1933 Act Registration No. 33-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
EVERGREEN TRUST
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (914) 694-2020
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
-------------------------------------------
(Address of Principal Executive Offices)
Joseph J. McBrien, Esq.
c/o Evergreen Asset Management Corp.
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
Copies of All Correspondence to:
John A. Dudley, Esq.
SULLIVAN & WORCESTER
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940 (File No. 2-40357); accordingly, no fee is payable herewith.
Registrant is filing as an exhibit to this Registration Statement a copy of an
earlier declaration under Rule 24f-2. Pursuant to Rule 429, this Registration
Statement relates to the aforementioned registration on Form N-1A. A Rule 24f-2
Notice for the Registrant's most recent fiscal year ended September 30, 1994 was
filed with the Commission on or about November 28, 1994.
It is proposed that this filing will become effective on September 25, 1995
pursuant to Rule 488 of the Securities Act of 1933.
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EVERGREEN TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Registration Statement Cross Reference Sheet; Cover Page
and Outside Front Cover Page
of Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Fee Table, Synopsis and Risk Factors Cover Page; Summary; Risks
4. Information About the Transaction Summary; Reasons for the
Reorganization; Description of the
Merger; Information about the
Reorganization; Distribution of
Shares; Federal Income Tax
Consequences; Comparative
Information on Shareholders' Rights
5. Information about the Registrant Cover Page; Summary; Comparison of
Investment Objectives and Policies;
Distribution of Shares; Federal
Income Tax Consequences; Comparative
Information on Shareholders' Rights;
Additional Information
6. Information about the Company Cover Page; Summary; Comparison of
Being Acquired Investment Objective and Policies;
Distribution of Shares; Federal
Income Tax Consequences; Comparative
Information on Shareholders' Rights;
Additional Information
7. Voting Information Cover Page; Summary; Information
about the Reorganization; Voting
Information Concerning the Meeting
8. Interest of Certain Persons Financial Statements and Experts;
and Experts Legal Matters
9. Additional Information Required for Inapplicable
Reoffering by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information About the Statement of Additional Information
Registrant of Evergreen Trust - Evergreen Fund
dated July 7, 1995
13. Additional Information about
the Company Being Acquired Statement of Additional Information
of The FFB Lexicon
Fund - Small Company
Growth Fund dated December 30, 1994.
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14. Financial Statements Incorporated by reference; Pro Forma
Financial Statements
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to Part A
Caption - "Comparative Information
on Shareholders' Rights - Liability
and Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
THE FFB LEXICON FUND
SMALL COMPANY GROWTH FUND
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
September 28, 1995
Dear Shareholders:
On June 18, 1995, First Fidelity Bancorporation agreed to merge (the
"Merger") with and into a wholly-owned subsidiary of First Union Corporation.
First Fidelity Bancorporation is the parent of First Fidelity Bank, N.A. ("First
Fidelity"), the investment adviser to a group of mutual funds with assets of
$2.55 billion as of June 30, 1995. Your Fund, the Small Company Growth Fund
("FFB Fund"), is a fund included within the First Fidelity family of mutual
funds.
First Union National Bank of North Carolina ("FUNB") is a subsidiary of
First Union Corporation. The Capital Management Group ("CMG") of FUNB and
Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly-owned subsidiary
of FUNB, manage or otherwise oversee the investment of over $29.1 billion in
assets belonging to a wide-range of clients, including the Evergreen family of
mutual funds with assets of $8.7 billion as of June 30, 1995.
To facilitate the investment management of assets and the delivery of
shareholder services to the First Fidelity and Evergreen family of mutual funds,
the Trustees of your Fund are proposing to combine certain of the investment
companies in the First Fidelity family of mutual funds with investment companies
in the Evergreen family of mutual funds which have similar investment objectives
and policies.
The proposal contained in the accompanying Prospectus/Proxy Statement
provides following the Merger a combination of your Fund with the Evergreen Fund
(the "Evergreen Fund"), a mutual fund advised by Evergreen Asset. Your Fund and
the Evergreen Fund have substantially similar investment objectives and
policies. Under the proposed Agreement and Plan of Reorganization (the "Plan"),
the Evergreen Fund will acquire substantially all the assets of your Fund in
exchange for shares of the Evergreen Fund (the "Reorganization"). As of June 30,
1995, the FFB Fund had net assets of approximately $24.8 million and the
Evergreen Fund had approximately $580 million of net assets. If the
Reorganization had taken place as of June 30, 1995, the Evergreen Fund's net
assets would have been approximately $604.8 million. I believe that the
combination will achieve the goal of efficient investment management and
delivery of shareholder services.
Since the Merger will take place prior to the closing date for the
Reorganization and because the Merger by law terminates the investment
advisory contract between First Fidelity and your Fund, the Trustees of The
FFB Lexicon Fund are also seeking your approval of an Interim Investment
Advisory Agreement with Evergreen Asset. The Interim Investment Advisory
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Agreement will have the same terms and fees as the current investment advisory
agreement between your Fund and First Fidelity and will be in effect for the
period of time between the effective date of the Merger and the closing date for
the Reorganization. The Reorganization is scheduled to take place on or about
January 19, 1996.
If shareholders of the FFB Fund approve the Plan, upon consummation of the
transaction contemplated in the Plan, shareholders will receive Class Y shares
of the Evergreen Fund. Class Y shares are not charged any distribution-related
and shareholder-servicing related expenses. The proposed transaction will not
result in any federal income tax liability for you or for the FFB Fund. As a
shareholder of the Evergreen Fund you will have the ability to exchange your
shares for shares of the other funds in the Evergreen family of mutual funds
comparable to your present right to exchange among funds of the First Fidelity
family of mutual funds. Following completion of the Reorganization, your Fund
will be liquidated.
The Trustees of The FFB Lexicon Fund have called a special meeting of
shareholders of the FFB Fund to be held on November 13, 1995 to consider the
proposed transaction. I STRONGLY INVITE YOUR PARTICIPATION BY ASKING YOU TO
REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
Detailed information about the proposed transaction is described in the
enclosed Prospectus/Proxy Statement. I thank you for your participation as a
shareholder and urge you to please exercise your right to vote by completing,
dating and signing the enclosed proxy card. A self-addressed, postage-paid
envelope has been enclosed for your convenience.
A copy of the Evergreen Fund Prospectus accompanies the Prospectus/Proxy
Statement. I urge you to read the Prospectus and retain it for future reference.
If you have any questions regarding the proposed transaction or if you
would like additional information about the Evergreen family of mutual funds,
please telephone 1-800-437-8790.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
-------------------------
David G. Lee, President
The FFB Lexicon Fund
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[SUBJECT TO COMPLETION, AUGUST 25, 1995 PRELIMINARY COPY]
THE FFB LEXICON FUND
SMALL COMPANY GROWTH FUND
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 13, 1995
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of the Small Company Growth Fund (the "FFB Fund"), a series of The
FFB Lexicon Fund, will be held at the offices of SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087 on November 13,
1995 at 10:00 a.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") dated as of _______________, 1995, providing for the acquisition of
substantially all of the assets of the FFB Fund by the Evergreen Fund (the
"Evergreen Fund"), a series of Evergreen Trust, in exchange for Class Y shares
of the Evergreen Fund, and the assumption by the Evergreen Fund of certain
identified liabilities of the FFB Fund. The Plan also provides for distribution
of such shares of the Evergreen Fund to shareholders of the FFB Fund in
liquidation and subsequent termination of the FFB Fund. A vote in favor of the
Plan is a vote in favor of the liquidation and dissolution of the FFB Fund.
2. To consider and act upon the Interim Investment Advisory Agreement
between the FFB Fund and Evergreen Asset Management Corp.
3. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of The FFB Lexicon Fund have fixed the close of business on
September , 1995 as the record date for the determination of shareholders of the
FFB Fund entitled to notice of and to vote at the Meeting or any adjournment
thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
Richard W. Grant
Secretary
September 28, 1995
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and may help to avoid the time and expense involved in validating your vote
if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the Registration on the
proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the
proxy card(s) should be indicated unless it is reflected in the form of
Registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr., Executor
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PROSPECTUS/PROXY STATEMENT DATED SEPTEMBER 25, 1995
Acquisition of Assets of
SMALL COMPANY GROWTH FUND
OF
THE FFB LEXICON FUND
2 Oliver Street
Boston, Massachusetts 02109
By and in Exchange for Shares of
EVERGREEN FUND
OF
EVERGREEN TRUST
2500 Westchester Avenue
Purchase, New York 10577
This Prospectus/Proxy Statement is being furnished to shareholders of Small
Company Growth Fund (the "FFB Fund"), a series of The FFB Lexicon Fund, in
connection with a proposed Agreement and Plan of Reorganization (the "Plan"), to
be submitted to shareholders of the FFB Fund for consideration at a Special
Meeting of Shareholders to be held on November 13, 1995 at 10:00 a.m. Eastern
Time, at the offices of SEI Financial Management Corporation, 680 East
Swedesford Road, Wayne, Pennsylvania 19087, and any adjournments thereof (the
"Meeting"). The Plan provides for substantially all of the assets of the FFB
Fund to be acquired by Evergreen Fund (the "Evergreen Fund"), a series of
Evergreen Trust, in exchange for Class Y shares of the Evergreen Fund and the
assumption by the Evergreen Fund of certain identified liabilities of the FFB
Fund (hereinafter referred to as the "Reorganization"). Following the
Reorganization, Class Y shares of the Evergreen Fund will be distributed to
shareholders of the FFB Fund in liquidation of the FFB Fund and the FFB Fund
will be terminated. As a result of the proposed Reorganization, shareholders of
the FFB Fund will receive that number of full and fractional Class Y shares of
the Evergreen Fund determined by dividing the value of the assets of the FFB
Fund to be acquired by the ratio of the net asset value per share of the
Evergreen Fund and the FFB Fund. The Reorganization is being structured as a
tax-free reorganization for federal income tax purposes.
Shareholders of the FFB Fund are also being asked to approve the Interim
Investment Advisory Agreement with Evergreen Asset Management Corp., (the
"Interim Advisory Agreement") with the same terms and fees as the current
advisory agreement between the FFB Fund and First Fidelity Bank, N.A. The
Interim Advisory Agreement will be in effect for the short period of time
between the date on which the merger of First Fidelity Bancorporation with and
into a wholly-owned subsidiary of First Union Corporation is effected (currently
anticipated to be by January 1, 1996) and the date on which the Evergreen Fund
and the FFB Fund are combined together (scheduled for on or about January 19,
1996).
<PAGE>
The FFB Lexicon Fund currently consists of FFB Fund and six other series
with shares outstanding. As is the case with the FFB Fund, the shareholders of
certain of these series are being asked to approve similar Agreements and Plans
of Reorganization providing for the combination of such series with other
Evergreen Funds having similar investment objectives and policies. The
Intermediate Government Securities Fund and the Fixed Income Fund will not be
combined with any of the funds in the Evergreen family of mutual funds and
therefore shareholders of those Funds will vote on the approval of new
investment advisory agreements between the Funds and the Capital Management
Group of First Union National Bank of North Carolina and the election of new
Trustees for The FFB Lexicon Fund. The vote on the election of new Trustees will
take place after all the combinations of the FFB Funds and the Evergreen Funds
are effective.
Evergreen Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"). Evergreen
Trust is comprised of two series, one of which, the Evergreen Fund, is a party
to the Reorganization. The Evergreen Fund seeks capital appreciation by
investing in the securities of little-known or relatively small companies or
companies undergoing changes which the Fund's investment adviser believes will
have favorable consequences. Income will not be a factor in the selection of
portfolio investments.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Evergreen Fund that
shareholders of the FFB Fund should know before voting on the Reorganization.
Certain relevant documents listed below, which have been filed with the
Securities and Exchange Commission ("SEC"), are incorporated in whole or in part
by reference. A Statement of Additional Information dated September 25, 1995,
relating to this Prospectus/Proxy Statement and the Reorganization,
incorporating by reference the financial statements of the Evergreen Fund dated
September 30, 1994 and March 31, 1995 and the financial statements of the FFB
Fund for August 31, 1994 and February 28, 1995 has been filed with the SEC and
is incorporated by reference in its entirety into this Prospectus/Proxy
Statement. A copy of such Statement of Additional Information is available upon
request and without charge by writing to the Evergreen Fund at 2500 Westchester
Avenue, Purchase, New York 10577 or by calling toll-free 1-800-807-2940.
The Prospectuses of the Evergreen Fund dated July 7, 1995, its Annual
Report for the fiscal year ended September 30, 1994 and its Semi-Annual Report
for the six months ended March 31, 1995 are incorporated herein by reference in
their entirety, insofar as they relate to the Evergreen Fund only, and not to
any other fund described therein. The two Prospectuses, which pertain (i) to
Class Y shares and (ii) to Class A, Class B and Class C shares, differ only
insofar as they describe the separate distribution and shareholder servicing
arrangements applicable to the Classes. Shareholders of the FFB Fund will
receive, with this Prospectus/Proxy Statement, copies of the Prospectus
pertaining to the Class Y shares of the Evergreen Fund that they will receive as
a result of the consummation of the Reorganization. Additional information about
the Evergreen Fund is contained in its Statement of Additional Information of
the same date which
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<PAGE>
has been filed with the SEC and which is available upon request and without
charge by writing to the Evergreen Fund at the address listed in the preceding
paragraph or by calling toll-free 1-800-807-2940.
The Prospectus of the FFB Fund dated December 30, 1994 is incorporated
herein in its entirety by reference. Copies of the Prospectus and a Statement of
Additional Information dated the same date are available upon request without
charge by writing to the FFB Fund at 680 East Swedesford Road, Wayne,
Pennsylvania 19087 or by calling toll-free 1-800-833-8974.
Included as Exhibit A of this Prospectus/Proxy Statement is a copy of the
Plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF FIRST UNION CORPORATION ("FIRST UNION") OR ANY OF ITS
SUBSIDIARIES, ARE NOT ENDORSED OR GUARANTEED BY FIRST UNION OR ANY OF ITS
SUBSIDIARIES, AND ARE NOT INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
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<PAGE>
TABLE OF CONTENTS
COMPARISON OF FEES AND EXPENSES.......................................
SUMMARY...............................................................
PROPOSED PLAN OF REORGANIZATION.................................
TAX CONSEQUENCES................................................
INVESTMENT OBJECTIVES AND POLICIES OF THE
EVERGREEN FUND AND THE FFB FUND.............................
COMPARATIVE PERFORMANCE INFORMATION OF EACH FUND................
MANAGEMENT OF THE FUNDS.........................................
INVESTMENT ADVISERS, SUB-ADVISER AND ADMINISTRATOR..............
PORTFOLIO MANAGEMENT............................................
DISTRIBUTION OF SHARES..........................................
DISTRIBUTION-RELATED AND SHAREHOLDER SERVICING-RELATED EXPENSES
PURCHASE AND REDEMPTION PROCEDURES
EXCHANGE PRIVILEGES
DIVIDEND POLICY
RISKS
INFORMATION ABOUT THE REORGANIZATION
DESCRIPTION OF THE MERGER
REASONS FOR THE REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION
FEDERAL INCOME TAX CONSEQUENCES
PRO-FORMA CAPITALIZATION
SHAREHOLDER INFORMATION
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION
CAPITALIZATION
SHAREHOLDER LIABILITY
SHAREHOLDER MEETINGS AND VOTING RIGHTS
LIQUIDATION OR DISSOLUTION
LIABILITY AND INDEMNIFICATION OF TRUSTEES
RIGHTS OF INSPECTION
INFORMATION REGARDING THE PROPOSED INTERIM ADVISORY AGREEMENT
INTRODUCTION
COMPARISON OF THE INTERIM ADVISORY AGREEMENT
AND THE EXISTING ADVISORY AGREEMENT
INFORMATION ABOUT THE FFB FUND'S CURRENT AND
PROPOSED INTERIM INVESTMENT ADVISERS
ADDITIONAL INFORMATION
VOTING INFORMATION CONCERNING THE MEETING
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<PAGE>
FINANCIAL STATEMENTS AND EXPERTS
LEGAL MATTERS
OTHER BUSINESS
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<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y shares of the Evergreen Fund set forth in the
following tables and examples are based on the expenses for the fiscal year
ended September 30, 1994. The amounts for Investor Class and Institutional Class
shares of the FFB Fund set forth in the following tables and in the examples are
based on the experience of the FFB Fund Investor Class and Institutional Class
shares for the fiscal year ended August 31, 1994, in each case adjusted for
voluntary expense waivers. The amounts for the Evergreen Pro Forma are based on
the combined expenses expected for the twelve month period ended June 30, 1995.
The following tables show for the Evergreen Fund and the FFB Fund the
shareholder transaction expenses and annual fund operating expenses associated
with an investment in the Class Y shares of the Evergreen Fund and Investor
Class and Institutional Class shares of the FFB Fund, and such costs and
expenses associated with an investment in Class Y shares of the Evergreen Fund
assuming consummation of the Reorganization.
COMPARISON OF CLASS Y SHARES OF THE EVERGREEN FUND WITH
INVESTOR CLASS AND INSTITUTIONAL CLASS
SHARES OF THE FFB FUND
FFB Fund EVERGREEN
SHAREHOLDER TRANSACTION EVERGREEN INVESTOR INSTITUTIONAL FUND
EXPENSES FUND CLASS CLASS PRO FORMA
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price).......... 0% 4.50% 0% 0%
Maximum Sales Load
Imposed on Reinvested
Dividends (as a
percentage of
offering price)....... None None None None
Contingent Deferred Sales
Charge................ None None None None
Exchange Fee (applies only
after 4 exchanges per
year) ................... $5 None None $5
Redemption Fees........... None None None None
ANNUAL FUND OPERATING EXPENSES
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<PAGE>
(as a percentage of average
daily net assets)
Advisory Fees............. 1.00% 0.48%(1) 0.48%(1) 1.00%
12b-1 Fees................ ---- 0.00%(2) ---- ----
Other Expenses............ 0.13% 0.27%(3) 0.27%(3) 0.13%
Annual Fund Operating
Expenses.................. 1.13% 0.75%(4) 0.75%(4) 1.13%
(1) The investment adviser has agreed to voluntarily waive a portion of its
fees. Fee waivers are voluntary and may be terminated at any time. Absent fee
waivers, Advisory Fees would be 0.75%. The Advisory Fee includes amounts paid to
the investment adviser for custody services.
(2) Although the FFB Fund has adopted a 12b-1 Plan for the Investor Class
shares, no payments have been made to date and no payments will be made for the
fiscal year ended August 31, 1995. Absent this agreement, 12b-1 fees would be
0.50%.
(3) Without waiver or reimbursement of certain Fund Expenses, Annual Fund
Operating Expenses would be 1.52% for Investor Class shares and 1.02% for
Institutional Class shares.
(4) Includes administrative expenses of 0.06% of average net assets. Absent
waivers, administrative expenses would have been 0.17%.
EXAMPLES. The following tables show for the FFB Fund, and for the Evergreen
Fund, assuming consummation of the Reorganization, examples of the cumulative
effect of shareholder transaction expenses and annual fund operating expenses
indicated above on a $1,000 investment in Class Y shares of the Evergreen Fund
and Investor Class and Institutional Class shares of the FFB Fund for the
periods specified, assuming (i) a 5% annual return, and (ii) redemption at the
end of such period.
EVERGREEN FFB FUND EVERGREEN FUND
FUND CLASS Y INVESTOR CLASS INSTITUTIONAL CLASS Y SHARES
SHARES SHARES CLASS SHARES PRO FORMA
After 1 year... $12 $52 $8 $12
After 3 years.. $36 $68 $24 $36
After 5 years.. $62 $85 $42 $62
After 10 years. $137 $134 $93 $137
The purpose of the foregoing examples is to assist an FFB Fund shareholder
in understanding the various costs and expenses that an investment in the Class
Y shares of the Evergreen Fund as a result of the Reorganization would bear
directly and indirectly, as compared with the various direct and indirect
expenses currently borne by a shareholder in the FFB Fund. These examples should
not be considered a representation of past or future expenses or annual return.
Actual expenses may be greater or less than those shown.
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<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
THE EVERGREEN FUND DATED JULY 7, 1995 AND THE PROSPECTUS OF THE FFB FUND DATED
DECEMBER 30, 1994 (WHICH ARE INCORPORATED HEREIN BY REFERENCE), THE PLAN AND THE
INTERIM ADVISORY AGREEMENT, FORMS OF WHICH ARE ATTACHED TO THIS PROSPECTUS/PROXY
STATEMENT AS EXHIBITS A AND B, RESPECTIVELY.
PROPOSED PLAN OF REORGANIZATION
The Plan provides for the transfer of substantially all of the assets of
the FFB Fund in exchange for Class Y shares of the Evergreen Fund and the
assumption by the Evergreen Fund of certain identified liabilities of the FFB
Fund. (The FFB Fund and the Evergreen Fund each may also be referred to in this
Prospectus/Proxy Statement as a "Fund" and together, as the "Funds"). The Plan
also calls for the distribution of Class Y shares of the Evergreen Fund to FFB
Fund shareholders in liquidation of the FFB Fund as part of the Reorganization.
As a result of the Reorganization, the shareholders of the FFB Fund will become
the owners of that number of full and fractional Class Y shares of the Evergreen
Fund determined by dividing the value of the assets of the FFB Fund to be
acquired by the ratio of the net asset value per share of the Evergreen Fund and
the FFB Fund as of the close of business on the date that the FFB Fund's assets
are exchanged for shares of the Evergreen Fund. See "Information About the
Reorganization."
The Trustees of The FFB Lexicon Fund, including the Trustees who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganization would be in the best
interests of shareholders of the FFB Fund and that the interests of the
shareholders of the FFB Fund will not be economically diluted as a result of the
transactions contemplated by the Reorganization. Accordingly, the Trustees have
submitted the Plan for the approval of FFB Fund's shareholders. THE BOARD OF
TRUSTEES OF THE FFB LEXICON FUND RECOMMENDS APPROVAL BY SHAREHOLDERS OF THE FFB
FUND OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of the Evergreen Fund have also approved the Plan, and
accordingly, the Evergreen Fund's participation in the Reorganization.
Approval of the Reorganization on the part of the FFB Fund will require
the affirmative vote of more than 50% of its outstanding voting securities,
with shares of both classes voting together as one class. See "Voting
Information Concerning the Meeting."
Since the merger (the "Merger") of First Fidelity Bancorporation ("FFB")
with and into a wholly-owned subsidiary of First Union Corporation ("First
Union") will take place prior to the closing date for the Reorganization and
because the Merger by law terminates the investment advisory contract between
First Fidelity Bank, N.A. ("First Fidelity") and the FFB Fund, arrangements have
been made to enter into the Interim Advisory
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<PAGE>
Agreement with Evergreen Asset. The Interim Advisory Agreement will have the
same terms and fees as the current investment advisory agreement between the FFB
Fund and First Fidelity and will be in effect for the period of time between the
effective date of the Merger and the closing date for the Reorganization. The
Reorganization is scheduled to take place on or about January 19, 1996.
Approval of the Interim Advisory Agreement requires the affirmative vote of
(i) 67% or more of the shares of the FFB Fund present in person or by proxy at
the Meeting, if holders of more than 50% of the shares of the FFB Fund
outstanding on the record date are present, in person or by proxy, or (ii) more
than 50% of the outstanding shares of the FFB Fund, whichever is less. See
"Voting Information Concerning the Meeting."
If the shareholders of the FFB Fund do not vote to approve the
Reorganization, the Trustees of The FFB Lexicon Fund will consider other
possible courses of action in the best interests of shareholders. If the Merger
is not completed, the Reorganization of the FFB Fund and the Evergreen Fund will
not be completed regardless of the vote of the FFB Fund's shareholders.
TAX CONSEQUENCES
Prior to or at the completion of the Reorganization, the FFB Fund will have
received an opinion of counsel that the Reorganization has been structured so
that no gain or loss will be recognized by the FFB Fund or its shareholders for
federal income tax purposes as a result of the receipt of shares of the
Evergreen Fund in the Reorganization. The holding period and aggregate tax basis
of Class Y shares of the Evergreen Fund that are received by FFB Fund
shareholders will be the same as the holding period and aggregate tax basis of
shares of the FFB Fund previously held by such shareholders, provided that
shares of the FFB Fund are held as capital assets. In addition, the holding
period and tax basis of the assets of the FFB Fund in the hands of the Evergreen
Fund as a result of the Reorganization will be the same as in the hands of the
FFB Fund immediately prior to the Reorganization and no gain or loss will be
recognized by the Evergreen Fund upon the receipt of the assets of the FFB Fund
in exchange for Class Y shares of the Evergreen Fund and the assumption by the
Evergreen Fund of certain identified liabilities.
INVESTMENT OBJECTIVES AND POLICIES OF THE EVERGREEN FUND AND THE FFB FUND
The investment objective of the Evergreen Fund is to achieve capital
appreciation principally through investment in common stock and securities
convertible into or exchangeable for common stock of companies which are
little-known, relatively small or represent special situations which, in the
opinion of the Fund's investment adviser, offer potential for capital
appreciation.
The investment objective of the FFB Fund is to provide long-term capital
appreciation. The Fund will be primarily invested in a diversified portfolio of
common stocks. In general, the Fund will invest in the common stocks of growth
oriented smaller capitalization companies generally having a market
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capitalization of less than $500 million (measured at the time of purchase).
See "Comparison of Investment Objectives and Policies" below.
COMPARATIVE PERFORMANCE INFORMATION OF EACH FUND
Discussions of the manner of calculation of total return are contained in
the respective Prospectuses and Statements of Additional Information of the
Funds. The total return of the Class Y shares of the Evergreen Fund and the
Investor Class and Institutional Class shares of the FFB Fund for the one, five
and ten year periods ended June 30, 1995 and the period from inception through
June 30, 1995 are set forth in the table below. The calculations of total return
assume the reinvestment of all dividends and capital gains distributions on the
reinvestment date and the deduction of all recurring expenses (including sales
charges) that were charged to shareholders' accounts.
AVERAGE ANNUALIZED COMPOUNDED TOTAL RETURN
SINCE INCEPTION
1 YEAR 5 YEAR 10 YEAR INCEPTION DATE
Evergreen Fund
Class Y shares.............. 24.74% 17.64% 14.68% 13.08% 10/15/71
FFB Fund*
Investor Class shares......... N/A N/A N/A 7.36%** 5/2/95
Institutional Class shares... 18.42% N/A N/A 10.07% 11/2/92
- ------------------
* Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average annual total
return during the period would have been lower.
** Not annualized.
MANAGEMENT OF THE FUNDS
The overall management of Evergreen Trust and of The FFB Lexicon Fund is
the responsibility of, and is supervised by, their respective Board of Trustees.
INVESTMENT ADVISERS, SUB-ADVISER AND ADMINISTRATOR
Evergreen Fund. Evergreen Asset Management Corp. ("Evergreen Asset")
serves as investment adviser to the Evergreen Fund. Evergreen Asset
succeeded on June 30, 1994 to the advisory business of the same name, but
under different ownership, which was organized in 1971. Evergreen Asset,
with its predecessors, has served as investment adviser to the Evergreen
Family of mutual funds since 1971. Evergreen Asset is a wholly-owned
subsidiary of First Union National Bank of North Carolina ("FUNB"). FUNB is
a subsidiary of First Union, one of the ten largest bank holding companies in
the United States. The Capital Management Group of FUNB and Evergreen Asset
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manage the Evergreen family of mutual funds with assets of approximately $8.7
billion as of June 30, 1995. For further information regarding Evergreen Asset,
FUNB and First Union, see "Management of the Funds -- Investment Advisers" in
the Prospectus of the Evergreen Fund.
Evergreen Asset manages investments, provides various administrative
services and supervises the daily business affairs of the Evergreen Fund subject
to the authority of the Trustees. Evergreen Asset is entitled to receive from
the Evergreen Fund an annual fee equal to 1% of average daily net assets of the
Evergreen Fund on the first $750 million in assets, 0.9% of average daily net
assets on the next $250 million in assets, and 0.8% of average daily net assets
on assets over $1 billion. From time to time Evergreen Asset may, at its
discretion, also reduce or waive its fee or reimburse the Evergreen Fund for
certain of its other expenses in order to reduce its expense ratio. Evergreen
Asset may reduce or cease these voluntary waivers and reimbursements at any
time.
Evergreen Asset has entered into a sub-advisory agreement with Lieber &
Company which provides that Lieber & Company's research department and staff
will furnish Evergreen Asset with information, investment recommendations,
advice and assistance, and will be generally available for consultation on the
Evergreen Fund. Lieber & Company will be reimbursed by Evergreen Asset in
connection with the rendering of services on the basis of the direct and
indirect costs of performing such services. There is no additional charge to the
Evergreen Fund for the services provided by Lieber & Company. The address of
both Evergreen Asset and Lieber & Company is 2500 Westchester Avenue, Purchase,
New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of
First Union.
FFB Fund. First Fidelity Bank, N.A. ("First Fidelity") serves as the
investment adviser for the FFB Fund and provides investment guidance consistent
with the Fund's investment objective and policies and provides administrative
assistance in connection with the operation of the FFB Fund. Fees for custodian
services are included in First Fidelity's advisor fee.
SEI Financial Management Corporation ("SEI"), a wholly-owned subsidiary of
SEI Corporation, acts as administrator of the FFB Fund. SEI provides personnel,
office space and all management and administrative services reasonably necessary
for the operation of the FFB Lexicon Fund and the FFB Fund (such as maintaining
the FFB Fund's books and records, monitoring compliance with various state and
Federal laws and assisting the Trustees in the execution of their duties) other
than those services which are provided by First Fidelity.
As compensation for their investment advisory, administrative or management
services, First Fidelity and SEI are entitled to a monthly fee at an annual rate
of 0.75% and 0.17%, respectively, of the FFB Fund's average daily net assets.
For the fiscal year ended August 31, 1994, First Fidelity and SEI received a fee
equal to 0.29% and 0.06%, respectively, of the FFB Fund's average daily net
assets.
PORTFOLIO MANAGEMENT
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<PAGE>
The portfolio manager of the Evergreen Fund is Stephen A. Lieber who is
Chairman and Co-Chief Executive Officer of Evergreen Asset. Mr. Lieber has
been associated with Evergreen Asset and its predecessor since prior to 1989.
DISTRIBUTION OF SHARES
Evergreen Funds Distributor, Inc. ("EFD"), an affiliate of Furman Selz,
acts as underwriter of the Evergreen Fund's shares. EFD distributes the
Evergreen Fund shares directly or through broker-dealers, banks, including FUNB,
or other financial intermediaries. The Evergreen Fund offers four classes of
shares, Class A, Class B, Class C and Class Y. Each Class has separate
distribution arrangements. (See "Distribution-Related and Shareholder
Servicing-Related Expenses" below.) No Class bears the distribution expenses
relating to the shares of any other Class.
Class Y shares of the Evergreen Fund, which will be received by the FFB
Fund's shareholders if the Reorganization is approved, are sold without a sales
load or distribution fee only to (i) all shareholders of record in one or more
of the Evergreen family of funds for which Evergreen Asset serves as investment
adviser as of December 30, 1994, (ii) certain institutional investors and (iii)
investment advisory clients of CMG, Evergreen Asset or their affiliates. FFB
Fund shareholders who wish to make subsequent purchases of the Evergreen Fund's
shares will be able to purchase Class Y shares. Class A, Class B and Class C
shares of the Evergreen Fund are sold with either an initial or contingent
deferred sales charge and are subject to certain distribution-related and
shareholder servicing-related expenses. For a description of the Classes of
shares issued by the Evergreen Fund see "Purchase and Redemption of Shares" and
"General Information - Organization; Other Classes of Shares" in the Evergreen
Fund's Prospectus. Class A, Class B and Class C shares are further described in
a separate Evergreen Fund prospectus.
SEI Financial Services Company ("SEI Financial"), a wholly-owned subsidiary
of SEI Corporation, acts as underwriter of the FFB Fund's shares. There are two
classes of shares outstanding, Investor Class and Institutional Class. Investor
shares are sold with an initial sales charge ranging from 4.50% to 1%.
Institutional Class shares are sold without any sales charges. The FFB Fund has
adopted for its Investor Class shares a Rule 12b-1 distribution plan as
described in "Distribution-Related and Shareholder Servicing-Related Expenses"
below.
DISTRIBUTION-RELATED AND SHAREHOLDER SERVICING-RELATED EXPENSES.
Evergreen Fund. The Evergreen Fund has not adopted a Rule 12b-1 plan or
shareholder servicing plan for its Class Y shares.
FFB Fund. The FFB Fund has adopted for its Investor Class shares a
distribution plan (the "FFB Plan") pursuant to Rule 12b-1 of the 1940 Act. The
FFB Plan provides for a fee payable by the FFB Fund to SEI Financial at the
annual rate of up to 0.50% of the Fund's average daily net assets. No payments
under the FFB Plan have been made to date and no payments will be made for the
fiscal year ended August 31, 1995.
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<PAGE>
PURCHASE AND REDEMPTION PROCEDURES
Information concerning applicable sales charges, distribution-related fees
and shareholder servicing-related fees are described above. Class Y Shares of
the Evergreen Fund are offered at net asset value, and the FFB Fund's shares are
offered at net asset value (plus any applicable sales charges), by their
respective distributors. Investments in the Funds are not insured. The minimum
initial purchase requirement for Class Y shares of the Evergreen Fund and
Investor Class and Institutional Class shares of the FFB Fund is $1,000 ($250
for FFB Fund IRA accounts). There is no minimum for subsequent purchases of
Evergreen Fund shares. The minimum for subsequent purchases of FFB Fund Investor
Class and Institutional Class shares is $100 ($50 for FFB Fund IRA accounts).
Each Fund provides for telephone, mail or wire redemption of shares at net asset
value as next determined after receipt of a redemption request on each day the
New York Stock Exchange is open for trading. Additional information concerning
purchases and redemptions of shares, including how each Fund's net asset value
is determined, is contained in the respective Prospectuses for each Fund. The
Evergreen Fund and the FFB Fund (with respect to its Investor Class shares) each
may involuntarily redeem shareholders' accounts that have less than $1,000 (less
than $250 for FFB IRA accounts) of invested funds. The minimum investment
requirements in the FFB Fund may be waived or lowered for investments effected
on a group basis by certain other institutions and their employees. All funds
invested in each Fund are invested in full and fractional shares. The Funds
reserve the right to reject any purchase order.
EXCHANGE PRIVILEGES
The FFB Fund currently permits shareholders to exchange shares for shares
of the same Class of other funds managed by First Fidelity. Holders of shares of
a Class of the Evergreen Fund generally may exchange their shares for shares of
the same Class of any other funds of the Evergreen mutual fund family. FFB Fund
shareholders will be receiving Class Y shares of the Evergreen Fund in the
Reorganization and, accordingly, with respect to shares of the Evergreen Fund
received by FFB Fund shareholders in the Reorganization, the exchange privilege
is limited to the Class Y shares of other funds of the Evergreen mutual fund
family. The Evergreen Fund imposes a fee of $5 per exchange on shareholders who
exchange in excess of four times per year. No sales charge is imposed on an
exchange. An exchange which represents an initial investment in another fund of
the Evergreen mutual fund family must amount to at least $1,000. The current
exchange privileges, and the requirements and limitations attendant thereto, are
described in the Funds' respective Prospectuses and Statements of Additional
Information.
DIVIDEND POLICY
The Evergreen Fund distributes its investment company taxable income
quarterly. The FFB Fund distributes its net investment income monthly. Each Fund
distributes net long-term capital gains at least annually. Dividends and
distributions are reinvested in additional shares of the same Class of the
respective Fund, or paid in cash, as a shareholder has elected. See the
respective Prospectuses of the Funds for further information concerning
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<PAGE>
dividends and distributions.
After the Reorganization, shareholders of the FFB Fund that have elected
(or that so elect no later than November 13, 1995), to have their dividends
and/or distributions reinvested, will have dividends and/or distributions
received from the FFB Fund reinvested in shares of the Evergreen Fund.
Shareholders of the FFB Fund that have elected (or that so elect no later than
November 13, 1995) to receive dividends and/or distributions in cash will
receive dividends and/or distributions from the Evergreen Fund in cash after the
Reorganization, although they may, after the Reorganization, elect to have such
dividends and/or distributions reinvested in additional shares of the Evergreen
Fund.
Each Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). While so qualified, so long as each Fund distributes all
of its investment company taxable income and any net realized gains to
shareholders, it is expected that a Fund will not be required to pay any federal
income taxes on the amounts so distributed. A 4% nondeductible excise tax will
be imposed on amounts not distributed if a Fund does not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements.
RISKS
Since the investment objectives and policies of each Fund are substantially
comparable, the risks involved in investing in each Fund's shares are similar.
There is no assurance that investment performances will be positive and that the
Funds will meet their investment objectives.
Investments in securities of little-known, relatively small and special
situation companies may tend to be speculative and volatile. A lack of
management depth in such companies could increase the risks associated with the
loss of key personnel. Also, the material and financial resources of such
companies may be limited, with the consequence that funds or external financing
necessary for growth may be unavailable. Such companies may also be involved in
the development or marketing of new products of services for which there are no
established markets. If projected markets do not materialize or only regional
markets develop, such companies may be adversely affected or be subject to the
consequences of local events. Moreover, such companies may be insignificant
factors in their industries and may become subject to intense competition from
larger companies. Securities of companies in which the Evergreen Fund may invest
will frequently be traded only in the over-the-counter market or on regional
stock exchanges and will often be closely held. Securities of this type may have
limited liquidity and be subject to wide price fluctuations. As a result of the
risk factors described above, the net asset value of the Evergreen Fund's shares
can be expected to vary significantly. Accordingly, the Evergreen Fund should
not be considered suitable for investors who are unable or unwilling to assume
the associated risks, nor should investment in the Fund be considered a balanced
or complete investment program. See "Comparison Of Investment Objectives And
Policies."
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<PAGE>
INFORMATION ABOUT THE REORGANIZATION
DESCRIPTION OF THE MERGER
On June 18, 1995, First Union entered into an Agreement and Plan of Merger
(the "Merger Agreement") with FFB, the corporate parent of First Fidelity, which
provides, among other things, for the Merger of FFB with and into a wholly-owned
subsidiary of First Union, subject to the terms and conditions contained in the
Merger Agreement. It is currently expected that the Merger will be consummated
by January 1, 1996 subject to the satisfaction of various conditions of closing
set forth in the Merger Agreement. Consummation of the Merger is expected to
result in the nations's sixth largest bank holding company, with assets of
approximately $118.5 billion. Currently First Union is the nation's ninth
largest bank holding company, with assets of $83.1 billion as of June 30, 1995,
and FFB is the 25th largest, having $35.4 billion in assets as of June 30, 1995.
Consummation of the Merger is subject to receipt of regulatory and
stockholder approvals, as well as other conditions set forth in the Merger
Agreement. No assurance can be given that the Merger will be consummated. In
connection with the execution of the Merger Agreement, Banco Santander, S.A.
("Santander"), the owner of approximately 30 percent of the outstanding shares
of FFB's common stock, agreed, among other things, to vote such shares in favor
of the Merger Agreement. It is anticipated that subsequent to the Merger,
Santander will own approximately 11% of First Union's outstanding shares. The
Merger is not in any way conditioned upon the approval by shareholders of any
mutual fund currently managed by First Fidelity, and it is expected that the
Merger will take place whether or not the transaction described herein is
approved by such shareholders.
As a result of the Merger, it is expected that FUNB and Evergreen Asset
will succeed to the investment advisory and administrative functions currently
performed for the FFB Fund by various units of First Fidelity. It is also
expected that First Fidelity, or its successors, will no longer provide
investment advisory or administrative services to investment companies.
REASONS FOR THE REORGANIZATION
The Board of Trustees of The FFB Lexicon Fund has considered and approved
the Reorganization, including entry by The FFB Lexicon Fund on behalf of the FFB
Fund into the Plan, as in the best interests of the shareholders. In addition,
the Trustees have approved the Interim Advisory Agreement with respect to the
FFB Fund.
As noted above, FFB has agreed to merge with First Union. FFB is the parent
company of First Fidelity, investment adviser to the mutual funds which comprise
The FFB Lexicon Fund. The Merger will cause, as a matter of law, termination of
the investment advisory agreement between each of the First Fidelity Funds and
First Fidelity. Accordingly, the Trustees have considered the recommendation of
First Fidelity that the Trustees approve the proposed Reorganization.
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<PAGE>
In making their recommendation to the Trustees, the representatives of the
respective banks reviewed with the Trustees various factors about the Funds and
the proposed Reorganization. Except as described above in "Risks," there are
substantial similarities between the Evergreen Fund and the FFB Fund.
Specifically, the Evergreen Fund and the FFB Fund have substantially similar
investment objectives and policies, and comparable risk profiles. See,
"Comparison of Investment Objectives and Policies" below. In terms of total net
assets the FFB Fund at June 30, 1995 had net assets of approximately $24.8
million. The Evergreen Fund's net assets at such date were approximately $580
million. If the Reorganization had taken place as of June 30, 1995, the
Evergreen Fund's net assets would have been approximately $604.8 million and
First Fidelity and FUNB expect that the increased assets of the Evergreen Fund
will result in more efficient investment management and shareholder services.
In addition, assuming that an alternative to the Reorganization would be to
propose that the FFB Fund be managed by Evergreen Asset or another affiliate of
FUNB following the consummation of the Merger, the FFB Fund would thereafter
share the same investment management resources and be offered through common
distribution channels with the substantially identical Evergreen Fund. The FFB
Fund would also have to bear the cost of maintaining its separate existence.
First Fidelity and FUNB believe that the prospect of dividing the resources of
the FUNB/Evergreen mutual fund organization between two substantially identical
funds could result in both funds being disadvantaged due to an inability to
achieve optimum size, performance levels and the greatest possible economies of
scale. Accordingly, for the reasons noted above and recognizing that there can
be no assurance that any economies of scale or other benefits will be realized,
both First Fidelity and FUNB believe that the proposed Reorganization would be
in the best interest of each Fund and its shareholders.
The Board of Trustees of The FFB Lexicon Fund met and considered the
recommendation of First Fidelity and FUNB, and, in addition, considered among
other things, (i) the terms and conditions of the Reorganization; (ii) whether
the Reorganization would result in the economic dilution of shareholder
interests; (iii) expense ratios, fees and expenses of the FFB Fund and the
Evergreen Fund and of similar funds; the comparative performance records of each
of the Funds; compatibility of their investment objectives and policies; service
features available to shareholders in the respective funds; the investment
experience, expertise and resources of Evergreen Asset; the service and
distribution resources available to the Evergreen family of mutual funds and the
broad array of investment alternatives available to shareholders of the
Evergreen family of mutual funds, including the future marketing plans and
resources expected to be used in connection with the Evergreen family of mutual
funds; and the personnel and financial resources of First Union and its
affiliates; (iv) the fact that FUNB will bear the expenses incurred by the FFB
Fund in connection with the Reorganization; (v) the fact that the Evergreen Fund
will assume certain identified liabilities of the FFB Fund; and (vi) the
expected federal income tax consequences of the Reorganization.
The Trustees also considered the benefits to be derived by shareholders
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<PAGE>
of the FFB Fund from the sale of its assets to the Evergreen Fund. In this
regard, the Trustees considered the potential benefits of being associated with
a larger entity and the economies of scale that could be realized by the
participation by shareholders of the FFB Fund in the combined fund. In addition,
the Trustees considered that there are alternatives available to shareholders of
the FFB Fund, including the ability to redeem their shares, as well as the
option to vote against the Reorganization.
During their consideration of the Reorganization, the Trustees met with FFB
counsel as well as counsel to the Independent Trustees regarding the legal
issues involved. The Trustees of Evergreen Trust also concluded at a regular
meeting on July 27, 1995 that the proposed Reorganization would be in the best
interests of shareholders of the Evergreen Fund and that the interests of the
shareholders of the Evergreen Fund will not be diluted as a result of the
transactions contemplated by the Reorganization.
THE TRUSTEES OF THE FFB LEXICON FUND RECOMMEND THAT THE SHAREHOLDERS OF THE
FFB FUND APPROVE THE PROPOSED REORGANIZATION.
AGREEMENT AND PLAN OF REORGANIZATION
The following summary is qualified in its entirety by reference to the Plan
(Exhibit A hereto).
The Plan provides that the Evergreen Fund will acquire substantially all of
the assets of the FFB Fund in exchange for Class Y shares of the Evergreen Fund
and the assumption by the Evergreen Fund of certain identified liabilities of
the FFB Fund on or about January 19, 1996 or such other date as may be agreed
upon by the parties (the "Closing Date"). Prior to the Closing Date, the FFB
Fund will endeavor to discharge all of its known liabilities and obligations.
The Evergreen Fund will not assume any liabilities or obligations of the FFB
Fund other than those reflected in an unaudited statement of assets and
liabilities of the FFB Fund prepared as of the close of regular trading on the
New York Stock Exchange, Inc. (the "NYSE"), currently 4:00 p.m. Eastern Time, on
the Closing Date. The number of full and fractional Class Y shares of the
Evergreen Fund to be received by the shareholders of the FFB Fund will be
determined by dividing the value of the assets of the FFB Fund to be acquired by
the ratio of the net asset value per share of the Evergreen Fund and each Class
of the FFB Fund computed as of the close of regular trading on the NYSE on the
Closing Date. The net asset value per share of each Class will be determined by
dividing assets, less liabilities, in each case attributable to the respective
Class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for the Evergreen Fund,
will compute the value of the Funds' respective portfolio securities. The method
of valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of the Evergreen Fund, Rule
22c-1 under the 1940 Act, and with the interpretations of such rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, the FFB Fund shall have declared a
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dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the FFB Fund's shareholders (in shares of the FFB Fund, or in cash, as the
shareholder has previously elected) all of the FFB Fund's investment company
taxable income for the taxable year ending on or prior to the Closing Date
(computed without regard to any deduction for dividends paid) and all of its net
capital gains realized in all taxable years ending on or prior to the Closing
Date (after reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the FFB Fund
will liquidate and distribute pro rata to shareholders of record as of the close
of business on the Closing Date the full and fractional Class Y shares of the
Evergreen Fund received by the FFB Fund. Such liquidation and distribution will
be accomplished by the establishment of accounts in the names of the FFB Fund's
shareholders on the share records of the Evergreen Fund's transfer agent. Each
account will represent the respective pro rata number of full and fractional
Class Y shares of the Evergreen Fund due to the FFB Fund's shareholders. All
issued and outstanding shares of the FFB Fund, including those represented by
certificates, will be canceled. The Evergreen Fund does not issue share
certificates to shareholders. The shares of the Evergreen Fund to be issued will
have no preemptive or conversion rights. After such distribution and the winding
up of its affairs, the FFB Fund will be terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by the FFB Fund's shareholders, accuracy
of various representations and warranties and receipt of opinions of counsel,
including opinions with respect to those matters referred to in "Federal Income
Tax Consequences" below. Notwithstanding approval of the FFB Fund's
shareholders, the Plan may be terminated (a) by the mutual agreement of the FFB
Fund and the Evergreen Fund; or (b) at or prior to the Closing Date by either
party (i) because of a breach by the other party of any representation,
warranty, or agreement contained therein to be performed at or prior to the
Closing Date if not cured within 30 days, or (ii) because a condition to the
obligation of the terminating party has not been met and it reasonably appears
that it cannot be met.
The expenses of the FFB Fund in connection with the Reorganization
(including the cost of any proxy soliciting agents) and the expenses of the
Evergreen Fund (other than securities registration fees) will be borne by FUNB.
Following the Reorganization, the Evergreen Fund will not be assuming any
liabilities or making any reimbursements in connection with the 12b-1 Plan or
shareholder servicing arrangements of the FFB Fund. No portion of such expenses
shall be borne directly or indirectly by the FFB Fund or its shareholders. If
the Merger is not completed, First Fidelity will bear the expenses of the FFB
Fund and FUNB will bear the expenses of the Evergreen Fund.
If the Reorganization is not approved by shareholders of the FFB Fund, the
Board of Trustees of the FFB Funds Trust will consider other possible courses of
action in the best interests of shareholders. If the Merger is
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not completed, the Reorganization will not be completed regardless of the
vote of the FFB Fund's shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify for federal income tax purposes
as a tax-free reorganization under section 368(a) of the Code. As a condition to
the closing of the Reorganization, the FFB Fund will receive an opinion of
counsel to the effect that, on the basis of the existing provisions of the Code,
U.S. Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Reorganization:
(1) The transfer of substantially all of the assets of the FFB Fund
solely in exchange for shares of the Evergreen Fund and the assumption by the
Evergreen Fund of certain identified liabilities, followed by the distribution
of the Evergreen Fund's shares by the FFB Fund in dissolution and liquidation of
the FFB Fund, will constitute a "reorganization" within the meaning of section
368(a)(1)(C) of the Code, and the Evergreen Fund and the FFB Fund will each be a
"party to a reorganization" within the meaning of section 368(b) of the Code;
(2) No gain or loss will be recognized by the FFB Fund on the transfer
of substantially all of its assets to the Evergreen Fund solely in exchange for
the Evergreen Fund's shares and the assumption by the Evergreen Fund of certain
identified liabilities of the FFB Fund or upon the distribution of the Evergreen
Fund's shares to the FFB Fund's shareholders in exchange for their shares of the
FFB Fund;
(3) The tax basis of the assets transferred will be the same to the
Evergreen Fund as the tax basis of such assets to the FFB Fund immediately prior
to the Reorganization, and the holding period of such assets in the hands of the
Evergreen Fund will include the period during which the assets were held by the
FFB Fund;
(4) No gain or loss will be recognized by the Evergreen Fund upon the
receipt of the assets from the FFB Fund solely in exchange for the shares of the
Evergreen Fund and the assumption by the Evergreen Fund of certain identified
liabilities of the FFB Fund;
(5) No gain or loss will be recognized by the FFB Fund's shareholders
upon the issuance of the shares of the Evergreen Fund to them, provided they
receive solely such shares (including fractional shares) in exchange for their
shares of the FFB Fund; and
(6) The aggregate tax basis of the shares of the Evergreen Fund,
including any fractional shares, received by each of the shareholders of the FFB
Fund pursuant to the Reorganization will be the same as the aggregate tax basis
of the shares of the FFB Fund held by such shareholder immediately prior to the
Reorganization, and the holding period of the shares of the Evergreen Fund,
including fractional shares, received by each such shareholder will include the
period during which the shares of the FFB Fund
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exchanged therefor were held by such shareholder (provided that the shares of
the FFB Fund were held as a capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, each FFB Fund shareholder would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her FFB Fund shares and the fair market value of the Evergreen
Fund shares he or she received. Shareholders of the FFB Fund should consult
their tax advisers regarding the effect, if any, of the proposed Reorganization
in light of their individual circumstances. Since the foregoing discussion
relates only to the federal income tax consequences of the Reorganization,
shareholders of the FFB Fund should also consult their tax advisers as to state
and local tax consequences, if any, of the Reorganization.
PRO-FORMA CAPITALIZATION
The following tables show the capitalization of the Evergreen Fund and the
FFB Fund as of August 31, 1995 individually and on a pro forma basis as of that
date, giving effect to the proposed acquisition of assets at net asset value:
CAPITALIZATION OF THE FFB FUND AND THE EVERGREEN FUND
CLASS Y
SHARES
FFB FUND EVERGREEN FUND PRO FORMA
INVESTOR CLASS INSTITUTIONAL CLASS Y FOR REOR-
SHARES CLASS SHARES SHARES GANIZATION
Net Assets............
Shares Outstanding*..
Net Asset Value per
Share.................
* Had the Reorganization been consummated on August 31, 1995, the FFB Fund would
have received ________ Class Y shares of the Evergreen Fund, which would then be
available for distribution to shareholders. No assurance can be given as to how
many Class Y shares of the Evergreen Fund FFB Fund shareholders will receive on
the date that the Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of Class Y shares of the Evergreen Fund that
will actually be received on or after such date.
SHAREHOLDER INFORMATION.
As of September , 1995 (the "Record Date"), there were the following number
of each Class of beneficial interest of the FFB Fund outstanding: Investor Class
- - ; Institutional Class - .
As of the Record Date, the officers and Trustees of The FFB Lexicon Fund
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beneficially owned as a group less than 1% of the outstanding shares of the FFB
Fund. To the FFB Lexicon Funds' knowledge, the following persons owned
beneficially or of record more than 5% of the FFB Fund's total outstanding
shares as of the Record Date:
PERCENTAGE OF
NUMBER OF PERCENTAGE TOTAL SHARES
NAME AND ADDRESS CLASS SHARES OF CLASS OUTSTANDING
First Fidelity Bank*
Broad and Walnut Streets
Philadelphia, PA 19103
* Most of the shares held by First Fidelity are in accounts for the Bank's
fiduciary, agency or custodial customers.
As of September , 1995, the following number of each Class of the shares of
the Evergreen Fund were outstanding: Class A -- _____________; Class B --
___________; Class C -- __________ and Class Y -- _____________.
As of the Record Date, the officers and Trustees of the Evergreen Trust
beneficially owned as a group less than 1% of the outstanding shares of the
Evergreen Fund. To the Evergreen Fund's knowledge, the following persons owned
beneficially or of record more than 5% of the Evergreen Fund's total outstanding
shares as of the Record Date:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS CLASS NUMBER OF SHARES PERCENTAGE OF CLASS TOTAL SHARES OUTSTANDING
<S> <C> <C> <C> <C>
[To be supplied]
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the respective Prospectuses and Statements of Additional
Information of the Funds. The investment objectives, policies and restrictions
of the Evergreen Fund can be found in the Prospectus of the Evergreen Fund under
the caption "Investment Objectives and Policies." The Evergreen Fund's
Prospectus also offers additional funds advised by Evergreen Asset or CMG. These
additional funds are not involved in the Reorganization, their investment
objectives, policies and restrictions are not discussed in this Prospectus/Proxy
Statement and their shares are not offered hereby. The investment objectives,
policies and restrictions of the FFB Fund can be found in the Prospectus of the
FFB Fund under the caption "Investment Objective and Policies."
The Evergreen Fund seeks to achieve its investment objective of capital
appreciation principally through investments in common stock and securities
convertible into or exchangeable for common stock of companies which are
little-known, relatively small or represent special situations which, in the
opinion of the Fund's investment adviser, offer potential for capital
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appreciation. The Evergreen Fund's investment objective is a fundamental policy,
which may not be changed without shareholder approval. A "little- known" company
means one whose business is limited to a regional market or whose securities are
closely held with only a small proportion traded publicly. A "relatively small"
company means one which has a small share of the market for its products or
services in comparison with other companies in its field, or which provides
goods or services for a limited market. A "special situation" company is one
which offers potential for capital appreciation because of a recent or
anticipated change in structure, management, products or services. In addition
to the securities described above, the Evergreen Fund may invest in securities
of relatively well-known and large companies with potential for capital
appreciation. Investments may also be made to a limited degree in
non-convertible debt securities and preferred stocks which offer an opportunity
for capital appreciation. Short- term investments may also be made if the
Evergreen Fund's investment adviser believes that such action will benefit the
Fund. The Evergreen Fund may also write covered call options.
The investment objective of the FFB Fund is to provide long-term capital
appreciation. The FFB Fund will be primarily invested in a diversified portfolio
of common stocks. In general, the FFB Fund's investment adviser will invest in
the common stocks of growth oriented smaller capitalization companies generally
having a market capitalization of less than $500 million (measured at the time
of purchase). A majority of the FFB Fund's common stocks will normally pay a
dividend. In selecting common stocks, the Fund's investment adviser also
considers other factors such as a company's return on equity, reinvestment rates
and debt to equity ratios.
Under normal conditions at least 75% of the FFB Fund's assets will be
invested in common stocks of the type described above. The remainder of the
Fund's assets may also be invested in the following: preferred stocks,
securities (debt securities, warrants and preferred stock) convertible into
common stock, covered call options, U.S. dollar denominated securities of
foreign issuers (including American Depositary Receipts that are traded on
exchanges or listed on NASDAQ), money market securities and repurchase
agreements.
The characteristics of each investment policy and the associated risks are
described in the Prospectus and Statement of Additional Information of each
Fund. Both the Evergreen Fund and the FFB Fund have 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
The FFB Lexicon Fund and Evergreen Trust are open-end management investment
companies registered with the SEC under the 1940 Act which continuously offer
shares to the public. Each is organized as a Massachusetts business trust and is
governed by a Declaration of Trust, By-Laws and Board of Trustees. Both are also
governed by applicable Massachusetts and Federal
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law. The FFB Fund is a series of The FFB Lexicon Fund. The Evergreen Fund is
a series of Evergreen Trust.
CAPITALIZATION
The beneficial interests in the Evergreen Fund are represented by an
unlimited number of transferable shares of beneficial interest with a $.001 par
value per share. The beneficial interests in the FFB Fund are represented by an
unlimited number of transferable shares of beneficial interest with no par
value. The respective Declarations of Trust under which each Fund has been
established permit the respective Trustees to allocate shares into an unlimited
number of series, and classes thereof, with rights determined by the Trustees,
all without shareholder approval. Fractional shares may be issued. Each Fund's
shares have equal voting rights with respect to matters affecting shareholders
of all classes of each Fund and each series of the Trust under which the Fund
has been established, and represent equal proportionate interests in the assets
belonging to the Funds. Shareholders of each Fund are entitled to receive
dividends and other amounts as determined by FFB Lexicon Funds' Trustees or
Evergreen Trust's Trustees. Shareholders of each Fund vote separately, by class,
as to matters, such as approval or amendments of Rule 12b-1 distribution plans
that affect only their particular class and by series as to matters, such as
approval or amendments of investment advisory agreements or proposed
reorganizations, that affect only their particular series.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders of a business trust could, under
certain circumstances, be held personally liable for the obligations of the
business trust. However, the respective Declarations of Trust under which the
Funds were established disclaim shareholder liability for acts or obligations of
the series and require that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Funds or the
Trustees. The Declarations of Trust provide for indemnification out of the
series' property for all losses and expenses of any shareholder held personally
liable for the obligations of the series. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which a disclaimer is inoperative
and the series itself would be unable to meet its obligations. A substantial
number of mutual funds in the United States are organized as Massachusetts
business trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
Neither Evergreen Trust nor The FFB Lexicon Fund, on behalf of the Funds or
any of their other series, is required to hold annual meetings of shareholders.
However, a meeting of the FFB Fund shareholders for the purpose of voting upon
the question of removal of a Trustee must be called when requested in writing by
the holders of at least 10% of the outstanding shares. Furthermore, the FFB Fund
is required to call a meeting of shareholders for the purpose of electing
Trustees if, at any time, less than a majority of the Trustees then holding
office were elected by shareholders.
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<PAGE>
If Trustees of The FFB Lexicon Fund fail or refuse to call a meeting for a
period of 30 days or if the Trustees of the Evergreen Trust fail or refuse to
call a meeting as required by its By-Laws after a request in writing by
shareholders holding an aggregate of at least 10% of the outstanding shares,
then shareholders holding said 10% may call and give notice of such meeting.
Evergreen Trust and The FFB Lexicon Fund currently do not intend to hold regular
shareholder meetings. Neither permits cumulative voting. A majority of shares
entitled to vote on a matter constitutes a quorum for consideration of such
matter. In either case, a majority of the shares voting is sufficient to act on
a matter (unless otherwise specifically required by the applicable governing
documents or other law, including the 1940 Act).
LIQUIDATION OR DISSOLUTION
In the event of the liquidation of a Fund the shareholders are entitled to
receive, when, and as declared by the Trustees, the excess of the assets
belonging to such Fund or attributable to the class over the liabilities
belonging to the Fund or attributable to the class. In either case, the assets
so distributable to shareholders of the Fund will be distributed among the
shareholders in proportion to the number of shares of the Fund held by them and
recorded on the books of the Fund.
LIABILITY AND INDEMNIFICATION OF TRUSTEES
The Declaration of Trust of Evergreen Trust provides that no Trustee or
officer shall be liable to the Fund or to any shareholder, Trustee, officer,
employee or agent of the Fund for any action or failure to act except for his or
her own bad faith, willful misfeasance, gross negligence or reckless disregard
of his or her duties. The By-Laws of Evergreen 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 Trust unless, in the case of any liability to the Trust or its
shareholders, it shall have been determined that such Trustee or officer is
liable by reason of his or her willful misfeasance, bad faith, gross negligence
or reckless disregard of his or her duties in the conduct of his or her office.
The Declaration of Trust of The FFB Lexicon Fund provides that no Trustee,
officer or agent shall be personally liable to any person for any action or
failure to act, except for his or her own bad faith, willful misfeasance, or
gross negligence, or reckless disregard of his or her duties. The Declaration of
Trust provides that a Trustee or officer is entitled to indemnification against
liabilities and expenses with respect to claims related to his or her position
with The FFB Lexicon Fund, unless such Trustee or officer shall have been
adjudicated to have acted with bad faith, willful misfeasance, or gross
negligence, or in reckless disregard of his or her duties, or not to have acted
in good faith in the reasonable belief that his or her action was in the best
interest of The FFB Lexicon 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 or her
duties.
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<PAGE>
RIGHTS OF INSPECTION
Shareholders of the respective Funds have the same right to inspect in
Massachusetts the governing documents, records of meetings of shareholders,
shareholder lists, share transfer records, accounts and books of the Fund as are
permitted shareholders of a corporation under the Massachusetts corporation law.
The purpose of inspection must be for interests of shareholders relative to the
affairs of the Fund.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws and Massachusetts law and is
not a complete description of those documents or law. Shareholders should refer
to the provisions of such respective Declarations of Trust, By-Laws, and
Massachusetts law directly for more complete information.
INFORMATION REGARDING THE PROPOSED INTERIM
ADVISORY AGREEMENT
INTRODUCTION
In view of the Merger Agreement discussed above, and the factors discussed
below, the Board of Trustees of The FFB Lexicon Fund recommends that
shareholders of the FFB Fund approve the proposed Interim Advisory Agreement.
The Interim Advisory Agreement would become effective as of the consummation of
the Merger which, as noted earlier, is currently anticipated to occur by January
1, 1996. The Interim Advisory Agreement would remain in effect until the closing
date for the Reorganization. The terms of the Interim Advisory Agreement are
essentially the same as the Existing Advisory Agreement (as defined below). The
only differences between the Existing Advisory Agreement and the Interim
Advisory Agreement, if approved by shareholders, are that the investment adviser
would be Evergreen Asset instead of First Fidelity and the length of time each
Agreement is in effect. A description of the Interim Advisory Agreement pursuant
to which Evergreen Asset would become the investment adviser to the FFB Fund, as
well as the services to be provided by Evergreen Asset pursuant thereto is set
forth below under "Advisory Services". The description of the Interim Advisory
Agreement in this Prospectus/Proxy Statement is qualified in its entirety by
reference to a Form of the Interim Advisory Agreement, which will be used for
the FFB Fund, attached hereto as Exhibit B.
First Fidelity, 765 Broad Street, Newark, New Jersey 07102, has served as
investment adviser to the FFB Fund since the commencement of operations of the
FFB Fund pursuant to a Master Advisory Contract, dated October 18, 1991. As used
herein, the Master Advisory Contract is referred to as the FFB Fund's "Existing
Advisory Agreement." At a meeting of the Board of Trustees of The FFB Lexicon
Fund held on August 7, 1995, the Trustees, including all of the Independent
Trustees, approved the proposed Interim Advisory Agreement for the FFB Fund.
The Trustees have authorized The FFB Lexicon Fund, on behalf of the FFB
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<PAGE>
Fund and subject to shareholder approval of the Interim Advisory Agreement, to
enter into the Interim Advisory Agreement with Evergreen Asset to become
effective upon consummation of the Merger. If the Interim Advisory Agreement for
the FFB Fund is not approved by shareholders, the Trustees will consider
appropriate actions to be taken with respect to the FFB Fund's investment
advisory arrangements at that time. The Existing Advisory Agreement for the FFB
Fund was most recently approved by shareholders of the Fund on February 23,
1993. The Existing Advisory Agreement was last approved by the Trustees,
including a majority of the Independent Trustees, on August 7, 1995.
COMPARISON OF THE INTERIM ADVISORY AGREEMENT AND THE EXISTING ADVISORY
AGREEMENT
Advisory Services. The management and advisory services to be provided by
Evergreen Asset under the Interim Advisory Agreement are identical to those
currently provided by First Fidelity under the Existing Advisory Agreement.
Under the Existing Advisory Agreement, First Fidelity manages the FFB Fund and
furnishes to the FFB Fund investment guidance and policy direction in connection
therewith. First Fidelity provides to the FFB Fund, among other things,
information relating to portfolio composition, credit conditions and average
maturity of the portfolio of the FFB Fund. First Fidelity also furnishes to the
Trustees periodic reports on the investment performance of the FFB Fund.
Pursuant to the Existing Advisory Agreement, First Fidelity provides
administrative assistance in connection with the operations of the FFB Fund.
Administrative services provided by First Fidelity include, among other things,
(i) data processing, clerical and bookkeeping services required in connection
with maintaining the financial accounts and records for the Fund, (ii) compiling
statistical and research data required for the preparation of reports and
statements which are periodically distributed to The FFB Lexicon Fund's officers
and the Trustees, (iii) handling general shareholder relations with investors,
such as advice as to the status of their accounts, the current yield and
dividends declared to date and assistance with other questions related to their
accounts and (iv) compiling information required in connection with The FFB
Lexicon Fund's filings with the SEC.
SEI currently acts as administrator of the FFB Fund. SEI has its offices at
680 East Swedesford Road, Wayne, Pennsylvania 19087. If the Interim Advisory
Agreement is approved by shareholders of the FFB Fund, SEI will continue during
the term of the Interim Advisory Agreement as the FFB Fund's administrator for
the same compensation as currently received. See "Summary-Investment Advisers,
Sub-Adviser and Administrators."
Fees and Expenses. The investment advisory fees and expense
limitations for the FFB Fund under the Existing Advisory Agreement and the
proposed Interim Advisory Agreement are identical. See "Summary-Investment
Advisers, Sub-Adviser and Administrators."
Expense Reimbursement. The Existing Advisory Agreement includes a
provision calling for expense limitations equal to the most restrictive
limitation imposed from time to time by states where the FFB Fund's shares
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are qualified for sale. Currently, the most restrictive state expense limitation
provision applicable to the FFB Fund limits the Fund's annual expenses to 2.5%
of the first $30 million of average net assets, 2.0% of the next $70 million of
such assets and 1.5% of any such assets in excess of $100 million. The Interim
Advisory Agreement contains an identical provision.
Payment of Expenses and Transaction Charges. Under the Existing Advisory
Agreement, the FFB Fund is responsible for all of its expenses and liabilities,
including compensation of the Independent Trustees of The FFB Lexicon Fund;
taxes and governmental fees; interest charges; fees and expenses of the Fund's
independent accountants and legal counsel; trade association membership dues;
fees and expenses of any custodian (including fees and expenses for keeping
books and accounts and calculating the net asset value of shares of the Fund),
transfer agent, registrar and dividend disbursing agent of the Fund; expenses of
issuing, redeeming, registering and qualifying for sale the Fund's shares;
expenses of preparing and printing share certificates, prospectuses,
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; the cost of office supplies; travel expenses of all officers, Trustees
and employees; insurance premiums; brokerage and other expenses of executing
portfolio transactions; expenses of shareholders' meetings; organizational
expenses; and extraordinary expenses.
The Interim Advisory Agreement contains an identical provision.
Limitation of Liability. The Existing Advisory Agreement provides that
First Fidelity shall not be liable to the FFB Fund for any mistake in judgment
or in any other event whatsoever except for lack of good faith, provided that
nothing in the Existing Advisory Agreement shall be deemed to protect or purport
to protect First Fidelity against the liability to The FFB Lexicon Fund or its
shareholders to which First Fidelity would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of First
Fidelity's duties under the Agreement or by reason of First Fidelity's reckless
disregard of its obligations and duties.
The Interim Advisory Agreement contains an identical provision in terms of
Evergreen Asset's liability.
Term. If approved by the shareholders of the FFB Fund, the Interim Advisory
Agreement between the FFB Fund and Evergreen Asset will become effective on the
consummation of the Merger. The Interim Advisory Agreement will be in effect for
the period of time between the effective date of the Merger and the Closing Date
for the Reorganization. The Existing Advisory Agreement provides for an initial
term of two years. Thereafter, the Existing Advisory Agreement will be continued
from year to year, provided that its continuation is specifically approved at
least annually (a) by the vote of a majority of the outstanding voting
securities of the FFB Fund (as defined in the 1940 Act) or by the Board of
Trustees and (b) by the vote, cast in person at a meeting called for the
purpose, of a majority of the Independent Trustees. The Interim Advisory
Agreement for the FFB Fund contains an identical provision.
Termination; Assignment. The Interim Advisory Agreement provides that
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it may be terminated without penalty by vote of a majority of the outstanding
voting securities of the FFB Fund (as defined in the 1940 Act) or by a vote of a
majority of The FFB Lexicon Fund's entire Board of Trustees on 60 days' written
notice to Evergreen Asset or by Evergreen Asset on 60 days' written notice to
The FFB Lexicon Fund. Also, the Interim Advisory Agreement will automatically
terminate in the event of its assignment (as defined in the 1940 Act). The
Existing Advisory Agreement for the FFB Fund contains identical provisions as to
termination and assignment.
INFORMATION ABOUT THE FFB FUND'S CURRENT AND PROPOSED INTERIM INVESTMENT
ADVISERS
First Fidelity. First Fidelity currently serves as the investment adviser
for the FFB Fund. First Fidelity is a national banking association which
provides commercial banking and trust business services throughout New Jersey.
It is a wholly-owned subsidiary of First Fidelity Incorporated, originally
established in 1812, which, as a result of a reorganization with Fidelcor, Inc.,
a Pennsylvania bank holding company, is now a wholly-owned subsidiary of FFB.
FFB, a New Jersey corporation, provides financial and related services through
its subsidiary organizations. The investment advisory services of First Fidelity
are provided through the Asset Management Group of the Trust Division which, as
of June 30, 1995, had approximately $15 billion of client assets under
management. First Fidelity has provided investment advisory services to
investment companies since 1986 and currently acts as investment adviser to the
First Fidelity family of mutual funds.
For the fiscal year ended August 31, 1995, First Fidelity received an
aggregate of $ in management fees which is equal to an annual fee of $0. % of
the FFB Fund's average daily net assets. Absent voluntary waivers, First
Fidelity, for such period, would have received $ in management fees (0. % of the
FFB Fund's average daily net assets). First Fidelity also acts as custodian for
the FFB Fund for a fee included in the management fee. First Fidelity will
continue to act as the FFB Fund's custodian during the term of the Interim
Advisory Agreement.
The table below shows: (a) total brokerage commissions paid during the
fiscal year ended August 31, 1995; (b) the amount of brokerage commissions, if
any, paid to SEI, which is an "Affiliated Broker" of the FFB Fund as such term
is defined in the 1940 Act, by virtue of its being an affiliate of SEI Financial
and serving as the FFB Fund's administrator) during that fiscal year; (c) the
percentage that those payments to SEI represent of aggregate brokerage
commissions paid; and (d) the percentage of the aggregate dollar amount of
transactions involving the payment of commissions effected through SEI.
Percentage Percentage
Commissions Paid To of Aggregate of Dollar
Total SEI Commissions Amount
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Evergreen Asset. For information about Evergreen Asset, FUNB and First
Union, see "Summary-Investment Advisers, Sub-Adviser and Administrators." The
name, address and principal occupation of the principal executive officers and
directors of Evergreen Asset are set forth in Appendix A to this
Prospectus/Proxy Statement.
During the term of the Interim Advisory Agreement, Evergreen Asset will
receive compensation for managing the FFB Fund at the same effective annual rate
( %) as received by First Fidelity, pursuant to the Existing Advisory Agreement
(net of any waivers). Evergreen Asset is the investment adviser to the Evergreen
Fund which, if approved by shareholders of the FFB Fund, will acquire
substantially all of the assets of the FFB Fund. Evergreen Asset receives an
annual management fee equal to 1.00% of the Evergreen Fund's average daily net
assets. For the fiscal year ended September 30, 1994, Evergreen Asset, received
$5,738,633 in management fees. See "Summary- Investment Advisers, Sub-Adviser
and Administrators."
As more fully described in the Statement of Additional Information of the
Evergreen Fund, which is incorporated by reference into this Prospectus/Proxy
Statement, the funds in the Evergreen family of mutual funds including the
Evergreen Fund advised by Evergreen Asset have entered into an agreement with
Lieber & Company authorizing Lieber & Company to retain compensation for
brokerage services. See "Summary-Investment Advisers, Sub- Adviser and
Administrators." It is contemplated that Lieber & Company, a member of the New
York and American Stock Exchanges will, to the extent practicable, provide
brokerage services to the funds advised by Evergreen Asset with respect to
substantially all securities transactions effected on the New York and American
Stock Exchanges. See "Allocation of Brokerage" in the Evergreen Fund's Statement
of Additional Information for information regarding total brokerage commissions
paid by the Evergreen Fund and the amount and percentage thereof paid to Lieber
& Company.
The Board of Trustees considered the Interim Advisory Agreement as part of
its overall approval of the Plan. The Board of Trustees considered, among other
things, the factors set forth above in "Information about the Reorganization -
Reasons for the Reorganization." The Board of Trustees also considered the fact
that there were no material differences between the terms of the Interim
Advisory Agreement and the terms of the Existing Advisory Agreement.
ADDITIONAL INFORMATION
Evergreen Fund. Information concerning the operation and management of the
Evergreen Fund is incorporated herein by reference from the Prospectus dated
July 7, 1995, a copy of which is enclosed, and Statement of Additional
Information dated July 7, 1995. A copy of such Statement of Additional
Information is available upon request and without charge by writing to the
Evergreen Fund, at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-807-2940.
FFB Fund. Information about the FFB Fund is included in its current
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Prospectus dated December 30, 1994 and in the Statement of Additional
Information of the same date that have been filed with the SEC, all of which are
incorporated herein by reference. A copy of the Prospectus and Statement of
Additional Information and the Fund's Report dated August 31, 1994 and
Semi-Annual Report dated February 28, 1995 are available upon request and
without charge by writing to the FFB Fund at 680 East Swedesford Road, Wayne,
Pennsylvania 19087 or by calling toll-free 1-800-833-8974.
Evergreen Trust and The FFB Lexicon Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York
10048.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of The FFB Lexicon Fund to be
used at the Special Meeting of Shareholders to be held at 10:00 a.m. November
13, 1995, at the offices of the FFB Fund, 680 East Swedesford Road, Wayne,
Pennsylvania 19087 and at any adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and a proxy card, is first being
mailed to shareholders on or about September 28, 1995. Only shareholders of
record as of the close of business on the Record Date will be entitled to notice
of, and to vote at, the Meeting or any adjournment thereof. The holders of a
majority of the shares outstanding at the close of business on the Record Date
present in person or represented by proxy will constitute a quorum for the
Meeting. If the enclosed form of proxy is properly executed and returned in time
to be voted at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed Reorganization and FOR any other
matters deemed appropriate. Proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum, but
will have the effect of being counted as votes against the Plan. A proxy may be
revoked at any time on or before the Meeting by written notice to the Secretary
of The FFB Lexicon Fund, 680 East Swedesford Road, Wayne, Pennsylvania 19087.
Unless revoked, all valid proxies will be voted in accordance with the
specifications thereon or, in the absence of such specifications, FOR approval
of the Plan and the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of more than 50% of
the outstanding voting securities, with all classes voting together as one
class. Approval of the Interim Advisory Agreement will require the
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affirmative vote of (i) 67% or more of the outstanding voting securities if
holders of more than 50% of the outstanding voting securities are present, in
person or by proxy, at the Meeting, or (ii) more than 50% of the outstanding
voting securities, whichever is less, with all classes voting together as one
class. Each full share outstanding is entitled to one vote and each fractional
share outstanding is entitled to a proportionate share of one vote.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone, telegraph or personal solicitations conducted by
officers and employees of FUNB or First Fidelity, their affiliates or other
representatives of The FFB Lexicon Fund (who will not be paid for their
solicitation activities). has been engaged by First Fidelity to assist in
soliciting proxies, and may contact certain shareholders of the FFB Fund over
the telephone. Shareholders that are contacted by may be asked to cast their
vote by telephonic proxy. Such proxies will be recorded in accordance with the
procedures set forth below. First Fidelity believes these procedures are
reasonably designed to ensure that the identity of the shareholder casting the
vote is accurately determined and that the voting instructions of the
shareholder are accurately reflected. has received an opinion of that address
the validity, under the applicable law of the Commonwealth of Massachusetts, of
a proxy given orally. The opinion given by concludes that a Massachusetts court
would find that there is no Massachusetts law or Massachusetts public policy
against the acceptance of proxies signed by an orally-authorized agent.
In all cases where a telephonic proxy is solicited, the representative will
ask you for your full name, address, social security or employer identification
number, title (if you are authorized to act on behalf of an entity, such as a
corporation), and number of shares owned. If the information solicited agrees
with the information provided to by First Fidelity, then the representative will
explain the process, read the proposals listed on the proxy card and ask for
your instructions on each proposal. The representative, although he or she will
answer questions about the process, will not recommend to the shareholder how he
or she should vote, other than to read any recommendations set forth in the
proxy statement. Within 72 hours, will send you a letter or mailgram to confirm
your vote and asking you to call immediately if your instructions are not
correctly reflected in the confirmation.
If you wish to participate in the Meeting, but do not wish to give your
proxy by telephone, you may still submit the proxy card included with this
Prospectus/Proxy Statement or attend in person. Any proxy given by you, whether
in writing or by telephone, is revocable.
In the event that sufficient votes to approve the Reorganization are not
received by November 13, 1995, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the
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<PAGE>
information to be provided to shareholders with respect to the reasons for the
solicitation. Any such adjournment will require an affirmative vote by the
holders of a majority of the shares present in person or by proxy and entitled
to vote at the Meeting. The persons named as proxies will vote upon such
adjournment after consideration of all circumstances which may bear upon a
decision to adjourn the Meeting.
A shareholder who objects to the proposed Reorganization will not be
entitled under either Massachusetts law or the Declaration of Trust of The FFB
Lexicon Fund to demand payment for, or an appraisal of, his or her shares.
However, shareholders should be aware that the Reorganization as proposed is not
expected to result in recognition of gain or loss to shareholders for federal
income tax purposes and that, if the Reorganization is consummated, shareholders
will be free to redeem the shares of the Evergreen Fund which they receive in
the transaction at their then-current net asset value. Shares of the FFB Fund
may be redeemed at any time prior to the consummation of the Reorganization. FFB
Fund shareholders may wish to consult their tax advisers as to any differing
consequences of redeeming FFB Fund shares prior to the Reorganization or
exchanging such shares in the Reorganization.
The FFB Lexicon Fund does not hold annual shareholder meetings. If the
Reorganization is not approved, shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of The FFB Lexicon
Fund at the address set forth on the cover of this Prospectus/Proxy Statement
such that they will be received by The FFB Lexicon Fund in a reasonable period
of time prior to any such meeting.
The votes of the shareholders of the Evergreen Fund are not being solicited
by this Prospectus/Proxy Statement and are not required to carry out the
Reorganization.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise the FFB Fund whether other persons are beneficial owners of shares
for which proxies are being solicited and, if so, the number of copies of this
Prospectus/Proxy Statement needed to supply copies to the beneficial owners of
the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of the Evergreen Fund for the year ended
September 30, 1994 and the related financial highlights appearing in the
Evergreen Fund's Annual Report dated September 30, 1994 have been incorporated
by reference into this Prospectus/Proxy Statement in reliance on the report of
Price Waterhouse LLP, independent accountants for the Evergreen Fund, given on
the authority of said firm as experts in accounting and auditing.
The financial statements of the FFB Fund as of August 31, 1994 and the
financial highlights have been incorporated by reference into this
Prospectus/Proxy Statement and have been audited by Arthur Andersen LLP,
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<PAGE>
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the Evergreen
Fund will be passed upon by Sullivan & Worcester, Washington, D.C.
OTHER BUSINESS
The Trustees of The FFB Lexicon Fund do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE BOARD OF TRUSTEES OF THE FFB LEXICON FUND, INCLUDING THE INDEPENDENT
TRUSTEES, RECOMMENDS APPROVAL OF THE PLAN AND THE INTERIM ADVISORY AGREEMENT,
AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN
FAVOR OF APPROVAL OF THE PLAN AND THE INTERIM ADVISORY AGREEMENT.
September 28, 1995
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<PAGE>
APPENDIX A
The name, address and principal occupation of the directors and principal
executive officers of Evergreen Asset Management Corp. are as follows:
Principal Occupation
Name and Address During Past 5 Years
Directors:
Richard K. Wagoner Executive Vice
First Union National Bank of President and General
North Carolina Fund Officer of First
One First Union Center Union National Bank of
Charlotte, NC 28288 North Carolina
Barbara I. Colvin Senior Vice President
First Union National Bank of of First Union National
North Carolina Bank of North Carolina
One First Union Center
Charlotte, NC 28288
Principal Executive
Officers:
Chairman and Co-Chief
Steven A. Lieber Executive Officer
- --------------------------------------
Nola Maddox Falcone President and Co-Chief
Executive Officer
Theodore J. Israel, Jr. Executive Vice
President
Joseph J. McBrien Senior Vice President
and General Counsel
George R. Gaspari Senior Vice President
and Chief Financial
Officer
============================================================================
Unless otherwise indicated, the address of each person listed above is
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York
10577.
<PAGE>
LEXICON SMALL COMPANY
Draft: 8-18-95 Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
day of August, 1995, by and between Evergreen Trust, a Massachusetts business
trust (the "Evergreen Trust"), with its principal place of business at 2500
Westchester Avenue, Purchase, New York 10577, with respect to its Evergreen Fund
series (the "Acquiring Fund"), and The FFB Lexicon Fund (the "FFB Trust"), a
Massachusetts business trust, with respect to its Small Company Growth Fund
series, with its principal place of business at 2 Oliver Street, Boston,
Massachusetts 02109 (the "Selling Fund").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368 (a)(1)(C) of the United States
Internal Revenue Code of 1986 (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Selling Fund in exchange solely for Class Y shares of beneficial
interest, $.001 par value per share, of the Acquiring Fund (the "Acquiring Fund
Shares") and the assumption by the Acquiring Fund of certain stated liabilities
of the Selling Fund and the distribution, after the Closing Date hereinafter
referred to, of the Acquiring Fund Shares to the shareholders of the Selling
Fund in liquidation of the Selling Fund as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are separate investment series
of open-end, registered investment companies of the management type and the
Selling Fund owns securities which generally are assets of the character in
which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial interest;
WHEREAS, the Trustees of the Evergreen 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 FFB Trust have determined that the Selling Fund
should exchange substantially all of its assets and certain of its liabilities
for Acquiring Fund Shares and that the interests of the existing shareholders of
the Selling Fund will not be diluted as a result of the transactions
contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES AND LIQUIDATION OF
THE SELLING FUND
<PAGE>
1.1 The Exchange. Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer the Selling Fund's assets as set forth in paragraph 1.2
to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Selling Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined by dividing the value of the
Selling Fund's net assets computed in the manner and as of the time and date set
forth in paragraph 2.1 by the ratio of the net asset value per share of the
shares of the Acquiring Fund and the Selling Fund computed in the manner and as
of the time and date set forth in paragraph 2.2 and (ii) to assume certain
liabilities of the Selling Fund, as set forth in paragraph 1.3. Such
transactions shall take place at the closing provided for in paragraph 3.1 (the
"Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by the
Acquiring Fund shall consist of all property, including without limitation all
cash, securities, commodities and futures interests and dividends or interest
receivable, which are owned by the Selling Fund and any deferred or prepaid
expenses shown as an asset on the books of the Selling Fund on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent audited
financial statements which contain a list of all of Selling Fund's assets as of
the date thereof. The Selling Fund hereby represents that as of the date of the
execution of this Agreement there have been no changes in its financial position
as reflected in said financial statements other than those occurring in the
ordinary course of its business in connection with the purchase and sale of
securities and the payment of its normal operating expenses. The Selling Fund
reserves the right to sell any of such securities but will not, without the
prior written approval of the Acquiring Fund, acquire any additional securities
other than securities of the type in which the Acquiring Fund is permitted to
invest. The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a statement of the Acquiring Fund's
investment objectives, policies and restrictions and a list of the securities,
if any, on the Selling Fund's list referred to in the second sentence of this
paragraph which do not conform to the Acquiring Fund's investment objectives,
policies, and restrictions. In the event that the Selling Fund holds any
investments which the Acquiring Fund may not hold, the Selling Fund will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge all
of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges and
reserves reflected on a Statement of Assets and Liabilities of the Selling Fund
prepared by SEI Financial Management Corporation, the administrator of the
Selling Fund, as of the Valuation Date (as defined in paragraph 2.1), in
accordance with generally accepted accounting principles consistently applied
from the prior audited period. The Acquiring Fund shall assume only those
liabilities of the Selling Fund reflected in such Statement of Assets and
Liabilities and shall not assume any other liabilities, whether absolute or
contingent, known or unknown, accrued or unaccrued, all of which shall remain
the obligation of the Selling Fund.
1.4 Liquidation and Distribution. As soon after the Closing Date as is
conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Closing Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1. and (b) the Selling Fund will thereupon proceed to dissolve as
set forth in paragraph 1.8 below. Such
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<PAGE>
liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Selling Fund on the
books of the Acquiring Fund, to open accounts on the share records of the
Acquiring Fund in the names of the Selling Fund Shareholders and representing
the respective pro rata number of the Acquiring Fund Shares due such
shareholders. All issued and outstanding shares of the Selling Fund will
simultaneously be canceled on the books of the Selling Fund. The Acquiring Fund
shall not issue certificates representing the Acquiring Fund Shares in
connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be shown on the
books of the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will
be issued in the manner described in the combined Prospectus and Proxy Statement
on Form N-14 to be distributed to shareholders of the Selling Fund as described
in Section 5.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the Acquiring
Fund Shares in a name other than the registered holder of the Selling Fund
shares on the books of the Selling Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring Fund
Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling Fund
is and shall remain the responsibility of the Selling Fund up to and including
the Closing Date and such later date on which the Selling Fund is terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following the
Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be acquired
by the Acquiring Fund hereunder shall be the value of such assets computed as of
the close of business on the New York Stock Exchange on the Closing Date (such
time and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Evergreen Trust's Declaration of Trust and
the Acquiring Fund's then current prospectus and statement of additional
information or such other valuation procedures as shall be mutually agreed upon
by the parties.
2.2 Valuation of Shares. The net asset value of each class of Acquiring Fund
Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Evergreen Trust's Declaration of Trust and
the Acquiring Fund's then current prospectus and statement of additional
information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares of each class
to be issued (including fractional shares, if any) in exchange for the Selling
Fund's assets shall be determined by dividing the net asset value per share of
the Selling Fund attributable to each of its classes by the net asset value per
share of the respective classes of the Acquiring Fund determined in accordance
with paragraph 2.2.
2.4 Determination of Value. All computations of value shall be made by State
Street Bank and Trust Company in accordance with its regular practice in pricing
the shares and assets of the Acquiring Fund.
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<PAGE>
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on January 19,
1996 or such other date as the parties may agree to in writing (the "Closing
Date"). All acts taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the Closing Date unless otherwise
provided. The Closing shall be held as of 9:00 o'clock a.m. at the offices of
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York
10577, or at such other time and/or place as the parties may agree.
3.2 Custodian's Certificate. First Fidelity Bank, N.A., as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that: (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to the
Acquiring Fund on the Closing Date and (b) all necessary taxes including all
applicable Federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
3.3 Effect of Suspension in Trading. In the event that on the Valuation Date (a)
the New York Stock Exchange or another primary trading market for portfolio
securities of the Acquiring Fund or the Selling Fund shall be closed to trading
or trading thereon shall be restricted, or (b) trading or the reporting of
trading on said Exchange or elsewhere shall be disrupted so that accurate
appraisal of the value of the net assets of the Acquiring Fund or the Selling
Fund is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Supervised Service Company and SEI Financial
Management Corporation, as transfer agents for the Selling Fund shall each
deliver at the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Selling Fund Shareholders and the
number and percentage ownership of outstanding shares owned by each such
shareholder immediately prior to the Closing. The Acquiring Fund shall issue and
deliver or cause its transfer agent to issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to the
Secretary of the FFB Trust , or provide evidence satisfactory to the Selling
Fund that such Acquiring Fund Shares have been credited to the Selling Fund's
account on the books of the Acquiring Fund. At the Closing each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts and other documents as such other party or its
counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Massachusetts business
trust duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts;
(b) The Selling Fund is a separate investment series of a registered investment
company classified as a
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<PAGE>
management company of the open-end type and its registration with the Securities
and Exchange Commission (the "Commission") as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act") is in full force and
effect;
(c) The current prospectus and statement of additional information of the
Selling Fund conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act") and the 1940 Act and the
rules and regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(d) The Selling Fund is not, and the execution, delivery and performance of this
Agreement (subject to shareholder approval) will not, result in a violation of
any provision of the FFB Trust's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to which
the Selling Fund is a party or by which it is bound;
(e) The Selling Fund has no material contracts or other commitments (other than
this Agreement) which will be terminated with liability to it prior to the
Closing Date;
(f) Except as otherwise disclosed in writing to and accepted by the Acquiring
Fund, no litigation, administrative proceeding or investigation of or before any
court or governmental body is presently pending or to its knowledge threatened
against the Selling Fund or any of its properties or assets which, if adversely
determined, would materially and adversely affect its financial condition, the
conduct of its business or the ability of the Selling Fund to carry out the
transactions contemplated by this Agreement. The Selling Fund knows of no facts
which might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated;
(g) The financial statements of the Selling Fund at August 31, 1994 have been
audited by Arthur Andersen 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 date, and
there are no known contingent liabilities of the Selling Fund as of such date
not disclosed therein;
(h) Since August 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 shown due on said returns and reports
shall have been paid, or provision shall have been made for the payment thereof
and to the best of the Selling Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such returns;
(j) For each fiscal year of its operation, the Selling Fund has met the
requirements of Subchapter M of
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<PAGE>
the Code for qualification and treatment as a regulated investment company and
has distributed in each such year all net investment income and realized capital
gains;
(k) All issued and outstanding shares of the Selling Fund are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable by the Selling Fund (except that, under Massachusetts law,
Selling Fund Shareholders could, under certain circumstances be held personally
liable for obligations of the Selling Fund). All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.4. The Selling Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares;
(l) At the Closing Date, the Selling Fund will have good and marketable title to
the Selling Fund's assets to be transferred to the Acquiring Fund pursuant to
paragraph 1.2 and full right, power, and authority to sell, assign, transfer and
deliver such assets hereunder, and upon delivery and payment for such assets,
the Acquiring Fund will acquire good and marketable title thereto, subject to no
restrictions on the full transfer thereof, including such restrictions as might
arise under the 1933 Act, other than as disclosed to the Acquiring Fund and
accepted by the Acquiring Fund;
(m) The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of the Selling Fund and, subject
to approval by the Selling Fund 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;
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<PAGE>
(c) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(d) The Acquiring Fund is not, and the execution, delivery and performance of
this Agreement will not, result in a violation of Evergreen Trust's Declaration
of Trust or By-Laws or of any agreement, indenture, instrument, contract, lease
or other undertaking to which the Acquiring Fund is a party or by which it is
bound;
(e) Except as otherwise disclosed in writing to the Selling Fund and accepted by
the Selling Fund, no litigation, administrative proceeding or investigation of
or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquiring Fund or any of its properties or
assets which, if adversely determined, would materially and adversely affect its
financial condition and the conduct of its business or the ability of the
Acquiring Fund to carry out the transactions contemplated by this Agreement. The
Acquiring Fund knows of no facts which might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein;
(f) The financial statements of the Acquiring Fund at September 30, 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 Selling Fund)
fairly reflect the financial condition of the Acquiring Fund as of such date,
and there are no known contingent liabilities of the Acquiring Fund as of such
date not disclosed therein;
(g) Since September 30, 1994 there has not been any material adverse change in
the Acquiring Fund's financial condition, assets, liabilities or business other
than changes occurring in the ordinary course of business, or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to and accepted by
the Acquiring Fund. For the purposes of this subparagraph (g), a decline in the
net asset value of the Acquiring Fund shall not constitute a material adverse
change;
(h) At the Closing Date, all Federal and other tax returns and reports of the
Acquiring Fund required by law then to be filed by such dates shall have been
filed, and all Federal and other taxes shown due on said returns and reports
shall have been paid or provision shall have been made for the payment thereof
and to the best of the Acquiring Fund's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such returns;
(i) For each fiscal year of its operation the Acquiring Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company and has distributed in each such year all net
investment income and realized capital gains;
(j) All issued and outstanding Acquiring Fund Shares are, and at the Closing
Date will be, duly and validly issued and outstanding, fully paid and
non-assessable (except that, under Massachusetts law, shareholders of the
Acquiring Fund could, under certain circumstances, be held personally liable for
obligations of the Acquiring Fund). The Acquiring Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any Acquiring
Fund Shares, nor is there
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<PAGE>
outstanding any security convertible into any Acquiring Fund Shares;
(k) The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of the Acquiring Fund, and this
Agreement constitutes a valid and binding obligation of the Acquiring Fund
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles;
(l) The Acquiring Fund Shares to be issued and delivered to the Selling Fund,
for the account of the Selling Fund Shareholders, pursuant to the terms of this
Agreement will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Acquiring Fund Shares, and will
be fully paid and non-assessable (except that, under Massachusetts law,
shareholders of the Acquiring Fund could, under certain circumstances, be held
personally liable for obligations of the Acquiring Fund);
(m) The information to be furnished by the Acquiring Fund for use in no-action
letters, applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete in all material respects and
shall comply in all material respects with Federal securities and other laws and
regulations applicable thereto;
(n) The Prospectus and Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund ) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading; and
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5. 1 Operation in Ordinary Course. The Acquiring Fund and the Selling Fund each
will operate its business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 Approval of Shareholders. The FFB Trust will call a meeting of the Selling
Fund Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Investment Representation. The Selling Fund covenants that the Acquiring
Fund Shares to be issued hereunder are not being acquired for the purpose of
making any distribution thereof other than in accordance with the terms of this
Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the
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Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the Acquiring
Fund and the Selling Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Selling Fund shall furnish
the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring
Fund, a statement of the earnings and profits of the Selling Fund for Federal
income tax purposes which will be carried over by the Acquiring Fund as a result
of Section 381 of the Code, and which will be certified by the FFB Trust's
President, its Treasurer and its independent auditors.
5.7 Preparation of Form N-14 Registration Statement. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act in connection
with the meeting of the Selling Fund Shareholders to consider approval of this
Agreement and the transactions contemplated herein.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Evergreen Trust's President or
Vice President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other matters as the Selling Fund shall reasonably
request; and
6.2 The Selling Fund shall have received on the Closing Date an opinion from
Sullivan & Worcester, counsel to the Acquiring Fund, dated as of the Closing
Date, in a form reasonably satisfactory to the Selling Fund, covering the
following points:
That (a) the Acquiring Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted; (b) this Agreement has been duly authorized, executed and
delivered by the Acquiring Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of this Agreement by the Selling Fund, is
a valid and binding
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obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles; (c) assuming that a
consideration therefor not less than the net asset value thereof has been paid,
the Acquiring Fund Shares to be issued and delivered to the Selling Fund on
behalf of the Selling Fund Shareholders as provided by this Agreement are duly
authorized and upon such delivery will be legally issued and outstanding and
fully paid and non-assessable (except that, under Massachusetts law,
shareholders of the Acquiring Fund could, under certain circumstances, be held
personally liable for obligations of the Acquiring Fund), and no shareholder of
the Acquiring Fund has any preemptive rights in respect thereof; (d) the
execution and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, result in a violation of the
Evergreen Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound; (e) to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the Commonwealth of Massachusetts, is required for the
consummation by the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the 1940
Act, and such as may be required under state securities laws; (f) only insofar
as they relate to the Acquiring Fund, the descriptions in the Prospectus and
Proxy Statement of statutes, legal and governmental proceedings and material
contracts, if any, are accurate and fairly present the information required to
be shown; (g) such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required; (h) the Acquiring Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act and to such counsel's best knowledge, such registration with the Commission
as an investment company under the 1940 Act is in full force and effect; and (i)
to the knowledge of such counsel, no litigation or administrative proceeding or
investigation of or before any court or governmental body is presently pending
or threatened as to the Acquiring Fund or any of its properties or assets and
the Acquiring Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body, which materially and
adversely affects its business, other than as previously disclosed in the
Registration Statement. In addition, such counsel shall also state that they
have participated in conferences with officers and other representatives of the
Acquiring Fund at which the contents of the Prospectus and Proxy Statement and
related matters were discussed and, although they are not passing upon and do
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Prospectus and Proxy Statement (except to the extent
indicated in paragraph (f) of their above opinion), on the basis of the
foregoing (relying as to materiality to a large extent upon the opinions of the
Evergreen Trust's officers and other representatives of the Acquiring Fund), no
facts have come to their attention that lead them to believe that the Prospectus
and Proxy Statement as of its date, as of the date of the Selling Fund
Shareholders' meeting, and as of the Closing Date, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein regarding the Acquiring Fund or necessary, in the light of the
circumstances under which they were made, to make the statements therein
regarding the Acquiring Fund not misleading. Such opinion may state that such
counsel does not express any opinion or belief as to the financial statements or
any financial or statistical data, or as to the information relating to the
Selling Fund, contained in the Prospectus and Proxy Statement or the
Registration Statement, and that such opinion is solely for the benefit of the
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FFB Trust and the Selling Fund. Such opinion shall contain such other
assumptions and limitations as shall be in the opinion of Sullivan & Worcester
appropriate to render the opinions expressed therein.
In this paragraph 6.2, references to Prospectus and Proxy Statement include
and relate to only the text of such Prospectus and Proxy Statement and not to
any exhibits or attachments thereto or to any documents incorporated by
reference therein.
6.3 The merger between First Union Corporation and First Fidelity Bancorporation
has been completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants and warranties of the Selling Fund contained
in this Agreement shall be true and correct as of the date hereof and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date, and the Selling Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by the FFB Trust's President or
Vice President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and, dated as of the Closing Date, to such
effect and as to such other matters as the Acquiring Fund shall reasonably
request;
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement of
the Selling Fund's assets and liabilities, together with a list of the Selling
Fund's portfolio securities showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the FFB Trust; and
7.3 The Acquiring Fund shall have received on the Closing Date an opinion of
Morgan, Lewis & Bockius counsel to the Selling Fund, in a form satisfactory to
the Acquiring Fund covering the following points:
That (a) the Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted; (b) this Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming that the Prospectus and Proxy
Statement, and Registration Statement comply with the 1933 Act, the 1934 Act and
the 1940 Act and the rules and regulations thereunder and, assuming due
authorization, execution and delivery of this Agreement by the Acquiring Fund,
is a valid and binding obligation of the Selling Fund enforceable against the
Selling Fund in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles; (c) the
execution and delivery of this Agreement did not, and the consummation of the
transactions contemplated hereby will not, result in a violation of the FFB
Trust's Declaration of Trust or By-laws, or any provision of any material
agreement, indenture, instrument, contract, lease or other undertaking (in each
case known to such counsel) to which the Selling Fund is a party or by which it
or any of its properties may be bound
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<PAGE>
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 thereof
has been paid, and assuming that such shares were issued in accordance with the
terms of the Selling Fund's registration statement, or any amendment thereto, in
effect at the time of such issuance, all issued and outstanding shares of the
Selling Fund are legally issued and fully paid and non-assessable (except that,
under Massachusetts law, Selling Fund Shareholders could, under certain
circumstances be held personally liable for obligations of the Selling Fund).
Such counsel shall also state that they have participated in conferences with
officers and other representatives of the Selling Fund at which the contents of
the Prospectus and Proxy Statement and related matters were discussed and,
although they are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the Prospectus
and Proxy Statement (except to the extent indicated in paragraph (e) of their
above opinion ), on the basis of the foregoing (relying as to materiality to a
large extent upon the opinions of the FFB Trust's officers and other
representatives of the Selling Fund ), no facts have come to their attention
that lead them to believe that the Prospectus and Proxy Statement as of its
date, as of the date of the Selling Fund Shareholders' meeting, and as of the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Selling Fund
or necessary, in the light of the circumstances under which they were made, to
make the statements therein regarding the Selling Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief as to
the financial statements or any financial or statistical data, or as to the
information relating to the Acquiring Fund, contained in the Prospectus and
Proxy Statement or Registration Statement, and that such opinion is solely for
the benefit of the Evergreen Trust and the Acquiring Fund. Such opinion shall
contain such other assumptions and limitations as shall be in the opinion of
Morgan, Lewis & Bockius appropriate to render the opinions expressed therein and
shall indicate, with respect to matters of Massachusetts law, that as Morgan,
Lewis & Bockius are not admitted to the bar of Massachusetts, such opinions are
based either upon the review of published statutes, case and rules and
regulations of the Commonwealth of Massachusetts or upon an opinion of
Massachusetts counsel.
In this paragraph 7.3, references to Prospectus and Proxy Statement include and
relate to only the
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<PAGE>
text of such Prospectus and Proxy Statement and not to any exhibits or
attachments thereto or to any documents incorporated by reference therein.
7.4 The merger between First Union Corporation and First Fidelity Bancorporation
shall be completed prior to the Closing Date.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND
THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the FFB Trust's Declaration of
Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1;
8.2 On the Closing Date, the Commission shall not have issued an unfavorable
report under Section 25(b) of the 1940 Act, nor instituted any proceeding
seeking to enjoin the consummation of the transactions contemplated by this
Agreement under Section 25(c) of the 1940 Act and no action, suit or other
proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein;
8.3 All required consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky securities authorities. including any
necessary "no-action" positions of and exemptive orders from such Federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.5 The Selling Fund shall have declared a dividend or dividends which, together
with all previous such dividends, shall have the effect of distributing to the
Selling Fund Shareholders all of the Selling Fund's investment company taxable
income for all taxable years ending on or prior to the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gain realized in all taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carryforward);
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<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 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 Arthur Andersen LLP a letter
addressed to the Acquiring Fund, in form and substance satisfactory to the
Acquiring Fund, to the effect that (i) they are independent certified public
accountants with respect to the Selling Fund within the meaning of the 1933 Act
and the applicable published rules and regulations thereunder; (ii) on the basis
of limited procedures agreed upon by the Acquiring Fund and described in such
letter (but not an examination in accordance with generally accepted auditing
standards) consisting of a reading of any unaudited pro forma financial
statements included in the Registration Statement and Prospectus and Proxy
Statement, and inquiries of appropriate officials of the FFB Trust responsible
for financial and accounting matters, nothing came to their attention which
caused them to believe that such unaudited pro forma financial statements do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations thereunder;
or (iii) on the basis of limited procedures agreed upon by the Acquiring Fund
and described in such letter ( but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing in
the Registration Statement and Prospectus and Proxy Statement, has been obtained
from and is consistent with the accounting records of the Selling Fund; (iv) on
the basis of limited procedures agreed upon by the Acquiring Fund and described
in such letter (but not an examination in accordance with generally accepted
auditing standards), the pro forma financial statements which are included in
the Registration Statement and Prospectus and Proxy Statement, were prepared
based on the valuation of the Selling Fund's assets in accordance with the
Evergreen Trust's Declaration of Trust and
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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
Arthur Andersen LLP in writing by the Acquiring Fund); and (v) on the basis of
limited prcedures agreed upon by the Acquiring Fund and described in such letter
(but not an examination in accordance with generally accepted auditing
standards) the data utilized in the calculations of the projected expense ratio
appearing in the Registration Statement and Prospectus and Proxy Statement agree
with underlying accounting records of the Selling Fund or to written estimates
by Selling Fund's management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from Arthur Andersen
LLP a letter addressed to the Acquiring Fund dated on the Closing Date, in form
and substance satisfactory to the Acquiring Fund, to the effect that on the
basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards) the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from Price Waterhouse LLP a letter
addressed to the Selling Fund, in form and substance satisfactory to the Selling
Fund, to the effect that (i) they are independent certified public accountants
with respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder; (ii) on the basis of
limited procedures agreed upon by the Selling Fund and described in such letter
(but not an examination in accordance with generally accepted auditing
standards) consisting of a reading of any unaudited pro forma financial
statements included in the Registration Statement and Prospectus and Proxy
Statement, and inquiries of appropriate officials of the Evergreen Trust
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that such unaudited pro forma financial
statements do not comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and regulations
thereunder; (iii) on the basis of limited procedures agreed upon by the Selling
Fund and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing in
the Registration Statement and Prospectus and Proxy Statement, has been obtained
from and is consistent with the accounting records of the Acquiring Fund; and
(iv) on the basis of limited procedures agreed upon by the Selling Fund (but not
an examination in accordance with generally accepted auditing standards) the
data utilized in the calculations of the projected expense ratio appearing in
the Registration Statement and Prospectus and Proxy Statement agree with
underlying accounting records of the Acquiring Fund or to written estimates by
each Fund's management and were found to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received from Arthur
Andersen 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
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herein.
9.2 Except as otherwise provided for herein, all expenses of the transactions
contemplated by this Agreement incurred by the Selling Fund and the Acquiring
Fund will be borne by First Union National Bank of North Carolina ("FUNB"). Such
expenses include, without limitation, (i) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (ii)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (iii) registration or
qualification fees and expenses of preparing and filing such forms as are
necessary under applicable state securities laws to qualify the Acquiring Fund
Shares to be issued in connection herewith in each state in which the Selling
Fund Shareholders are resident as of the date of the mailing of the Prospectus
and Proxy Statement to such shareholders; (iv) postage; (v) printing; (vi)
accounting fees; (vii) legal fees; and (viii) solicitation cost of the
transaction. Not withstanding the foregoing, the Acquiring Fund shall pay its
own Federal and state registration fees. In the event that the merger of First
Fidelity Bancorporation and First Union Corporation is not completed, this
Agreement shall terminate. In such event, all expenses of the transactions
contemplated by this Agreement incurred by the Acquiring Fund will be borne by
FUNB and all expenses of the transactions contemplated by this Agreement
incurred by the Selling Fund will be borne by First Fidelity Bank, N.A.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has made
any representation, warranty or covenant not set forth herein and that the
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall
survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 In addition to the termination provisions set forth in paragraph 9.2, this
Agreement may be terminated by the mutual agreement of the Acquiring Fund and
the Selling Fund. In addition, either the Acquiring Fund or the Selling Fund may
at its option terminate this Agreement at or prior to the Closing Date because:
(a) of a breach by the other of any representation, warranty or agreement
contained herein to be performed at or prior to the Closing Date, if not cured
within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will not or
cannot be met.
11.2 In the event of any such termination, in the absence of willful default,
there shall be no liability for damages on the part of either the Acquiring Fund
or the Selling Fund, the Evergreen Trust or the FFB Trust or their respective
Trustees or officers, to the other party or its, Trustees or officers, but
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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 FFB Trust pursuant to paragraph 5.2
of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of the Acquiring Fund Shares to be issued
to the Selling Fund Shareholders under this Agreement to the detriment of such
shareholders without their further approval.
ARTICLE XIII
NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy, overnight courier or certified mail addressed to:
the Acquiring Fund
Evergreen Trust
2500 Westchester Avenue
Purchase, New York 10577
Attention: Joseph J. McBrien, Esq.
or to the Selling Fund
The FFB Lexicon Fund
c/o SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
Attention: David G. Lee
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.
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14.3 This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed to that the obligations of the Selling Fund and the
Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the FFB Trust or the
Evergreen Trust, personally, but bind only the trust property of the Selling
Fund and the Acquiring Fund, as provided in the Declarations of Trust of the FFB
Trust and the Evergreen Trust. The execution and delivery of this Agreement have
been authorized by the Trustees of the FFB Trust on behalf of the Selling Fund,
and the Evergreen Trust on behalf of the Acquiring Fund and signed by authorized
officers of the FFB Trust and the Evergreen Trust, acting as such, and neither
such authorization by such Trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the FFB Trust and the Evergreen Trust as provided in their
Declarations of Trust.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and sealed this Agreement,
all as of the date first written above.
EVERGREEN TRUST
on behalf of Evergreen Fund
By:/s/ John J. Pileggi
Name: John J. Pileggi
Title: President
(Seal)
THE FFB LEXICON FUND
on behalf of Small Company Growth Fund
By: /s/ David G. Lee
Name: David G. Lee
Title: President
<PAGE>
Exhibit B
INTERIM INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of December, 1995, by and between The FFB
Lexicon Funds, a Massachusetts business trust (the "Trust"), and Evergreen Asset
Management Corp. (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended,
consisting of several series of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained SEI Financial Management Corporation (the
"Administrator") to provide administration of the Trust's operations, subject to
the control of the Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to the portfolios listed on Schedule A hereto
and such other portfolios as the Trust and the Adviser may agree upon (the
"Funds"), and the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. Duties of Adviser. The Trust employs the Adviser to
manage the investment and reinvestment of the assets,
and to continuously review, supervise, and administer
the investment program of the Funds, to determine in its
discretion the securities to be purchased or sold, to
provide the Administrator and the Trust with records
concerning the Adviser's activities which the Trust is
required to maintain, and to render regular reports to
the Administrator and to the Trust's Officers and
Trustees concerning the Adviser's discharge of the
foregoing responsibilities.
The Adviser shall discharge the foregoing responsibilities subject to
the control of the Board of Trustees of the Trust and in compliance
with such policies as the Trustees may from time to time establish,
and in compliance with the objectives, policies, and limitations for
each such Fund set forth in the Trust's prospectus and statement of
additional information as amended from time to time, and
<PAGE>
applicable laws and regulations.
The Adviser accepts such employment and agrees, at its own
expense, to render the services and to provide the office
space, furnishings and equipment and the personnel required by
it to perform the services on the terms and for the
compensation provided herein.
2. Fund Transactions. The Adviser is authorized to select
the brokers or dealers that will execute the purchases
and sales of portfolio securities for the Funds and is
directed to use its best efforts to obtain the best net
results as described in the Trust's prospectus and
statement of additional information from time to time.
The Adviser will promptly communicate to the
Administrator and to the officers and the Trustees of
the Trust such information relating to portfolio
transactions as they may reasonably request.
It is understood that the Adviser will not be deemed to
have acted unlawfully, or to have breached a fiduciary duty
to the Trust or be in breach of any obligation owing to the
Trust under this Agreement, or otherwise, solely by reason
of its having directed a securities transaction on behalf
of the Trust to a broker-dealer in compliance with the
provisions of Section 28(e) of the Securities Exchange Act
of 1934.
3. Compensation of the Adviser. For the services to be
rendered by the Adviser as provided in Sections 1 and 2
of this Agreement as well as Custody Services, the Trust
shall pay to the Adviser compensation at the rate
specified in the Schedule(s) which are attached hereto
and made a part of this Agreement. Such compensation
shall be paid to the Adviser at the end of each month,
and calculated by applying a daily rate, based on the
annual percentage rates as specified in the attached
Schedule(s), to the assets. The fee shall be based on
the average daily net assets for the month involved
(less any assets of such Funds held in non-interest
bearing special deposits with a Federal Reserve Bank).
All rights of compensation under this Agreement for
services performed as of the termination date shall survive
the termination of this Agreement.
4. Excess Expenses. If the expenses for any Fund for any
fiscal year (including fees and other amounts payable to
the Adviser, but excluding interest, taxes, brokerage
costs, litigation, and other extraordinary costs) as
calculated every business day would exceed the expense
limitations imposed on investment companies by any
-2-
<PAGE>
applicable statute or regulatory authority of any
jurisdiction in which Shares are qualified for offer and
sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of the Trust or
any Fund which would result in the Trust's inability to
qualify as a regulated investment company under provisions
of the Internal Revenue Code. Payment of expenses by the
Adviser pursuant to this Section 4 shall be settled on a
monthly basis (subject to fiscal year end reconciliation)
by a reduction in the fee payable to the Adviser for such
month pursuant to Section 3 and, if such reduction shall be
insufficient to offset such expenses, by reimbursing the
Trust.
5. Reports. The Trust and the Adviser agree to furnish to each
other, if applicable, current prospectuses, proxy
statements, reports to shareholders, certified copies of
their financial statements, and such other information with
regard to their affairs as each may reasonably request.
6. Status of Adviser. The services of the Adviser to the
Trust are not to be deemed exclusive, and the Adviser
shall be free to render similar services to others so
long as its services to the Trust are not impaired
thereby. The Adviser shall be deemed to be an
independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to
act for or represent the Trust in any way or otherwise
be deemed an agent of the Trust.
7. Certain Records. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule
31a-2 promulgated under the Investment Company Act of 1940
(the "1940 Act") which are prepared or maintained by the
Adviser on behalf of the Trust are the property of the
Trust and will be surrendered promptly to the Trust on
request.
8. Limitation of Liability Adviser. The duties of the
Adviser shall be confined to those expressly set forth
herein, and no implied duties are assumed by or may be
asserted against the Adviser hereunder. The Adviser
shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or
for any act or omission in carrying out its duties
hereunder, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of
-3-
<PAGE>
applicable state law or Federal securities law which cannot
be waived or modified hereby. (As used in this Paragraph 8,
the term "Adviser" shall include directors, officers,
employees and other corporate agents of the Adviser as well
as that corporation itself).
So long as the Adviser acts in good faith and with due
diligence and without gross negligence, the Trust assumes
full responsibility and shall indemnify the Adviser and
hold it harmless from and against any and all actions,
suits and claims, whether groundless or otherwise, and from
and against any and all losses, damages, costs, charges,
reasonable counsel fees and disbursements, payments,
expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out
of any Advisory Service rendered to the Trust hereunder
except to the extent such indemnification would be
prohibited by Federal securities laws. The indemnity and
defense provisions set forth herein shall indefinitely
survive the termination of this Agreement.
The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or
threatened litigation with respect to which indemnification
hereunder may ultimately be merited. In order that the
indemnification provision contained herein shall apply,
however, it is understood that if in any case the Trust may
be asked to indemnify or hold the Adviser harmless, the
Trust shall be fully and prompted advised of all pertinent
facts concerning the situation in question, and it is
further understood that the Adviser will use all reasonable
care to identify and notify the Trust promptly concerning
any situation which presents or appears likely to present
the probability of such a claim for indemnification against
the Trust, but failure to do so in good faith shall not
effect the rights hereunder.
The Adviser may apply to the Trust at any time for
instructions and may consult counsel for the Trust or its
own counsel and with accountants and other experts with
respect to any matter arising in connection with the
Adviser's duties, and the Adviser shall not be liable or
accountable for any action taken or omitted by it in good
faith in accordance with such instruction or with the
opinion of such counsel, accountants or other experts.
Also, the Adviser shall be protected in acting upon any
document which it reasonably believes to be genuine and to
have been signed or presented by the proper person or
-4-
<PAGE>
persons. Nor shall the Adviser be held to have notice of any
change of authority of any officers, employee or agent of
the Trust until receipt of written notice thereof from the
Trust.
9. Permissible Interests. Trustees, agents, and
shareholders of the Trust are or may be interested in
the Adviser (or any successor thereof) as directors,
partners, officers, or shareholders, or otherwise;
directors, partners, officers, agents, and shareholders
of the Adviser are or may be interested in the Trust as
Trustees, shareholders or otherwise; and the Adviser (or
any successor) is or may be interested in the Trust as a
shareholder or otherwise. In addition, brokerage
transactions for the Trust may be effected through
affiliates of the Adviser if approved by the Board of
Trustees, subject to the rules and regulations of the
Securities and Exchange Commission ("SEC").
10. Duration and Termination. This Agreement, unless sooner
terminated as provided herein, shall remain in effect
until the earlier of the Closing Date defined in the
Agreements and Plans of Reorganization dated September __,
1995 approved by shareholders of the Funds, or two
years from date of execution, and
thereafter, for periods of one year so long as such
continuance thereafter is specifically approved at least
annually (a) by the vote of a majority of those Trustees of
the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval,
and (b) by the Trustees of the Trust or by vote of a
majority of the outstanding voting securities of each Fund;
provided, however, that if the shareholders of any Fund
fail to approve the Agreement as provided herein, the
Adviser may continue to serve hereunder in the manner and
to the extent permitted by the 1940 Act and rules and
regulations thereunder. The foregoing requirement that
continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent
with the 1940 Act and the rules and regulations thereunder.
This Agreement may be terminated as to any Fund at any
time, without the payment of any penalty by vote of a
majority of the Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Fund
on 60 days written notice to the Adviser, or by the Adviser
at any time without the payment of any penalty, on 90 days
written notice to the Trust. This Agreement will
automatically and immediately terminate in the
-5-
<PAGE>
event of its assignment. Any notice under this Agreement
shall be given in writing, addressed and delivered, or
mailed postpaid, to the other party at any office of such
party.
As used in this Section 10, the terms "assignment",
"interested persons", and a "vote of a majority of the
outstanding voting securities" shall have the respective
meanings set forth in the 1940 Act and the rules and
regulations thereunder; subject to such exemptions as may
be granted by the SEC under said Act.
11. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if
sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to the other party
at the last address furnished by the other party to the
party giving notice: if to the Trust, the Trust
Administrator c/o the Trust Administrator, SEI Financial
Management Corporation, at 680 East Swedesford Road,
Wayne, PA and if to the Adviser at 2500 Westchester Avenue,
Purchase, New York 10577, to the attention to Stephen
A. Lieber, Chairman.
12. Severability. If any provision of this Agreement shall
be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
13. Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of
Massachusetts and the applicable provisions of the 1940
Act. To the extent that the applicable laws of the
Commonwealth of Massachusetts, or any of the provisions
herein, conflict with the applicable provisions of the 1940
Act, the latter shall control.
A copy of the Declaration of Trust of the Trust is on file
with the Secretary of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees, and are not
binding upon any of the Trustees, officers, or shareholders of
the Trust individually but binding only upon the assets and
property of the Trust.
-6-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this
Agreement to be executed as of the day and year first written
above.
THE FFB LEXICON FUNDS
By: _________________________
Attest: _____________________
EVERGEEEN ASSET MANAGEMENT CORP.
By: _________________________
Attest: _____________________
-7-
<PAGE>
SCHEDULE A
to the Interim Investment Advisory Agreement between
FFB Lexicon Funds
and
Evergeeen Asset Management Corp.
Cash Management Fund
Select Value Fund
Capital Appreciation Equity Fund
Small Company Growth Fund
-8-
<PAGE>
SCHEDULE B
to the Interim Investment Advisory Agreement between
FFB Lexicon Funds
and
Evergeeen Asset Management Corp.
Pursuant to Article 3, the Trust shall pay the Adviser
compensation at an annual rate as follows:
Fund Fee (in basis points)
=================================================================
Cash Management Fund 40
Fixed Income Fund 60
Select Value Fund 75
Capital Appreciation Equity Fund 75
Small Company Growth Fund 75
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 25, 1995
Acquisition of the Assets of
SMALL COMPANY GROWTH FUND
OF
THE FFB LEXICON FUND
2 Oliver Street
Boston, Massachusetts 02109
1-800-833-8974
By and in Exchange for Shares of
EVERGREEN FUND
OF
EVERGREEN TRUST
2500 Westchester Avenue
Purchase, NY 10577
1-800-807-2940
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets of the Small Company Growth Fund, a series of
The FFB Lexicon Fund, in exchange for Class Y shares of Evergreen Fund, a series
of Evergreen Trust, and the assumption by Evergreen Fund of certain identified
liabilities of the Small Company Growth Fund, is not a prospectus. A
Prospectus/Proxy Statement dated September 25, 1995 relating to the
above-referenced matter may be obtained from Evergreen Fund, 2500 Westchester
Avenue, Purchase, New York 10577 or by calling toll-free 1-800-807-2940. This
Statement of Additional Information relates to and should be read in conjunction
with such Prospectus/Proxy Statement.
This Statement of Additional Information incorporates by reference the
following documents, a copy of each of which accompanies this Statement of
Additional Information:
1. The Prospectus of the Evergreen Fund dated July 7,
1995.
2. The Statement of Additional Information of the
Evergreen Fund dated July 7, 1995.
3. The Annual Report of the Evergreen Fund dated September
30, 1994.
4. The Semi-Annual Report of the Evergreen Fund dated
March 31, 1995.
<PAGE>
5. The Prospectus of the Small Company Growth Fund dated
December 30, 1994.
6. The Statement of Additional Information of the Small
Growth Company Fund dated December 30, 1994.
7. The Annual Report of the Small Company Growth Fund
dated August 31, 1994.
8. The Semi-Annual Report of the Small Company Growth Fund
dated February 28, 1995.
The following pro forma financial information relates to the Small Company
Growth Fund and the Evergreen Fund:
-2-
<PAGE>
EVERGREEN FUND
Pro Forma Combining Financial Statements - June 30, 1995
<PAGE>
<TABLE>
<CAPTION>
Lexicon
Evergreen Small Company Pro-Forma
Fund Growth Fund Combined
06/30/95 06/30/95 06/30/95
Security Description Shares Value Shares Value Adjustment Shares Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock 97.0%
Banks & Thrifts 21.3%
1st Source Corp. 201,155 $5,883,783 201,155 $5,883,783
1st United Bancorp 50,000 387,500 50,000 387,500
Amcore Financial, Inc. 45,000 832,500 45,000 832,500
American Federal Bank, FSB 50,000 687,500 50,000 687,500
AmSouth Bancorporation 28,300 923,288 28,300 923,288
Arrow Financial Corp. 101,196 1,568,538 101,196 1,568,538
Bank of Boston Corp. 76,300 2,861,250 76,300 2,861,250
Barnett Banks, Inc. 273,320 14,007,650 273,320 14,007,650
Baybanks Incorporated 190,000 15,057,500 4,200 332,850 194,200 15,390,350
Benson Financial Corp. 40,000 530,000 40,000 530,000
BSB Bancorp, Inc. 99,750 2,992,500 99,750 2,992,500
Central Fidelity Banks, Inc. 30,000 915,000 30,000 915,000
Chittenden Corp. 250,312 5,444,286 250,312 5,444,286
Collective Bancorp, Inc. 70,000 1,417,500 70,000 1,417,500
Compass Bankcshares Incorporated 12,800 369,600 12,800 369,600
Cullen Frost Bankers Incorporated 7,400 299,700 7,400 299,700
Crestar Financial Corp. 28,700 1,406,300 28,700 1,406,300
Dime Financial Corp. 255,000 2,550,000 255,000 2,550,000
First Empire State Corp. 127,000 21,780,500 127,000 21,780,500
First Michigan Bank Corp. 244,703 6,056,399 244,703 6,056,399
First Palm Beach Bancorp 15,000 335,625 15,000 335,625
First State Bancorp 50,000 700,000 50,000 700,000
Fort Wayne National Corp. 160,350 4,449,713 160,350 4,449,713
Glacier Bancorp, Inc. 33,275 648,862 33,275 648,862
Hawthorne Financial Corp. 73,500 197,531 73,500 197,531
Hibernia Corp. Cl. A 889,540 7,894,668 889,540 7,894,668
Intercontinental Bank 100,000 2,862,500 100,000 2,862,500
Magna Group, Inc. 67,779 1,491,138 67,779 1,491,138
Mark Twain Bancshares Inc. 10,400 335,400 10,400 335,400
North Fork Bancorporation, Inc. 210,000 3,806,250 210,000 3,806,250
Old Kent Financial Corp. 100,412 3,414,008 100,412 3,414,008
ONBANCorp, Inc. 121,000 3,433,375 121,000 3,433,375
One Valley Bancorp of West Virginia, Inc. 21,500 663,813 21,500 663,813
Riggs National Corp. 30,000 296,250 30,000 296,250
River Forrest Bancorp 35,000 1,417,500 35,000 1,417,500
Sandwich Co-Operative Bank 55,000 866,250 55,000 866,250
United Carolina Bancshares Corp. 90,000 2,767,500 90,000 2,767,500
Univest Corp. of Pennsylvania 31,428 1,084,266 31,428 1,084,266
USBanCorp, Inc. 10,000 235,000 10,000 235,000
Valley National Bancorp 16,800 405,300 16,800 405,300
West Coast Bancorp. New 29,400 433,650 29,400 433,650
Westamerica Bancorporation 115,900 4,288,300 115,900 4,288,300
Wilmington Trust Corporation 11,800 333,350 11,800 333,350
Total Banks & Thrifts 126,993,493 1,670,900 128,664,393
Building, Construction, & Furnishings 3.2%
Champion Enterprises, Inc. 20,000 $317,500 20,000 317,500
Continental Homes Holding Corp. 88,000 1,529,000 88,000 1,529,000
Interface, Inc. Cl. A 220,900 2,761,250 220,900 2,761,250
Juno Lighting, Inc. 160,000 2,560,000 160,000 2,560,000
Kaufman & Broad Home Corp. 43,000 623,500 43,000 623,500
La-Z-Boy Chair Co. 90,800 2,394,850 90,800 2,394,850
M/I Schottenstein Homes, Inc. 72,200 631,750 72,200 631,750
Medusa Corporation 92,650 2,304,668 15,200 378,100 107,850 2,682,768
Redman Industries, Inc. 100,000 2,175,000 100,000 2,175,000
Ryland Group, Inc. 85,700 1,381,913 85,700 1,381,913
Southern Energy Homes, Inc. 35,000 490,000 35,000 490,000
Standard Pacific Corp. 158,200 1,087,625 158,200 1,087,625
Sundance Homes, Inc. 113,000 296,625 113,000 296,625
Toll Brothers, Inc. 15,000 241,875 15,000 241,875
Total Building, Construction, & Furnishings 18,795,556 378,100 19,173,656
Business Equipment & Services 2.9%
Boole & Babbage, Inc. 52,500 1,575,000 52,500 1,575,000
Bowne & Co., Inc. 101,400 1,736,475 101,400 1,736,475
Cisco Systems, Inc. 30,000 1,516,875 30,000 1,516,875
EIS International, Inc. 40,000 645,000 40,000 645,000
Gradco Systems, Inc. 104,800 320,950 104,800 320,950
HON Industries Inc. 20,000 530,000 20,000 530,000
In Focus Systems, Inc. 30,000 810,000 30,000 810,000
Intuit, Inc. 15,000 1,140,000 15,000 1,140,000
Mark IV Industries Incorporated 15,750 338,625 15,750 338,625
McGrath Rent Corp. 33,000 577,500 33,000 577,500
Merisel, Inc. 47,930 365,466 47,930 365,466
Personnel Management, Inc. 14,850 207,900 14,850 207,900
Pitney Bowes, Inc. 90,000 3,453,750 90,000 3,453,750
Sensormatic Electronics Corp. 40,000 1,420,000 40,000 1,420,000
Zebra Technologies Corp. 60,000 3,195,000 60,000 3,195,000
Total Business Equipment & Services 17,493,916 338,625 17,832,541
Chemicals, Healthcare & Agricultural Products 18.8%
Arbor Drugs, Inc. 75,000 1,200,000 75,000 1,200,000
Arrow International, Inc. 15,000 633,750 15,000 633,750
Biomet, Inc. 130,000 2,015,000 130,000 2,015,000
Boston Scientific Corp. 68,298 2,176,999 68,298 2,176,999
Caremark International, Inc. 136,000 2,720,000 136,000 2,720,000
Circon Corp. 30,000 585,000 30,000 585,000
Coherent, Inc. 90,000 2,643,750 90,000 2,643,750
Columbia/HCA Healthcare Corp. 90,200 3,901,150 90,200 3,901,150
Express Scripts, Inc. 40,000 1,410,000 40,000 1,410,000
FHP International Corporation 54,828 1,261,044 11,000 253,000 65,828 1,514,044
Foundation Health Corp. 28,974 782,298 28,974 782,298
Health Management Associates Inc, Class A 11,800 345,150 11,800 345,150
HealthSouth Rehabilitation Corporation 16,800 291,900 16,800 291,900
Idexx Laboratories, Inc. 240,000 6,240,000 240,000 6,240,000
Invacare Corp. 20,000 830,000 20,000 830,000
Isomedix, Inc. 55,000 742,500 55,000 742,500
Johnson & Johnson 195,000 13,186,875 195,000 13,186,875
Laboratory Corporation of America Holdings 14,500 192,125 14,500 192,125
Living Centers of America, Inc. 104,600 2,837,275 104,600 2,837,275
Lumex, Inc. 31,000 337,125 31,000 337,125
Maxxim Medical, Inc. 20,000 300,000 20,000 300,000
McKesson Corp. 117,900 5,511,825 117,900 5,511,825
Merck & Co., Inc. 500,000 24,500,000 500,000 24,500,000
Mid Atlantic Medical Services, Inc. 15,000 277,500 15,000 277,500
Minntech Corp. 24,750 358,875 24,750 358,875
Nalco Chemical Co. 30,000 1,091,250 30,000 1,091,250
Physician Corporation of America 50,000 681,250 50,000 681,250
Physicians Health Services, Inc. 63,500 1,682,750 63,500 1,682,750
Psicor, Inc. 90,000 1,035,000 90,000 1,035,000
Regency Health Services, Inc. 44,200 464,100 44,200 464,100
Regeneron Pharmaceutical 25,000 225,000 25,000 225,000
Ren Corp.-USA 40,000 635,000 40,000 635,000
Salick Health Care, Inc. 45,000 1,665,000 45,000 1,665,000
Schulman (A.), Inc. 349,568 10,050,080 349,568 10,050,080
Sigma-Aldrich Corp. 45,000 2,210,625 45,000 2,210,625
St. Jude Medical, Inc. 75,000 3,759,375 75,000 3,759,375
Stryker Corp. 226,500 8,691,938 226,500 8,691,938
Sun HealthCare Group Incorporated 128,000 2,016,000 12,200 192,150 140,200 2,208,150
Superior Surgical Manufacturing Co., Inc. 39,600 415,800 39,600 415,800
Target Therapeutics Inc. 7,400 325,600 7,400 325,600
Tecnol Medical Products, Inc. 75,750 1,666,500 75,750 1,666,500
Tenet Healthcare Corp. 50,000 718,750 50,000 718,750
United Healthcare Corp. 20,000 827,500 20,000 827,500
Total Chemicals, Healthcare &
Agricultural Products 112,479,009 1,407,800 113,886,809
Consumer Products & Services 5.2%
Aaron Rents, Inc. Cl. B 70,000 1,050,000 70,000 1,050,000
American Business Information, Inc. 70,000 1,890,000 70,000 1,890,000
Anthony Industries, Inc. 185,030 3,399,926 185,030 3,399,926
Arctco, Inc. 60,000 705,000 60,000 705,000
Barry (R.G.)Corp 53,500 956,312 53,500 956,312
Children's Discovery Centers of America, Inc. 25,000 418,750 25,000 418,750
Chiquita Brands International Inc. 22,200 310,800 22,200 310,800
Circle K Corp. 75,000 1,265,625 75,000 1,265,625
Crown Crafts, Inc. 135,300 2,232,450 135,300 2,232,450
Deckers Outdoor Corp. 125,700 1,272,713 125,700 1,272,713
Franklin Electric Co., Inc. 30,000 922,500 30,000 922,500
Garan, Inc. 60,600 1,015,050 60,600 1,015,050
Handleman Company 26,400 254,100 26,400 254,100
Harman International Industries, Inc. 48,000 1,944,000 48,000 1,944,000
Kellwood Co. 28,750 488,750 28,750 488,750
Lancaster Colony Corp. 297,777 10,645,528 297,777 10,645,528
Nautica Enterprises, Inc. 30,000 1,087,500 30,000 1,087,500
Recovery Engineering, Inc. 35,000 542,500 35,000 542,500
Roto-Rooter, Inc. 23,000 626,750 23,000 626,750
Universal Corporation-Virginia 13,600 285,600 13,600 285,600
Waban Incorporated (ST) 16,200 240,975 16,200 240,975
Total Consumer Products & Services 30,463,354 1,091,475 31,554,829
Durable Goods 2.1%
Adaptec Incorporated 8,000 296,000 8,000 296,000
Agco Corporation 8,000 300,000 8,000 300,000
Augat Incorporated 15,200 311,600 15,200 311,600
Banyan Systems Incorporated 20,000 275,000 20,000 275,000
Belden Incorporated 16,000 432,000 16,000 432,000
Black Box Corporation 19,000 270,750 19,000 270,750
Briggs and Stratton Corporation 8,200 282,900 8,200 282,900
Cellular Communications of Puerto Rico 9,200 281,750 9,200 281,750
Cerner Corporation 5,200 318,500 5,200 318,500
Comdisco Incorporated 10,600 321,975 10,600 321,975
Comsat Corporation 15,600 306,150 15,600 306,150
Davidson and Associates Incorporated 9,800 389,550 9,800 389,550
Elan Corp. Public Limited Company ADR 9,200 374,900 9,200 374,900
Electronic Arts Incorporated 12,200 330,925 12,200 330,925
Equitable of Iowa 10,500 345,188 10,500 345,188
Exabyte Corporation 18,000 249,750 18,000 249,750
Firstier Financial Incorporated 9,200 338,100 9,200 338,100
Frame Technology Corporation 12,000 351,000 12,000 351,000
FTP Software Incorporated 11,400 342,000 11,400 342,000
Global Industries Limitied 13,800 307,050 13,800 307,050
Griffon Corporation 33,000 264,000 33,000 264,000
Indresco Incorporated 23,200 359,600 23,200 359,600
Medisense Incorporated 19,000 368,125 19,000 368,125
Micro Warehouse Incorporated 9,000 414,000 9,000 414,000
NewPark Resources, Inc. 14,600 306,600 14,600 306,600
OM Group Incorporated 11,000 313,500 11,000 313,500
Pacific Physician Services 16,200 210,600 16,200 210,600
Ply-Gem Ind. Inc. 17,000 301,750 17,000 301,750
Price T. Rowe and Associates, Incorporated 9,000 346,500 9,000 346,500
Proxima Corporation 12,000 286,500 12,000 286,500
Sierra Pacific Resources 16,000 348,000 16,000 348,000
SpaceLabs Medical Incorporated 13,600 345,100 13,600 345,100
Sybron International Corporation 8,400 334,950 8,400 334,950
Terra Industries Incorporated 31,000 375,875 31,000 375,875
Titan Wheel International Incorporated 12,600 324,450 12,600 324,450
Union Planters 11,400 304,950 11,400 304,950
Wackenhut Corrections Corp. 14,400 327,600 14,400 327,600
Watkins Johnson Company 8,200 364,900 8,200 364,900
Xircom 18,600 188,325 18,600 188,325
Zions Bancorporation 7,600 380,000 7,600 380,000
Total Durable Goods 12,890,413 12,890,413
Environmental Services 0.6%
Handex Environmental Recovery, Inc. 127,000 889,000 127,000 889,000
Watts Industries, Inc. Cl. A 40,000 1,002,500 40,000 1,002,500
Western Waste Industries, Inc. 100,000 2,012,500 100,000 2,012,500
Total Environmental Services 267,000 3,904,000 267,000 3,904,000
Finance & Insurance 10.4%
Allmerica Property & Casualty Cos., Inc. 172,200 3,809,925 172,200 3,809,925
AMBAC, Inc. 189,400 7,599,675 189,400 7,599,675
Cole Taylor Financial Group, Inc. 50,000 850,000 50,000 850,000
Countrywide Credit Industries, Inc. 25,000 525,000 25,000 525,000
Executive Risk, Inc. 149,300 2,836,700 149,300 2,836,700
Federal Home Loan Mortgage Corp. 126,900 8,724,375 126,900 8,724,375
Federal National Mortgage Association 159,500 15,052,813 159,500 15,052,813
First American Financial Corp. 50,000 1,156,250 50,000 1,156,250
John Nuveen Co. (The) Cl. A 97,000 2,328,000 97,000 2,328,000
MBIA, Inc. 70,900 4,714,850 70,900 4,714,850
MGIC Investment Corp. 253,800 11,896,875 253,800 11,896,875
National RE Corp. 15,000 502,500 15,000 502,500
Penncorp Financial Group Incorporated 16,600 307,100 16,600 307,100
Providian Corp. 23,992 869,710 23,992 869,710
Reliastar Financial Corporation 9,800 374,850 9,800 374,850
Resource Bancshares Mortgage Group Inc. 63,669 811,781 63,669 811,781
State Auto Financial Corp. 20,000 375,000 20,000 375,000
Total Finance & Insurance 62,053,454 681,950 62,735,404
Food Retailing & Distribution 0.6%
Coca-Cola Bottling Co. Consolidated Cl. B 16,500 513,645 16,500 513,645
Cracker Barrel Old Country Store, Inc. 55,405 1,142,728 55,405 1,142,728
Seaway Food Town, Inc. 134,000 1,976,500 134,000 1,976,500
Total Food Retailing & Distribution 3,632,873 3,632,873
Information Services & Technology 6.7%
Atmel Corp. 25,000 1,384,375 25,000 1,384,375
Autodesk, Inc. 120,000 5,160,000 120,000 5,160,000
Bisys (The) Group, Inc. 25,000 556,250 25,000 556,250
C U C International, Inc. 25,000 1,050,000 25,000 1,050,000
Dialogic Corp. 25,000 443,750 25,000 443,750
First Financial Management Corp. 93,679 8,009,555 93,679 8,009,555
HBO Company 55,000 2,997,500 6,000 327,000 61,000 3,324,500
Intel Corp. 172,000 10,889,750 172,000 10,889,750
Intersolv Inc. 10,000 232,500 10,000 232,500
Keane, Inc. 25,000 621,875 25,000 621,875
Molex, Inc. 38,750 1,501,562 38,750 1,501,562
Parametric Technology Corp. 45,000 2,238,750 45,000 2,238,750
Park Electrochemical Group 6,800 344,250 6,800 344,250
Silicon Graphics, Inc. 80,000 3,190,000 80,000 3,190,000
Three-Five Systems Incorporated 15,000 515,625 10,800 371,250 25,800 886,875
Trimble Navigation Ltd. 19,000 539,125 19,000 539,125
Wave Technologies International Inc. 25,000 206,250 25,000 206,250
Total Information Services & Technology 39,881,117 698,250 40,579,367
Metals, Mining, Energy, Construction and Industrial Products 8.7%
Adflex Solutions Inc. 25,000 612,500 25,000 612,500
Breed Technologies, Inc. 55,000 1,320,000 55,000 1,320,000
Cabot Corporation 6,400 337,600 6,400 337,600
Cleveland-Cliffs Incorporated 7,800 300,300 7,800 300,300
Dionex Corp. 72,500 3,316,875 72,500 3,316,875
Fisher Scientific International, Inc. 73,000 2,418,125 73,000 2,418,125
Fuller (H.B.) Co. 182,000 6,734,000 182,000 6,734,000
Galey & Lord Inc. 85,000 1,179,375 85,000 1,179,375
Greenbrier Companies Inc. 15,000 196,875 15,000 196,875
Input/Output Incorporated 9,000 324,000 9,000 324,000
Leggett & Platt, Inc. 70,400 3,097,600 70,400 3,097,600
Masland Corp. 90,000 1,158,750 90,000 1,158,750
Material Sciences Corp. 122,900 2,504,087 122,900 2,504,087
Nacco Industries, Inc. Cl. A 33,900 2,029,762 33,900 2,029,762
Osmonics, Inc. 66,000 1,072,500 66,000 1,072,500
Paxar Corp. 149,750 2,676,781 149,750 2,676,781
Roanoke Electric Steel Corp. 19,500 219,375 19,500 219,375
Smith (A.O.)Corp. 57,600 1,353,600 57,600 1,353,600
Superior Industries International Inc. 79,600 2,477,550 10,100 314,363 89,700 2,791,913
Tecumseh Products Co. Cl. A 178,400 7,849,600 178,400 7,849,600
Tecumseh Products Co. Cl. B 57,800 2,528,750 57,800 2,528,750
Teleflex, Inc. 91,600 3,938,800 91,600 3,938,800
Total Petroleum of North America 24,600 270,600 24,600 270,600
Truck Components, Inc. 75,000 1,181,250 75,000 1,181,250
Walbro Corp. 135,300 2,435,400 135,300 2,435,400
Wescast Industries, Inc. 50,000 512,500 50,000 512,500
Worthington Industries, Inc. 13,000 265,688 13,000 265,688
Total Metals, Mining, Energy,
Construction and Industrial Products 51,079,743 1,546,863 52,626,606
Paper & Packaging 0.8%
Avery Dennison Corp. 20,000 800,000 20,000 800,000
St. Joe Paper Co. 6,500 412,750 6,500 412,750
Wausau Paper Mills Co. 148,350 3,388,341 148,350 3,388,341
Total Paper & Packaging 174,850 4,601,091 174,850 4,601,091
Publishing, Broadcasting & Entertainment 3.8%
Clear Channel Communications, Inc. 214,250 13,792,344 214,250 13,792,344
EZ Communications, Inc. Cl. A 50,000 925,000 50,000 925,000
Grupo Televisa, S.A. GDR 38,000 774,250 38,000 774,250
Jacor Communications, Inc. 130,800 2,092,800 130,800 2,092,800
Multimedia, Inc. 2,000 77,500 2,000 77,500
Wiley, (John) & Sons, Inc. Cl. A 95,000 5,403,125 95,000 5,403,125
Total Publishing,
Broadcasting & Entertainment 23,065,019 23,065,019
Real Estate 3.1%
Alexander's, Inc. 138,760 7,701,180 138,760 7,701,180
Apartment Investment & Management Co. 50,000 1,012,500 50,000 1,012,500
Carr Realty Corp. 100 1,725 100 1,725
CBL and Associates Properties REIT 15,800 314,025 15,800 314,025
Chelsea GCA Realty, Inc. 54,000 1,458,000 54,000 1,458,000
Clayton Homes Inc. 80,000 1,310,000 21,500 352,063 101,500 1,662,063
FRP Properties, Inc. 47,400 1,019,100 47,400 1,019,100
Health and Retirement Property Trust REIT 19,600 294,000 19,600 294,000
Horizon Outlet Centers, Inc. 50,000 1,162,500 50,000 1,162,500
Host Marriott Corp. 80,000 850,000 80,000 850,000
Irvine Apartment Commmunities, Inc. 40,000 690,000 40,000 690,000
U.S. Home Corp. 45,000 1,035,000 45,000 1,035,000
Webb (Del) Corp. 29,300 681,225 29,300 681,225
Wellsford Residential Property Trust 30,500 693,875 30,500 693,875
Total Real Estate 17,615,105 960,088 18,575,193
Retailing & Wholesale 5.7%
American Eagle Outfitters, Inc. 40,000 630,000 40,000 630,000
Blair Corp. 41,800 1,436,875 41,800 1,436,875
Burlington Coat Factory Warehouse 60,000 622,500 60,000 622,500
Campo Electronics, Appliances & Computers, Inc. 60,000 397,500 60,000 397,500
Dillard Department Stores, Inc. Cl. A 300,000 8,812,500 300,000 8,812,500
Fingerhut Companies, Inc. 268,800 4,200,000 268,800 4,200,000
Forstmann & Co., Inc. 26,300 46,025 26,300 46,025
Gymboree Corporation 12,000 348,750 12,000 348,750
Heilig-Meyers Co. 20,000 510,000 20,000 510,000
Jones Apparel Group, Inc. 50,000 1,493,750 50,000 1,493,750
Leslie's Poolmart 120,225 1,803,375 120,225 1,803,375
Lillian Vernon Corp. 42,000 771,750 42,000 771,750
Lowe's Companies, Inc. 48,300 1,442,962 48,300 1,442,962
Medicine Shoppe International, Inc. 154,000 5,409,250 154,000 5,409,250
Mercantile Stores Co., Inc. 98,900 4,598,850 98,900 4,598,850
Michaels Stores Incorporated 40,500 860,625 10,000 212,500 50,500 1,073,125
West Maine, Inc. 25,000 640,625 25,000 640,625
Total Retailing & Wholesale 33,676,587 561,250 34,237,837
Telecommunication Services & Equipment 1.1%
Aspect Telecommunications Corp. 35,000 1,566,250 7,000 313,250 42,000 1,879,500
Boston Technology, Inc. 75,000 1,396,875 75,000 1,396,875
Coherent Communications Systems Corp. 50,000 837,500 50,000 837,500
Level One Communications, Inc. 35,000 752,500 35,000 752,500
Vertex Communications Corp. 110,000 1,512,500 110,000 1,512,500
Total Telecommunication Services &
Equipment 6,065,625 313,250 6,378,875
Transportation 1.9%
Atlantic Southeast Airlines, Inc. 135,000 4,066,875 135,000 4,066,875
Florida East Coast Industries, Inc. 1,600 118,000 1,600 118,000
Heartland Express, Inc. 94,166 2,401,233 94,166 2,401,233
Skywest, Inc. 95,000 2,149,375 95,000 2,149,375
TNT Freightways Corp. 100,000 1,987,500 100,000 1,987,500
Wabash National Corporation 18,800 585,150 9,800 305,025 28,600 890,175
Total Transportation 11,308,133 305,025 11,613,158
Miscellaneous 0.1%
Lincare Holdings 10,400 276,250 10,400 276,250
Pittston Services Group 13,000 312,000 13,000 312,000
Renal Treatment Centers Incorporated 12,200 300,425 12,200 300,425
Total Miscellaneous 888,675 888,675
Total Common Stock (Cost $347,603,718) 563,108,075 23,732,664 20,269,221 586,840,739
Repurchase Agreements * 0.2%
J.P. Morgan 6.20% due 7/3/95 1,157,457 1,157,457
Total Repurchase Agreements (Cost $1,157,457)
1,157,457 1,157,457
Short Term Investments 2.1%
Dayton Hudson 6.05% 7/31/95 500,000 497,479 500,000 497,479
Fed Farm Cr Bk 5.85% 7/31/95 7,000,000 6,965,875 7,000,000 6,965,875
Fed Home Loan Bk 5.91% 7/5/95 5,000,000 4,996,717 5,000,000 4,996,717
Total Short Term Investments
(Cost $12,460,071) 12,460,071 12,460,071
Total Investments
(Cost $361,221,246)** 99.3% 575,568,145 24,890,120 600,458,265
Other Assets & Liabilities-net 0.7% 4,449,950 4,953 4,454,903
Net Assets 100.0% $580,018,095 $24,895,073 $604,913,168
</TABLE>
* The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date
of the portfolio
** Also represents cost for federal tax purposes.
(See Notes which are an integral part of the Pro-Forma Financial Statements)
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
Evergreen FFB Lexicon Pro Forma
Fund Small Co Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Cash $ 327,016 $ 171 $ 327,187
Investments, at value (Cost $ 361,221,246) 575,568,145 24,890,120 600,458,265
Dividends receivable 989,974 15,678 1,005,652
Receivable for investment securities sold 3,042,839 0 3,042,839
Receivable for fund shares sold 2,078,334 0 2,078,334
Prepaid expenses 65,492 12,740 78,232
TOTAL ASSETS 582,071,800 24,918,709 606,990,509
LIABILITIES:
Payable for investment securities purchased 1,411,130 0 1,411,130
Payable for fund shares repurchased 46,690 0 46,690
Dividends payable 3,596 0 3,596
Accrued expenses 592,289 23,636 615,925
TOTAL LIABILITIES 2,053,705 23,636 2,077,341
NET ASSETS $ 580,018,095 $ 24,895,073 $ 604,913,168
NET ASSETS CONSIST OF:
Paid in capital 318,683,531 20,430,990 339,114,521
Undistributed net investment income 1,169,360 424 1,169,784
Accumulated realized gain on investments 23,126,916 2,264,928 25,391,844
Net unrealized appreciation of investments 237,038,288 2,198,731 239,237,019
NET ASSETS $ 580,018,095 $ 24,895,073 $ 604,913,168
Net asset value and offering price per share:
Class A $ 14.45 $ - $ 14.45
Maximum offering price (4.75% sales charge) $ 15.17 $ - $ 15.17
Class B $ 14.41 $ - $ 14.41
Class C $ 14.41 $ - $ 14.41
Class Y $ 14.47 $ $12.58 $ 14.47
Net Assets:
Class A 16,081,699 - 16,081,699
Class B 39,051,974 - 39,051,974
Class C 954,298 - 954,298
Class Y 523,930,124 24,895,073 548,825,197
Shares outstanding:
Class A 1,112,610 - 1,112,610
Class B 2,710,358 - 2,710,358
Class C 66,245 - 66,245
Class Y 36,203,756 1,979,727 (259,266)(1) 37,924,217 1,720,461
</TABLE>
(See Notes which are an integral part of the Pro Forma Financial Statements)
(1)
<PAGE>
<TABLE>
<CAPTION>
Evergreen FFB Lexicon Pro Forma
Fund Small Co Adjustments Combined
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income $ 8,338,341 $ 249,186 $ 8,587,527
Interest income 403,002 80,376 483,378
TOTAL INCOME 8,741,343 329,562 9,070,905
OPERATING EXPENSES:
Investment advisory fee 5,182,377 186,583 (61,843)(1) 5,307,117
Trustees' fees 60,178 1,644 (1,644)(2) 60,178
Administrative personnel and service fees 0 42,292 (42,292)(1) 0
Custodian and portfolio accounting fees 122,722 1,475 29,235 (3) 153,432
Shareholder servicing fees 0 0 0 0
Transfer and dividend disbursing agent fees 271,567 176 0 271,743
Printing and postage 85,804 4,921 (4,701)(4) 86,024
Fund share registration costs 52,924 1,098 0 54,022
Professional fees 90,462 8,332 0 98,794
Insurance premiums 15,378 181 0 15,559
Rule 12b-1
Class A 7,282 0 0 7,282
Class B 72,313 0 0 72,313
Class C 1,812 0 0 1,812
Interest Expense 454,822 0 0 454,822
Organization costs 0 7,556 0 7,556
Miscellaneous 24,588 0 0 24,588
TOTAL OPERATING EXPENSES 6,442,229 254,258 (81,245) 6,615,242
Less fee waiver and expense reimbursements (10,949) (89,473) 88,978 (5) (11,444)
NET EXPENSES 6,431,280 164,785 7,733 6,603,798
NET INVESTMENT INCOME 2,310,063 164,777 (7,733) 2,467,107
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments 29,748,418 2,263,500 32,011,918
Net increase in unrealized
appreciation of investments 82,447,903 140,060 82,587,963
Net gain on investments 112,196,321 2,403,560 114,599,881
Net increase in net assets resulting from
operations $ 114,506,384 $ 2,568,337 $ 117,066,988
</TABLE>
(See Notes which are an integral part of the Pro Forma Financial Statements)
(1) Reflects an decrease in investment advisory fee and a decrease in
administrative personnel and service fees based on the surviving Fund's fee
schedule.
(2) Reflects elimination of duplicate service fees.
(3) Based on surviving Fund's contract in effect for custodian and portfolio
accounting services.
(4) Adjustment reflects the expected cost savings when the Funds combine.
(5) Reflects an adjustment in waiver of investment advisory fee based on the
surviving Fund's voluntary advisory fee waiver in effect for the year ended
June 30, 1995.
Evergreen Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
June 30, 1995
1. Basis of Combination - The Pro forma Statement of Assets and
Liabilities, including the Pro forma Portfolio of Investments, and the
related Pro forma Statement of Operations ("Pro forma Statements") reflect
the accounts of Evergreen Fund ("Evergreen") and FFB Lexicon
Small Company Fund ("Lexicon") at June 30, 1995 and for the year
then ended.
The Pro forma Statements give effect to the proposed transfer of
all assets and liabilities of Lexicon in exchange for shares of
Evergreen. The Pro forma Statements do not reflect the expense
of each Fund in carrying out its obligations under the Agreement
and Plan of Reorganization. The actual fiscal year end of the
combined Fund will be September 30, the fiscal year end of Evergreen.
The Reorganization will be accomplished through the acquisition of
substantially all of the assets of Lexicon by Evergreen, and the
assumption by Evergreen of certain identified liabilities of
Lexicon. Thereafter there will be a distribution of such shares of
Evergreen to shareholders of Lexicon in liquidation of and
subsequent termination of Lexicon. The information contained
herein is based on the experience of each fund for the year ended
June 30, 1995 and is designed to permit shareholders of Lexicon to
evaluate the financial effect of the proposed Reorganization.
The expenses of Evergreen and Lexicon in connection with the
Reorganization (including the cost of any proxy soliciting agents),
will be borne by First Union National Bank of North Carolina.
The Pro forma Statements should be read in conjunction with the
historical financial statements of each Fund
incorporated by reference in the Statement of Additional
Information.
<PAGE>
2. Shares of Beneficial Interest - The pro forma net asset value per
share assumes the issuance of additional shares of Evergreen
Class Y which would have been issued at June 30, 1995 in connection
with the proposed reorganization. The amount of additional shares
assumed to be issued was calculated based on the June 30, 1995
net assets of Lexicon totaling $ 24,895,073 and the net asset value
per share of Evergreen Class Y of $ 14.47.
The pro forma shares outstanding of 1,112,610 Class A, 2,710,358
Class B, 66,245 Class C, and 37,924,217 Class Y consist of
1,720,461 additional shares of Class Y to be issued in the proposed
reorganization, as calculated above, in addition to shares of
Evergreen outstanding as of June 30, 1995.
3. Pro Forma Operations - The Pro Forma Statement of Operations
assumes similar rates of gross investment income for the
investments of each Fund. Accordingly, the combined gross
investment income is equal to the sum of each Fund's gross
investment income. Pro forma operating expenses include the actual
expenses of the Funds and the combined Fund, with certain expenses
adjusted to reflect the expected expenses of the combined entity.
The investment advisory fee, administrative personnel and service
fees have been charged to the combined Fund based on the fee
schedule in effect for Evergreen at the combined level of average
net assets for the year ended June 30, 1995. The Adviser may, at
its discretion, waive its fee or reimburse the Fund for certain of
its expenses in order to reduce the Fund's expense ratio. An
adjustment has been made to the combined Fund's expenses to
adjust the waiver of investment advisory fee based on the voluntary
advisory fee waiver in effect for Evergreen for the year ended
June 30, 1995. The Adviser may, at its discretion, revise or cease
this voluntary fee waiver at any time.
<PAGE>
<PAGE>
EVERGREEN TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to
"Liability and Indemnification of Trustees" under the caption "Comparative
Information on Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1(a). Declaration of Trust. Incorporated by reference to Post-Effective
Amendment No. 18 to the Registrant's Registration Statement on Form N-1A
filed on December 22, 1986 - Registration No. 2-40357 ("Form N-1A
Registration Statement")
1(b). Certificate of Amendment to Declaration of Trust. Incorporated by
reference to Post-Effective Amendment No. 27 to the Registrant's Form N-1A
Registration Statement filed on January 3, 1995.
1(c). Instrument providing for the Establishment and Designation of
Classes. Incorporated by reference to Post-Effective Amendment No. 27 to
the Registrant's Form N-1A Registration Statement filed on January 3, 1995.
2. Bylaws. Incorporated by reference to Post-Effective Amendment No.
18 to the Registrant's Form N-1A Registration Statement filed on December
22, 1986.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus
contained in Part A of this Registration Statement.
5. Not applicable.
6(a). Investment advisory agreement between Evergreen Asset Management
Corp. and the Registrant. Incorporated by reference to Post-Effective
Amendment No. 27 to the Registrant's Form N-1A Registration Statement filed
on January 3, 1995.
6(b). Investment sub-advisory agreement between Evergreen Asset Management
Corp. and Lieber & Company. Incorporated by reference to Post-Effective
Amendment No. 27 to the Registrant's Form N-1A Registration Statement filed
on January 3, 1995.
6(c). Form of Interim Investment Advisory Agreement. Exhibit B to
Prospectus contained in Part A to this Registration Statement.
<PAGE>
7. Distribution Agreement between Evergreen Funds Distributor, Inc. and
the Registrant. Incorporated by reference to Post-Effective Amendment No.
27 to the Registrant's Form N-1A Registration Statement filed on January 3,
1995.
8. Not applicable.
9. Custody Agreement between State Street Bank and Trust Company and
Registrant. Incorporated by reference to Post-Effective Amendment No. 20
to the Registrant's Form N-1A Registration Statement filed on February 1,
1989.
10. Not Applicable.
11. Opinion and consent of Sullivan & Worcester. Filed herewith.
12. Tax opinion and consent of Sullivan & Worcester. Filed herewith.
13. Not applicable.
14(a). Consent of Price Waterhouse LLP, independent accountants, as to the use
of their report dated November 15, 1994 concerning the financial statements of
the Evergreen Fund for the fiscal year ended September 30, 1994. Filed herewith.
14(b). Consent of Arthur Andersen LLP, independent accountants, as to the use of
their report dated September 30, 1994 concerning the financial statements of the
Small Company Growth Fund for the fiscal year ended August 31, 1994. Filed
herewith.
15. Not applicable.
17(a). Form of Proxy Card. Filed herewith.
17(b). Registrant's Rule 24f-2 Declaration. Filed herewith.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be
-2-
<PAGE>
a new Registration Statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial bona
fide offering of them.
-3-
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the Registrant, in the City of New York
and State of New York, on the 20th day of August, 1995.
Evergreen Trust
By: /s/ John J. Pileggi
----------------------
Name: John J. Pileggi
Title: President
Each person whose signature appears below hereby authorizes John J.
Pileggi, Joan V. Fiore and Joseph J. McBrien, as attorney-in-fact, to sign on
his behalf, any amendments to this Registration Statement and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission and any
state securities commission.
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/John J. Pileggi President (Principal August 20, 1995
- ------------------ Executive Officer)
John J. Pileggi and Treasurer
(Principal Financial
and Accounting Officer)
/s/Laurence B. Ashkin Trustee August 20, 1995
- ---------------------
Laurence B. Ashkin
/s/Foster Bam Trustee August 20, 1995
- -------------
Foster Bam
/s/Robert J. Jefferies Trustee August 20, 1995
- ----------------------
Robert J. Jefferies
/s/James Howell Trustee August 20, 1995
- ---------------
James Howell
/s/Gerald McDonnell Trustee August 20, 1995
- -------------------
Gerald McDonnell
/s/Thomas L. McVerry Trustee August 20, 1995
- --------------------
Thomas L. McVerry
-4-
<PAGE>
/s/William W. Pettit Trustee August 20, 1995
- --------------------
William W. Pettit
/s/Russell A Salton, III Trustee August 20, 1995
- ------------------------
Russell A. Salton, III
/s/Michael S. Scofield Trustee August 20, 1995
- ----------------------
Michael S. Scofield
-5-
<PAGE>
INDEX TO EXHIBITS
N-14 EXHIBIT NO. Page
11. Opinion and Consent of Sullivan & Worcester.
12. Tax Opinion and Consent of Sullivan & Worcester
14(a) Consent of Price Waterhouse LLP
14(b) Consent of Arthur Andersen LLP
17(a) Form of Proxy
17(b) Registrant's Rule 24f-2 Declaration
OTHER EXHIBITS*
Prospectus dated December 30, 1994 of Small Company Growth Fund.
Statement of Additional Information dated December 30, 1994 of Small
Company Growth Fund.
Annual Report of Small Company Growth Fund dated August 31, 1994.
Semi-Annual Report of Small Company Growth Fund dated February 28,
1995.
- -------------------
*Incorporated by Reference into Form N-14 Registration Statement.
SULLIVAN & WORCESTER
1025 CONNECTICUT AVENUE. N.W.
WASHINGTON, D.C. 20038
(202) 775-8190
TELECOPIER NO. 202-293-2275
IN BOSTON, MASSACHUSETTS IN NEW YORK CITY
ONE POST OFFICE SQUARE 767 THIRD AVENUE
BOSTON, MASSACHUSETTS 02100 NEW YORK, NEW YORK 10017
(617) 338-2800 (212) 486-8200
TELECOPIER NO. 617-338-2880 TELECOPIER NO. 212-756-2151
TWX: 710-321-1976
August 23, 1995
Evergreen Trust
2500 Westchester Avenue
Purchase, NY 10577
Ladies and Gentlemen:
We have been requested by the Evergreen Trust, a Massachusetts business
trust with transferable shares and currently consisting of two series (the
"Trust"), established under a Declaration of Trust dated November 25, 1986 as
amended (the "Declaration"), for our opinion with respect to certain matters
relating to the Evergreen Fund (the "Acquiring Fund"), a series of the Trust. We
understand that the Acquiring Fund is about to file a Registration Statement on
Form N-14 for the purpose of registering shares of the Acquiring Fund under the
Securities Act of 1933, as amended (the "1933 Act"), in connection with the
proposed acquisition by the Acquiring Fund of substantially all of the assets of
the Small Company Growth Fund (the "Acquired Fund"), a portfolio of The FFB
Lexicon Fund, a Massachusetts business trust with transferable shares, in
exchange solely for shares of the Acquiring Fund and the assumption by the
Acquiring Fund of certain liabilities of the Acquired Fund pursuant to an
Agreement and Plan of Reorganization the form of which is included in the Form
N-14 Registration Statement (the "Plan").
We have, as counsel, participated in various business and other proceedings
relating to the Acquiring Fund. We have examined copies of either certified or
otherwise proved to be genuine to our satisfaction, of the Acquiring Fund
Declaration and By-Laws, and other documents relating to its organization,
operation, and proposed operation, including the proposed Plan and we have made
such other investigations as, in our judgment, are necessary or appropriate to
enable us to render the opinion expressed below.
Based upon the foregoing, and assuming the approval by shareholders of the
Acquired Fund of certain matters scheduled for their consideration at a meeting
presently anticipated to be held on November 13, 1995, it is our opinion that
the shares of the Acquiring Fund currently being registered, when issued in
<PAGE>
Evergreen Growth and Income Fund
August 23, 1995
Page 2
accordance with the Plan and the Acquiring Fund's Declaration and By-Laws, will
be legally issued, fully paid and non-assessable by the Acquiring Fund, subject
to compliance with the 1933 Act, the Investment Company Act of 1940, as amended
and applicable state laws regulating the offer and sale of securities.
With respect to the opinion stated in the paragraph above, we note that
shareholders of a Massachusetts business trust may under some circumstances be
subject to assessment at the instance of creditors to pay the obligations of
such trust in the event that its assets are insufficient for the purpose.
We hereby consent to the filing of this opinion with and as a part of the
Registration Statement on Form N-14 and to the reference to our firm under the
caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of the
Registration Statement. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER
------------------------
SULLIVAN & WORCESTER
SULLIVAN & WORCESTER
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
TELECOPIER NO. 617-338-2880
TWX: 710-321-1976
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE. N.W. 767 THIRD AVENUE
WASHINGTON, D.C. 20038 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
TELECOPIER NO. 202-293-2275 TELECOPIER NO. 212-756-2151
August 23, 1995
Evergreen Fund
2500 Westchester Avenue
Purchase, New York 10577
Small Company Growth Fund
2 Oliver Street
Boston, Massachusetts 02109
Re: Acquisition of Assets of Small Company Growth Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain tax
consequences of the proposed acquisition of assets of Small
Company Growth Fund ("Selling Fund"), a series of The FFB
Lexicon Fund, a Massachusetts business trust, by Evergreen
Fund ("Acquiring Fund"), a series of Evergreen Trust, a
Massachusetts business trust, in exchange for voting shares of
Acquiring Fund (the "Reorganization").
In rendering our opinion, we have reviewed and relied
upon the draft Prospectus/Proxy Statement and associated form
of Agreement and Plan of Reorganization (the "Reorganization
Agreement") expected to be filed with the Securities and
Exchange Commission on or about August 23, 1995. We have
relied, without independent verification, upon the factual
statements made therein, and assume that there will be no
change in material facts disclosed therein between the date of
this letter and the date of closing of the Reorganization. We
further assume that the Reorganization will be carried out in
accordance with the Reorganization Agreement. We have also
relied upon the following representations, each of which has
been made to us by officers of Evergreen Trust on behalf of
Acquiring Fund or of The FFB Lexicon Fund on behalf of Selling
Fund:
The Reorganization will be consummated
substantially as described in the Reorganization Agreement.
Acquiring Fund will acquire from Selling
Fund at least 90% of the fair market value of the net assets
and at least 70% of the fair market value of the gross assets
held by Selling Fund immediately prior to the Reorganization.
For purposes of this
<PAGE>
Evergreen Fund
Small Company Growth Fund
August 23, 1995
Page 2
representation, assets of Selling Fund used to pay
reorganization expenses, cash retained to pay liabilities, and
redemptions and distributions (except for regular and normal
distributions) made by Selling Fund immediately preceding the
transfer which are part of the plan of reorganization, will be
considered as assets held by Selling Fund immediately prior to
the transfer.
To the best of the knowledge of management
of Selling Fund, there is no plan or intention on the part of
the shareholders of Selling Fund to sell, exchange, or
otherwise dispose of a number of Acquiring Fund shares
received in the Reorganization that would reduce the former
Selling Fund shareholders' ownership of Acquiring Fund shares
to a number of shares having a value, as of the date of the
Reorganization (the "Closing Date"), of less than 50 percent
of the value of all of the formerly outstanding shares of
Selling Fund as of the same date. For purposes of this
representation, Selling Fund shares exchanged for cash or
other property will be treated as outstanding Selling Fund
shares on the Closing Date. There are no dissenters' rights in
the Reorganization, and no cash will be exchanged for Selling
Fund shares in lieu of fractional shares of Acquiring Fund.
Moreover, shares of Selling Fund and shares of Acquiring Fund
held by Selling Fund shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the
Reorganization will be considered in making this
representation, except for shares of Selling Fund or Aquiring
redeemed in the ordinary course of business of Selling Fund or
Acquiring Fund in accordance with the requirements of section
22(e) of the Investment Company Act of 1940.
Selling Fund has not redeemed and will not
redeem the shares of any of its shareholders in connection
with the Reorganization except to the extent necessary to
comply with its legal obligation to redeem its shares.
The management of Acquiring Fund has no plan
or intention to redeem or reacquire any of the Acquiring Fund
shares to be received by Selling Fund shareholders in
connection with the Reorganization, except to the extent
necessary to comply with its legal obligation to redeem its
shares.
The management of Acquiring Fund has no plan
or intention to sell or dispose of any of the assets of
Selling Fund which will be acquired by Acquiring Fund in the
Reorganization, except for dispositions made in the ordinary
course of business, and to the extent necessary to enable
Acquiring Fund to comply with its legal obligation to redeem
its shares.
Following the Reorganization, Acquiring Fund
will continue the historic business of Selling Fund in a
substantially unchanged manner as part of the regulated
investment company business of Acquiring Fund, or will use a
significant portion of Selling Fund's historic business assets
in a business.
<PAGE>
Evergreen Fund
Small Company Growth Fund
August 23, 1995
Page 3
There is no intercorporate indebtedness
between Acquiring Fund and Selling Fund.
Acquiring Fund does not own, directly or
indirectly, and has not owned in the last five years, directly
or indirectly, any shares of Selling Fund. Acquiring Fund will
not acquire any shares of Selling Fund prior to the Closing
Date.
Acquiring Fund will not make any payment of
cash or of property other than shares to Selling Fund or to
any shareholder of Selling Fund in connection with the
Reorganization.
Pursuant to the Reorganization Agreement,
the shareholders of Selling Fund will receive solely Acquiring
Fund voting shares in exchange for their voting shares of
Selling Fund.
The fair market value of the Acquiring Fund
shares to be received by the Selling Fund shareholders will be
approximately equal to the fair market value of the Selling
Fund shares surrendered in exchange therefor.
Subsequent to the transfer of Selling Fund's
assets to Acquiring Fund pursuant to the Reorganization
Agreement, Selling Fund will distribute the shares of
Acquiring Fund, together with other assets it may have, in
final liquidation as expeditiously as possible.
Selling Fund is not under the jurisdiction
of a court in a Title 11 or similar case within the meaning of
ss. 368(a)(3)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
Selling Fund is treated as a corporation for
federal income tax purposes and at all times in its existence
has qualified as a regulated investment company, as defined in
ss. 851 of the Code.
Acquiring Fund is treated as a corporation
for federal income tax purposes and at all times in its
existence has qualified as a regulated investment company, as
defined in ss. 851 of the Code.
The sum of the liabilities of Selling Fund
to be assumed by Acquiring Fund and the expenses of the
Reorganization does not exceed twenty percent of the fair
market value of the assets of Selling Fund.
The foregoing representations are true on
the date of this letter and will be true on the date of
closing of the Reorganization.
<PAGE>
Evergreen Fund
Small Company Growth Fund
August 23, 1995
Page 4
Based on and subject to the foregoing, and our
examination of the legal authority we have deemed to be
relevant, it is our opinion that for federal income tax
purposes:
The acquisition by Acquiring Fund of substantially
all of the assets of Selling Fund solely in exchange for
voting shares of Acquiring Fund followed by the distribution
by Selling Fund of said Acquiring Fund shares to the
shareholders of Selling Fund in exchange for their Selling
Fund shares will constitute a reorganization within the
meaning of ss. 368(a)(1)(C) of the Code, and Acquiring Fund
and Selling Fund will each be "a party to a reorganization"
within the meaning of ss. 368(b) of the Code.
No gain or loss will be recognized to Selling Fund
upon the transfer of substantially all of its assets to
Acquiring Fund solely in exchange for Acquiring Fund voting
shares and assumption by Acquiring Fund of certain identified
liabilities of Selling Fund, or upon the distribution of such
Acquiring Fund voting shares to the shareholders of Selling
Fund in exchange for all of their Selling Fund shares.
No gain or loss will be recognized by Acquiring
Fund upon the receipt of the assets of Selling Fund (including
any cash retained initially by Selling Fund to pay liabilities
but later transferred) solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of certain
identified liabilities of Selling Fund.
The basis of the assets of Selling Fund acquired by
Acquiring Fund will be the same as the basis of those assets
in the hands of Selling Fund immediately prior to the
transfer, and the holding period of the assets of Selling Fund
in the hands of Acquiring Fund will include the period during
which those assets were held by Selling Fund.
The shareholders of Selling Fund will recognize no
gain or loss upon the exchange of all of their Selling Fund
shares solely for Acquiring Fund voting shares. Gain, if any,
will be realized by Selling Fund shareholders who in exchange
for their Selling Fund shares receive other property or money
in addition to Acquiring Fund shares, and will be recognized,
but not in excess of the amount of cash and the value of such
other property received. If the exchange has the effect of the
distribution of a dividend, then the amount of gain recognized
that is not in excess of the ratable share of undistributed
earnings and profits of Selling Fund will be treated as a
dividend.
The basis of the Acquiring Fund voting shares to be
received by the Selling Fund shareholders will be the same as
the basis of the Selling Fund shares surrendered in exchange
therefor.
<PAGE>
Evergreen Fund
Small Company Growth Fund
August 23, 1995
Page 5
The holding period of the Acquiring Fund voting
shares to be received by the Selling Fund shareholders will
include the period during which the Selling Fund shares
surrendered in exchange therefor were held, provided the
Selling Fund shares were held as a capital asset on the date
of the exchange.
This opinion letter is delivered to you in
satisfaction of the requirements of Paragraph 8.6 of the
Reorganization Agreement. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement on
Form N-14 and to use of our name and any reference to our firm
in the Registration Statement or in the Prospectus/Proxy
Statement constituting a part thereof. In giving such consent,
we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER
------------------------
SULLIVAN & WORCESTER
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus/Proxy
Statement constituting part of this registration statement on Form N-14 (the
"Registration Statement") of our report dated November 15, 1994, relating to the
financial statements and financial highlights appearing in the September 30,
1994 Annual Report to Shareholders of the Evergreen Fund, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Statements and Experts" in the
Prospectus/Proxy Statement and to the references to us under the heading
"Financial Highlights" in the Prospectus dated July 7, 1995 and under the
headings "Independent Auditors" and "Financial Statements" in the Statement of
Additional Information dated July 7, 1995 which is also incorporated by
reference into the Registration Statement.
/s/Price Waterhouse LLP
Price Waterhouse LLP
New York, NY
August 21, 1995
ARTHUR ANDERSEN LLP
Consent of Independent Accountants
As independent public accountants, we hereby consent to the incorporation
by reference into this Registration Statement of our report dated September 30,
1994, on the Small Company Growth Fund series of FFB Lexicon Funds included in
the Post-Effective Amendment No. 6 to the Registration Statement on Form N-1A of
the FFB Lexicon Funds, and to all references to our firm included in this
Registration Statement on Form N-14.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, PA
August 21, 1995
LEXICON SMALL COMPANY
Draft: 8-18-95
VOTE THIS PROXY CARD TODAY
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
................................................................
THE FFB LEXICON FUND - SMALL COMPANY GROWTH FUND
SPECIAL MEETING OF SHAREHOLDERS -- NOVEMBER 13, 1995
The undersigned hereby appoints , and
and each of them, attorneys and proxies for the
undersigned, with full powers of substitution and revocation, to represent the
undersigned and to vote on behalf of the undersigned all shares of the Small
Company Growth Fund (the "Fund"), which the undersigned is entitled to vote at a
Meeting of Shareholders of the Fund to be held at 680 East Swedesford Road,
Wayne, Pennsylvania 19087 on November 13, 1995, at 10:00 a.m. and any
adjournments thereof (the "Meeting"). The undersigned hereby acknowledges
receipt of the Notice of Meeting and Prospectus/Proxy Statement, and hereby
instructs said attorneys and proxies to vote said shares as indicated hereon. In
their discretion, the proxies are authorized to vote upon such other matters as
may properly come before the Meeting. A majority of the proxies present and
acting at the Meeting in person or by substitute (or, if only one shall be so
present, then that one) shall have and may exercise all of the powers and
authority of said proxies hereunder. The undersigned hereby revokes any proxy
previously given.
NOTE: Please sign exactly as your name appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as attorney, executor, administrator,
trustee, guardian, or corporate officer, please give your full title.
DATE:______________, 1995 _____________________________
------------------------------
Signature(s)
------------------------------
Title(s), if applicable
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
PLEASE INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THIS PROXY
WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE TAKEN ON THE
FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS PROXY WILL BE
VOTED IN FAVOR OF THE PROPOSALS.
1. To approve the proposed Agreement and Plan of
Reorganization with the Evergreen Fund.
o YES o NO o ABSTAIN
2. To approve the proposed Interim Investment Advisory
Agreement with Evergreen Asset Management Corp.
o YES o NO o ABSTAIN
3. To consider and vote upon such other matters as may properly come before said
meeting or any adjournments thereof.
o YES o NO o ABSTAIN
These items are discussed in greater detail in the attached
Prospectus/Proxy Statement. The Board of Trustees of The FFB Lexicon Fund has
fixed the close of business on September , 1995, as the record date for the
determination of shareholders entitled to notice of and to vote at the meeting.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED
TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE WHICH
NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXIES ARE SET FORTH ON THE INSIDE COVER.
Richard W. Grant
Secretary
September 28, 1995
In their discretion, the Proxies, and each of them, are authorized to vote
upon any other business that may properly come before the meeting, or any
adjournment(s) thereof, including any adjournment(s) necessary to obtain the
requisite quorums and for approvals.
-2-
Registration Statement File No.2-40357
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
----------------------------
Post-Effective Amendment No.7
TO
FORM S-5
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
THE EVERGREEN FUND, INC.
(Exact name of Registrant as specified in Charter)
----------------------------
600 Mamaroneck Avenue
Harrison, New York 10528
(Address of Principal Executive Office)
----------------------------
STEPHEN A. LIEBER
600 Mamaroneck Avenue
Harrison, New York 10528
(Name and Address of Agent for Service)
----------------------------
Copies to:
Gerald M. Freedman, Esg.
TRUBIN, SILLCOCKS, EDELMAN & KNAPP
375 Park Avenue
New York, New York 10022
----------------------------
CALCULATION OF REGISTRATION FEE
Proposed \Proposed
Maximum Maximum Amount of
Title of securities Amount Being Offering Price Aggregate Registration
Being Registered Registered Per Unit Offering Price Fee
- -------------------------------------------------------------------------------
Common Stock....... Indefinite * Not Not $500
Number* Applicable Applicable
- -------------------------------------------------------------------------------
*In addition to the number of shares of Common Stock of the Registrant
presently registered under the Securities Act of 1933, an indefinite number of
such shares of Common Stock isbeing registered by this Post-Effective Amendment
pursuant to Rule 24f-2 under the Investment Company Act of 1940.
===============================================================================
<PAGE>
THE FFB LEXICON FUNDS
ANNUAL REPORT
As of August 31, 1994
- --------------------------------------------------------------------------------
INVESTMENT
- --------------------------------------------------------------------------------
STRATEGIES
- --------------------------------------------------------------------------------
FOR
- --------------------------------------------------------------------------------
LIVING
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
First Fidelity Bank, N.A.
765 Broad Street
Newark, New Jersey 07101
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
CUSTODIAN
First Fidelity Bank, N.A.
765 Broad Street
Newark, New Jersey 07101
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
AUDITOR
Arthur Andersen LLP
1601 Market Street
Philadelphia, Pennsylvania 19103
- -------------------------------------------------------------------------------
The information in this report should be preceded or accompanied by a current
prospectus for the funds described.
Shares of The FFB Lexicon Funds are not sponsored or guaranteed by, and do not
constitute obligations of, First Fidelity Bank, N.A., any of its affiliates or
the U.S. Government, its agencies or instrumentalities. Shares of The FFB
Lexicon Funds are not insured by the Federal Deposit Insurance Corporation or
any other agency. Shares of The FFB Lexicon Funds involve investment risks,
including the possible loss of principal. SEI Financial Services Company, the
Distributor of The FFB Lexicon Funds, is not affiliated with the bank. For
information call 1-800-833-8974.
<PAGE>
September 20, 1994
Dear Lexicon Shareholder:
At the beginning of the fiscal year (September 1, 1993), expectations for slow
economic growth, low inflation, low interest rates and modest gains in the
financial markets appeared to be in the offing. However, the economy spurted in
the fourth calendar quarter of 1993 with Gross Domestic Product growth well
ahead of each of the previous three quarters. Part of this strong growth was
fueled by pent-up demand by individuals. Consumer spending, in terms of real
consumption outlays, expanded well in excess of growth in real disposable
personal income.
Because of concerns that the strong economy in the fourth calendar quarter of
1993 would continue into 1994 and lead to higher inflation, the Federal Reserve
began increasing interest rates in an attempt to slow down economic growth. It
was their belief that slow economic growth would control the rate of inflation
at a reasonable level. The Federal Reserve increased interest rates five times
between February 1994 and August 1994.
The actions of the Federal Reserve had a major impact on investors. Rising
interest rates caused the bond markets to decline in market value. The equity
market also declined as concerns rose on whether interest rates would have a
negative impact on corporate earnings. For the six-month period January 1, 1994
to June 30, 1994 the only safe haven was money market instruments. Both the
bond market and equity market declined with the average fixed-income fund down
approximately 4% and the average equity mutual fund down close to 6%.
The good news that came out of this was that it now appears that economic
growth is back on the same course it was prior to the fourth calendar quarter
of 1993. The last two months of the fiscal year showed much more positive
returns in the equity markets and a slight rebound in the fixed-income markets.
For the fiscal year ending August 31, 1994, the Capital Appreciation Equity
Fund and Select Value Fund had positive returns of 3.62% and 7.98%
respectively. The Small Company Growth Fund, Intermediate-Term Government Se
curities Fund and Fixed-Income Fund had declines of 1.71%, 0.99% and 2.92%
respectively.
During the fiscal year we saw significant volatility in the markets as they
responded primarily to actions taken by the Federal Reserve and other economic
developments. As we move forward into fiscal year 1995, it appears that modest
economic growth should continue with inflation at reasonable levels and
corporate profits showing continuing improvement. This should create a
favorable environment for investors in both fixed-income and equity funds.
If you have any questions on your investment, or information contained in this
Annual Financial Report, please call 1-800-833-8974. We appreciate the
opportunity to be of service and look forward to working with you in the
future.
/s/ BEN L. JONES
- ----------------
Ben L. Jones,
Chief Investment Officer
Trust Asset Management Group
First Fidelity Bank, N.A.
/s/ JOSEPH F. READY
- -------------------
Joseph F. Ready
Senior Vice President
Mutual Fund Services
First Fidelity Bank, N.A.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
the FFB Lexicon Funds:
We have audited the accompanying statements of net assets of the Cash
Management, Intermediate-Term Government Securities, Fixed Income, Capital
Appreciation Equity, Select Value, and Small Company Growth Funds (six of the
funds constituting the FFB Lexicon Funds) as of August 31, 1994, and the
related statements of operations, changes in net assets and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Cash Management, Intermediate-Term Government Securities, Fixed Income, Capital
Appreciation Equity, Select Value, and Small Company Growth Funds of the FFB
Lexicon Funds as of August 31, 1994, the results of their operations, changes
in their net assets, and financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.
September 30, 1994
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
INTERMEDIATE-TERM
GOVERNMENT
SECURITIES FUND
INVESTMENT POLICIES AND OBJECTIVE. The Intermediate-Term Government
Securities Fund (the "Fund") invests in U.S. Treasury obligations and
obligations issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. Government. The Fund expects to maintain an
average maturity of three to six years. The objective of the Fund is to seek to
preserve principal value and maintain a high degree of liquidity while
providing current income.
PERFORMANCE SUMMARY & OVERVIEW. For the year ended August 31, 1994 the
Fund's total return was (.99%) versus a total return of (.27%) for the Lehman
Brothers Intermediate-Term Government Index (the "Intermediate Index"). To put
this in perspective, the Lehman Aggregate Treasury Index declined (2.30%) which
was the first 12 month period since inception of the Intermediate Index where a
negative return existed. Over the course of the year the yield on the five year
Treasury rose 200 basis points from 4.80% to 6.80%. This correction came after
a four year period over which interest rates were driven to historical lows by
the Federal Reserves efforts to ease monetary policy and stimulate economic
growth.
During the last quarter of 1993, the Federal Reserves' (the "Fed") efforts
finally paid-off and the economy showed signs of a recovery. The Fund shortened
its average maturity to a duration equal to the Intermediate Index. In the
first quarter of 1994 the Federal Reserve then began a series of five moves
that would eventually raise the Fed Funds rate from 3% to 4.75% by mid-summer.
The Fed was acting to prevent the emergence of inflation which has historically
developed as an outcome of the cyclical pressures of economic growth and excess
monetary supply. During this period the Fund took a defensive position with an
average maturity less than that of the Intermediate Index. For the near term we
continue to remain cautious as signs of modest increases in inflation could
cause the Fed to raise rates slightly higher. In the longer term we believe
that the economy will revert to a moderate growth pattern with benign
inflation. In this environment we perceive that current yields represent fair
value.
Currently the Fund has an average maturity of 3.13 yrs. and is composed of
71% Treasuries, 8% Federal agencies, 17% Federal agency mortgage securities, 3%
cash equivalents and 1% International.
1
<PAGE>
- -------------------------------------------------------------------------------
-----------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1994
-----------------------------------------
[INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND CHART]
[INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND GRAPH]
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
FIXED INCOME FUND
INVESTMENT POLICIES AND OBJECTIVE. The Fixed Income Fund (the "Fund")
invests in U.S. Treasury and Agency obligations, corporate bonds and
debentures, mortgage-backed securities, and money market instruments. The
average weighted maturity of the Fund will be between five and ten years. The
Fund seeks to maximize current yield consistent with the preservation of
capital.
PERFORMANCE SUMMARY & OVERVIEW. Since August, 1993 yields rose along all
sectors of the bond market. For example, the yield on the two year U.S.
Treasury rose from 3.86% to 6.14%, an increase of 2.28%. The yield on thirty
year U.S. Treasuries rose from 6.10% to end the fiscal year at 7.45%, 135 basis
points higher.
After an impressive move to lower interest rates over a four year period,
the bond market reversed course in October, 1993 after the long U.S. Treasury
bond reached a low yield of 5.79%. As interest rates began to rise from the
lowest levels in over two decades, we increased our investments in longer
maturity Treasury bonds and shorter Treasury notes. These investments, combined
with approximately one third of the portfolio invested in higher yielding
corporate securities and mortgage-backed securities, kept our portfolio average
maturity duration relatively equal to that of the Lehman Brothers Government/
Corporate Bond Index (the "Lehman Index") in order to limit price risk while
increasing its current income. The mortgage securities market had a very
volatile year. The Fund was protected from this volatility by owning only
short, well-structured collateralized mortgage obligations.
Interest rates continued to rise during the winter as the economy began to
improve; and in February, the Federal Reserve (the "Fed") moved to tighten
monetary policy. The Fed has since pushed short-term rates higher five times in
order to keep the expanding economy from overheating and causing an increase in
inflation. As rates continued to rise, we became more cautious and shortened
the average maturity of the Fund to a duration shorter than that of the Lehman
Index.
For the year ended August 31, 1994, the Fund provided a total return of
(2.92%) as compared to a return of (2.33%) for its benchmark, the Lehman Index.
Since the inception of this index in 1973, there have only been three
occurrences of a negative return for a one year period ending August 31.
While viewing the performance for a single year is necessary, it is the
long term record of the Fund that is of greater significance. The chart on the
following page shows the value of $10,000 invested since inception vs. the
unmanaged Lehman Index. The Fund, in both a rising and falling market, has
provided a return almost identical to the Lehman Index.
3
<PAGE>
- -------------------------------------------------------------------------------
-----------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1994
-----------------------------------------
[FIXED INCOME FUND CHART]
[FIXED INCOME FUND GRAPH]
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
CAPITAL APPRECIATION
EQUITY FUND
INVESTMENT POLICIES AND OBJECTIVE. The objective of the Capital
Appreciation Equity Fund (the "Fund") is to seek to provide long term capital
appreciation by investing in a diversified portfolio of common stocks and
securities co nvertible into common stock.
PERFORMANCE SUMMARY & OVERVIEW. The Fund achieved a positive total return
of 3.62% for the fiscal year ending August 31, 1994. This compared to the S&P
500 Composite Index return of 5.47% and Lipper Growth Average return of 4.29%.
The difference between the Lipper Growth Average and the S&P 500 Composite
Index indicates that growth stocks were less favored during the year.
During the past twelve months, the Fund benefited from an overweighting in
technology stocks and an underweighting in health care stocks. However, these
gains were moderated by the lag in transportation holdings.
The Fund is committed to growth, an equity management style that has
underperformed over the past 12 months but should do well in the future. As it
becomes apparent that the economy is growing at a slow (2.5%) pace, inflation
fears should subside and interest rates are likely to stabilize. Investor
attention is expected to shift from cyclical industrial issues to companies
that are able to generate steady, above average earnings gains.
In view of the more favorable market environment anticipated for growth
stocks, the portfolio is being gradually positioned toward a greater growth
orientation to benefit from this opportunity. The Fund is increasing its
emphasis on fundamentally strong companies that are expected to grow earnings
at above-average rates for the foreseeable future in a slow growth world. These
holdings include select technology and service companies which provide
information access and communications, cost savings and productivity enhancing
products and services. In addition, the Fund has increased its participation in
health-related companies which are well positioned to benefit from dynamic
changes developing in this sector.
5
<PAGE>
- -------------------------------------------------------------------------------
-----------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1994
-----------------------------------------
[CAPITAL APPRECIATION EQUITY FUND CHART]
<TABLE>
<CAPTION>
TOP TEN HOLDINGS AS OF AUGUST 31, 1994
<S> <C>
1. Lincare Holdings 3.3%
2. Tel Mex Adr-L- 3.0
3. Genl Electric 3.0
4. US Healthcare 2.9
5. Gillette Co 2.8
6. Eaton Corp 2.7
7. Intel Corp 2.7
8. WMX Technol Inc 2.7
9. Motorola 2.6
10. Amgen Inc 2.6
</TABLE>
[CAPITAL APPRECIATION EQUITY FUND GRAPH]
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
SELECT VALUE FUND
INVESTMENT POLICIES AND OBJECTIVE. The Select Value Fund (the "Fund")
seeks to achieve long-term growth of capital by investing primarily in common
stocks which, in the opinion of the investment adviser, are undervalued in the
marketplace. The Adviser characterizes undervalued common stocks as those that
have lower-than-average price/earnings and price/book value ratios as compared
to the Standard & Poor's 500 Composite Index (the "S&P 500 Index").
PERFORMANCE SUMMARY & OVERVIEW. The Fund recorded a total return of 7.98%
for the fiscal year ending August 31, 1994. The Fund's return exceeded the
total return of the S&P 500 Index of 5.47%, and that of the Lipper Growth and
Income Average of 5.06%.
During the past twelve months the Fund benefited from its overweighting in
the technology and financial sectors. Technology companies benefited from
worldwide capital spending and a substitution of technology for labor. The
earnings and dividend growth prospects for financial stocks compared favorably
to similar prospects for other companies, and contributed to the Fund's
performance.
Our strategy is to identify individual stocks that not only are priced
attractively relative to their long-term earnings growth prospects, but also
possess strong near-term earnings momentum. In addition, qualitative judgements
are made regarding the management, competitive position, and industry growth
potential that is associated with the stocks we consider. We believe that the
Fund's largest holdings, which include technology stocks Intel and Motorola,
tobacco stocks Philip Morris and Universal Corporation, as well as financial
services companies such as Citicorp reflect the strengths we are seeking.
7
<PAGE>
- -------------------------------------------------------------------------------
-----------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1994
-----------------------------------------
[SELECT VALUE FUND CHART]
<TABLE>
<CAPTION>
TOP TEN HOLDINGS AS OF AUGUST 31, 1994
<S> <C>
1. YPF S.A. 4.3%
2. Universal Corp 4.0
3. Citicorp 4.0
4. Intel Corporation 3.9
5. Montana Power 3.9
6. Philip Morris 3.8
7. Mobil Corporation 3.7
8. Pacificorp 3.7
9. Motorola 3.4
10. Shawmut National 3.4
</TABLE>
[SELECT VALUE FUND GRAPH]
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
SMALL COMPANY
GROWTH FUND
INVESTMENT POLICIES AND OBJECTIVE. The Small Company Growth Fund (the
"Fund") seeks long term capital appreciation by investing primarily in a
diversified portfolio of common stocks of growth-oriented, smaller
capitalization companies typically having a market capitalization less than
$500 million at time of initial purchase.
PERFORMANCE SUMMARY & OVERVIEW. The Fund recorded a total return of (1.71%)
for the fiscal year ending August 31, 1994. This fell short of the total return
of 5.92% achieved by the Frank Russell 2000 Index.
The choppiness witnessed in the overall stock market during the first half
of 1994 was amplified in smaller stocks. While the Standard & Poor's 500
Composite Index declined about 3% in the first half, smaller stocks, as
represented by the NASDAQ Index, fell nearly three times as much. Within this
environment, smaller, less-liquid stocks which experienced earnings
disappointments suffered even sharper price declines. Stocks within the Fund
which suffered earnings disappointments were dispersed throughout most
industrial and consumer sectors. However, stocks within the finance and
transportation sectors - both overweighted in the Fund - performed quite well.
Additionally, the absence of any utility stocks in the Fund helped its
comparative performance.
Going forward, the Fund will increasingly utilize supplemental quantitative
tools designed to minimize the incidence of holding stocks that are likely to
experience earnings disappointments. From a thematic perspective,
areas of technological innovation will be emphasized and areas subject to
increasing price competition, such as consumer staples, will be de-emphasized.
9
<PAGE>
- -------------------------------------------------------------------------------
-----------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1994
-----------------------------------------
[SMALL COMPANY GROWTH FUND CHART]
<TABLE>
<CAPTION>
TOP TEN HOLDINGS AS OF AUGUST 31, 1994
<S> <C>
1. Bantec 2.6%
2. Olsten Corp 2.4
3. Intervoice 2.3
4. Rock-Tenn CLA 2.1
5. Superior Industries 2.0
6. Paychex Inc. 1.9
7. Aspect Telecomm 1.9
8. TJ Int'l Inc. 1.9
9. MacNeal Schwndl 1.9
10. Myers Industries 1.8
</TABLE>
[SMALL COMPANY GROWTH FUND GRAPH]
10
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
<TABLE>
<CAPTION>
CASH MANAGEMENT FUND
- -----------------------------------------------------------------
Face
Description Amount (000) Value (000)
- -----------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER - 76.0%
Abbey National North America
4.825%, 11/21/94 $4,000 $ 3,957
Associates Corporation of North
America
4.400%, 09/12/94 2,000 1,997
4.770%, 10/18/94 4,000 3,975
AT & T
4.820%, 11/17/94 4,000 3,959
Banc One Diversified Services
4.450%, 09/29/94 3,000 2,990
CAFCO
4.730%, 10/05/94 3,100 3,086
Chevron Oil Finance
4.730%, 09/20/94 6,000 5,986
Ciesco
4.770%, 10/20/94 5,000 4,968
CIT Group Holdings
4.740%, 10/13/94 4,000 3,978
Corestates Capital
4.620%, 09/07/94 3,000 2,998
Cregem North America
4.840%, 11/15/94 4,000 3,960
Eksportfinans
4.750%, 09/23/94 5,000 4,985
Exxon Credit
4.770%, 10/18/94 5,000 4,969
Ford Motor Credit
4.420%, 09/13/94 2,000 1,997
General Electric Capital
4.430%, 09/12/94 2,000 1,997
Goldman Sachs Group
4.600%, 09/07/94 4,000 3,997
H.J. Heinz
4.730%, 10/07/94 3,150 3,135
Hershey Foods
4.750%, 10/24/94 3,500 3,476
Metlife Funding
4.730%, 10/03/94 5,000 4,979
Motorola Credit
4.700%, 09/29/94 4,000 3,985
Nestle Capital
4.700%, 09/21/94 2,900 2,892
Pitney Bowes Credit
4.800%, 11/29/94 3,000 2,964
Prefco
4.780%, 09/14/94 1,582 1,579
4.750%, 09/30/94 1,500 1,494
Proctor And Gamble
4.730%, 10/20/94 4,900 4,868
Province of British Columbia
4.720%, 10/06/94 3,000 2,986
Raytheon
4.670%, 09/01/94 5,000 5,000
Republic New York
4.620%, 09/02/94 3,000 3,000
Transamerica Finance Group
4.500%, 09/14/94 3,000 2,995
--------
Total Commercial Paper
(Cost $103,151,697) 103,152
--------
CERTIFICATES OF DEPOSIT - 3.7%
ABN AMRO
4.700%, 10/17/94 $5,000 $ 4,999
--------
Total Certificates of Deposit
(Cost $4,999,354) 4,999
--------
CORPORATE OBLIGATIONS - 3.7%
Merrill Lynch*
4.850%, 09/01/94 5,000 5,000
--------
Total Corporate Obligations
(Cost $5,000,000) 5,000
--------
U. S. TREASURY OBLIGATIONS - 3.5%
United States Treasury Bill
3.240%, 11/17/94 1,250 1,241
3.540%, 11/17/94 3,500 3,474
--------
Total U. S. Treasury Obligations
(Cost $4,714,633) 4,715
--------
REPURCHASE AGREEMENT - 13.5%
J.P. Morgan Securities
4.80%, dated 08/31/94, matures
09/01/94, repurchase price
$4,585,823,(collateralized by
Federal National Mortgage
Association ARM #242813, par
value $4,736,118, 3.876%, 10/01/23,
market value $4,692,214) 4,586 4,586
Kidder Peabody
4.84%, dated 08/31/94, matures
09/01/94, repurchase price
$4,585,816, (collateralized by
Federal National Mortgage
Association ARM #207309, par
value $4,665,240, 5.462%, 02/01/23,
market value $4,697,974) 4,585 4,585
Prudential Securities
4.80%, dated 08/31/94, matures
09/01/94, repurchase price
$4,585,811, (collateralized by
Federal National Mortgage
Association #125280, par value
$4,822,771, 7.50%, 03/01/24,
market value $4,708,230) 4,585 4,585
UBS Securities
4.75%, dated 08/31/94, matures
09/01/94, repurchase price
$4,585,844, (collateralized by
Federal Home Loan Mortgage
Corporation #E49621, par value
$4,796,754, 7.00%, 07/01/08,
market value $4,704,816) 4,585 4,585
--------
Total Repurchase Agreement
(Cost $18,340,851) 18,341
--------
Total Investments - 100.4%
(Cost $136,206,535) 136,207
--------
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ---------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES - (0.4%)
Other Assets and Liabilities, Net $( 520)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization - no par value)
based on 135,685,747 outstanding
shares of beneficial interest 135,685
Net realized gain on investments 2
--------
Total Net Assets - 100.0% $135,687
--------
Net Asset Value, Offering Price and
Redemption Price Per Share $ 1.00
========
</TABLE>
ARM Adjustable Rate Mortgage
* Variable rate security. The rate reported on the Statement of Net Assets is
the rate in effect on August 31, 1994. The date shown is the next reset date.
INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND
<TABLE>
<S> <C>
U. S. TREASURY OBLIGATIONS - 70.5%
United States Treasury Notes
8.500%, 08/15/95 $4,100 $ 4,211
5.125%, 11/15/95 5,500 5,464
4.250%, 11/30/95 3,800 3,733
4.625%, 02/15/96 5,000 4,912
7.500%, 02/29/96 4,000 4,090
7.875%, 06/30/96 4,000 4,123
6.125%, 07/31/96 3,000 2,999
6.500%, 11/30/96 2,000 2,010
6.125%, 12/31/96 7,000 6,989
8.000%, 01/15/97 5,200 5,390
6.250%, 01/31/97 8,000 7,992
6.500%, 05/15/97 5,000 5,010
7.875%, 04/15/98 2,800 2,909
5.375%, 05/31/98 1,000 958
6.375%, 07/15/99 2,500 2,459
6.000%, 10/15/99 2,000 1,929
6.375%, 01/15/00 2,500 2,447
8.500%, 11/15/00 1,300 1,401
7.500%, 05/15/02 4,000 4,098
6.375%, 08/15/02 2,000 1,912
--------
Total U. S. Treasury Obligations
(Cost $75,921,409) 75,036
--------
COLLATERALIZED MORTGAGE OBLIGATIONS - 17.1%
Federal Home Loan Mortgage
Corporation 1666-C
5.600%, 02/15/13 5,000 4,717
Federal National Mortgage
Association 1994-50PB
5.100%, 04/25/10 5,905 5,565
Federal National Mortgage
Association 1992-16D
6.000%, 01/25/12 2,368 2,364
Federal National Mortgage
Association 1993-137PE
5.800%, 04/25/17 5,000 4,648
United States Department of Veteran
Affairs 1992-2C
7.000%, 05/15/12 1,000 953
--------
Total Collateralized Mortgage
Obligations (Cost $19,034,662) 18,247
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 8.4%
Federal Agriculture Mortgage
Corporation
6.440%, 05/28/96 2,100 2,107
Federal Home Loan Bank
8.600%, 01/25/00 1,300 1,387
Federal National Mortgage
Association
7.500%, 02/11/02 2,000 2,018
Private Export Funding Corporation
5.650%, 03/15/03 2,700 2,503
World Bank Global Bond
8.375%, 10/01/99 900 951
--------
Total U.S. Government Agency
Obligations (Cost $9,145,928) 8,966
--------
REPURCHASE AGREEMENT - 3.1%
Kidder Peabody
4.84%, dated 08/31/94, matures
09/01/94, repurchase price
$3,265,691 (collateralized by
Federal National Mortgage
Association ARM #70619, par
value $3,390,960, 5.060%,
08/01/29, market value
$3,344,855) 3,265 3,265
--------
Total Repurchase Agreement
(Cost $3,265,252) 3,265
--------
TOTAL INVESTMENTS - 99.1%
(Cost $107,367,251) 105,514
--------
OTHER ASSETS AND LIABILITIES - 0.9%
Other Assets and Liabilities, Net 934
--------
NET ASSETS:
Portfolio shares (unlimited
authorization - no par value)
based on 10,728,875 outstanding
shares of beneficial interest 109,248
Undistributed net investment income (1)
Accumulated net realized loss on
investments (946)
Net unrealized depreciation on
investments (1,853)
--------
Total Net Assets - 100.0% $106,448
--------
Net Asset Value, Offering Price and
Redemption Price Per Share $9.92
========
</TABLE>
ARM Adjustable Rate Mortgage
12
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
FIXED INCOME FUND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ------------------------------------------------------------------------
<S> <C>
U. S. TREASURY OBLIGATIONS - 62.8%
United States Treasury Bond
7.500%, 11/15/16 $17,500 $17,263
United States Treasury Note
3.875%, 09/30/95 41,100 40,355
-------
Total U. S. Treasury Obligations
(Cost $60,411,172) 57,618
-------
COLLATERALIZED MORTGAGE OBLIGATIONS - 19.5%
Federal Home Loan Mortgage
Corporation 1555-PC
5.500%, 11/15/04 5,000 4,767
Federal Home Loan Mortgage
Corporation 1601-PC
5.000%, 05/15/02 5,000 4,797
Federal Home Loan Mortgage
Corporation 21-B
4.800%, 11/25/08 5,000 4,768
Federal National Mortgage
Association 1989-64H
9.250%, 12/25/18 1,174 1,180
Paine Webber Trust P-3
9.000%, 10/01/12 2,300 2,322
-------
Total Collateralized Mortgage
Obligations (Cost $18,557,661) 17,834
-------
FOREIGN OBLIGATIONS - 9.3%
Hydro-Quebec
8.000%, 02/01/13 3,000 2,876
KFW International
8.850%, 06/15/99 1,000 1,070
Petro Canada
8.600%, 01/15/10 800 855
Svenska Handelsbanken
8.350%, 07/15/04 1,000 1,023
8.125%, 08/15/07 2,000 1,990
Westpac
9.125%, 08/15/01 700 751
-------
Total Foreign Obligations
(Cost $8,567,309) 8,565
-------
U.S. GOVERNMENT AGENCY OBLIGATION - 3.0%
Financial Assistance Corporation
8.800%, 06/10/05 2,500 2,722
-------
Total U.S. Government Agency
Obligation (Cost $2,676,318) 2,722
-------
CORPORATE OBLIGATIONS - 1.7%
Deere
8.950%, 06/15/19 600 656
Harris Bancorp
9.375%, 06/01/01 800 866
-------
Total Corporate Obligations
(Cost $1,463,800) 1,522
-------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- --------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT - 2.5%
J.P. Morgan
4.80%, dated 08/31/94,
matures 09/01/94, repurchase
price $2,332,426 (collateralized
by Federal National Mortgage
Association ARM #242813, par
value $2,408,808, 3.876%,
10/01/23, market value
$2,386,538) $2,332 $ 2,332
-------
Total Repurchase Agreement
(Cost $2,332,115) 2,332
-------
Total Investments - 98.8%
(Cost $94,008,375) 90,593
-------
OTHER ASSETS AND LIABILITIES - 1.2%
Other Assets and Liabilities, Net 1,131
-------
NET ASSETS:
Portfolio shares (unlimited
authorization - no par value)
based on 9,234,719 outstanding
shares of beneficial interest 94,740
Undistributed net investment
income (3)
Accumulated net realized gain
on investments 402
Net unrealized depreciation on
investments (3,415)
-------
Total Net Assets - 100.0% $91,724
=======
Net Asset Value, Offering Price and
Redemption Price Per Share $ 9.93
=======
ARM Adjustable Rate Mortgage
CAPITAL APPRECIATION EQUITY FUND
COMMON STOCK - 98.5%
AGRICULTURE - 2.3%
Pioneer Hi-Bred International 101,000 $ 3,156
-------
AIR TRANSPORTATION - 2.2%
Atlantic Southeast Airlines 60,000 1,755
Southwest Airlines 60,000 1,590
-------
3,345
-------
AUTOMOTIVE - 6.8%
Chrysler 55,000 2,647
Eaton 80,000 3,970
Superior Industries International 110,000 3,259
-------
9,876
-------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Market
Description Shares Value (000)
- ------------------------------------------------------------
<S> <C> <C>
BANKS - 5.5%
NationsBank 51,000 $ 2,843
Shawmut National 103,500 2,329
Signet Banking 72,000 2,817
--------
7,989
--------
CHEMICALS - 1.7%
E.I. Du Pont De Nemours 40,600 2,456
--------
COMMUNICATIONS EQUIPMENT - 3.4%
Glenayre Technologies* 20,000 1,135
Motorola 70,000 3,780
--------
4,915
--------
COMPUTERS & SERVICES - 4.7%
Intel 60,000 3,945
Microsoft* 50,000 2,907
--------
6,852
--------
ELECTRICAL SERVICES - 1.3%
Entergy 77,000 1,915
--------
ENVIRONMENTAL SERVICES - 2.7%
WMX Technologies 130,000 3,900
--------
FINANCIAL SERVICES - 4.7%
Federal National Mortgage
Association 34,800 3,093
Merrill Lynch 90,000 3,656
--------
6,749
--------
FOOD, BEVERAGE & TOBACCO - 3.7%
Coca-Cola 80,000 3,680
McCormick 80,000 1,580
--------
5,260
--------
GAS/NATURAL GAS - 1.3%
Enron 60,000 1,830
--------
HOUSEHOLD PRODUCTS - 2.8%
Gillette 56,500 4,089
--------
INSURANCE - 3.0%
US Healthcare 98,500 4,260
--------
LUMBER & WOOD PRODUCTS - 2.5%
Louisiana-Pacific 100,000 3,550
--------
MACHINERY - 5.0%
Dover 50,000 2,894
General Electric 86,000 4,278
--------
7,172
--------
MEASURING DEVICES - 2.2%
Thermo Electron* 70,000 3,141
--------
MEDICAL PRODUCTS & SERVICES - 5.4%
Lincare Holdings* 195,000 4,826
Medtronic 30,000 2,963
--------
7,789
--------
METALS & MINING - 1.7%
Cyprus AMAX Minerals 74,000 2,405
--------
MISCELLANEOUS BUSINESS SERVICES - 3.6%
Automatic Data Processing 46,600 2,522
First Data 54,880 2,675
--------
5,197
--------
PETROLEUM REFINING - 5.7%
Chevron 60,000 2,543
Exxon 45,700 2,719
Royal Dutch Petroleum 26,000 2,928
--------
8,190
--------
PHARMACEUTICALS - 5.1%
Abbott Laboratories 120,000 3,600
Amgen* 70,000 3,693
--------
7,293
--------
PRINTING & PUBLISHING - 1.7%
Gannett 48,500 2,425
--------
PROFESSIONAL SERVICES - 1.4%
Dun and Bradstreet 35,000 2,017
--------
RAILROADS - 2.4%
Burlington Northern 35,000 1,838
Chicago and Northwestern
Holdings* 75,000 1,650
--------
3,488
--------
RETAIL - 7.3%
Brinker International* 100,000 2,425
Sherwin Williams 71,000 2,352
Toys "R" Us* 70,000 2,581
Wal-Mart Stores 130,000 3,200
--------
10,558
--------
SEMICONDUCTORS & RELATED DEVICES - 1.3%
Adaptec* 100,000 1,913
--------
TELEPHONES & TELECOMMUNICATION - 7.1%
MCI Communications 140,000 3,404
Telefonica De Espana ADR 60,000 2,483
Telefonos De Mexico Class L ADR 70,000 4,392
--------
10,279
--------
Total Common Stock
(Cost $124,387,945) 142,009
--------
</TABLE>
14
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
CAPITAL APPRECIATION EQUITY FUND-CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- --------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT - 3.7%
Prudential Securities
4.80%, dated 08/31/94,
matures 09/01/94, repurchase
price $5,366,293, (collateralized
by Federal National Mortgage
Association #125280, par value
$5,642,990, 7.50%, 03/01/24,
market value $5,508,968) $5,366 $ 5,366
--------
Total Repurchase Agreement
(Cost $5,365,578) 5,366
--------
Total Investments - 102.2%
(Cost $129,753,523) 147,375
--------
OTHER ASSETS AND LIABILITIES - (2.2%)
Other Assets and Liabilities, Net (3,168)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization - no par value)
based on 12,433,049
outstanding shares of
beneficial interest 125,785
Undistributed net investment
income 1
Accumulated net realized gain
on investments 799
Net unrealized appreciation on
investments 17,622
--------
Total Net Assets - 100.0% $144,207
========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 11.60
========
* Non-income producing security
ADR American Depository Receipt
SELECT VALUE FUND
COMMON STOCK - 90.9%
AEROSPACE & DEFENSE - 1.5%
E-Systems 16,500 $ 710
--------
AIRCRAFT - 2.8%
Boeing 16,000 728
McDonnell Douglas 4,900 579
--------
1,307
--------
APPAREL/TEXTILES - 1.7%
V F Corp. 15,000 793
--------
AUTOMOTIVE - 2.7%
Ford Motor 42,800 1,252
--------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Market
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
BANKS - 10.2%
Chemical Banking 34,000 $ 1,318
Citicorp 42,000 1,858
Shawmut National 70,500 1,586
--------
4,762
--------
CHEMICALS - 5.9%
Monsanto 18,600 1,537
W.R. Grace 30,800 1,240
--------
2,777
--------
COMMUNICATIONS EQUIPMENT - 7.2%
L.M. Ericsson Telephone ADR 26,000 1,407
Motorola 30,000 1,620
Telebras (Telecomunicacoes
Brasileiras) S.A. ADR* 6,000 359
--------
3,386
--------
COMPUTERS & SERVICES - 8.9%
Advanced Micro Devices* 34,000 986
Intel 28,000 1,841
Sun Microsystems* 50,000 1,325
--------
4,152
--------
ELECTRICAL SERVICES - 7.7%
Montana Power 77,300 1,826
Pacificorp 103,300 1,769
--------
3,595
--------
ENVIRONMENTAL SERVICES - 0.7%
Attwoods PLC ADR 40,382 353
--------
FINANCIAL SERVICES - 3.6%
American Premier Underwriter 27,299 717
Salomon 21,950 952
--------
1,669
--------
FOOD, BEVERAGE & TOBACCO - 7.0%
Chiquita Brands International 56,300 922
Nestle S.A. ADR 13,246 612
Philip Morris 29,000 1,769
--------
3,303
--------
LEASING & RENTING - 3.4%
Comdisco 72,000 1,575
--------
MACHINERY - 0.9%
Timken 11,353 441
--------
MEDICAL PRODUCTS & SERVICES - 0.7%
FHP International* 12,000 324
--------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ---------------------------------------------------------
<S> <C> <C>
METALS & MINING - 3.5%
Cyprus AMAX Minerals 26,000 $ 845
Potash of Saskatchewan 23,500 805
-------
1,650
-------
PETROLEUM & FUEL PRODUCTS - 4.4%
YPF Sociedad Anonima ADR 79,000 2,044
-------
PETROLEUM REFINING - 3.7%
Mobil 20,800 1,752
-------
PHARMACEUTICALS - 2.3%
Abbott Laboratories 22,600 678
Rhone-Poulenc Rorer 11,250 416
-------
1,094
-------
RAILROADS - 2.7%
Conrail 10,745 591
CSX 8,500 657
-------
1,248
-------
RETAIL - 2.1%
K Mart 58,000 993
-------
TELEPHONES & TELECOMMUNICATION - 2.5%
Comsat 23,800 598
Telefonos De Mexico ADR 9,000 565
-------
1,163
-------
WHOLESALE - 4.8%
Handleman 33,000 351
Universal-Virginia 88,000 1,892
-------
2,243
-------
Total Common Stock
(Cost $39,746,374) 42,586
-------
REPURCHASE AGREEMENT - 9.4%
Prudential Securities 4.80%,
dated 08/31/94, matures
09/01/94, repurchase price
$4,420,374, (collateralized by
Federal National Mortgage
Association #125280, par value
$4,647,907, 7.50%, 03/01/24,
market value $4,537,519) 4,420 4,420
-------
Total Repurchase Agreement
(Cost $4,419,785) 4,420
-------
Total Investments - 100.3%
(Cost $44,166,159) 47,006
-------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Market
Description Shares Value (000)
- -----------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES - (0.3%)
Other Assets and Liabilities, Net $ ( 129)
--------
NET ASSETS:
Portfolio shares (unlimited
authorization - no par value)
based on 3,852,910 outstanding
shares of beneficial interest 41,181
Accumulated net realized gain on
investments 2,856
Net unrealized appreciation on
investments 2,840
--------
Total Net Assets - 100.0% $ 46,877
========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 12.17
========
* Non-income producing security
ADR American Depository Receipt
PLC Public Limited Company
SMALL COMPANY GROWTH FUND
COMMON STOCK - 92.2%
AEROSPACE & DEFENSE - 1.0%
E-Systems 5,200 $224
--------
AIR TRANSPORTATION - 0.9%
Atlantic Southeast Airlines 7,200 211
--------
APPAREL/TEXTILES - 1.7%
Cygne Designs* 15,000 401
--------
AUTOMOTIVE - 2.8%
Lund International Holdings* 11,500 190
Superior Industries International 15,300 453
--------
643
--------
BANKS - 4.5%
BayBanks 3,400 206
Compass Bancshares 8,400 210
FirsTier Financial 6,000 207
Mark Twain Bancshares 7,400 204
Wilmington Trust 7,800 212
--------
1,039
--------
BEAUTY PRODUCTS - 1.0%
Jean Philippe Fragrances* 23,000 230
--------
</TABLE>
16
<PAGE>
STATEMENT OF NET ASSETS
- -------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
SMALL COMPANY GROWTH FUND-CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Market
Description Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
BUILDING & CONSTRUCTION - 1.0%
Clayton Homes* 11,000 $ 238
-------
BUILDING & CONSTRUCTION SUPPLIES - 0.9%
Harsco 5,200 219
-------
COMMUNICATIONS EQUIPMENT - 4.0%
Intervoice* 45,000 526
Vishay Intertechnology* 9,362 403
-------
929
-------
COMPUTERS & SERVICES - 4.7%
Banctec* 25,000 613
Catalina Marketing* 4,400 227
Micros Systems* 7,700 244
-------
1,084
-------
CONSUMER PRODUCTS - 1.4%
Timberland, Class A* 8,000 344
-------
ENERGY & POWER - 0.9%
Magma Power* 7,000 203
-------
FINANCIAL SERVICES - 3.9%
Equitable of Iowa 6,000 234
SunAmerica 4,600 205
T. Rowe Price Associates 7,400 237
The Money Store 11,000 220
-------
896
-------
FOOD, BEVERAGE & TOBACCO - 5.9%
Apple South 25,000 400
Canandaigua Wine, Class A* 9,800 299
Chiquita Brands International 16,000 262
Tootsie Roll Industries 6,600 416
-------
1,377
-------
HOUSEHOLD PRODUCTS - 1.8%
Juno Lighting 12,000 225
Valspar 6,000 206
-------
431
-------
INSURANCE - 6.6%
American Travellers* 15,000 234
Frontier Insurance Group 8,501 284
Intergroup Healthcare* 6,500 409
Mobile America* 17,000 179
NWNL 6,400 202
Penncorp Financial Group 13,600 214
-------
1,522
-------
LEASING & RENTING - 1.7%
Comdisco 10,000 $ 219
McGrath Rentcorp 12,000 183
-------
402
-------
LUMBER & WOOD PRODUCTS - 1.9%
TJ International 22,888 441
-------
MACHINERY - 3.7%
Donaldson 14,000 359
Input/Output* 10,000 215
Sturm Ruger 11,200 294
-------
868
-------
MEDICAL PRODUCTS & SERVICES - 5.1%
FHP International* 8,600 232
Health Management Associates,
Class A* 9,800 234
HEALTHSOUTH Rehabilitation* 6,800 245
Lincare Holdings* 10,000 248
Quantum Health Resources* 6,200 222
-------
1,181
-------
METALS & MINING - 1.0%
Potash of Saskatchewan 6,600 226
-------
MISCELLANEOUS BUSINESS SERVICES - 10.9%
Adaptec* 11,200 214
MacNeal-Schwendler 33,000 437
Olsten 15,701 563
Sungard Data Systems* 10,000 348
Total System Services 10,000 289
Transmedia Network 19,950 249
VMARK Software* 21,000 425
-------
2,525
-------
PAPER & PAPER PRODUCTS - 3.8%
Rock-Tenn, Class A 30,000 495
Wausau Paper Mills 14,500 377
-------
872
-------
PRINTING & PUBLISHING - 1.6%
Thomas Nelson 20,000 370
-------
PROFESSIONAL SERVICES - 1.9%
Paychex 13,600 445
-------
RAILROADS - 0.9%
Chicago & North Western Holdings* 9,600 211
-------
RETAIL - 3.0%
Fastenal 6,000 236
Michaels Stores* 5,000 214
Sports & Recreation* 6,200 247
-------
697
-------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------
<S> <C> <C>
RUBBER & PLASTIC - 3.7%
Liqui Box 5,000 $ 173
Mark IV Industries 12,390 256
Myers Industries 20,000 427
-------
856
-------
SPECIALTY CONSTRUCTION - 1.6%
Oakwood Homes 13,000 366
-------
STEEL & STEEL WORKS - 2.0%
Birmingham Steel 9,750 250
Steel Technologies 11,000 212
-------
462
-------
TELEPHONES & TELECOMMUNICATION - 2.8%
Aspect Telecommunications* 12,000 444
Comsat 8,000 201
-------
645
-------
TESTING LABORATORIES - 0.6%
Landauer 9,990 140
-------
TRUCKING - 3.0%
Arnold Industries 10,000 203
Heartland Express* 9,002 288
Intertrans 14,000 196
-------
687
-------
Total Common Stock
(Cost $18,610,991) 21,385
-------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT - 7.8%
Prudential 4.80%, dated
08/31/94, matures 09/01/94,
repurchase price $1,802,964,
(collateralized by Federal
National Mortgage Association
#125280, par value $1,895,488,
7.50%, 03/01/24, market value
$1,850,470) $1,803 $ 1,803
-------
Total Repurchase Agreement
(Cost $1,802,724) 1,803
-------
Total Investments - 100.0%
(Cost $20,413,715) 23,188
-------
OTHER ASSETS AND LIABILITIES - 0.0%
Other Assets and Liabilities, Net (6)
-------
NET ASSETS:
Portfolio shares (unlimited
authorization - no par value)
based on 2,037,786 outstanding
shares of beneficial interest 21,022
Accumulated realized loss on
investments (615)
Net unrealized appreciation on
investments 2,775
-------
Total Net Assets - 100.0% $23,182
=======
Net Asset Value, Offering Price and
Redemption Price Per Share $ 11.38
=======
</TABLE>
* Non-income producing security
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
STATEMENT OF OPERATIONS (000)
- -------------------------------------------------------------------------------
FFB Lexicon Funds-for the year ended August 31, 1994
<TABLE>
<CAPTION>
-----------
CASH
MANAGEMENT
FUND
-----------
09/01/93
to 08/31/94
-----------
<S> <C>
Dividend Income $ -
Interest Income 3,204
----------
Total Investment Income 3,204
----------
EXPENSES:
Administrator Fee 147
Waiver of Administrator Fee -
Investment Advisory/Custodian Fee 346
Waiver of Investment Advisory/Custodian Fee (90)
Professional Fees 19
Trustee Fees 4
Registration Fees 31
Printing Fees 14
Insurance and Other Fees 1
Pricing Expense -
Amortization of Deferred Organizational Costs 3
----------
Total Expenses 475
----------
NET INVESTMENT INCOME 2,729
----------
Net Realized Gain (Loss) on Securities Sold -
Net Unrealized Appreciation (Depreciation) of Investment Securities -
----------
Net Realized and Unrealized Gain (Loss) on Investments -
----------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
$2,729
==========
</TABLE>
Amounts designated as "-" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
- ----------------- ----------- ------------ ----------- -----------
INTERMEDIATE-TERM CAPITAL SMALL
GOVERNMENT FIXED APPRECIATION SELECT COMPANY
SECURITIES INCOME EQUITY VALUE GROWTH
FUND FUND FUND FUND FUND
- ----------------- ----------- ------------ ----------- -----------
09/01/93 09/01/93 09/01/93 09/01/93 09/01/93
to 08/31/94 to 08/31/94 to 08/31/94 to 08/31/94 to 08/31/94
- ----------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
$ - $ - $2,706 $ 750 $ 194
6,812 5,524 306 141 73
------- ------- ------ ------ -----
6,812 5,524 3,012 891 267
------- ------- ------ ------ -----
201 160 251 61 39
- - - (37) (26)
709 565 1,107 270 174
(322) (266) (628) (172) (107)
25 21 31 10 6
5 4 6 2 2
(1) 5 2 5 1
19 17 27 13 10
3 3 4 1 1
7 5 9 2 1
3 3 3 3 3
------- ------- ------ ------ -----
649 517 812 158 104
------- ------- ------ ------ -----
6,163 5,007 2,200 733 163
------- ------- ------ ------ -----
(935) 1,030 800 3,574 (103)
(6,583) (9,057) 1,736 (1,240) (640)
------- ------- ------ ------ -----
(7,518) (8,027) 2,536 2,334 (743)
------- ------- ------ ------ -----
$(1,355) $(3,020) $4,736 $3,067 $(580)
======= ======= ====== ====== =====
</TABLE>
- -------------------------------------------------------------------------------
20
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- -------------------------------------------------------------------
FFB Lexicon Funds
<TABLE>
<CAPTION>
-----------------------
CASH
MANAGEMENT
FUND
-----------------------
09/01/93 09/01/92
to 08/31/94 to 08/31/93
----------- -----------
<S> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 2,729 $ 1,670
Net Realized Gain (Loss) on Securities Sold - 1
Net Unrealized Appreciation (Depreciation) of Investment Securities - -
-------- --------
Increase (Decrease) in Net Assets Resulting from Operations 2,729 1,671
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income (2,729) (1,670)
Net Realized Gains - -
-------- --------
Total Distributions (2,729) (1,670)
-------- --------
SHARE TRANSACTIONS: (1)
Shares Issued 360,618 171,350
Shares Issued in Lieu of Cash Distributions - -
Shares Redeemed (275,228) (198,827)
-------- --------
NET INCREASE (DECREASE) FROM SHARE TRANSACTIONS 85,390 (27,477)
-------- --------
Total Increase (Decrease) in Net Assets 85,390 (27,476)
-------- --------
NET ASSETS:
Beginning of Period 50,297 77,773
-------- --------
End of Period $135,687 $50,297
======== ========
(1) Shares Issued and Redeemed:
Shares Issued 360,618 171,350
Shares Issued in Lieu of Cash Distributions - -
Shares Redeemed (275,228) (198,827)
-------- --------
NET INCREASE (DECREASE) FROM SHARE TRANSACTIONS 85,390 (27,477)
======== ========
</TABLE>
(2) The Select Value Fund and the Small Company Growth Fund commenced operation
on November 2, 1992.
Amounts designated as "-" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
- ----------------------- ----------------------- ----------------------- -----------------------
- -----------------------
INTERMEDIATE-TERM CAPITAL
SMALL
GOVERNMENT FIXED APPRECIATION SELECT
COMPANY
SECURITIES INCOME EQUITY VALUE
GROWTH
FUND FUND FUND FUND FUND
- ----------------------- ----------------------- ----------------------- -----------------------
- -----------------------
09/01/93 09/01/92 09/01/93 09/01/92 09/01/93 09/01/92 09/01/93 11/02/92(2)
09/01/93 11/02/92(2)
to 08/31/94 to 08/31/93 to 08/31/94 to 08/31/93 to 08/31/94 to 08/31/93 to 08/31/94 to 08/31/93
to 08/31/94 to 08/31/93
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 6,163 $ 5,570 $ 5,007 $ 4,388 $ 2,200 $ 2,150 $ 733 $ 394 $ 163 $ 231
(935) 679 1,030 1,412 800 6,017 3,574 233 (103) (512)
(6,583) 1,707 (9,057) 3,594 1,736 7,809 (1,240) 4,080 (640) 3,415
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
(1,355) 7,956 (3,020) 9,394 4,736 15,976 3,067 4,707 (580) 3,134
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
(6,163) (5,621) (5,008) (4,434) (2,211) (2,186) (733) (394) (164) (230)
(580) (303) (1,744) (1,482) (1,930) - (951) - - -
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
(6,743) (5,924) (6,752) (5,916) (4,141) (2,186) (1,684) (394) (164) (230)
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
27,243 39,821 32,873 23,001 32,576 22,782 24,452 27,801 7,547 19,121
6,200 5,793 6,340 5,820 4,116 2,182 1,645 394 162 230
(38,069) (16,122) (24,609) (12,102) (35,892) (18,047) (11,452) (1,659) (5,732) (306)
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
(4,626) 29,492 14,604 16,719 800 6,917 14,645 26,536 1,977 19,045
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
(12,724) 31,524 4,832 20,197 1,395 20,707 16,028 30,849 1,233 21,949
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
119,172 87,648 86,892 66,695 142,812 122,105 30,849 - 21,949
-
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
$106,448 $119,172 $91,724 $86,892 $144,207 $142,812 $46,877 $30,849 $23,182 $21,949
======== ======== ======= ======= ======== ======== ======= ======== ======== ========
2,638 3,799 3,114 2,169 2,838 2,038 2,094 2,719 644 1,889
606 555 609 554 360 195 143 35 14 21
(3,746) (1,539) (2,394) (1,136) (3,174) (1,630) (988) (150) (502) (28)
-------- -------- ------- ------- -------- -------- ------- -------- -------- --------
(502) 2,815 1,329 1,587 24 603 1,249 2,604 156 1,882
======== ======== ======= ======= ======== ======== ======= ======== ======== ========
</TABLE>
22
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
FFB Lexicon Funds-for the period ending August 31, 1994
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Ratio of
Net Asset Net Realized and Dividends Distributions Ratio of
Net Investment
Value Net Unrealized from Net from Net Asset Net Assets Expenses Income
Beginning Investment Gains (Losses) Investment Realized Value End Total End of to Average to Average
of Period Income on Investments Income Capital Gains of Period Return Period(000) Net Assets Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<C>
- --------------------
CASH MANAGEMENT FUND
- --------------------
1994 $1.00 $0.03 - $(0.03) - $1.00 3.13% $135,687 0.55% 3.16%
1993 1.00 0.03 - (0.03) - 1.00 2.79% 50,297 0.55% 2.77%
1992(1) 1.00 0.03 - (0.03) - 1.00 3.83%* 77,773 0.55%* 3.76%*
- --------------------------------------------
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
- --------------------------------------------
1994 $10.61 $0.54 $(0.64) $(0.54) $(0.05) $9.92 (0.99)% $106,448 0.55% 5.22%
1993 10.41 0.57 0.24 (0.58) (0.03) 10.61 8.03% 119,172 0.55% 5.48%
1992(2) 10.00 0.48 0.40 (0.47) - 10.41 10.88%* 87,648 0.55%* 5.68%*
- -----------------
FIXED INCOME FUND
- -----------------
1994 $10.99 $0.55 $(0.86) $(0.55) $(0.20) $9.93 (2.92)% $91,724 0.55% 5.32%
1993 10.56 0.63 0.66 (0.64) (0.22) 10.99 12.90% 86,892 0.55% 5.93%
1992(2) 10.00 0.55 0.55 (0.54) - 10.56 13.59%* 66,695 0.55%* 6.49%*
- --------------------------------
CAPITAL APPRECIATION EQUITY FUND
- --------------------------------
1994 $11.51 $0.17 $ 0.24 $(0.17) $(0.15) $11.60 3.62% $144,207 0.55% 1.49%
1993 10.34 0.18 1.17 (0.18) - 11.51 13.17% 142,812 0.55% 1.64%
1992(2) 10.00 0.17 0.33 (0.16) - 10.34 6.09%* 122,105 0.55%* 1.95%*
- -----------------
SELECT VALUE FUND
- -----------------
1994 $11.85 $0.22 $0.68 $(0.22) $(0.36) $12.17 7.98% $46,877 0.44% 2.03%
1993(3) 10.00 0.17 1.85 (0.17) - 11.85 24.42%* 30,849 0.39%* 1.85%*
- -------------------------
SMALL COMPANY GROWTH FUND
- -------------------------
1994 $11.66 $0.08 $(0.28) $(0.08) - $11.38 (1.71)% $23,182 0.45% 0.70%
1993(3) 10.00 0.13 1.66 (0.13) - 11.66 21.63%* 21,949 0.43%* 1.43%*
<CAPTION>
Ratio of
Ratio Net Investment
of Expenses Income
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------
CASH MANAGEMENT FUND
- --------------------
1994 0.66% 3.05% -
1993 0.61% 2.71% -
1992(1) 0.66%* 3.65%* -
- --------------------------------------------
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
- --------------------------------------------
1994 0.82% 4.95% 44.74%
1993 0.83% 5.20% 30.54%
1992(2) 0.86%* 5.37%* 47.39%
- -----------------
FIXED INCOME FUND
- -----------------
1994 0.83% 5.04% 68.63%
1993 0.83% 5.65% 49.40%
1992(2) 0.86%* 6.18%* 65.03%
- --------------------------------
CAPITAL APPRECIATION EQUITY FUND
- --------------------------------
1994 0.98% 1.06% 41.44%
1993 0.97% 1.22% 54.41%
1992(2) 1.00%* 1.50%* 78.31%
- -----------------
SELECT VALUE FUND
- -----------------
1994 1.02% 1.45% 80.47%
1993(3) 1.05%* 1.19%* 32.36%
- -------------------------
SMALL COMPANY GROWTH FUND
- -------------------------
1994 1.02% 0.13% 74.71%
1993(3) 1.06%* 0.80%* 34.88%
</TABLE>
(1) The Cash Management Fund commenced operations on October 31, 1991.
(2) The Intermediate-Term Government Securities Fund, the Fixed Income Fund and
the Capital Appreciation Equity Fund commenced operations on November 1,
1991.
(3) The Select Value Fund and the Small Company Growth Fund commenced
operations on November 2, 1992.
* Annualized
Amounts designated as "-" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
1. ORGANIZATION:
FFB Lexicon Funds (the "Trust") was organized as a Massachusetts business trust
under a Declaration of Trust dated July 24, 1991. The Trust is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company with seven portfolios: the Cash Management Fund,
the Intermediate-Term Government Securities Fund, the Fixed Income Fund, the
Select Value Fund, the Capital Appreciation Equity Fund, the Dividend Growth
Fund and the Small Company Growth Fund. The financial statements included he
rein present those of the Cash Management Fund, the Intermediate-Term
Government Securities Fund, the Fixed Income Fund, the Capital Appreciation
Equity Fund, the Select Value Fund, and the Small Company Growth Fund (the
"Funds"). The financial statement of the Dividend Growth Fund is presented
separately. The assets of each Fund are segregated, and a shareholder's
interest is limited to the Fund in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies followed by
the Trust.
Security Valuation-Investment securities held by the Cash Management Fund
are stated at amortized cost, which approximates market value. Under this
valuation method, purchase discounts and premiums are accreted and amortized
ratably to maturity and are included in interest income.
Investment securities held by the Intermediate-Term Government Securities
Fund, the Fixed Income Fund, the Capital Appreciation Equity Fund, the Select
Value Fund, and the Small Company Growth Fund listed on a securities exchange
for which market quotations are available are valued at the last quoted sales
price on each business day. If there is no such reported sale, these securities
are valued at the most recently quoted bid price. Unlisted securities for which
market quotations are readily available are valued at the most recently quoted
bid price. Debt obligations, with sixty days or less remaining until maturity,
may be valued at their amortized cost.
Federal Income Taxes-It is each Fund's intention to continue to qualify
as a regulated investment company for Federal income tax purposes and
distribute all of its taxable income and net capital gains. Accordingly, no
provisions for Federal income taxes are required.
Security Transactions and Related Income- Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date, and interest income is
recognized on the accrual basis. Costs used in determining realized gains and
losses on the sale of investment securities are those of the specific
securities sold adjusted for the accretion and amortization of purchase
discounts and premiums during the respective holding period. Gains and losses
realized on sales of securities are determined on a first-in first-out (FIFO)
basis. Purchase discounts and premiums on securities held by the
Intermediate-Term Government Securities Fund, the Fixed Income Fund, the
Capital Appreciation Equity Fund, the Select Value Fund, and the Small
Company Growth Fund are accreted and amortized to maturity using the
scientific interest method, which approximates the effective interest method.
Repurchase Agreements-Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market value of
the collateral, including accrued interest thereon, is sufficient in the event
of default of the counterparty. If the counterparty defaults and the value of
the collateral declines or if the counterparty enters an insolvency proceeding,
realization of the collateral by the Funds may be delayed or limited.
Distributions-Distributions from net investment income are paid to
shareholders on a monthly basis. Any net realized capital gains on sales of
securities are distributed to shareholders at least annually. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Effective in 1994, generally accepted accounting principles require that
differences between undis-
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
FFB Lexicon Funds-August 31, 1994
tributed net investment income or accumulated net realized capital gains for
financial reporting and tax purposes, if permanent, be reclassified to/from
paid in capital. The Funds were not affected by this new standard.
Other-Expenses that are directly related to one of the Funds are charged to
that Fund. Other operating expenses of the Trust are prorated to the Funds on
the basis of relative net assets.
3. ORGANIZATION COSTS AND TRANSACTIONS WITH AFFILIATES:
The Trust incurred organization costs of approximately $113,000. These costs
have been deferred in the accounts of the Funds and are being amortized on a
straight line basis over a period of sixty months commencing with operations.
These costs include legal fees of approximately $21,000 for organizational work
performed by a firm of which a trustee and an officer of the Trust are
partners. On September 27, 1991, the Trust sold initial shares of beneficial
interest to SEI Financial Management Corporation (the "Administrator"). In the
event any of the initial shares of the Trust are redeemed by any holder thereof
during the period that the Trust is amortizing organizational costs, the
redemption proceeds payable to the holder thereof by the Fund will be reduced
by the unamortized organizational costs in the same ratio as the number of
initial shares being redeemed bears to the number of initial shares outstanding
at the time of redemption.
Certain officers and trustees of the Trust are also officers of the
Administrator and/or SEI Financial Services Company (the "Distributor"). Such
officers and trustees are paid no fees by the Trust for serving as officers and
trustees of the Trust.
4. ADMINISTRATION AND DISTRIBUTION AGREEMENTS:
The Trust and the Administrator are parties to an Administration Agreement
dated October 18, 1991, under which the Administrator provides management and
administrative services for an annual fee of .17% of the average daily net
assets of each of the Funds of the Trust. For the period from September 1,
1993 to April 30, 1994 the Administrator voluntarily waived $37,000 and
$26,000 of its fee in the Select Value Fund and the Small Company Growth Fund,
respectively, to increase distributions to the shareholders.
The Trust and the Distributor are parties to a Distribution Agreement dated
October 18, 1991. The Distributor receives no fees for its distribution
services under this agreement.
5. INVESTMENT ADVISORY AND CUSTODIAN AGREEMENTS:
The Trust and First Fidelity Bank, N.A., (the "Adviser") are parties to an
investment advisory agreement (the "Advisory Agreement") dated October 18, 1991
under which the Adviser receives an annual fee equal to .40% of the average
daily net assets of the Cash Management Fund, .60% of the average daily net
assets of each of the Intermediate-Term Government Securities and Fixed Income
Funds, and .75% of the average daily net assets of the Capital Appreciation
Equity Fund, the Select Value Fund, and the Small Company Growth Fund. The
Adviser has voluntarily agreed for an indefinite period of time, to waive all
or a portion of its fees (and to reimburse the Funds' expenses) in order to
limit operating expenses of each of the Funds to not more than .55% of its
average daily net assets. Effective September 23, 1994, the Adviser eliminated
its fee waiver with respect to the Cash Management Fund. Fee waivers and
expense reimbursements are voluntary and may be terminated at any time.
First Fidelity Bank, N.A., acts as custodian (the "Custodian") for the
Funds. Fees payable to the Custodian for services are included as part of the
fees under the Advisory Agreement.
25
<PAGE>
6. INVESTMENT TRANSACTIONS:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the year ended August 31, 1994, are as follows:
<TABLE>
<CAPTION>
Intermediate-
Term Capital Small
Government Fixed Appreciation Select Company
Securities Income Equity Value Growth
Fund Fund Fund Fund Fund
(000) (000) (000) (000) (000)
------------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Purchases $ 0 $ 1 $69,870 $40,426 $17,189
Sales 0 3,082 56,801 26,200 15,814
U.S. Gov't. Purchases 50,777 72,207 0 0 0
U.S. Gov't. Sales 56,836 56,573 0 0 0
</TABLE>
At August 31, 1994 the total cost of securities and the net realized
gains or losses on securities sold, for Federal income tax purposes, was not
materially different from amounts reported for financial reporting purposes.
The aggregate gross unrealized appreciation and depreciation for securities he
ld by the Funds at August 31, 1994 is as follows:
<TABLE>
<CAPTION>
Intermediate-
Term Capital Small
Government Fixed Appreciation Select Company
Securities Income Equity Value Growth
Fund Fund Fund Fund Fund
(000) (000) (000) (000) (000)
------------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Aggregate gross
unrealized
appreciation $ 319 $ 241 $20,859 $3,935 $3,330
Aggregate gross
unrealized
depreciation (2,172) (3,656) (3,237) (1,095) (555)
------- ------- ------- ------ ------
Net unrealized
appreciation/
(depreciation) $(1,853) $(3,415) $17,622 $2,840 $2,775
======= ======= ======= ====== ======
</TABLE>
7. CONCENTRATION OF CREDIT RISK:
The Cash Management Fund invests in a portfolio of money market instruments
maturing in 397 days or less which are rated in the highest rating category by
a nationally recognized statistical rating agency or, if not rated, are
believed to be of comparable quality. The ability of the issuers of the
securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry, state or region.
The summary of credit quality ratings for the securities held by the Cash
Management Fund at August 31, 1994 as follows:
Standard
& Poor's
--------
U.S. Government Securities 3.46%
Repurchase Agreements 13.47%
A-1 58.19%
A-1+ 24.88%
Portfolio breakdowns are stated as a percentage of total portfolio value.
U.S. Government securities represent obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities. Repurchase agreements
are collateralized by U.S. Government or U.S. Government agency securities.
Mortgage-backed securities held in the Intermediate-Term Government
Securities Fund and Fixed Income Fund are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can result in the reinvestment in
securities yielding lower prevailing rates.
26
<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
First Fidelity Bank, N.A.
765 Broad Street
Newark, New Jersey 07101
ADMINISTRATOR
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087
DISTRIBUTOR
SEI Financial Services Company
680 East Swedesford Road
Wayne, Pennsylvania 19087
CUSTODIAN
First Fidelity Bank, N.A.
765 Broad Street
Newark, New Jersey 07101
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
1601 Market Street
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
The information in this report must be preceded or accompanied by a current
prospectus for the funds described.
- --------------------------------------------------------------------------------
Shares of The FFB Lexicon Funds are not sponsored or guaranteed by, and
do not constitute obligations of, First Fidelity Bank, N.A., any of its
affiliates or the U.S. Government, its agencies or instrumentalities.
Shares of The FFB Lexicon Funds are not insured by the Federal Deposit
Insurance Corporation or any other agency. Shares of The FFB Lexicon
Funds involve investment risks, including the possible loss of the
principal amount invested.
- --------------------------------------------------------------------------------
<PAGE>
April 21, 1995
Dear Lexicon Shareholder:
In our last shareholders' report we discussed the impact the Federal Reserve had
on the financial markets as they increased interest rates five times between
February, 1994 and August, 1994. Although, the financial markets showed mostly
negative returns while interest rates were rising, it appears that these moves
by the Federal Reserve did, in fact, slow the growth in the economy and keep
inflation at reasonable levels. Two subsequent increases in interest rates by
the Federal Reserve since August were anticipated by investors with little
impact on the financial markets.
Investors continued to be weary of the markets between September and November,
1994. However, beginning in December confidence began to rise and reached a
level that virtually all news was greeted as good news. Interest rates
stabilized, and in some cases even dropped. As a result, the bond market as well
as the equity market rebounded showing positive returns for not only the most
recent six month period but the trailing twelve month period as well. The stock
market was also helped by an increasing number of mergers and acquisitions, and
corporate repurchases. Many investors also reallocated their portfolios buying
away from foreign markets back to the U.S.
Modest economic growth combined with reasonable inflation and good corporate
profitability are key indicators investors typically consider before investing
in the stock and bond markets. We currently have that environment. As a result,
the markets are responding positively and investors are achieving excellent
investment returns. How long these factors can stay in place is uncertain.
However, it appears that modest economic growth and inflation are likely to stay
at approximately current levels over the next several quarters. Corporate
profitability may show some deterioration later on in 1995 but for the moment
that too remains positive for investors.
If you have questions on your investment, or information contained in this
Financial Report, please call 1-800-833-8974. We appreciate the opportunity to
be of service and look forward to working with you in the future.
<TABLE>
<S> <C>
/s/ BEN L. JONES /s/ JOSEPH F. READY
- ---------------------------- -------------------------
Ben L. Jones Joseph F. Ready
Chief Investment Officer Senior Vice President
Trust Asset Management Group Mutual Fund Services
First Fidelity Bank, N.A. First Fidelity Bank, N.A.
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995
Cash Management Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER -- 65.6%
Abbott Laboratories
5.900%, 03/22/95 $ 3,000 $ 2,990
American Express Credit
5.960%, 03/09/95 3,000 2,996
American General Finance
6.130%, 06/12/95 1,000 982
Associates Corporation of North
America
6.060%, 05/11/95 2,000 1,976
AT & T
6.130%, 04/13/95 2,500 2,482
Barclays Bank
6.050%, 05/16/95 2,000 1,974
Ciesco
5.980%, 04/26/95 3,000 2,972
Commerzbank
6.070%, 03/01/95 3,000 3,000
Compagnie Bancaire
6.020%, 04/24/95 2,000 1,982
Corporate Asset Funding
5.930%, 03/30/95 3,000 2,986
Cregem North America
6.160%, 03/09/95 2,000 1,997
CS First Boston
6.150%, 06/05/95 2,000 1,967
Den Danske
6.170%, 04/11/95 2,000 1,986
Eksportfinans
6.000%, 03/23/95 3,000 2,989
Emerson Electric
5.950%, 04/05/95 1,500 1,491
Ford Motor Credit
6.080%, 04/12/95 3,000 2,979
General Electric Capital
6.050%, 03/02/95 4,000 4,000
H.J. Heinz
5.970%, 03/31/95 1,700 1,692
Halifax Building Societe
5.980%, 05/24/95 3,000 2,958
J.P. Morgan
5.990%, 04/10/95 3,000 2,980
Metlife Funding
5.930%, 03/28/95 3,000 2,987
Morgan Stanley
6.260%, 03/06/95 3,800 3,797
Nestle Capital
5.980%, 04/20/95 2,000 1,983
Pitney Bowes Credit
5.850%, 03/13/95 3,000 2,994
Preferred Receivables Funding
5.980%, 04/18/95 3,000 2,976
Proctor and Gamble
6.030%, 05/03/95 2,000 1,979
Province of British Columbia
6.150%, 07/07/95 1,250 1,223
Prudential Funding
6.130%, 06/12/95 1,000 982
<CAPTION>
- ----------------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C>
Transamerica Finance Group
5.970%, 03/21/95 $ 3,250 $ 3,239
-----------
Total Commercial Paper
(Cost $71,538,824) 71,539
-----------
CERTIFICATES OF DEPOSIT -- 12.8%
ABN AMRO
6.360%, 03/14/95 3,000 3,000
Banque Nationale de Paris, NY
6.210%, 05/15/95 2,000 2,000
Canadian Imperial Bank Commerce
6.250%, 04/10/95 2,000 2,000
Commerzbank
6.210%, 05/31/95 1,000 1,000
National Westminster
6.220%, 05/17/95 2,000 2,000
Rabobank Nederland, NY
6.150%, 05/08/95 1,000 1,000
Societe Generale
6.300%, 05/02/95 3,000 3,002
-----------
Total Certificates of Deposit
(Cost $14,001,637) 14,002
-----------
BANKERS ACCEPTANCES -- 3.1%
Corestates
5.950%, 04/05/95 1,404 1,396
Republic New York
6.050%, 05/11/95 2,000 1,976
-----------
Total Bankers Acceptances
(Cost $3,372,057) 3,372
-----------
CORPORATE OBLIGATIONS -- 4.6%
Merrill Lynch*
6.170%, 05/23/95 5,000 5,000
-----------
Total Corporate Obligations
(Cost $5,000,000) 5,000
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 0.9%
Federal Home Loan Mortgage
Corporation
6.790%, 02/20/96 1,000 1,000
-----------
Total U.S. Government Agency Obligations
(Cost $1,000,000) 1,000
-----------
REPURCHASE AGREEMENT -- 13.3%
J.P. Morgan
6.10%, dated 02/28/95,
matures 03/01/95, repurchase
price $5,000,847,
(collateralized by Federal
National Mortgage Association
#50929, par value $5,573,771,
6.50%, 11/01/23, market value
$5,127,172) 5,000 5,000
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
Unaudited
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- CONTINUED
Prudential Securities
6.10%, dated 02/28/95,
matures 03/01/95, repurchase
price $5,000,847,
(collateralized by Federal
National Mortgage Association
#124659, par value
$6,989,885, 6.50%, 01/01/00,
market value $5,100,000) $ 5,000 $ 5,000
United Bank of Switzerland
6.12%, dated 02/28/95,
matures 03/01/95, repurchase
price $4,527,858,
(collateralized by Federal
National Mortgage Association
ARM #197808, par value
$4,591,623, 6.463%, 09/01/16,
market value $4,639,707) 4,527 4,527
-----------
Total Repurchase Agreement
(Cost $14,527,088) 14,527
-----------
Total Investments -- 100.3%
(Cost $109,439,606) 109,440
-----------
OTHER ASSETS AND LIABILITIES -- (0.3%)
Other Assets and Liabilities, Net (321)
-----------
NET ASSETS:
Portfolio shares (unlimited
authorization -- no par value)
based on 109,117,674 outstanding
shares of beneficial interest 109,117
Net realized gain on investments 2
-----------
Total Net Assets -- 100.0% $ 109,119
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 1.00
==========
</TABLE>
ARM Adjustable Rate Mortgage
* Variable rate security. The rate reported on the Statement
of Net Assets is the rate in effect on February 28, 1995.
The date shown is the next reset date.
Intermediate-Term
Government Securities Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C>
U. S. TREASURY OBLIGATIONS -- 82.3%
United States Treasury Notes
8.500%, 08/15/95 $ 4,100 $ 4,141
5.125%, 11/15/95 5,500 5,453
4.250%, 11/30/95 3,800 3,741
4.625%, 02/15/96 3,000 2,949
7.500%, 02/29/96 4,000 4,038
7.875%, 06/30/96 8,000 8,126
6.125%, 07/31/96 3,000 2,978
6.500%, 11/30/96 2,000 1,992
6.125%, 12/31/96 7,000 6,933
8.000%, 01/15/97 $ 5,200 $ 5,309
<CAPTION>
- ----------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C>
6.250%, 01/31/97 8,000 7,926
6.500%, 05/15/97 5,000 4,963
7.875%, 04/15/98 2,800 2,870
5.375%, 05/31/98 1,000 954
6.375%, 07/15/99 2,500 2,438
6.000%, 10/15/99 2,000 1,919
7.500%, 10/31/99 10,000 10,166
6.375%, 01/15/00 2,500 2,430
8.500%, 11/15/00 1,300 1,384
7.500%, 05/15/02 4,000 4,079
6.375%, 08/15/02 2,000 1,906
7.875%, 11/15/04 1,000 1,046
-----------
Total U. S. Treasury Obligations
(Cost $88,691,627) 87,741
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.5%
Federal Home Loan Mortgage
Corporation 1666-C
5.600%, 02/15/13 5,000 4,712
Federal National Mortgage
Association 1992-16D
6.000%, 01/25/12 138 137
United States Department of
Veteran Affairs 1992-2C
7.000%, 05/15/12 1,000 950
-----------
Total Collateralized Mortgage
Obligations (Cost $6,147,037) 5,799
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 10.0%
Federal Agriculture Mortgage
Corporation
6.440%, 05/28/96 2,100 2,088
Federal Home Loan Bank
8.600%, 01/25/00 1,300 1,364
Federal National Mortgage
Association
7.500%, 02/11/02 2,000 2,007
7.875%, 02/24/05 2,000 2,042
Private Export Funding
Corporation
5.650%, 03/15/03 2,550 2,257
World Bank
8.375%, 10/01/99 900 941
-----------
Total U.S. Government Agency
Obligations (Cost $10,982,683) 10,699
-----------
REPURCHASE AGREEMENT -- 1.1%
Union Bank of Switzerland
6.12%, dated 02/28/95,
matures 03/01/95, repurchase
price $1,176,038
(collateralized by Federal
Home Loan Mortgage
Corporation ARM #845184, par
value $1,176,848, 6.884%,
06/01/22, market value
$1,204,804) 1,176 1,176
-----------
Total Repurchase Agreement
(Cost $1,175,838) 1,176
-----------
</TABLE>
2
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995
Intermediate-Term Government Securities Fund -- continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C>
Total Investments -- 98.9%
(Cost $106,997,185) $ 105,415
-----------
OTHER ASSETS AND LIABILITIES -- 1.1%
Other Assets and Liabilities, Net 1,154
-----------
NET ASSETS:
Portfolio shares (unlimited
authorization -- no par value)
based on 10,787,226 outstanding
shares of beneficial interest 109,800
Undistributed net investment
income 4
Accumulated net realized loss
on investments (1,653)
Net unrealized depreciation
on investments (1,582)
-----------
Total Net Assets -- 100.0% $ 106,569
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 9.88
==========
ARM Adjustable Rate Mortgage
Fixed Income Fund
U. S. TREASURY OBLIGATIONS -- 62.9%
United States Treasury Bond
7.500%, 11/15/16 $22,500 $ 22,290
United States Treasury Note
3.875%, 09/30/95 17,000 16,775
4.625%, 02/29/96 17,000 16,699
-----------
Total U. S. Treasury Obligations
(Cost $58,013,964) 55,764
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 18.1%
Federal Home Loan Mortgage
Corporation 1555-PC
5.500%, 11/15/04 5,000 4,725
Federal Home Loan Mortgage
Corporation 1601-PC
5.000%, 05/15/02 5,000 4,764
Federal Home Loan Mortgage
Corporation REMIC 21-B
4.800%, 11/25/08 5,000 4,738
Paine Webber Trust P-3
9.000%, 10/01/12 1,840 1,840
-----------
Total Collateralized Mortgage
Obligations (Cost $16,892,082) 16,067
-----------
U.S. GOVERNMENT AGENCY OBLIGATION -- 3.0%
Financial Assistance
8.800%, 06/10/05 2,500 2,691
-----------
Total U.S. Government Agency Obligation
(Cost $2,670,936) 2,691
-----------
<CAPTION>
- ----------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
YANKEE OBLIGATIONS -- 9.6%
Hydro-Quebec
8.000%, 02/01/13 $ 3,000 $ 2,854
KFW International
8.850%, 06/15/99 1,000 1,055
Petro Canada
8.600%, 01/15/10 800 865
Svenska Handelsbanken
8.350%, 07/15/04 1,000 1,018
8.125%, 08/15/07 2,000 1,970
Westpac
9.125%, 08/15/01 700 740
-----------
Total Yankee Obligations
(Cost $8,563,021) 8,502
-----------
CORPORATE OBLIGATIONS -- 4.6%
Deere
8.950%, 06/15/19 600 647
General Electric Capital,
callable 12/15/96 @ 100
7.980%, 12/15/07 2,500 2,528
Harris Bancorp
9.375%, 06/01/01 800 861
-----------
Total Corporate Obligations
(Cost $3,961,910) 4,036
-----------
REPURCHASE AGREEMENT -- 0.7%
Union Bank of Switzerland
6.12%, dated 02/28/95,
matures 03/01/95, repurchase
price $588,849,
(collateralized by Federal
National Mortgage Association
ARM #291251, par value
$596,834, 5.624%, 08/01/24,
market value $603,268) 589 589
-----------
Total Repurchase Agreement
(Cost $588,747) 589
-----------
Total Investments -- 98.9%
(Cost $90,690,660) 87,649
-----------
OTHER ASSETS AND LIABILITIES -- 1.1%
Other Assets and Liabilities, Net 1,003
-----------
NET ASSETS:
Portfolio shares (unlimited
authorization -- no par
value) based on 8,956,933
outstanding shares of
beneficial interest 91,987
Undistributed net investment
income 2
Accumulated net realized loss
on investments (296)
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
Unaudited
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C>
Net unrealized depreciation
on investments $ (3,041)
-----------
Total Net Assets -- 100.0% $ 88,652
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 9.90
==========
ARM Adjustable Rate Mortgage
REMIC Real Estate Mortgage Investment Conduit
Capital Appreciation
Equity Fund
COMMON STOCK -- 93.7%
AGRICULTURE -- 1.7%
Pioneer Hi-Bred International 67,000 $ 2,261
-----------
AUTOMOTIVE -- 2.7%
Danaher 60,000 1,770
Magna International, Class A 46,000 1,771
-----------
3,541
-----------
BANKS -- 5.9%
First Union 31,000 1,383
Norwest 80,700 2,078
Wells Fargo 26,500 4,257
-----------
7,718
-----------
BUILDING & CONSTRUCTION -- 2.2%
Medusa 118,000 2,921
-----------
CHEMICALS -- 2.2%
E.I. Du Pont De Nemours 50,600 2,840
-----------
COMPUTERS & SERVICES -- 9.8%
Applied Materials* 31,000 1,430
Cisco Systems* 40,000 1,350
Computer Associates
International 34,000 1,938
Exabyte* 68,000 1,284
Intel 60,000 4,783
Oracle Systems* 66,000 2,079
-----------
12,864
-----------
CONTAINERS & PACKAGING -- 2.0%
Crown Cork & Seal* 63,000 2,685
-----------
ELECTRONICS -- 2.4%
Input/Output* 75,000 1,969
Lam Research* 30,000 1,200
-----------
3,169
-----------
ENTERTAINMENT -- 4.5%
Carnival, Class A 104,000 2,470
Circus Circus Enterprises* 59,000 1,549
International Game Technology 40,000 560
Mattel 62,000 1,387
-----------
5,966
-----------
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C>
FINANCIAL SERVICES -- 4.1%
Federal National Mortgage
Association 38,800 $ 2,992
Franklin Resources 30,000 1,163
Reuters Holdings PLC ADR 30,000 1,271
-----------
5,426
-----------
FOOD, BEVERAGE & TOBACCO -- 8.3%
Coca-Cola 56,000 3,080
Kellogg 26,000 1,407
Philip Morris 53,000 3,220
UST 110,000 3,273
-----------
10,980
-----------
HOUSEHOLD PRODUCTS -- 4.9%
Colgate Palmolive 52,000 3,354
Gillette 39,500 3,125
-----------
6,479
-----------
INSURANCE -- 3.3%
Equitable of Iowa 50,000 1,663
US Healthcare 63,500 2,730
-----------
4,393
-----------
LUMBER & WOOD PRODUCTS -- 1.7%
Clayton Homes* 110,000 1,966
Louisiana-Pacific 10,000 283
-----------
2,249
-----------
MACHINERY -- 3.8%
Dover 29,000 1,726
General Electric 60,000 3,292
-----------
5,018
-----------
MEASURING DEVICES -- 2.3%
Thermo Ecotek* 2,800 36
Thermo Electron* 62,000 2,937
-----------
2,973
-----------
MEDICAL PRODUCTS & SERVICES -- 6.3%
Health Management Associates,
Class A* 85,000 2,263
HEALTHSOUTH Rehabilitation* 66,000 2,657
Lincare Holdings* 119,000 3,332
-----------
8,252
-----------
MISCELLANEOUS BUSINESS SERVICES -- 5.9%
Adaptec* 100,000 3,300
Automatic Data Processing 23,600 1,451
First Data 54,880 2,950
-----------
7,701
-----------
PETROLEUM REFINING -- 1.3%
Exxon 26,700 1,709
-----------
PHARMACEUTICALS -- 9.5%
Abbott Laboratories 56,000 1,988
Amgen* 44,000 3,036
Merck 66,000 2,797
</TABLE>
4
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995 Unaudited
Capital Appreciation Equity Fund -- continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C>
PHARMACEUTICALS -- CONTINUED
Pfizer 30,300 $ 2,507
Teva Pharmaceutical ADR 86,000 2,231
-----------
12,559
-----------
RAILROADS -- 2.5%
Chicago and Northwestern
Holdings* 75,000 1,875
Illinois Central 41,000 1,389
-----------
3,264
-----------
RETAIL -- 0.8%
Lowe's Companies 30,000 1,009
-----------
TELEPHONES & TELECOMMUNICATION -- 5.6%
Aspect Telecommunications* 33,000 1,155
Equifax 20,000 618
Motorola 70,000 4,024
Newbridge Networks* 20,000 678
Telefonos De Mexico
Class L ADR 30,000 829
-----------
7,304
-----------
Total Common Stock
(Cost $109,542,688) 123,281
-----------
REPURCHASE AGREEMENT -- 6.8%
Union Bank of Switzerland
6.12%, dated 02/28/95,
matures 03/01/95, repurchase
price $8,932,952,
(collateralized by Federal
Home Loan Mortgage
Corporation ARM #845184, par
value $8,939,682, 6.884%,
06/01/22, market value
$9,152,046) 8,931 8,931
-----------
Total Repurchase Agreement
(Cost $8,931,434) 8,931
-----------
<CAPTION>
- ----------------------------------------------------------------
Market
Description Value (000)
- ----------------------------------------------------------------
<S> <C>
Total Investments -- 100.5%
(Cost $118,474,122) $ 132,212
-----------
OTHER ASSETS AND LIABILITIES -- (0.5%)
Other Assets and Liabilities,
Net (624)
-----------
NET ASSETS:
Portfolio shares (unlimited
authorization -- no par value)
based on 11,859,584 outstanding
shares of beneficial interest 119,279
Accumulated net realized loss
on investments (1,430)
Net unrealized appreciation on
investments 13,739
-----------
Total Net Assets -- 100.0% $ 131,588
==========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 11.10
==========
* Non-income producing security
ADR American Depository Receipt
ARM Adjustable Rate Mortgage
PLC Public Limited Company
</TABLE>
5
<PAGE>
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995 Unaudited
Select Value Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 93.8%
AEROSPACE & DEFENSE -- 2.5%
E-Systems 37,000 $ 1,619
-----------
AIRCRAFT -- 1.9%
McDonnell Douglas 21,600 1,210
-----------
APPAREL/TEXTILES -- 1.9%
V F 24,000 1,236
-----------
AUTOMOTIVE -- 4.5%
Ford Motor 111,100 2,902
-----------
BANKS -- 7.1%
Chemical Banking 34,000 1,364
Citicorp 64,100 2,885
UJB Financial 11,000 311
-----------
4,560
-----------
CHEMICALS -- 6.4%
Monsanto 22,600 1,791
W.R. Grace 51,900 2,336
-----------
4,127
-----------
COMMUNICATIONS EQUIPMENT -- 5.3%
L.M. Ericsson Telephone ADR 26,000 1,479
Motorola 30,000 1,725
U.S. Robotics* 3,212 173
-----------
3,377
-----------
COMPUTERS & SERVICES -- 10.8%
Advanced Micro Devices* 34,000 1,033
Intel 36,800 2,932
Micron Technology 21,300 1,321
Sun Microsystems* 50,500 1,616
-----------
6,902
-----------
ELECTRICAL SERVICES -- 6.6%
Montana Power 94,700 2,249
Pacificorp 103,300 1,976
-----------
4,225
-----------
ENVIRONMENTAL SERVICES
Attwoods Contingent PLC --
Warrants* 40,382 0
-----------
FINANCIAL SERVICES -- 5.6%
CBL & Associates Properties 30,500 621
Salomon 81,850 2,947
-----------
3,568
-----------
FOOD, BEVERAGE & TOBACCO -- 6.5%
Chiquita Brands International 121,000 1,618
Philip Morris 42,100 2,558
-----------
4,176
-----------
INSURANCE -- 4.1%
American Premier Underwriter 27,299 672
Loews 20,400 1,982
-----------
2,654
-----------
<CAPTION>
- ----------------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C>
LEASING & RENTING -- 3.9%
Comdisco 98,200 $ 2,504
-----------
MEDICAL PRODUCTS & SERVICES -- 2.3%
Sun Healthcare Group* 58,147 1,490
-----------
METALS & MINING -- 3.7%
Cyprus AMAX Minerals 26,000 702
Potash of Saskatchewan 46,400 1,659
-----------
2,361
-----------
PETROLEUM & FUEL PRODUCTS -- 4.3%
YPF Sociedad Anonima ADR 146,000 2,774
-----------
PETROLEUM REFINING -- 4.1%
Amoco 13,100 776
Mobil 15,500 1,349
Tosco 17,000 491
-----------
2,616
-----------
RETAIL -- 1.2%
K Mart 58,000 740
-----------
TELEPHONES & TELECOMMUNICATION -- 7.9%
Comsat 128,800 2,286
Telefonos De Mexico ADR 100,500 2,777
-----------
5,063
-----------
WHOLESALE -- 3.2%
Universal-Virginia 103,500 2,057
-----------
Total Common Stock
(Cost $58,041,209) 60,161
-----------
REPURCHASE AGREEMENT -- 6.1%
Union Bank of Switzerland
6.12%, dated 02/28/95,
matures 03/01/95, repurchase
price $3,044,095,
(collateralized by Federal
Home Loan Mortgage
Corporation ARM #845184, par
value $3,947,132, 6.884%,
06/01/22, market value
$4,040,897) 3,943 3,943
-----------
Total Repurchase Agreement
(Cost $3,943,425) 3,943
-----------
Total Investments -- 99.9%
(Cost $61,984,634) 64,104
-----------
* Non-income producing security
ADR American Depository Receipt
PLC Public Limited Company
</TABLE>
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995 Unaudited
Select Value Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Market
Value (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment securities (cost $61,984,634) $ 64,104
Accounts Receivable -- Investment Securities Sold
3,336
Accrued Income 146
Capital Shares Sold 90
Other Assets 14
- ------------------------------------------------------------------------------------------------------------------------
Total Assets 67,690
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Accounts Payable -- Investment Securities Purchased
3,446
Accrued Expenses 61
Capital Shares Redeemed 12
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities 3,519
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Portfolio shares (unlimited authorization--no par value) based on 5,604,709 outstanding shares
of beneficial interest 61,571
Accumulated net realized gain on investments 481
Net unrealized appreciation on investments 2,119
- ------------------------------------------------------------------------------------------------------------------------
Total Net Assets: (100.0%) $ 64,171
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and Redemption Price Per Share $
11.45
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995 Unaudited
Small Company Growth Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C>
COMMON STOCK -- 92.2%
AEROSPACE & DEFENSE -- 1.4%
E-Systems 7,200 $ 315
-----------
AUTOMOTIVE -- 1.3%
Strattec Strategy* 1,640 21
Superior Industries
International 10,100 275
-----------
296
-----------
BANKS -- 8.2%
Baybanks 5,200 326
Compass Bancshares 12,800 352
Firstier Financial* 9,200 291
Mark Twain Bancshares 10,400 302
Wilmington Trust 11,800 292
Zions Bancorporation 7,600 304
-----------
1,867
-----------
BEAUTY PRODUCTS -- 0.7%
Jean Philippe Fragrances* 18,400 161
-----------
BUILDING AND CONSTRUCTION SUPPLIES -- 4.2%
Clayton Homes 21,500 384
Harsco 7,000 303
Ply-Gem Industries 13,800 271
-----------
958
-----------
CHEMICALS -- 2.7%
Cabot 10,600 360
OM Group 10,900 262
-----------
622
-----------
COMMUNICATIONS EQUIPMENT -- 0.9%
Vishay Intertechnology* 4,000 216
-----------
COMPUTER SOFTWARE & SERVICES -- 11.7%
Adaptec* 12,400 408
Banyan Systems* 15,800 271
Black Box* 19,000 257
Catalina Marketing* 5,400 279
Cerner* 6,400 297
Exabyte* 12,600 238
Frame Technology* 18,000 293
Sungard Data Systems* 7,600 314
Xircom* 18,600 302
-----------
2,659
-----------
ELECTRICAL SERVICES -- 7.7%
Belden 13,000 273
Briggs and Stratton 8,200 285
Donaldson 9,600 241
Indresco* 23,200 287
Input/Output* 15,000 394
Lam Research* 6,800 272
-----------
1,752
-----------
ELECTRICAL SERVICES -- 1.4%
Sierra Pacific Resources 16,000 324
-----------
FINANCIAL SERVICES -- 5.5%
CBL & Associates Properties 15,800 322
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
Equitable of Iowa 8,600 $ 286
T. Rowe Price Associates 9,000 288
The Money Store 14,600 365
-----------
1,261
-----------
FOOD, BEVERAGE & TOBACCO -- 2.2%
Canandaigua Wine, Class A* 5,600 208
Chiquita Brands International 22,200 296
-----------
504
-----------
HOUSEHOLD PRODUCTS -- 1.6%
Danaher 12,000 354
-----------
INSURANCE -- 5.5%
American Travellers* 12,000 215
Foundation Health* 12,555 375
Penncorp Financial Group 20,600 330
Reliastar Financial 9,800 334
-----------
1,254
-----------
LEASING & RENTING -- 1.5%
Comdisco 13,800 352
-----------
MEDICAL PRODUCTS & SERVICES -- 8.0%
FHP International* 11,000 296
Health Management Associates
Class A* 11,800 314
HEALTHSOUTH Rehabilitation* 8,400 337
Lincare Holdings* 10,400 291
Renal Treatment Centers* 13,000 283
Sun Healthcare Group* 12,200 313
-----------
1,834
-----------
METALS & MINING -- 2.7%
Cleveland-Cliffs 7,800 306
Potash of Saskatchewan 8,800 315
-----------
621
-----------
PAPER & PAPER PRODUCTS -- 1.0%
Rock-Tenn Class A 12,000 219
-----------
PETROLEUM REFINING -- 3.3%
Diamond Shamrock 10,800 270
Tosco 9,800 283
Total Petroleum of North
America 19,600 203
-----------
756
-----------
PRINTING & PUBLISHING -- 2.9%
International Imaging
Materials* 10,200 293
Medusa 15,200 376
-----------
669
-----------
RAILROADS -- 1.6%
Chicago & North Western
Holdings* 14,200 355
-----------
RETAIL -- 3.3%
Michaels Stores* 6,600 205
Sports & Recreation* 11,300 230
</TABLE>
8
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995 Unaudited
Small Company Growth Fund -- continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C>
RETAIL -- CONTINUED
Waban* 16,200 $ 320
-----------
755
-----------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.5%
Augat 15,800 259
Mark IV Industries 15,000 300
-----------
559
-----------
TECHNOLOGY, GENERAL -- 1.3%
Instrument Systems* 33,000 297
-----------
TELEPHONES & TELECOMMUNICATION -- 3.9%
Aspect Telecommunications* 8,600 301
Cellular Communications of
Puerto Rico* 9,200 318
Comsat 14,600 259
-----------
878
-----------
TRANSPORTATION SERVICES -- 0.6%
Atlantic Southeast Airlines 7,200 144
-----------
TRUCKING -- 1.0%
Intertrans* 11,200 221
-----------
WHOLESALE -- 3.6%
Handleman 26,400 281
Terra Industries 25,000 275
Universal-Virginia 12,800 254
-----------
810
-----------
Total Common Stock
(Cost $19,590,464) 21,013
-----------
<CAPTION>
- ----------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 7.7%
Union Bank of Switzerland
6.12%, dated 02/28/95,
matures 03/01/95, repurchase
price $1,747,282,
(collaterized
by Federal Home Loan Mortgage
Corporation ARM #845184, par
value $1,748,553, 6.884%,
06/01/22, market value
$1,790,690) $ 1,747 $ 1,747
-----------
Total Repurchase Agreement
(Cost $1,747,012) 1,747
-----------
Total Investments -- 99.9%
(Cost $21,337,476) 22,760
-----------
OTHER ASSETS AND LIABILITIES -- 0.1%
Other Assets and Liabilities,
Net 29
-----------
NET ASSETS:
Portfolio shares (unlimited
authorization -- no par
value)
based on 2,008,182
outstanding
shares of beneficial interest 20,798
Accumulated realized gain on
investments 569
Net unrealized appreciation on
investments 1,422
-----------
Total Net Assets -- 100.0% $ 22,789
==========
Net Asset Value, Offering Price
and Redemption Price Per Share $ 11.35
==========
* Non-income producing security
ARM Adjustable Rate Mortgage
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
FFB Lexicon Funds--for the period ended February 28, 1995
<TABLE>
<CAPTION>
----------
CASH
MANAGEMENT
FUND
----------
09/01/94
to
02/28/95
----------
<S> <C>
Dividend Income $ --
Interest Income 3,228
--------
Total Investment Income 3,228
--------
EXPENSES:
Administrator Fee 102
Investment Advisory/Custodian Fee 239
Waiver of Investment Advisory/Custodian Fee (10)
Professional Fees 19
Trustee Fees 2
Registration Fees (2)
Printing Fees 7
Insurance and Other Fees 1
Pricing Expense --
Amortization of Deferred Organizational Costs 2
--------
Total Expenses 360
--------
NET INVESTMENT INCOME 2,868
--------
Net Realized Gain (Loss) on Securities Sold --
Net Unrealized Appreciation (Depreciation) of Investment Securities --
--------
Net Realized and Unrealized Gain (Loss) on Investments --
--------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
$2,868
========
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Unaudited
<TABLE>
<CAPTION>
----------------- ----------- ------------ ----------- -----------
INTERMEDIATE-TERM CAPITAL SMALL
GOVERNMENT FIXED APPRECIATION SELECT COMPANY
SECURITIES INCOME EQUITY VALUE GROWTH
FUND FUND FUND FUND FUND
----------------- ----------- ------------ ----------- -----------
09/01/94 09/01/94 09/01/94 09/01/94 09/01/94
to 02/28/95 to 02/28/95 to 02/28/95 to 02/28/95 to 02/28/95
----------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
$ -- $ -- $ 1,124 $ 797 $ 129
3,280 2,728 176 135 49
----------- -------- -------- -------- --------
3,280 2,728 1,300 932 178
----------- -------- -------- -------- --------
90 74 112 48 19
318 262 494 212 84
(121) (98) (230) (107) (45)
13 10 18 10 2
2 2 2 1 1
2 -- -- 7 --
6 5 8 4 1
2 1 1 1 --
2 2 3 1 1
2 2 2 2 2
----------- -------- -------- -------- --------
316 260 410 179 65
----------- -------- -------- -------- --------
2,964 2,468 890 753 113
----------- -------- -------- -------- --------
(696) (296) 86 871 1,184
271 374 (3,883) (721) (1,353)
----------- -------- -------- -------- --------
(425) 78 (3,797) 150 (169)
----------- -------- -------- -------- --------
$ 2,539 $ 2,546 $ (2,907) $ 903 $ (56)
=========== ======== ======== ======== ========
</TABLE>
12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
FFB Lexicon Funds
<TABLE>
<CAPTION>
-------------------------
CASH
MANAGEMENT
FUND
-------------------------
09/01/94 09/01/93
to 02/28/95 to 08/31/94
-------------------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income $ 2,868 $ 2,729
Net Realized Gain (Loss) on Securities Sold -- --
Net Unrealized Appreciation (Depreciation) of Investment Securities -- --
---------- ----------
Increase (Decrease) in Net Assets Resulting from Operations 2,868 2,729
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income (2,868) (2,729)
Net Realized Gains -- --
---------- ----------
Total Distributions (2,868) (2,729)
---------- ----------
SHARE TRANSACTIONS: (1)
Shares Issued 159,497 360,618
Shares Issued in Lieu of Cash Distributions -- --
Shares Redeemed (186,065) (275,228)
---------- ----------
NET INCREASE (DECREASE) FROM SHARE TRANSACTIONS (26,568) 85,390
---------- ----------
Total Increase (Decrease) in Net Assets (26,568) 85,390
---------- ----------
NET ASSETS:
Beginning of Period 135,687 50,297
---------- ----------
End of Period $ 109,119 $ 135,687
========== ==========
(1) Shares Issued and Redeemed:
Shares Issued 159,497 360,618
Shares Issued in Lieu of Cash Distributions -- --
Shares Redeemed (186,065) (275,228)
---------- ----------
NET INCREASE (DECREASE) FROM SHARE TRANSACTIONS
(26,568) 85,390
========== ==========
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Unaudited
<TABLE>
<CAPTION>
----------------------- ----------------------- ----------------------- ----------------------- -----------------------
INTERMEDIATE-TERM CAPITAL SMALL
GOVERNMENT FIXED APPRECIATION SELECT
COMPANY
SECURITIES INCOME EQUITY VALUE
GROWTH
FUND FUND FUND FUND FUND
----------------------- ----------------------- ----------------------- ----------------------- -----------------------
09/01/94 09/01/93 09/01/94 09/01/93 09/01/94 09/01/93 09/01/94 09/01/93 09/01/94 09/01/93
to 02/28/95 to 08/31/94 to 02/28/95 to 08/31/94 to 02/28/95 to 08/31/94 to 02/28/95 to08/31/94 to 02/28/95 to 08/31/94
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2,964 $ 6,163 $ 2,468 $ 5,007 $ 890 $ 2,200 $ 753 $ 733 $ 113 $ 163
(696) (935) (296) 1,030 86 800 871 3,574 1,184 (103)
271 (6,583) 374 (9,057) (3,883) 1,736 (721) (1,240) (1,353) (640)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
2,539 (1,355) 2,546 (3,020) (2,907) 4,736 903 3,067 (56) (580)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(2,959) (6,163) (2,463) (5,008) (891) (2,211) (753) (733) (113) (164)
(11) (580) (402) (1,744) (2,315) (1,930) (3,246) (951) -- --
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(2,970) (6,743) (2,865) (6,752) (3,206) (4,141) (3,999) (1,684) (113) (164)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
12,238 27,243 6,743 32,873 7,681 32,576 19,886 24,452 2,201 7,547
2,682 6,200 2,588 6,340 3,134 4,116 3,783 1,645 108 162
(14,368) (38,069) (12,084) (24,609) (17,321) (35,892) (3,279) (11,452) (2,533) (5,732)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
552 (4,626) (2,753) 14,604 (6,506) 800 20,390 14,645 (224) 1,977
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
121 (12,724) (3,072) 4,832 (12,619) 1,395 17,294 16,028 (393) 1,233
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
106,448 119,172 91,724 86,892 144,207 142,812 46,877 30,849 23,182 21,949
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
$ 106,569 $ 106,448 $ 88,652 $ 91,724 $ 131,588 $ 144,207 $64,171 $46,877 $22,789 $23,182
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
1,246 2,638 691 3,114 693 2,838 1,688 2,094 198 644
274 606 266 609 295 360 343 143 10 14
(1,462) (3,746) (1,235) (2,394) (1,561) (3,174) (279) (988) (238) (502)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
58 (502) (278) 1,329 (573) 24 1,752 1,249 (30) 156
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
14
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--for the period ended February 28, 1995 Unaudited
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Asset Net Realized and Dividends Distributions
Value Net Unrealized from Net from Net Asset
Beginning Investment Gains (Losses) Investment Realized Value End Total
of Period Income on Investments Income Capital Gains of Period
Return
- ---------------------------------------------------------------------------------------------------------------------
- ----------------------------
CASH MANAGEMENT FUND
- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 1.00 $ 0.02 -- $(0.02) -- $ 1.00 4.82%*
1994 1.00 0.03 -- (0.03) -- 1.00 3.13%
1993 1.00 0.03 -- (0.03) -- 1.00 2.79%
1992(1) 1.00 0.03 -- (0.03) -- 1.00 3.83%*
<CAPTION>
- -------------------------------------------------------
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.92 $ 0.27 $(0.04) $(0.27) -- $ 9.88 4.80%*
1994 10.61 0.54 (0.64) (0.54) $ (0.05) 9.92 (0.99)%
1993 10.41 0.57 0.24 (0.58) (0.03) 10.61 8.03%
1992(2) 10.00 0.48 0.40 (0.47) -- 10.41 10.88%*
<CAPTION>
- ----------------------
FIXED INCOME FUND
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 9.93 $ 0.27 $ 0.01 $(0.27) $ (0.04) $ 9.90 6.00%*
1994 10.99 0.55 (0.86) (0.55) (0.20) 9.93 (2.92)%
1993 10.56 0.63 0.66 (0.64) (0.22) 10.99 12.90%
1992(2) 10.00 0.55 0.55 (0.54) -- 10.56 13.59%*
<CAPTION>
- ---------------------------------------
CAPITAL APPRECIATION EQUITY FUND
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 11.60 $ 0.07 $(0.31) $(0.07) $ (0.19) $ 11.10 (3.74)%*
1994 11.51 0.17 0.24 (0.17) (0.15) 11.60 3.62%
1993 10.34 0.18 1.17 (0.18) -- 11.51 13.17%
1992(2) 10.00 0.17 0.33 (0.16) -- 10.34 6.09%*
<CAPTION>
- ---------------------
SELECT VALUE FUND
- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 12.17 $ 0.15 $(0.08) $(0.15) $ (0.64) $ 11.45 1.78%*
1994 11.85 0.22 0.68 (0.22) (0.36) 12.17 7.98%
1993(3) 10.00 0.17 1.85 (0.17) -- 11.85 24.42%*
<CAPTION>
- -----------------------------------
SMALL COMPANY GROWTH FUND
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 11.38 $ 0.06 $(0.03) $(0.06) -- $ 11.35 0.48%*
1994 11.66 0.08 (0.28) (0.08) -- 11.38 (1.71)%
1993(3) 10.00 0.13 1.66 (0.13) -- 11.66 21.63%*
<CAPTION>
Ratio of Ratio of
Ratio of Expenses Net Investment
Ratio of Net Investment to Average Income to Average
Net Assets Expenses Income Net Assets Net Assets Portfolio
End of to Average to Average (Excluding (Excluding Turnover
Period (000) Net Assets Net Assets Waivers) Waivers) Rate
- ---------------------------------------------------------------------------------------------------------------------
- ----------------------------
CASH MANAGEMENT FUND
- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 109,119 0.60%* 4.79%* 0.62%* 4.77%* --
1994 135,687 0.55% 3.16% 0.66% 3.05% --
1993 50,297 0.55% 2.77% 0.61% 2.71% --
1992(1) 77,773 0.55%* 3.76%* 0.66%* 3.65%* --
<CAPTION>
- -------------------------------------------------------
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 106,569 0.60%* 5.59%* 0.83%* 5.36%* 16.03%
1994 106,448 0.55% 5.22% 0.82% 4.95% 44.74%
1993 119,172 0.55% 5.48% 0.83% 5.20% 30.54%
1992(2) 87,648 0.55%* 5.68%* 0.86%* 5.37%* 47.39%
<CAPTION>
- ----------------------
FIXED INCOME FUND
- ----------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 88,652 0.60%* 5.64%* 0.82%* 5.42%* 28.07%
1994 91,724 0.55% 5.32% 0.83% 5.04% 68.63%
1993 86,892 0.55% 5.93% 0.83% 5.65% 49.40%
1992(2) 66,695 0.55%* 6.49%* 0.86%* 6.18%* 65.03%
<CAPTION>
- ---------------------------------------
CAPITAL APPRECIATION EQUITY FUND
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 131,588 0.62%* 1.35%* 0.97%* 1.00%* 66.94%
1994 144,207 0.55% 1.49% 0.98% 1.06% 41.44%
1993 142,812 0.55% 1.64% 0.97% 1.22% 54.41%
1992(2) 122,105 0.55%* 1.95%* 1.00%* 1.50%* 78.31%
<CAPTION>
- ---------------------
SELECT VALUE FUND
- ---------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 64,171 0.63%* 2.66%* 1.01%* 2.28%* 25.14%
1994 46,877 0.44% 2.03% 1.02% 1.45% 80.47%
1993(3) 30,849 0.39%* 1.85%* 1.05%* 1.19%* 32.36%
<CAPTION>
- -----------------------------------
SMALL COMPANY GROWTH FUND
- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 22,789 0.59%* 1.01%* 0.99%* 0.61%* 59.87%
1994 23,182 0.45% 0.70% 1.02% 0.13% 74.71%
1993(3) 21,949 0.43%* 1.43%* 1.06%* 0.80%* 34.88%
</TABLE>
(1) The Cash Management Fund commenced operations on October 31, 1991.
(2) The Intermediate-Term Government Securities Fund, the Fixed Income Fund and
the Capital Appreciation Equity Fund commenced operations on November 1,
1991.
(3) The Select Value Fund and the Small Company Growth Fund commenced operations
on November 2, 1992.
* Annualized
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995 Unaudited
1. Organization:
FFB Lexicon Funds (the "Trust") was organized as a Massachusetts business trust
under a Declaration of Trust dated July 24, 1991. The Trust is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company with eight portfolios: the Cash Management Fund,
the Intermediate-Term Government Securities Fund, the Fixed Income Fund, the
Select Value Fund, the Capital Appreciation Equity Fund, the Dividend Growth
Fund, the Small Company Growth Fund and the Cash Plus Fund. The financial
statements included herein present those of the Cash Management Fund, the
Intermediate-Term Government Securities Fund, the Fixed Income Fund, the Capital
Appreciation Equity Fund, the Select Value Fund, and the Small Company Growth
Fund (the "Funds"). The financial statement of the Dividend Growth Fund is
presented separately. The Cash Plus Fund had not commenced operations as of
February 28, 1995. The assets of each Fund are segregated, and a shareholder's
interest is limited to the Fund in which shares are held.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies followed by
the Trust.
Security Valuation--Investment securities held by the Cash Management Fund
are stated at amortized cost, which approximates market value. Under this
valuation method, purchase discounts and premiums are accreted and amortized
ratably to maturity and are included in interest income.
Investment securities held by the Intermediate-Term Government Securities
Fund, the Fixed Income Fund, the Capital Appreciation Equity Fund, the Select
Value Fund, and the Small Company Growth Fund listed on a securities exchange
for which market quotations are available are valued at the last quoted sales
price on each business day. If there is no such reported sale, these securities
are valued at the most recently quoted bid price. Unlisted securities for which
market quotations are readily available are valued at the most recently quoted
bid price. Debt obligations, with sixty days or less remaining until maturity,
may be valued at their amortized cost.
Federal Income Taxes--It is each Fund's intention to continue to qualify as
a regulated investment company for Federal income tax purposes and distribute
all of its taxable income and net capital gains. Accordingly, no provisions for
Federal income taxes are required.
Security Transactions and Related Income--Security transactions are
accounted for on the date the security is purchased or sold (trade date).
Dividend income is recognized on the ex-dividend date, and interest income is
recognized on the accrual basis. Costs used in determining realized gains and
losses on the sale of investment securities are those of the specific securities
sold adjusted for the accretion and amortization of purchase discounts and
premiums during the respective holding period. Gains and losses realized on
sales of securities are determined on a first-in first-out (FIFO) basis.
Purchase discounts and premiums on securities held by the Intermediate-Term
Government Securities Fund, the Fixed Income Fund, the Capital Appreciation
Equity Fund, the Select Value Fund, and the Small Company Growth Fund are
accreted and amortized to maturity using the scientific interest method, which
approximates the effective interest method.
Repurchase Agreements--Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements ensure that the market value of
the collateral, including accrued interest thereon, is sufficient in the event
of default of the counterparty. If the counterparty defaults and the value of
the collateral declines or if the counterparty enters an insolvency proceeding,
realization of the collateral by the Funds may be delayed or limited.
Distributions--Distributions from net investment income are paid to
shareholders on a monthly basis. Any net realized capital gains on sales of
securities are distributed to shareholders at least annually. Income and capital
gain distributions are determined in accordance with income
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
FFB Lexicon Funds--February 28, 1995
tax regulations which may differ from generally accepted accounting principles.
Other--Expenses that are directly related to one of the Funds are charged
to that Fund. Other operating expenses of the Trust are prorated to the Funds on
the basis of relative net assets.
3. Organization Costs and
Transactions with Affiliates:
The Trust incurred organization costs of approximately $122,000. These costs
have been deferred in the accounts of the Funds and are being amortized on a
straight line basis over a period of sixty months commencing with operations.
These costs include legal fees of approximately $28,000 for organizational work
performed by a firm of which a trustee and an officer of the Trust are partners.
On September 27, 1991, the Trust sold initial shares of beneficial interest to
SEI Financial Management Corporation (the "Administrator"). In the event any of
the initial shares of the Trust are redeemed by any holder thereof during the
period that the Trust is amortizing organizational costs, the redemption
proceeds payable to the holder thereof by the Fund will be reduced by the
unamortized organizational costs in the same ratio as the number of initial
shares being redeemed bears to the number of initial shares outstanding at the
time of redemption.
Certain officers and trustees of the Trust are also officers of the
Administrator and/or SEI Financial Services Company (the "Distributor"). Such
officers and trustees are paid no fees by the Trust for serving as officers and
trustees of the Trust.
4. Administration and Distribution
Agreements:
The Trust and the Administrator are parties to an administration agreement dated
October 18, 1991, under which the Administrator provides management and
administrative services for an annual fee of .17% of the average daily net
assets of each of the Funds of the Trust.
The Trust and the Distributor are parties to a distribution agreement dated
October 18, 1991. The Distributor receives no fees for its distribution services
under this agreement.
5. Investment Advisory and Custodian
Agreements:
The Trust and First Fidelity Bank, N.A., (the "Adviser") are parties to an
investment advisory agreement (the "Advisory Agreement") dated October 18, 1991
under which the Adviser receives an annual fee equal to .40% of the average
daily net assets of the Cash Management Fund, .60% of the average daily net
assets of each of the Intermediate-Term Government Securities and Fixed Income
Funds, and .75% of the average daily net assets of the Capital Appreciation
Equity Fund, the Select Value Fund, and the Small Company Growth Fund. Effective
January 1995, the Adviser has voluntarily agreed for an indefinite period of
time, to waive all or a portion of its fees (and to reimburse the Funds'
expenses) in order to limit operating expenses to .80% of the average daily net
assets of the Fixed Income Fund and the Intermediate-Term Government Securities
Fund; .95% of the average daily net assets of the Capital Appreciation Equity
Fund and the Select Value Fund; and .75% of the average daily net assets of the
Small Company Growth Fund. Prior to January 27, 1995, annual operating expenses
of the Intermediate-Term Government Securities Fund, the Fixed Income Fund, the
Select Value Fund, the Capital Appreciation Equity Fund and the Small Company
Growth Fund were limited to not more than .55% of average daily net assets.
Effective September 23, 1994, the Adviser eliminated its fee waiver with respect
to the Cash Management Fund and increased operating expenses from .55% to .61%
of the average daily net assets. Fee waivers and expense reimbursements are
voluntary and may be terminated at any time.
17
<PAGE>
- --------------------------------------------------------------------------------
Unaudited
First Fidelity Bank, N.A., acts as custodian (the "Custodian") for the
Funds. Fees payable to the Custodian for services are included as part of the
fees under the Advisory Agreement.
6. Investment Transactions:
The cost of security purchases and the proceeds from security sales, other than
short-term investments, for the period ended February 28, 1995, are as follows:
<TABLE>
<CAPTION>
Intermediate-
Term Capital Small
Government Fixed Appreciation Select Company
Securities Income Equity Value Growth
Fund Fund Fund Fund Fund
(000) (000) (000) (000) (000)
-------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Purchases $ 0 $ 2,509 $ 85,188 $30,660 $12,477
Sales 0 469 100,120 13,236 12,643
U.S. Gov't.
Purchases 18,982 21,441 0 0 0
U.S. Gov't. Sales 16,194 24,899 0 0 0
</TABLE>
At February 28, 1995 the total cost of securities and the net realized
gains or losses on securities sold, for Federal income tax purposes, was not
materially different from amounts reported for financial reporting purposes. The
aggregate gross unrealized appreciation and depreciation for securities held by
the Funds at February 28, 1995 is as follows:
<TABLE>
<CAPTION>
Intermediate-
Term Capital Small
Government Fixed Appreciation Select Company
Securities Income Equity Value Growth
Fund Fund Fund Fund Fund
(000) (000) (000) (000) (000)
--------- ------ --------- ------ ------
<S> <C> <C> <C> <C> <C>
Aggregate gross
unrealized
appreciation $ 409 $ 414 $ 15,980 $ 5,809 $2,179
Aggregate gross
unrealized
depreciation (1,991) (3,455) (2,241) (3,690) (757)
---------- ------- ---------- ------- ------
Net unrealized
appreciation/
(depreciation) $(1,582) $(3,041) $ 13,739 $ 2,119 $1,422
========== ====== ========= ====== ======
</TABLE>
7. Concentration of Credit Risk:
The Cash Management Fund invests in a portfolio of money market instruments
maturing in 397 days or less which are rated in the highest rating category by a
nationally recognized statistical rating agency or, if not rated, are believed
to be of comparable quality. The ability of the issuers of the securities held
by the Fund to meet their obligations may be affected by economic developments
in a specific industry, state or region.
The summary of credit quality ratings for the securities held by the Cash
Management Fund at February 28, 1995 are as follows:
<TABLE>
<CAPTION>
Standard
& Poor's
-------
<S> <C>
Repurchase Agreements 13.27%
A-1 15.12%
A-1+ 71.61%
</TABLE>
Portfolio breakdowns are stated as a percentage of total portfolio value.
Repurchase agreements are collateralized by U.S. Government or U.S. Government
agency securities.
Mortgage-backed securities held in the Intermediate-Term Government
Securities Fund and Fixed Income Fund are subject to prepayment of the
underlying mortgages. During periods of declining interest rates, prepayment of
mortgages underlying these securities can result in the reinvestment in
securities yielding lower prevailing rates.
18
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- ----------------------------------------------------
THE FFB LEXICON FUNDS
- ----------------------------------------------------
SEMI-ANNUAL REPORT
AS OF FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
INVESTMENTS
- --------------------------------------------------------------------------------
FOR A
- --------------------------------------------------------------------------------
LIFETIME
- --------------------------------------------------------------------------------
<PAGE>
LEX-F-011-05
FFB
Lexicon Funds
Investment Adviser:
First Fidelity Bank, N.A.
FFB Lexicon Funds (the "Trust") is a mutual fund seeking to provide a
convenient and economical means of investing in one or more professionally
managed portfolios of securities. This prospectus relates to the Institutional
Class shares of the following Funds:
CAPITAL APPRECIATION EQUITY FUND
SELECT VALUE FUND
SMALL COMPANY GROWTH FUND
DIVIDEND GROWTH FUND
Institutional Class
~ The Funds' Institutional Class shares are offered primarily to institutional
investors (the "shareholders"), including First Fidelity Bank, N.A., its
affiliates and correspondents for the investment of funds for which they act
in a fiduciary, agency, or custodial capacity.
This prospectus sets forth concisely the information about the Funds (as
hereinafter defined) that a prospective investor should know before investing.
Investors are advised to read this prospectus and retain it for future
reference. A Statement of Additional Information dated December 29, 1994, has
been filed with the Securities and Exchange Commission and is available without
charge through the Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, PA 19087-1658 or by calling 1-800-833-8974. The
Statement of Additional Information is incorporated into this prospectus by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK INCLUDING FIRST FIDELITY BANK, N.A. OR ANY OF ITS
AFFILIATES. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
December 29, 1994
SUMMARY
FFB Lexicon Funds (the "Trust") is a diversified open-end management
investment company which provides a convenient way to invest in professionally
managed portfolios of securities. The following provides basic information
about the Capital Appreciation Equity Fund, Select Value Fund, Small Company
Growth Fund and the Dividend Growth Fund (each a "Fund" and collectively the
"Funds").
What is the Investment Objective? The Capital Appreciation Equity, Small
Company Growth, and Dividend Growth Funds seek to provide long-term capital
appreciation. The Select Value Fund seeks long-term growth of capital. See
"Investment Objective and Policies".
What are the Permitted Investments? The Capital Appreciation Equity Fund
invests primarily in a diversified portfolio of common stocks which, in the
Adviser's opinion, are undervalued relative to the market and to the stock's
historic valuation. The Select Value Fund invests primarily in a diversified
portfolio which, in the Adviser's opinion, are undervalued in the marketplace
at the time of purchase. The Small Company Growth Fund invests primarily in
common stocks of companies with a market capitalization of less than $500
million. The Dividend Growth Fund invests primarily in a diversified portfolio
of common stocks which, in the Adviser's opinion, offer a greater than average
opportunity for both price appreciation and dividend growth. See "Investment
Objectives and Policies".
What are the Risks Involved With an Investment in the Funds? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. Shares of the Funds will fluctuate in value and when
sold may be worth more or less than what was paid for them. The Small Company
Growth Fund invests in the common stocks of smaller companies which involves
special risks, including greater business risks of small size, limited markets
and financial resources, narrow product lines and frequent lack of depth of
management. The securities of such companies are often traded in the
over-the-counter market and may not be traded in volumes typical on a national
exchange. Thus such securities may be less liquid, and there may be more abrupt
or erratic market movements than with larger, well established companies. See
"Description of Permitted Investments and Risk Factors."
Are My Investments Insured? The Trust's shares are not federally insured by the
FDIC or any other government agency. Any guaranty by the U.S. Government, its
agencies or instrumentalities of securities in which any Fund invests
guarantees only the payment of principal and interest on the guaranteed
security and does not guarantee the yield or value of that security or the
yield or value of shares of that Fund.
Who is the Adviser? First Fidelity Bank, N.A., serves as the adviser of the
Trust. See "The Adviser".
Who is the Administrator? SEI Financial Management Corporation serves as the
administrator of the Trust. See "The Administrator".
Who is the Shareholder Servicing Agent? SEI Financial Management Corporation
serves as transfer agent, dividend disbursing agent, and shareholder servicing
agent for the Institutional Class and Service Class shares of the Trust. See
"The Shareholder Servicing and Transfer Agent".
Who is the Distributor? SEI Financial Services Company serves as distributor of
the Trust's shares. See "The Distributor".
How do I Purchase and Redeem Shares? Purchases and redemptions may be made
through the Distributor on any days when both the New York Stock Exchange and
Federal Reserve Wire System are open for business ("Business Day"). A purchase
order will be effective as of the day received by the Distributor if the
Distributor receives an order prior to 4:00 p.m. Eastern time, on any Business
Day and the Custodian receives Federal funds before 3:00 p.m. Eastern time, on
the next Business Day. Redemption orders must be placed prior to 4:00 p.m.
Eastern time, on any Business Day for the order to be accepted that day. See
"Purchase and Redemption of Shares".
How are Dividends Paid? Substantially all of the net investment income
(exclusive of capital gains) of each Fund is distributed monthly in the form of
periodic dividends on the last Business Day of each month. See "Dividends".
2
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES.. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Capital Select Small Company Dividend
Appreciation Value Growth Growth
Equity Fund Fund Fund Fund
- -------------------------------------------------------------------------------
Advisory Fees (after fee waivers)1.. .32% .28% .28% .29%
Other Expenses...................... .23% .27% .27% .26%
- -------------------------------------------------------------------------------
Total Operating Expenses (after fee
waivers)2........................... .55% .55% .55% .55%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Adviser has agreed to voluntarily waive a portion of its fees. Fee
waivers are voluntary and may be terminated at any time. Absent fee
waivers, Advisory Fees would be .75% for the Capital Appreciation Equity
Fund, the Select Value Fund, the Small Company Growth Fund, and the
Dividend Growth Fund. The Advisory fee includes amounts paid to the Adviser
for custody services.
(2) Absent fee waivers, Total Operating Expenses would be .98% of the Capital
Appreciation Equity Fund's average net assets, 1.02% of the Select Value
Fund's average net assets, 1.02% of the Small Company Growth Fund's average
net assets and 1.01% of the Dividend Growth Fund's average net assets.
Example
- ----------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------
An investor would pay the following
expenses on a $1,000 investment
assuming (1) 5% annual return and
(2) redemption at the end of each
time period...................................
Capital Appreciation Equity Fund.............. $6 $18 $31 $69
Select Value Fund............................. $6 $18 $31 $69
Small Company Growth Fund..................... $6 $18 $31 $69
Dividend Growth Fund.......................... $6 $18 $31 $69
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Financial
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in a
Fund. The information set forth in the foregoing table and example relates only
to Institutional Class shares. The Trust also offers Investor Class shares of
the Funds which are subject to the same expenses, except that Investor Class
shares are subject to a sales charge and distribution expenses. Additional
information may be found under "The Administrator" and "The Adviser."
3
FINANCIAL HIGHLIGHTS:
The following table of per unit data and ratios has been audited by Arthur
Andersen & Co., the Trust's independent public accountants, as indicated in
their report dated September 30, 1994, on the Trust's financial statements as
of August 31, 1994 included in the Trust's Statement of Additional Information
under "Financial Information." This table should be read in conjunction with
the Trust's financial statements and notes thereto. The Dividend Growth Fund
had not commenced operations as of August 31, 1994.
<TABLE>
<CAPTION>
For a Share Outstanding Throughout The Period.
Ratio of
Dividends and ---------------------------------------
Net Distributions Net Inv
Real. & ------------- Net Net Inv. Exp to Inc.
Unreal. from from Assets Exp to Inc. Avg. Avg.
NAV Net Gains Net Real. NAV End of Avg. Avg. Net Assets Net Assets Portfolio
Beg. Inv. (Losses) Inv. Capital End of Total Period Net Net (Excluding (Excluding Turnover
of Per. Inc. on Inv. Income Gains Period Return (000's) Assets Assets Waivers Waivers) Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Equity Fund
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $ 11.51 $ 0.17 $ 0.24 $(0.17) $(0.15) $11.60 3.62% $144,207 0.55% 1.49% 0.98% 1.06% 41.44%
1993 10.34 0.18 1.17 (0.18) -- 11.51 13.17% 142,812 0.55% 1.64% 0.97% 1.22% 54.41%
1992(1) 10.00 0.17 0.33 (0.16) -- 10.34 6.09%* 122,105 0.55%* 1.95%* 1.00%* 1.50%* 78.31%
Select Value Fund
- --------------------------------------------------------
1994 $ 11.85 $ 0.22 $ 0.68 $(0.22) $(0.36) $12.17 7.98% $46,877 0.44% 2.03% 1.02% 1.45% 80.47%
1993(2) 10.00 0.17 1.85 (0.17) -- 11.85 24.42%* 30,849 0.39%* 1.85%* 1.05%* 1.19%* 32.36%
Small Company Growth Fund
- --------------------------------------------------------
1994 $ 11.66 $ 0.08 $(0.28) $(0.08) -- $11.38 (1.71)% $23,182 0.45% 0.70% 1.02% 0.13% 74.71%
1993(2) 10.00 0.13 1.66 (0.13) -- 11.66 21.63%* 21,949 0.43%* 1.43%* 1.06%* 0.80%* 34.88%
</TABLE>
(1) The Capital Appreciation Equity Fund commenced operations on November 1,
1991.
(2) The Select Value Fund and the Small Company Growth Fund commenced
operations on November 2, 1992.
* Annualized
Amounts designated as "-" are either $0 or have been rounded to $0.
4
THE TRUST
The FFB Lexicon Funds (the "Trust") is a diversified, open-end management
investment company that offers units of beneficial interest ("shares") in the
Funds. This prospectus relates to the Institutional Class shares of the Trust's
Capital Appreciation Equity Fund, Select Value Fund, Small Company Growth Fund
and Dividend Growth Fund (each a 'Fund" and collectively the "Funds"). The
Trust offers two classes of shares of the Funds-Investor Class and
Institutional Class-which provide for variations in sales charges, distribution
costs, voting rights, and dividends. Except for these differences, each share
of each Fund represents an undivided proportionate interest in the Fund.
Information regarding the Trust's other Funds is contained in separate
prospectuses that may be obtained from the Trust's Distributor, SEI Financial
Services Company, 680 East Swedesford Road, Wayne, PA 19087-1658 or by calling
1-800-833-8974.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has its own investment objectives and policies. There can be no
assurance that the investment objective of a Fund will be met.
Capital Appreciation Equity Fund
The investment objective of the Capital Appreciation Equity Fund is long-term
capital appreciation.
The Fund invests primarily in a diversified portfolio of common stocks believed
by First Fidelity Bank, N.A. ("First Fidelity" or the "Adviser") to be
undervalued relative to the market and to the stock's historic valuation. The
Adviser considers common stocks to be appropriate for the Fund if they have a
strong potential for improvement in future earnings and appreciation and a
medium to high capitalization ($500 million and higher). Under normal
conditions at least 75% of the Fund's assets will be invested in common stocks
of the type described above. The remainder of the Fund's assets may also be
invested in the following: preferred stocks, securities (debt securities,
warrants and preferred stocks) convertible into common stock, covered call
options, U.S. dollar
denominated securities of foreign issuers (including American Depositary
Receipts that are traded on exchanges or listed on NASDAQ), money market
securities (of the types described below), and repurchase agreements.
Select Value Fund
The investment objective of the Select Value Fund is long-term growth of
capital.
The Fund will be primarily invested in a diversified portfolio of quality,
common stocks which, in the Adviser's opinion, are undervalued in the
marketplace at the time of purchase. The Adviser characterizes undervalued
quality common stocks as those that have lower than average debt too equity
ratios and lower than average price to book ratios as measured by the Standard
& Poor's 500 Composite Stock Price Index. The Adviser also considers other
factors such as fixed charge coverage, price to gross cash flow, and market
capitalization, as well as industry outlook and market share.
Under normal conditions at least 75% of the Fund's assets will be invested in
common stocks of the type described above. The remainder of the Fund's assets
may also be invested in the following: preferred stocks, securities (debt
securities, warrants and preferred stocks) convertible into common stock,
covered call options, U.S. dollar denominated securities of foreign issuers
(including American Depositary Receipts that are traded on exchanges or listed
on NASDAQ), money market securities (of the types described below), and
repurchase agreements.
Small Company Growth Fund
The investment objective of Small Company Growth Fund is to provide long-term
capital appreciation.
The Fund will be primarily invested in a diversified portfolio of common
stocks. In general, the Adviser will invest in the common stocks of growth
oriented smaller capitalization companies generally having a market
capitalization of less than $500 million (measured at the time of purchase). A
majority of the
5
Fund's common stocks will normally pay a dividend. In selecting common stocks,
the Adviser also considers other factors such as a company's return on equity,
reinvestment rates and debt to equity ratios.
Under normal conditions at least 75% of the Fund's assets will be invested in
common stocks of the type described above. The remainder of the Fund's assets
may also be invested in the following: preferred stocks, securities (debt
securities, warrants and preferred stock) convertible into common stock,
covered call options, U.S. dollar denominated securities of foreign issuers
(including American Depositary Receipts that are traded on exchanges or listed
on NASDAQ), money market securities (of the type described below) and
repurchase agreements.
Dividend Growth Fund
The investment objective of the Dividend Growth Fund is long-term capital
appreciation.
The Fund will be primarily invested in a diversified portfolio of common stocks
which, in the Adviser's opinion, offer a greater than average opportunity for
both price appreciation and sustainable dividend growth. The Adviser emphasizes
a disciplined approach to investing in companies with attractive earnings
growth and dividend growth records. Normally, the type of company in which the
Trust will invest, fits the profile of a high quality, low yield and high
growth company. However, for strategic and diversification reasons, the Fund
may invest in cyclical and non-dividend paying companies.
Under normal conditions, at least 75% of the Fund's asses will be invested in
common stocks of the type described above. The remainder of the Fund's assets
may also be invested in the following: preferred stocks, securities convertible
into common stock (debt securities, warrants and preferred stocks), covered
call options, U.S. dollar denominated securities of foreign issuers (including
American Depositary Receipts that are traded on exchanges or listed on NASDAQ),
money market securities (of the types described below), and repurchase
agreements.
Under normal circumstances it is anticipated that the annual portfolio turnover
rate for the Fund will not exceed 75%.
General Investment Policies
For temporary defensive purposes during periods when the Adviser determines
that market conditions warrant, each Fund may invest up to 100% of its assets
in money market instruments consisting of securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, receipts evidencing
separately traded principal and interest components of U.S. Government
obligations, repurchase agreements, certificates of deposit, time deposits and
bankers' acceptances issued by banks or savings and loan associations with
assets of at least $1 billion as of the end of their most recent fiscal year,
commercial paper rated at least A-1 by Standard & Poor's Corporation ("S&P") or
P-1 by Moody's Investors Services ("Moody's") and may hold a portion of its
assets in cash.
In order to generate additional income each Fund may lend the securities in
which it invests.
Each Fund will limit its investment in illiquid securities to 10% of its net
assets.
Each Fund may write covered call options on securities provided the aggregate
value of such options does not exceed 20% of the Fund's net assets as of the
time such options are written.
For additional information regarding the Funds' permitted investments and a
description of the above ratings, see "Description of Permitted Investments and
Risk Factors" and the Statement of Additional Information.
FUNDAMENTAL POLICIES
The investment objective and the following investment limitations are
fundamental policies of a Fund. Fundamental policies cannot be changed with
respect to the Fund without the consent of the holders of a majority of the
Fund's outstanding shares.
6
INVESTMENT LIMITATIONS
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Fund would be invested in the securities of such issuer. This restriction
applies to 75% of the Fund's assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be divided according to their services,
for example, gas, gas transmission, electric and telephone will each be
considered a separate industry, (ii) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (iii) supranational entities will be
considered to be a separate industry.
3. Make loans, except that the Fund may (a) purchase or hold debt instruments
in accordance with its investment objective and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this prospectus and in the Statement of Additional Information.
4. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of its assets. All borrowings will
be repaid before the Fund makes additional investments and any interest paid on
such borrowings will reduce income.
The foregoing percentages will apply at the time of the purchase. Additional
investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
The Trust and First Fidelity have entered into an advisory agreement (the
"Advisory Agreement"). Under the Advisory Agreement, the Adviser makes the
investment decisions for the assets of a Fund and continuously reviews,
supervises and administers the Fund's investment program, subject to the
supervision of, and policies established by, the Trustees of the Trust.
The Adviser is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of .75% of the average daily net assets of each Fund. The
Adviser may waive all or a portion of its fees in order to limit the operating
expenses of a Fund. Fee waivers are voluntary and may be terminated at any time
in the Adviser's sole discretion. The Advisory fee includes amounts paid to the
Adviser for custody services. See "The Custodian." For the fiscal year ended
August 31, 1994, the Adviser received a fee equal to .32% of the Capital
Appreciation Equity Fund; .27% of the Select Value Fund, and .29% of the Small
Company Growth Fund. The Dividend Growth Fund had not commenced operations as
of August 31, 1994.
First Fidelity serves as the investment adviser for each Fund in the Trust. The
offices of the Adviser are located at 765 Broad Street, Newark, New Jersey
07192. The Adviser is a national banking association which provides commercial
banking and trust business services throughout New Jersey, New York and
Pennsylvania. It is a wholly-owned subsidiary of First Fidelity Incorporated,
originally established in 1812, which, as a result of a reorganization with
Fidelcor, Inc., a Pennsylvania bank holding company, is now a wholly-owned
subsidiary of First Fidelity Bancorporation. First Fidelity Bancorporation, a
New Jersey Corporation, provides financial and related services through its
subsidiary organizations. The advisory services of the Adviser are provided
through the Asset Management Group of its Trust Division. As of September 30,
1994, the Trust Division had approximately $16.6 billion of client assets under
management. The Adviser has provided investment advisory services to investment
companies since 1986.
7
Art Fitilis is responsible for the day to day management of the Capital
Appreciation Equity Fund. Mr. Fitilis, a Vice President of First Fidelity Bank,
Newark, New Jersey, is an Investment Officer in the Asset Management Group of
the Institutional Investment Division. Prior to joining First Fidelity Bank in
August 1994, Mr. Fitilis was a Vice President of The Bank of New York for
approximately four years as a Senior Portfolio Manager and was a member of the
Investment Committee. His experience also includes approximately eleven years
as a Senior Portfolio Manager at Bankers Trust Company. He was previously a
Vice President at GE Investments and a partner at Wood, Struthers and Winthrop,
Inc., a brokerage firm specializing in institutional investment research.
Mr. Timothy O'Grady has been responsible for the day-to-day management of the
Select Value Fund since March 1, 1993. Mr. O'Grady has served as Assistant Vice
President and Portfolio Manager of First Fidelity from November, 1986 to the
present.
Mark Sipe, a Director of Equity Management is responsible for the day to day
management of the Small Company Growth Fund. Mark Sipe joined the Adviser in
1992 as Director of Equity Management. Mr. Sipe oversees the equity investment
process at First Fidelity. His responsibilities include developing and
maintaining key investment models and approaches, as well as managing the
largest Personal Trust common trust fund, the Common Stock Fund. Mr. Sipe has
sixteen years of investment management experience. Most recently, he spent ten
years as Director of Research for First Union National Bank. He is also a
Chartered Financial Analyst.
The Glass-Steagall Act restricts the securities activities of national banks
such as the Adviser but the Comptroller of the Currency permits national banks
to provide investment advisory and other services to mutual funds. Should the
Comptroller's position be challenged successfully in court or reversed by
legislation, the Trust may need to make other investment advisory arrangements.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI") and the Trust are parties to an
Administration Agreement (the "Administration Agreement"). Under the terms of
the Administration Agreement, the Administrator provides the Trust with overall
management services and all necessary office space, equipment, personnel, and
facilities.
The Administrator is entitled to a fee,
which is calculated daily and paid monthly, at an annual rate of .17% of the
average daily net assets of the Fund. The Administrator may waive all or a
portion of its fee in order to limit the operating expenses of a Fund. Fee
waivers are voluntary and may be terminated at any time in the Administrator's
sole discretion.
THE SHAREHOLDER SERVICING AND
TRANSFER AGENT
The Administrator also serves as the transfer agent, dividend disbursing agent,
and shareholder servicing agent for the Institutional Class and Service Class
shares of the Trust. Compensation for these services is paid under the
Administration Agreement.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"). No compensation is paid to the Distributor for distribution
services for the Fund. The Fund may execute brokerage or other agency
transactions through the Distributor for which the Distributor receives
compensation.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of shares of a Fund may be made on the days on which
both the New York Stock Exchange and Federal Reserve Wire System are open for
business ("Business Day").
A purchase order will be effective as of the day received by the Distributor if
the Distributor receives
8
an order before 4:00 p.m. Eastern time on any Business Day, and the Custodian
receives Federal funds before 3:00 p.m. Eastern time on the next Business Day.
The purchase price of shares of the Fund is the net asset value next determined
after a purchase order is received and accepted by the Trust. Although the
methodology and procedures for determining net asset value are identical for
both classes of a Fund, the net asset value per share of such classes will
differ because of the distribution expenses charged to Investor Class shares.
Net asset value per share is determined daily as of the close of trading on the
New York Stock Exchange (currently 4:00 p.m. Eastern time), on any Business
Day. Purchases will be made in full and fractional shares of the Trust
calculated to three decimal places. The Trust reserves the right to reject a
purchase order when the Distributor determines that it is not in the best
interest of the Trust and/or its shareholders to accept such order. Financial
institutions may impose an earlier cut-off time for receipt of purchase orders
directed through them to allow for processing and transmittal of these orders
to the Distributor for effectiveness the same day. In addition, financial
institutions that are the record owners of shares for the account of their
customers may impose separate fees for account services to their customers and
may establish other procedures for purchasing shares for their customer
accounts. Shares of the Fund are offered only to residents of states in which
the shares are eligible for purchase.
Shareholders who desire to redeem shares of the Funds must place their
redemption orders prior to 4:00 p.m. Eastern time, on any Business Day, for the
order to be accepted on that Business Day. The redemption price of shares is
the net asset value of the Fund next determined after receipt by the
Distributor of the redemption order. Payment on redemption will be made as
promptly as possible and, in any event, within five Business Days after the
redemption order is received.
Neither the Trust's transfer agent nor the Trust will be responsible for any
loss, liability, cost or expense for acting upon telephone or wire instructions
reasonably believed to be genuine and the investor will bear all risk of loss.
The Trust maintains procedures, including identification methods and other
means, for
ascertaining the identity of callers and authenticity of
instructions.
PERFORMANCE
From time to time, each of the Funds may advertise yield and total return.
These figures are based on historical earnings and are not intended to indicate
future performance. No representation can be made concerning actual future
yields or returns.
The "yield" of a Fund refers to the income generated by a hypothetical
investment, net of any sales charge imposed in such Fund over a thirty day
period. This income is then "annualized," i.e., the income over thirty days is
assumed to be generated over one year and is shown as a percentage of the
investment.
The "total return" of a Fund refers to the average compounded rate of return on
a hypothetical investment for designated time periods, and assuming that
dividend and capital gain distributions have been reinvested.
For any Fund, the performance of Institutional Class shares will be higher than
that of Investor Class shares because of the sales charge (when applicable) and
distribution expenses generally charged to Investor Class shares.
The Funds may periodically compare their performance to that of other mutual
funds tracked by mutual funds rating services (such as Lipper Analytical),
financial and business publications and periodicals, broad groups of comparable
mutual funds or unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs.
The Funds may quote Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance. The Funds may use long-term performance of
these capital market indices to demonstrate general long-term risk versus
reward scenarios and could include the value of a hypothetical investment in
any of the capital markets. The Funds may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
9
The Funds may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
Additional performance information is set forth in the 1994 Annual Report to
shareholders and is available upon request and without charge by calling
1-800-833-8974.
TAXES
The following summary of Federal income tax consequences is based on current
tax laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the Federal, state, or local income tax treatment of a Fund or
its shareholders. Accordingly, shareholders are urged to consult their tax
advisers regarding specific questions as to Federal, state and local income
taxes.
Tax Status of the Fund: Each Fund is treated as a separate entity for Federal
income tax purposes and is not combined with the Trust's other funds. Each Fund
intends to qualify for the special tax treatment afforded regulated investment
companies by the Internal Revenue Code of 1986, as amended, so that it will be
relieved of Federal income tax on that part of its net investment income and
net capital gains (the excess of net long-term capital gain over net short-term
capital loss) which is distributed to shareholders.
Tax Status of Distributions: Each Fund will distribute all of its net
investment income (including, for this purpose, net short-term capital gain) to
shareholders. Dividends from net investment income will be taxable to
shareholders as ordinary income whether received in cash or in additional
shares. Any net capital gains will be distributed annually and will be taxed to
shareholders as long-term capital gains, regardless of
how long the shareholder has held shares. The Fund will make annual reports to
shareholders of the Federal income tax status of all distributions.
Certain securities purchased by a Fund (such as STRIPS, TRs, TIGRs and CATS
which are defined under "Description of Permitted Investments and Risk
Factors"), are sold at original issue discount and thus do not make periodic
cash interest payments, the Fund will be required to include as part of its
current income the imputed interest on such obligations even though the Fund
has not received any interest payments on such obligations during that period.
Because the Fund distributes all of its net investment income to its
shareholders, the Fund may have to sell portfolio securities to distribute such
imputed income which may occur at a time when the Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
Dividends declared by a Fund in October, November or December of any year and
payable to shareholders of record on a date in that month will be deemed to
have been paid by the Fund and received by the shareholder on December 31 of
that year, if paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for Federal excise tax.
Sale, exchange, or redemption of Fund shares is a taxable event to the
shareholders.
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated July 24, 1991. The Declaration of Trust permits the Trust to
offer separate funds of shares. In addition to the Funds, the Trust consists of
the following portfolios: Cash Management Fund, Cash Plus Fund,
Intermediate-Term Government Securities Fund, and Fixed Income Fund. All
consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
10
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under Federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
Trustees of the Trust
The management and affairs of the Trust are supervised by the Trustees under
the laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which certain companies provide
essential management services to the Trust.
Voting Rights
Each share held entitles the shareholder of record to one vote. Each Fund will
vote separately on matters relating solely to that Fund. As a Massachusetts
business trust, the Trust is not required to hold annual meetings of
shareholders but approval will be sought for certain changes in the operation
of the Trust and for the election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining Trustees or by shareholders
at a special meeting called upon written request of shareholders owning at
least 10% of the outstanding shares of the Trust. In the event that such a
meeting is requested the Trust will provide appropriate assistance and
information to the shareholders requesting the meeting.
Shareholder Inquiries
Shareholder inquiries should be directed to the Administrator, SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, PA 19087-1658.
Dividends
Substantially all of the net investment income (not including capital gain) of
each Fund is distributed
monthly in the form of periodic dividends on the last Business Day of each
month to shareholders who held shares on the record date. If any capital gain
is realized, substantially all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Administrator at least 15 days prior to the distribution.
Dividends and distributions of a Fund are paid on a per-share basis. The value
of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
The dividends on Institutional Class shares of the Funds will be higher than
those on Investor Class shares because of the distribution expenses generally
charged to Investor Class shares.
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
Custodian
First Fidelity Bank, N.A., 765 Broad Street, Newark, NJ 07101 acts as Custodian
of the assets of the Trust. The Custodian holds cash, securities and other
assets of the Trust as required by the Investment Company Act of 1940, as
amended (the "1940 Act"). Fees for custodian services are included in the
Advisory fee paid to First Fidelity. See "The Adviser".
11
DESCRIPTION OF PERMITTED INVESTMENTS
AND RISK FACTORS
The following is a description of the permitted investments for the various
Funds and the various risk factors associated therewith:
AMERICAN DEPOSITARY RECEIPTS ("ADRs")-ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer and
deposited with the depositary. ADRs may be available through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation
by the issuer of the underlying security. Holders of unsponsored depositary
receipts generally bear all the costs of the unsponsored facility. The
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through, to the holders of the receipts, voting rights with
respect to the deposited securities.
BANKERS' ACCEPTANCES-Bankers' acceptances are bills of exchange or time draft
drawn on and accepted by a commercial bank, Bankers' acceptances are used by
corporation to finance the shipment and storage of goods and to furnish dollar
exchange. Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT-Certificates of deposit are interest bearing instrument
with a specific maturity. They are issued by banks and savings and loan
institutions in exchange for the deposit of funds and normally can be traded in
the secondary market prior to maturity. Certificates of deposit with penalties
for early withdrawal will be considered illiquid.
COMMERCIAL PAPER-Commercial paper is a the term used to designate unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few days to nine months.
CONVERTIBLE SECURITIES-Convertible securities are corporate securities that are
exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of convertible securities tends to move together with the market value of
the underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
COVERED CALL OPTIONS-Under a call option, the purchaser of the option has the
right to purchase, and the writer (a Fund) has the obligation to sell, the
underlying security at the exercise price during the option period. Options
written on individual securities are written solely as covered call options
(options on securities owned by a Fund) and will not be written for speculative
purposes. In order to close out an option position, a Fund may enter into a
"closing purchase transaction"-the purchase of a call option on the same
security with the same exercise price and expiration date as any call option
which it may previously have written on any particular security. When the fund
security is sold, the Fund effects a closing purchase transaction so as to
close out any existing call option on that security. If the Fund is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying security until the option expires or the Fund delivers the
underlying security upon exercise.
Although a Fund will engage in option transactions only as hedging transactions
and not for speculative purposes, there are risks associated with such
investments including the following: the success of a hedging strategy may
depend on the ability of the Adviser to predict movements in the prices of
individual securities and fluctuations in markets; there may be an imperfect
correlation between the movement in prices of securities held by the Fund;
there may not be a liquid market for options; and while the Fund will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
12
ILLIQUID SECURITIES-Illiquid securities are securities which cannot be disposed
of within seven business days at approximately the price at which they are
being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations
(or maturities) of over seven days in length.
OBLIGATIONS OF SUPRANATIONAL AGENCIES-Supranational agencies are entities
established through the joint participation of several governments and include
the Asian Development Bank, Inter-American Development Bank, International Bank
for Reconstruction and Development (World Bank), African Development Bank,
European Coal and Steel Community, European Economic Community, European
Investment Bank and the Nordic Investment Bank.
Although a Fund will engage in option transactions only as hedging transactions
and not for speculative purposes, there are risks associated with such
investments including the following: the success of a hedging strategy may
depend on the ability of the Adviser to predict movements in the prices of
individual securities and fluctuations in markets; there may be an imperfect
correlation between the movement in prices of securities held by the Fund;
there may not be a liquid market for options; and while the Fund will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
PREFERRED STOCK-Preferred stock is a class of capital stock that pays dividends
at a specified rate and that has preference over common stock in the payment of
dividends and the liquidation of assets. Preferred stock does not ordinarily
carry voting rights.
RECEIPTS-Receipts are interests in separately traded interest and principal
component parts of U.S. Treasury obligations that are issued by banks or
brokerage firms and are created by depositing U.S. Treasury notes and U.S.
Treasury bonds into a special account at a custodian bank. The custodian holds
the
interest and principal payments for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TRs"), "Treasury Investment Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATS").
Receipts are sold as zero coupon securities which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is amortized over
the life of the security, and such amortization will constitute the income
earned on the security for both accounting and tax purposes. Because of these
features, such securities may be subject to greater interest rate volatility
than interest paying Permitted Investments. See "Taxes."
REPURCHASE AGREEMENTS-Repurchase agreements are agreements which a Fund obtains
a security and simultaneously commits to return the security to the seller at
an agreed upon price (including principal and interest) on an agreed upon date
within a number of days from the date of purchase. The Custodian or its agent
will hold the security as collateral for the repurchase agreement. The Fund
bears a risk of loss in the event the other party defaults on its obligations
and the Fund is delayed or prevented from its right to dispose of the
collateral securities or if the Fund realizes a loss on the sale of the
collateral securities. The Fund will enter into repurchase agreements on behalf
of the Fund only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on established guidelines.
Repurchase agreements are considered loans under the 1940 Act.
SECURITIES LENDING-In order to generate additional income, a Fund may lend the
securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by collateral consisting of cash, securities of
the U.S. Government or its agencies or any combination of cash and such
securities as collateral equal at all times to at least 100% of the market
value plus accrued interest of the
13
securities lent. Collateral is marked to market daily. A Fund will continue to
receive interest on the securities lent while simultaneously earning interest
on the investment of cash collateral. There may be risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS-There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments (including possible governmental seizure or nationalization of
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities.
TIME DEPOSITS-Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, time deposits
earn a specified rate of interest over a definite period of time; however, they
cannot be traded in the secondary market. Time deposits with a withdrawal
penalty are considered to be illiquid securities; therefore, the Fund will not
invest more than 10% of its assets in such time deposits and other illiquid
investments.
U.S. GOVERNMENT AGENCIES-Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the
Federal Land Banks and the U.S. Postal Service. Some of these securities are
supported by the full faith and credit of the U.S. Treasury (e.g., Government
National Mortgage Association), others are supported by the right of the issuer
to borrow from the Treasury (e.g., Federal Farm Credit Bank), while still
others are supported only by the credit of the instrumentality (e.g., Federal
National Mortgage Association). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and
interest do not extend to the value or yield of these securities nor to the
value of the Fund's shares.
U.S. TREASURY OBLIGATIONS-U.S. Treasury obligations are bills, notes and bonds
issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS").
WARRANTS-Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
14
Table of Contents
- -------------------------------------------------------------------------------
Summary................................................ 2
Expense Summary........................................ 3
Financial Highlights................................... 4
The Trust.............................................. 5
Investment Objectives and Policies..................... 5
General Investment Policies............................ 6
Fundamental Policies................................... 6
Investment Limitations................................. 7
The Adviser............................................ 7
The Administrator...................................... 8
The Shareholder Servicing and Transfer Agent........... 8
The Distributor........................................ 8
Purchase and Redemption of Shares...................... 8
Performance............................................ 9
Taxes.................................................. 10
General Information.................................... 10
Description of Permitted Investments and Risk Factors.. 12
FFB
Lexicon Funds
Investment Adviser:
First Fidelity Bank, N.A.
FFB Lexicon Funds (the "Trust") is a mutual fund seeking to provide a
convenient and economical means of investing in one or more professionally
managed portfolios of securities. This prospectus relates to the Investor Class
and Institutional Class shares of the following funds:
CAPITAL APPRECIATION EQUITY FUND
SELECT VALUE FUND
SMALL COMPANY GROWTH FUND
DIVIDEND GROWTH FUND
This prospectus sets forth concisely the information about the Funds (as
hereinafter defined) that a prospective investor should know before investing.
Investors are advised to read this prospectus and retain it for future
reference. A Statement of Additional Information dated December 30, 1994, has
been filed with the Securities and Exchange Commission and is available without
charge through the Distributor, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, PA 19087-1658 or by calling 1-800-833-8974. The
Statement of Additional Information is incorporated into this prospectus by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK INCLUDING FIRST FIDELITY BANK, N.A. OR ANY OF ITS
AFFILIATES. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THE SHARES INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
December 30, 1994
SUMMARY
FFB Lexicon Funds (the "Trust") is a diversified open-end management
investment company which provides a convenient way to invest in professionally
managed portfolios of securities. The following provides basic information
about the Capital Appreciation Equity Fund, Select Value Fund, Small Company
Growth Fund and the Dividend Growth Fund (each a "Fund" and collectively the
"Funds").
What is the Investment Objective? Each of the Funds seeks to provide long-term
capital appreciation. See "Investment Objectives and Policies".
What are the Permitted Investments? The Capital Appreciation Equity Fund
invests primarily in a diversified portfolio of common stocks which, in the
Adviser's opinion, are undervalued relative to the market and to the stock's
historic valuation. The Select Value Fund invests primarily in a diversified
portfolio which, in the Adviser's opinion, are undervalued in the marketplace
at the time of purchase. The Small Company Growth Fund invests primarily in
common stocks of companies with a market capitalization of less than $500
million. The Dividend Growth Fund invests primarily in a diversified portfolio
of common stocks which, in the Adviser's opinion, offer a greater than average
opportunity for both price appreciation and dividend growth. See "Investment
Objectives and Policies".
What are the Risks Involved With An Investment In The Funds? The investment
policies of each Fund entail certain risks and considerations of which an
investor should be aware. Shares of the Funds will fluctuate in value and when
sold may be worth more or less than what was paid for them. The Small Company
Growth Fund invests in the common stocks of smaller companies which involves
special risks, including greater business risks of small size, limited markets
and financial resources, narrow product lines and frequent lack of depth of
management. The securities of such companies are often traded in the
over-the-counter market and may not be traded in volumes typical on a national
exchange. Thus such securities may be less liquid, and there may be more abrupt
or erratic market movements than with larger, well established companies. See
"Description of Permitted Investments and Risk Factors."
Are My Investments Insured? The Trust's shares are not federally insured by the
FDIC or any other government agency. Any guaranty by the U.S. Government, its
agencies or instrumentalities of securities in which any Fund invests
guarantees only the payment of principal and interest on the guaranteed
security and does not guarantee the yield or value of that security or the
yield or value of shares of that Fund.
Who is the Adviser? First Fidelity Bank, N.A. serves as the adviser of the
Trust. See "The Adviser".
Who is the Administrator? SEI Financial Management Corporation serves as the
administrator of the Trust. See "The Administrator".
Who is the Shareholder Servicing Agent? Supervised Service Company serves as
transfer agent, dividend disbursing agent, and shareholder servicing agent for
the Investor Class shares of the Trust. SEI Financial Management Corporation
provides these same services for the Institutional Class shares of the Trust.
See "The Shareholder Servicing and Transfer Agent".
Who is the Distributor? SEI Financial Services Company serves as distributor of
the Trust's shares. See "The Distributor".
How do I Purchase or Redeem Shares? Purchases and redemptions may be made on
any days when both the New York Stock Exchange and Federal Reserve Wire System
are open for business ("Business Day"). A purchase order will be executed at a
per share price equal to the net asset value per share next determined after
the receipt of the order, plus any sales charge applicable to Investor Class
shares. A purchase order will be effective as of the day received if the order
is received prior to 4:00 p.m. Eastern time, on any Business Day, except that,
for purchases of Institutional Class shares, the Custodian must also receive
Federal Funds before 3:00 p.m. Eastern time, on the next Business Day.
Redemption orders must be placed prior to 4:00 p.m. Eastern time, on any
Business Day for the order to be accepted that day. For Investor Class shares
the minimum initial investment is $1,000 ($250 for Individual Retirement
Accounts). See "Purchase of Shares" and "Redemption of Shares".
How are Dividends Paid? Substantially all of the net investment income
(exclusive of capital gains) of each Fund is distributed monthly in the form of
periodic dividends on the last Business Day of each month. See "Dividends".
2
EXPENSE SUMMARY-INVESTOR CLASS
SHAREHOLDER TRANSACTION EXPENSES
Small
Capital Select Company Dividend
Appreciation Value Growth Growth
Equity Fund Fund Fund Fund
------------ ------ ------- --------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering
price)..................................... 4.50% 4.50% 4.50% 4.50%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of
offering price)............................ None None None None
Maximum Contingent Deferred Sales Charge... None None None None
Exchange Fee............................... None None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Capital Small
Appreciation Select Company Dividend
Equity Value Growth Growth
Fund Fund Fund Fund
- ------------------------------------------------------------------------------
Advisory Fees (after fee waivers)1....... .32% .28% .28% .29%
12b-1 Fees (after fee waivers)2.......... .00% .00% .00% .00%
Other Expenses........................... .23% .27% .27% .26%
- ------------------------------------------------------------------------------
Total Operating Expenses
(after fee waivers)3 .55% .55% .55% .55%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) The Adviser has agreed to voluntarily waive a portion of its fees. Fee
waivers are voluntary and may be terminated at any time. Absent fee
waivers, Advisory Fees would be .75% for each Fund. The Advisory fee
includes amounts paid to the Adviser for custody services.
(2) Although the Funds have adopted a 12b-1 Plan, no payments have been made by
any Fund thereunder to date. Currently, the Distributor has agreed not to
impose 12b-1 fees for the fiscal year ending August 31, 1995.
(3) Absent fee waivers, total operating expenses would be 1.48% of the Capital
Appreciation Equity Fund's average net assets, 1.52% of the Select Value
Fund's average net assets, 1.52% of the Small Company Growth Fund's average
net assets and 1.51% of the Dividend Growth Fund's average net assets.
Example
- ----------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- ----------------------------------------------------------------------------
An investor would pay the following expenses
on a $1,000 investment
assuming (1) 5% annual return
(2) imposition of the maximum sales
charge and (3) redemption at the
end of each time period...........
Capital Appreciation Equity Fund................ $50 $62 $74 $111
Select Value Fund............................... $50 $62 $74 $111
Small Company Growth Fund....................... $50 $62 $74 $111
Dividend Growth Fund............................ $50 $62 $74 $111
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
The example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Financial
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in a
Fund. The information set forth in the foregoing table and example related only
to Investor Class shares. The Trust also offers Institutional Class shares of
the Funds which are generally subject to the same expenses, except there are no
sales charges or distribution expenses. Additional information may be found
under "The Administrator," "The Distributor" and "The Adviser."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However certain investors may
qualify for reduced sales charges. See "Purchase of Shares" and "Redemption of
Shares."
Long-term shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by the Rules of the National
Association of Securities Dealers (the "NASD").
3
EXPENSE SUMMARY-INSTITUTIONAL CLASS
SHAREHOLDER TRANSACTION EXPENSES.. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Capital Select Small Company Dividend
Appreciation Value Growth Growth
Equity Fund Fund Fund Fund
- -------------------------------------------------------------------------------
Advisory Fees (after fee waivers)1.. .32% .28% .28% .29%
Other Expenses...................... .23% .27% .27% .26%
- -------------------------------------------------------------------------------
Total Operating Expenses (after fee
waivers)2........................... .55% .55% .55% .55%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Adviser has agreed to voluntarily waive a portion of its fees. Fee
waivers are voluntary and may be terminated at any time. Absent fee
waivers, Advisory Fees would be .75% for each Fund. The Advisory fee
includes amounts paid to the Adviser for custody services.
(2) Absent fee waivers, Total Operating Expenses would be .98% of the Capital
Appreciation Equity Fund's average net assets, 1.02% of the Select Value
Fund's average net assets, 1.02% of the Small Company Growth Fund's average
net assets and 1.01% of the Dividend Growth Fund's average net assets.
Example
- ----------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- ----------------------------------------------------------------------------
An investor would pay the following expenses
on a $1,000 investment
assuming (1) 5% annual return and
(2) redemption at the end of each
time period......................................
Capital Appreciation Equity Fund................. $6 $18 $31 $69
Select Value Fund................................ $6 $18 $31 $69
Small Company Growth Fund........................ $6 $18 $31 $69
Dividend Growth Fund............................. $6 $18 $31 $69
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
The example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. Financial
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in a
Fund. The information set forth in the foregoing table and example relates only
to Institutional Class shares. The Trust also offers Investor Class shares of
the Funds which are subject to the same expenses, except that Investor Class
shares are subject to a sales charge and distribution expenses. Additional
information may be found under "The Administrator" and "The Adviser."
4
FINANCIAL HIGHLIGHTS
The following table of per unit data and ratios has been audited by Arthur
Andersen LLP, the Trust's independent public accountants, as indicated in their
report dated September 30, 1994, on the Trust's financial statements as of
August 31, 1994 included in the Trust's Statement of Additional Information
under "Financial Information." This table should be read in conjunction with
the Trust's financial statements and notes thereto. The Dividend Growth Fund
had not commenced operations as of August 31, 1994.
For an Institutional Class Share Outstanding Throughout The Period.
<TABLE>
<CAPTION>
For a Share Outstanding Throughout The Period.
Ratio of
Dividends and ---------------------------------------
Net Distributions Net Inv
Real. & ------------- Net Net Inv. Exp to Inc.
Unreal. from from Assets Exp to Inc. Avg. Avg.
NAV Net Gains Net Real. NAV End of Avg. Avg. Net Assets Net Assets Portfolio
Beg. Inv. (Losses) Inv. Capital End of Total Period Net Net (Excluding (Excluding Turnover
of Per. Inc. on Inv. Income Gains Period Return (000's) Assets Assets Waivers Waivers) Rate
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Equity Fund
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $ 11.51 $ 0.17 $ 0.24 $(0.17) $(0.15) $11.60 3.62% $144,207 0.55% 1.49% 0.98% 1.06% 41.44%
1993 10.34 0.18 1.17 (0.18) -- 11.51 13.17% 142,812 0.55% 1.64% 0.97% 1.22% 54.41%
1992(1) 10.00 0.17 0.33 (0.16) -- 10.34 6.09%* 122,105 0.55%* 1.95%* 1.00%* 1.50%* 78.31%
Select Value Fund
- --------------------------------------------------------
1994 $ 11.85 $ 0.22 $ 0.68 $(0.22) $(0.36) $12.17 7.98% $46,877 0.44% 2.03% 1.02% 1.45% 80.47%
1993(2) 10.00 0.17 1.85 (0.17) -- 11.85 24.42%* 30,849 0.39%* 1.85%* 1.05%* 1.19%* 32.36%
Small Company Growth Fund
- --------------------------------------------------------
1994 $ 11.66 $ 0.08 $(0.28) $(0.08) -- $11.38 (1.71)% $23,182 0.45% 0.70% 1.02% 0.13% 74.71%
1993(2) 10.00 0.13 1.66 (0.13) -- 11.66 21.63%* 21,949 0.43%* 1.43%* 1.06%* 0.80%* 34.88%
</TABLE>
(1) The Capital Appreciation Equity Fund commenced operations on November 1,
1991.
(2) The Select Value Fund and the Small Company Growth Fund commenced
operations on November 2, 1992.
* Annualized
Amounts designated as "-" are either $0 or have been rounded to $0.
5
THE TRUST
The FFB Lexicon Funds (the "Trust") is a diversified, open-end management
investment company that offers units of beneficial interest ("shares") in the
Funds. This Prospectus relates to the Trust's Capital Appreciation Equity Fund,
Select Value Fund, Small Company Growth Fund and Dividend Growth Fund (each a
"Fund" and collectively the "Funds"). The Trust offers two classes of shares of
the Funds-Investor Class and Institutional Class-which provide for variations
in sales charges, distribution costs, voting rights and dividends. Except for
these differences, each share of each Fund represents an undivided,
proportionate interest in the Fund. Information regarding the Trust's other
funds is contained in separate prospectuses that may be obtained from the
Trust's Distributor, SEI Financial Services Company, 680 East Swedesford Road,
Wayne, PA 19087-1658 or by calling 1-800-833-8974.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has its own investment objectives and policies. There can be no
assurance that the investment objective of a Fund will be met.
Capital Appreciation Equity Fund
The investment objective of the Capital Appreciation Equity Fund is long term
capital appreciation.
The Fund invests primarily in a diversified portfolio of common stocks believed
by First Fidelity Bank, N.A. ("First Fidelity" or the "Adviser") to be
undervalued relative to the market and to the stock's historic valuation. The
Adviser considers common stocks to be appropriate for the Fund if they have a
strong potential for improvement in future earnings and appreciation and a
medium to high capitalization ($500 million and higher). Under normal
conditions at least 75% of the Fund's assets will be invested in common stocks
of the type described above. The remainder of the Fund's assets may also be
invested in the following: preferred stocks, securities (debt securities,
warrants and preferred stocks) convertible into common stock, covered call
options, U.S. dollar
denominated securities of foreign issuers (including American Depositary
Receipts that are traded on exchanges or listed on NASDAQ), money market
securities (of the types described below), and repurchase agreements.
Select Value Fund
The investment objective of the Select Value Fund is long-term growth of
capital.
The Fund will be primarily invested in a diversified portfolio of quality,
common stocks which, in the Adviser's opinion, are undervalued in the
marketplace at the time of purchase. The Adviser characterizes undervalued
quality common stocks as those that have lower than average debt to equity
ratios and lower than average price to book ratios as measured by the Standard
& Poor's 500 Composite Stock Price Index. The Adviser also considers other
factors such as fixed charge coverage, price to gross cash flow, and market
capitalization, as well as industry outlook and market share.
Under normal conditions at least 75% of the Fund's assets will be invested in
common stocks of the type described above. The remainder of the Fund's assets
may also be invested in the following: preferred stocks, securities (debt
securities, warrants and preferred stocks) convertible into common stock,
covered call options, U.S. dollar denominated securities of foreign issuers
(including American Depositary Receipts that are traded on exchanges or listed
on NASDAQ), money market securities (of the types described below), and
repurchase agreements.
Small Company Growth Fund
The investment objective of the Small Company Growth Fund is to provide long
term capital appreciation.
The Fund will be primarily invested in a diversified portfolio of common
stocks. In general, the Adviser will invest in the common stocks of growth
oriented smaller capitalization companies generally having a market
capitalization of less than $500 million (measured at the time of purchase). A
majority of the Fund's common stocks will normally pay a dividend. In selecting
common stocks, the Adviser also considers other factors such as a company's
return on equity, reinvestment rates and debt to equity ratios.
6
Under normal conditions at least 75% of the Fund's assets will be invested in
common stocks of the type described above. The remainder of the Fund's assets
may also be invested in the following: preferred stocks, securities (debt
securities, warrants and preferred stock) convertible into common stock,
covered call options, U.S. dollar denominated securities of foreign issuers
(including American Depositary Receipts that are traded on exchanges or listed
on NASDAQ), money market securities (of the type described below) and
repurchase agreements.
Because the Fund invests primarily in common stocks, the Fund's shares will
fluctuate in value.
Dividend Growth Fund
The investment objective of the Dividend Growth Fund is long-term capital
appreciation.
The Fund will be primarily invested in a diversified portfolio of common stocks
which, in the Adviser's opinion, offer a greater than average opportunity for
both price appreciation and sustainable dividend growth. The adviser emphasizes
a disciplined approach to investing in companies with attractive earnings
growth and dividend growth records. Normally, the type of company in which the
Trust will invest, fits the profile of a high quality, low yield and high
growth company. However, for strategic and diversification reasons, the Fund
may invest in cyclical and non-dividend paying companies.
Under normal conditions, at least 75% of the Fund's assets will be invested in
common stocks of the type described above. The remainder of the Fund's assets
may also be invested in the following: preferred stocks, securities convertible
into common stock (debt securities, warrants and preferred stocks), covered
call options, U.S. dollar denominated securities of foreign issuers (including
American Depositary Receipts that are traded on exchanges or listed on NASDAQ),
money market securities (of the types described below), and repurchase
agreements.
Under normal circumstances it is anticipated that the annual portfolio turnover
rate for the Fund will not exceed 75%.
General Investment Policies
For temporary defensive purposes during periods when the Adviser determines
that market conditions warrant, each Fund may invest up to 100% of its assets
in money market instruments consisting of securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, receipts evidencing
separately traded principal and interest components of U.S. Government
obligations, repurchase agreements, certificates of deposit, time deposits and
bankers' acceptances issued by banks or savings and loan associations with
assets of at least $1 billion as of the end of their most recent fiscal year,
commercial paper rated at least A-1 by Standard & Poor's Corporation ("S&P") or
P-1 by Moody's Investors Services ("Moody's") and may hold a portion of its
assets in cash.
In order to generate additional income, each Fund may lend the securities in
which it invests.
Each Fund will limit its investments in illiquid securities to 10% of its net
assets.
Each Fund may write covered call options on securities provided the aggregate
value of such options does not exceed 20% of the Fund's net assets as of the
time such options are written.
For additional information regarding the Funds' permitted investments and a
description of the above ratings, see "Description of Permitted Investments and
Risk Factors" and the Statement of Additional Information.
FUNDAMENTAL POLICIES
The investment objective and the following investment limitations are
fundamental policies of a Fund. Fundamental policies cannot be changed with
respect to the Fund without the consent of the holders of a majority of the
Fund's outstanding shares.
INVESTMENT LIMITATIONS
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5%
7
of the total assets of the Fund would be invested in the securities of such
issuer. This restriction applies to 75% of the Fund's assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in the obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be divided according to their services,
for example, gas, gas transmission, electric and telephone will each be
considered a separate industry, (ii) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (iii) supranational entities will be
considered to be a separate industry.
3. Make loans, except that the Fund may (a) purchase or hold debt instruments
in accordance with its investment objective and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
4. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of its assets. All borrowings will
be repaid before the Fund makes additional investments and any interest paid on
such borrowings will reduce income.
The foregoing percentages will apply at the time of the purchase. Additional
investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
The Trust and First Fidelity have entered into an advisory agreement (the
"Advisory Agreement"). Under the Advisory Agreement, the Adviser makes the
investment decisions for the assets of a Fund and continuously reviews,
supervises and administers the Fund's investment program, subject to the
supervision
of, and policies established by, the Trustees of the
Trust.
The Adviser is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of .75% of the average daily net assets of each Fund. The
Adviser may waive all or a portion of its fee in order to limit the operating
expense of a Fund. Fee waivers are voluntary and may be terminated at any time
in the Adviser's sole discretion. The Advisory fee includes amounts paid to the
Adviser for custody services. See "The Custodian." For the fiscal year ended
August 31, 1994, the Adviser received a fee equal to .32% of the Capital
Appreciation Equity Fund; .27% of the Select Value Fund, and .29% of the Small
Company Growth Fund. The Dividend Growth Fund had not commenced operations as
of August 31, 1994.
First Fidelity serves as the investment adviser for each of the Fund in the
Trust. The offices of the Adviser are located at 765 Broad Street, Newark, New
Jersey 07192. The Adviser is a national banking association which provides
commercial banking and trust business services throughout New Jersey, New York
and Pennsylvania. It is a wholly-owned subsidiary of First Fidelity
Incorporated, originally established in 1812, which, as a result of a
reorganization with Fidelcor, Inc., a Pennsylvania bank holding company, is now
a wholly-owned subsidiary of First Fidelity Bancorporation. First Fidelity
Bancorporation, a New Jersey corporation, provides financial and related
services through its subsidiary organizations. The advisory services of the
Adviser are provided through the Asset Management Group of its Trust Division.
As of September 30, 1994, the Trust Division had approximately $16.6 billion of
client assets under management. The Adviser has provided investment advisory
services to investment companies since 1986.
Art Fitilis is responsible for the day to day management of the Capital
Appreciation Equity Fund. Mr. Fitilis, a Vice President of First Fidelity Bank,
Newark, New Jersey, is an investment Officer in the Asset Management Group of
the Institutional Investment Division. Prior to joining First Fidelity Bank in
August, 1994, Mr. Fitilis was a Vice President of The Bank of New York for
approximately four
8
years as a Senior Portfolio Manager and was a member of the Investment
Committee. His experience also includes approximately eleven years as a Senior
Portfolio Manager at Bankers Trust Company. He was previously a Vice President
at GE Investments and a partner at Wood, Struthers and Winthrop, Inc., a
brokerage firm specializing in institutional investment research.
Mr. Timothy O'Grady has been responsible for the day-to-day management of the
Select Value Fund since March 1, 1993. Mr. O'Grady has served as Assistant Vice
President and Portfolio Manager of First Fidelity from November, 1986 to the
present.
Mark Sipe, a Director of Equity Management is responsible for the day to day
management of the Small Company Growth Fund. Mark Sipe joined the Adviser in
1992 as Director of Equity Management. Mr. Sipe oversees the equity investment
process at Pritt Fidelity. His responsibilities include developing and
maintaining any investment models and approaches, as well as managing the
largest Principal Trust common trust fund, the Common Stock Fund. Mr. Sipe has
sixteen years of investment management experience. Most recently, he spent ten
years as Director of Research for First Union National Bank. He is also a
Certified Financial Analyst.
The Glass-Steagall Act restricts the securities activities of national banks
such as the Adviser but the Comptroller of the Currency permits national banks
to provide investment advisory and other services to mutual funds. Should the
Comptroller's position be challenged successfully in court or reversed by
legislation, the Trust may need to make other investment advisory arrangements.
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI") and the Trust are parties to an
Administration Agreement (the "Administration Agreement"). Under the terms of
the Administration Agreement, the Administrator provides the Trust with overall
management services and all necessary office space, equipment, personnel, and
facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .17% of the average daily net assets of the
Funds.
THE SHAREHOLDER SERVICING AND
TRANSFER AGENT
Supervised Service Company (the "Transfer Agent"), 811 Main Street, Kansas
City, MO 64105, serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent for the Investor Class shares of the Trust.
The Administrator serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent for the Institutional Class shares of the Trust.
Compensation for these services is paid under the Administration Agreement.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Trust are parties to a distribution agreement ("Distribution
Agreement"). No compensation is paid to the Distributor for distribution
services for the Funds. The Fund may execute brokerage or other agency
transactions through the Distributor for which the Distributor receives
compensation.
The Investor Class shares of the Trust have a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"), under which such shares generally bear distribution
expenses and related services fees at the annual rate of up to .50% of a Fund's
Investor Class share's average net assets.
PURCHASE OF SHARES
General Information
Institutional Class Shares of each Fund may be purchased at net asset value on
days on which both the New York Stock Exchange and Federal Reserve Wire System
are open for business (a "Business Day"). Purchase orders will be effective as
of the day received by the Distributor if the Distributor receives the order
9
before 4:00 p.m. Eastern time, on any Business Day, and the Custodian receives
Federal funds before 3:00 p.m., Eastern time, on the next Business Day.
Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow for processing and transmittal
of these orders to the Distributor for effectiveness the same business day.
Investor Class shares of the Funds may be purchased directly from the Transfer
Agent by mail, by wire or through an automatic investment plan ("AIP") on the
days on which the New York Stock Exchange and Federal Reserve Wire Systems are
open for business ("Business Days"). Shares may also be purchased through
broker dealers that have established a dealer agreement with the Distributor.
There is a minimum purchase of $1,000 for Investor Class shares ($250 for
Individual Retirement Accounts, "IRAs"). There is a minimum subsequent purchase
amount of $100 ($50 for IRAs).
A purchase order for Investor Class shares will be effective as of the day
received by the Transfer Agent if the Transfer Agent receives an order before
4:00 p.m. Eastern time on any Business Day.
The purchase price of shares of a Fund is the net asset value next determined
after a purchase order is received and accepted by the Trust plus any sales
charge applicable to Investor Class shares. Although the methodology and
procedures for determining net asset value are identical for the Investor and
Institutional classes of a Fund, the net asset value per share of such classes
will differ because of the distribution expenses charged to Investor class
shares.
Net asset value per share is determined daily as of the close of trading on the
New York Stock Exchange (currently 4:00 p.m. Eastern time) on any Business Day.
Purchases will be made in full and fractional shares of the Trust calculated to
three decimal places.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or its
shareholders to accept such order. In addition, financial institutions that
are the record owners of shares for the account of their customers may impose
separate fees for account services to their customers and may establish other
procedures for purchasing shares for their customer accounts. Shares of the
Fund are offered only to residents of states in which the shares are eligible
for purchase.
Neither the Trust's Transfer Agents nor the Trust will be responsible for any
loss, liability, cost or expense for acting upon telephone or wire instructions
reasonably believed to be genuine and the investor will bear all risk of loss.
The Trust and each Transfer Agent maintain procedures, including identification
methods and other means, for ascertaining the identity of callers and
authenticity of instructions.
By Mail
A shareholder may purchase Investor Class shares of a Fund by completing and
signing an Account Application form and mailing it, along with a check (or
other negotiable bank instrument or money order) payable to FFB Lexicon Funds.
A shareholder may purchase more shares at any time by mailing payment also to
the Transfer Agent at P.O. Box 419546, Kansas City, MO 64141-6546. Orders
placed by mail will be executed on receipt of your payment. If a shareholder's
check does not clear, his or her purchase will be canceled and he or she could
be liable for any losses or fees incurred.
You may obtain Account Application Forms by calling the Distributor at
1-800-833-8974.
By Wire
A shareholder may purchase Investor Class shares by wiring Federal funds,
provided that his or her Account Application has been previously received. A
shareholder must wire funds to the Transfer Agent and the wire instructions
must include your account number. A shareholder must call the Transfer Agent at
1-800-833-8974 before wiring any funds. An order to purchase shares by Federal
funds wire will be deemed to have been received by the Fund on the Business Day
of the wire; provided that the shareholder wires funds to the Transfer Agent
prior to 4:00 p.m., Eastern time. If the Transfer Agent does not receive notice
by 4:00
10
p.m., Eastern time, on the Business Day of the wire, the order will be executed
on the next Business Day.
Automatic Investment Plan
A shareholder may arrange for periodic additional investments in Investor Class
shares of the Funds through automatic deductions by Automated Clearing House
("ACH") from a checking account by completing an AIP Application Form. The
minimum pre-authorized investment amount is $50 per month. An AIP Application
Form may be obtained by contacting the Distributor at 1-800-833-8974. The AIP
is available only for additional investments to an existing account.
By Payroll Direct Deposits
Investors may set up a payroll direct deposit arrangement for amounts to be
automatically invested in Investor Class shares of the Funds. Participants in
the Payroll Direct Deposit program may make periodic investment of at least
$20.00 per pay period. Contact the Transfer Agent for more information about
Payroll Direct Deposit.
Through Financial Institutions
Investor Class shares of the Funds may be purchased through financial
institutions, including the Adviser, that provide distribution assistance or
shareholder services. Shares purchased by persons ("Customers") through
financial institutions may be held of record by the financial institution.
Financial institutions may impose an earlier cut-off time for receipt of
purchase orders directed through them to allow for processing and transmittal
of these orders to the Transfer Agent for effectiveness the same day. Customers
should contact their financial institution for information as to that
institution's procedures for transmitting purchase, exchange or redemption
orders to the Trust.
Customers who desire to transfer the registration of shares beneficially owned
by them but held of record by a financial institution should contact the
institution to accomplish such change.
Depending upon the terms of a particular Customer account, a financial
institution may charge a Customer account fees. Information concerning these
services and any charges will be provided to the Customer by the financial
institution.
Sales Charges for Investor Class Shares
The following table shows the regular sales charge on Investor shares to a
"single purchaser" (defined under "Rights of Accumulation") together with the
sales charge that is reallowed to certain financial intermediaries (the
"reallowance").
Sales Charge Sales Charge Reallowance
as a as a as a
Percentage Percentage Percentage
of Offering of Net of Offering
Amount of Price Per Amount Price Per
Purchase Share Invested Share
- ------------ ------------ ------------ -----------
$1,000 but
less than
$100,000 4.50% 4.71% 4.00%
$100,000 but
less than
$250,000 3.50% 3.63% 3.00%
$250,000 but
less than
$500,000 2.60% 2.67% 2.25%
$500,000 but
less than
$1,000,000 2.00% 2.04% 1.75%
over
$1,000,000 1.00% 1.01% .90%
Under certain circumstances, the Distributor may use its own funds to
compensate financial institutions and intermediaries in amounts additional to
the commissions shown above. In addition, the Distributor may, from time to
time in its sole discretion, institute one or more promotional incentive
programs, which will be paid by the Distributor from the sales charges it
receives or from any other source available to it. Under any such program, the
Distributor will provide promotional incentives in the form of cash or other
compensation, including merchandise, airline vouchers, trips and vacation
packages, to all dealers selling shares of the Funds. Under certain
circumstances, reallowances of up to the amount of the entire sales charge may
be paid to certain financial institutions, who might then be deemed to be
"underwriters" under the Securities Act of 1933.
Waiver of Sales Load for Investor Class Shares
The initial sales load will not apply to Investor Class shares purchased by (i)
trust, investment management and other fiduciary accounts managed or
administered
11
by the Trust or the Adviser pursuant to a written agreement, (ii) the
Distributor, or any of its affiliates, (iii) Trustees or officers of the Trust,
(iv) directors and officers of the Distributor, or the Adviser or their
affiliates or bona fide full-time employees of any of the foregoing who have
acted as such for not less than 90 days (including members of their immediate
families), (v) plans for which a depository institution, which is a client or
customer of the Adviser or the Distributor, serves as custodian or trustee, or
to any trust or other benefit plan for such persons so long as such shares are
purchased through the Distributor. The initial sales load also does not apply
to shares sold to representatives of selling brokers and members of their
immediate families. A shareholder must notify the Transfer Agent at the time of
his or her purchase if the shareholder is eligible for a waiver of the sales
load. An investor relying upon any of the categories of waivers of the sales
charge must qualify such waiver in advance of the purchase with the Transfer
Agent or the financial institution or intermediary through which the shares are
purchased by the investor.
Reduced Sales Charge:
Rights of Accumulation
In calculating the sales charge rates applicable to current purchases of
Investor Class shares, a "single purchaser" is entitled to cumulate current
purchases with the current market value of previously purchased Investor Class
shares of the Funds sold subject to a comparable sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Funds for their own combined individual and
joint accounts or for trust custodial accounts for their minor children, and
(iii) a fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code of 1986, as amended (the "Code") including related plans
of the same employer.
To exercise the right of accumulation based upon shares an investor already
owned, an investor must ask the Transfer Agent for this reduced sales charge at
the time of the additional purchase and provide the account number(s) of the
investor.
Letter of Intent
By submitting a Letter of Intent (the "Letter") to the Transfer Agent, a
"single purchaser" may purchase Investor Class shares of the Funds during a
13-month period at the reduced sales charge rates applying to the aggregate
amount of the intended purchases stated in the Letter. The Letter may apply to
purchases made up to 90 days before the date of the Letter. To receive credit
for such prior purchases and later purchases benefitting from the Letter, an
investor must notify the Transfer Agent at the time the Letter is submitted
that there are prior purchases that may apply, and notify the Transfer Agent
again at the time of later purchases that such purchases are applicable under
the Letter.
EXCHANGES OF SHARES
Some or all of the Investor Class shares of the Funds for which payment has
been received (i.e., an established account) may be exchanged for Investor
Class shares, at their net asset value, of other Funds within the Trust which
have similar or lower sales loads or for shares of other Funds within the Trust
which do not have sales loads.
Shareholders who have held all or part of their shares for at least fifteen
days may also exchange Investor Class shares of the Fund for shares of other
funds for which First Fidelity is the Adviser (at their next determined
relative net asset value, plus any applicable sales charge). In the case of
transactions subject to a sales charge, a charge will be assessed on an
exchange of shares equal to the excess of the sales load applicable to the
shares to be acquired over the amount of any sales load previously paid on the
shares to be exchanged.
Any shareholder who wishes to make an exchange must have received a current
prospectus of the Fund in which he or she wishes to invest before the exchange
will be effected. For an established account, exchanges will be made only after
instructions in writing or by telephone (an "Exchange Request") are received
for an established account by the Transfer Agent. The exchange privilege may be
exercised only in those states where the class or shares of such other Funds of
the Trust may legally be sold.
12
Customers who beneficially own shares held by a financial institution should
contact that institution if they wish to exchange shares. The institution will
contact the Transfer Agent and effect the exchange on behalf of the Customer.
The Trust reserves the right to change the terms or conditions of the exchange
privilege discussed herein upon sixty days' notice.
REDEMPTION OF SHARES
A shareholder may redeem his or her shares without charge on any Business Day.
Institutional Class shareholders must place their redemption orders with the
Distributor prior to 4:00 p.m. Eastern time on any Business Day for the order
to be accepted on that Business Day. Financial Institutions may charge a
service fee for transfers by wire.
Investor Class shares may be redeemed by mail, by telephone or through a
systematic withdrawal plan. Investors who own shares held by a financial
institution should contact that institution for information on how to redeem
shares.
By Mail
A written request for redemption must be received by the Transfer Agent, in
order to constitute a valid redemption request.
If the redemption request exceeds $5,000, or if the request directs the
proceeds to be sent or wired to an address different from that of record, the
Transfer Agent may require that the signature on the written redemption request
be guaranteed. A shareholder should be able to obtain a signature guarantee
from a bank, broker, dealer, credit union, securities exchange or association,
clearing agency or savings association. A notary public cannot guarantee
signatures. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption is not for more than $5,000
worth of shares, (2) the redemption check is payable to the shareholder(s) of
record, and (3) the redemption check is mailed to the
shareholder(s) at his or her address of record. A shareholder may also have
redemption proceeds mailed to a commercial bank account previously designated
on his or her Account Application or by written instruction to the Transfer
Agent. There is no charge for having redemption proceeds mailed to a designated
bank account.
By Telephone
A shareholder may redeem his or her shares by calling the Transfer Agent at
1-800-833-8974. Under most circumstances, payments will be transmitted on the
next Business Day following receipt of a valid request for redemption. A
shareholder may have the proceeds mailed to his or her address or wired to a
commercial bank account previously designated on the Account Application. There
is no charge for having redemption proceeds mailed to the shareholder.
A shareholder may request a wire redemption for redemptions in excess of $500
by calling the Transfer Agent at 1-800-833-8974. Shares cannot be redeemed by
Federal Reserve wire on Federal holidays restricting wire transfers.
If market conditions are extraordinarily active or other extraordinary
circumstance exist, and a shareholder experience difficulties placing
redemption orders by telephone, the shareholder may consider placing an order
by mail.
Systematic Withdrawal Plan ("SWP")
The Funds offer a Systematic Withdrawal Plan ("SWP"), which a shareholder may
use to receive regular distributions from his or her account. Upon commencement
of the SWP, the account must have a current value of $12,000 or more. A
shareholder may elect to receive automatic payments via check or ACH of $100 or
more on a monthly, quarterly, semi-annual or annual basis. A shareholder may
obtain an SWP Application Form by contacting the Distributor at 1-800-833-8974.
To participate in the SWP, a shareholder must have dividends automatically
reinvested. A shareholder should realize that if the automatic withdrawals
exceed
13
income dividends, the invested principal in the account will be depleted. Thus,
depending on the frequency and amounts of the withdrawal payments and/or any
fluctuations in the net asset value per share, the original investment could be
exhausted entirely. A shareholder may change or cancel the SWP at any time on
written notice to the Transfer Agent.
It is generally not in a shareholder's best interest to be participating in the
SWP at the same time that he or she is purchasing additional shares if the
shareholder has to pay a sales load in connection with such purchases.
Other Information Regarding Redemptions
All redemption orders are effected at the net asset value per share next
determined after receipt of a valid request for redemption. Net asset value per
share is determined as of the close of trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) on each Business Day.
Payment to shareholders for shares redeemed will be made within seven days
after receipt of a valid redemption request. At various times, however, a Fund
may be requested to redeem shares for which it has not yet received good
payment; collection of payment may take up to fifteen days. In such
circumstances, redemption proceeds will be held pending clearance of the check.
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem Investor Class shares at net asset value, if,
because of redemptions, a shareholder's account in any Fund has a value of less
than the minimum initial purchase amount. Accordingly, if a shareholder
purchases Investor Class shares of any Fund in only the minimum investment
amount, a shareholder may be subject to involuntary redemption if he or she
redeems any shares. Before any Fund exercises its right to redeem such shares,
the shareholder will be given notice that the value of the shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in such Fund in an amount which will increase the value
of the account to at least the minimum amount.
Investor Class shares of each Fund may be used as a funding medium for IRAs.
Shares may also be purchased for IRAs established with authorized custodians.
In addition, an IRA may be established through a custodial account with Eagle
Trust Company. Completion of a special application is required in order to
create such an account, and the minimum initial investment for an IRA is $250.
Contributions to IRAs are subject to prevailing amount limits set by the
Internal Revenue Service. A $5.00 establishment fee and an annual $12.00
maintenance and custody fee are payable with respect to each IRA. For more IRA
Information, call the Transfer Agent at 1-800-833-8974.
PERFORMANCE
From time to time, each of the Funds may advertise yield and total return.
These figures are based on historical earnings and are not intended to indicate
future performance. No representation can be made concerning actual future
yields or returns.
The "yield" of a Fund refers to the income generated by a hypothetical
investment, net of any sales charge imposed in such Fund over a thirty day
period. This income is then "annualized," i.e., the income over thirty days is
assumed to be generated over one year and is shown as a percentage of the
investment.
The "total return" of a Fund refers to the average compounded rate of return on
a hypothetical investment for designated time periods, net of any sales charge
imposed on Investor Class shares and assuming that dividend and capital gain
distributions have been reinvested.
For any Fund, the performance of Institutional Class shares will be higher than
that of Investor Class shares because of the sales charge (when applicable) and
distribution expenses charged to Investor Class shares.
The Funds may periodically compare their performance to that of other mutual
funds tracked by mutual funds rating services (such as Lipper Analytical),
financial and business publications and periodicals, broad groups of comparable
mutual funds
14
or unmanaged indices which may assume investment of dividends but generally do
not reflect deductions for administrative and management costs. The Funds may
quote Morningstar, Inc., a service that ranks mutual funds on the basis of
risk-adjusted performance. The Funds may use long-term performance of these
capital market indices to demonstrate general long-term risk versus reward
scenarios and could include the value of a hypothetical investment in any of
the capital markets. The Funds may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
The Funds may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
Additional performance information is set forth in the 1994 Annual Report to
Shareholders and is available upon request and without charge by calling
1-800-833-8974.
TAXES
The following summary of Federal income tax consequences is based on current
tax laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the Federal, state, or local income tax treatment of a Fund or
its shareholders. Accordingly, shareholders are urged to consult their tax
advisers regarding specific questions as to Federal, state and local income
taxes.
Tax Status of the Fund: Each Fund is treated as a separate entity for Federal
income tax purposes and is not combined with the Trust's other funds. The Fund
intends to qualify for the special tax treatment afforded regulated investment
companies by the Internal
Revenue Code of 1986, as amended, so that it will be relieved of Federal income
tax on that part of its net investment income and net capital gains (the excess
of net long-term capital gain over net short-term capital loss) which is
distributed to shareholders.
Tax Status of Distributions: Each Fund will distribute all of its net
investment income (including, for this purpose, net short-term capital gain) to
shareholders. Dividends from net investment income will be taxable to
shareholders as ordinary income whether received in cash or in additional
shares. Any net capital gains will be distributed annually and will be taxed to
shareholders as long-term capital gains, regardless of how long the shareholder
has held shares. Each Fund will make annual reports to shareholders of the
Federal income tax status of all distributions.
Dividends declared by a Fund in October, November or December of any year and
payable to shareholders of record on a date in that month will be deemed to
have been paid by the Fund and received by the shareholder on December 31 of
that year, if paid by the Fund at any time during the following January.
Certain securities purchased by a Fund (such as STRIPS, TRs, TIGRs and CATS
which are defined under "Description of Permitted Investments and Risk
Factors"), are sold at original issue discount and thus do not make periodic
cash interest payments, the Fund will be required to include as part of its
current income the imputed interest on such obligations even though the Fund
has not received any interest payments on such obligations during that period.
Because the Funds distribute all of their net investment income to their
shareholders, a Fund may have to sell portfolio securities to distribute such
imputed income which may occur at a time when the Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for Federal excise tax.
Sale, exchange, or redemption of Fund shares is a taxable event to the
shareholders.
15
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated July 24, 1991. The Declaration of Trust permits the Trust to
offer separate funds of shares. In addition to the Funds, the Trust consists of
the following portfolios: Cash Management Fund, Cash Plus Fund,
Intermediate-Term Government Securities Fund and Fixed Income Fund. All
consideration received by the Trust for shares of any Fund and all assets of
such Fund belong to that Fund and would be subject to liabilities related
thereto.
The Trust pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering the
shares under Federal and state securities laws, pricing, insurance expenses,
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
Trustees of the Trust
The management and affairs of the Trust are supervised by the Trustees under
the laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which certain companies provide
essential management services to the Trust.
Voting Rights
Each share held entitles the shareholder of record to one vote. Each Fund (or
class thereof) will vote separately on matters relating solely to that Fund (or
class). As a Massachusetts business trust, the Trust is not required to hold
annual meetings of shareholders but approval will be sought for certain changes
in the operation of the Trust and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by the remaining Trustees
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Trust. In the
event that such a meeting is requested the Trust will provide
appropriate assistance and information to the shareholders requesting the
meeting.
Shareholder Inquiries
Shareholder inquiries should be directed to the Transfer Agent, P.O. Box 419546
Kansas City, MO 64141-6546.
Dividends
Substantially all of the net investment income (not including capital gain) of
the Fund is distributed monthly in the form of periodic dividends on the last
Business Day of each month to shareholders who held shares on the record date.
If any capital gain is realized, substantially all of it will be distributed at
least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Transfer Agent at least 15 days prior to the distribution.
For all investments effected through customer accounts maintained at financial
institutions, dividends payments in cash will be transmitted to the investor's
account through which the shares were purchased, or if the financial
institutions so specified, to the Financial Institution for crediting to its
customer's account.
Dividends and distributions of a Fund are paid on a per-share basis. The value
of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
The dividends on Investor Class shares of the Fund will be lower than those on
Institutional Class shares because of the distribution expenses charged to
Investor Class shares.
16
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
Custodian
First Fidelity Bank, N.A., 765 Broad Street, Newark, NJ 07101 acts as Custodian
of the assets of the Trust. The Custodian holds cash, securities and other
assets of the Trust as required by the 1940 Act. Fees for custodian services
are included in the Advisory fee paid to First Fidelity. See "The Adviser".
DESCRIPTION OF PERMITTED INVESTMENTS
AND RISK FACTORS
The following is a description of the permitted investments for the various
Funds and the various risk factors associated therewith:
AMERICAN DEPOSITARY RECEIPTS ("ADRs")-ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interest
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the underlying security. Holders of unsponsored depositary receipts
generally bear all the costs of the unsponsored facility. The depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security
or to pass through, to the holders of the receipts, voting rights with respect
to the deposited securities.
BANKERS' ACCEPTANCES-Bankers' acceptances are bills of exchange or time draft
drawn on and accepted by a commercial bank, Bankers' acceptances are used by
corporation to finance the shipment and storage of goods and to furnish dollar
exchange. Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT-Certificates of deposit are interest bearing instrument
with a specific maturity. They are issued by banks and savings and loan
institutions in exchange for the deposit of funds and normally can be traded in
the secondary market prior to maturity. Certificates of deposit with penalties
for early withdrawal will be considered illiquid.
COMMERCIAL PAPER-Commercial paper is a term used to designate unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES-Convertible securities are corporate securities that are
exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of convertible securities tends to move together with the market value of
the underlying stock. As a result, the Fund's selection of convertible
securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer, and any call provisions.
COVERED CALL OPTIONS-Under a call option, the purchaser of the option has the
right to purchase, and the writer (a Fund) has the obligation to sell, the
underlying security at the exercise price during the option period. Options
written on individual securities are written solely as covered call options
(options on securities owned by a Fund) and will not be written for speculative
purposes. In order to close out an option position, the Fund may enter into a
"closing purchase transaction"-the purchase of a call option on the same
security with the same exercise price and expiration date as any call option
which it may previously have written on any particular security. When the fund
security is sold, the Fund effects a closing purchase transaction so as to
close out any existing call option on that security. If the Fund is unable to
effect a closing purchase transaction, it will not be able to sell the
underlying security until the
17
option expires or the Fund delivers the underlying
security upon exercise.
Although a Fund will engage in option transactions only as hedging transactions
and not for speculative purposes, there are risks associated with such
investments including the following: the success of a hedging strategy may
depend on the ability of the Adviser to predict movements in the prices of
individual securities and fluctuations in markets; there may be an imperfect
correlation between the movement in prices of securities held by the Fund;
there may not be a liquid market for options; and while the Fund will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
ILLIQUID SECURITIES-Illiquid securities are securities which cannot be disposed
of within seven business days at approximately the price at which they are
being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with durations
(or maturities) of over seven days in length.
OBLIGATIONS OF SUPRANATIONAL AGENCIES-Supranational agencies are entities
established through the joint participation of several governments and include
the Asian Development Bank, Inter-American Development Bank, International Bank
for Reconstruction and Development (World Bank), African Development Bank,
European Coal and Steel Community, European Economic Community, European
Investment Bank and the Nordic Investment Bank.
PREFERRED STOCK-Preferred stock is a class of capital stock that pays dividend
at a specified rate and that has preference over common stock in the payment of
dividend and the liquidation of assets. Preferred stock does not ordinarily
carry voting rights.
RECEIPTS-Receipts are interests in separately traded interest and principal
component parts of U.S. Treasury obligations that are issued by banks or
brokerage firms and are created by depositing U.S. Treasury notes and U.S.
Treasury bonds into a special account at a custodian bank. The custodian holds
the interest and principal payments for the benefit of the registered owners of
the certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TRs"), "Treasury Investment Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATS").
Receipts are sold as zero coupon securities which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is amortized over
the life of the security, and such amortization will constitute the income
earned on the security for both accounting and tax purposes. Because of these
features, such securities may be subject to greater interest rate volatility
than interest paying Permitted Investments. See "Taxes."
REPURCHASE AGREEMENTS-Repurchase agreements are agreements which a Fund obtains
a security and simultaneously commits to return the security to the seller at
an agreed upon price (including principal and interest) on an agreed upon date
within a number of days from the date of purchase. The Custodian or its agent
will hold the security as collateral for the repurchase agreement. The Fund
bears a risk of loss in the event the other party defaults on its obligations
and the Fund is delayed or prevented from exercising its right to dispose of
the collateral securities or if the Fund realizes a loss on the sale of the
collateral securities. The Fund will enter into repurchase agreements on behalf
of the Fund only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on guidelines. Repurchase
agreements are considered loans under the 1940 Act.
SECURITIES LENDING-In order to generate additional income, a Fund may lend the
securities in which it is invested pursuant to agreements requiring that the
loan be continuously secured by collateral
18
consisting of cash, securities of the U.S. Government or its agencies or any
combination of cash and such securities equal at all times to at least 100% of
the market value plus accrued interest of the securities lent. Collateral is
marked to market daily. A Fund will continue to receive interest on the
securities lent while simultaneously earning interest on the investment of cash
collateral. There may be risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially or become involvement.
SECURITIES OF FOREIGN ISSUERS-There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments (including possible governmental seizure or nationalization of
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities.
TIME DEPOSITS-Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, time deposits
earn a specified rate of interest over a definite period of time; however, they
cannot be traded in the secondary market. Time deposits with a withdrawal
penalty are considered to be illiquid securities; therefore, the Fund will not
invest more than 10% of its assets in such time deposits and other illiquid
investments.
U.S. GOVERNMENT AGENCIES-Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed
by instrumentalities of the U.S. Government, including, among others, the
Federal Home Loan Mortgage Corporation, the Federal Land Banks and the U.S.
Postal Service. Some of these securities are supported by the full faith and
credit of the U.S. Treasury (e.g., Government National Mortgage Association),
others are supported by the right of the issuer to borrow from the Treasury
(e.g., Federal Farm Credit Bank), while still others are supported only by the
credit of the instrumentality (e.g., Federal National Mortgage Association).
Guarantees of principal by agencies or instrumentalities of the U.S. Government
may be a guarantee of payment at the maturity of the obligation so that in the
event of a default prior to maturity there might not be a market and thus no
means of realizing on the obligation prior to maturity. Guarantees as to the
timely payment of principal and interest do not extend to the value or yield of
these securities nor to the value of the Fund's shares.
U.S. TREASURY OBLIGATIONS-U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS").
WARRANTS-Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period.
19
FFB LEXICON FUNDS
Investment Adviser:
First Fidelity Bank, N.A.
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of the
FFB Lexicon Funds (the "Trust") and should be read in conjunction with the
Trust's prospectuses dated December 30, 1994. Prospectuses may be obtained
through the Distributor, SEI Financial Services Company, 680 East Swedesford
Road, Wayne, PA 19087-1658.
TABLE OF CONTENTS
The Trust.............................................................S-2
Description of Permitted Investments..................................S-2
Investment Limitations................................................S-9
The Adviser..........................................................S-11
The Administrator ...................................................S-12
The Distributor......................................................S-14
Trustees and Officers of the Trust...................................S-14
Computation of Yield.................................................S-16
Calculation of Total Return..........................................S-18
Purchase and Redemption of Shares....................................S-18
Determination of Net Asset Value.....................................S-19
Taxes................................................................S-21
Fund Transactions....................................................S-22
Description of Shares................................................S-23
Shareholder Liability................................................S-24
Limitation of Trustees' Liability....................................S-24
5% Shareholders .....................................................S-24
Experts..............................................................S-26
Financial Information ...............................................FS-1
Appendix............................................................. A-1
December 30, 1994
LEX-F-001-05
<PAGE>
THE TRUST
FFB Lexicon Funds (the "Trust") is a diversified, open-end management investment
company established under Massachusetts law as a Massachusetts business trust
under a Declaration of Trust dated July 24, 1991. The Declaration of Trust
permits the Trust to offer separate series of units of beneficial interest
("shares"). Each share of each portfolio represents an undivided, proportionate
interest in that fund. See "Description of Shares." This Statement of Additional
Information relates to the Trust's Cash Plus, Cash Management, Fixed Income,
Intermediate-Term Government Securities, Select Value, Capital Appreciation
Equity, Dividend Growth and Small Company Growth Funds (the "Funds").
DESCRIPTION OF PERMITTED INVESTMENTS
GNMA Securities. The Cash Plus, Cash Management, Fixed Income and
Inter-mediate-Term Government Securities Funds may invest in securities issued
by the Government National Mortgage Association ("GNMA"), a wholly-owned U.S.
Government corporation, which guarantees the timely payment of principal and
interest, but not premiums paid to purchase these instruments. The market value
and interest yield of these instruments can vary due to market interest rate
fluctuations and early prepayments of underlying mortgages. These securities
represent ownership in a pool of federally insured mortgage loans. GNMA
certificates consist of underlying mortgages with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments, GNMA
certificates have a shorter average maturity and, therefore, less principal
volatility than a comparable 30-year bond. Since prepayment rates vary widely,
it is not possible to accurately predict the average maturity of a particular
GNMA pool. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be "passed through" to investors. GNMA securities
differ from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result, there
will be monthly scheduled payments of principal and interest. In addition, there
may be unscheduled principal payments representing prepayments on the underlying
mortgages. Although GNMA certificates may offer yields higher than those
available from other types of U.S. Government securities, GNMA certificates may
be less effective than other types of securities as a means of "locking in"
attractive long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of a GNMA certificate likely will not rise as
much as comparable debt securities due to the prepayment feature. In addition,
these prepayments can cause the price of a GNMA certificate originally purchased
at a premium to decline in price to its par value, which may result in a loss.
Mortgage-Backed or Asset-Backed Securities. The Fixed Income Fund may invest in
mortgage-backed securities and asset-backed securities. Two principal types of
mortgage-backed securities are collateralized mortgage obligations ("CMOs") and
real estate mortgage investment conduits ("REMICs"). CMOs are securities
collateralized by mortgages, mortgage pass-throughs, mortgage pay-through bonds
(bonds representing an interest in a pool of mortgages where the cash flow
generated from the mortgage collateral pool is dedicated to bond repayment), and
mortgage-backed bonds (general obligations of the issuers payable out of the
issuers' general funds and additionally secured by a first lien on a pool of
single family detached properties). Many CMOs are issued with a number of
classes or series which have different maturities and are retired in sequence.
S - 2
<PAGE>
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
In addition to mortgage-backed securities, the Fixed Income Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets
which are passed through to the security holder.
Repurchase Agreements. Certain of the investments of all of the Funds may
include repurchase agreements which are agreements by which a person (e.g., a
portfolio) obtains a security and simultaneously commits to return the security
to the seller (a member bank of the Federal Reserve System or recognized
securities dealer) at an agreed upon price (including principal and interest) on
an agreed upon date within a number of days (usually not more than seven) from
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by the Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Funds will
provide that the underlying security shall have a value at all times at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by the Funds, the Custodian or its agent must take possession of the underlying
collateral. However, if the seller defaults, the Funds could realize a loss on
the sale of the underlying security to the extent that the proceeds of sale
including accrued interest are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, the Funds may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Funds are treated as an unsecured creditor and required to
return the underlying security to the seller's estate.
U.S. Government Agencies and Instrumentalities. Certain of the investments of
all of the Funds may include U.S. Government agency securities. Agencies of the
United States Government which issue
S - 3
<PAGE>
obligations consist of, among others, the Export Import Bank of the United
States, Farmers Home Administration, Federal Farm Credit Bank, Federal Housing
Administration, Government National Mortgage Association, Maritime
Administration, Small Business Administration, and The Tennessee Valley
Authority. Obligations of instrumentalities of the United States Government
include securities issued by, among others, Federal Home Loan Banks, Federal
Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land
Banks, Federal National Mortgage Association and the United States Postal
Service. Some of these securities are supported by the full faith and credit of
the United States Treasury (e.g., Government National Mortgage Association),
others are supported by the right of the issuer to borrow from the Treasury and
still others are supported only by the credit of the instrumentality (e.g.,
Federal National Mortgage Association). Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing the value of the
obligation prior to maturity.
Variable or Floating Rate Instruments. Certain of the investments of the Funds
may include variable or floating rate instruments which may involve a demand
feature and may include variable amount master demand notes which may or may not
be backed by bank letters of credit. Variable or floating rate instruments bear
interest at a rate which varies with changes in market rates. The holder of an
instrument with a demand feature may tender the instrument back to the issuer at
par prior to maturity. A variable amount master demand note is issued pursuant
to a written agreement between the issuer and the holder, its amount may be
increased by the holder or decreased by the holder or issuer, it is payable on
demand, and the rate of interest varies based upon an agreed formula. The
quality of the underlying credit must, in the opinion of the Advisers, be
equivalent to the long-term bond or commercial paper ratings applicable to
permitted investments for each Fund. The Adviser will monitor, on an ongoing
basis, the earning power, cash flow, and liquidity ratios of the issuers of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
Options. The Select Value, Capital Appreciation Equity, Small Company Growth and
Dividend Growth Funds may write call options on a covered basis only, and will
not engage in option writing strategies for speculative purposes.
Covered Call Writing. Each of the above Funds may write covered call options
from time to time on up to 20% of its total assets. A call option gives the
purchaser of such option the right to buy, and the writer, in this case the
Fund, has the obligation to sell the underlying security at the exercise price
during the option period. The advantage to the Fund of writing covered calls is
that the Fund receives a premium which is additional income. However, if the
security rises in value, the Fund may not fully participate in the market
appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker/dealer, through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Fund when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
S - 4
<PAGE>
A closing purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. The Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.
If a call option expires unexercised, the Fund will realize a short term capital
gain in the amount of the premium on the option, less the commission paid. Such
a gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a call option is exercised, the
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between the cost of the underlying security, and the proceeds
of the sale of the security plus the amount of the premium on the option, less
the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security and the time remaining until the expiration date.
The Funds will write call options only on a covered basis, which means that the
Fund will own the underlying security subject to a call option at all times
during the option period or has an absolute and immediate right to acquire the
security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian). Options written by
the Fund will normally have expiration dates between one and nine months from
the date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security at the time the option
is written.
Foreign Securities. The Funds may invest in U.S. dollar denominated obligations
or securities of foreign issuers. Permissible investments may consist of
obligations of foreign branches of U.S. banks and of foreign banks, including
European Certificates of Deposit, European Time Deposits, Canadian Time Deposits
and Yankee Certificates of Deposit, and investments in Canadian Commercial
Paper, foreign securities and Europaper. In addition, the Select Value, Capital
Appreciation Equity, Small Company Growth and Dividend Growth Funds may invest
in American Depositary Receipts ("ADRs") traded on registered exchanges or
NASDAQ. While the Funds expect to invest primarily in sponsored ADRs, a joint
arrangement between the foreign issuer and the depositary, some ADRs may be
unsponsored. Unlike sponsored ADRs, the holders of unsponsored ADRs bear all
expenses and the depositary may not be obligated to distribute Shareholder
communications or to pass through the voting rights on the deposited
S - 5
<PAGE>
securities. These instruments may subject the Fund to investment risks that
differ in some respects from those related to investments in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, the possible imposition of withholding taxes on interest or other
income, possible seizure, nationalization, or expropriation of foreign deposits,
the possible establishment of exchange controls or taxation at the source,
greater fluctuations in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. Such investments may also
entail higher custodial fees and sales commissions than domestic investments.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks.
When-Issued Securities. The Cash Plus, Cash Management, Intermediate-Term
Government Securities and Fixed Income Funds may invest in when-issued
securities. These securities involve the purchase of debt obligations on a
when-issued basis, in which case delivery and payment normally take place within
45 days after the date of commitment to purchase. The Fund will only make
commitments to purchase obligations on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the Custodian, and the Fund will
maintain liquid assets in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will place additional liquid assets in the account on a daily
basis so that the value of the assets in the account is equal to the amount of
such commitments.
Securities Lending. Certain of the investments of the Funds may include
securities lending. The Funds may lend securities pursuant to agreements
requiring that the loans be continuously secured by cash, securities of the U.S.
government or its agencies, or any combination of cash and such securities, as
collateral equal at all times to 100% of the market value of the securities
lent. Such loans will not be made if, as a result, the aggregate amount of all
outstanding securities loans for the Fund exceed one-third of the value of a
Fund's total assets taken at fair market value. A Fund will continue to receive
interest on the securities lent while simultaneously earning interest on the
investment of the cash collateral. However, a Fund will normally pay lending
fees to such broker-dealers and related expenses from the interest earned on
invested collateral. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by the Adviser to be of good
standing and when, in the judgment of the Adviser, the consideration which can
be earned currently from such securities loans justifies the attendant risk. Any
loan may be terminated by either party upon reasonable notice to the other
party.
S - 6
<PAGE>
Other Investments
The Trust is not prohibited from investing in obligations of banks which are
clients of SEI Corporation ("SEI"). However, the purchase of shares of the Trust
by them or by their customers will not be a consideration in determining which
bank obligations the Trust will purchase. The Trust will not purchase
obligations of the Adviser or its affiliates.
INVESTMENT LIMITATIONS
A Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then
only in an amount not exceeding one-third of the value of total
assets. Any borrowing will be done from a bank and to the extent that
such borrowing exceeds 5% of the value of the Fund's assets, asset
coverage of at least 300% is required. In the event that such asset
coverage shall at any time fall below 300%, the Fund shall, within
three days thereafter or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce the
amount of its borrowings to such an extent that the asset coverage of
such borrowings shall be at least 300%. This borrowing provision is
included solely to facilitate the orderly sale of portfolio securities
to accommodate heavy redemption requests if they should occur and is
not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such borrowings
will reduce income.
4. Make loans, except that (a) a Fund may purchase or hold debt
instruments in accordance with its investment objective and policies;
(b) a Fund may enter into repurchase agreements, and (c) the Funds may
engage in securities lending as described in the Prospectus and in
this Statement of Additional Information.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed
10% of total assets taken at current value at the time of the
incurrence of such loan, except as permitted with respect to
securities lending.
6. Purchase or sell real estate, real estate limited partnership
interests, commodities or commodities contracts and interests in a
pool of securities that are secured by interests in real estate.
However, subject to their permitted investments, any Fund may invest
in companies which invest in real estate, commodities or commodities
contracts.
7. Make short sales of securities, maintain a short position or
purchase securities on margin, except that a Fund may obtain
short-term credits as necessary for the clearance of security
transactions.
S - 7
8. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a Fund security.
9. Purchase securities of other investment companies except for money
market funds and CMOs and REMICs deemed to be investment companies and
then only as permitted by the Investment Company Act of 1940 and the
rules and regulations thereunder. Under these rules and regulations as
currently in effect, the Funds are prohibited from acquiring the
securities of other investment companies if, as a result of such
acquisition, the Funds own more than 3% of the total voting stock of
the company; securities issued by any one investment company represent
more than 5% of the total Fund's assets; or securities (other than
treasury stock) issued by all investment companies represent more than
10% of the total assets of the Funds. These investment companies
typically incur fees that are separate from those fees incurred
directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders
would indirectly bear a proportionate share of the operating expenses
of such investment companies, including advisory fees.
It is the position of the Securities and Exchange Commission's Staff
that certain nongovernmental issuers of CMOs and REMICs constitute
investment companies pursuant to the Investment Company Act of 1940 and
either (a) investments in such instruments are subject to the
limitations set forth above or (b) the issuers of such instruments have
received orders from the Securities and Exchange Commission exempting
such instruments from the definition of investment company.
10. Issue senior securities (as defined in the Investment Company Act
of 1940) except in connection with permitted borrowings as described
above or as permitted by rule, regulation or order of the Securities
and Exchange Commission.
11. Purchase or retain securities of an issuer if, to the knowledge of
the Trust, an officer, trustee, partner or director of the Trust or
any investment adviser of the Trust owns beneficially more than 1/2 of
1% of the shares or securities of such issuer and all such officers,
trustees, partners and directors owning more than 1/2 of 1% of such
shares or securities together own more than 5% of such shares or
securities.
12. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
13. Write or purchase puts, calls, options or combinations thereof,
except that the Select Value, Capital Appreciation Equity, Small
Company Growth and Dividend Growth Funds may write covered call
options with respect to any or all parts of its Fund securities as
described in the prospectus. The above Funds may enter into closing
transactions with respect to covered call options.
Non-Fundamental Policies
No Fund may invest in warrants except that the Select Value, Capital
Appreciation Equity, Small
S - 8
<PAGE>
Company Growth and Dividend Growth Funds may invest in warrants in an
amount not exceeding 5% of the Fund's net assets as valued at the
lower of cost or market value. Included in that amount, but not to
exceed 2% of the Fund's net assets, may be warrants not listed on the
New York Stock Exchange or American Stock Exchange.
No Fund may invest in illiquid securities in an amount exceeding, in
the aggregate, 10% of a Fund's assets. An illiquid security is a
security which cannot be disposed of promptly (within seven days), and
in the usual course of business without a loss, and includes
repurchase agreements maturing in excess of seven days, time deposits
with a withdrawal penalty, non-negotiable instruments and instruments
for which no market exists.
The foregoing percentages will apply at the time of the purchase of a
security and shall not be considered violated unless an excess occurs
or exists immediately after and as a result of a purchase of such
security.
THE ADVISER
The Trust and First Fidelity Bank, N.A. (the "Adviser"), have entered
into an advisory agreement (the "Advisory Agreement") dated October
18, 1991. The Advisory Agreement provides that the Adviser shall not
be protected against any liability to the Trust or its Shareholders by
reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard of
its obligations or duties thereunder.
The Advisory Agreement provides that if, for any fiscal year, the
ratio of expenses of any Fund (including amounts payable to the
Adviser but excluding interest, taxes, brokerage, litigation, and
other extraordinary expenses) exceeds limitations established by
applicable state law, the Adviser will bear the amount of such excess.
The Adviser will not be required to bear expenses of a Fund to an
extent which would result in a Fund's inability to qualify as a
regulated investment company under provisions of the Internal Revenue
Code. The Advisory Agreement was approved by the sole shareholder of
the Trust on October 30, 1991.
The continuance of the Advisory Agreement, after the first two years,
must be specifically approved at least annually (i) by the vote of the
Trustees, and (ii) by the vote of a majority of the Trustees who are
not parties to the Agreement or "interested persons" of any party
thereto, cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement will terminate automatically
in the event of its assignment, and is terminable at any time without
penalty by the Trustees of the Trust or, with respect to the Funds by
a majority of the outstanding shares of the Funds, on 60 days written
notice to the Adviser, or by the Adviser on 90 days written notice to
the Trust.
For the fiscal years ended August
31, 1992, 1993 and 1994, the Funds paid the following advisory fees:
<TABLE>
<CAPTION>
Fees Paid Fees Waived
Fund Name
---------------------------------------- -----------------------
1992 1993 1994 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
Cash Management Fund $194,575 $206,608 $ 73,131 $ 34,403 $255,952 $ 89,700
Fixed Income Fund $146,740 $239,670 $163,046 $204,595 $298,455 $266,241
Intermediate-Term Government
Securities Fund $191,567 $329,384 $208,449 $280,640 $387,204 $321,751
Capital Appreciation Equity Fund $292,571 $436,504 $443,919 $549,739 $479,076 $627,563
Select Value Fund * $ 55,749 * $103,988 $ 98,314 $172,052
Small Company Growth Fund * $ 47,066 * $ 74,357 $ 66,537 $107,430
Dividend Growth Fund * * * * * *
Cash Plus Fund * * * * * *
</TABLE>
* Not in operation during the period.
THE ADMINISTRATOR
The Trust and SEI Financial Management Company have entered into an
Administration Agreement (the "Administration Agreement") dated October 18,
1991. The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of five years after
the date of the Agreement and shall continue in effect for successive periods of
three years subject to review at least annually by the Trustees of the Trust
unless terminated by either party on not less than ninety days written notice to
the other party.
The Administrator, a wholly-owned subsidiary of SEI Corporation ("SEI"), was
organized as a Delaware corporation in 1969 and has its principal business
offices at 680 East Swedesford Road, Wayne, Pennsylvania, 19087. Alfred P. West,
Jr., Henry H. Greer, and Carmen V. Romeo constitute the Board of Directors of
the Administrator. Mr. West serves as the Chairman of the Board of Directors and
Chief Executive Officer of the Administrator and of SEI. SEI and its
subsidiaries are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator also
serves as administrator to the following other institutional mutual funds: SEI
Liquid Asset Trust; SEI Tax Exempt Trust; SEI Index Funds; SEI Institutional
Managed Trust; SEI Daily Income Trust; SEI International Trust; Stepstone Funds;
The Compass Capital Group; The Advisors' Inner Circle Fund; The Pillar Funds;
CUFund; STI Classic Funds; CoreFunds, Inc.; First American Funds, Inc.; First
American Investment Funds, Inc.; 1784 Funds; The Arbor Fund; The PBHG Funds,
Inc.; First American Mutual Funds; Morgan Grenfell Investment Trust; Nationar
Funds; Marquis Funds; Tax Exempt Housing Reserve Fund; Inventor Funds, Inc.; and
Rembrandt Funds.
For the fiscal years ended August
31, 1992, 1993 and 1994, the Funds paid the following administrative fees:
S - 10
<PAGE>
<TABLE>
<CAPTION>
Fees Paid Fees Waived
Fund
------------------------------ ------------------------
1992 1993 1994 1992 1993 1994
<S> <C> <C> <C> <C> <C> <C>
Cash Management Fund $113,397 $102,430 $146,899 0 0 0
Fixed Income Fund $ 87,770 $125,875 $159,997 0 0 0
Intermediate-Term Government $113,338 $172,840 $200,870 0 0 0
Securities Fund
Capital Appreciation Equity Fund $166,938 $223,548 $250,838 0 0 0
Select Value Fund * 0 $ 24,369 * $ 36,207 $ 36,914
Small Company Growth Fund * 0 $ 13,160 * $ 27,522 $ 26,272
Dividend Growth Fund * * * * * *
Cash Plus Fund * * * * * *
</TABLE>
- -------------------------------------------
* Not in operation during the period.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, and that Trust are parties to a distribution agreement ("Distribution
Agreement") dated October 18, 1991 as amended and restated November 15, 1994,
which applies to the Investor Class, Institutional Class and Service Class
shares of the Funds. The Distribution Agreement shall be reviewed and ratified
at least annually (i) by the Trust's Trustees or by the vote of a majority of
the outstanding shares of the Trust, and (ii) by the vote of a majority of the
Trustees of the Trust who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval. The Distribution Agreement will terminate in the event of any
assignment as defined in the 1940 Act, and is terminable with respect to a
particular Portfolio on not less than sixty days' notice by the Trust's
Trustees, by vote of a majority of the outstanding shares of such Fund or by the
Distributor. The Distributor will receive no compensation for distribution of
the Institutional Class shares. Investor Class shares have a distribution plan
dated November 15, 1994 ("Investor Class Distribution Plan").
Investor Class Distribution Plan
The Distribution Agreement and the Investor Class Distribution Plan adopted by
the Investor Class shareholders provides that the Investor Class shares of each
Fund will pay the Distributor a fee of .50% of the average daily net assets
which the Distributor can use to compensate broker/dealers and service
providers, including the Adviser and its affiliates which provide administrative
and/or distribution services to the Investor Class shareholders or their
customers who beneficially own Investor Class shares.
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, the Qualified Trustees, or by a majority vote of the outstanding
securities of the Trust upon not more than 60 days written notice by either
party.
S - 11
<PAGE>
The Trust has adopted the Investor Class Distribution Plan in accordance with
the provisions of Rule 12b- 1 under the 1940 Act which regulates circumstances
under which an investment company may directly or indirectly bear expenses
relating to the distribution of its shares. Continuance of the Investor Class
Distribution Plan must be approved annually by a majority of the Trustees of the
Trust and by a majority of the Qualified Trustees. The Investor Distribution
Plan requires that quarterly written reports of amounts spent under the Investor
Class Distribution Plan and the purposes of such expenditures be furnished to
and reviewed by the Trustees. The Investor Class Distribution Plan may not be
amended to increase materially the amount which may be spent thereunder without
approval by a majority of the outstanding shares of the Trust. All material
amendments of the Plan will require approval by a majority of the Trustees of
the Trust and of the Qualified Trustees.
TRANSFER AGENT
Supervised Service Company ("SSC") serves as transfer agent, shareholder
servicing agent and dividend disbursing agent for the Investor Class shares of
the Trust.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and executive officers of the Trust and their principal occupations for
the last five years are set forth below. Each may have held other positions with
the named companies during that period. Unless otherwise noted, the business
address of each Trustee and executive officer is SEI Financial Management
Corporation, 680 E. Swedesford Road, Wayne, PA 19087-1658. Certain officers of
the Trust also serve as trustees and/or officers of SEI Liquid Asset Trust, SEI
Institutional Managed Trust, SEI Tax Exempt Trust, SEI International Trust, SEI
Index Funds, SEI Daily Income Trust, Stepstone Funds, The Compass Capital Group,
The Advisors Inner Circle Fund, The Pillar Funds, CUFund, STI Classic Funds,
CoreFunds, Inc., First American Funds, Inc., First American Investment Funds,
Inc., 1784 Funds, The Arbor Fund, The PBHG Funds, Inc., First American Mutual
Funds, Morgan Grenfell Investment Trust, Nationar Funds, Marquis Funds, Tax
Exempt Housing Reserve Fund, and Inventor Funds, Inc. all of which are open-end
management investment companies.
ROBERT A. NESHER - Chairman of the Board of Trustees* - 8 South
Street, Kennebunkport, ME 04046. Retired since 1994. Executive Vice
President of SEI, 1986-1994. Director and Executive Vice President of
the Administrator and the Distributor September, 1981-1994 .
JOHN T. COONEY - Trustee** - 573 N. Post Oak Lane, Houston, TX 77024.
Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust corp., 1985-1989.
WILLIAM M. DORAN - Director* - 2000 One Logan Square, Philadelphia, PA
19103. Partner of Morgan, Lewis & Bockius (law firm). Counsel to the
Trust, Administrator and Distributor for the past five years. Director
and Secretary of SEI.
S - 12
<PAGE>
FRANK E. MORRIS - Trustee** - 105 Walpole Street, Dover, MA 02030.
Retired since 1990. Peter Drucker Professor of Management, Boston
College, 1989-1990. President, Federal Reserve Bank of Boston,
1968-1988.
ROBERT A. PATTERSON - Trustee** - 408 Old Main, University Park, PA
16802. Pennsylvania State University Senior Vice President, Treasurer
(Emeritus), Financial and Investment Consultant, Professor of
Transportation, 1984-present. Vice President - Investments, Treasurer,
Senior Vice President (Emeritus), 1982-1984. Director, Pennsylvania
Research Corp. Member and Treasurer, Board of Trustees of Grove City
College.
GENE PETERS - Trustee** - 943 Oblong Road, Williamstown, MA 01267.
Private investor from 1987 to present. Vice President and Chief
Financial Officer of Western Company of North America (petroleum
service company), 1980-1986. President of Gene Peters and Associates
(import company), 1978-1980. President and CEO of Jos. Schlitz Brewing
Company before 1978.
JAMES M. STOREY - Trustee** - Ten Post Office Square South Boston, MA
02109. Formerly Partner of Dechert Price & Rhoads.
DAVID G. LEE - President, Chief Executive Officer - Senior Vice
President of the Administrator and Distributor since 1993. Vice
President of the Administrator and Distributor, 1991-1993. President,
GW Sierra Trust Funds before 1991.
CARMEN V. ROMEO - Treasurer, Assistant Secretary - Director, Executive
Vice President, Chief Financial Officer and Treasurer of SEI. Director
and Treasurer of the Administrator and Distributor since 1981.
SANDRA K. ORLOW - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of the Administrator and Distributor since
1983.
KEVIN P. ROBINS - Vice President, Assistant Secretary - Senior Vice
President & General Counsel of SEI, the Administrator and the
Distributor since 1994. Vice President of SEI, the Administrator and
the Distributor since 1992.
KATHRYN L. STANTON - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI, the Administrator and
Distributor since 1994. Associate, Morgan, Lewis & Bockius (law firm)
1989-1994.
ROBERT B. CARROLL - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI, the Administrator and
Distributor since 1994. United States Securities and Exchange
Commission, Division of Investment Management, 1990-1994. Associate,
McGuire, Woods, Battle & Boothe (law firm) before 1990.
JEAN YOUNG - Controller, Chief Accounting Officer, Assistant Secretary
- CPA, Director, Domestic Funds Accounting - SEI Corporation, 1993 to
present. Senior Audit Manager, Ernst & Young, prior to 1993.
S - 13
<PAGE>
RICHARD W. GRANT - Secretary - 2000 One Logan Square, Philadelphia, PA
19103, Partner of Morgan, Lewis & Bockius (law firm), Counsel to the
Trust, Administrator and Distributor.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for unaffiliated Trustees.
Compensation of officers and affiliated Trustees of the Trust is paid by the
Administrator.
==================
*Messrs. Nesher and Doran are Trustees who may be deemed to
be "interested persons" of the Trust as the term is defined in the Investment
Company Act of 1940.
**Messrs. Cooney, Patterson, Peters, Morris and Storey serve as members of the
Audit Committee of the Trust.
COMPUTATION OF YIELD
From time to time the Cash Plus and Cash Management Funds may advertise its
"current yield" and "effective compound yield". Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Funds refers to the income generated by an investment in the
Funds over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Funds is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The current yield of the Funds will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains and
losses are not included in the calculation of the yield. The effective compound
yield of the Funds is determined by computing the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula: Effective Yield = (Base
Period Return + 1) 365/7) - 1. The current and the effective yields reflect the
reinvestment of net income earned daily on portfolio assets.
For the 7-day period ended August 31, 1994, the Cash Management Fund's current
and effective yields were as follows:
S - 14
<PAGE>
==============================================================================
7-Day
Fund 7-Day Yield Effective Yield
- -----------------------------------------------------------------------------
Cash Management Fund 4.20% 4.29%
=============================================================================
The yield of the Funds fluctuates, and the annualization of a week's dividend is
not a representation by the Trust as to what an investment in the Funds will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Funds invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Funds and other factors.
Yields are one basis upon which investors may compare the Funds with other money
market funds; however, yields of other money market funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments. The Cash Plus
Fund was not in operation for the period ended August 31, 1993.
From time to time, the Intermediate-Term Government Securities, Fixed Income,
Select Value, Capital Appreciation Equity, Small Company Growth, and Dividend
Growth Funds may advertise yield. These figures will be based on historical
earnings and are not intended to indicate future performance. The yield of these
Funds refers to the annualized income generated by an investment in the Funds
over a specified 30 day period. The yield is calculated by assuming that the
income generated by the investment during that period generated each period over
one year and is shown as a percentage of the investment. In particular, yield
will be calculated according to the following formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of
reimbursement); c = the current daily number of shares outstanding
during the period that were entitled to receive dividends; and d = the
maximum offering price per share on the last day of the period.
For the 30-day period ended August 31, 1994, yields on the Funds other than the
Money Market Fund were as follows:
===================================================================
FUND YIELD
===================================================================
Fixed Income Fund 6.04%
- -------------------------------------------------------------------
Intermediate Government Securities Fund 5.92%
- -------------------------------------------------------------------
Capital Appreciation Equity Fund 1.36%
- -------------------------------------------------------------------
Select Value Fund 2.44%
- -------------------------------------------------------------------
Small Company Growth Fund .63%
===================================================================
The Dividend Growth Fund and Cash Plus Fund had not commenced
operations as of August 31, 1994.
CALCULATION OF TOTAL RETURN
From time to time, the Intermediate-Term Government Securities, Fixed Income,
Select Value, Capital Appreciation Equity, Small Company Growth, and Dividend
Growth Funds may advertise total return. The total return of the Funds refers to
the average compounded rate of return to a hypothetical investment for
designated time periods (including but not limited to, the period from which the
Funds commenced operations through the specified date), assuming that the entire
investment is redeemed at the end of each period. In particular, total return
will be calculated according to the following formula: P (1 + T)n = ERV, where P
= a hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the designated time period as of the end of
such period.
Based on the foregoing, the average annual total returns for the Funds from
inception through August 31, 1994 and for the one year period ended August 31,
1994 were as follows:
===============================================================================
AVERAGE ANNUAL TOTAL RETURN
FUND
---------------------------------------------
Since Inception One Year
- -------------------------------------------------------------------------------
Cash Management Fund1 3.22% 3.13%
- -------------------------------------------------------------------------------
Fixed Income Fund2 7.27% (2.92%)
- -------------------------------------------------------------------------------
Intermediate-Term Government Securities Fund(3)
5.58% ( .99%)
- -------------------------------------------------------------------------------
Capital Appreciation Equity Fund(4) 7.65% 3.62%
- -------------------------------------------------------------------------------
Select Value Fund(5) 15.35% 7.98%
- -------------------------------------------------------------------------------
Small Company Growth Fund6 8.42% (1.71%)
===============================================================================
The Dividend Growth and Cash Plus Funds had not commenced operations as
of August 31, 1994.
- --------
1 Commenced operations 10/31/91.
2 Commenced operations 11/1/91.
3 Commenced operations 11/1/91.
4 Commenced operations 11/1/91.
5 Commenced operations 11/2/92.
6 Commenced operations 11/2/92.
S - 15
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for each of the Funds' redemptions in
cash. The Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind of securities held by
the Funds in lieu of cash. Shareholders may incur brokerage charges on the sale
of any such securities so received in payment of redemptions. However, a
Shareholder will at all times be entitled to aggregate cash redemptions from all
Funds of the Trust during any 90-day period of up to the lesser of $250,000 or
1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency as determined by the Securities and Exchange Commission (the "SEC") by
rule or regulation as a result of which the disposal or valuation of the Fund's
securities is not reasonably practicable, or for such other periods as the SEC
has by order permitted. The Trust also reserves the right to suspend sales of
shares of the Fund for any period during which the New York Stock Exchange, the
Adviser, the Administrator and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Cash Plus and Cash Management Funds is
calculated by adding the value of securities and other assets, subtracting
liabilities and dividing by the number of outstanding shares. Securities will be
valued by the amortized cost method which involves valuing a security at its
cost on the date of purchase and thereafter (absent unusual circumstances)
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuations in general market rates of interest on
the value of the instrument. While this method provides certainty in valuation,
it may result in periods during which a security's value, as determined by this
method, is higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of the
Funds may tend to be higher than a like computation made by a company with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio securities. Thus, if the
use of amortized cost by the Funds resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in the Funds would be able to obtain
a somewhat higher yield than would result from investment in a company utilizing
solely market values, and existing investors in the Fund would experience a
lower yield. The converse would apply in a period of rising interest rates.
The use of amortized cost valuation by the Cash Plus and Cash Management Funds
and the maintenance of the Funds' net asset value at $1.00 are permitted by
regulations promulgated by Rule 2a-7 under the Investment Company Act of 1940
(the "1940 Act"), provided that certain conditions are met. Under Rule 2a-7 as
amended, a money market portfolio must maintain a dollar-weighted average
maturity in the Fund of 90 days or less and not purchase any instrument having a
remaining maturity of more than 397 days. In addition, money market funds may
acquire only U.S. dollar denominated obligations that present minimal credit
risks and that are "eligible securities" which means they are (i) rated, at the
time of investment, by at least two nationally recognized security rating
organizations (one if it is the only organization rating such obligation) in the
highest short-term rating category or, if unrated, determined
S - 16
<PAGE>
to be of comparable quality (a "first tier security"), or (ii) rated according
to the foregoing criteria in the second highest short-term rating category or,
if unrated, determined to be of comparable quality ("second tier security"). The
Advisers will determine that an obligation presents minimal credit risks or that
unrated instruments are of comparable quality in accordance with guidelines
established by the Trustees. The Trustees must approve or ratify the purchase of
any unrated securities or securities rated by only one rating organization. In
addition, investments in second tier securities are subject to the further
constraints that (i) no more than 5% of a Fund's assets may be invested in such
securities in the aggregate, and (ii) any investment in such securities of one
issuer is limited to the greater of 1% of the Fund's total assets or $1 million.
The regulations also require the Trustees to establish procedures which are
reasonably designed to stabilize the net asset value per share at $1.00 for the
Fund. However, there is no assurance that the Trust will be able to meet this
objective. The Trust's procedures include the determination of the extent of
deviation, if any, of the Fund's current net asset value per unit calculated
using available market quotations from the Fund's amortized cost price per share
at such intervals as the Trustees deem appropriate and reasonable in light of
market conditions and periodic reviews of the amount of the deviation and the
methods used to calculate such deviation. In the event that such deviation
exceeds 1/2 of 1%, the Trustees are required to consider promptly what action,
if any, should be initiated. If the Trustees believe that the extent of any
deviation may result in material dilution or other unfair results to
Shareholders, the Trustees are required to take such corrective action as they
deem appropriate to eliminate or reduce such dilution or unfair results to the
extent reasonably practicable. In addition, if any Fund incurs a significant
loss or liability, the Trustees have the authority to reduce pro rata the number
of shares of that Fund in each Shareholder's account and to offset each
Shareholder's pro rata portion of such loss or liability from the Shareholder's
accrued but unpaid dividends or from future dividends.
The securities of all the Funds except the Cash Plus and Cash Management Funds
are valued by the Administrator pursuant to valuations provided by an
independent pricing service. The pricing service relies primarily on prices of
actual market transactions as well as trader quotations. However, the service
may also use a matrix system to determine valuations of fixed income securities
which system considers such factors as security prices, yields, maturities, call
features, ratings and developments relating to specific securities in arriving
at valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
TAXES
Federal Income Tax
In order to qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended ("Code"), each Fund must
distribute annually to its Shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) and also must meet several additional requirements. Among these
requirements are the following: (i) at least 90% of the Fund's gross income each
taxable year must be derived from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, or certain other income, (ii) the Fund must derive less than 30% of
its gross income each taxable year from the sale or other disposition of stocks
or securities held for less than three months; (iii) at the close of each
quarter
S - 17
<PAGE>
of the Fund's taxable year, at least 50% of the value of its total assets must
be represented by cash and cash items, U.S. Government securities, securities of
other RIC's and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of the
Fund's assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iv) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RIC's) of any one issuer.
Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), a
Fund will be subject to a nondeductible 4% excise tax to the extent it fails to
distribute by the end of any calendar year substantially all of its ordinary
income for that year and substantially all of its capital gain net income for
the one-year period ending on October 31 of that year, plus certain other
amounts.
If a Fund fails to qualify as a RIC for any year, all of its income will be
subject to tax at corporate rates and its distributions will be subject to tax
as ordinary dividends to its Shareholders, subject to the dividends received
deduction for corporate Shareholders.
State Taxes
A Fund is not liable for any income or franchise tax in the Commonwealth of
Massachusetts if it qualifies as a RIC for Federal income tax purposes.
Distributions by the Funds to Shareholders and the ownership of shares may be
subject to state and local taxes.
FUND TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the Adviser is responsible for placing the orders
to execute transactions for the Fund. In placing orders, it is the policy of the
Trust to seek to obtain the best net results taking into account such factors as
price (including the applicable dealer spread), the size, type and difficulty of
the transaction involved, the firm's general execution and operational
facilities, and the firm's risk in positioning the securities involved. While
the Adviser generally seeks reasonably competitive spreads or commissions, the
Trust will not necessarily be paying the lowest spread or commission available.
The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Trust will primarily consist of dealer spreads
and underwriting commissions.
S - 18
<PAGE>
The Adviser does not expect to use one particular dealer, but subject to the
Trust's policy of seeking the best net results, dealers who provide supplemental
investment research to the Adviser may receive orders for transactions by the
Trust. Information so received will be in addition to and not in lieu of the
services required to be performed by the Adviser under the Advisory Agreement,
and the expenses of the Adviser will not necessarily be reduced as a result of
the receipt of such supplemental information. For the fiscal period ended August
31, 1994, no Fund paid commissions to broker-dealers for research services.
It is expected that the Trust may execute brokerage or other agency transactions
through the Distributor or an affiliate of the Adviser, both of which are
registered broker-dealers, for a commission in conformity with the 1940 Act, the
Securities Exchange Act of 1934 and rules promulgated by the SEC. Under these
provisions, the Distributor (or an affiliate of the Adviser) is permitted to
receive and retain compensation for effecting portfolio transactions for the
Trust on an exchange if a written contract is in effect between the Distributor
and the Trust expressly permitting the Distributor (or an affiliate of the
Adviser) to receive and retain such compensation. These rules further require
that commissions paid to the Distributor by the Trust for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other renumeration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
For the fiscal years ended August 31, 1992, 1993 and 1994, the funds paid the
following brokerage commissions with respect to portfolio transactions:
<TABLE>
<CAPTION>
Total $ Total $ Amount of
Amount of Brokered
Brokerage Brokered Brokerage Commissions Transactions With
Commissions Paid Transactions to Affiliates Affiliate for Last
Fund for Last Year Year
------------------------------------- ------------------------------------------
1992 1993 1994 1994 1992 1993 1994 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Management Fund 0
Fixed Income Fund 0 0 0 0 0 0 0 0
Intermediate Term Govt.
Securities Fund
0 0 0 0 0 0 0 0
Capital Appreciation
Equity Fund 260,748 178,259 146,909 99,562,144 0 3,288 42,591 (28%) 31,387,236 (31%)
Select Value Fund * 23,769 105,595 54,083,878 * 0 20,197 (19%) 11,002,939 (20%)
Small Company Growth
Fund * 27,675 38,438 12,697,373 * 0 11,136 (28%) 3,968,746 (31%)
Dividend Growth Fund * * * 0 * * * *
Cash Plus Fund * * * 0 * * * *
</TABLE>
*Not in operation during the period.
S - 19
<PAGE>
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Trust to clients, and may, when a number of
brokers and dealers can provide best price and execution on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
Under normal circumstances it is expected that the portfolio turnover rate will
normally not exceed 100% for the Fixed Income Fund and the Intermediate-Term
Government Securities Fund and 75% for the Capital Appreciation Equity Fund,
Select Value Fund, Small Company Growth Fund and Dividend Growth Fund,
respectively. A portfolio turnover rate would exceed 100% if all of its
securities, exclusive of U.S. Government securities and other securities whose
maturities at the time of acquisition are one year or less, are replaced in the
period of one year. Turnover rates may vary from year to year and may be
affected by cash requirements for redemptions and by requirements which enable a
Fund to receive favorable tax treatment.
For the fiscal years ended August 31, 1993 and 1994, the portfolio turnover rate
for each of the Funds was as follows:
=========================================================================
TURNOVER RATE
FUND
-----------------------
1993 1994
- ----------------------------------------------------------------
Fixed Income Fund 49% 69%
- ----------------------------------------------------------------
Intermediate-Term Government Securities
Fund 31% 45%
- ----------------------------------------------------------------
Capital Appreciation Equity Fund 54% 41%
- ----------------------------------------------------------------
Select Value Fund 32% 80%
- ----------------------------------------------------------------
Small Company Growth Fund 35% 75%
- ----------------------------------------------------------------
Dividend Growth Fund * *
================================================================
* Not in operation during the period.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Funds each of which represents an equal proportionate interest in
that Fund with each other share. Shares are entitled upon liquidation to a pro
rata share in the net assets of the Funds, Shareholders have no preemptive
rights. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares. All consideration received by the Trust for
shares of any additional series and all assets in which such consideration is
invested would belong to that series and would be subject to the liabilities
related thereto.
S - 20
<PAGE>
Share certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of Shareholder liability for obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any Shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF
TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
5% SHAREHOLDERS
The names and addresses of the holders of 5% or more of the outstanding shares
of any Fund as of October 4, 1994 and the percentage of outstanding shares of
such Fund held by such shareholders as of such date are, to Trust management's
knowledge, as follows(1):
Name and Address of Number of
Name of Fund Record Owner Shares Owned % Ownership
Cash Management Fund
First Fidelity Bank 115,146,1 99.94%
Broad and Walnut Streets
Philadelphia, PA 19103
Fixed Income Fund
First Fidelity Bank 9,027,36 99.81%
Broad and Walnut Streets
Philadelphia, PA 19103
S - 21
<PAGE>
Intermediate-Term
Government Securities Fund
First Fidelity Bank 10,778,45 100%
Broad and Walnut Streets
Philadelphia, PA 19103
Capital Appreciation
Equity Fund
First Fidelity Bank 12,045,04 96.39%
Broad and Walnut Streets
Philadelphia, PA 19103
Select Value Fund
First Fidelity Bank 4,506,54 99.92%
Broad and Walnut Streets
Philadelphia, PA 19103
Small Company
Growth Fund
First Fidelity Bank 2,094,10 98.09%
Broad and Walnut Streets
Philadelphia, PA 19103
-------------------------
(1) The Trust believes that most of the shares referred to above
were held by the above persons in accounts for their
fiduciary, agency or custodial customers. The Trust's Dividend
Growth and Cash Plus Funds have not yet commenced operations.
EXPERTS
The financial statements in this Statement of Additional Information have been
examined by Arthur Andersen LLP, independent public accountants, as indicated in
their report, with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
S - 22
<PAGE>
F I N A N C I A L S
FS - 1
<PAGE>
APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by First Fidelity Bank, N.A. or, where applicable,
sub-adviser with regard to portfolio investments for the Funds include Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), Duff
& Phelps, Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), and IBCA
Limited and its affiliate, IBCA Inc. (collectively, "IBCA"). Set forth below is
a description of the relevant ratings of each such NRSRO. The NRSROs that may be
utilized by First Fidelity Bank, N.A. and the description of each NRSRO's
ratings is as of the date of this Statement of Additional Information, and may
subsequently change.
Long-Term Debt Ratings (may be assigned, for example, to corporate and municipal
bonds)
Description of the three highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1, 2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a suscep-
tibility to impairment some time in the future.
Description of the three highest long-term debt ratings by S&P
(S&P may apply a plus (+) or minus (-) to a particular rating
classification to show relative standing within that
classification):
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A-1
<PAGE>
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Description of the three highest long-term debt ratings by
Duff:
AAA Highest credit quality. The risk factors are negligible being
only slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality Protection factors are strong.
AA Risk is modest but may vary slightly from time to time A-
because of economic conditions.
A+ Protection factors are average but adequate. However, A risk
factors are more variable and greater in periods of economic
stress.
A- o
Description of the three highest long-term debt ratings by Fitch (plus
or minus signs are used with a rating symbol to indicate the relative
position of the credit within the rating category):
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of these issues is generally rated "[-]+."
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
IBCA's description of its three highest long-term debt ratings:
AAA Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial such that
adverse changes in business, economic or financial conditions are unlikely to
increase investment risk significantly.
AA Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very
A-2
<PAGE>
A Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and interest is strong, although adverse
changes in business, economic or financial conditions may lead to increased
investment risk.
Short-Term Debt Ratings (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by many of the
following characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
S&P's description of its three highest short-term debt ratings:
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong
safety characteristics are denoted with a plus sign (+).
A-3
<PAGE>
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
Duff's description of its three highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to
assist investors in recognizing quality differences within the highest
rating category):
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is
just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental
protection factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors.
Risk factors are very small.
Duff 2 Good certainty of timelypayment. Liquidity factors and
company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
Duff 3 Satisfactory liquidity and other protection factors
qualify issue as to investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment
is expected.
Fitch's description of its three highest short-term debt ratings:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned
this rating reflect an assurance of timely
payment only slightly less in degree than
issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+
or F-1 ratings.
F-3 Fair Credit Quality. Issues assigned this
rating have characteristics suggesting that
the degree of assurance for timely payment
is adequate, however, near-term adverse
changes could cause these securities to be
rated below investment grade.
A-4
<PAGE>
IBCA's description of its three highest short-term debt ratings:
A+ Obligations supported by the highest capacity for timely repayment.
A1 Obligations supported by a very strong capacity for timely repayment.
A2 Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
Short-Term Loan/Municipal Note Ratings
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIThis designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIThis designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
A-5
<PAGE>
FFB LEXICON FUNDS
Fixed Income Fund
Intermediate-Term Government Securities Fund
Supplement dated April 5, 1995 to Prospectus dated December 30, 1994
This supplement supercedes and replaces any existing supplements to the
Prospectus and provides new and additional information beyond that contained in
the prospectus. This supplement should be retained and read in conjunction with
such prospectus.
Effective April 5, 1995, First Fidelity Bank, N.A. (the "Transfer Agent") will
serve as transfer agent, dividend disbursing agent, and shareholder servicing
agent to the Investor Class shares of the Fixed Income and Intermediate-Term
Government Securities Funds (the "Funds"), of FFB Lexicon Funds (the "Trust").
Shareholders of Investor Class shares of the Funds wishing to make additional
investments into existing accounts should send their checks to:
FFB Family of Funds
P.O. Box 4490
Grand Central Station
New York, New York 10163-4490
In addition to purchasing shares directly from the Transfer Agent by mail and
wire, shareholders may purchase shares with a Pre-Authorized Check ("PAC"). The
PAC replaces the previously offered automatic investment plan. Automatic
deductions from a checking account by Automated Clearing House ("ACH") is not
offered by the Transfer Agent.
Shareholders with inquiries regarding Investor Class shares of the Funds should
submit such inquiries in writing to:
FFB Family of Funds
P.O. Box 4490
Grand Central Station
New York, New York 10163-4490
Likewise, purchases of Investor Class shares of the Funds, as well as requests
for redemptions and exchanges, should be submitted to:
FFB Family of Funds
P.O. Box 4490
Grand Central Station
New York, New York 10163-4490
For additional information or assistance please call the Transfer Agent at
1-800-437-8790.
The following paragraph replaces the second paragraph under Check Writing on
page 15 of the Prospectus:
When honoring a redemption check, the Transfer Agent will cause a Fund to redeem
exactly enough full and fractional shares from a Fund account to cover the
amount of the check. Check Writing may be terminated at any time by the Trust.
Effective April 5, 1995, shareholders of Investor Class shares may establish an
IRA through a custodial account with Investors Fiduciary Trust Company.
A-6
<PAGE>
The following information replaces the Annual Operating Expense Table and
Example on page 4 of the Prospectus.
EXPENSE SUMMARY -- INVESTOR CLASS
Intermediate-
Term
Fixed Government
Income Securities
Fund Fund
- ---------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)
Maximum Contingent Deferred Sales Charge......... None None
Exchange Fee........................................ None None
None None
===========================================================================
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Intermediate-
Term
Fixed Government
Income Securities
Fund Fund
- ---------------------------------------------------------------------------
Advisory Fees (after fee waivers)1................ .57% .58%
Rule 12b-1 Fees (after fee waivers)2.............. .00% .00%
Other Expenses.................................... .23% .22%
- ---------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)1..... .80% .80%
=============================================================================
(1) The Adviser has agreed to voluntarily waive a portion of its fees. Fee
waivers are voluntary and may be terminated at any time. Absent fee waivers,
Advisory Fees would be .60% for each Fund, and Total Operating Expenses would be
1.33% of the Fixed Income Fund's average net assets and 1.32% of the
Intermediate-Term Government Securities Fund's average net assets. The Advisory
fee includes amounts paid to the Adviser for custody services.
(2) Although the Funds have adopted a 12b-1 Plan, no payments have been made by
either Fund thereunder to date. Currently, the Distributor has agreed not to
impose 12b-1 fees for the fiscal year ending August 31, 1995. Absent this
agreement, 12b-1 fees would be .50%.
Example
- --------------------------------------------------------------------------------
1yr 3 yrs. yrs. 10 yrs.
- --------------------------------------------------------------------------------
An investor would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return, (2)
imposition of the maximum sales charge and (3)
redemption at the end of each time period
Fixed Income Fund............................. $53 $69 $87 $140
Intermediate-Term Government Securities Fund.. $53 $69 $87 $140
================================================================================
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. Financial
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in a
Fund. The information set forth in the foregoing table and example relates only
to Investor Class shares. The Trust also offers Institutional Class shares of
the Funds which are subject to the same expenses, except that there are no sales
charges or distribution expenses. Additional information may be found under "The
Administrator", "The Distributor" and "The Adviser."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase of Shares."
A-7
<PAGE>
Long-term shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers (the "NASD").
A-8
<PAGE>
EXPENSE SUMMARY -- INSTITUTIONAL CLASS
SHAREHOLDER TRANSACTION EXPENSES...................None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Intermediate-
Term
Fixed Government
Income Securities
Fund Fund
- -----------------------------------------------------------------------
Advisory Fees (after fee waivers)1............. .57% .58%
Other Expenses................................. .23% .22%
- -----------------------------------------------------------------------
Total Operating Expenses (after fee waivers)1.. .80% .80%
=======================================================================
(1) The Adviser has agreed to waive a portion of its fees.
Fee waivers are voluntary and may be terminated at any time.
Additional information may be found under "The Adviser".
Absent fee waivers, Advisory Fees would be .60% for each Fund
and Total Operating Expenses would be .83% of the Fixed
Income Fund's average net assets and .82% of the
Intermediate-Term Government Securities Fund's average net
assets. The Advisory Fee includes amounts paid to the Adviser
for custody services.
Example
- ------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- ------------------------------------------------------------------------------
An investor would pay the following expenses
on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end
of each time period
Fixed Income Fund.................... $8 $26 $44 $99
Intermediate-Term Government Securities Fund $8 $26 $44 $99
==============================================================================
The example is based upon the net operating expenses of the Fund as set forth in
the table above and should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. Financial
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in a
Fund. The information set forth in the foregoing table and example relates only
to Institutional Class shares. The Trust also offers Investor Class shares of
the Funds which are subject to the same expenses, except that Investor Class
shares are subject to a sales charge and distribution expenses. Additional
information may be found under "The Administrator" and "The Adviser."
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
A-9
<PAGE>
FFB LEXICON FUNDS
Capital Appreciation Equity Fund
Select Value Fund
Small Company Growth Fund
Dividend Growth Fund
Supplement dated April 5, 1995 to Prospectus dated December 30, 1994
This supplement supercedes and replaces any existing supplements to the
Prospectus and provides new and additional information beyond that contained in
the prospectus. This supplement should be retained and read in conjunction with
such prospectus.
Effective April 5, 1995, First Fidelity Bank, N.A. (the "Transfer Agent") will
serve as transfer agent, dividend disbursing agent, and shareholder servicing
agent to the Investor Class shares of the Capital Appreciation Equity, Select
Value, Small Company Growth, and Dividend Growth Funds (the "Funds") of FFB
Lexicon Funds (the "Trust").
Shareholders of Investor Class of the Funds shares wishing to make additional
investments into existing accounts should send their checks to:
FFB Family of Funds
P.O. Box 4490
Grand Central Station
New York, New York 10163-4490
In addition to purchasing shares directly from the Transfer Agent by mail and
wire, shareholders may purchase shares with a Pre-Authorized Check ("PAC"). The
PAC replaces the previously offered automatic investment plan. Automatic
deductions from a checking account by Automated Clearing House ("ACH") is not
offered by the Transfer Agent.
Shareholders with inquiries regarding Investor Class shares of the Trust should
submit such inquiries in writing to:
FFB Family of Funds
P.O. Box 4490
Grand Central Station
New York, New York 10163-4490
Likewise, purchases of Investor Class shares of the Funds, as well as requests
for redemptions and exchanges, should be submitted to:
FFB Family of Funds
P.O. Box 4490
Grand Central Station
New York, New York 10163-4490
For additional information or assistance please call the Transfer Agent at
1-800-437-8790.
Regarding redemption of shares, Check Writing is available to shareholders of
Investor Class shares. If Check Writing has been elected on the application a
shareholder will be sent a Check Writing Signature Card to be completed. Once
the Signature Card is on file with the Transfer Agent, redemptions of shares may
be made by using redemption checks provided by the Trust. There is no charge for
this service. Checks must be written for amounts of $500 or more and may be
payable to anyone and negotiated in the normal way. If more than one shareholder
owns shares in a Fund account, all must sign the check unless an election has
been made to require only one signature on checks and that election has been
filed with the Transfer Agent.
When honoring a redemption check, the Transfer Agent will cause the Fund to
redeem exactly enough full and fractional shares from a Fund account to cover
the amount of the check. Check Writing may be terminated at any time by the
Trust.
Effective April 5, 1995, shareholders of Investor Class shares may purchase and
hold shares through an IRA custodial account established with Investors
Fiduciary Trust Company.
A-10
<PAGE>
The following information replaces the Annual Operating Expense Table and
Example on page 3 of the Prospectus.
EXPENSE SUMMARY -- INVESTOR CLASS
Small
Capital Select Company Dividend
Appreciation Value Growth Growth
Equity Fund Fund Fund Fund
-----------------------------------------------
Maximum Sales Load Imposed on
Purchases (as a
percentage of offering price) 4.50% 4.50% 4.50% 4.50%
Maximum Sales Load Imposed
on Reinvested Dividends
(as a percentage of offering price)None None None None
Maximum Contingent Deferred
Sales Charge None None None None
Exchange Fee... None None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Small
Capital Select Company Dividend
Appreciation Value Growth Growth
Equity Fund Fund Fund Fund
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Advisory Fees (after fee wai.72%)1 .68% .48% .29%
12b-1 Fees (after fee waiver.00% .00% .00% .00%
Other Expenses .23% .27% .27% .26%
- ------------------------------------------------------------------------------
Total Operating Expenses (af.95%fee waivers)3 .95% .75% .55%
==============================================================================
(1) The Adviser has agreed to voluntarily waive a portion of its fees. Fee
waivers are voluntary and may be terminated at any time. Absent fee waivers,
Advisory Fees would be .75% for each Fund. The Advisory fee includes amounts
paid to the Adviser for custody services. (2) Although the Funds have adopted a
12b-1 Plan, no payments have been made by either Fund thereunder to date.
Currently, the Distributor has agreed not to impose 12b-1 fees for the fiscal
year ending August 31, 1995. Absent this agreement, 12b-1 fees would be .50%.
(3) Absent fee waivers, Total Operating Expenses would be 1.48% of the Capital
Appreciation Equity Fund's average net assets, 1.52% of the Select Value Fund's
average net assets, 1.52% of the Small Company Growth Fund's average net assets
and 1.51% of the Dividend Growth Fund's average net assets.
Example
An investor would pay the following expenses on a $1,000 investment assuming (1)
5% annual return, (2) imposition of the maximum sales charge and (3) redemption
at the end of each time period
- -------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- -------------------------------------------------------------------------------
Capital Appreciation Equity F $54 $74 $95 $156
Select Value Fund $54 $74 $95 $156
Small Company Growth Fund $52 $68 $85 $134
Dividend Growth Fund $50 $62 $74 $111
===============================================================================
The example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. Financial
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in a
Fund. The information set forth in the foregoing table and example relates only
to Investor Class shares. The Trust also offers Institutional Class shares of
the Funds which are generally subject to the same expenses, except that there is
no sales charges or distribution expenses. Additional information may be found
under "The Administrator", "The Distributor" and "The Adviser."
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The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. See "Purchase of Shares" and "Redemption of
Shares."
Long-term shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Rules of the National Association of
Securities Dealers (the "NASD").
EXPENSE SUMMARY -- INSTITUTIONAL CLASS
SHAREHOLDER TRANSACTION EXPENSES.................None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Small
Capital Select Company Dividend
Appreciation Value Growth Growth
Equity Fund Fund Fund Fund
- -----------------------------------------------------------------------------
Adviso.72%ees (after fee waiv.68%1 .48% .29%
Other .23%nses .27% .27% .26%
- -----------------------------------------------------------------------------
Total .95%ating Expenses (aft.95%ee waivers)2 .75% .55%
=============================================================================
(1) The Adviser has agreed to voluntarily waive a portion of its fees. Fee
waivers are voluntary and may be terminated at any time. Absent fee waivers,
Advisory Fees would be .75% for each Fund. The Advisory fee includes amounts
paid to the Adviser for custody services. (2) Absent fee waivers, Total
Operating Expenses would be .98% of the Capital Appreciation Equity Fund's
average net assets, 1.02% of the Select Value Fund's average net assets, 1.02%
of the Small Company Growth Fund's average net assets and 1.01% of the Dividend
Growth Fund's average net assets.
An investor would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period
Example
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
- --------------------------------------------------------------------------------
Capital Appiation Equi Fund $10 $30 $53 $117
Select Value Fund $10 $30 $53 $117
Small Company Growth Fund $8 $24 $42 $ 93
Dividend Growth Fund $6 $18 $31 $ 69
================================================================================
The example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. Financial
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in a
Fund. The information set forth in the foregoing table and example relates only
to Institutional Class shares. The Trust also offers Investor Class shares of
the Funds which are subject to the same expenses, except that Investor Class
shares are subject to a sales charge and distribution expenses. Additional
information may be found under "The Administrator" and "The Adviser."
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
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