government 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 Evergreen Government on the
transfer of its assets to First Union Government (except, possibly, with
respect to certain options, futures and forward contracts, if any, included
in the assets ("Contracts")), solely in exchange for First Union
Government's shares and the assumption by First Union Government of
liabilities or upon the distribution (whether actual or constructive) of
First Union Government's shares to Evergreen Government's shareholders in
exchange for their shares of Evergreen Government;
(3) The tax basis of the assets transferred (with the possible
exception of the Contracts) will be the same to First Union Government as
the tax basis of such assets to Evergreen Government immediately prior to
the Reorganization, and the holding period of such assets (with the
possible exception of the Contracts) in the hands of First Union Government
will include the period during which the assets were held by Evergreen
Government;
19
<PAGE>
(4) No gain or loss will be recognized by First Union Government upon
the receipt of the assets from Evergreen Government solely in exchange for
the shares of First Union Government and the assumption by First Union
Government of certain liabilities;
(5) No gain or loss will be recognized by Evergreen Government's
shareholders upon the issuance of the shares of First Union Government to
them, provided they receive solely such shares (including fractional
shares) in exchange for their shares of Evergreen Government; and
(6) The aggregate tax basis of the shares of First Union Government,
including any fractional shares, received by each of the shareholders of
Evergreen Government pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of Evergreen Government held by such
shareholder immediately prior to the Reorganization, and the holding period
of the shares of First Union Government, including fractional shares,
received by each such shareholder will include the period during which the
shares of Evergreen Government exchanged therefor were held by such
shareholder (provided that the shares of Evergreen Government were held as
a capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, each Evergreen Government shareholder
would recognize a taxable gain or loss equal to the difference between his tax
basis in his Evergreen Government shares and the fair market value of the First
Union Government shares he received. Shareholders of Evergreen Government should
consult their tax advisers regarding the effect, if any, of the proposed
Reorganization in light of their individual circumstances. Tax counsel to the
funds knows of no reason why the Reorganization would not quality as a
tax-exempt reorganization. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of Evergreen
Government should also consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
RECOMMENDATION OF THE BOARD
Based on the recommendation of Evergreen Asset and FUNB, at Special
Meetings held on January 6 and March 7, 1995, the respective Boards of Trustees
of the Trust and the First Union Funds considered and approved the
Reorganization, including the entry by the Trust and First Union Funds into the
Plan on behalf of each Fund. Specifically, the Trustees of the Trust determined
that the proposed Reorganization would be in the best interests of Evergreen
Government and its shareholders and would not result in the dilution of the
interests of shareholders.
In reaching their decision to recommend shareholder approval of the
Reorganization, the Trustees of the Trust considered the information discussed
above in "Reasons for the Reorganization," including the fact that Evergreen
Government has never achieved a viable asset level. In addition, the Trustees
considered, among other things, (i) the terms and conditions of the
Reorganization; (ii) whether the Reorganization would result in the dilution of
shareholder interests; (iii) the fact that Evergreen Asset will bear the
expenses incurred by Evergreen Government in connection with the Reorganization;
(iv) the fact that First Union Government will assume all of the disclosed
obligations and certain identified liabilities of Evergreen Government; and (v)
the expected federal income tax consequences of the Reorganization.
The Trustees also considered the benefits to be derived by shareholders of
Evergreen Government from the sale of its assets to First Union Government. In
this regard, the Trustees considered the potential benefits of being associated
with a larger, more viable entity and the economies of scale that could be
realized by the participation by shareholders of Evergreen Government in the
combined fund. In addition, the Trustees considered that there are alternatives
available to shareholders of Evergreen Government, including the ability to
redeem their shares, as well as the option to vote against the Reorganization.
During their consideration of the Reorganization, the Independent Trustees
met with the other Trustees as well as separately with independent legal counsel
regarding the legal issues involved. The Trustees of First Union Government also
concluded that the proposed Reorganization would be in the best interests of
shareholders of First Union Government and that the interests of the
shareholders of First Union Government will not be diluted as a result of the
transactions contemplated by the Reorganization.
THE TRUSTEES OF THE TRUST RECOMMEND THAT THE SHAREHOLDERS OF EVERGREEN
GOVERNMENT APPROVE THE PROPOSED REORGANIZATION.
20
<PAGE>
PRO-FORMA CAPITALIZATION.
The following tables show the capitalization of First Union Government and
Evergreen Government as of March 31, 1995 and on a pro forma basis as of that
date, giving effect to the proposed acquisition of assets at net asset value:
CAPITALIZATION OF EVERGREEN GOVERNMENT AND FIRST UNION GOVERNMENT
<TABLE>
<CAPTION>
EVERGREEN GOVERNMENT(1) FIRST UNION GOVERNMENT
CLASS Y CLASS A CLASS B CLASS C CLASS Y CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Assets...... $2,148,016 $81,472 $2,123,245 $65,483 $15,932,923 $21,726,412 $190,704,940 $385,297
Shares
Outstanding..... 244,482 9,276 241,809 7,457 1,708,747 2,330,126 20,453,155 41,321
Net Asset
Value per
Share........... $8.79 $8.78 $8.78 $8.78 $9.32 $9.32 $9.32 $9.32
</TABLE>
PRO FORMA COMBINED CAPITALIZATION OF FIRST UNION GOVERNMENT (2)
<TABLE>
<CAPTION>
CLASS Y CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C>
Net Assets........................................................ $18,080,939 $21,807,884 $192,828,185 $450,780
Shares Outstanding (3)............................................ 1,939,326 2,338,865 20,680,954 48,346
Net Asset Value per Share......................................... $9.32 $9.32 $9.32 $9.32
</TABLE>
1. Net Assets and Net Asset Value per Share of Evergreen Government represent
the aggregate and per share value of Evergreen Government's net assets which
would have been transferred to First Union Government had the Reorganization
been consummated on March 31, 1995.
2. Data does not take into account expenses incurred in the Reorganization which
will be borne by Evergreen Asset for Evergreen Government and by FUNB for
First Union Government.
3. Had the Reorganization been consummated on March 31, 1995, Evergreen
Government would have received 230,579 Class Y, 8,739 Class A, 227,799 Class
B and 7,025 Class C shares of First Union Government, which would then be
available for distribution to shareholders. No assurance can be given as to
how many Class Y, Class A, Class B or Class C shares of First Union
Government Evergreen Government shareholders will receive on the date that
the Reorganization takes place, and the foregoing should not be relied upon
to reflect the number of Class Y, Class A, Class B and Class C shares of
First Union Government that will actually be received on or after such date.
SHAREHOLDER INFORMATION.
As of April 17, 1995 (the "Record Date"), there were the following number
of each Class of shares of beneficial interest of Evergreen Government
outstanding: Class A -- 11,782; Class B -- 238,864; Class C -- 7,459, and Class
Y -- 244,454.
The number and percent of outstanding shares of Evergreen Government owned
by the officers and Trustees of the Trust, or by each person who, to the Trust's
knowledge, owned beneficially or of record more than 5% of Evergreen
Government's total outstanding shares as of the Record Date is as follows:
<TABLE>
<CAPTION>
CLASS Y
<S> <C> <C> <C>
PERCENTAGE OF
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS TOTAL SHARES OUTSTANDING
<S> <C> <C> <C>
Stephen A. Lieber, 26,433 10.81% 5.26%
2500 Westchester Ave.
Purchase, NY 10577
</TABLE>
As of the Record Date, the current officers and current Trustees of
Evergreen Government, and the former officers and former Trustees of Evergreen
Government who are currently officers of, or associated with, Evergreen Asset
and Lieber & Company (including Mr. Lieber), and the accounts for which Lieber &
Company or First Union has discretion to vote the shares, owned in the aggregate
7.81% of Evergreen Government's shares. It is expected that all of the shares
owned by these persons will vote to approve the Plan.
As of April 17 1995, the following number of each Class of the shares of
First Union Government were outstanding: Class A -- 2,335,217; Class
B -- 20,324,623; Class C -- 30,560, and Class Y -- 1,798,634.
21
<PAGE>
The number and percent of outstanding shares of First Union Government
owned by the officers and Trustees of the Trust, or by each person who, to the
Trust's knowledge, owned beneficially or of record more than 5% of First Union
Government's total outstanding shares as of the Record Date is as follows:
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C> <C>
PERCENTAGE OF
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS TOTAL SHARES OUTSTANDING
FUBS & Co. FEBO 196,582 8.42% .80%
Southeastern District --
LCMS Church Extension Fund, Inc.
201 S. College S. 5th Fl.
Charlotte, NC 28202
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C> <C>
FUBS & Co. FEBO 11,037 36.12% .05%
Helen G. Bender
201 S. College St. 5th Fl.
Charlotte, NC 28202
FUBS & Co. FEBO 3,902 12.79% .02%
Aileen D. Bell and
John H. Bell
201 S. College St. 5th Fl.
Charlotte, NC 28202
FUBS & Co. FEBO 2,172 7.11% .01%
George A. Cane
201 S. College St.
Charlotte, NC 28202
FUBS & Co. FEBO 3,480 11.39% .01%
Virginia T. Symons Trust
Virginia T. Symons Trustee
201 S. College St.
Charlotte, NC 28202
FUBS & Co. FEBO 4,235 13.86% .02%
Douglas H. Thompson, Sr.
201 S. College St.
Charlotte, NC 28202
First Union National Bank-NC 1,996 6.53% .01%
C/F Dorothy D. Lyerly IRA
201 S. College St.
Charlotte, NC 28202
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
<S> <C> <C> <C>
First Union National Bank 404,661 22.50% 1.65%
Trust Accounts
301 S. Tryon St.
Charlotte, NC 28288
First Union National Bank 1,393,962 77.50% 5.70%
Trust Accounts
301 S. Tryon St.
Charlotte, NC 28288
</TABLE>
As of the Record Date, the officers and Trustees of First Union Government
beneficially owned as a group less than 1% of the outstanding shares of First
Union Government.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the respective Prospectuses and Statements of Additional
Information of the Funds. The investment objectives, policies and restrictions
of First Union Government can be found in the Prospectuses of First Union
Government under the caption "Investment Objectives and Policies." First Union
Government's Prospectuses
22
<PAGE>
also offer additional funds advised by CMG. These additional funds are not
involved in the Reorganization, their investment objectives, policies and
restrictions are not discussed in this Prospectus/Proxy Statement and their
shares are not offered hereby. The investment objectives, policies and
restrictions of Evergreen Government can be found in the Prospectuses of
Evergreen Government under the caption "Investment Objective and Policies."
Both First Union Government and Evergreen Government seek to achieve a high
level of current income by investing substantially all of their assets in a
diversified portfolio of U.S. Government Securities. While the investment
objectives, policies and strategies of each Fund are similar, certain
differences exist that could impact on the performance of, and risks associated
with, an investment in each Fund.
ZERO COUPON SECURITIES. Evergreen Government may invest up to 25% of its
total assets in "zero coupon securities." These securities accrue interest at a
specified rate, but do not pay interest in cash on a current basis. The Fund
will be required to distribute the income on these securities to its
shareholders as the income accrues, even though the Fund is not receiving the
income in cash on a current basis. Thus the Fund may have to sell other
investments to obtain cash to make income distributions. The market value of
zero coupon securities is often more volatile than that of non-zero coupon fixed
income securities of comparable quality and maturity. First Union Government is
not prohibited from investing in zero coupon securities but does not have any
policy specifically limiting its investments therein.
USE OF FUTURES AND OPTIONS ON FUTURES. Both Evergreen Government and First
Union Government may utilize futures and options on futures to protect against
adverse effects of changes in interest rates. Each Fund may enter into financial
futures contracts including futures contracts based on securities indices,
purchase and write put and call options on futures contracts, and engage in
related closing transactions to the extent available.
The Funds engage in transactions in futures contracts and related options
for hedging purposes only. Neither Fund may purchase or sell a futures contract
if, immediately thereafter, the total margin deposits for futures contracts and
premiums paid for related outstanding options is more than 5% of a Fund's total
assets. Evergreen Government may not hedge more than 25% of its total assets.
First Union Government does not have such a limit.
OPTIONS. Each Fund may write covered call options in an attempt to earn a
higher return on its portfolio or to hedge against an expected decline in the
price of a security. Evergreen Government may not write call options against
more than 15% of the value of the securities held in its portfolio. First Union
Government has no such limit. A call option gives the purchaser of the option
the right to buy a security from the writer at the exercise price at any time
during the option period and the writer foregoes the opportunity to profit from
an increase in the market price of the underlying security above the exercise
price except insofar as the premium represents such a profit. Evergreen
Government will write call options only when the options are traded on national
securities exchanges in the United States, while First Union Government may also
write over-the-counter call options. First Union Government may also write
covered exchange listed and over-the-counter put options. A put option gives the
holder the right to sell to the writer of the option certain securities at a
predetermined price. If the market value of the securities which are the subject
of a put option decline in value, the writer of the option will realize a loss
to the extent that the market value of such securities is lower than the
exercise price. Any option written by each Fund must be covered (i.e., the Fund
owns the optioned securities or securities convertible into or carrying rights
to acquire the optioned securities without payment of any additional
consideration, or the Fund's custodian has segregated and maintains cash or
liquid high-grade debt securities belonging to the Fund in an amount not less
than the value of the assets committed to written options). Each Fund may also
enter into "closing purchase transactions" -- the purchase of a call option on
the same security with the same exercise price and expiration date as the call
option which it has previously written on any particular security. In addition
to writing options, First Union Government may purchase put and call options on
U.S. Government Securities.
ASSET-BACKED OR MORTGAGE-BACKED SECURITIES. Evergreen Government and First
Union Government may invest in mortgage-backed securities, including
collateralized mortgage obligations ("CMOs") which are created by the grouping
of mortgages into pools. Interest and principal payments on the mortgages
underlying mortgage-backed securities are passed through to the holders of the
security. If a Fund purchases mortgage-backed securities at a discount or a
premium, the Fund will recognize a gain or loss when the payments of principal,
through prepayment or otherwise, are passed through to it. If the payment occurs
in a period of falling interest rates, a Fund may not be able to reinvest the
payment at as favorable an interest rate. As a result of these principal
prepayment features, mortgage-backed securities are generally more volatile
investments than many other fixed income securities.
First Union Government may also invest in securities representing an
ownership interest in pools of other types of assets, most commonly automobile
loan or credit card receivables. Such securities are known as "asset-backed"
securities.
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Because much of the underlying collateral for such securities is unsecured,
asset backed securities are generally structured to include collateral in excess
of the face value of such securities and/or additional credit support to protect
against default. In addition, since the underlying collateral for such
securities can be repaid without penalty, asset backed securities are subject to
the same prepayment risks faced by mortgage backed securities and described
above.
Other than a limitation on investments in collateralized mortgage
obligations of 20% of assets followed by First Union Government, neither fund
has a limit on investments in mortgage or asset backed securities. Investments
in mortgage and asset backed securities involve prepayment risk, which may have
a negative effect on Yield and the market value of such securities.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a
"when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). The Funds generally would not pay for such securities
or start earning interest on them until they are received, but they assume the
risks of ownership at the time of purchase, not at the time of receipt. Failure
of the issuer to deliver a security purchased by a Fund on a when-issued basis
may result in a Fund's incurring a loss or missing an opportunity to make an
alternative investment. The Funds each maintain cash or liquid U.S. Government
debt obligations in a segregated account with their custodian in an amount equal
to such commitments. Commitments to purchase when-issued securities are limited
to 25% of Evergreen Government's total assets. First Union Government does not
intend to engage in such transactions to the extent that would cause the
segregation of more than 20% of its total assets. Each Fund purchases
when-issued securities only in furtherance of its investment objectives and not
for speculative purposes.
REPURCHASE AGREEMENTS. The Funds may enter into repurchase agreements with
member banks of the Federal Reserve System, including State Street Bank and
Trust Company, each Fund's custodian, or "primary dealers" (as designated by the
Federal Reserve Bank of New York) in U.S. Government Securities. A repurchase
agreement is an arrangement pursuant to which a buyer purchases a security and
simultaneously agrees to resell it to the vendor at a price that results in an
agreed-upon market rate of return which is effective for the period of time
(which is normally one to seven days, but may be longer) that the buyer's money
is invested in the security. The arrangement results in a fixed rate of return
that is not subject to market fluctuations during a Fund's holding period. Each
Fund requires continued maintenance of collateral with its custodian in an
amount equal to, or in excess of, the market value of the securities, including
accrued interest, which are the subject of a repurchase agreement. In the event
a vendor defaults on its repurchase obligation, a Fund might suffer a loss to
the extent that the proceeds from the sale of the collateral were less than the
repurchase price. If the vendor becomes the subject of bankruptcy proceedings, a
Fund might be delayed in selling the collateral. Evergreen Government and First
Union Government may not enter into repurchase agreements if, as a result, more
than 10% and 15%, respectively, of each Fund's net assets would be invested in
repurchase agreements maturing in more than seven days.
REVERSE REPURCHASE AGREEMENTS. Each Fund may agree to sell portfolio
securities to financial institutions, such as banks and broker-dealers, and to
repurchase them at a mutually agreed upon date and price (a "reverse repurchase
agreement"). At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account cash, U.S. Government Securities or
liquid high grade debt obligations having a value equal to the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such equivalent value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by a Fund may decline
below the repurchase price of those securities. Evergreen Government may enter
into reverse repurchase agreements for temporary or emergency purposes only in
an amount not exceeding 5% of the value of its total assets. First Union
Government may not invest in reverse repurchase agreements in excess of 5% of
net assets.
RESTRICTED AND ILLIQUID SECURITIES. Evergreen Government may invest up to
15% of its net assets, and First Union Government may invest up to 10% of its
net assets, in illiquid securities and other securities which are not readily
marketable, except that Evergreen Government may only invest up to 10% of its
assets in repurchase agreements with maturities longer than seven days.
Securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, which have been determined to be liquid, are not considered to be illiquid
or not readily marketable and, therefore, are not subject to the aforementioned
limits. First Union Government provides that its restrictions relating to
investment in illiquid securities do not apply to commercial paper issued under
Section 4(2) of the Securities Act of 1933.
SECURITIES LENDING. In order to generate income and to offset expenses, the
Funds may lend portfolio securities to brokers, dealers and other financial
organizations. Loans of securities by a Fund, if and when made, will be
collateralized by cash, U.S. government securities or, with respect to Evergreen
Government, letters of credit, that are maintained at all times in an amount
equal to at least 100 percent of the current market value of the loaned
securities, including accrued interest. Evergreen Government may not make loans
of securities in excess of 30% of its total assets. First Union Government may
not make loans of securities in excess of 15% of its total assets.
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There is a risk that when lending portfolio securities, the securities may
not be available to a Fund on a timely basis and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities files for bankruptcy or becomes insolvent,
disposition of the securities may be delayed pending court action.
The foregoing discussion covers the principal investment policies of each
Fund and the manner in which they differ. The characteristics of each investment
policy and the associated risks are described in the Prospectus and Statement of
Additional Information of each Fund. Both First Union Government and Evergreen
Government have other investment policies and restrictions which are also set
forth in the Prospectus and Statement of Additional Information of each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION.
Both Funds are series of open-end management investment companies
registered with the SEC under the 1940 Act which continuously offer shares to
the public. Each is organized as a separate investment series of a Massachusetts
business trust and is governed by a Declaration of Trust, By-Laws and Board of
Trustees. Both are also governed by applicable Massachusetts and Federal law.
CAPITALIZATION.
The beneficial interests in Evergreen Government are represented by an
unlimited number of transferable shares of beneficial interest with a $0.0001
par value. The beneficial interests of First Union Government are represented by
an unlimited number of transferable shares of beneficial interest without par
value. The respective Declarations of Trust under which each Fund operates
permits the respective Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued. The Funds' shares have
equal voting rights with respect to matters affecting shareholders of all
classes of each Fund and represent equal proportionate interests in the assets
belonging to the Funds, and are entitled to receive dividends and other amounts
as determined by its Trustees. Shareholders of each Fund vote separately, by
class, as to matters, such as approval or amendments of Rule 12b-1 distribution
plans or amendments thereto, that affect only their particular class.
SHAREHOLDER LIABILITY.
Under Massachusetts law, shareholders of a trust could, under certain
circumstances, be held personally liable for the obligations of the trust.
However, the respective Declarations of Trust under which Funds operate disclaim
shareholder liability for acts or obligations of the portfolio or series and
require that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Funds or the Trustees. The
Declarations of Trust provide for indemnification out of the portfolio's or
series' property for all losses and expenses of any shareholder held personally
liable for the obligations of the portfolio or series. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which a disclaimer is
inoperative and the portfolio or series itself would be unable to meet its
obligations. A substantial number of mutual funds in the United States are
organized as Massachusetts business trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS.
The Funds are not required to hold annual meetings of shareholders, but 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 10% of its outstanding shares. In addition, each is required
to call a meeting of shareholders for the purpose of electing Trustees or, if,
at any time, less than a majority of the Trustees then holding office were
elected by shareholders. If Trustees of the Funds fail or refuse to call a
meeting as required by the respective Declarations 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 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 voting is sufficient to
act on a matter (unless otherwise specifically required by the applicable
governing documents or other law, including the 1940 Act).
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LIQUIDATION OR DISSOLUTION.
In the event of the liquidation of the Funds the shareholders are entitled
to receive, when, and as declared by the Trustees, the excess of the assets
belonging to the Funds or attributable to the class over the liabilities
belonging to the Funds or attributable to the class. In either case, the assets
so distributable to shareholders of the Funds will be distributed among the
shareholders in proportion to the number of shares of the Funds held by them and
recorded on the books of the Funds.
LIABILITY AND INDEMNIFICATION OF TRUSTEES.
The By-Laws of Evergreen Fixed Income Trust provide that present and former
Trustees or officers are generally entitled to indemnification against
liabilities and expenses with respect to claims related to their position with
Evergreen Government unless, in the case of any liability to the Fund or its
shareholders, it shall have been determined that such Trustee or officer is
liable by reason of his willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
The Declaration of Trust of First Union Funds provides that no Trustee,
officer or agent shall be personally liable to any person for any action or
failure to act, except for his own bad faith, willful misfeasance, or gross
negligence, or reckless disregard of his duties. The Declaration of Trust
provides that a Trustee or officer is entitled to indemnification against
liabilities and expenses with respect to claims related to his position with
First Union Funds, 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 the Fund, or, in
the event of settlement, unless there has been a determination that such Trustee
or officer has engaged in willful misfeasance, bad faith, gross negligence, or
reckless disregard of his duties.
RIGHTS OF INSPECTION.
Shareholders of the 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 Funds as are permitted
shareholders of a corporation under the Massachusetts corporation law. The
purpose of inspection must be for interests of shareholders relative to the
affairs of the Funds.
The foregoing is only a summary of certain characteristics of the
operations of the Funds, the Declarations of Trust, By-Laws, and Massachusetts
law. The foregoing is not a complete description of the documents cited.
Shareholders should refer to the provisions of such respective Declarations of
Trust, By-Laws, and Massachusetts law directly for a more thorough description.
ADDITIONAL INFORMATION
Each Fund is subject to the informational requirements of the Securities
and Exchange Act of 1934 and the 1940 Act, and must in accordance therewith file
reports and other information including proxy material, reports and charter
documents with the SEC. These reports 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, at the Northeast Regional Office of the SEC, Seven World
Trade Center, Suite 1300, New York, New York 10048 and at the Southeast Regional
Office of the SEC, 1401 Brickwell Avenue, Suite 200, Miami, Florida 33131.
Copies of such material can also be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549 at prescribed rates.
VOTING INFORMATION CONCERNING THE MEETING
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 to be held at 10:00 a.m. June 15, 1995, at the
offices of First Union Corporation, Two First Union Center, 301 S. Tryon Street,
Charlotte, N.C. 28288, and at any adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and a proxy card, is first being
mailed to shareholders on or about May 10, 1995. Only shareholders of record as
of the close of business on the Record Date will be entitled to notice of, and
to vote at, the Meeting or any adjournment thereof. The holders of a majority of
the shares outstanding at the close of business on the Record Date present in
person or represented by proxy will constitute a quorum for the Meeting. If the
enclosed form of proxy is properly executed and returned in time to be voted at
the Meeting, the proxies named therein will vote the shares represented by the
proxy in accordance with the instructions marked thereon. Unmarked proxies will
be voted FOR the proposed Reorganization and FOR any other matters deemed
appropriate. Proxies that reflect abstentions and "broker non-votes" (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote or (ii) the
broker or nominee does not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will have the effect of
being counted as votes against the Plan. A proxy may be revoked at any time on
or before the Meeting by written notice to the Secretary of Evergreen Fixed
Income Trust, 2500 Westchester Avenue, Purchase, New
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York 10577. Unless revoked, all valid proxies will be voted in accordance with
the specifications thereon or, in the absence of such specifications, FOR
approval of the Plan and the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of more than 50% of
the outstanding voting securities, with all Classes voting together as one
class. 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 Trustees
will continue to operate Evergreen Government under existing arrangements or
consider other alternatives, including liquidation of Evergreen Government.
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 Evergreen Asset, its affiliates or other
representatives of Evergreen Government. Proxies are solicited by mail. The cost
of solicitation will be borne by Evergreen Asset. Trustees and officers of the
Funds and officers of Evergreen Asset may also solicit proxies, without
compensation. Proxies may be solicited by mail, in person or by telephone.
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.
Evergreen Asset will be responsible for the respective expenses of
Evergreen Government incurred in connection with entering into and carrying out
the Reorganization, whether or not the Reorganization is consummated.
In the event that sufficient votes to approve the Reorganization are not
received by June 15, 1995, the persons named as proxies may propose one or more
adjournments of either or both of the Meetings to permit further solicitation of
proxies. The persons named as proxies will vote in favor of any such adjournment
if they determine that such adjournment and additional solicitation are
reasonable and in the interests of Evergreen Government's shareholders. If such
adjournment is for more than 120 days after the record date, the Trust will give
notice of the adjourned Meeting to Evergreen Government's shareholders.
A shareholder who objects to the proposed Reorganization 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 shares of First Union Government which they receive in the
transaction at their then-current net asset value. Shares of Evergreen
Government may be redeemed at any time prior to the consummation of the
Reorganization.
The Trust does not hold annual shareholder meetings. Shareholders wishing
to submit proposals for consideration for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
Secretary of 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 First Union Government 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 Evergreen Government whether other persons are beneficial owners
of shares for which proxies are being solicited and, if so, the number of copies
of this Prospectus/Proxy Statement needed to supply copies to the beneficial
owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS, LEGAL MATTERS
The audited financial statements and financial highlights incorporated into
this Prospectus/Proxy Statement by reference to the Evergreen Government Annual
Report to Shareholders for the period ended March 31, 1994 have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants for Evergreen Government, given on the authority of the firm as
experts in accounting and auditing.
The audited financial statements of First Union Government as of December
31, 1994 and the statement of operations for the year ended December 31, 1994
and changes in net assets for the two years ended 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 First Union Government, given on
the authority of the firm as experts in accounting and auditing.
Certain legal matters concerning the issuance of shares of First Union
Government will be passed upon by Sullivan & Worcester, 1025 Connecticut Avenue
N.W., Washington, D.C.
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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 judgement.
THE BOARD OF TRUSTEES OF THE TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
RECOMMEND APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO
THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
May 2, 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 21st day of March, 1995, by and between First Union Funds, a Massachusetts
business trust (the "Trust"), with its principal place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779, with respect to its First
Union U.S. Government Portfolio series (the "Acquiring Fund"), and Evergreen
Fixed Income Trust -- Evergreen U.S. Government Securities Fund, a Massachusetts
business trust, with its principal place of business at 2500 Westchester Avenue
Purchase, New York 10577 (the "Selling Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368 (a)(1)(C) of the United States
Internal Revenue Code of 1986 (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Selling Fund in exchange solely for shares of beneficial interest,
no par value per share, of the Acquiring Fund (the "Acquiring Fund Shares") and
the assumption by the Acquiring Fund of certain stated liabilities of the
Selling Fund and the distribution, after the Closing Date hereinafter referred
to, of the Acquiring Fund Shares to the shareholders of the Selling Fund in
liquidation of the Selling Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund either are, or constitute
separate investment series of, open-end, registered investment companies of the
management type and the Selling Fund owns securities which generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
substantially all of the assets of the Selling Fund for Acquiring Fund Shares
and the assumption of certain stated liabilities by the Acquiring Fund on the
terms and conditions hereinafter set forth is in the best interests of the
Acquiring Fund shareholders and that the interests of the existing shareholders
of the Acquiring Fund will not be diluted as a result of the transactions
contemplated herein;
WHEREAS, the Trustees of the Selling Fund have determined that the Selling
Fund should exchange substantially all of its assets and certain of its
liabilities for Acquiring Fund Shares and that the interests of the existing
shareholders of the Selling Fund will not be diluted as a result of the
transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES AND
LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer the Selling Fund's assets as set forth in paragraph 1.2
to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Selling Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined by dividing the value of the
Selling Fund's net assets computed in the manner and as of the time and date set
forth in paragraph 2.1 by the net asset value of one Acquiring Fund Share
computed in the manner and as of the time and date set forth in paragraph 2.2
and (ii) to assume certain liabilities of the Selling Fund, as set forth in
paragraph 1.3. The determination of the number of Acquiring Fund Shares to be
delivered shall be made in such a manner as to result in the Selling Fund
receiving a number of shares of the respective classes of the Acquiring Fund as
shall permit shareholders of the Selling Fund to receive shares of a class
having the same letter designation and the same distribution-related fees,
shareholder servicing-related fees and sales charges, including contingent
deferred sales charges, if any, as the shares of the class of the Selling Fund
held by them prior to the Reorganization. Such transactions shall take place at
the closing provided for in paragraph 3.1 (the "Closing Date").
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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 on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
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.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION AND DEREGISTRATION. The Selling Fund shall be terminated as
a Massachusetts business trust and deregistered as an investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
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ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
Closing Date (such time and date being hereinafter called the "Valuation Date"),
using the valuation procedures set forth in the Trust's Declaration of Trust and
the Acquiring Fund's then current prospectus and statement of additional
information or such other valuation procedures as shall be mutually agreed upon
by the parties.
2.2 VALUATION OF SHARES. The net asset value of each class of Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by dividing the value of the assets of
the Selling Fund attributable to each of its classes determined using the same
valuation procedures referred to in paragraph 2.1 by the net asset value of the
respective classes of Acquiring Fund Shares 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. State Street Bank & Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that: (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date and (b) all necessary
taxes including all applicable Federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted, or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Closing Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Boston Financial Data Services, Inc., as
transfer agent for each of the Selling Fund and the Acquiring Fund shall deliver
at the Closing a certificate of an authorized officer stating that their records
contain the names and addresses of the Selling Fund Shareholders and the number
and percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Secretary of the Selling Fund, or provide evidence satisfactory to
the Selling Fund that such Acquiring Fund Shares have been credited to the
Selling Fund's account on the books of the Acquiring Fund. At the Closing each
party shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts and other documents as such other party or its
counsel may reasonably request.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a Massachusetts business trust duly organized,
validly existing and in good standing under the laws of The Commonwealth of
Massachusetts;
(b) The Selling Fund is a registered investment company classified as
a management company of the open-end type and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the 1940 Act is in full force and effect;
(c) The current prospectus and statement of additional information of
the Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended, (the "1933 Act")
and the 1940 Act and the rules and regulations of the Commission thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not materially misleading;
(d) The Selling Fund is not, and the execution, delivery and
performance of this Agreement (subject to shareholder approval) will not,
result in violation of any provision of the Selling Fund's Declaration of
Trust or By-Laws or of any agreement, indenture, instrument, contract,
lease or other undertaking to which the Selling Fund is a party or by which
it is bound;
(e) The Selling Fund has no material contracts or other commitments
(other than this Agreement) which will be terminated with liability to it
prior to the Closing Date;
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition, the conduct of its business or the ability
of the Selling Fund to carry out the transactions contemplated by this
Agreement. The Selling Fund knows of no facts which might form the basis
for the institution of such proceedings and is not a party to or subject to
the provisions of any order, decree or judgment of any court or
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 March 31, 1994
have been audited by Price Waterhouse LLP, certified public accountants,
and are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been
furnished to the 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 March 31, 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 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
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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.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of a
Massachusetts business trust that is registered as an investment company
classified as a management company of the open-end type and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect;
(c) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not, result in violation of the Trust'
Declaration of Trust or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party
or by which it is bound;
(e) Except as otherwise disclosed to the Selling Fund and accepted by
the Selling Fund, no material litigation, administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets which, if adversely determined, would materially
and adversely affect its financial condition and the conduct of its
business or the ability of the Acquiring Fund to carry out the transactions
contemplated by this Agreement. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated herein;
(f) The financial statements of the Acquiring Fund at December 31,
1994, certified by KPMG Peat Marwick LLP, independent accountants, copies
of which have been furnished to the Selling Fund, fairly and accurately
reflect the financial condition of the Acquiring Fund as of such dates in
accordance with generally accepted accounting principles consistently
applied;
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(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;
(k) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and non-assessable
(except that, under Massachusetts law, shareholders of the Acquiring Fund
could, under certain circumstances, be held personally liable for
obligations of the Acquiring Fund);
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with Federal
securities and other laws and regulations applicable thereto;
(n) The Prospectus and Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring Fund )
will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading; and
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course
of business will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. The Selling Fund will call a meeting of
the Selling Fund Shareholders to consider and act upon this Agreement and
to take all other action necessary to obtain approval of the transactions
contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with
the terms of this Agreement.
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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.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund
shall furnish the Acquiring Fund, in such form as is reasonably
satisfactory to the Acquiring Fund, a statement of the earnings and profits
of the Selling Fund for Federal income tax purposes which will be carried
over by the Acquiring Fund as a result of Section 381 of the Code, and
which will be certified by the Selling Fund's President, its Treasurer and
its independent auditors.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund
will provide the Acquiring Fund with information reasonably necessary for
the preparation of a prospectus (the "Prospectus and Proxy Statement")
which will include the Prospectus and Proxy Statement, referred to in
paragraph 4.2(n), all to be included in a Registration Statement on Form
N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, (the
"1934 Act") and the 1940 Act in connection with the meeting of the Selling
Fund Shareholders to consider approval of this Agreement and the
transactions contemplated herein.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance
by the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date, and, in addition thereto, the
following further conditions:
6.1 All representations, covenants and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date
hereof and as of the Closing Date with the same force and effect as if made
on and as of the Closing Date, and the Acquiring Fund shall have delivered
to the Selling Fund a certificate executed in its name by the Trust's
President or Vice President and its Treasurer or Assistant Treasurer, in a
form reasonably satisfactory to the Selling Fund and dated as of the
Closing Date, to such effect and as to such other matters as the Acquiring
Fund shall reasonably request; and
6.2 The Selling Fund shall have received on the Closing Date an
opinion from Sullivan & Worcester, counsel to the Acquiring Fund, dated as
of the Closing Date, in a form reasonably satisfactory to the Selling Fund,
covering the following points:
That (a) the Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the
power to own all of its properties and assets and to carry on its business
as presently conducted; (b) the Agreement has been duly authorized,
executed and delivered by the Acquiring Fund, and, assuming that the
Prospectus, Registration Statement and Proxy Statement comply with the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder
and, assuming due authorization, execution and delivery of the Agreement by
the Selling Fund, is a valid and binding obligation of the Acquiring Fund
enforceable against the Acquiring Fund in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights
generally and to general equity principles; (c) assuming that a
consideration therefor not less than the net asset value therefor has been
paid, the Acquiring Fund Shares to be issued and delivered to the Selling
Fund on behalf of the Selling Fund Shareholders as provided by this
Agreement are duly authorized and upon such delivery will be legally issued
and outstanding and fully paid and non-assessable (except that, under
Massachusetts law, shareholders of the Acquiring Fund could, under certain
circumstances, be held personally liable for obligations of the Acquiring
Fund), and no shareholder of the Acquiring Fund has any preemptive rights
in respect thereof; (d) the execution and delivery of the Agreement did
not, and the consummation of the transactions contemplated hereby will not,
result in a violation of the Trust's Declaration of Trust or By-Laws or any
provision of any material agreement, indenture, instrument, contract, lease
or other undertaking (in each case known to such counsel) to which the
Acquiring Fund is a party or by which it or any of its properties may be
bound or to the knowledge of such counsel, result in the acceleration of
any obligation or the
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imposition of any penalty, under any agreement, judgment, or decree to
which the Acquiring Fund is a party or by which it is bound; (e) to the
knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States or the
Commonwealth of Massachusetts, is required for the consummation by the
Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such
as may be required under state securities laws; (f) only insofar as they
relate to the Acquiring Fund, the descriptions in the Prospectus and Proxy
Statement of statutes, legal and governmental proceedings and material
contracts, if any, are accurate and fairly present the information required
to be shown; (g) such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on
or before the effective date of the Registration Statement or the Closing
Date required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement which are not described as
required; (h) the Acquiring Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the
1940 Act and to such counsel's best knowledge, such registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; and (i) to the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring
Fund or any of its properties or assets and the Acquiring Fund is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely affects its
business, other than as previously disclosed in the Registration Statement.
In addition, such counsel shall also state that they have participated in
conferences with officers and other representatives of the Acquiring Fund
at which the contents of the Prospectus and Proxy Statement and related
matters were discussed and, although they are not passing upon and do not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Prospectus and Proxy Statement (except to the
extent indicated in paragraph (f) of their above opinion), on the basis of
the foregoing (relying as to materiality to a large extent upon the
opinions of the Trust's officers and other representatives of the Acquiring
Fund), no facts have come to their attention that lead them to believe that
the Prospectus and Proxy Statement as of its date, as of the date of the
Selling Fund Shareholders' meeting, and as of the Closing Date, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein regarding the Acquiring Fund or necessary, in
the light of the circumstances under which they were made, to make the
statements therein regarding the Acquiring Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief
as to the financial statements or any financial or statistical data, or as
to the information relating to the Selling Fund, contained in the
Prospectus and Proxy Statement or Registration Statement, and that such
opinion is solely for the benefit of the Selling Fund. Such opinion shall
contain such other assumptions and limitations as shall be in the opinion
of Sullivan & Worcester appropriate to render the opinions expressed.
In this paragraph 6.2, references to Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement
and not to any exhibits or attachments thereto or to any documents
incorporated by reference therein.
[Intentionally Left Blank]
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by Selling Fund's
President or Vice President and its Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and, dated as of the Closing
Date, to such effect and as to such other matters as the Acquiring Fund shall
reasonably request;
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement
of the Selling Fund's assets and liabilities, together with a list of the
Selling Fund's portfolio securities showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Selling Fund; and
7.3 The Acquiring Fund shall have received on the Closing Date an opinion
of Shereff, Friedman, Hoffman & Goodman. LLP, counsel to the Selling Fund, in a
form satisfactory to the Acquiring Fund covering the following points:
That (a) the Selling Fund is a Massachusetts business trust duly organized,
validly existing and in good standing under the laws of The Commonwealth of
Massachusetts and has the power to own all of its properties and assets and to
carry on its business as presently conducted; (b) the Agreement has been duly
authorized, executed and delivered by the Selling Fund, and, assuming that the
Prospectus, the Registration Statement and the Prospectus and Proxy Statement
comply with the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and, assuming due authorization, execution and delivery
of the Agreement by the Acquiring Fund, is a valid and binding obligation of the
Selling Fund enforceable against the Selling Fund in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights generally and to
general equity principles; (c) the execution and delivery of the Agreement did
not, and the consummation of the transactions contemplated hereby will not,
result in a violation of Selling Fund's Declaration of Trust or By-laws, or any
provision of any material agreement, indenture, instrument, contract, lease or
other undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which the
Selling Fund is a party or by which it is bound; (d) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States, or the Commonwealth of
Massachusetts is required for the consummation by the Selling Fund of the
transactions contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act and the 1940 Act, and such as may be required under state
securities laws; (e) only insofar as they relate to the Selling Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown; (f) such counsel does not know of
any legal or governmental proceedings, only insofar as they relate to the
Selling Fund existing on or before the date of mailing of the Prospectus and
Proxy Statement and the Closing Date, required to be described in the Prospectus
and Proxy Statement or to be filed as an exhibit to the Registration Statement
which are not described or filed as required; (g) the Selling Fund is a separate
investment series of a Massachusetts business trust registered as an investment
company under the 1940 Act and to such counsel's best knowledge, such
registration with the Commission as an investment company under the 1940 Act is
in full force and effect; (h) to the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling Fund or
any of its respective properties or assets and the Selling Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement; (i)
assuming that a consideration therefor not less than the net asset value
therefor has been paid, and assuming that such shares were issued in accordance
with the terms of the Selling Fund's registration statement, or any amendment
thereto, in effect at the time of such issuance all issued and outstanding
shares of the Selling Fund are legally issued and fully paid and non-assessable
(except that, under Massachusetts law, Selling Fund Shareholders could, under
certain circumstances be held personally liable for obligations of the Selling
Fund). Such counsel shall also state that they have participated in conferences
with officers and other representatives of the Selling Fund at which the
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
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Statement (except to the extent indicated in paragraph (e) of their above
opinion ), on the basis of the foregoing (relying as to materiality to a large
extent upon the opinions of the Selling Fund's officers and other
representatives of the Selling Fund ), no facts have come to their attention
that lead them to believe that the Prospectus and Proxy Statement as of its
date, as of the date of the Selling Fund Shareholders' meeting, and as of the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Selling Fund
or necessary, in the light of the circumstances under which they were made, to
make the statements therein regarding the Selling Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief as to
the financial statements or any financial or statistical data, or as to the
information relating to the Acquiring Fund, contained in the Prospectus and
Proxy Statement or Registration Statement, and that such opinion is solely for
the benefit of the Trust and the Acquiring Fund. Such opinion shall contain such
other assumptions and limitations as shall be in the opinion of Shereff,
Friedman, Hoffman & Goodman. LLP appropriate to render the opinions expressed
therein and shall indicateand shall indicate, with respect to matters of
Massachusetts law that as Shereff, Friedman, Hoffman & Goodman. LLP are not
admitted to the bar of Massachusetts, such opinions are based soley upon the
review of published statutes, cases and rules and regulations of the
Commonwealth of Massachusetts.
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 THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Selling Fund's Declaration
of Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1;
8.2 On the Closing Date the Commission shall not have issued an unfavorable
report under Section 25(b) of the 1940 Act, nor instituted any proceeding
seeking to enjoin the consummation of the transactions contemplated by this
Agreement under Section 25(c) of the 1940 Act and no action, suit or other
proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein;
8.3 All required consents of other parties and all other consents, orders
and permits of Federal, state and local regulatory authorities ( including those
of the Commission and of state Blue Sky and securities authorities. including
any necessary "no-action" positions of and exemptive orders from such Federal
and state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, 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);
A-10
<PAGE>
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 Price Waterhouse LLP a
letter addressed to the Acquiring Fund dated on the Closing Date, in form and
substance satisfactory to the Acquiring Fund, to the effect that (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,
including Regulation S-X; (iii) on the basis of limited procedures agreed upon
by the Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) consisting of a reading
of any unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of the Selling Fund responsible for financial and accounting matters,
nothing came to their attention which caused them to believe that (A) such
unaudited pro forma financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the published rules and regulations thereunder, or (B) said unaudited pro
forma financial statements are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements; (iv) on the basis of limited
procedures agreed upon by the Acquiring Fund and described in such letter (but
not an examination in accordance with generally accepted auditing standards),
the Capitalization Table appearing in the Registration Statement and Prospectus
and Proxy Statement, has been obtained from and is consistent with the
accounting records of the Selling Fund; and (v) on the basis of limited
procedures agreed upon by the Acquiring Fund and described in such letter (but
not an examination in accordance with generally accepted auditing standards),
the pro forma financial statements which are included in the Registration
Statement and Prospectus and Proxy Statement, were prepared based on the
valuation of the Selling Fund's assets in accordance with the Trust's
Declaration of Trust and the Acquiring Fund's then current prospectus and
statement of additional information pursuant to procedures customarily utilized
by the Acquiring Fund in valuing its own assets (such procedures having been
previously described to Price Waterhouse LLP in writing by the Acquiring Fund).
In addition, the Acquiring Fund shall have received from Price Waterhouse
LLP a letter addressed to the Acquiring Fund dated on the Closing Date, in form
and substance satisfactory to the Acquiring Fund, to the effect that on the
basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards) (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
A-11
<PAGE>
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 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 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
Price Waterhouse LLP a letter addressed to the Acquiring Fund and the Selling
Fund, dated on the Closing Date in form and substance satisfactory to the Funds,
setting forth the Federal income tax implications relating to Capital Loss
Carryforwards (if any) of the Selling Fund and the related impact, if any, of
the proposed transfer of all or substantially all of the assets of the Selling
Fund to the Acquiring Fund and the ultimate dissolution of the Selling Fund,
upon the shareholders of the Selling Fund.
ARTICLE IX
BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Selling Fund each represents and warrants to
the other that there are no brokers or finders entitled to receive any payments
in connection with the transactions provided for herein.
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. The expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund will be
borne by Evergreen Asset Management Corp. 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.
A-12
<PAGE>
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that the
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty or agreement
contained herein to be performed at or prior to the Closing Date, if not cured
within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will not or
cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund or the Selling Fund, the Trust or their respective, Trustees or
officers, to the other party or its, Trustees or officers, but each shall bear
the expenses incurred by it incidental to the preparation and carrying out of
this Agreement as provided in paragraph 9.2.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Selling
Fund and the Acquiring Fund: provided, however, that following the meeting of
the Selling Fund Shareholders called by the Selling Fund pursuant to paragraph
5.2 of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of the Acquiring Fund Shares to be issued
to the Selling Fund Shareholders under this Agreement to the detriment of such
shareholders without their further approval.
ARTICLE XIII
NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, overnight courier or certified mail addressed to
THE ACQUIRING FUND
First Union Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Attention: Peter J. Germain, Esq.
OR TO THE SELLING FUND
Evergreen Fixed Income Trust
2500 Westchester Avenue
Purchase, New York 10577
Attention: Joseph J. McBrien, Esq.
A-13
<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 State of New York.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed to that the obligations of the Selling Fund and
the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Selling Fund and
the Trust, personally, but bind only the trust property of the Selling Fund and
the Trust, as provided in the Declarations of Trust of the Selling Fund and the
Trust. The execution and delivery of this Agreement have been authorized by the
Trustees of the Selling Fund and the Trust and signed by authorized officers of
the Selling Fund and the Trust on behalf of the Acquiring Fund, acting as such,
and neither such authorization by such Trustees nor such execution and delivery
by such officers shall be deemed to have been made by any of them individually
or to impose any liability on any of them personally, but shall bind only the
trust property of the Selling Fund and the Acquiring Fund as provided in the
Declarations of Trust of the Selling Fund and the Trust.
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
FIRST UNION FUNDS
on behalf of First Union U.S.
Government Portfolio
By: /s/ EDWARD GONZALES
Name: Edward Gonzales
Title: President
(Seal)
EVERGREEN FIXED INCOME TRUST
on behalf of Evergreen U.S. Government
Securities Fund
By: /s/ JOHN J. PILEGGI
Name: John J. Pileggi
Title: President
(Seal)
A-14
STATEMENT OF ADDITIONAL INFORMATION
Transfer of substantially all of the assets and certain identified
liabilities of
EVERGREEN U.S. GOVERNMENT SECURITIES FUND, a series of
EVERGREEN FIXED INCOME TRUST
by and in exchange for the shares of
FIRST UNION U.S. GOVERNMENT PORTFOLIO, a series of
FIRST UNION FUNDS
This Statement of Additional Information relates specifically to the proposed
transfer of substantially all of the assets and certain identified liabilities
of Evergreen U.S. Government Fund ("Evergreen Government"), a series of
Evergreen Fixed Income Trust, by and in exchange for the shares of First Union
U.S. Government Portfolio ("First Union Government"), a portfolio of First Union
Funds. This Statement of Additional Information incorporates by reference the
documents described below:
(1) Statement of Additional Information of First Union Government dated
February 28, 1995(Post-Effective Amendment No. 39 to the Registration
Statement of First Union Funds on Form N-1A; File No. 2-94560);
(2) Annual Report for First Union Government for the fiscal year ended December
31, 1994;
(3) Statement of Additional Information of Evergreen Government dated January
3, 1995(Post-Effective Amendment No. 4 to the Registration Statement of
Evergreen Fixed Income Trust on Form N-1A; File No. 33-52880);
(4) Annual Report for Evergreen Government for the fiscal year ended March 31,
1994;
(5) Semi-Annual Report(Unaudited) for Evergreen Government for the period ended
September 30, 1994.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Proxy Statement/ Prospectus of First Union Funds dated
April 24, 1995, which has been filed with the Securities and Exchange
Commisiioon and can be obtained, without charge, by writing to First Union Funds
at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or by
calling toll-free 1-800-[326-3241]. This Statement of Additional Information has
been incorporated into the Proxy Statement/ Prospectus.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FIRST UNION FUNDS
Table of Contents
Cover Page Cover Page
Financial Statements 1
<PAGE>
First Union U.S. Government Fund
Evergreen U.S. Government Securities Fund
Pro Forma Combining Schedule of Portfolio of Investments
December 31, 1994 (unaudited)
<TABLE>
<CAPTION>
First Union U.S. Evergreen U.S. Government
Government Fund Securities Fund Pro Forma Combined
Principal Principal Principal
Amount Value Amount Value Amount Value
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Agency Obligations - 51.7%
Federal Home Loan Mortgage Corp., PC $32,447,332 $32,776,484 $32,447,332 $32,776,484
8.00%-10.50%, 11/1/1996-4/1/2022
Federal National Mortgage Association,
6.50%-9.50%, 6/1/2022-1/1/2024 16,446,265 15,328,913 16,446,265 15,328,913
Government National Mortgage Association,
7.00%-10.00%, 12/15/2018-8/15/2024 78,431,722 75,452,077 78,431,722 75,452,077
Total U.S. Government Agency Obligations ----------- -----------
(identified cost, $132,914,964) 123,557,474 123,557,474
U.S. Treasury Obligations - 47.0% ----------- -----------
U. S Treasury Bonds - 18.9%
7.50%-8.875%, 8/15/2008-11/15/2024 41,080,000 43,148,137 $2,000,000 $1,969,061 43,080,000 45,117,198
U. S. Treasury Notes - 28.1% ----------- ----------- -----------
7.375%-9.375%, 4/15/1996-8/15/1998 63,850,000 65,204,615 2,000,000 1,979,062 65,850,000 67,183,677
Total U.S. Treasury Obligations ----------- ----------- -----------
(identified cost, $127,159,268) 108,352,752 3,948,123 112,300,875
*Repurchase Agreement - 0.5% ----------- ----------- -----------
Donaldson, Lufkin & Jenrette Securities Corp.,
5.875%, dated 12/30/1994, due 1/3/1995
(at amortized cost) 1,162,000 1,162,000 1,162,000 1,162,000
Total Investments (identified cost ----------- ----------- -----------
$261,236,232) $233,072,226 $3,948,123 $237,020,349+
=========== =========== ===========
<FN>
- --------
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
+ The cost for federal tax purposes amounts to $261,236,232. The net
unrealized depreciation of investments on a federal tax basis amounts
to $24,215,883, which is comprised of $3,757 appreciation and
$24,219,640 depreciation, at December 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($238,954,529) at December 31, 1994.
The following abbreviation is used in this portfolio:
PC - Participation Certificate
(See Notes to Pro Forma Financial Statements)
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First Union U.S. Government Fund
Evergreen U.S. Government Securities Fund
Pro Forma Combining Statement of Assets and Liabilities
December 31, 1994 (unaudited)
First Union Evergreen
U.S. Government U.S. Government Pro Forma Pro Forma
Fund Securities Fund Adjustments Combined
--------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Investments in securities, at value
(identified and tax cost, $261,236,232) $233,072,226 $3,948,123 $237,020,349
Cash 16,548 24,645 41,193
Interest receivable 3,668,413 59,556 3,727,969
Receivable for Fund shares sold 106,314 17 106,331
Receivable from Advisor ---- 9,691 54,821 (2) 64,512
Prepaid expenses ---- 13,317 (13,317)(2) -0-
Deferred expenses 91,138 41,504 (41,504)(2) 91,138
----------- ----------- --------- ------------
Total assets 236,954,639 4,096,853 -0- 241,051,492
----------- ----------- --------- ------------
Liabilities:
Payable for Fund shares redeemed 967,230 258,045 1,225,275
Dividends payable 650,385 ---- 650,385
Accrued expenses 199,480 21,823 221,303
----------- ----------- --------- ------------
Total liabilities 1,817,095 279,868 2,096,963
----------- ----------- --------- ------------
Net Assets $235,137,544 $3,816,985 $238,954,529
----------- ----------- --------- ------------
Net Assets Consist of:
Paid-in capital $266,791,733 $5,150,384 $271,942,117
Net unrealized appreciation (depreciation)
of investments (24,207,407) (8,476) (24,215,883)
Accumulated net realized gain (loss)
on investments (7,446,782) (1,324,923) (8,771,705)
----------- ----------- --------- ------------
Total Net Assets $235,137,544 $3,816,985 $238,954,529
----------- ----------- --------- ------------
Net Assets:
-Class A Investment Shares $23,705,652 $9 $23,705,661
-Class B Investment Shares $195,570,908 $9 $195,570,917
-Class C Investment Shares $265,962 $9 $265,971
-Y Shares $15,595,022 $3,816,958 $19,411,980
Shares Outstanding:
-Class A Investment Shares 2,613,820 1 2,613,821
-Class B Investment Shares 21,565,544 1 21,565,545
-Class C Investment Shares 29,324 1 29,325
-Y Shares 1,719,550 440,989 (19,935) (1) 2,140,604
Net Asset Value:
-Class A Investment Shares $9.07 $8.66 $9.07
-Class B Investment Shares $9.07 $8.66 $9.07
-Class C Investment Shares $9.07 $8.66 $9.07
-Y Shares $9.07 $8.66 $9.07
Offering Price Per Share:
-Class A Investment Shares $9.52 * $9.09 * $9.52 *
-Class B Investment Shares $9.07 $8.66 $9.07
-Class C Investment Shares $9.07 $8.66 $9.07
-Y Shares $9.07 $8.66 $9.07
Redemption Proceeds Per Share:
-Class A Investment Shares $9.07 $8.66 $9.07
-Class B Investment Shares $8.62 ** $8.23 ** $8.62 **
-Class C Investment Shares $8.98 ** $8.57 ** $8.98 **
-Y Shares $9.07 $8.66 $9.07
<FN>
- --------
(1) Adjustment to reflect share balance as a result of the combination, based on
an exchange ratio of .954796 ($8.66/$9.07).
(2) Adjustment to write off deferred organizational and prepaid state filing
expenses of Evergreen U.S. Government Securities Fund, and to reflect
reimbursement of these expenses by the Advisor.
* See "What Shares Cost" in the respective Fund's prospectus.
** See "Redeeming Shares" in the respective Fund's prospectus.
(See Notes to Pro Forma Financial Statements)
</FN>
</TABLE>
<PAGE>
First Union U.S. Government Fund
Evergreen U.S. Government Securities Fund
Pro Forma Combining Statement of Operations
Year Ended December 31, 1994 (unaudited)
<TABLE>
<CAPTION>
First Union Evergreen
U.S. Government U.S. Government Pro Forma Pro Forma
Fund Securities Fund Adjustments Combined
--------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Investment Income:
Interest income $21,549,057 $562,182 $22,111,239
----------- ----------- ----------- -----------
Expenses:
Investment advisory fee 1,355,420 42,735 1,398,155
Trustees' fees 3,381 3,941 (3,841) (1) 3,481
Administrative personnel and services fees 228,590 ---- 7,179 (2) 235,769
Custodian and portfolio accounting fees 93,566 30,172 (28,984) (3) 94,754
Transfer and dividend disbursing agent fees
and expenses 215,944 11,206 (11,206) (4) 215,944
Distribution services fee -
Class A Investment Shares 79,158 ---- 79,158
Distribution services fee -
Class B Investment Shares 1,683,141 ---- 1,683,141
Distribution services fee -
Class C Investment Shares 313 ---- 313
Shareholder services fee -
Class B Investment Shares 174,961 ---- 174,961
Shareholder services fee -
Class C Investment Shares 104 ---- 104
Fund share registration costs 58,021 21,820 (20,820) (1) 59,021
Auditing fees 11,676 22,625 (22,625) (1) 11,676
Legal fees 7,829 6,432 (6,232) (1) 8,029
Printing and postage 27,579 2,319 (2,069) (1) 27,829
Insurance premiums 8,875 5,385 (5,325) (1) 8,935
Miscellaneous 12,830 12,843 (7,843) (1) 17,830
----------- ----------- ----------- -----------
Total expenses 3,961,388 159,478 (101,766) 4,019,100
----------- ----------- ----------- -----------
Deduct-
Waiver of investment advisory fee 105,523 42,735 (39,402) (5) 108,856
Reimbursement of other expenses ---- 80,036 (80,036) (5) 0
----------- ----------- ----------- -----------
Total waivers 105,523 122,771 (119,438) 108,856
----------- ----------- ----------- -----------
Net expenses 3,855,865 36,707 17,672 3,910,244
----------- ----------- ----------- -----------
Net investment income 17,693,192 525,475 (17,672) 18,200,995
----------- ----------- ----------- -----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments
(identified cost basis) (5,468,380) (1,200,806) (6,669,186)
Net change in unrealized appreciation
(depreciation) on investments (23,253,985) 114,328 ---- (23,139,657)
----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments (28,722,365) (1,086,478) ---- (29,808,843)
----------- ----------- ----------- -----------
Change in net assets resulting from operations ($11,029,173) ($561,003) ($17,672) ($11,607,848)
----------- ----------- ----------- -----------
<FN>
- --------
(1) Adjustment reflects expected savings when the two funds combine.
(2) Reflects an increase in administrative personnel and services fees based on
the surviving Fund's fee schedule.
(3) Based on First Union Government Fund custodian and portfolio accounting
contract.
(4) Based on First Union Government Fund transfer agent and dividend disbursing
contract.
(5) Reflects a decrease in the waiver of the investment advisory fees and a
decrease in the reimbursement of other expenses by the investment advisor
based on the surviving Fund's voluntary fee waiver and voluntary
reimbursement of other expenses in effect for the year ending
December 31, 1994.
(See Notes to Pro Forma Financial Statements)
</FN>
</TABLE>
<PAGE>
First Union U.S. Government Fund
Notes to Pro Forma Combining Financial Statements (unaudited)
1. Basis of Combination - The Pro forma Statement of Assets and Liabilities,
including the Portfolio of Investments, and the related Statement of Operations
("Pro forma Statements") reflect the accounts of First Union U.S. Government
Fund ("First Union") and Evergreen U.S. Government Securities Fund ("Evergreen")
at December 31, 1994 and for the year then ended.
The Pro forma Statements give effect to the proposed transfer of all assets and
liabilities of Evergreen in exchange for shares of First Union. The Pro forma
Statements do not reflect the expense of either Fund in carrying out its
obligations under the Agreement and Plan of Reorganization. The actual fiscal
year end of the combined Fund will be December 31, the fiscal year end of First
Union.
The Reorganization will be accomplished through the acquisition of substantially
all of the assets of Evergreen by First Union, and the assumption by First Union
of certain identified liabilities of Evergreen. Thereafter there will be a
distribution of such shares of First Union to shareholders of Evergreen in
liquidation of and subsequent termination of Evergreen. The information
contained herein is based on the experience of each fund for the period ended
December 31, 1994 and is designed to permit shareholders of Evergreen to
evaluate the financial effect of the proposed Reorganization. The expenses of
Evergreen in connection with the Reorganization (including the cost of any proxy
soliciting agents), will be borne by Evergreen Asset. The expenses of First
Union incurred in connection with the Reorganization will be borne by FUNB-NC.
No portion of such expenses shall be borne directly indirectly by Evergreen or
its shareholders.
The Pro forma Statements should be read in conjunction with the historical
financial statements of each Fund included in 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, Class B, Class
C, and Y shares which would have been issued at December 31, 1994 in connection
with the proposed reorganization. The amount of additional shares assumed to be
issued was calculated based on the December 31, 1994 net assets of Evergreen
($3,816,985) and the net asset value per share of First Union of $9.07.
The pro forma shares outstanding of 26,349,295 consist of 421,057 additional
shares to be issued in the proposed reorganization, as calculated above, plus
25,928,238 shares of First Union outstanding as of December 31, 1994.
3. Pro Forma Operations - The Pro Forma Statement of Operations assumes similar
rates of gross investment income for the investments of each Fund. Accordingly,
the combined gross investment income is equal to the sum of each Fund's gross
investment income. Pro forma operating expenses include the actual expenses of
the Funds and the combined Fund, with certain expenses adjusted to reflect the
expected expenses of the combined entity. The investment advisory fee has been
charged to the combined Fund based on the fee schedule in effect for First Union
at the combined level of average net assets for the year ended December 31,
1994. First Union National Bank of North Carolina (the Adviser), may, at its
discretion, waive its fee or reimburse the Fund for certain expenses in order to
reduce the Fund's expense ratio. An adjustment has been made to the combined
Fund expense to decrease the waiver of investment advisory fee and reimbursement
of other expenses based on the voluntary advisory fee waiver in effect for First
Union (0.039% of average net assets) for the year ended December 31, 1994.
Administrative personnel and services fees for the combined Fund would be
charged at an annual rate of .15 of 1% on the first $250 million of average
aggregate daily net assets of the Trust; .125 of 1% on the next $250 million;
.10 of 1% on the next $250 million; and .075 of 1% on the average aggregate
daily net assets of the Trust in excess of $750 million, subject to a $50,000
per year minimum. There would have been no voluntary waiver of administrative
personnel and services fees by the administrator.
<PAGE>
