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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.
THE FFB LEXICON FUND
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (914) 694-2020
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
-------------------------------------------
(Address of Principal Executive Offices)
David G. Lee
c/o SEI Corporation
680 E. Swedesford Road
Wayne, Pennsylvania 19087
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Joseph J. McBrien, Esq.
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
John H. Grady, Jr. Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
1800 M Street, N.W. 2000 One Logan Square
Washington, DC 20036 Philadelphia, PA 19103
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. 33-41918); 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 August 31, 1995 was
filed with the Commission on October 31, 1995.
It is proposed that this filing will become effective on January 8, 1996
pursuant to Rule 488 of the Securities Act of 1933.
<PAGE>
THE FFB LEXICON FUND
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Item of Part A of Form N-14 Location in Prospectus/Proxy Statement
1. Beginning of Cross Reference Sheet; Cover Page
Registration Statement and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Cover Page; Table of Contents
Page of Prospectus
3. Synopsis and Risk Factors 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 Share-
holders' Rights; Additional
Information - Lexicon Fund;
Exhibit A
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 - Evergreen Fund
7. Voting Information Cover Page; Summary; Information
about the Reorganization; Voting
Information Concerning the Meeting
8. Interest of Certain Persons and Financial Statements and Experts;
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 Exhibit A
Registrant
13. Additional Information about the Statement of Additional Information
Company Being Acquired of Evergreen Investment Trust -
Evergreen Managed Bond Fund dated
July 7, 1995
14. Financial Statements Incorporated by reference;
Pro Forma Financial Statements
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to Part A
Caption - "Comparative Information
on Shareholders' Rights - Liability
and Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
EVERGREEN INVESTMENT TRUST
EVERGREEN MANAGED BOND FUND
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
January 8, 1996
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. In
anticipation of the Merger, on December , 1995 the shareholders of certain of
the funds advised by First Fidelity Bank, N.A., a subsidiary of First Fidelity
Bancorporation, including the Fixed Income Fund (the "Lexicon Fund"), a series
of The FFB Lexicon Fund, approved a new investment advisory agreement with First
Union National Bank of North Carolina ("FUNB") to take effect upon the Merger.
The Merger was completed on January 1, 1996.
To facilitate the investment management of assets and the delivery of
shareholder services to the Evergreen family of mutual funds, your approval is
sought to combine your Fund with the Lexicon Fund. It is anticipated that after
January 19, 1996, The FFB Lexicon Fund will change its name to The Evergreen
Lexicon Fund and the Fixed Income Fund will be renamed Evergreen Intermediate
Term Bond Fund. Both the Evergreen Fund and the Lexicon Fund are advised by the
Capital Management Group of FUNB. Your Fund and the Lexicon Fund have
substantially similar investment objectives and policies. Under the proposed
Agreement and Plan of Reorganization (the "Plan"), the Lexicon Fund will acquire
substantially all the assets of your Fund in exchange for shares of the Lexicon
Fund (the "Reorganization"). As of October 31, 1995, the Lexicon Fund had net
assets of approximately $101.4 million and the Evergreen Fund had approximately
$79.4 million of net assets. If the Reorganization had taken place as of October
31, 1995, the Lexicon Fund's net assets would have been approximately $180.8
million. I believe that the combination will achieve the goal of efficient
investment management and delivery of shareholder services.
If shareholders of the Evergreen Fund approve the Plan, upon consummation
of the transaction contemplated in the Plan, shareholders will receive Class Y
shares (currently designated as Institutional shares) of the Lexicon 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 Evergreen Fund. As a shareholder
of the Lexicon 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 such funds. Following completion of the
Reorganization, your Fund will be liquidated.
The Trustees of Evergreen Investment Trust have called a special meeting of
shareholders of the Evergreen Fund to be held on February 12, 1996 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.
If you have any questions regarding the proposed transaction, please
telephone 1-800-807-2940.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED AS SOON AS
POSSIBLE.
Sincerely,
--------------------------
John J. Pileggi, President
Evergreen Investment Trust
<PAGE>
EVERGREEN INVESTMENT TRUST
EVERGREEN MANAGED BOND FUND
2500 WESTCHESTER AVENUE
PURCHASE, NEW YORK 10577
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 12, 1996
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of the Evergreen Managed Bond Fund (the "Evergreen Fund"), a series
of Evergreen Investment Trust, will be held at the offices of the Evergreen
Fund, 2500 Westchester Avenue, Purchase, New York 10577, on February 12, 1996 at
10:00 a.m. for the following purpose:
1. To approve or disapprove the Agreement and Plan of Reorganization (the
"Plan") dated as of December 6, 1995, providing for the acquisition of
substantially all of the assets of the Evergreen Fund by the Fixed Income Fund
(the "Lexicon Fund"), a series of The FFB Lexicon Fund, in exchange for Class Y
shares of the Lexicon Fund, and the assumption by the Lexicon Fund of certain
identified liabilities of the Evergreen Fund. The Plan also provides for
distribution of such shares of the Lexicon Fund to shareholders of the Evergreen
Fund in liquidation and subsequent termination of the Evergreen Fund. A vote in
favor of the Plan is a vote in favor of the liquidation and dissolution of the
Evergreen Fund.
The Trustees of Evergreen Investment Trust have fixed the close of business
on December 15, 1995 as the record date for the determination of shareholders of
the Evergreen 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
Joan V. Fiore
Secretary
January 8, 1996
<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. (1) ABC Corp.
John Doe, Treasurer
(2) ABC Corp. (2) John Doe, Treasurer
c/o John Doe, Treasurer
(3) ABC Corp. Profit Sharing Plan (3) John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust (1) Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee (2) Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. (1) John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. (2) John B. Smith, Jr., Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JANUARY 8, 1996
Acquisition of Assets of
EVERGREEN MANAGED BOND FUND
OF
EVERGREEN INVESTMENT TRUST
2500 Westchester Avenue
Purchase, New York 10577
By and in Exchange for Shares of
FIXED INCOME FUND
OF
THE FFB LEXICON FUND
2500 Westchester Avenue
Purchase, New York 10577
This Prospectus/Proxy Statement is being furnished to shareholders of
Evergreen Managed Bond Fund (the "Evergreen Fund"), a series of Evergreen
Investment Trust, in connection with a proposed Agreement and Plan of
Reorganization (the "Plan"), to be submitted to shareholders of the Evergreen
Fund for consideration at a Special Meeting of Shareholders to be held on
February 12, 1996 at 10:00 a.m. Eastern time, at the offices of the Evergreen
Fund, 2500 Westchester Avenue, Purchase, New York 10577, and any adjournments
thereof (the "Meeting"). The Plan provides for substantially all of the assets
of the Evergreen Fund to be acquired by the Fixed Income Fund (the "Lexicon
Fund"), a series of The FFB Lexicon Fund, in exchange for Class Y shares of the
Lexicon Fund and the assumption by the Lexicon Fund of certain identified
liabilities of the Evergreen Fund (hereinafter referred to as the
"Reorganization"). Following the Reorganization, Class Y shares of the Lexicon
Fund will be distributed to shareholders of the Evergreen Fund in liquidation of
the Evergreen Fund and the Evergreen Fund will be terminated. As a result of the
proposed Reorganization, shareholders of the Evergreen Fund will receive that
number of full and fractional Class Y shares of the Lexicon Fund determined by
multiplying the shares outstanding of each class of the Evergreen Fund by the
ratio computed by dividing the net asset value per share of each such class of
the Evergreen Fund by the net asset value per share of the Lexicon Fund. The
Reorganization is being structured as a tax-free reorganization for federal
income tax purposes.
The FFB Lexicon Fund currently consists of the Lexicon Fund and six other
series with shares outstanding. Shareholders of four of these series voted on
December , 1995 to approve the combination of their funds with various funds in
the Evergreen family of mutual funds ("Other Series Combinations"). The closing
of the Other Series Combinations is scheduled to take place on or about January
19, 1996. Shareholders of the Intermediate Government Securities Fund, which is
not being combined with any fund in the Evergreen family of mutual funds, and
the Lexicon Fund also voted on December , 1995 to approve new investment
advisory agreements between the Funds and the Capital Management Group of First
Union National Bank of North Carolina. Shareholders will vote for the election
of new Trustees for The FFB Lexicon Fund immediately after the Other Series
Combinations are effective.
Subsequent to the election of new Trustees, it is anticipated that the
Trustees will adopt arrangements to integrate the Lexicon Fund and the
Intermediate Government Securities Fund into the Evergreen family of mutual
funds. Such arrangements are expected to include: (1) changing the names of The
FFB Lexicon Fund and the Funds to include the name "Evergreen" and changing the
name of the Lexicon Fund to Evergreen Intermediate Term Bond Fund; (2) entering
into an underwriting agreement with Evergreen Funds Distributor, Inc.; (3)
entering into an administrative services agreement with Evergreen Asset
Management Corp.; (4) entering into a sub-administrative services agreement with
Furman Selz Incorporated; (5) entering into a Custodian Agreement and a Transfer
Agent and Dividend Disbursing Agency Agreement with State Street Bank and Trust
Company; (6) designating two new classes of shares, Class B and Class C; and (7)
redesignating the Lexicon Fund's and the Intermediate Government Securities
Fund's Investor Class shares as "Class A shares" and the Institutional Class
shares as "Class Y shares." The redesignations will not change any of the rights
of the shareholders of the Funds' current Investor Class shares or Institutional
Class shares under The FFB Lexicon Fund's Declaration of Trust or the rate of
the distribution fees, if any, payable with respect to the current classes of
shares. Attached hereto as Exhibit A is a Form of Prospectus for the Lexicon
Fund as filed with the Securities and Exchange Commission ("SEC") which reflects
the changes described above as well as other information regarding the Lexicon
Fund and its Class Y shares. It is anticipated that this prospectus will be
declared effective by the SEC on January 22, 1996.
The Lexicon Fund seeks to maximize current yield consistent with the
preservation of capital. The Evergreen Fund seeks total return through
investment in high grade bonds and U.S. government and agency bonds. See
"Comparison of Investment Objectives and Policies."
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Lexicon Fund that
shareholders of the Evergreen Fund should know before voting on the
Reorganization. Certain relevant documents listed below, which have been filed
with the SEC, are incorporated in whole or in part by reference. A Statement of
Additional Information dated January 8, 1996, relating to this Prospectus/Proxy
Statement and the Reorganization, incorporating by reference the financial
statements of the Lexicon Fund dated August 31, 1995 and the financial
statements of the Evergreen Fund dated June 30, 1995 has been filed with the SEC
and is incorporated by reference in its entirety into this Prospectus/Proxy
Statement. A copy of such Statement of Additional Information is available upon
request and without charge by writing to the Lexicon Fund at 2500 Westchester
Avenue, Purchase, New York 10577 or by calling toll-free 1-800-807-2940.
The Annual Report of the Lexicon Fund for the fiscal year ended August 31,
1995 is incorporated herein by reference in its entirety, insofar as it relates
to the Lexicon Fund only, and not to any other fund described therein.
Shareholders of the Evergreen Fund will receive, with this Prospectus/Proxy
Statement, copies of the Annual Report of the Lexicon Fund.
The Prospectus of the Evergreen Fund dated August 31, 1995 is incorporated
herein in its entirety by reference. Copies of the Prospectus and a Statement of
Additional Information dated the same date are available upon request without
charge by writing to the Evergreen Fund at 2500 Westchester Avenue, Purchase,
New York 10577 or by calling toll-free 1-800-807-2940.
Included as Exhibit B 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 OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<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 LEXICON FUND.......................
COMPARATIVE PERFORMANCE INFORMATION OF EACH FUND................
MANAGEMENT OF THE FUNDS.........................................
INVESTMENT 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............................................
ADDITIONAL INFORMATION................................................
VOTING INFORMATION CONCERNING THE MEETING.............................
FINANCIAL STATEMENTS AND EXPERTS......................................
LEGAL MATTERS.........................................................
OTHER BUSINESS........................................................
EXHIBIT A - FORM OF PROSPECTUS OF
EVERGREEN INTERMEDIATE TERM BOND FUND
EXHIBIT B - AGREEMENT AND PLAN OF
REORGANIZATION...................................................
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y shares of the Evergreen Fund set forth in the
following table and in the examples are based on the expenses of the Fund for
the fiscal period ended June 30, 1995 restated to reflect current operating
expenses. The amounts for Class Y shares of the Lexicon Fund set forth in the
following table and in the examples are based on the experience of the Lexicon
Fund's Institutional Class shares for the fiscal period ended August 31, 1995
restated to reflect current operating expenses. It is anticipated that after
January 19, 1996 the Lexicon Fund's Institutional Class shares will be
redesignated as Class Y shares. All references in this Prospectus/Proxy
Statement to the Class Y shares of the Lexicon Fund refer to such redesignated
Institutional Class shares. The amounts for the Lexicon Fund Pro Forma are based
on what the combined expenses would have been for the twelve month period ended
August 31, 1995.
The following tables show for the Evergreen Fund and the Lexicon Fund the
shareholder transaction expenses and annual fund operating expenses associated
with an investment in the Class Y shares of the Evergreen Fund and Class Y
shares of the Lexicon Fund, and such costs and expenses associated with an
investment in Class Y shares of the Lexicon Fund assuming consummation of the
Reorganization.
COMPARISON OF CLASS Y SHARES OF THE EVERGREEN FUND WITH
CLASS Y SHARES OF THE LEXICON FUND
LEXICON
EVERGREEN FUND
FUND LEXICON FUND PRO FORMA
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price).................. 0% 0% 0%
Maximum Sales Load
Imposed on Reinvested Dividends
(as a percentage of offering
price)............................ None None None
Contingent Deferred Sales Charge.... None None None
Exchange Fee (applies only
after 4 exchanges per year)....... $5 None $5
Redemption Fees..................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
daily net assets)
Management Fees................... 0.50% 0.60%(1) 0.60%
12b-1 Fees........................ ----- ---- -----
Other Expenses.................... 0.26% 0.27% 0.15%
Annual Fund Operating Expenses.... 0.76%(2) 0.87%(3) 0.75%
---- ---- ----
(1) The investment adviser has agreed to voluntarily waive a portion of its
fees. Advisory fees after voluntary fee waivers of 0.07% for the Class Y shares
would be 0.53%. Fee waivers are voluntary and may be terminated at any time.
Prior to January 1, 1996, the Management Fee included amounts paid to the
investment adviser for custody services.
(2) Annual Fund Operating Expenses net of fee waivers were 0.58% for Class Y
shares for the period ended June 30, 1995.
(3) Annual Fund Operating Expenses have been restated to reflect current
operating expenses. Annual Fund Operating Expenses net of fee waivers would be
0.80% for Class Y shares.
EXAMPLES. The following tables show for each Fund, and for the Lexicon
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 Class Y shares of the Lexicon Fund for the periods specified, assuming (i) a
5% annual return, and (ii) redemption at the end of such period.
EVERGREEN LEXICON FUND
FUND LEXICON FUND PRO FORMA
After 1 year............ $8 $9 $8
After 3 years........... $24 $28 $24
After 5 years........... $42 $48 $42
After 10 years.......... $94 $107 $93
The purpose of the foregoing examples is to assist an Evergreen Fund
shareholder in understanding the various costs and expenses that an investment
in the Class Y shares of the Lexicon 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 Evergreen Fund. These
examples should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT INCLUDING THE
LEXICON FUND FORM OF PROSPECTUS ATTACHED AS EXHIBIT A, THE PROSPECTUS OF THE
EVERGREEN FUND DATED AUGUST 31, 1995 (WHICH IS INCORPORATED HEREIN BY REFERENCE)
AND THE PLAN, A FORM OF WHICH IS ATTACHED TO THIS PROSPECTUS/PROXY STATEMENT AS
EXHIBIT B.
PROPOSED PLAN OF REORGANIZATION
The Plan provides for the transfer of substantially all of the assets of
the Evergreen Fund in exchange for Class Y shares of the Lexicon Fund and the
assumption by the Lexicon Fund of certain identified liabilities of the
Evergreen Fund. (The Lexicon 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
Lexicon Fund to Evergreen Fund shareholders in liquidation of the Evergreen Fund
as part of the Reorganization. As a result of the Reorganization, the
shareholders of the Evergreen Fund will become the owners of that number of full
and fractional Class Y shares of the Lexicon Fund determined by multiplying the
shares outstanding of each class of the Evergreen Fund by the ratio computed by
dividing the net asset value per share of each such class of the Evergreen Fund
by the net asset value per share of the Lexicon Fund as of the close of business
on the date that the Evergreen Fund's assets are exchanged for shares of the
Lexicon Fund. See "Information About the Reorganization."
The Trustees of Evergreen Investment Trust, including the Trustees who are
not "interested persons," as such term is defined in the 1940 Act (the
"Independent Trustees"), have concluded that the Reorganization would be in the
best interests of shareholders of the 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. Accordingly, the Trustees have
submitted the Plan for the approval of Evergreen Fund's shareholders.
THE BOARD OF TRUSTEES OF EVERGREEN INVESTMENT TRUST RECOMMENDS APPROVAL BY
SHAREHOLDERS OF THE EVERGREEN FUND OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of The FFB Lexicon Fund have also approved the Plan, and
accordingly, the Lexicon Fund's participation in the Reorganization.
Approval of the Plan on the part of the Evergreen Fund will require the
affirmative vote of more than 50% of its outstanding voting securities. See
"Voting Information Concerning the Meeting."
If the shareholders of the Evergreen Fund do not vote to approve the
Reorganization, the Trustees of Evergreen Investment Trust will consider other
possible courses of action in the best interests of shareholders.
TAX CONSEQUENCES
Prior to or at the completion of the Reorganization, the Evergreen 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 Evergreen Fund or
its shareholders for federal income tax purposes as a result of the receipt of
shares of the Lexicon Fund in the Reorganization. The holding period and
aggregate tax basis of Class Y shares of the Lexicon Fund that are received by
Evergreen Fund shareholders will be the same as the holding period and aggregate
tax basis of shares of the Evergreen Fund previously held by such shareholders,
provided that shares of the Evergreen Fund are held as capital assets. In
addition, the holding period and tax basis of the assets of the Evergreen Fund
in the hands of the Lexicon Fund as a result of the Reorganization will be the
same as in the hands of the Evergreen Fund immediately prior to the
Reorganization and no gain or loss will be recognized by the Lexicon Fund upon
the receipt of the assets of the Evergreen Fund in exchange for Class Y shares
of the Lexicon Fund and the assumption by the Lexicon Fund of certain identified
liabilities.
INVESTMENT OBJECTIVES AND POLICIES OF THE EVERGREEN FUND AND THE LEXICON FUND
The investment objective of the Evergreen Fund is total return through
investment in high grade corporate bonds and U.S. government and agency bonds.
Normally, at least 65% of the Fund's total assets will be invested in high grade
corporate bonds and government and agency bonds. The Fund may also invest in
high grade commercial paper and time and savings deposits.
The investment objective of the Lexicon Fund is to maximize current yield
consistent with the preservation of capital by investing in U.S. Treasury
obligations, obligations issued or guaranteed as to principal and interest by
agencies and instrumentalities of the U.S. government, high grade corporate
bonds, mortgage-backed and asset-backed securities, short-term bank obligations
and U.S. dollar denominated securities issued by foreign issuers and
supernational entities or issued or guaranteed by foreign governments, their
political subdivisions, agencies or instrumentalities. See "Comparison of
Investment Objectives and Policies" below.
COMPARATIVE PERFORMANCE INFORMATION OF EACH FUND
Discussions of the manner of calculation of total return and yield are
contained in the Prospectus and Statement of Additional Information of the
Evergreen Fund and, with respect to the Lexicon Fund, in Exhibit A to this
Prospectus/Proxy Statement and Exhibit A to the Statement of Additional
Information relating to this Prospectus/Proxy Statement. The following table
sets forth the yield of the Class Y shares of the Evergreen Fund and the Class Y
shares of the Lexicon Fund for the 30 day period ended August 31, 1995 and the
total return of the Class Y shares of the Evergreen Fund and Class Y shares of
the Lexicon Fund for the one year period ended August 31, 1995 and the period
from inception through August 31, 1995. 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.
YIELD 30 DAYS
ENDED 8/31/95*
Evergreen Fund
Class Y shares........ 6.59%
FFB Fund
Class Y shares........ 5.60%
AVERAGE ANNUALIZED COMPOUNDED TOTAL RETURN*
ONE SINCE INCEPTION
YEAR INCEPTION DATE
Evergreen Fund
Class Y shares.......... 11.04% 7.90% 4/1/91
FFB Fund
Class Y shares........... 10.13% 8.01% 11/1/91
- ----------------------
* Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the yield and average
annual total return during the period would have been lower.
MANAGEMENT OF THE FUNDS
The overall management of the Evergreen Investment Trust and of The FFB
Lexicon Fund is the responsibility of, and is supervised by, their respective
Board of Trustees.
INVESTMENT ADVISER AND ADMINISTRATOR
The Capital Management Group ("CMG"), a division of the First Union
National Bank of North Carolina ("FUNB"), serves as investment adviser to the
Evergreen Fund and, since January 1, 1996, has served as investment adviser to
the Lexicon Fund. The address of FUNB is One First Union Center, 301 S. College
Street, Charlotte, North Carolina 28288. FUNB is a subsidiary of First Union,
the sixth largest banking holding company in the United States.
First Union is headquartered in Charlotte, North Carolina and had $ billion
in consolidated assets as of December 31, 1995. First Union and its subsidiaries
provide a broad range of financial services to individuals and businesses
through offices in states. CMG and Evergreen Asset Management Corp. ("Evergreen
Asset"), a wholly-owned subsidiary of FUNB, manage or otherwise oversee the
investment of over $ billion in assets belonging to a wide range of clients,
including the Evergreen family of mutual funds. First Union Brokerage Services,
Inc., a wholly-owned subsidiary of FUNB, is a registered broker-dealer that is
principally engaged in providing retail brokerage services consistent with its
federal banking authorizations. First Union Capital Markets Corp., a
wholly-owned subsidiary of First Union, is a registered broker-dealer
principally engaged in providing, consistent with its federal banking
authorizations, private placement, securities dealing, and underwriting
services.
CMG manages investments and supervises the daily business affairs of the
Evergreen Fund and the Lexicon Fund. As compensation therefor, CMG is entitled
to receive an annual fee from the Evergreen Fund equal to 0.50% of the Fund's
average daily net assets and an annual fee from the Lexicon Fund equal to 0.60%
of the Fund's average daily net assets.
Evergreen Asset serves as administrator to the Evergreen Fund. Evergreen
Asset, with its predecessors, has served as investment adviser and administrator
to the Evergreen family of mutual funds since 1971. It is anticipated that
subsequent to January 19, 1996, Evergreen Asset will serve as administrator to
the Lexicon Fund.
In its capacity as administrator, Evergreen Asset is entitled to receive a
fee based on the average daily net assets of the Evergreen Fund and the Lexicon
Fund at a rate based on the total assets of the mutual funds administered by
Evergreen Asset for which CMG or Evergreen Asset also serve as investment
adviser, calculated in accordance with the following schedule: 0.050% of the
first $7 billion; 0.035% on the next $3 billion; 0.030% on the next $5 billion;
0.020% on the next $10 billion; 0.015% on the next $5 billion; and 0.010% on
assets in excess of $30 billion. Furman Selz Incorporated ("Furman Selz"), an
affiliate of Evergreen Funds Distributor, Inc., distributor for the Evergreen
family of mutual funds, serves as sub-administrator to the Evergreen Fund and,
subsequent to January 19, 1996, will serve as sub-administrator to the Lexicon
Fund. Furman Selz is entitled to receive a fee from each Fund calculated on the
average daily net assets of the Fund at a rate based on the total assets of the
mutual funds administered by Evergreen Asset for which CMG or Evergreen Asset
also serve as investment adviser, calculated in accordance with the following
schedule: 0.0100% of the first $7 billion; 0.0075% on the next $3 billion;
0.0050% on the next $15 billion; and 0.0040% on assets in excess of $25 billion.
The total assets of the mutual funds administered by Evergreen Asset for which
CMG or Evergreen Asset serve as investment adviser as of December 31, 1995 were
approximately $ billion. For further information regarding Evergreen Asset, FUNB
and First Union, see "Management of the Funds -- Investment Adviser" in Exhibit
A hereto.
PORTFOLIO MANAGEMENT
Mr. Bruce Besecker, a Vice President of FUNB, has been the portfolio
manager of the Lexicon Fund since its inception. Prior to joining FUNB, Mr.
Besecker was a Vice President in the Fixed Income Unit of the Financial
Management Department of First Fidelity Bank, N.A. ("First Fidelity") since
1987.
DISTRIBUTION OF SHARES
Evergreen Funds Distributor, Inc. ("EFD"), an affiliate of Furman Selz,
acts as underwriter of the Evergreen Fund's shares and, commencing after January
19, 1996, will act as underwriter of the Lexicon Fund's shares. EFD distributes
the Evergreen Fund shares and will distribute Lexicon Fund shares directly or
through broker-dealers, including an affiliate of FUNB, banks, including FUNB,
or other financial intermediaries. The Evergreen Fund offers only Class Y
shares. The Lexicon Fund currently offers two classes of shares, Class A (prior
to January 19, 1996, designated as Investor Class shares) and Class Y (prior to
January 19, 1996, designated as Institutional shares). After January 19, 1996,
the Lexicon Fund will also offer Class B and Class C shares. 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 Lexicon Fund, which will be received by the
Evergreen Fund's shareholders if the Reorganization is consummated, 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 served
as investment adviser as of December 30, 1994, (ii) certain institutional
investors and (iii) investment advisory clients of CMG, Evergreen Asset or their
affiliates. Evergreen Fund shareholders who wish to make subsequent purchases of
the Lexicon Fund's shares will be able to purchase Class Y shares. Class A,
Class B and Class C shares of the Lexicon Fund will be sold with either an
initial or contingent deferred sales charge and will be subject to certain
distribution-related and shareholder servicing-related expenses. For a
description of the Classes of shares issued by the Lexicon Fund see "Purchase
and Redemption of Shares" and "General Information - Organization; Other Classes
of Shares" in Exhibit A hereto. Class A, Class B and Class C shares are further
described in a separate Lexicon Fund prospectus which will be available on
January 22, 1996.
DISTRIBUTION-RELATED AND SHAREHOLDER SERVICING-RELATED EXPENSES
Neither the Lexicon Fund nor the Evergreen Fund has adopted a Rule 12b-1
plan or shareholder servicing plan for its Class Y shares.
PURCHASE AND REDEMPTION PROCEDURES
Class Y shares of the Evergreen Fund and the FFB Fund are offered at net
asset value 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 the Lexicon Fund is $1,000 which may be waived in certain
situations. There is no minimum for subsequent purchases of either Funds'
shares. 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 Prospectus for the Evergreen Fund
and, with respect to the Lexicon Fund, in Exhibit A hereto. The Evergreen Fund
and the Lexicon Fund each may involuntarily redeem shareholders' accounts that
have less than $1,000 of invested funds. 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
Holders of shares of a Class of the Evergreen Fund or the Lexicon Fund
generally may exchange their shares for shares of the same Class of any other
funds of the Evergreen mutual fund family. Evergreen Fund shareholders will be
receiving Class Y shares of the Lexicon Fund in the Reorganization and,
accordingly, with respect to shares of the Lexicon Fund received by Evergreen
Fund shareholders in the Reorganization, the exchange privilege is limited to
the Class Y shares of other funds of the Evergreen mutual fund family. Both the
Evergreen Fund and the Lexicon Fund impose a fee of $5 per exchange on
shareholders who exchange in excess of four times per calendar year. No sales
charge is imposed on an exchange. An exchange which represents an initial
investment in another fund of the Evergreen mutual fund family must amount to at
least $1,000. The current exchange privileges, and the requirements and
limitations attendant thereto, are described in the Evergreen Fund's Prospectus
and Statement of Additional Information and, with respect to the Lexicon Fund,
in Exhibit A hereto and in Exhibit A to the Statement of Additional Information
relating to this Prospectus/Proxy Statement.
DIVIDEND POLICY
The Evergreen Fund and the Lexicon Fund each distributes its net investment
income monthly. The Lexicon 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
Prospectus of the Evergreen Fund and, with respect to the Lexicon Fund, Exhibit
A hereto for further information concerning dividends and distributions.
After the Reorganization, shareholders of the Evergreen Fund that have
elected (or that so elect no later than February 12, 1996), to have their
dividends and/or distributions reinvested, will have dividends and/or
distributions received from the Lexicon Fund reinvested in shares of the Lexicon
Fund. Shareholders of the Evergreen Fund that have elected (or that so elect no
later than February 12, 1996) to receive dividends and/or distributions in cash
will receive dividends and/or distributions from the Lexicon 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
Lexicon 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 comparable,
the risks involved in investing in each Fund's shares are substantially similar.
Bond prices move inversely to interest rates; i.e., as interest rates decline
the values of bonds increase and vice versa. The longer the maturity of a bond,
the greater the exposure to market price fluctuations. The same market factors
are reflected in the share price or net asset value of bond funds which will
vary with interest rates. There is no assurance that investment performances
will be positive and that the Funds will meet their investment objectives.
The Evergreen Fund, unlike the Lexicon Fund, may employ for hedging
purposes the strategy of writing covered call options, may write put options and
purchase put and call options on national securities exchanges. The Evergreen
Fund, unlike the Lexicon Fund, also may enter into futures contracts and options
on futures contracts for hedging purposes. However, the Evergreen Fund does not
currently engage in these investment strategies. For a discussion of the risks
involved in entering into options and futures contracts and options on futures
contracts, see the "Investment Practices and Restrictions Options and Futures"
section in the Evergreen Fund's Prospectus.
The Lexicon Fund may, unlike the Evergreen Fund, invest in U.S. dollar
denominated securities of foreign issuers. These may involve additional risks.
Specifically, they may be affected by political or economic developments in
foreign countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. issuers. There may be less publicly
available information about a foreign issuer than about a U.S. issuer. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and be less marketable than comparable U.S.
securities. All these factors are considered by CMG before making any of these
types of investments.
The Lexicon Fund, unlike the Evergreen Fund, invests in asset-backed
securities. Because the loans held in the asset pool often may be prepaid
without penalty or premium, asset-backed securities and mortgage-backed
securities are generally subject to higher prepayment risks than most other
types of debt instruments. Prepayment risks on mortgage securities tend to
increase during periods of declining mortgage interest rates, because many
borrowers refinance their mortgages to take advantage of the more favorable
rates. Depending upon market conditions, the yield that the Fund receives from
the reinvestment of such prepayments, or any scheduled principal payments, may
be lower than the yield on the original mortgage security. As a consequence,
mortgage securities may be a less effective means of "locking in" interest rates
than other types of debt securities having the same stated maturity and may also
have less potential for capital appreciation. For certain types of asset pools,
such as collateralized mortgage obligations, prepayments may be allocated to one
tranche of securities ahead of other tranches, in order to reduce the risk of
prepayment for the other tranches.
Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
amount. Conversely, the prepayment of mortgage securities purchased at a market
discount from their stated principal amount will accelerate the recognition of
interest income by the Fund which would be taxed as ordinary income when
distributed to the shareholders. The credit characteristics of asset-backed
securities also differ in a number of respects from those of traditional debt
securities. The credit quality of most asset-backed securities depends primarily
upon the credit quality of the assets underlying such securities, how well the
entity issuing the securities is insulated from the credit risk of the
originator or any other affiliated entities, and the amount and quality of any
credit enhancement to such securities.
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 First Fidelity Bancorporation ("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. The Merger was
consummated on January 1, 1996 resulting in the formation of the nation's sixth
largest bank holding company based on total assets. As a result of the Merger,
FUNB and Evergreen Asset succeeded to the investment advisory and administrative
functions performed for the Lexicon Fund by various units of First Fidelity.
REASONS FOR THE REORGANIZATION
The Board of Trustees of Evergreen Investment Trust has considered and
approved the Reorganization, including entry by Evergreen Investment Trust on
behalf of the Evergreen Fund into the Plan, as in the best interests of the
shareholders.
In connection with the Merger, FUNB became the investment adviser of
various funds in the First Fidelity family of mutual funds formerly managed by
First Fidelity. The remaining First Fidelity funds are being combined with
certain funds in the Evergreen family of mutual funds. To facilitate the
investment management of assets and the delivery of shareholder services to the
Evergreen family of mutual funds, FUNB has proposed that the Evergreen Fund be
combined with the Lexicon Fund.
In making their recommendation to the Trustees, the representatives of FUNB
reviewed with the Trustees various factors about the Funds and the proposed
Reorganization. There are substantial similarities between the Evergreen Fund
and the Lexicon Fund. Specifically, CMG is the investment adviser to both Funds.
In addition, the Evergreen Fund and the Lexicon Fund have similar investment
objectives and policies, and comparable risk profiles. See "Comparison of
Investment Objectives and Policies" below. In terms of total net assets, the
Lexicon Fund had net assets of approximately $101.4 million at October 31, 1995.
The Evergreen Fund's net assets at such date were approximately $79.4 million.
If the Reorganization had taken place as of October 31, 1995 the Lexicon Fund's
net assets would be approximately $180.8 million. FUNB expects that the
increased assets of the Lexicon Fund will result in the delivery of more
efficient investment management and shareholder services.
If the Reorganization does not take place, it is likely that the Lexicon
Fund and the Evergreen Fund would continue to be separately managed by CMG with
the Lexicon Fund sharing the same investment management resources and being
offered through common distribution channels with the substantially identical
Evergreen Fund. The Evergreen Fund would also have to bear the cost of
maintaining its separate existence. FUNB believes 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, FUNB believes that the proposed Reorganization would
be in the best interest of each Fund and its shareholders.
The Board of Trustees of Evergreen Investment Trust met and considered the
recommendation of FUNB, and, in addition, considered among other things, (i) the
terms and conditions of the Reorganization; (ii) whether the Reorganization
would result in the dilution of shareholder interests; (iii) expense ratios,
fees and expenses of the Lexicon 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; (iv) the fact that FUNB will bear
the expenses incurred by the Evergreen Fund in connection with the
Reorganization; (v) the fact that the Lexicon Fund will assume certain
identified liabilities of the Evergreen Fund; and (vi) the expected federal
income tax consequences of the Reorganization. In addition, the Trustees
considered the fact that the Evergreen Fund had seen its assets decline by 37%
since June, 1993, whereas the assets of the Lexicon Fund had grown by 21% over
the same period. In contrast with the Lexicon Fund which has a significant
retail shareholder base, the Evergreen Fund has to date only offered Class Y
shares and therefore, its shareholders consist entirely of institutional
investors. It was also noted that it was FUNB's opinion that this difference in
shareholders was the primary reason the Evergreen Fund had not experienced
significant asset growth.
The Trustees also considered the benefits to be derived by shareholders of
the Evergreen Fund from the sale of its assets to the Lexicon 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 Evergreen Fund in the combined fund. In
addition, the Trustees considered that there are alternatives available to
shareholders of the Evergreen 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
counsel to the Independent Trustees regarding the legal issues involved. The
Trustees of The FFB Lexicon Fund also concluded at a special meeting on December
6, 1995 that the proposed Reorganization would be in the best interests of
shareholders of the Lexicon Fund and that the interests of the shareholders of
the Lexicon Fund will not be diluted as a result of the transactions
contemplated by the Reorganization.
THE TRUSTEES OF EVERGREEN INVESTMENT TRUST RECOMMEND THAT THE SHAREHOLDERS
OF THE EVERGREEN FUND APPROVE THE PROPOSED REORGANIZATION.
AGREEMENT AND PLAN OF REORGANIZATION
The following summary is qualified in its entirety by reference to the Plan
(Exhibit B hereto).
The Plan provides that the Lexicon Fund will acquire substantially all of
the assets of the Evergreen Fund in exchange for Class Y shares of the Lexicon
Fund and the assumption by the Lexicon Fund of certain identified liabilities of
the Evergreen Fund on or about February 16, 1996 or such other date as may be
agreed upon by the parties (the "Closing Date"). Prior to the Closing Date, the
Evergreen Fund will endeavor to discharge all of its known liabilities and
obligations. The Lexicon Fund will not assume any liabilities or obligations of
the Evergreen Fund other than those reflected in an unaudited statement of
assets and liabilities of the Evergreen 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 Lexicon Fund to be received by the shareholders of the Evergreen
Fund will be determined by multiplying the shares outstanding of each class of
the Evergreen Fund by the ratio computed by dividing the net asset value per
share of each such class of the Evergreen Fund by the net asset value per share
of the Lexicon 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
and the Lexicon Fund, will compute the value of each Fund's respective portfolio
securities. The method of valuation employed will be consistent with the
procedures set forth in the Prospectus and Statement of Additional Information
of the Lexicon 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 Evergreen Fund shall have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the Evergreen Fund's shareholders (in shares of the Evergreen Fund, or in cash,
as the shareholder has previously elected) all of the Evergreen 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 Evergreen
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 Lexicon Fund received by the Evergreen Fund. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Evergreen Fund's shareholders on the share records of the Lexicon Fund's
transfer agent. Each account will represent the respective pro rata number of
full and fractional Class Y shares of the Lexicon Fund due to the Evergreen
Fund's shareholders. All issued and outstanding shares of the Evergreen Fund,
including those represented by certificates, will be canceled. The Lexicon Fund
does not issue share certificates to shareholders. The shares of the Lexicon
Fund to be issued will have no preemptive or conversion rights. After such
distribution and the winding up of its affairs, the Evergreen Fund will be
terminated. In connection with such termination, the Evergreen Fund will file
with the SEC an application for termination as a registered investment company.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by the Evergreen 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
Evergreen Fund's shareholders, the Plan may be terminated (a) by the mutual
agreement of the Evergreen Fund and the Lexicon 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 Evergreen Fund in connection with the Reorganization
(including the cost of any proxy soliciting agents) and the expenses of the
Lexicon Fund (other than securities registration fees) will be borne by FUNB. No
portion of such expenses shall be borne directly or indirectly by the Evergreen
Fund or its shareholders. If the Reorganization is not approved by shareholders
of the Evergreen Fund, the Board of Trustees of Evergreen Investment Trust will
consider other possible courses of action in the best interests of 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 Evergreen 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 Evergreen
Fund solely in exchange for shares of the Lexicon Fund and the assumption by the
Lexicon Fund of certain identified liabilities, followed by the distribution of
the Lexicon Fund's shares by the Evergreen Fund in dissolution and liquidation
of the Evergreen Fund, will constitute a "reorganization" within the meaning of
section 368(a)(1)(C) of the Code, and the Lexicon Fund and the Evergreen 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 Evergreen Fund on the
transfer of substantially all of its assets to the Lexicon Fund solely in
exchange for the Lexicon Fund's shares and the assumption by the Lexicon Fund of
certain identified liabilities of the Evergreen Fund or upon the distribution of
the Lexicon Fund's shares to the Evergreen Fund's shareholders in exchange for
their shares of the Evergreen Fund;
(3) The tax basis of the assets transferred will be the same to the
Lexicon Fund as the tax basis of such assets to the Evergreen Fund immediately
prior to the Reorganization, and the holding period of such assets in the hands
of the Lexicon Fund will include the period during which the assets were held by
the Evergreen Fund;
(4) No gain or loss will be recognized by the Lexicon Fund upon the
receipt of the assets from the Evergreen Fund solely in exchange for the shares
of the Lexicon Fund and the assumption by the Lexicon Fund of certain identified
liabilities of the Evergreen Fund;
(5) No gain or loss will be recognized by the Evergreen Fund's
shareholders upon the issuance of the shares of the Lexicon Fund to them,
provided they receive solely such shares (including fractional shares) in
exchange for their shares of the Evergreen Fund; and
(6) The aggregate tax basis of the shares of the Lexicon Fund,
including any fractional shares, received by each of the shareholders of the
Evergreen Fund pursuant to the Reorganization will be the same as the aggregate
tax basis of the shares of the Evergreen Fund held by such shareholder
immediately prior to the Reorganization, and the holding period of the shares of
the Lexicon Fund, including fractional shares, received by each such shareholder
will include the period during which the shares of the Evergreen Fund exchanged
therefor were held by such shareholder (provided that the shares of the
Evergreen 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 Evergreen Fund shareholder would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Evergreen Fund shares and the fair market value of the
Lexicon Fund shares he or she received. Shareholders of the Evergreen 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 Lexicon Fund should also consult their tax
advisers as to state and local tax consequences, if any, of the Reorganization.
It is not expected that the securities of the combined portfolio will be
sold in significant amounts in order to comply with the policies and investment
practices of the Lexicon Fund.
PRO-FORMA CAPITALIZATION
The following tables show the capitalization of the Evergreen Fund and the
Lexicon 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 EVERGREEN FUND AND THE LEXICON FUND
LEXICON FUND
EVERGREEN CLASS Y SHARES
FUND CLASS LEXICON FUND PRO FORMA FOR
Y SHARES CLASS Y SHARES* REORGANIZATION
Net Assets............ $77,076,052 $95,960,595 $173,036,647
Shares Outstanding*... 7,681,964 9,321,344 16,811,728
Net Asset Value per
Share............... $10.03 $10.29 $10.29
* Currently, the Lexicon Fund issues Investor Class and Institutional Class
shares. After January 19, 1996, Investor Class and Institutional Class shares
will be redesignated as Class A shares and Class Y shares, respectively.
** Had the Reorganization been consummated on August 31, 1995, the Evergreen
Fund would have received Class Y shares of the Lexicon Fund, which would then be
available for distribution to shareholders. No assurance can be given as to how
many Class Y shares of the Lexicon Fund Evergreen 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 Lexicon Fund that
will actually be received on or after such date.
SHAREHOLDER INFORMATION
As of December 15, 1995 (the "Record Date"), there were XXXXXXXXX Class Y
shares of the Evergreen Fund outstanding.
As of the Record Date, the officers and Trustees of Evergreen Investment
Trust beneficially owned as a group less than 1% of the outstanding shares of
the Evergreen Fund. To the Evergreen Fund's knowledge, the following persons
owned beneficially or of record more than 5% of the Evergreen Fund's total
outstanding shares as of the Record Date:
PERCENTAGE OF
NUMBER OF PERCENTAGE TOTAL SHARES
NAME AND ADDRESS CLASS SHARES OF CLASS OUTSTANDING
First Union Y
National Bank
Trust Accounts (Cash)
301 S. Tryon St.
Charlotte, NC 28288
First Union Y
National Bank
Trust Accounts (Reinvest)
301 S. Tryon St.
Charlotte, NC 28288
As of the Record Date, the following number of each Class of the shares of
the Lexicon Fund were outstanding: Class A (Investor) -- and Class Y
(Institutional) -- .
As of the Record Date, the officers and Trustees of The FFB Lexicon Fund
beneficially owned as a group less than 1% of the outstanding shares of the
Lexicon Fund. To the Lexicon Fund's knowledge, the following persons owned
beneficially or of record more than 5% of the Lexicon 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
FFB Saving Bond Fund
First Fidelity Bank,
N.A., N.J.
Broad and Walnut Streets
Philadelphia, PA 19109
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 Prospectus and Statement of Additional Information of the
Evergreen Fund and, with respect to the Lexicon Fund, in the Form of Prospectus
(Exhibit A) hereto and in Exhibit A to the Statement of Additional Information
related to this Prospectus/Proxy Statement. The investment objectives, policies
and restrictions of the Lexicon Fund can be found in Exhibit A under the caption
"Investment Objectives and Policies." The Lexicon Fund's Form of Prospectus also
offers additional funds advised by CMG. These additional funds are not involved
in the Reorganization, their investment objectives, policies and restrictions
are not discussed in this Prospectus/Proxy Statement and their shares are not
offered hereby. The investment objectives, policies and restrictions of the
Evergreen Fund can be found in the Prospectus of the Evergreen Fund under the
caption "Investment Objectives and Policies." Although the investment objective
of each Fund is stated somewhat differently, the Funds' current portfolio
characteristics are substantially similar.
The investment objective of the Lexicon Fund is to maximize current yield
consistent with the preservation of capital. The Lexicon Fund will invest its
assets in U.S. Treasury obligations; obligations issued or guaranteed as to
principal and interest by agencies and instrumentalities of the U.S. government;
receipts evidencing separately traded principal and interest components of U.S.
government obligations; corporate bonds and debentures rated, at the time of
purchase, A or better by Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's") or, if unrated determined to be of
comparable quality by the Fund's investment adviser; mortgage-backed securities
and asset-backed securities rated, at the time of purchase, at least AA by S&P
or Aa by Moody's; commercial paper rated A-1 or better by Moody's or P-1 or
better by S&P or, if unrated, determined to be of comparable quality at the time
of investment as determined by the Fund's investment adviser; short-term bank
obligations including certificates of deposit, time deposits and bankers'
acceptances of U.S. commercial banks or savings and loans institutions with
assets of at least $1 billion as of the end of their most recent fiscal year;
U.S. dollar denominated securities of the government of Canada and its
provincial and local governments; U.S. dollar denominated securities issued or
guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities; U.S. dollar denominated obligations of supranational
entities; repurchase agreements involving any of the foregoing securities; and
U.S. dollar denominated securities of other foreign issuers. The investment
objective of the Lexicon Fund is a fundamental policy which cannot be changed
without shareholder approval.
The Lexicon Fund will maintain an average weighted maturity of
approximately five to fifteen years, although under normal conditions the Fund's
investment adviser expects the Fund to maintain an average weighted maturity of
five to ten years. The Fund's investment adviser may vary the average maturity
substantially in anticipation of a change in the interest rate environment.
For temporary defensive purposes during periods when the Lexicon Fund's
investment adviser believes that market conditions warrant, the 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,
repurchase agreements, certificates of deposit, time deposits and bankers'
acceptances issued by banks and savings and loan associations with assets of at
least $1 billion as of their most recent fiscal year end, commercial paper rated
at least P-1 by Moody's or A-1 by S&P) and it also may hold a portion of its
assets in cash or cash equivalents. During such periods, the Lexicon Fund can
reduce its average weighted maturity to less than five years.
If any security invested in by the Lexicon Fund loses its credit rating or
has its rating reduced after the Fund has purchased it, the Fund is not required
to sell or otherwise dispose of the security, but may consider doing so.
The investment objective of the Evergreen Fund is total return through
investment in high grade corporate bonds and U.S. government and agency bonds.
Investments for the Evergreen Fund are selected with a view towards total
return. Total return of an investment consists of the income (net of associated
expenses) it generates, plus or minus any change in its principal value. The
Evergreen Fund seeks capital appreciation during periods of falling interest
rates and protection against capital depreciation during periods of rising
rates. In seeking its objective, the Evergreen Fund invests primarily in a
diversified portfolio of high grade bonds with maturities up to 30 years.
Currently, the average weighted maturity of the Evergreen Fund's portfolio is 14
years. Under normal conditions, at least 65% of the value of the Evergreen
Fund's total assets will be invested in high grade corporate bonds and
government and agency bonds. Financial futures may also be used depending upon
the outlook for the economy. The investment objective of the Evergreen Fund is a
fundamental policy which cannot be changed without shareholder approval.
The Evergreen Fund may invest in:
domestic issues of corporate debt obligations rated A or better by
Moody's or S&P;
U.S. government securities including: direct obligations of the U.S.
Treasury, such as U.S. Treasury bills, notes and bonds; and notes,
bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; Student Loan
Marketing Association; Tennessee Valley Authority; Export-Import Bank
of the United States; Commodity Credit Corporation; Federal Financing
Bank; and National Credit Union Administration. Some U.S. government
agency obligations are backed by the full faith and credit of the U.S.
Treasury. Others in which the Fund may invest are supported by the
issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury, discretionary authority of the U.S.
government to purchase certain obligations of an agency or
instrumentality, or the credit of the agency or instrumentality.
commercial paper which matures in 270 days or less, with at least two
high quality ratings by nationally recognized statistical rating
organizations, e.g., A-1 or A-2 by S&P, or Prime-1 or Prime-2 by
Moody's;
time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund ("BIF") or the Savings Association Insurance Fund (both
of which are administered by the Federal Deposit Insurance Corp.)
including certificates of deposit and other time deposits in foreign
branches of banks insured by the BIF; bankers' acceptances (maximum
0.25% of the bank's total deposits according to the bank's last
published statement of condition) issued by a bank insured by the BIF,
or issued by the bank's Edge Act subsidiary and guaranteed by the
bank, with remaining maturities of nine months or less; and repurchase
agreements collateralized by eligible investments.
If any security invested in by the Evergreen Fund loses its credit rating
or has its ratings reduced after the Fund has purchased it, the Fund is not
required to sell or otherwise dispose of the security, but may consider doing
so.
The Evergreen Fund may invest without limitation in high quality
money-market instruments such as notes, certificates of deposit, bankers'
acceptances, or U.S. government securities, if, in the opinion of the Fund's
investment adviser, market conditions warrant a temporary defensive strategy.
Unlike the Lexicon Fund, the Evergreen Fund may write covered put and call
options and may purchase put and call options on securities. In addition, the
Evergreen Fund, unlike the Lexicon Fund, may sell or purchase currency and other
financial futures contracts and may purchase exchange listed put options on
financial futures contracts. Margin deposits on futures contracts and premiums
paid for related options are generally limited by applicable law to 5% of total
assets. The Evergreen Fund does not use these transactions for speculation or
leverage. The Evergreen Fund does not currently engage in futures transactions
and related options.
The characteristics of each investment policy and the associated risks with
respect to the Lexicon Fund are described in Exhibit A hereto and the Form of
Statement of Additional Information of the Lexicon Fund attached as Exhibit A to
the Statement of Additional Information relating to this Prospectus/Proxy
Statement and in the Prospectus and Statement of Additional Information of the
Evergreen Fund. Both the Lexicon Fund and the Evergreen 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 Investment Trust are open-end management
investment companies registered with the SEC under the 1940 Act which
continuously offer shares to the public. Each is organized as a Massachusetts
business trust and is governed by a Declaration of Trust, By-Laws and Board of
Trustees. Both are also governed by applicable Massachusetts and federal law.
The Lexicon Fund is a series of The FFB Lexicon Fund. The Evergreen Fund is a
series of Evergreen Investment Trust.
CAPITALIZATION
The beneficial interests in both the Evergreen Fund and the Lexicon Fund
are represented by an unlimited number of transferable shares of beneficial
interest with no par value per share. 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
The FFB Lexicon Fund's Trustees or Evergreen Investment Trust's Trustees.
Shareholders of each Fund vote separately, by class, as to matters, such as
approval or amendments of Rule 12b-1 distribution plans that affect only their
particular class and by series as to matters, such as approval or amendments of
investment advisory agreements or proposed reorganizations, that affect only
their particular series.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders of a business trust could, under
certain circumstances, be held personally liable for the obligations of the
business trust. However, the respective Declarations of Trust under which the
Funds were established disclaim shareholder liability for acts or obligations of
the series and require that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Funds or the
Trustees. The Declarations of Trust provide for indemnification out of the
series' property for all losses and expenses of any shareholder held personally
liable for the obligations of the series. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which a disclaimer is inoperative
and the series itself would be unable to meet its obligations. A substantial
number of mutual funds in the United States are organized as Massachusetts
business trusts.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
Neither Evergreen Investment Trust nor 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 shareholders for the purpose of voting upon
the question of removal of a Trustee must be called when requested in writing by
the holders of at least 10% (25% in the case of Evergreen Investment Trust) of
the outstanding shares. In addition, each is required to call a meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees then holding office were elected by shareholders. If
Trustees of either The FFB Lexicon Fund or Evergreen Investment Trust fail or
refuse to call a meeting for a period of 30 days (14 days in the case of
Evergreen Investment Trust) after a request in writing by shareholders holding
an aggregate of at least 10% (25% in the case of Evergreen Investment Trust) of
the outstanding shares, then shareholders holding said 10% (25% in the case of
Evergreen Investment Trust) may call and give notice of such meeting. Evergreen
Investment 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 Investment Trust provides that no
Trustee or officer shall be liable to the Fund or to any shareholder, Trustee,
officer, employee or agent of the Fund for any action or failure to act except
for his or her own bad faith, willful misfeasance, gross negligence or reckless
disregard of his or her duties. The Declaration of Trust provides that a Trustee
or officer is entitled to indemnification against liabilities and expenses with
respect to claims related to his or her position with Evergreen Investment Trust
unless such Trustee or officer shall have been adjudicated to have acted with
bad faith, willful misfeasance, gross negligence or reckless disregard of his or
her duties, or not to have acted in good faith that his or her action was in the
best interest of the Trust. The Declaration of Trust also provides that a
Trustee or officer is not entitled to indemnification against liabilities in the
event of settlement unless there has been a determination that such Trustee or
officer has not engaged in willful misfeasance, bad faith, gross negligence, or
reckless disregard of his or her duties.
The Declaration of Trust of 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 not engaged in willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties.
RIGHTS OF INSPECTION
Shareholders of the respective Funds have the same right to inspect in
Massachusetts the governing documents, records of meetings of shareholders,
shareholder lists, share transfer records, accounts and books of the Fund as are
permitted shareholders of a corporation under the Massachusetts corporation law.
The purpose of inspection must be for interests of shareholders relative to the
affairs of the Fund.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws and Massachusetts law and is
not a complete description of those documents or law. Shareholders should refer
to the provisions of such respective Declarations of Trust, By-Laws, and
Massachusetts law directly for more complete information.
ADDITIONAL INFORMATION
Lexicon Fund. Additional Information concerning the operation and
management of the FFB Fund is attached hereto as Exhibit A (Form of Prospectus)
that has been filed with the SEC. It is anticipated that such Prospectus and a
related Statement of Additional Information will be declared effective by the
SEC on or about January 22, 1996. After such date, a copy of such Prospectus and
Statement of Additional Information is available upon request and without charge
by writing to the Lexicon Fund at 2500 Westchester Avenue, Purchase, New York
10577 or by calling toll-free 1-800-807-2940.
Evergreen Fund. Information about the Evergreen Fund is included in its
current Prospectus dated July 7, 1995 and in the Statement of Additional
Information of the same date that have been filed with the SEC, all of which are
incorporated herein by reference. Copies of the Prospectus and Statement of
Additional Information and the Fund's Annual Report dated June 30, 1995 are
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 FFB Lexicon Fund and Evergreen Investment Trust are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information, including
proxy material and charter documents, with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, 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 Evergreen Investment Trust
to be used at the Special Meeting of Shareholders to be held at 10:00 a.m.
February 12, 1996, at the offices of the Evergreen Fund, 2500 Westchester
Avenue, Purchase, New York 10577 and at any adjournments thereof. This
Prospectus/Proxy Statement, along with a Notice of the Meeting and a proxy card,
are first being mailed to shareholders on or about January 8, 1996. 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 Plan and FOR any other matters
deemed appropriate. Proxies that reflect abstentions and "broker non-votes"
(i.e., shares held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or the persons entitled to vote or (ii)
the broker or nominee does not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will have the effect of
being counted as votes against the Plan. A proxy may be revoked at any time on
or before the Meeting by written notice to the Secretary of Evergreen Investment
Trust, 2500 Westchester Avenue, Purchase, New York 10577. Unless revoked, all
valid proxies will be voted in accordance with the specifications thereon or, in
the absence of such specifications, FOR approval of the Plan and the
Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of more than 50% of
the outstanding voting securities, with all classes voting together as one
class. Each full share outstanding is entitled to one vote and each fractional
share outstanding is entitled to a proportionate share of one vote.
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, its affiliates or other representatives of
Evergreen Investment Trust (who will not be paid for their solicitation
activities). Shareholder Communications Corp. ("SCC") has been engaged by FUNB
to assist in soliciting proxies, and may contact certain shareholders of the
Evergreen Fund over the telephone. Shareholders that are contacted by SCC may be
asked to cast their vote by telephonic proxy. Such proxies will be recorded in
accordance with the procedures set forth below. FUNB 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. SCC has received an opinion of Dechert
Price & Rhoads LLP that addresses the validity, under the applicable law of the
Commonwealth of Massachusetts, of a proxy given orally. The opinion given by
Dechert Price & Rhoads LLP 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 SCC 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 SCC by FUNB, then the SCC
representative will explain the process, read the proposals listed on the proxy
card and ask for your instructions on each proposal. The SCC 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 this Prospectus/Proxy Statement. Within 72 hours,
SCC will send you a letter or mailgram to confirm your vote and asking you to
call SCC 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 Plan are not received by
February 12, 1996, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such adjournment after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.
A shareholder who objects to the Plan will not be entitled under either
Massachusetts law or the Declaration of Trust of Evergreen Investment Trust to
demand payment for, or an appraisal of, his or her shares. However, shareholders
should be aware that the Reorganization as proposed is not expected to result in
recognition of gain or loss to shareholders for federal income tax purposes and
that, if the Reorganization is consummated, shareholders will be free to redeem
the shares of the Lexicon Fund which they receive in the transaction at their
then-current net asset value. Shares of the Evergreen Fund may be redeemed at
any time prior to the consummation of the Reorganization. Evergreen Fund
shareholders may wish to consult their tax advisers as to any differing
consequences of redeeming Evergreen Fund shares prior to the Reorganization or
exchanging such shares in the Reorganization.
Evergreen Investment Trust does not hold annual shareholder meetings. If
the Plan 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 Evergreen
Investment Trust, 2500 Westchester Avenue, Purchase, New York 10577, such that
they will be received by Evergreen Investment Trust in a reasonable period of
time prior to any such meeting.
The votes of the shareholders of the Lexicon 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 Evergreen 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 financial statements of the Lexicon Fund as of August 31, 1995 and the
financial highlights have been incorporated by reference into this
Prospectus/Proxy Statement and have been audited 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.
The audited financial statements of the Evergreen Fund as of June 30, 1995
and the financial highlights for the period indicated therein have been
incorporated by reference into this Prospectus/Proxy Statement in reliance on
the report of KPMG Peat Marwick LLP, independent accountants for the Evergreen
Fund, given on the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the Lexicon
Fund will be passed upon by Morgan, Lewis & Bockius LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of Evergreen Investment Trust do not intend to present any
other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of proxy
will vote thereon in accordance with their judgment.
THE BOARD OF TRUSTEES OF EVERGREEN INVESTMENT TRUST, INCLUDING THE
INDEPENDENT TRUSTEES, RECOMMENDS APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES
WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
January 8, 1996
*******************************************************************************
EXHIBIT A
NEW PROSPECTUS & SAI
PROSPECTUS
January 22, 1995
EVERGREEN (SM) INCOME FUNDS
EVERGREEN U.S. GOVERNMENT FUND
EVERGREEN SHORT INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE TERM BOND FUND
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
CLASS Y SHARES
The Evergreen Income Funds (the "Funds") are designed to provide investors
with a selection of investment alternatives which seek to provide a high level
of current income. This Prospectus provides information regarding the Class Y
shares offered by the Funds. Each Fund is, or is a series of, an open-end,
diversified, management investment company. This Prospectus sets forth concise
information about the Funds that a prospective investor should know before
investing. The address of the Funds is 2500 Westchester Avenue, Purchase, New
York 10577.
A "Statement of Additional Information" for the Funds dated January 22,
1995 has been filed with the Securities and Exchange Commission and is
incorporated by reference herein. The Statement of Additional Information
provides information regarding certain matters discussed in this Prospectus and
other matters which may be of interest to investors, and may be obtained without
charge by calling the Funds at (800) XXXXXXXX. There can be no assurance that
the investment objective of any Fund will be achieved. Investors are advised to
read this Prospectus carefully.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, ARE NOT INSURED OR
OTHERWISE PROTECTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY, AND
INVOLVE INVESTMENT RISKS.
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.
KEEP THIS PROSPECTUS FOR FUTURE REFERENCE
EVERGREEN (SM) is a Service Mark of Evergreen Asset Management Corp.
Copyright 1995,
Evergreen Asset Management Corp.
<PAGE>
TABLE OF CONTENTS
OVERVIEW OF THE FUNDS
EXPENSE INFORMATION
FINANCIAL HIGHLIGHTS
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies
Investment Practices and Restrictions
MANAGEMENT OF THE FUNDS
Investment Adviser
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares
How to Redeem Shares
Exchange Privilege
Shareholder Services
Effect of Banking Laws
OTHER INFORMATION
Dividends, Distributions and Taxes
Management's Discussion of Fund Performance
General Information
OVERVIEW OF THE FUNDS
The following is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The Capital Management Group of First Union National Bank of North
Carolina ("CMG") serves as investment adviser to Evergreen Income Funds which
include: EVERGREEN SHORT INTERMEDIATE BOND FUND, EVERGREEN U.S. GOVERNMENT FUND,
EVERGREEN INTERMEDIATE TERM BOND FUND and EVERGREEN INTERMEDIATE TERM GOVERNMENT
SECURITIES FUND. First Union National Bank of North Carolina ("FUNB") is a
subsidiary of First Union Corporation, the sixth largest bank holding companies
in the United States.
EVERGREEN U.S. GOVERNMENT FUND (formerly First Union U.S. Government
Portfolio) seeks a high level of current income consistent with stability of
principal.
EVERGREEN SHORT INTERMEDIATE BOND FUND (formerly First Union Fixed Income
Portfolio) seeks to provide a high level of current income by investing in a
broad range of investment grade debt securities, with capital growth as a
secondary objective.
EVERGREEN INTERMEDIATE TERM BOND (formerly The FFB Lexicon Fund - Fixed
Income Fund) seeks, as its investment objective, to maximize current yield
consistent with the preservation of capital.
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND (formerly The FFB
Lexicon Fund - Intermediate-Term Government Securities Fund) seeks to preserve
principal value and maintain a high degree of liquidity while providing current
income.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY FUND WILL BE
ACHIEVED.
<PAGE>
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in the Class Y Shares of the Fund. For further
information see "Purchase and Redemption of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Redemption Fee None
Exchange Fee (only applies after 4 exchanges per
year) $ 5.00
</TABLE>
The following table shows for the Fund the estimated annual operating
expenses (as a percentage of average net assets) attributable to Class Y Shares,
together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment for the periods specified assuming (i) a 5%
annual return and (ii) redemption at the end of each period.
EVERGREEN U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C>
Advisory Fees .50%
After 1 Year $ 8
Administrative Fees .06%
After 3 Years $25
12b-1 Fees --
After 5 Years $43
Other Expenses .22%
After 10 Years $97
Total .78%
</TABLE>
EVERGREEN FIXED INCOME FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C>
Advisory Fees .50%
After 1 Year $ 7
Administrative Fees .06%
After 3 Years $21
12b-1 Fees --
After 5 Years $36
Other Expenses .09%
After 10 Years $81
Total .65%
</TABLE>
EVERGREEN INTERMEDIATE TERM BOND FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C>
Management Fees .60%
After 1 Year $ 8
12b-1 Fees --
After 3 Years $25
Other Expenses .12%
After 5 Years $43
After 10 Years $97
Total .78%
</TABLE>
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
ANNUAL OPERATING
EXPENSES* EXAMPLE
<S> <C> <C> <C>
Management Fees .60%
After 1 Year $ 8
12b-1 Fees --
After 3 Years $25
Other Expenses .12%
After 5 Years $43
After 10 Years $97
Total .78%
</TABLE>
3
<PAGE>
*The estimated annual operating expenses and examples do not reflect fee waivers
and expense reimbursements. Actual expenses for Class Y Shares net of fee
waivers and expense reimbursements for the most recent fiscal period were as
follows:
<TABLE>
<S> <C>
Evergreen U.S. Government Fund............................. .79%
Evergreen Intermediate Term Bond Fund...................... .69%
Evergreen Intermediate Term Government Securities Fund..... .70%
</TABLE>
From time to time, each Fund's investment adviser may, at its discretion,
reduce or waive its fees or reimburse the Funds for certain of their expenses in
order to reduce their expense ratios. Each Fund's investment adviser may cease
these waivers and reimbursements at any time.
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Y Class
Shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples are estimated amounts based on the experience
of each Fund for the six month ended June 30, 1995 except Evergreen Intermediate
Term Bond Fund and Evergreen Intermediate -- Term Government Securities Fund,
which is based on the year ended August 31, 1995. Such expenses have been
restated to reflect current fee arrangements. THE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RETURN. ACTUAL
EXPENSES AND ANNUAL RETURN MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more
complete description of the various costs and expenses borne by the Funds see
"Management of the Funds." As a result of asset-based sales charges, long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<PAGE>
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, financial
highlights for a share outstanding throughout each period indicated. The
information in the tables for the five most recent fiscal years or the life of
the Fund if shorter for EVERGREEN FIXED INCOME FUND, and EVERGREEN U.S.
GOVERNMENT FUND has been audited by KPMG Peat Marwick LLP, each Fund's
independent auditors. The information in the tables for the five most recent
fiscal years or the life of the Fund if shorter for EVERGREEN INTERMEDIATE TERM
BOND FUND and EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND has been
audited by Arthur Andersen LLP, the Fund's independent auditors. A report of
KPMG Peat Marwick LLP or Arthur Andersen on the audited information with respect
to each Fund is incorporated by reference in the Fund's Statement of Additional
Information. The following information for each Fund should be read in
conjunction with the financial statements and related notes which are
incorporated by reference in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
EVERGREEN U.S. GOVERNMENT FUND -- CLASS A AND CLASS B SHARES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX JANUARY 11, SIX
MONTHS 1993* MONTHS
ENDED YEAR ENDED THROUGH ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31,
1995# 1994 1993 1995# 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period............... $9.07 $10.05 $10.00 $9.07 $10.05
Income from investment operations:
Net investment income.............................. .33 .66 .68 .29 .61
Net realized and unrealized gain (loss) on
investments...................................... .58 (.98) .05 .58 (.98)
Total from investment operations................. .91 (.32) .73 .87 (.37)
Less distributions to shareholders from
net investment income............................ (.33) (.66) (.68) (.29) (.61)
Net asset value, end of period..................... $9.65 $9.07 $10.05 $9.65 $9.07
TOTAL RETURN+........................................ 10.2% (3.2%) 7.4% 9.8% (3.8%)
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted).......... $ 22,445 $ 23,706 $ 38,851 $192,490 $195,571
Ratios to average net assets:
Expenses (a)..................................... 1.04%++ .96% .68%++ 1.79%++ 1.54%
Net investment income (a)........................ 7.07%++ 6.97% 6.93%++ 6.32%++ 6.42%
Portfolio turnover rate............................ 0% 19% 39% 0% 19%
<CAPTION>
JANUARY 11,
1993*
THROUGH
DECEMBER 31,
1993
<S> <C>
PER SHARE DATA
Net asset value, beginning of period............... $10.00
Income from investment operations:
Net investment income.............................. .63
Net realized and unrealized gain (loss) on
investments...................................... .05
Total from investment operations................. .68
Less distributions to shareholders from
net investment income............................ (.63)
Net asset value, end of period..................... $10.05
TOTAL RETURN+........................................ 6.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted).......... 23$6,696
Ratios to average net assets:
Expenses (a)..................................... 1.19%++
Net investment income (a)........................ 6.44%++
Portfolio turnover rate............................ 39%
</TABLE>
# The Fund changed its fiscal year end from December 31 to June 30.
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charges or contingent deferred
charges are not reflected.
++ Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment income to average net
assets, would have been the following:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
SIX SIX
MONTHS JANUARY 11, MONTHS
ENDED YEAR ENDED 1993 THROUGH ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31,
1995 1994 1993 1995 1994
<S> <C> <C> <C> <C> <C>
Expenses............................................. 1.05% 1.00% .99% 1.80% 1.58%
Net investment income................................ 7.06% 6.93% 6.62% 6.31% 6.38%
<CAPTION>
JANUARY 11,
1993 THROUGH
DECEMBER 31,
1993
<S> <C>
Expenses............................................. 1.50%
Net investment income................................ 6.13%
</TABLE>
5
<PAGE>
EVERGREEN U.S. GOVERNMENT FUND -- CLASS C AND CLASS Y SHARES
<TABLE>
<CAPTION>
CLASS C SHARES CLASS Y SHARES
SIX SEPTEMBER 2, SIX SEPTEMBER 2,
MONTHS 1994* MONTHS 1993*
ENDED THROUGH ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
1995# 1994 1995# 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period.................. $9.07 $9.39 $9.07 $10.05 $10.25
Income from investment operations:
Net investment income................................. .29 .20 .34 .69 .25
Net realized and unrealized gain (loss) on
investments......................................... .58 (.32) .58 (.98) (.20)
Total from investment operations.................... .87 (.12) .92 (.29) .05
Less distributions to shareholders from net investment
income.............................................. (.29) (.20) (.34 ) (.69) (.25)
Net asset value, end of period........................ $9.65 $9.07 $9.65 $9.07 $10.05
TOTAL RETURN+........................................... 9.8% (1.3%) 10.3% (2.9%) .5%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)............. $350 $266 $16,934 $ 15,595 $ 14,486
Ratios to average net assets:
Expenses (a)........................................ 1.79%++ 1.71%++ .79% ++ .71% .48%++
Net investment income (a)........................... 6.36%++ 6.70%++ 7.31% ++ 7.27% 7.20%++
Portfolio turnover rate............................... 0% 19% 0% 19% 39%
</TABLE>
# The Fund changed its fiscal year end from December 31 to June 30.
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred charges are not
reflected.
++ Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment income to average net
assets, would have been the following:
<TABLE>
<CAPTION>
CLASS C SHARES CLASS Y SHARES
SIX SEPTEMBER 2, SIX SEPTEMBER 2,
MONTHS 1994* MONTHS 1993*
ENDED THROUGH ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Expenses.......................................... 1.80% 1.75% .80% .75% .79%
Net investment income............................. 6.34% 6.66% 7.30% 7.23% 6.89%
</TABLE>
6
<PAGE>
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
CLASS Y SHARES
CLASS A
SHARES NOVEMBER 1,
MAY 2, 1995* 1991*
THROUGH THROUGH
AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31,
1995 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period......................... $9.95 $9.92 $10.61 $10.41 $10.00
Income (loss) from investment operations:
Net investment income........................................ .19 .55 .54 .57 .48
Net realized and unrealized gain (loss) on investments....... .20 .23 (.64) .24 .40
Total from investment operations........................... .39 .78 (.10) .81 .88
Less distributions to shareholders from:
Net investment income........................................ (.19) (.55) (.54) (.58) (.47)
Net realized gains........................................... -- -- (.05) (.03) --
Total distributions........................................ (.19) (.55) (.59) (.81) (.47)
Net asset value, end of period............................... $10.15 $10.15 $ 9.92 $10.61 $10.41
TOTAL RETURN+................................................ 3.9% 8.2% (1.0%) 8.0% 10.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted).................... $8,753 $97,332 $106,448 $119,172 $87,648
Ratios to average net assets:
Expenses **................................................ .80%++ .70% .55% .55% .55%++
Net investment
income **................................................ 5.42%++ 5.54% 5.22% 5.48% 5.68%++
Portfolio turnover rate...................................... 45% 45% 45% 31% 47%
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales charge is not reflected.
++ Annualized.
** Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser the
annualized ratios of expenses and net investment income to average net
assets would have been the following:
<TABLE>
<CAPTION>
CLASS A CLASS Y SHARES
SHARES
MAY 2, NOVEMBER 1,
1995* 1991*
THROUGH THROUGH
AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31,
1995 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Expenses.......................................... 1.34%++ .84% .82% .83% .86%++
Net investment income............................. 4.88%++ 5.40% 4.95% 5.20% 5.37%
</TABLE>
7
<PAGE>
EVERGREEN INTERMEDIATE TERM BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS Y SHARES
SHARES
MAY 2, NOVEMBER 1,
1995* 1991*
THROUGH THROUGH
AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31,
1995 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period.............................. $9.98 $9.93 $10.99 $10.56 $10.00
Income (loss) from investment operations:
Net investment income............................................. .18 .56 .55 .63 .55
Net realized and unrealized gain (loss) on investments............ .33 .40 (.86) .66 .55
Total from investment operations................................ .51 .96 (.31) 1.29 1.10
Less distributions to shareholders from:
Net investment income............................................. (.19) (.56) (.55) (.64) (.54)
Net realized gains................................................ -- (.04) (.20) (.22) --
Total distributions............................................. (.19) (.60) (.75) (.86) (.54)
Net asset value, end of period.................................... $10.30 $10.29 $ 9.93 $10.99 $10.56
TOTAL RETURN+..................................................... 5.2% 10.1% (2.9%) 12.9% 13.6%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)......................... $160 $95,961 $91,724 $86,892 $66,695
Ratios to average net assets:
Expenses (a).................................................... .80%++ .69% .55% .55% .55%++
Net investment
income (a).................................................... 5.53%++ 5.63% 5.32% 5.93% 6.49%++
Portfolio turnover rate........................................... 73% 73% 69% 49% 65%
</TABLE>
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the period
indicated and is not annualized. Initial sales charge is not reflected.
++ Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser the
annualized ratios of expenses and net investment income to average net
assets would have been the following:
<TABLE>
<CAPTION>
CLASS Y SHARES
CLASS A
SHARES NOVEMBER 1,
MAY 2, 1995* 1991*
THROUGH THROUGH
AUGUST 31, YEAR ENDED AUGUST 31, AUGUST 31,
1995 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Expenses.................................................... 1.38% .83% .83% .83% .86%
Net investment income....................................... 4.95% 5.49% 5.04% 5.65% 6.18%
</TABLE>
8
<PAGE>
EVERGREEN FIXED INCOME FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
SIX NINE JANUARY 28,
MONTHS MONTHS YEAR 1989*
ENDED ENDED ENDED THROUGH
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995## 1994 1993 1992 1991 1990# 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of
period........................ $9.52 $10.42 $10.41 $10.54 $9.99 $9.72 $9.50 $9.70
Income (loss) from investment
operations:
Net investment income........... .32 .65 .65 .71 .73 .55 .79 .10
Net realized and unrealized gain
(loss) on investments......... .50 (.91) .19 (.06) .60 .24 .20 (.14)
Total from investment
operations.................. .82 (.26) .84 .65 1.33 .79 .99 (.04)
Less distributions to
shareholders from:
Net investment income........... (.32 ) (.64) (.65) (.67) (.70) (.52) (.77) (.16)
Net realized gains.............. -- -- (.18) (.11) (.07) -- -- --
In excess of net investment
income........................ -- -- -- -- (.01) -- -- --
Total distributions........... (.32 ) (.64) (.83) (.78) (.78) (.52) (.77) (.16)
Net asset value, end of
period........................ $10.02 $9.52 $10.42 $10.41 $10.54 $9.99 $9.72 $9.50
TOTAL RETURN+................... 8.8% (2.6%) 8.3% 6.4% 13.7% 8.3% 10.5% (.3%)
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)............... $18,898 $19,127 $22,865 $21,488 $17,680 $11,765 $ 6,496 11$,580
Ratios to average net assets:
Expenses...................... .77% ++ .75% .93% .90% .80%(a) 1.01%(a)++ 1.00%(a) 1.78 ++
Net investment income......... 6.58% ++ 6.46% 6.15% 6.79% 7.30%(a) 7.53%(a)++ 7.57%(a) 6.10%++
Portfolio turnover rate......... 34% 48% 73% 66% 53% 27% 32% 18%
</TABLE>
* Commencement of class operations.
# The Fund changed its fiscal year end from March 31 to December 31.
## The Fund changed its fiscal year end from December 31 to June 30.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charge is not reflected.
++ Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment income to average net
assets would have been the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, 1991 DECEMBER 31, 1990 MARCH 31, 1990
<S> <C> <C> <C>
Expenses..................... .89% 1.82% 1.50%
Net investment income........ 7.21% 6.72% 7.07%
</TABLE>
9
<PAGE>
EVERGREEN FIXED INCOME FUND -- CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
JANUARY 25, SEPTEMBER 6,
SIX MONTHS 1993* SIX MONTHS 1994*
ENDED YEAR ENDED THROUGH ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31,
1995# 1994 1993 1995# 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period.............. $9.54 $10.44 $10.57 $9.55 $9.85
Income (loss) from investment operations:
Net investment income............................. .28 .58 .58 .26 .18
Net realized and unrealized gain (loss) on
investments..................................... .50 (.92) .05 .50 (.30)
Total from investment operations................ .78 (.34) .63 .76 (.12)
Less distributions to shareholders from:
Net investment income............................. (.28) (.56) (.58) (.26) (.18)
Net realized gains................................ -- -- (.18) -- --
Total distributions............................. (.28) (.56) (.76) (.26) (.18)
Net asset value, end of period.................... $10.04 $9.54 $10.44 $10.05 $9.55
TOTAL RETURN+..................................... 8.3% (3.3%) 6.1% 8.2% (1.3%)
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)................................. $17,366 $17,625 $8,876 $527 $512
Ratios to average net assets:
Expenses........................................ 1.67%++ 1.50% 1.57%++ 1.67%++ 1.65%++
Net investment income........................... 5.68%++ 5.75% 5.42%++ 5.69%++ 5.87%++
Portfolio turnover rate........................... 34% 48% 73% 34% 48%
</TABLE>
* Commencement of class operations.
# The Fund changed its fiscal year end from December 31 to June 30.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Contingent deferred sales charges are not
reflected.
++ Annualized.
10
<PAGE>
EVERGREEN FIXED INCOME FUND -- CLASS Y SHARES
<TABLE>
<CAPTION>
SIX MONTHS JANUARY 4, 1991*
ENDED JUNE YEAR ENDED DECEMBER 31, THROUGH
30, 1995# 1994 1993 1992 DECEMBER 31, 1991
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value, beginning of period..................... $9.52 $10.43 $10.41 $10.54 $10.06
Income (loss) from investment operations:
Net investment income.................................... .33 .65 .69 .70 .71
Net realized and unrealized gain (loss) on investments... .49 (.91) .19 (.02) .56
Total from investment operations....................... .82 (.26) .88 .68 1.27
Less distributions to shareholders from:
Net investment income.................................... (.32) (.65) (.68) (.70) (.71)
Net realized gains....................................... -- -- (.18) (.11) (.07)
In excess of net investment income....................... -- -- -- -- (.01)
Total distributions.................................... (.32) (.65) (.86) (.81) (.79)
Net asset value, end of period........................... $10.02 $9.52 $10.43 $10.41 $10.54
TOTAL RETURN+............................................ 8.8% (2.6%) 8.7% 6.6% 13.8%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................ $347,050 $345,025 $376,445 $324,068 $256,254
Ratios to average net assets:
Expenses............................................... .67%++ .65% .66% .69% .69%++(a)
Net investment income.................................. 6.68%++ 6.56% 6.41% 6.67% 7.12%++(a)
Portfolio turnover rate.................................. 34% 48% 73% 66% 53%
</TABLE>
# The Fund changed its fiscal year end from December 31 to June 30.
* Commencement of class operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
++ Annualized.
(a) Net of expense waivers and reimbursements. If the Fund had borne all
expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment income to average net
assets, would have been the following:
<TABLE>
<CAPTION>
JANUARY 4, 1991
THROUGH
DECEMBER 31, 1991
<S> <C>
Expenses............................................................. .76%
Net investment income................................................ 7.05%
</TABLE>
11
<PAGE>
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Fund are stated below. Each
Fund's investment objective cannot be changed without shareholder approval.
While there is no assurance that each Fund's objective will be achieved, the
Funds will endeavor to do so by following the investment policies detailed
below. Unless otherwise indicated, the investment policies of a Fund may be
changed by the Board of Trustees of Evergreen Investment Trust, or The Evergreen
Lexicon Fund as the case may be, (the "Trustees") without the approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective. In addition to the investment policies detailed
below, each Fund may employ certain additional investment strategies which are
discussed in "Investment Practices and Restrictions".
EVERGREEN SHORT INTERMEDIATE BOND FUND
The objective of EVERGREEN SHORT INTERMEDIATE BOND FUND is to attain a
high level of current income, with capital growth as a secondary objective,
through investment in a broad range of investment grade debt securities. The
Fund is suitable for conservative investors who want attractive income and
permits them to participate in a broad portfolio of fixed income securities
rather than purchasing a single issue. While the Fund may invest in securities
rated BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors
Service, Inc. ("Moody's"), the investment adviser currently intends to limit the
Fund's investments to securities rated A or higher by Moody's or S&P, or which,
if unrated, are considered to be of comparable quality by the Fund's investment
adviser. A description of the rating categories is contained in an Appendix to
the Statement of Additional Information.
Debt securities may include fixed, adjustable rate, zero coupon, or
stripped securities, debentures, notes, U.S. government securities, and debt
securities convertible into, or exchangeable for, preferred or common stock.
Debt securities may also include mortgage-backed and asset-backed securities
(see "Investment Practices and Restrictions", below). Stated final maturity for
these securities may range up to 30 years. The duration of the securities will
not exceed 10 years. The Fund intends to maintain a dollar-weighted average
maturity of 5 years or less. Market-expected average life will be used for
certain types of issues in computing the average maturity.
In normal market conditions the Fund may invest up to 20% of its assets
in money market instruments consisting of: (1) high grade commercial paper,
including master demand notes; (2) obligations of banks or savings and loan
associations having at least $1 billion in deposits, including certificates of
deposit and bankers' acceptances; (3) A-rated or better corporate obligations;
(4) obligations issued or guaranteed by the U.S. government or by any agency or
instrumentality of the U.S. government; and (5) repurchase agreements
collateralized by any security listed above.
The types of U.S. government securities in which the Fund may invest
include: direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and notes, bonds, and discount notes of U.S. government
agencies or instrumentalities, such as the Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
<PAGE>
Corporation; Federal National Mortgage Association; Government National Mortgage
Association; Student Loan Marketing Association; Tennessee Valley Authority;
Export-Import Bank of the United States; Commodity Credit Corporation; Federal
Financing Bank; and National Credit Union Administration (collectively, "U.S.
government securities"). Some U.S. government agency obligations are backed by
the full faith and credit of the U.S. Treasury. Others in which the Fund may
invest are supported by: the issuer's right to borrow an amount limited to a
specific line of credit from the U.S. Treasury; discretionary authority of the
U.S. government to purchase certain obligations of an agency or instrumentality;
or the credit of the agency or instrumentality.
The Fund may also invest up to 20% of its assets in foreign securities
or U.S. securities traded in foreign markets in order to provide further
diversification. The Fund may also invest in preferred stock; units which are
debt securities with stock or warrants attached; and obligations denominated in
foreign currencies. In making these decisions, the Fund's investment adviser
will consider such factors as the condition and growth potential of various
economies and securities markets, currency and taxation considerations and other
pertinent financial, social, national and political factors. (See "Investment
Practices and Restrictions " -- "Foreign Investments".)
EVERGREEN U.S. GOVERNMENT FUND
The investment objective of EVERGREEN U.S. GOVERNMENT FUND is to achieve
a high level of current income consistent with stability of principal. The Fund
will invest in debt instruments issued or guaranteed by the U.S. government, its
agencies, or instrumentalities ("U.S. government securities"), and is suitable
for conservative investors seeking high current yields plus relative safety. It
permits an investor to participate in a portfolio that benefits from active
management of a blend of securities and maturities to maximize the opportunities
and minimize the risks created by changing interest rates.
In addition to U.S. government securities, the EVERGREEN U.S. GOVERNMENT
FUND may invest in:
Securities representing ownership interests in mortgage pools
("mortgage-backed securities"). The yield and maturity characteristics of
mortgage-backed securities correspond to those of the underlying mortgages, with
interest and principal payments including prepayments (i.e. paying remaining
principal before the mortgage's scheduled maturity) passed through to the holder
of the mortgage-backed securities. The yield and price of mortgage-backed
securities will be affected by prepayments which substantially shorten effective
maturities. Thus, during periods of declining interest rates, prepayments may be
expected to increase, requiring the Fund to reinvest the proceeds at lower
interest rates, making it difficult to effectively lock in high interest rates.
Conversely, mortgage-backed securities may experience less pronounced declines
in value during periods of rising interest rates;
Securities representing ownership interests in a pool of assets
("asset-backed securities"), for which automobile and credit card receivables
are the most common collateral. Because much of the underlying collateral is
unsecured, asset-backed securities are structured to include additional
collateral and/or additional credit support to protect against default. The
Fund's investment adviser evaluates the strength of each particular issue of
asset-backed security, taking into account the structure of the issue and its
credit support. (See "Investment Practices and Restrictions -- Risk
Characteristics of Asset-Backed Securities".);
<PAGE>
Collateralized mortgage obligations ("CMOs") issued by single-purpose,
stand-alone entities. A CMO is a mortgage-backed security that manages the risk
of repayment by separating mortgage pools into short, medium and long term
portions. These portions are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. Similarly, as prepayments are
made, the portion of CMO first to mature will be retired prior to its maturity,
thus having the same effect as the prepayment of mortgages underlying a
mortgage-backed security. The issuer of a series of CMOs may elect to be treated
as a Real Estate Mortgage Investment Conduit (a "REMIC"), which has certain
special tax attributes. The Fund will invest only in CMOs which are rated AAA by
a nationally recognized statistical rating organization and which may be: (a)
collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government; (b) collateralized by pools of mortgages in which payment of
principal and interest is guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities; or (C) securities in which the
proceeds of the issuance are invested in mortgage securities and payment of the
principal and interest are supported by the credit of an agency or
instrumentality of the U.S. government.
The Fund may invest up to 20% of its total assets in CMOs and commercial
paper which matures in 270 days or less so long as at least two of its ratings
are high quality ratings by nationally recognized statistical rating
organizations. Such ratings would include A-1 or A-2 by S&P, Prime-1 or Prime-2
by Moody's, or F-1 or F-2 by Fitch Investors Service and bonds and other debt
securities rated Baa or higher by Moody's or BBB or higher by S&P, or which, if
unrated, are considered to be of comparable quality by the investment adviser.
Bonds rated Baa by Moody's or BBB by S&P have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to weaken
such bonds' prospects for principal and interest payments than higher rated
bonds. However, like the higher rated bonds, these securities are considered to
be investment grade. (See the description of the rating categories contained in
the Statement of Additional Information.)
EVERGREEN INTERMEDIATE TERM BOND FUND
The investment objective of the EVERGREEN INTERMEDIATE TERM BOND is to
maximize current yield consistent with the preservation of capital.
The Fund will invest its assets in U.S. Treasury obligations;
obligations issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government; receipts evidencing separately traded
principal and interest components of U.S. government obligations; corporate
bonds and debentures rated, at the time of purchase, A or better by S&P or
Moody's or, if unrated determined to be of comparable quality by the investment
adviser; mortgage-backed securities and asset-backed securities rated, at the
time of purchase, at least AA by S&P or Aa by Moody's, commercial paper rated
A-1 or better by Moody's or P-1 or better by S&P or, if unrated, determined to
be of comparable quality at the time of investment as determined by the
investment adviser; short-term bank obligations including certificates of
deposit; time deposits and bankers' acceptances of U.S. commercial banks or
savings and loan institutions with assets of at least $1 billion as of the end
of their most recent fiscal year; U.S. dollar denominated securities of the
<PAGE>
government of Canada and its provincial and local governments; U.S. dollar
denominated securities issued or guaranteed by foreign governments, their
political subdivisions, agencies or instrumentalities; U.S. dollar denominated
obligations of supranational entities; and repurchase agreements involving any
of the foregoing securities; and U.S. dollar demoninated securities of other
foreign issuers. A description of the rating categories is contained in the
Statement of Additional Information.)
The Fund will maintain an average weighted maturity of approximately
five to fifteen years, although under normal conditions the investment adviser
expects the Fund to maintain an average weighted maturity of five to ten years.
The investment adviser may vary the average maturity substantially in
anticipation of a change in the interest rate environment.
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
The investment objective of EVERGREEN INTERMEDIATE TERM GOVERNMENT
SECURITIES FUND is to preserve principal value and maintain a high degree of
liquidity while providing current income.
The Fund invests exclusively in U.S. Treasury obligations, obligations
issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government, receipts evidencing separately traded
principal and interest components of U.S. government obligations, obligations of
supranational entities and repurchase agreements involving any of such
obligations. No more than 35% of the Fund's assets may be invested in receipts ,
obligations of supranational entities and repurchase agreements involving such
securities.
The Fund will maintain an average weighted remaining maturity of
approximately three to ten years, although under normal conditions the
investment adviser expects to maintain an average maturity of three to six
years. No remaining maturity will exceed ten years. The investment adviser may
vary the average maturity substantially in anticipation of a change in the
interest rate environment.
The U.S. government obligations that the Fund may acquire include
securities representing an interest in a pool of mortgage loans that are issued
or guaranteed by a U.S. government agency. The primary issuers or guarantors of
these mortgage-backed securities are the Government National Mortgage
Association, the Federal National Mortgage Association, and the Federal Home
Loan Mortgage Corporation. Mortgage-backed securities are in most cases "pass
through" instruments through which the holder receives a share of all interest
and principal payments from the mortgages underlying the certificates. The
mortgage backing these securities include conventional thirty-year fixed rate
mortgages. However, due to scheduled and unscheduled principal payments on the
underlying loans, these securities have a shorter average maturity and,
therefore, less principal volatility than comparable bonds. During periods of
declining interest rates, prepayment of mortgages underlying mortgage-backed
securities can be expected to accelerate. When the mortgage obligations are
prepaid, the Fund will reinvest the prepaid amounts in securities, the yield of
which reflects interest rates prevailing at the time. For purposes of complying
with the Fund's investment policy of acquiring securities with remaining
maturity of ten years or less, the investment adviser will use the expected life
of a mortgage-backed security.
<PAGE>
INVESTMENT PRACTICES AND RESTRICTIONS
Risk Factors. Bond prices move inversely to interest rates, i.e. as
interest rates decline the values of the bonds increase, and vice versa. The
longer the maturity of a bond, the greater the exposure to market price
fluctuations. The same market factors are reflected in the share price or net
asset value of bond funds which will vary with interest rates. In addition,
certain of the obligations in which each Fund may invest may be variable or
floating rate instruments, which may involve a conditional or unconditional
demand feature, and may include variable amount master demand notes. While these
types of instruments may, to a certain degree, offset the risk to principal
associated with rising interest rates, they would not be expected to appreciate
in a falling interest rate environment.
Defensive Investments. The Funds may invest without limitation in high
quality money market instruments, such as notes, certificates of deposit or
bankers' acceptances, or U.S. government securities if, in the opinion of the
Funds investment adviser, market conditions warrant a temporary defensive
investment strategy.
Downgrades. If any security invested in by any of the Funds loses its
rating or has its rating reduced after the Fund has purchased it, the Fund is
not required to sell or otherwise dispose of the security, but may consider
doing so.
Repurchase Agreements. The Funds may invest in repurchase agreements.
Repurchase agreements are agreements by which a Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Funds risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, a Fund
may incur costs in disposing of the security which would increase Fund expenses.
The Funds investment adviser will monitor the creditworthiness of the firms with
which the Funds enter into repurchase agreements.
When-Issued And Delayed Delivery Transactions. The Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause a Fund to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, a Fund may pay more or less than the market value of the
securities on the settlement date. The Funds may dispose of a commitment prior
to settlement if the investment adviser deems it appropriate to do so. In
addition, the Funds may enter into transactions to sell their purchase
commitments to third parties at current market values and simultaneously acquire
other commitments to purchase similar securities at later dates. The Funds may
realize short-term profits or losses upon the sale of such commitments.
Lending Of Portfolio Securities. In order to generate additional
income, the Funds may lend portfolio securities on a short-term or long-term
basis to broker/dealers, banks, or other institutional borrowers of securities.
<PAGE>
The Funds will only enter into loan arrangements with creditworthy borrowers and
will receive collateral in the form of cash or U.S. government securities equal
to at least 100% of the value of the securities loaned. As a matter of
fundamental investment policy which cannot be changed without shareholder
approval, the Funds will not lend any of their assets except portfolio
securities up to 15% (in the case of the the EVERGREEN SHORT INTERMEDIATE BOND
FUND, the EVERGREEN INTERMEDIATE TERM BOND FUND and the EVERGREEN INTERMEDIATE
TERM GOVERNMENT SECURITIES FUND) or one-third (in the case of EVERGREEN U.S.
GOVERNMENT FUND) of the value of their total assets. There is the risk that when
lending portfolio securities, the securities may not be available to a Fund on a
timely basis and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price. In addition, in the event that a borrower of
securities would file for bankruptcy or become insolvent, disposition of the
securities may be delayed pending court action.
Options And Futures. EVERGREEN SHORT INTERMEDIATE BOND FUND and
EVERGREEN U.S. GOVERNMENT FUND may engage in options and futures transactions.
Options and futures transactions are intended to enable a Fund to manage market,
interest rate or exchange rate risk, and the Funds do not use these transactions
for speculation or leverage.
EVERGREEN SHORT INTERMEDIATE BOND FUND and EVERGREEN U.S. GOVERNMENT FUND
may attempt to hedge all or a portion of their portfolios through the purchase
of both put and call options on their portfolio securities and listed put
options on financial futures contracts for portfolio securities. The Funds may
also write covered call options on their portfolio securities to attempt to
increase their current income. The Funds will maintain their positions in
securities, option rights, and segregated cash subject to puts and calls until
the options are exercised, closed, or have expired. An option position may be
closed out only on an exchange which provides a secondary market for an option
of the same series. The Funds may purchase listed put options on financial
futures contracts. These options will be used only to protect portfolio
securities against decreases in value resulting from market factors such as an
anticipated increase in interest rates.
EVERGREEN SHORT INTERMEDIATE BOND FUND and EVERGREEN U.S. GOVERNMENT FUND
may write (i.e., sell) covered call and put options. By writing a call option, a
Fund becomes obligated during the term of the option to deliver the securities
underlying the option upon payment of the exercise price. By writing a put
option, a Fund becomes obligated during the term of the option to purchase the
securities underlying the option at the exercise price if the option is
exercised. The Funds also may write straddles (combinations of covered puts and
calls on the same underlying security). The Funds may only write "covered"
options. This means that so long as a Fund is obligated as the writer of a call
option, it will own the underlying securities subject to the option or, in the
case of call options on U.S. Treasury bills, the Fund might own substantially
similar U.S. Treasury bills. A Fund will be considered "covered" with respect to
a put option it writes if, so long as it is obligated as the writer of the put
option, it deposits and maintains with its custodian in a segregated account
liquid assets having a value equal to or greater than the exercise price of the
option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Funds receive a premium from writing a
call or put option which they retain whether or not the option is exercised. By
writing a call option, the Funds might lose the potential for gain on the
<PAGE>
underlying security while the option is open, and by writing a put option the
Funds might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If a Fund would enter into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. A Fund
would "go long" (agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.
EVERGREEN SHORT INTERMEDIATE BOND FUND and EVERGREEN U.S. GOVERNMENT FUND
may also enter into currency and other financial futures contracts and write
options on such contracts. The Funds intend to enter into such contracts and
related options for hedging purposes. The Funds will enter into futures on
securities, currencies, or index-based futures contracts in order to hedge
against changes in interest or exchange rates or securities prices. A futures
contract on securities or currencies is an agreement to buy or sell securities
or currencies during a designated month at whatever price exists at that time. A
futures contract on a securities index does not involve the actual delivery of
securities, but merely requires the payment of a cash settlement based on
changes in the securities index. The Funds do not make payment or deliver
securities upon entering into a futures contract. Instead, they put down a
margin deposit, which is adjusted to reflect changes in the value of the
contract and which remains in effect until the contract is terminated.
EVERGREEN SHORT INTERMEDIATE BOND FUND and EVERGREEN U.S. GOVERNMENT FUND
may sell or purchase currency and other financial futures contracts. When a
futures contract is sold by a Fund, the profit on the contract will tend to rise
when the value of the underlying securities or currencies declines and to fall
when the value of such securities or currencies increases. Thus, the Funds sell
futures contracts in order to offset a possible decline in the profit on their
securities or currencies. If a futures contract is purchased by a Fund, the
value of the contract will tend to rise when the value of the underlying
securities or currencies increases and to fall when the value of such securities
or currencies declines.
EVERGREEN SHORT INTERMEDIATE BOND FUND and EVERGREEN U.S. GOVERNMENT FUND
may enter into closing purchase and sale transactions in order to terminate a
futures contract and may buy or sell put and call options for the purpose of
closing out their options positions. The Funds ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Funds will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Funds are not
able to enter into an offsetting transaction, the Funds will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case the Funds would continue to bear
market risk on the transaction.
<PAGE>
Risk Characteristics Of Options And Futures. Although options and futures
transactions are intended to enable the Funds to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Funds use of them can result in poorer performance (i.e., the Funds' returns may
be reduced). The Funds attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Funds use financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Funds' portfolios. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, the Funds investment adviser could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Funds investment adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Funds may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although the Funds
investment adviser will consider liquidity before entering into financial
futures contracts or options on financial futures contracts transactions, there
is no assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Funds ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If a Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to the Fund could be significant.
Zero-Coupon And Stripped Securities. The Funds may invest in
zero-coupon and stripped securities. Zero-coupon securities in which the Funds
may invest are debt obligations which are generally issued at a discount and
payable in full at maturity, and which do not provide for current payments of
interest prior to maturity. Zero-coupon securities usually trade at a deep
discount from their face or par value and are subject to greater market value
fluctuations from changing interest rates than debt obligations of comparable
maturities which make current distributions of interest. As a result, the net
asset value of shares of the Funds may fluctuate over a greater range than
shares of other mutual funds investing in securities making current
distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and longer-term bonds
or notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment banking firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
<PAGE>
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities". Under the
STRIPS program, the Funds will be able to have their beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidence
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Foreign Investments. EVERGREEN SHORT INTERMEDIATE BOND FUND may invest in
foreign securities or securities denominated in or indexed to foreign currencies
and EVERGREEN INTERMEDIATE TERM BOND FUND may invest in U.S. dollar denominated
securities of foreign issuers. In addition, EVERGREEN SHORT INTERMEDIATE BOND
FUND may invest in foreign currencies. These may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and may be less marketable than comparable U.S.
securities. All these factors are considered by the investment adviser before
making any of these types of investments.
Risk Characteristics Of Asset-Backed Securities. The Funds may invest in
asset-backed securities. Asset-backed securities are created by the grouping of
certain governmental, government-related and private loans, receivables and
other lender assets into pools. Interests in these pools are sold as individual
securities. Payments from the asset pools may be divided into several different
tranches of debt securities, with some tranches entitled to receive regular
installments of principal and interest, other tranches entitled to receive
regular installments of interest, with principal payable at maturity or upon
specified call dates, and other tranches only entitled to receive payments of
principal and accrued interest at maturity or upon specified call dates.
Different tranches of securities will bear different interest rates, which may
be fixed or floating.
<PAGE>
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Funds receive from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as CMOs,
prepayments may be allocated to one tranche of securities ahead of other
tranches, in order to reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Funds to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Funds which would be taxed as ordinary
income when distributed to the shareholders. The credit characteristics of
asset-backed securities also differ in a number of respects from those of
traditional debt securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets underlying such
securities, how well the entity issuing the securities is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement to such securities.
Borrowing. As a matter of fundamental policy, the Funds may not borrow
money except as a temporary measure to facilitate redemption requests or for
extraordinary or emergency purposes. The proceeds from borrowings may be used to
facilitate redemption requests which might otherwise require the untimely
disposition of portfolio securities. The specific limits applicable to borrowing
by each Fund are set forth in the Statement of Additional Information.
Restricted And Illiquid Securities. EVERGREEN SHORT INTERMEDIATE BOND
FUND may invest up to 10% of its net assets and EVERGREEN U.S. GOVERNMENT FUND
may invest up to 10% of its total assets in securities which are subject to
restrictions on resale under federal securities law. This restriction is not
applicable to commercial paper issued under Section 4(2) of the Securities Act
of 1933. THE EVERGREEN SHORT INTERMEDIATE BOND FUND, THE EVERGREEN INTERMEDIATE
TERM BOND FUND and the EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES may
invest up to 10% of their net assets in illiquid securities. EVERGREEN U.S.
GOVERNMENT FUND may invest up to 15% of its net assets in illiquid securities.
Illiquid securities include certain restricted securities not determined by the
Trustees to be liquid, non-negotiable time deposits, and repurchase agreements
providing for settlement in more than seven days after notice.
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
The management of each Fund is supervised by the Trustees of the Trust
under which the Fund is organized. The Capital Management Group of First Union
National Bank of North Carolina ("CMG") serves as investment adviser to each
Fund. First Union National Bank of North Carolina ("FUNB") is a subsidiary of
<PAGE>
First Union Corporation ("First Union"), the sixth largest bank holding company
in the United States. First Union is headquartered in Charlotte, North Carolina,
and had $__ billion in consolidated assets as of December 31, 1995. First Union
and its subsidiaries provide a broad range of financial services to individuals
and businesses through offices in __ states. CMG manages or otherwise oversees
the investment of over $__ billion in assets belonging to a wide range of
clients, including the fifteen series of Evergreen Investment Trust (formerly
known as First Union Funds). First Union Brokerage Services, Inc., a
wholly-owned subsidiary of FUNB, is a registered broker-dealer that is
principally engaged in providing retail brokerage services consistent with its
federal banking authorizations. First Union Capital Markets Corp., a
wholly-owned subsidiary of First Union, is a registered broker-dealer
principally engaged in providing, consistent with its federal banking
authorizations, private placement, securities dealing, and underwriting
services. Prior to December XXX, 1995, First Fidelity Bank, N.A. ("First
Fidelity") served as investment adviser to EVERGREEN INTERMEDIATE TERM BOND FUND
and EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND. CMG succeeded to the
mutual funds advisory business of First Fidelity in connection with the
acquisition of First Fidelity Bancorporation by a subsidiary of First Union.
CMG manages investments and supervises the daily business affairs of each
Fund and, as compensation therefor, is entitled to receive an annual fee equal
to .50 of 1% of the average daily net assets of of EVERGREEN SHORT INTERMEDIATE
BOND FUND and EVERGREEN U.S. GOVERNMENT FUND and .60 of 1% of the average daily
net assets of of EVERGREEN INTERMEDIATE TERM BOND FUND and EVERGREEN
INTERMEDIATE TERM GOVERNMENT SECURITIES FUND. The total annualized operating
expenses of each fund for its most recent fiscal period are set forth in the
section entitled "Financial Highlights". Evergreen Asset Management Corp.
("Evergreen Asset"), a subsidiary of FUNB, serves as administrator to each Fund
and is entitled to receive a fee based on the average daily net assets of each
Fund at a rate based on the total assets of the mutual funds administered by
Evergreen Asset for which CMG or Evergreen Asset also serve as investment
adviser, calculated in accordance with the following schedule: .050% of the
first $7 billion; .035% on the next $3 billion; .030% on the next $5 billion;
.020% on the next $10 billion; .015% on the next $5 billion; and .010% on assets
in excess of $30 billion. Furman Selz Incorporated, an affiliate of Evergreen
Funds Distributor, Inc., distributor for the Evergreen group of mutual funds,
serves as sub-administrator for each Fund and is entitled to receive a fee from
each Fund calculated on the average daily net assets of the Funds at a rate
based on the total assets of the mutual funds administered by Evergreen Asset
for which CMG or Evergreen Asset also serve as investment adviser, calculated in
accordance with the following schedule: .0100% of the first $7 billion; .0075%
on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in
excess of $25 billion. The total assets of the mutual funds administered by
Evergreen Asset for which CMG or Evergreen Asset serve as investment adviser
were approximately $XXXX billion as of December 31, 1995.
PORTFOLIO MANAGERS
Thomas L. Ellis, a Vice President of FUNB, has been the portfolio manager
of EVERGREEN SHORT INTERMEDIATE BOND FUND since its inception in 1988. Prior to
joining FUNB in 1985, Mr. Ellis had seventeen years investment management and
sales experience, including eleven years marketing short and medium-term
obligations to institutional investors, and three years as head trader of First
Boston Corporation. Rollin C. Williams, a Vice President of FUNB, has been the
portfolio manager of EVERGREEN U.S. GOVERNMENT FUND since its inception in 1992.
Mr. Williams, who has over twenty-four years investment management experience,
<PAGE>
was Head of Fixed Income Investments at Dominion Trust Company from 1988 until
its acquisition by First Union. Bruce Besecker, a Vice President of FUNB, has
been the Portfolio Manager of Evergreen Intermediate Term Bond Fund since its
inception. Prior to joining FUNB, Mr. Besecker was a Vice President in the Fixed
Income Unit of the Financial Management Department of First Fidelity since 1991.
The Portfolio Manager of EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
since its inception has been Robert Cheshire. Mr. Cheshire is a Vice President
of FUNB and was formerly a Vice President in the Institutional Asset Management
Group of First Fidelity since 1990.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Eligible investors may purchase shares of the Funds at net asset value by
mail or wire as described below. The Funds impose no sales charges on Class Y
shares. Class Y shares are the only class of shares offered by this Prospectus
and are only available to (i) all shareholders of record in one or more of the
Evergreen Funds as of December 30, 1994, (ii) certain institutional investors,
and (iii) investment advisory clients of CMG, Evergreen Asset or their
affiliates. The minimum initial investment is $1,000, which may be waived in
certain situations. There is no minimum for subsequent investments. Investors
may make subsequent investments by establishing a Systematic Investment Plan or
a Telephone Investment Plan.
Purchases by Mail or Wire. Each investor must complete the enclosed
Share Purchase Application and mail it, together with a check made payable to
the Fund whose shares are being purchased, to State Street Bank and Trust
Company ("State Street") at P.O. Box 9021, Boston, Massachusetts 02205-9827.
Checks not drawn on U.S. banks will be subject to foreign collection which will
delay an investor's investment date and will be subject to processing fees.
When making subsequent investments, an investor should either enclose the
return remittance portion of the statement, or indicate on the face of the
check, the name of the Fund in which an investment is to be made, the exact
title of the account, the address, and the Fund account number. Purchase
requests should not be sent to the Fund in New York. If they are, the Fund must
forward them to State Street, and the request will not be effective until State
Street receives them.
Initial investments may also be made by wire by (i) calling State Street
at 800-423-2615 for an account number and (ii) instructing your bank, which may
charge a fee, to wire federal funds to State Street, as follows: State Street
Bank and Trust Company, ABA No.0110-0002-8, Attn: Custodian and Shareholder
Services. The wire must include references to the Fund in which an investment is
being made, account registration, and the account number. A completed
Application must also be sent to State Street indicating that the shares have
been purchased by wire, giving the date the wire was sent and referencing the
account number. Subsequent wire investments may be made by existing shareholders
by following the instructions outlined above. It is not necessary, however, for
existing shareholders to call for another account number. How the Funds Value
Their Shares. The net asset value of each class of the Funds' shares is
calculated by dividing the value of the amount of each Fund's net assets
attributable to that class by the number of outstanding shares of that class.
Shares are valued each day the New York Stock Exchange (the "Exchange") is open
<PAGE>
as of the close of regular trading (currently 4:00 p.m. Eastern time). The
securities in each Fund are valued at their current market value determined on
the basis of market quotations or, if such quotations are not readily available,
such other methods as the Trustees believe would accurately reflect fair market
value. Non-dollar denominated securities will be valued as of the close of the
Exchange at the closing price of such securities in their principal trading
market.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss a Fund or the investment adviser
incurs. If such investor is an existing shareholder, a Fund may redeem shares
from an investor's account to reimburse the Fund or the investment adviser for
any loss. In addition, such investors may be prohibited or restricted from
making further purchases in any of the Evergreen mutual funds.
The Share Purchase Application may not be used to invest in any of the
prototype retirement plans for which the Funds are an available investment. For
information about the requirements to make such investments, including copies of
the necessary application forms, please call the Fund at the number on the front
page of this Prospectus. The Funds cannot accept investments specifying a
certain price or date and reserve the right to reject any specific purchase
order, including orders in connection with exchanges from the other Evergreen
Funds. Although not currently anticipated, the Funds reserve the right to
suspend the offer of shares for a period of time.
Shares of the Funds are sold at the net asset value per share next
determined after a shareholder's order is received. Investments by federal funds
wire or by check will be effective upon receipt by State Street. Qualified
institutions may telephone orders for the purchase of any Fund's shares.
Institutions should telephone the Fund (800-235-0064) for additional information
on purchases by telephone. Investors may also purchase shares through a
broker/dealer, which may charge a fee for the service.
HOW TO REDEEM SHARES You may "redeem", i.e., sell your shares in a Fund to
that Fund on any day the Exchange is open, either directly or through your
financial intermediary. The price you will receive is the net asset value next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares recently
purchased by check, the Fund will not send proceeds until it is reasonably
satisfied that the check has been collected (which may take up to ten days).
Once a redemption request has been telephoned or mailed, it is irrevocable and
may not be modified or canceled.
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to State Street which is the registrar, transfer
agent and dividend-disbursing agent for the Funds. Stock power forms are
available from your financial intermediary, State Street, and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, financial intermediaries, fiduciaries and surviving joint owners.
Signature guarantees are required for all redemption requests for shares with a
value of more than $10,000 or where the redemption proceeds are to be mailed to
an address other than that shown in the account registration. A signature
guarantee must be provided by a bank or trust company (not a Notary Public), a
member firm of a domestic stock exchange or by other financial institutions
whose guarantees are acceptable to State Street. Shareholders may withdraw
amounts of $1,000 or more from their accounts by calling State Street
(800-423-2615) between the hours of 9:00 a.m. and 4:00 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or State
<PAGE>
Street's offices are closed). The Exchange is closed on New Year's Day,
Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Redemption requests made after 4:00 p.m.
(Eastern time) will be processed using the net asset value determined on the
next business day. Such redemption requests must include the shareholder's
account name, as registered with the Fund, and the account number. During
periods of drastic economic or market changes, shareholders may experience
difficulty in effecting telephone redemptions. Shareholders who are unable to
reach the Fund or State Street by telephone should follow the procedures
outlined above for redemption by mail.
The telephone redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share Purchase Application and choose how the redemption
proceeds are to be paid. Redemption proceeds will either (i) be mailed by check
to the shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the shareholder's account in
the Fund at a designated commercial bank. State Street currently deducts a $5
wire charge from all redemption proceeds wired. This charge is subject to change
without notice. A shareholder who decides later to use this service, or to
change instructions already given, should fill out a Shareholder Services Form
and send it to State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827, with such shareholder's signature guaranteed by a bank
or trust company (not a Notary Public), a member firm of a domestic stock
exchange or by other financial institutions whose guarantees are acceptable to
State Street. Shareholders should allow approximately ten days for such form to
be processed. The Funds will employ reasonable procedures to verify that
telephone requests are genuine. These procedures include requiring some form of
personal identification prior to acting upon instructions and tape recording of
conversations. If a Fund fails to follow such procedures, it may be liable for
any losses due to unauthorized or fraudulent instructions. The Funds shall not
be liable for following telephone instructions reasonably believed to be
genuine. Also, the Funds reserve the right to refuse a telephone redemption
request, if it is believed advisable to do so. Financial intermediaries may
charge a fee for handling telephonic requests. The telephone redemption option
may be suspended or terminated at any time without notice.
General. The redemption of shares is a taxable transaction for Federal income
tax purposes. Under unusual circumstances, a Fund may suspend redemptions or
postpone payment for up to seven days or longer, as permitted by Federal
securities law. The Funds reserve the right to close an account that through
redemption has remained below $1,000 for thirty days. Shareholders will receive
sixty days' written notice to increase the account value before the account is
closed. The Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 pursuant to which each Fund is obligated to redeem shares
solely in cash, up to the lesser of $250,000 or 1% of a Fund's total net assets
during any ninety day period for any one shareholder.
EXCHANGE PRIVILEGE How To Exchange Shares. You may exchange some or all of
your shares for shares of the same Class in the other Evergreen Funds by
telephone or mail as described below. Once an exchange request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Exchanges will be made on the basis of the relative net asset values of the
shares exchanged next determined after an exchange request is received. An
exchange, which represents an initial investment in another Evergreen Fund, is
subject to the minimum investment and suitability requirements of each Fund.
<PAGE>
Each of the Evergreen mutual funds has different investment objectives
and policies. For complete information, a prospectus of the Fund into which an
exchange will be made should be read prior to the exchange. An exchange is
treated for Federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. The Funds impose a
fee of $5 per exchange on shareholders who exchange in excess of four times per
calendar year. This exchange privilege may be modified or discontinued at any
time by the Funds upon sixty days' notice to shareholders and is only available
in states in which shares of the Fund being acquired may lawfully be sold.
Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000
or more by telephone by calling State Street (800-423-2615). Exchange requests
made after 4:00 p.m. (Eastern time) will be processed using the net asset value
determined on the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach State Street by telephone. If you wish to use the
telephone exchange service you should indicate this on the Share Purchase
Application. As noted above, the Funds will employ reasonable procedures to
confirm that instructions for the redemption or exchange of shares communicated
by telephone are genuine. A telephone exchange may be refused by a Fund or State
Street if it is believed advisable to do so. Procedures for exchanging Fund
shares by telephone may be modified or terminated at any time. Written requests
for exchanges should follow the same procedures outlined for written redemption
requests in the section entitled "How to Redeem Shares", however, no signature
guarantee is required.
SHAREHOLDER SERVICES
The Funds offer the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, Evergreen Funds Distributor, Inc.("EFD"), the distributor of the
Funds' shares, or the toll-free number on the front page of this Prospectus.
Some services are described in more detail in the Share Purchase Application.
Systematic Investment Plan. You may make monthly or quarterly investments into
an existing account automatically in amounts of not less than $25.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the Funds
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase Application. Under this plan, you may receive (or designate a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $100. Fund shares will be redeemed as necessary to meet withdrawal
payments. All participants must elect to have their dividends and capital gain
distributions reinvested automatically.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Funds at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
<PAGE>
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested. If you elect to receive dividends and
distributions in cash and the U.S. Postal Service cannot deliver the checks, or
if the checks remain uncashed for six months, the checks will be reinvested into
your account at the then current net asset value.
Tax Sheltered Retirement Plans. You may open a pension and profit sharing
account in any Evergreen mutual fund (except those funds having an objective of
providing tax free income), including: (i) Individual Retirement Accounts
("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole
proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money
Purchase Pension Plans for corporations and their employees.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Evergreen
Asset, since it is a subsidiary of FUNB, and CMG are subject to and in
compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in CMG or Evergreen Asset being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of a
Fund by its customers. If CMG or Evergreen Asset were prevented from continuing
to provide the services called for under the investment advisory agreement, it
is expected that the Trustees would identify, and call upon each Fund's
shareholders to approve, a new investment adviser. If this were to occur, it is
not anticipated that the shareholders of any Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
For EVERGREEN U.S. GOVERNMENT net income dividends, if any, are declared
daily and paid monthly. For EVERGREEN INTERMEDIATE TERM BOND FUND, EVERGREEN
SHORT INTERMEDIATE BOND FUND, and EVERGREEN INTERMEDIATE TERM GOVERNMENT
SECURITIES FUND net income dividends are declared and paid monthly.
Distributions of any net realized capital gains of the Funds will be made
annually or more frequently as required as a condition of continued
qualification as a regulated investment company by the Internal Revenue Code of
1986, as amended (the "Code"). Dividends and distributions generally are taxable
in the year in which they are paid, except any dividends paid in January that
were declared in the previous calendar quarter may be treated as paid in
December of the previous year. Income dividends and capital gain distributions
are automatically reinvested in additional shares of the Fund making the
distribution at the net asset value per share at the close of business on the
record date, unless the shareholder has made a written request for payment in
cash.
<PAGE>
Each Fund has qualified and intends to continue to qualify to be treated as
a regulated investment company under the Code. While so qualified, it is
expected that each Fund will not be required to pay any Federal income taxes on
that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Funds,
to the extent they do not meet certain distribution requirements by the end of
each calendar year. Each Fund anticipates meeting such distribution
requirements. Most shareholders of the Funds normally will have to pay Federal
income taxes and any state or local taxes on the dividends and distributions
they receive from a Fund whether such dividends and distributions are made in
cash or in additional shares. Questions on how any distributions will be taxed
to the investor should be directed to the investor's own tax adviser.
Under current law, the highest Federal income tax rate applicable to net
long-term capital gains realized by individuals is 28%. The rate applicable to
corporations is 35%. Certain income from a Fund may qualify for a corporate
dividends-received deduction of 70%. Following the end of each calendar year,
every shareholder of the Funds will be sent applicable tax information and
information regarding the dividends and capital gain distributions made during
the calendar year.
A Fund may be subject to foreign withholding taxes which would reduce the
yield on its investments. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Shareholders of a Fund who are
subject to United States Federal income tax may be entitled, subject to certain
rules and limitations, to claim a Federal income tax credit or deduction for
foreign income taxes paid by a Fund. See the Statement of Additional Information
for additional details. A Fund's transactions in options, futures and forward
contracts may be subject to special tax rules. These rules can affect the
amount, timing and characteristics of distributions to shareholders.
Each Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gain distributions and redemptions) paid
to certain shareholders. In order to avoid this backup withholding requirement,
you must certify on the Share Purchase Application, or on a separate form
supplied by State Street, that your social security or taxpayer identification
number is correct and that you are not currently subject to backup withholding
or are exempt from backup withholding.
The foregoing discussion of Federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, you should also review the discussion of
"Additional Tax Information" contained in the Statement of Additional
Information. In addition, you should consult your own tax adviser as to the tax
consequences of investments in the Funds, including the application of state and
local taxes which may be different from Federal income tax consequences
described above.
GENERAL INFORMATION
Portfolio Transactions. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, a Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.
<PAGE>
Organization. EVERGREEN SHORT INTERMEDIATE BOND FUND and EVERGREEN U.S.
GOVERNEMENT FUND are each separate investment series of Evergreen Investment
Trust (formerly First Union Funds), which is a Massachusetts business trust
organized in 1984. EVERGREEN INTERMEDIATE TERM BOND FUND and EVERGREEN
INTERMEDIATE TERM GOVERNMENT Securities Fund are separate series of The
Evergreen Lexicon Fund (formerly, The FFB Lexicon Fund), which is a
Massachusetts business trust organized in 1991. The Funds do not intend to hold
annual shareholder meetings; shareholder meetings will be held only when
required by applicable law. Shareholders have available certain procedures for
the removal of Trustees.
A shareholder in each class of a Fund will be entitled to his or her share
of all dividends and distributions from a Fund's assets, based upon the relative
value of such shares to those of other Classes of the Fund, and, upon redeeming
shares, will receive the then current net asset value of the Class of shares of
the Fund represented by the redeemed shares less any applicable contingent
deferred sales charge. Each Trust named above is empowered to establish, without
shareholder approval, additional investment series, which may have different
investment objectives, and additional classes of shares for any existing or
future series. If an additional series or class were established in a Fund, each
share of the series or class would normally be entitled to one vote for all
purposes. Generally, shares of each series and class would vote together as a
single class on matters, such as the election of Trustees, that affect each
series and class in substantially the same manner. Class A, B, C and Y shares
have identical voting, dividend, liquidation and other rights, except that each
class bears, to the extent applicable, its own distribution and transfer agency
expenses as well as any other expenses applicable only to a specific class. Each
class of shares votes separately with respect to Rule 12b-1 distribution plans
and other matters for which separate class voting is appropriate under
applicable law. Shares are entitled to dividends as determined by the Trustees
and, in liquidation of a Fund, are entitled to receive the net assets of the
Fund.
Custodian, Registrar, Transfer Agent and Dividend-Disbursing Agent. State Street
Bank and Trust Company (the "Custodian") , P.O. Box 9021, Boston, Massachusetts
02205-9827 acts as each Fund's custodian, registrar, transfer agent and
dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds. The transfer agency fee with respect to the
Class B Shares will be higher than the transfer agency fee with respect to the
Class A or Class C Shares.
Principal Underwriter. EFD, an affiliate of Furman Selz Incorporated, located
230 Park Avenue, New York, New York 10169, is the principal underwriter of the
Funds. Furman Selz Incorporated also acts as sub-administrator to the Funds.
Other Classes of Shares. Each Fund currently offers four classes of shares,
Class A, Class B, Class C and Class Y, and may in the future offer additional
classes. Class Y shares are the only class of shares offered by this Prospectus
and are only available to (i) all shareholders of record in one or more of the
Funds for which Evergreen Asset served as investment adviser as of December 30,
1994, (ii) certain institutional investors and (iii) investment advisory clients
of CMG, Evergreen Asset or their affiliates. The dividends payable with respect
to Class A, Class B and Class C shares will be less than those payable with
respect to Class Y shares due to the distribution and distribution and
shareholder servicing-related expenses borne by Class A, Class B and Class C
shares and the fact that such expenses are not borne by Class Y shares.
<PAGE>
Performance Information. The Funds performance may be quoted in advertising in
terms of "yield" or "total return". Both types of performance are based on
formulas prescribed by the Securities and Exchange Commission ("SEC") and are
not intended to indicate future performance. Yield is a way of showing the rate
of income a Fund earns on its investments as a percentage of a Fund's share
price. A Fund's yield is calculated according to accounting methods that are
standardized by the SEC for all stock and bond funds. Because yield accounting
methods differ from the method used for other accounting purposes, a Fund's
yield may not equal its distribution rate, the income paid to your account or
the net investment income reported in the Funds' financial statements. To
calculate yield, a Fund takes the interest income it earned from its portfolio
of investments (as defined by the SEC formula) for a 30-day period (net of
expenses), divides it by the average number of shares entitled to receive
dividends, and expresses the result as an annualized percentage rate based on a
Fund's share price at the end of the 30-day period. This yield does not reflect
gains or losses from selling securities.
Total returns are based on the overall dollar or percentage change in the
value of a hypothetical investment in a Fund. A Fund's total return shows its
overall change in value including changes in share prices and assumes all the
Fund's distributions are reinvested. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if a Fund's performance had been constant over
the entire period. Because average annual total returns tend to smooth out
variations in the Fund's return, you should recognize that they are not the same
as actual year-by-year results. To illustrate the components of overall
performance, a Fund may separate its cumulative and average annual total returns
into income results and realized and unrealized gain or loss. Comparative
performance information may also be used from time to time in advertising or
marketing a Fund's shares, including data from Lipper Analytical Services, Inc.
and Morningstar, Inc. as well as other industry publications, and comparisons to
various indices.
A Fund may also advertise in items of sales literature an "actual
distribution rate" which is computed by dividing the total ordinary income
distributed (which may include the excess of short-term capital gains over
losses) to shareholders for the latest twelve month period by the maximum public
offering price per share on the last day of the period. Investors should be
aware that past performance may not be reflective of future results.
Liability Under Massachusetts Law. Under Massachusetts law, Trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declaration of Trust under which each
Fund operates provide that no Trustee or shareholder will be personally liable
for the obligations of the Trust and that every written contract made by the
Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trusts
with the SEC under the Securities Act. Copies of the Registration Statements may
be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the offices of the SEC in Washington, D.C.
<PAGE>
INVESTMENT ADVISER
Capital Management Group of First Union National Bank of North Carolina, 201
South College Street, Charlotte, North Carolina 28288
CUSTODIAN & TRANSFER AGENT
State Street Bank & Trust Company, Box 9021, Boston, Massachusetts 02205-9827
LEGAL COUNSEL Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick, LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania 15219
DISTRIBUTOR
Evergreen Funds Distributor, Inc., 237 Park Avenue, New York, New York 10169
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<PAGE>
EXHIBIT B
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
6th day of December, 1995, by and between The FFB Lexicon Fund, a Massachusetts
business trust (the "FFB Trust"), with its principal place of business at 2
Oliver Street, Boston, Massachusetts 02109, with respect to its Fixed Income
Fund series (the "Acquiring Fund"), and Evergreen Investment Trust (the
"Evergreen Trust"), a Massachusetts business trust, with respect to its
Evergreen Managed Bond Fund series, with its principal place of business at 2500
Westchester Avenue, Purchase, New York 10577 (the "Selling Fund").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368 (a)(1)(C) of the United States
Internal Revenue Code of 1986 (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of substantially all of the
assets of the Selling Fund in exchange solely for Class Y shares of beneficial
interest, without par value, of the Acquiring Fund (the "Acquiring Fund Shares")
and the assumption by the Acquiring Fund of certain stated liabilities of the
Selling Fund and the distribution, after the Closing Date hereinafter referred
to, of the Acquiring Fund Shares to the shareholders of the Selling Fund in
liquidation of the Selling Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are separate investment series
of open-end, registered investment companies of the management type and the
Selling Fund owns securities which generally are assets of the character in
which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial interest;
WHEREAS, the Trustees of the FFB 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 are 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 Evergreen 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
<PAGE>
the Selling Fund will not be diluted as a result of the transactions
contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 The Exchange. Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer substantially all of 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
multiplying the shares outstanding of each class of the Selling Fund by the
ratio computed by dividing the net asset value per share of each such class of
the Selling Fund by the net asset value per share of the Acquiring Fund Shares
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
<PAGE>
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 Evergreen Asset Management Corp., 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 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.
<PAGE>
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 paragraph 5.7.
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 FFB 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 per share of the 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 FFB 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 multiplying the shares outstanding of each
class of the Selling Fund by the ratio computed by dividing the net asset value
per share of the Selling Fund attributable to each of its classes by the net
asset value per
<PAGE>
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.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on February 16,
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 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. State Street Bank & Trust Company, as custodian for
the Selling Fund (the "Custodian"), shall deliver at the Closing a certificate
of an authorized officer stating that: (a) the Selling Fund's portfolio
securities, cash, and any other assets shall have been delivered in proper form
to the Acquiring Fund on the Closing Date and (b) all necessary taxes including
all applicable Federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities 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. State Street Bank & Trust Company, as transfer
agent for the Selling Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Selling Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
<PAGE>
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 Evergreen Trust , or
provide evidence satisfactory to the Selling Fund that such Acquiring Fund
Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts and other
documents as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Massachusetts business
trust duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts;
(b) The Selling Fund is a separate investment series of a registered investment
company classified as a management company of the open-end type and its
registration with the Securities and Exchange Commission (the "Commission") as
an investment company under the Investment Company Act of 1940, 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 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 Evergreen 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
<PAGE>
Fund, no litigation, administrative proceeding or investigation of or before any
court or governmental body is presently pending or to its knowledge threatened
against the Selling Fund or any of its properties or assets which, if adversely
determined, would materially and adversely affect its financial condition, the
conduct of its business or the ability of the Selling Fund to carry out the
transactions contemplated by this Agreement. The Selling Fund knows of no facts
which might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated;
(g) The financial statements of the Selling Fund at June 30, 1995 have been
audited by KPMG Peat Marwick LLP, certified public accountants, and are in
accordance with generally accepted accounting principles consistently applied,
and such statements (copies of which have been furnished to the Acquiring Fund)
fairly reflect the financial condition of the Selling Fund as of such date, and
there are no known contingent liabilities of the Selling Fund as of such date
not disclosed therein;
(h) Since June 30, 1995 there has not been any material adverse change in the
Selling Fund's financial condition, assets, liabilities or business other than
changes occurring in the ordinary course of business, or any incurrence by the
Selling Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund. For the purposes of this subparagraph (h), a decline in the net
asset value of the Selling Fund shall not constitute a material adverse change;
(i) At the Closing Date, all Federal and other tax returns and reports of the
Selling Fund required by law to have been filed by such dates shall have been
filed, and all Federal and other taxes shown due on said returns and reports
shall have been paid, or provision shall have been made for the payment thereof
and to the best of the Selling Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such returns;
(j) For each fiscal year of its operation, the Selling Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company and has distributed in each 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
<PAGE>
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.
<PAGE>
4.2 Representations of the Acquiring Fund. The Acquiring Fund represents and
warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Massachusetts
business trust duly organized, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts;
(b) The Acquiring Fund is a separate investment series of a Massachusetts
business trust that is registered as an investment company classified as a
management company of the open-end type and its registration with the Commission
as an investment company under the 1940 Act is in full force and effect;
(c) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(d) The Acquiring Fund is not, and the execution, delivery and performance of
this Agreement will not, result in a violation 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 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 August 31, 1995 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 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 August 31, 1995 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 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
<PAGE>
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 Evergreen 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.
<PAGE>
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the Acquiring
Fund and the Selling Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Selling Fund shall furnish
the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring
Fund, a statement of the earnings and profits of the Selling Fund for Federal
income tax purposes which will be carried over by the Acquiring Fund as a result
of Section 381 of the Code, and which will be certified by the Evergreen 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 FFB
<PAGE>
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
Morgan, Lewis & Bockius, 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 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
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 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
<PAGE>
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 FFB 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,
<PAGE>
and that such opinion is solely for the benefit of the FFB Trust and the Selling
Fund. Such opinion shall contain such other assumptions and limitations as shall
be in the opinion of Moran 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
opinions, cases and rules and regulations of the Commonwealth of Massachusetts
or upon an opinion of Massachusetts counsel.
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 Evergreen 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
Sullivan & Worcester LLP, counsel to the Selling Fund, in a form satisfactory to
the Acquiring Fund covering the following points:
That (a) the Selling Fund is a 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
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 Selling Fund is a party or by
which it or any of its properties may be bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Selling Fund is a
party or by which it is bound; (d) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority of the
United States or the Commonwealth of Massachusetts is required for the
consummation by the Selling Fund of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act,
and such as may be required under state securities laws; (e) only insofar as
they relate to the Selling Fund, the descriptions in the Prospectus and Proxy
Statement of statutes, legal and governmental proceedings and material
contracts, if any, are accurate and fairly present the information required to
be shown; (f) such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Selling Fund existing on or
before the date of mailing of the Prospectus and Proxy Statement and the Closing
Date, required to be described in the Prospectus and Proxy Statement or to be
filed as an exhibit to the Registration Statement which are not described or
filed as required; (g) the Selling Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act and to such counsel's best knowledge, such registration with the Commission
as an investment company under the 1940 Act is in
<PAGE>
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 Evergreen 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
Sullivan & Worcester LLP appropriate to render the opinions expressed therein.
In this paragraph 7.3, references to Prospectus and Proxy Statement include
and relate to only the text of such Prospectus and Proxy Statement and not to
any exhibits or attachments thereto or to any documents incorporated by
reference therein.
<PAGE>
7.4 The merger between First Union Corporation and First Fidelity Bancorporation
shall be completed prior to the Closing Date.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Evergreen 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
<PAGE>
pending, threatened or contemplated under the 1933 Act;
8.5 The Selling Fund shall have declared a dividend or dividends which, together
with all previous such dividends, shall have the effect of distributing to the
Selling Fund Shareholders all of the Selling Fund's investment company taxable
income for all taxable years ending on or prior to the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gain realized in all taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carryforward);
8.6 The parties shall have received a favorable opinion of Sullivan & Worcester
LLP, 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
<PAGE>
Selling Fund immediately prior to the Reorganization, and the holding period of
the assets of the Selling Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a letter
addressed to the Acquiring Fund, in form and substance satisfactory to the
Acquiring Fund, to the effect that (i) they are independent certified public
accountants with respect to the Selling Fund within the meaning of the 1933 Act
and the applicable published rules and regulations thereunder; (ii) on the basis
of limited procedures agreed upon by the Acquiring Fund and described in such
letter (but not an examination in accordance with generally accepted auditing
standards) consisting of a reading of any unaudited pro forma financial
statements included in the Registration Statement and Prospectus and Proxy
Statement, and inquiries of appropriate officials of the 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; 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 FFB Trust's Declaration of Trust and the Acquiring Fund's then current
prospectus and statement of additional information pursuant to procedures
customarily utilized by the Acquiring Fund in valuing its own assets (such
procedures having been previously described to KPMG Peat Marwick LLP in writing
by the Acquiring Fund); and (v) on the basis of limited procedures agreed upon
by the Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards) the data utilized in the
calculations of the projected expense ratio appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or to written estimates by Selling Fund's management
and were found to be mathematically correct.
<PAGE>
In addition, the Acquiring Fund shall have received from KPMG Peat Marwick
LLP a letter addressed to the Acquiring Fund dated on the Closing Date, in form
and substance satisfactory to the Acquiring Fund, to the effect that on the
basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards) the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from Arthur Andersen LLP a letter
addressed to the Selling Fund, in form and substance satisfactory to the Selling
Fund, to the effect that (i) they are independent certified public accountants
with respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder; (ii) on the basis of
limited procedures agreed upon by the Selling Fund and described in such letter
(but not an examination in accordance with generally accepted auditing
standards) consisting of a reading of any unaudited pro forma financial
statements included in the Registration Statement and Prospectus and Proxy
Statement, and inquiries of appropriate officials of the Evergreen Trust
responsible for financial and accounting matters, nothing came to their
attention which caused them to believe that such unaudited pro forma financial
statements do not comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and regulations
thereunder; (iii) on the basis of limited procedures agreed upon by the Selling
Fund and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing in
the Registration Statement and Prospectus and Proxy Statement, has been obtained
from and is consistent with the accounting records of the Acquiring Fund; and
(iv) on the basis of limited procedures agreed upon by the Selling Fund (but not
an examination in accordance with generally accepted auditing standards) the
data utilized in the calculations of the projected expense ratio appearing in
the Registration Statement and Prospectus and Proxy Statement agree with
underlying accounting records of the Acquiring Fund or to written estimates by
each Fund's management and were found to be mathematically correct.
8.9 The Acquiring Fund and the Selling Fund shall also have received from KPMG
Peat Marwick LLP a letter addressed to the Acquiring Fund and the Selling Fund,
dated on the Closing Date in form and substance satisfactory to the Funds,
setting forth the Federal income tax implications relating to capital loss
carryforwards (if any) of the Selling Fund and the related
<PAGE>
impact, if any, of the proposed transfer of substantially all of the assets of
the Selling Fund to the Acquiring Fund and the ultimate dissolution of the
Selling Fund, upon the shareholders of the Selling Fund.
ARTICLE IX
BROKERAGE FEES AND EXPENSES
9.1 The Acquiring Fund and the Selling Fund each represents and warrants to the
other that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 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. Notwithstanding 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
First Fidelity Bank, N.A. and all expenses of the transactions contemplated by
this Agreement incurred by the Selling Fund will be borne by FUNB.
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 this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained
<PAGE>
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 FFB Trust or the Evergreen Trust or their respective
Trustees or officers, to the other party or its Trustees or officers, but each
shall bear the expenses incurred by it incidental to the preparation and
carrying out of this Agreement as provided in paragraph 9.2.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the Selling
Fund and the Acquiring Fund; provided, however, that following the meeting of
the Selling Fund Shareholders called by the Evergreen 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
<PAGE>
writing and shall be given by prepaid telegraph, telecopy, overnight courier or
certified mail addressed to:
the Acquiring Fund
The FFB Lexicon Fund
c/o SEI Financial Management Corporation
680 East Swedesford Road
Wayne, Pennsylvania 19087-1658
Attention: David G. Lee
or to the Selling Fund
Evergreen Investment Trust
2500 Westchester Avenue
Purchase, New York 10577
Attention: Joseph J. McBrien, Esq.
ARTICLE XIV
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed to that the obligations of the Selling Fund and the
Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Evergreen Trust or
the FFB 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
Evergreen Trust and the FFB Trust. The execution and delivery of this Agreement
have been
<PAGE>
authorized by the Trustees of the Evergreen Trust on behalf of the Selling Fund,
and the FFB Trust on behalf of the Acquiring Fund and signed by authorized
officers of the Evergreen Trust and the FFB 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 Evergreen Trust and the FFB Trust as provided in their
Declarations of Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and sealed this
Agreement, all as of the date first written above.
EVERGREEN INVESTMENT TRUST
on behalf of Evergreen Managed Bond Fund
By:
Name: John J. Pileggi
Title: President
(Seal)
THE FFB LEXICON FUND
on behalf of Fixed Income Fund
By:
Name: David G. Lee
Title: President
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 8, 1996
Acquisition of the Assets of
EVERGREEN MANAGED BOND FUND
OF
EVERGREEN INVESTMENT TRUST
2500 Westchester Avenue
Purchase, New York 10577
1-800-807-2940
By and in Exchange for Shares of
FIXED INCOME FUND
OF
THE FFB LEXICON FUND
2500 Westchester Avenue
Purchase, New York 10577
1-800-807-2940
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets of the Evergreen Managed Bond Fund, a series of
Evergreen Investment Trust, in exchange for Class Y shares of the Fixed Income
Fund, a series of The FFB Lexicon Fund, and the assumption by the Fixed Income
Fund of certain identified liabilities of the Evergreen Managed Bond Fund, is
not a prospectus. A Prospectus/Proxy Statement dated January 8, 1996 relating to
the above-referenced matter may be obtained from the Fixed Income 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.
In addition to the information pertaining to the Fixed Income Fund which is
attached hereto as Exhibit A, 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 Annual Report of the Fixed Income Fund dated August
31, 1995.
<PAGE>
2. The Prospectus of the Evergreen Managed Bond Fund dated
August 31, 1995. (Incorporated by reference to Post-
Effective Amendment No. 41 to The Evergreen Investment
Trust's Registration Statement [File No. 2-94560] filed
with the Securities and Exchange Commission on August 31,
1995).
3. The Statement of Additional Information of the
Evergreen Managed Bond Fund dated August 31, 1995.
(Incorporated by reference to Post-Effective Amendment
No. 41 to The Evergreen Investment Trust's Registration
Statement [File No. 2-94560] filed with the Securities
and Exchange Commission on August 31, 1995).
4. The Annual Report of the First Union Managed Bond Fund
(now known as Evergreen Managed Bond Fund) dated June
30, 1995.
*******************************************************************************
NEW STATEMENT OF ADDITIONAL INFORMATION EXHIBIT A
******
STATEMENT OF ADDITIONAL INFORMATION
January 22, 1996
THE EVERGREEN INCOME FUNDS
2500 Westchester Avenue, Purchase, New York 10577
800-807-2940
Evergreen U.S. Government Fund (formerly First Union U.S. Government Portfolio)
("U.S.Government")
Evergreen Evergreen Short Intermediate Bond Fund (formerly Evergreen Fixed
Income Fund) ("Short Intermediate Bond")
Evergreen Intermediate Term Bond Fund (formerly The FFB Lexicon Fund - Fixed
Income Fund) (Intermediate Term Bond)
Evergreen Intermediate Term Government Securities Fund (formerly The FFB
Lexicon Fund Intermediate Term Government
Securities Fund ("Intermediate Term Government")
This Statement of Additional Information pertains to all classes of
shares of the Funds listed above. It is not a prospectus and should be read in
conjunction with the Prospectus dated January 22, 1995 for the Fund in which you
are making or contemplating an investment. The Evergreen Income Funds are
offered through two separate prospectuses: one offering Class A, Class B and
Class C shares of U.S. Government, Short Intermediate Bond, Intermediate Term
Bond and Intermediate Term Government, and a separate prospectus offering Class
Y shares of each Fund. Copies of each Prospectus may be obtained without charge
by calling the number listed above.
<PAGE>
TABLE OF CONTENTS
Investment Objectives and Policies................................
Investment Restrictions...........................................
Certain Risk Considerations.......................................
Management........................................................
Investment Adviser................................................
Distribution Plans................................................
Allocation of Brokerage...........................................
Additional Tax Information........................................
Net Asset Value...................................................
Purchase of Shares................................................
General Information About the Fund................................
Performance Information...........................................
Financial Statements..............................................
Appendix A - Note, Bond And Commercial Paper Ratings
INVESTMENT OBJECTIVES AND POLICIES (See also "Description of the
Funds Investment Objectives and Policies" in each Fund's Prospectus)
The investment objective of each Fund and a description of the securities
in which each Fund may invest is set forth under "Description of the Funds
Investment Objectives and Policies" in the relevant Prospectus. The investment
objectives of each Fund are fundamental and cannot be changed without the
approval of shareholders. The following expands the discussion in the Prospectus
regarding certain investments of each Fund.
Types of Investments
U.S. Government Obligations (All Funds)
The types of U.S. Government obligations in which the Funds may invest
generally include obligations issued or guaranteed by U.S. Government agencies
or instrumentalities.
These securities are backed by:
(i) the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
(ii) the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive
financial support from the U.S. Government are:
(i) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association;
(vi) Government National Mortgage Association; and
(vii) Student Loan Marketing Association
GNMA Securities. The 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. U.S. Government, Short Intermediate
Bond and Intermediate Term Bond may invest in mortgage-backed securities and
<PAGE>
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.
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, U.S. Government,
Short Intermediate Bond and Intermediate Term Bond 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.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset- backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
<PAGE>
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the Fund's investment adviser
considers the financial strength of the guarantor or other provider of credit
support, the type and extent of credit enhancement provided as well as the
documentation and structure of the issue itself and the credit support.
Restricted and Illiquid Securities (All Funds)
The ability of the Board of Trustees of either Evergreen Investment
Trust, in the case of Short Intermediate Bond and U.S. Government, or The
Evergreen Lexicon Fund, in the case of Intermediate Term Bond and Intermediate
Term Government ("Trustees") to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") Staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for sale under the Rule. The Funds
which invest in Rule 144A securities believe that the Staff of the SEC has left
the question of determining the liquidity of all restricted securities (eligible
for resale under the Rule) for determination by the Trustees. The Trustees
consider the following criteria in determining the liquidity of certain
restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and (iv) the
nature of the security and the nature of the marketplace trades.
Variable or Floating Rate Instruments.
Certain of the investments of Intermediate Term Bond and Intermediate Term
Government 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 each
Fund's Adviser, 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.
When-Issued and Delayed Delivery Securities (All Funds)
The Funds may enter into securities transactions on a when-issued
basis. These transactions 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 Funds 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 Funds will
maintain liquid assets in an amount at least equal in value to a Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, a 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. The Funds do not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause segregation of more than 20%
of the total value of their assets.
Lending of Portfolio Securities (All Funds)
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. The collateral received when
a Fund lends portfolio securities must be valued daily and, should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to the lending Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Fund or the
borrower. A Fund may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. A Fund
does not have the right to vote securities on loan, but would terminate the loan
and regain the right to vote if that were considered important with respect to
the investment. Any loan may be terminated by either party upon reasonable
notice to the other party. 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.
Such loans will not be made if, as a result, the aggregate amount of all
outstanding securities loans for U.S. Government, Intermediate Term Bond and
Intermediate Term Government exceed one-third of the value of a Fund's total
assets taken at fair market value. Loans of securities by Short Intermediate
Bond are limited to 15% of its total assets.
Reverse Repurchase Agreements
As described herein, U.S. Government and Short Intermediate Bond may also
enter into reverse repurchase agreements. These transactions are similar to
<PAGE>
borrowing cash. In a reverse repurchase agreement, a Fund transfers possession
of a portfolio instrument to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the instrument's market value
in cash, and agrees that on a stipulated date in the future the Fund will
repurchase the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Options and Futures Transactions
Options which Short Intermediate Bond trades must be listed on
national securities exchanges.
Purchasing Put and Call Options on Financial Futures Contracts
Short Intermediate Bond and U.S. Government may purchase listed put and call
options on financial futures contracts for U.S. Government securities. U.S.
Government may buy and sell financial futures contracts and options on financial
futures contracts and may buy and sell put and call options on U.S. Government
securities. Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at an undetermined price,
the purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to assume a
short position at the specified price.
A Fund may purchase put and call options on futures to protect portfolio
securities against decreases in value resulting from an anticipated increase in
market interest rates. Generally, if the hedged portfolio securities decrease in
value during the term of an option, the related futures contracts will also
decrease in value and the put option will increase in value. In such an event, a
Fund will normally close out its option by selling an identical put option. If
the hedge is successful, the proceeds received by the Fund upon the sale of the
put option plus the realized decrease in value of the hedged securities.
Alternately, a Fund may exercise its put option to close out the position.
To do so, it would enter into a futures contract of the type underlying the
option. If the Fund neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and the premium paid for the
contract will be lost.
Purchasing Options
Short Intermediate Bond and U.S. Government may purchase both put and
call options on their portfolio securities. These options will be used as a
hedge to attempt to protect securities which a Fund holds or will be purchasing
against decreases or increases in value. A Fund may purchase call and put
options for the purpose of offsetting previously written call and put options of
<PAGE>
the same series. If the Fund is unable to effect a closing purchase transaction
with respect to covered options it has written, the Fund will not be able to
sell the underlying securities or dispose of assets held in a segregated account
until the options expire or are exercised.
Short Intermediate Bond intends to purchase put and call options on
currency and other financial futures contracts for hedging purposes. A put
option purchased by the Fund would give it the right to assume a position as the
seller of a futures contract. A call option purchased by the Fund would give it
the right to assume a position as the purchaser of a futures contract. The
purchase of an option on a futures contract requires the Fund to pay a premium.
In exchange for the premium, the Fund becomes entitled to exercise the benefits,
if any, provided by the futures contract, but is not required to take any action
under the contract. If the option cannot be exercised profitably before it
expires, the Fund's loss will be limited to the amount of the premium and any
transaction costs.
Short Intermediate Bond currently do not intend to invest more than 5%
of their net assets in options transactions.
A Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the purchase of such futures contracts is unleveraged.
Purchasing Call Options on Financial Futures Contracts
An additional way in which U.S. Government may hedge against decreases in
market interest rates is to buy a listed call option on a financial futures
contract for U.S. Government securities. When the Fund purchases a call option
on a futures contract, it is purchasing the right (not the obligation) to assume
a long futures position (buy a futures contract) at a fixed price at any time
during the life of the option. As market interest rates fall, the value of the
underlying futures contract will normally increase, resulting in an increase in
value of the Fund's option position. When the market price of the underlying
futures contract increases above the strike price plus premium paid, the Fund
could exercise its option and buy the futures contact below market price.
Prior to the exercise or expiration of the call option, the Fund could sell
an identical call option and close out its position. If the premium received
upon selling the offsetting call is greater than the premium originally paid,
the Fund has completed a successful hedge.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, a Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, a Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve the
borrowing of funds by a Fund to finance the transactions. Initial margin is in
<PAGE>
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin", equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, a Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
U.S. Government will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the unrealized
gain or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options positions within
this limitation.
Purchasing and Writing Put and Call Options on U.S. Government Securities
U.S. Government may purchase put and call options on U.S. Government
securities to protect against price movements in particular securities. A put
option gives the Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. A call option gives the Fund, in return for a premium, the right to buy
the underlying security from the seller.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's investment adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
Section 4(2) Commercial Paper
U.S. Government and Short Intermediate Bond may invest in commercial paper
issued in reliance on the exemption from registration afforded by Section 4(2)
of the Securities Act of 1933. Section 4(2) commercial paper is restricted as to
disposition under federal securities law and is generally sold to institutional
investors, such as the Funds, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like the Funds through or with
the assistance of the issuer or investment dealers who make a market in Section
<PAGE>
4(2) commercial paper, thus providing liquidity. The Funds believe that Section
4(2) commercial paper and possibly certain other restricted securities which
meet the criteria for liquidity established by the Trustees are quite liquid.
The Funds intend, therefore, to treat the restricted securities which meet the
criteria for liquidity established by the Trustees, including Section 4(2)
commercial paper, as determined by the Fund's investment adviser, as liquid and
not subject to the investment limitation applicable to illiquid securities. In
addition, because Section 4(2) commercial paper is liquid, the Funds do not
intend to subject such paper to the limitation applicable to restricted
securities.
Repurchase Agreements (All Funds)
Repurchase Agreements. Certain of the investments 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.
A Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the Trustees.
Foreign Securities.
Short Intermediate Bond may invest up to 20% of its assets in foreign securities
or U.S. securities dollars in foreign markets and Intermediate Term Bond 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.
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
<PAGE>
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.
Foreign Currency Transactions
As one way of managing exchange rate risk, Short Intermedate Bond may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
adviser's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency, but as consistent with its other investment policies, is not
otherwise limited in its ability to use this strategy.
Other Investments
The Funds are not prohibited from investing in obligations of banks
which are clients of the Distributor. However, the purchase of shares of the
Funds by such banks or by their customers will not be a consideration in
determining which bank obligations the Funds will purchase. The Funds will not
purchase obligations of its Adviser or its affiliates.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears after a Fund's name, the relevant policy is
non-fundamental with respect to that Fund and may be changed by the Fund's
investment adviser without shareholder approval, subject to review and approval
<PAGE>
by the Trustees. As used in this Statement of Additional Information and in the
Prospectus, "a majority of the outstanding voting securities of the Fund" means
the lesser of (1) the holders of more than 50% of the outstanding shares of
beneficial interest of the Fund or (2) 67% of the shares present if more than
50% of the shares are present at a meeting in person or by proxy.
1........Concentration of Assets in Any One Issuer
Diversification of Investments
With respect to 75% of the value of its assets, a Fund will not
purchase securities of any one issuer (other than cash, cash items or securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities)
if as a result more than 5% of the value of its total assets would be invested
in the securities of the issuer. U.S. Government, Intermediate Term Bond and
Intermediate Term Government will not acquire more than 10% of the outstanding
voting securities of any one issuer.
2........Purchase of Securities on Margin
.........No Fund will purchase securities on margin, except that each Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions. A deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options transactions is
not considered the purchase of a security on margin.
3........Unseasoned Issuers
.........Neither Short Intermediate Bond* nor U.S. Government* may invest
more than 5% of its total assets in securities of unseasoned issuers that have
been in continuous operation for less than three years, including operating
periods of their predecessors.
4........Underwriting
.........The Funds will not underwrite any issue of securities except as they
may be deemed an underwriter under the Securities Act of 1933 in connection with
the sale of securities in accordance with their investment objectives, policies
and limitations.
5........Interests in Oil, Gas or Other Mineral Exploration or Development
Programs.
Short Intermediate Bond*, Intermediate Term Bond and Intermediate Term
Government will not purchase interests in oil, gas or other mineral exploration
or development programs or leases, although each Fund may purchase the
securities of other issuers which invest in or sponsor such programs.
6........Concentration in Any One Industry
.........Short Intermediate Bond and U.S. Government not will invest 25% or more
of the value of its total assets in any one industry except a Fund may invest
more than 25% of its total assets in securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities.
<PAGE>
7........Warrants
SHORT INTERMEDIATE*, INTERMEDIATE TERM BOND* AND INTERMEDIATE TERM
GOVERNMENT* will not invest more than 5% of its net assets in warrants,
including those acquired in units or attached to other securities. To comply
with certain state restrictions, each Fund will limit its investment in such
warrants not listed on the New York Stock Exchange or the American Stock
Exchange to 2% of its net assets. (If state restrictions change, this latter
restriction may be changed without notice to shareholders.) For purposes of this
restriction, warrants acquired by the Funds in units or attached to securities
may be deemed to be without value.
8.......Ownership by Trustees/Officers
None of Short Intermediate Bond*, U.S. Government*, Intermediate Term
Bond or Intermediate Term Government may purchase or retain the securities of
any issuer if (i) one or more officers or Trustees of a Fund or its investment
adviser individually owns or would own, directly or beneficially, more than 1/2
of 1% of the securities of such issuer, and (ii) in the aggregate, such persons
own or would own, directly or beneficially, more than 5% of such securities.
9.......Short Sales
.........Short Intermediate Bond will not make short sales of securities or
maintain a short position, unless at all times when a short position is open it
owns an equal amount of such securities or of securities which, without payment
of any further consideration are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the securities sold short. The use
of short sales will allow a Fund to retain certain bonds in its portfolio longer
than it would without such sales. To the extent that the Fund receives the
current income produced by such bonds for a longer period than it might
otherwise, the Fund's investment objective is furthered.
.........U.S. Government, Intermediate Term Bond and Intermediate Term
Government will not sell any securities short.
10.......Lending of Funds and Securities
.........U.S. Government will not lend any of its assets except portfolio
securities
in accordance with its investment objectives, policies and limitations.
Short Intermediate Bond will not lend portfolio securities valued at more than
15% of its total assets to broker-dealers.
.........Intermediate Term Bond and Intermediate Term Government may not 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.
11.......Commodities
.........Neither of Short Intermediate Bond or U.S. Government will purchase or
sell commodities or commodity contracts; however, each Fund may enter into
futures contracts on financial instruments or currency and sell or buy options
on such contracts. Intermediate Term Bond and Intermediate Term Government may
not purchase
<PAGE>
commodities or commodities contracts. However, subject to their permitted
investments, any Fund may invest in companies which in commodities and
commodities contracts.
12.......Real Estate
.........Short Intermediate Bond and U.S. Governement may not buy or sell real
estate although each Fund may invest in securities of companies whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
.........Intermediate Term Bond and Intermediate Term Government may not
purchase or sell real estate, real estate limited partnership interests, 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.
13.......Borrowing, Senior Securities, Reverse Repurchase Agreements
Intermediate Term Bond and Intermediate Term Government will not borrow money
except as a temporary measure for extraordinary or emergency purposes in an
amount up to one-third of the value of total assets, including the amounts
borrowed. Any borrowing will be done from a bank and to the extent such
borrowing exceeds 5% of the value of a Fund's total assets, asset coverage of at
least 300% is required. In the event that such asset covergage 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 soley to facilitate the orderly sale of portfolio
securities to accomodate 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 borrowins will reduce
income.
Short Intermediate Bond and U.S. Government will not issue senior securities
except that a Fund may borrow money directly or through reverse repurchase
agreements as a temporary measure for extraordinary or emergency purposes in an
amount up to one-third of the value of its total assets, including the amounts
borrowed, or, in addition, in the case of Short Intermediate Bond, only in
amounts not in excess of 5% of the value of its total assets in order to meet
redemption requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous and except to the extent that a Fund will enter
into futures contracts. Any such borrowings need not be collateralized.
Short Intermediate Bond and U.S. Government will not purchase any securities
while borrowings in excess of 5% of the value of their total assets are
outstanding.
14.......Pledging Assets
No Fund will mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. In these cases, Short Intermediate Bond may pledge assets
having a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of borrowing and Intermediate Term
Bond and Intermediate Term Government may do so in amounts up to 10% of their
total assets. Margin deposits for the purchase and sale of financial futures
contracts and related options and segregation or collateral arrangements made in
connection with options activities are not deemed to be a pledge.
15.......Investing in Securities of Other Investment Companies
Short Intermediate and U.S. Government* will purchase securities of investment
companies only in open-market transactions involving customary broker's
commissions. Intermediate Term Bond and Intermediate Term Government may only
purchase securities of other investment companies which are money market funds
and CMOs and REMICs deemed to be investment companies. In each case the Funds
will only make such purchases to the extent permitted by the Investment Company
Act of 1940 and the rules and regulations thereunder. However, these limitations
are not applicable if the securities are acquired in a merger, consolidation or
acquisition of assets. It should be noted that investment companies incur
certain expenses such as management fees and therefore any investment by a Fund
in shares of another investment company would be subject to such duplicate
expenses.
<PAGE>
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.
16.......Restricted Securities
.........Short Intermediate Bond and U.S. Government* will not invest more
than 10% of their net assets (total assets in the case of U.S. Government) in
securities subject to restrictions on resale under the Securities Act of 1933
(except for, in the case of U.S. Government, certain restricted securities which
meet criteria for liquidity established by the Trustees). For U.S. Government,
the restriction is not applicable to commercial paper issued under Section 4(2)
of the Securities Act of 1933.
17........Illiquid Securities.
..........Short Intermediate Bond, Intermediate Term Bond* and Intermediate
Term Government* will not invest more than 10% and U.S. Government* will not
invest more than 15% of its net assets in illiquid securities, including
repurchase agreements providing for settlement in more than seven days after
notice and certain securities determined by the Trustees not to be liquid.
18........Options.
..........Intermediate Term Bond and Intermediate Government Term may not write
or purchase puts, calls, options or combinations thereof.
19........Control.
..........Intermediate Term Bond and Intermediate Government Term may not invest
in companies for the purpose of exercising control.
20.......Other.
.........In order to comply with certain state blue sky limitations Short
Intermediate Bond* will not invest in real estate limited partnerships.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
The Funds did not borrow money, sell securities short, invest in reverse
repurchase agreements in excess of 5% of the value of their net assets, or
invest more than 5% of their net assets in the securities of other investment
companies in the last fiscal year, and have no present intent to do so during
the coming year.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan association, having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment, to be
"cash items".
<PAGE>
CERTAIN RISK CONSIDERATIONS
There can be no assurance that a Fund will achieve its investment
objectives and an investment in the Fund involves certain risks which are
described under "Description of the Funds - Investment Objectives and Policies"
in the Prospectus.
MANAGEMENT
The age, address and principal occupation of the Trustees an executive
officers of the Evergreen Investment Trust (formerly First Union Funds) and the
Evergreen Lexicon Fund (formerly The FFB Lexicon Fund) (each a "Trust" and
collectively the "Trusts"), during the past five years is set forth below:
James S. Howell (71), 4124 Crossgate Road, Charlotte, NC-Chairman and Trustee.
Retired Vice President of Lance Inc. (food manufacturing); Chairman of the
Distribution Comm. Foundation for the Carolinas from 1989 to 1993.
Laurence B. Ashkin + (68), 180 East Pearson Street, Chicago, IL- Trustee. Real
estate developer and construction consultant since 1980; President of Centrum
Equities since 1987 and Centrum Properties, Inc. since 1980.
Foster Bam +* (69), 2 Greenwich Plaza, Greenwich, CT-Trustee. Partner in the law
firm of Cummings and Lockwood since 1968.
Robert J. Jeffries + (72), 2118 New Bedford Drive, Sun City Center, FL- Trustee.
Corporate consultant since 1967.
Gerald M. McDonnell (56), 821 Regency Drive, Charlotte, NC-Trustee. Sales
Representative with Nucor-Yamoto Inc. (steel producer) since 1988.
Thomas L. McVerry (57), 4419 Parkview Drive, Charlotte, NC-Trustee. Director of
Carolina Cooperative Federal Credit Union since 1990 and Rexham Corporation from
1988 to 1990; Vice President of Rexham Industries, Inc. (diversified
manufacturer) from 1989 to 1990; Vice President-Finance and Resources, Rexham
Corporation from 1979 to 1990.
William Walt Pettit*(40), Holcomb and Pettit, P.A., 207 West Trade St.,
Charlotte, NC-Trustee. Partner in the law firm Holcomb and Pettit, P.A. since
1990; Attorney, Clontz and Clontz from 1980 to 1990.
Russell A. Salton, III, M.D. (48), Primary Physician Care, 1515 Mockingbird
Lane, Charlotte, NC-Trustee. President, Primary Physician Care since 1990.
Michael S. Scofield (52), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee.
Attorney, Law Offices of Michael S. Scofield since prior to 1989.
John J. Pileggi (36), 237 Park Avenue, Suite 910, New York, NY-President and
Treasurer. Senior Managing Director, Furman Selz Incorporated since 1992,
Managing Director from 1984 to 1992.
Joan V. Fiore (39), 237 Park Avenue, Suite 910, New York, NY-Secretary. Managing
Director and Counsel, Furman Selz Incorporated since 1991; Staff Attorney,
Securities and Exchange Commission from 1986 to 1991.
<PAGE>
*Except for Messrs. Ashkin, Bam and Jeffries, the Trustees and officers listed
above hold the same positions with a total of ten registered investment
companies offering a total of thirty-one investment funds within the Evergreen
mutual fund complex. Messrs. Ashkin, Bam and Jeffries, are not Trustees of
Evergreen Investment Trust but do act act as Trustees or Directors of the nine
other registered investment companies mentioned above, including the Evergreen
Lexicon Fund.
- --------
* Mrs. Bam and Mr. Pettit may each be deemed to be an "interested person"
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act").
The officers of the Trust are all officers and/or employees of Furman Selz
Incorporated. Furman Selz Incorporated is an affiliate of Evergreen Funds
Distributor, Inc., the distributor of each Class of shares of each Fund.
The Funds do not pay any direct remuneration to any officer or Trustee who
is an "affiliated person" of either First Union National Bank of North Carolina
or Evergreen Asset Management Corp. or their affiliates. See "Investment
Adviser." Currently, none of the Trustees is an "affiliated person" as defined
in the 1940 Act. The Trust pays each Trustee who is not an "affiliated person"
an annual retainer and a fee per meeting attended, plus expenses (and $500 for
each telephone conference meeting) as follows:
Name of Fund Annual Retainer Meeting Fee
Evergreen Investment Trust - $9,000** $1,500** U.S. Government
Short Intermediate Bond
The Evergreen Lexicon Fund -
Intermediate Term Bond
Intermediate Term Government
- --------------------
** Evergreen Investment Trust pays an annual retainer to each Trustee and a
per-meeting fee that are allocated among its fifteen series. Additionally, each
member of the Audit Committee receives $200 for attendance at each meeting of
the Audit Committee and an additional fee is paid to the Chairman of the Board
of $2,000.
*** The Evergreen Lexicon Trust pays an annual retainer to each Trustee and a
per-meeting fee that are allocated among its XXXX series. Additionally, each
member of the Audit Committee receives $200 for attendance at each meeting of
the Audit Committee and an additional fee is paid to the Chairman of the Board
of $XXXXX.
Set forth below for each of the Trustees is the aggregate compensation paid
to such Trustees by Evergreen Investment Trust for the Trust's December 31, 1994
fiscal year. The current Trustees of The Evergreen Lexicon Fund were elected as
Trustees effective in January 19, 1996 and, therefore, none of the current
Trustees received any compensation from The Evergreen Lexicon Trust during its
most recent fiscal year.
Set forth below for each of the Trustees is the aggregate compensation paid
to such Trustees by Evergreen Investment Trust for the Trust's December 31,
1994 fiscal year.
Aggregate Compensation Paid By Evergreen Investment Trust
Aggregate Total Compensation
Compensation From Trust
Name of From Evergreen & Fund Complex
Trustee Investment Trust Paid To Trustees
James S. Howell $14,900 $26,900
Gerald M. McDonnell 11,900 26,100
Thomas L. McVerry 11,900 26,150
William Walt Pettit 11,900 26,100
Russell A. Salton, III, M.D. 11,900 26,100
Michael S. Scofield 11,900 26,650
No officer or Trustee of the Trust owned shares of any Fund as of the date
hereof.
Set forth below is information with respect to each person, who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of
each Fund's total outstanding shares and their aggregate ownership of the Fund's
total outstanding shares as of July 31, 1995.
14
<PAGE>
Name of % of
Name and Address Fund/Class No. of Shares Class/Fund
- ---------------- ---------- ------------- ----------
Fubs & Co. Febo U.S. Government/A 133,933 6.13%/.48%
Carlos Yurur Sanna
C/O Robert Weinstein
500 East Morehead St. #303
Charlotte, NC 28288-0001
Fubs & Co. Febo U.S. Government/C 11,038 26.32%/.04%
Helen G. Bender
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo U.S. Government/C 4,323 10.31%/.02%
Douglas H. Thompson, Sr.
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo U.S. Government/C 3,991 9.52%/.01%
Aileen D. Bell and
John H. Bell
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo U.S. Government/C 3,571 8.52%/.01%
Franklin E. Moulder
Anne H. Moulder
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank U.S. Government/C 2,489 5.89%/.01%
of Palm Beach
Virginia T. Symons
UAD 5/24/95, AC# 4128730583
401 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo U.S. Government/C 2,172 5.18%/.01%
George A. Cane
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
15
<PAGE>
Fubs & Co. Febo U.S. Government/C 2,751 6.56%/.01%
Lee Pinnell and Frann Pinnell
2641 NE 22nd CT
Pompano Beach FL 33062
First Union National Bank U.S. Government/Y 1,264,985 23.44%/4.56%
Trust Accounts
Attn: Ginny Batten
11th FL CMG-151
301 S. Tyron Street
Charlotte, NC 28288
First Union National Bank U.S. Government/Y 450,009 8.34%/1.62%
Trust Accounts
Attn: Ginny Batten
11th FL CMG-151
301 S. Tyron Street
Charlotte, NC 28288
Wachovia Bank of Georgia U.S. Government/Y 2,693,019 49.90%/9.71%
Directed Trustee for First Union
Non-Qualified Retirement Plan
U/A Dtd 8/31/94 Investment Act
301 N. Main St. MC-MC 31051
Winston Salem NC 27150
Wachovia Bank of Georgia Trustee U.S. Government/Y 722,309 13.38%/2.61%
First Union Corp Retirement Trust
For Non Employee Directors 10/24/94
301 N Main St. MC-NC 31051
Winston Salem, NC 27150
Fubs & Co. Febo Fixed Income/C 10,305 19.52%/.03%
Kerry D. Fitzgerald GDH
Christina Griffin
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Fixed Income/C 10,277 18.47%/.03%
Lucile L. Murray
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Fixed Income/C 4,035 7.64%/.01%
Sidney Goldberg and
Mona V. Rose
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
16
<PAGE>
Fubs & Co. Febo Fixed Income/C 3,757 7.12%/.01%
Kathleen W. Gladfelter
Patricia G. Sacerio JT WROS
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Fixed Income/C 3,236 6.13%/.01%
Francis O. Hunt
Mitchell W. Hunt
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Fixed Income/C 3,210 6.08%/.01%
Robert S. New, Sr. and
Willa Mae New
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
Fubs & Co. Febo Fixed Income/C 3,479 6.58%/.01%
Kimberly Lynn Madley
C/O First Union National Bank
301 S. Tryon Street
Charlotte, NC 28288-0001
First Union National Bank* Fixed Income/Y 3,534,848 9.78%/8 .86%
Trust Accounts
Attn: Ginny Batten
11th FL CMG-151
301 S. Tyron Street
Charlotte, NC 28288
First Union National Bank* Fixed Income/Y 32,857,564 90.22%/81.91%
Trust Accounts
Attn: Ginny Batten
11th FL CMG-151
301 S. Tyron Street
Charlotte, NC 28288
First Union National Bank* Managed Bond/Y 6,163,888 82.55%/82.55%
Trust Accounts
Attn: Ginny Batten
11th FL CMG-151
301 S. Tyron Street
Charlotte, NC 28288
First Union National Bank* Managed Bond/Y 1,302,800 17.45%/17.45%
Trust Accounts
Attn: Ginny Batten
11th FL CMG-151
301 S Tyron Street
Charlotte, NC 28288
17
<PAGE>
- ---------------------------------
*Acting in various capacities for numerous accounts. As a result of its
ownership of Intermediate Term Bond on December 15, 1995, First Union National
Bank of North Carolina may be deemed to "control" the Fund as that term is
defined in the 1940 Act.
As of XXXXXXXXXXXXX, the officers and Trustees of Evergreen Lexicon Trust
beneficially owned as a group less than 1% of the outstanding shares of
Intermediate Term Bond and Intermediate Term Government. To the Lexicon Fund's
knowledge, the following persons owned beneficially or of record more than 5% of
the Lexicon 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
FFB Saving Bond Fund
First Fidelity Bank,
N.A., N.J.
Broad and Walnut Streets
Philadelphia, PA 19109
INVESTMENT ADVISER
(See also "Management of the Fund" in each Fund's Prospectus) The
investment adviser of each Fund is First Union National Bank of North Carolina
("FUNB" or the "Adviser") which, in turn, is a subsidiary of First Union
Corporation ("First Union"), a bank holding company headquartered in Charlotte,
North Carolina. FUNB provides investment advisory services through its Capital
Management Group. Prior to XXXXXXXXXXX, 199X, First Fidelity Bank, N.A. ("First
Fidelity") acted as investment adviser to Intermediate Term Bond and
Intermediate Term Government. On June 18, 1995, First Union, entered into an
Agreement and Plan of Merger with First Fidelity Bancorporation ("FFB"), the
corporate parent of First Fidelity which provided, among other things, for the
merger (the "Merger") of FFB with and into a wholly-owned subsidiary of First
Union. The Merger was consummated on XXXXX, 199X. As a result of the Merger,
FUNB and its wholly-owned subsidiary, Evergreen Asset Management Corp.,
succeeded to the investment advisory and administrative functions currently
performed by various units of First Fidelity.
<PAGE>
Under its Investment Advisory Agreement with each Fund, the Adviser has
agreed to furnish reports, statistical and research services and recommendations
with respect to each Fund's portfolio of investments. In addition, the Adviser
provides office facilities to the Funds and performs a variety of administrative
services. Each Fund pays the cost of all of its other expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining their
registration under the Securities Act of 1933, as amended, and the 1940 Act,
printing prospectuses (for existing shareholders) as they are updated, state
qualifications, share certificates, mailings, brokerage, custodian and stock
transfer charges, printing, legal and auditing expenses, expenses of shareholder
meetings and reports to shareholders. Notwithstanding the foregoing, the Adviser
will pay the costs of printing and distributing prospectuses used for
prospective shareholders.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
three most recent fiscal periods reflected in its registration statement are set
forth below:
Six Months
U.S. GOVERNMENT Ended Year Ended Year Ended
6/30/95 12/31/94 12/31/93
-------- -------- --------
Advisory Fee $575,771 $1,355,420 $802,441
-------- --------- --------
Waiver ($7,399) ($105,523) ($465,195)
Net Advisory Fee $568,372 $1,249,897 $337,246
========= ========= =======
Six Months
FIXED INCOME Ended Year Ended Year Ended
6/30/95 12/31/94 12/31/93
-------- -------- --------
Advisory Fee $961,697 $2,022,773 $1,894,693
========= ========= =========
18
<PAGE>
Six Months
MANAGED BOND Ended Year Ended Year Ended
6/30/95 12/31/94 12/31/93
-------- -------- --------
Advisory Fee $203,264 $523,270 $576,619
-------- ======== ========
Waiver ($64,154)
Net Advisory Fee $139,110
=========
* U.S. Government commenced operations on January 11, 1993 and,
therefore, the first year's figures set forth in the table above reflect for
U.S. Government investment advisory fees paid for the period from commencement
of operations through December 31, 1993.
Expense Limitations
The Adviser's fee will be reduced by, or the Adviser will reimburse the
Funds for any amount necessary to prevent such expenses (exclusive of taxes,
interest, brokerage commissions and extraordinary expenses, but inclusive of the
Adviser's fee) from exceeding the most restrictive of the expense limitations
imposed by state securities commissions of the states in which the Funds' shares
are then registered or qualified for sale. Reimbursement, when necessary, will
be made monthly in the same manner in which the advisory fee is paid. Currently
the most restrictive state expense limitation is 2.5% of the first $30,000,000
of the Fund's average daily net assets, 2% of the next $70,000,000 of such
assets and 1.5% of such assets in excess of $100,000,000.
The Investment Advisory Agreements are terminable, without the payment of
any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of the
Trust's Trustees or by the Adviser. The Investment Advisory Agreements will
automatically terminate in the event of their assignment. Each Investment
Advisory Agreement provides in substance that the Adviser shall not be liable
for any action or failure to act in accordance with its duties thereunder in the
absence of wilful misfeasance, bad faith or gross negligence on the part of the
Adviser or of reckless disregard of its obligations thereunder. With respect to
U.S. Government and Short Intermediate Bond, the Investment Advisory Agreement
dated February 28, 1985 and amended from time to time thereafter was last
approved by the Trustees on April 20, 1995 and it will continue from year to
year with respect to each Fund provided that such continuance is approved
annually by a vote of a majority of the Trustees including a majority of those
Trustees who are not parties thereto or "interested persons" of any such party
cast in person at a meeting duly called for the purpose of voting on such
approval or by a vote of a majority of the outstanding voting securities of each
Fund. With respect to Intermediate Term Bond and Intermediate Term Government,
the Investment Advisory Agreements dated XXXXXXX, 199X were first approved by
the shareholders of each Fund on XXXXXXXX, 199X and will continue until XXXXX,
1997 and from year to year with respect to each Fund provided that such
continuance is approved annually by a vote of a majority of the Trustees
including a majority of those Trustees who are not parties thereto or
"interested persons" of any such party cast in person at a meeting duly called
for the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities of each Fund.
<PAGE>
Certain other clients of the Adviser may have investment objectives and
policies similar to those of the Funds. The Adviser may, from time to time, make
recommendations which result in the purchase or sale of a particular security by
its other clients simultaneously with a Fund. If transactions on behalf of more
than one client during the same period increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price or quantity. It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Funds. When two or more
clients of the Adviser (including one or more of the Funds) are purchasing or
selling the same security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
Although the investment objectives of the Funds are not the same, and
their investment decisions are made independently of each other, they rely upon
the same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to
permit purchase and sales transactions to be effected between each Fund and the
other registered investment companies for which either Evergreen Asset
Management Corp., a subsidiary of FUNB ("Evergreen Asset"), or FUNB acts as
investment adviser or between the Fund and any advisory clients of Evergreen
Asset, FUNB or their affiliates. Each Fund may from time to time engage in such
transactions but only in accordance with these procedures and if they are
equitable to each participant and consistent with each participant's investment
objectives.
Prior to July 1, 1995, Federated Administrative Services, a subsidiary
of Federated Investors, provided legal, accounting and other administrative
personnel and support services to each of the portfolios of Evergreen Investment
Trust. The Trust paid a fee for such services at the following annual rate: .15%
on the first $250 million average daily net assets of the Trust; .125% on the
next $250 million; .10% on the next $250 million and .075% on assets in excess
of $50 million. For the fiscal period ended June 30, 1995, and the fiscal year
ended December 31, 1994, and for the period from January 11, 1993 (commencement
of operations) to December 31, 1993, U.S. Government, incurred $95,122, $228,590
and $139,691, respectively, in administrative service costs of which $** and
$30,827, respectively, were voluntarily waived. For the fiscal period ended June
30, 1995 and the fiscal years ended December 31, 1994 and 1993,
Short Intermediate Bond incurred $159,002, $341,243 and $331,342, respectively,
in administrative service costs.
Prior to XXXXXX, 199X, SEI Financial Management Company acted as
administrator for Intermediate Term Bond and Intermediate Term Government. For
the fiscal years ended August 31, 1995, 1994 and 1993, Intermediate Term Bond
incurred $154,291, $159,990 and $125,875, respectively, in administrative
service costs. For the fiscal years ended August 31, 1995, 1994, and 1993,
Intermediate Term Government incurred $179,686, $200,870, and $172,840,
respectively, in administrative service costs.
Commencing July 1, 1995, in the case of Evergreen Investment Trust, and on
XXXXXX, 199X, in the case of The Evergreen Lexicon Trust, Evergreen Asset has
been providing administrative services to each of the portfolios of the Trusts
for a fee based on the average daily net assets of each fund administered by
Evergreen Asset for which Evergreen Asset or FUNB also serves as investment
adviser, calculated daily and payable monthly at the following annual rates:
.050% on the first $7 billion; .035% on the next $3 billion; .030% on the next
$5 billion; .020% on the next $10 billion; .015% on the next $5 billion; and
.010% on assets in excess of $30 billion. Furman Selz Incorporated, an affiliate
of Evergreen Funds Distributor, Inc., distributor for the Evergreen group of
mutual funds (the "Distributor"), serves as sub-administrator to U.S.
Government, Short Intermediate Bond, Intermediate Term Bond and Intermediate
Term Government and is entitled to receive a fee from each Fund calculated on
the average daily net assets of each Fund at a rate based on the total assets of
the mutual funds administered by Evergreen Asset for which FUNB or Evergreen
Asset also serve as investment adviser, calculated in accordance with the
following schedule: .0100% of the first $7 billion; .0075% on the next $3
billion; .0050% on the next $15 billion; and .0040% on assets in excess of $25
billion. The total assets of mutual funds administered by Evergreen Asset for
which Evergreen Asset or FUNB serves as investment adviser as of December 31,
1995 were approximately $XXX billion.
DISTRIBUTION PLANS
Reference is made to "Management of the Funds - Distribution Plans and
Agreements" in the Prospectus of each Fund for additional disclosure regarding
the Funds' distribution arrangements. Distribution fees are accrued daily and
paid monthly on the Class A, B and C shares and are charged as class expenses,
as accrued. The distribution fees attributable to the Class B shares and Class C
shares are designed to permit an investor to purchase such shares through
broker-dealers without the assessment of a front-end sales charge, and, in the
case of Class C shares, without the assessment of a contingent deferred sales
charge after the first year following purchase, while at the same time
permitting the Distributor to compensate broker-dealers in connection with the
sale of such shares. In this regard the purpose and function of the combined
contingent deferred sales charge and distribution services fee on the Class B
shares and the Class C shares are the same as those of the front-end sales
charge and distribution fee with respect to the Class A shares in that in each
case the sales charge and/or distribution fee provide for the financing of the
distribution of the Funds' shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by the Funds
with respect to each of their Class A, Class B and Class C shares (each a "Plan"
and collectively, the "Plans"), the Treasurer of each Fund reports the amounts
expended under the Plan and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of Trustees who are not
"interested persons" of the Trust (as defined in the 1940 Act) are committed to
the discretion of such disinterested Trustees then in office.
The Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Securities and Exchange Commission
make payments for distribution services to the Distributor; the latter may in
turn pay part or all of such compensation to brokers or other persons for their
distribution assistance.
Prior to July 7, 1995, Federated Securities Corp., a subsidiary of
Federated Investors, served as the distributor for U.S. Government and
Short Intermediate Bond as well as other portfolios of Evergreen Investment
Trust. The Distribution Agreements between Evergreen Investment Trust and the
Distributor pursuant to which distribution fees are paid under the Plans by U.S.
Government and Short Intermediate Bond with respect to their Class A, Class B
and Class C shares were approved on April 20, 1995 by the unanimous vote of the
Trustees including the disinterested Trustees voting separately. In the case of
The Evergreen Lexicon Trust, with respect to the Intermediate Term Bond and
Intermediate Term Government, SEI Financial Services Company served as
distributor prior to XXXXXX, 199X. The Distribution Agreements between The
Evergreen Lexicon Trust and the Distributor pursuant to which distribution fees
are paid under the Plans by Intermediate Term Bond and Intermediate Term
Government with respect to their Class A, Class B and Class C shares were
approved on XXXXXX, 199X by the unanimous vote of the Trustees including the
disinterested Trustees voting separately. Each Plan and Distribution Agreement
will continue in effect for successive twelve-month periods provided, however,
that such continuance is specifically approved at least annually by the Trustees
of the Trust or by vote of the holders of a majority of the outstanding voting
securities (as defined in the 1940 Act) of that Class, and, in either case, by 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 such party
(other than as Trustees of the Trust) and who have no direct or indirect
financial interest in the operation of the Plan or any agreement related
thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to the Funds and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Funds and holders of Class A, Class B and Class C
shares. The administrative services are provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited to providing office space, equipment, telephone facilities,
and various personnel including clerical, supervisory, and computer, as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries
regarding Class A, Class B and Class C shares; assisting clients in changing
dividend options, account designations, and addresses; and providing such other
services as the Funds reasonably request for their Class A, Class B and Class C
shares.
In addition to the Plans, Short Intermediate Bond and U.S. Government have
each adopted a Shareholder Services Plan whereby shareholder servicing agents
may receive fees from the Funds for providing services which include, but are
not limited to, distributing prospectuses and other information, providing
shareholder assistance, and communicating or facilitating purchases and
redemptions of Class B and Class C shares of the Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more Classes of a Fund, (i) no distribution
<PAGE>
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that Class or Classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such Class or Classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by Class, and in either case,
by a majority of the disinterested Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular Class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Amendments to the Shareholder
Services Plan require a majority vote of the disinterested Trustees but do not
require a shareholders vote. Any Plan, Shareholder Services Plan or Distribution
Agreement may be terminated (a) by a Fund without penalty at any time by a
majority vote of the holders of the outstanding voting securities of the Fund,
voting separately by Class or by a majority vote of the Trustees who are not
"interested persons" as defined in the 1940 Act, or (b) by the Distributor. To
terminate any Distribution Agreement, any party must give the other parties 60
days' written notice; to terminate a Plan only, the Fund need give no notice to
the Distributor. Any Distribution Agreement will terminate automatically in the
event of its assignment.
For the fiscal year ended August 31, 1995, neither Intermediate Term
Bond nor Intermediate Term Government incurred any distribution services fees on
behalf of Class A shares.
For the fiscal year period ended June 30, 1995, U.S. Government incurred
$28,081 and Short Intermediate Bond incurred $9,479 in distribution services
fees on behalf of Class A shares.
For the fiscal period ended June 30, 1995, U.S. Government incurred
$718,711 and Short Intermediate Bond incurred $63,900 in distribution services
fees of Class B shares.
For the period from September 7, 1994 (commencement of operations) to June
30, 1995, U.S. Government incurred $1,194 in distribution services fees on
behalf of Class C shares. For the period from September 6, 1994 (commencement of
operations) to June 30, 1995, Short Intermediate Bond incurred $1,927 in
distribution service fees on behalf of Class C shares.
Shareholder Services Plans
For the period ended June 30, 1995, U.S. Government incurred
shareholder services fees of $239,571 and $398 on behalf of Class B shares and
Class C shares, respectively; and Short Intermediate Bond incurred shareholder
services fees of $21,300 and $643 on behalf of Class B shares and Class C
shares, respectively.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser,
subject to the supervision and control of the Trustees. Orders for the purchase
and sale of securities and other investments are placed by employees of the
Adviser. In general, the same individuals perform the same functions for the
other funds managed by the Adviser. A Fund will not effect any brokerage
transactions with any broker or dealer affiliated directly or indirectly with
the Adviser unless such transactions are fair and reasonable, under the
circumstances, to the Fund's shareholders. Circumstances that may indicate that
such transactions are fair or reasonable include the frequency of such
transactions, the selection process and the commissions payable in connection
with such transactions.
A portion of any transactions in equity securities for each Fund will
occur on domestic stock exchanges. Transactions on stock exchanges involve the
payment of brokerage commissions. In transactions on stock exchanges in the
United States, these commissions are negotiated, whereas on many foreign stock
exchanges these commissions are fixed. In the case of securities traded in the
foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market maker, although the Fund may place an over-the-counter order with a
broker-dealer if a better price (including commission) and execution are
available.
It is anticipated that most of each Fund's purchase and sale
transactions involving fixed income securities will be with the issuer or an
underwriter or with major dealers in such securities acting as principals. Such
transactions are normally on a net basis and generally do not involve payment of
brokerage commissions. However, the cost of securities purchased from an
underwriter usually includes a commission paid by the issuer to the underwriter.
Purchases or sales from dealers will normally reflect the spread between bid and
ask prices.
In selecting firms to effect securities transactions, the primary
consideration of each Fund shall be prompt execution at the most favorable
price. A Fund will also consider such factors as the price of the securities and
the size and difficulty of execution of the order. If these objectives may be
met with more than one firm, the Fund will also consider the availability of
statistical and investment data and economic facts and opinions helpful to the
Fund. The extent of receipt of such services would tend to reduce the expenses
of the Adviser or its affiliates.
U.S. Government, Short-Intermediate Bond, Intermediate Term Bond and
Intermediate Government did not pay any commissions to affiliated brokers. For
the six month period ended June 30, 1995, the fiscal year ended December 31,
1994, and the period from January 11, 1993 (commencement of operations) to
December 31, 1993, U.S. Government paid $10, $180 and $0, respectively, in
commissions on brokerage transactions. For the six month period ended June 30,
1995, the fiscal years ended December 31, 1994 and 1993, Short Intermediate Bond
paid $0, $9,198 and $7,908, respectively, in commissions on brokerage
transactions. For the fiscal years ended August 31, 1995, 1994 and 1993,
Intermediate Term Bond and Intermediate Term Government did not pay commissions
on brokerage commissions.
<PAGE>
ADDITIONAL TAX INFORMATION
(See also "Taxes" in the Prospectus)
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to regulated investment companies ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a regulated investment company, a Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to proceeds from securities loans, gains from the sale or other
disposition of securities or foreign currencies and other income (including
gains from options, futures or forward contracts) derived with respect to its
business of investing in such securities; (b) derive less than 30% of its gross
income from the sale or other disposition of securities, options, futures or
forward contracts (other than those on foreign currencies), or foreign
currencies (or options, futures or forward contracts thereon) that are not
directly related to the RIC's principal business of investing in securities (or
options and futures with respect thereto) held for less than three months; and
(c) diversify its holdings so that, at the end of each quarter of its taxable
year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash, U.S. government securities and other securities limited in
respect of any one issuer, to an amount not greater than 5% of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. government securities and securities of other
regulated investment companies). By so qualifying, a Fund is not subject to
Federal income tax if it timely distributes its investment company taxable
income and any net realized capital gains. A 4% nondeductible excise tax will be
imposed on a Fund to the extent it does not meet certain distribution
requirements by the end of each calendar year.
Each Fund anticipates meeting such distribution requirements.
Dividends paid by a Fund from investment company taxable income
generally will be taxed to the shareholders as ordinary income. Investment
company taxable income includes net investment income and net realized
short-term gains (if any). Any dividends received by a Fund from domestic
corporations will constitute a portion of the Fund's gross investment income. It
is anticipated that this portion of the dividends paid by a Fund (other than
distributions of securities profits) will qualify for the 70% dividends-received
deduction for corporations. Shareholders will be informed of the amounts of
dividends which so qualify.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders (who are not exempt from
tax) as long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Short-term capital gains distributions
are taxable to shareholders (who are not exempt from tax) as ordinary income.
Such distributions are not eligible for the dividends-received deduction. Any
loss recognized upon the sale of shares of a Fund held by a shareholder for six
months or less will be treated as a long-term capital loss to the extent that
the shareholder received a long-term capital gain distribution with respect to
such shares.
<PAGE>
Distributions of investment company taxable income and any net
short-term capital gains will be taxable as ordinary income as described above
to shareholders (who are not exempt from tax), whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for Federal income tax purposes in each share so
received equal to the net asset value of a share of a Fund on the reinvestment
date.
Distributions by each Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable as
ordinary income or capital gain as described above to shareholders (who are not
exempt from tax), even though, from an investment standpoint, it may constitute
a return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive
what is in effect a return of capital upon the distribution which will
nevertheless be taxable to shareholders subject to taxes.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gains or loss
will be treated as a capital gain or loss if the shares are capital assets in
the investor's hands and will be a long-term capital gain or loss if the shares
have been held for more than one year. Generally, any loss realized on a sale or
exchange will be disallowed to the extent shares disposed of are replaced within
a period of sixty-one days beginning thirty days before and ending thirty days
after the shares are disposed of. Any loss realized by a shareholder on the sale
of shares of the Fund held by the shareholder for six months or less will be
disallowed to the extent of any exempt interest dividends received by the
shareholder with respect to such shares, and will be treated for tax purposes as
a long-term capital loss to the extent of any distributions of net capital gains
received by the shareholder with respect to such shares.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her Federal income tax return. Each shareholder
should consult his or her own tax adviser to determine the state and local tax
implications of Fund distributions.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% Federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
<PAGE>
consult their own tax advisers regarding specific questions relating to Federal,
state and local tax consequences of investing in shares of a Fund. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and foreign tax consequences of ownership of shares of a
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 31% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
NET ASSET VALUE
The following information supplements that set forth in each Prospectus
under the subheading "How to Buy Shares - How the Funds Value Their Shares" in
the Section entitled "Purchase and Redemption of Shares".
The public offering price of shares of a Fund is its net asset value,
plus, in the case of Class A shares, a sales charge which will vary depending on
the purchase alternative chosen by the investor, as more fully described in the
Prospectus. See "Purchase of Shares - Class A Shares - Front-End Sales Charge
"Alternative". On each Fund business day on which a purchase or redemption order
is received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Declaration of
Trust and By-Laws governing each Fund as of the next close of regular trading on
the New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time)
by dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any weekday,
exclusive of national holidays on which the Exchange is closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic or
foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked price and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
The respective per share net asset values of the Class A, Class B,
Class C and Class Y shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class B
and Class C shares may be lower than the per share net asset value of the Class
A shares (and, in turn, that of Class A shares may be lower than Class Y shares)
as a result of the greater daily expense accruals, relative to Class A and Class
Y shares, of Class B and Class C shares relating to distribution services fees
and shareholder service fee and, to the extent applicable, transfer agency fees
and the fact that Class Y shares bear no additional distribution, shareholder
service or transfer agency related fees. While it is expected that, in the event
each Class of shares of a Fund realizes net investment income or does not
realize a net operating loss for a period, the per share net asset values of the
four classes will tend to converge immediately after the payment of dividends,
which dividends will differ by approximately the amount of the expense accrual
differential among the Classes, there is no assurance that this will be the
case. In the event one or more Classes of a Fund experiences a net operating
loss for any fiscal period, the net asset value per share of such Class or
Classes will remain lower than that of Classes that incurred lower expenses for
the period.
<PAGE>
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and on
which the Fund's net asset value is not calculated. Such calculation does not
take place contemporaneously with the determination of the prices of the
majority of the portfolio securities used in such calculation. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of the Exchange will not be reflected in a Fund's
calculation of net asset value unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made. Securities transactions are accounted for on the trade date, the date
the order to buy or sell is executed. Dividend income and other distributions
are recorded on the ex-dividend date, except certain dividends and distributions
from foreign securities which are recorded as soon as the Fund is informed after
the ex-dividend date.
PURCHASE OF SHARES
The following information supplements that set forth in each Prospectus
under the heading "Purchase and Redemption of Shares - How To Buy Shares".
General
Shares of each Fund will be offered on a continuous basis at a price
equal to their net asset value plus an initial sales charge at the time of
purchase (the "front-end sales charge alternative"), with a contingent deferred
sales charge (the deferred sales charge alternative"), or without any front-end
sales charge, but with a contingent deferred sales charge imposed only during
the first year after purchase (the "level-load alternative"), as described
below. Class Y shares which, as described below, are not offered to the general
public, are offered without any front-end or contingent sales charges. Shares of
each Fund are offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers, Inc. and have
entered into selected dealer agreements with the Distributor ("selected
dealers"), (ii) depository institutions and other financial intermediaries or
their affiliates, that have entered into selected agent agreements with the
Distributor ("selected agents"), or (iii) the Distributor. The minimum for
initial investments is $1,000; there is no minimum for subsequent investments.
The subscriber may use the Share Purchase Application available from the
Distributor for his or her initial investment. Sales personnel of selected
dealers and agents distributing a Fund's shares may receive differing
compensation for selling Class A, Class B or Class C shares.
Investors may purchase shares of a Fund in the United States either
through selected dealers or agents or directly through the Distributor. A Fund
<PAGE>
reserves the right to suspend the sale of its shares to the public in response
to conditions in the securities markets or for other reasons.
Each Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to the net asset value next
determined (plus for Class A shares, the applicable sales charges), as described
below. Orders received by the Distributor prior to the close of regular trading
on the Exchange on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on the Exchange on
that day (plus for Class A shares the sales charges). In the case of orders for
purchase of shares placed through selected dealers or agents, the applicable
public offering price will be the net asset value as so determined, but only if
the selected dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Distributor prior to its close
of business that same day (normally 5:00 p.m. Eastern time). The selected dealer
or agent is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to that day's
closing price must be settled between the investor and the selected dealer or
agent. If the selected dealer or agent receives the order after the close of
regular trading on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on the next day it
is open for trading.
Following the initial purchase of shares of a Fund, a shareholder may
place orders to purchase additional shares by telephone if the shareholder has
completed the appropriate portion of the Share Purchase Application. Payment for
shares purchased by telephone can be made only by Electronic Funds Transfer from
a bank account maintained by the shareholder at a bank that is a member of the
National Automated Clearing House Association ("ACH"). If a shareholder's
telephone purchase request is received before 3:00 p.m. Eastern time on a Fund
business day, the order to purchase shares is automatically placed the same Fund
business day for non-money market funds, and two days following the day the
order is received for money market funds, and the applicable public offering
price will be the public offering price determined as of the close of business
on such business day. Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to the Fund, stock certificates
shares of a Fund are not issued. This facilitates later redemption and relieves
the shareholder of the responsibility for and inconvenience of lost or stolen
certificates.
Alternative Purchase Arrangements
Each Fund issues four classes of shares: (i) Class A shares, which are
sold to investors choosing the front-end sales charge alternative; (ii) Class B
shares, which are sold to investors choosing the deferred sales charge
alternative; (iii) Class C shares, which are sold to investors choosing the
level-load sales charge alternative; and (iv) Class Y shares, which are offered
only to (a) persons who at or prior to December 30, 1994 owned shares in a
mutual fund advised by Evergreen Asset, (b) certain investment advisory clients
of the Evergreen Asset, FUNB and their affiliates, and (c) institutional
investors. The four classes of shares each represent an interest in the same
portfolio of investments of the Fund, have the same rights and are identical in
all respects, except that (I) only Class A, Class B and Class C shares of U.S.
Government and Short Intermediate Bond are subject to a Rule 12b-1 distribution
fee, (II) Class B and Class C shares of U.S. Government and Short Intermediate
<PAGE>
Bond are subject to a shareholder service fee, (III) Class A shares bear the
expense of the front-end sales charge and Class B and Class C shares bear the
expense of the deferred sales charge, (IV) Class B shares and Class C shares
each bear the expense of a higher Rule 12b-1 distribution services fee and
applicable shareholder service fee than Class A shares and, in the case of Class
B shares, higher transfer agency costs, (V) with the exception of Class Y
shares, each Class of each Fund has exclusive voting rights with respect to
provisions of the Rule 12b-1 Plan pursuant to which its distribution services
(and, to the extent applicable, shareholder service) fee is paid which relates
to a specific Class and other matters for which separate Class voting is
appropriate under applicable law, provided that, if the Fund submits to a
simultaneous vote of Class A, Class B and Class C shareholders an amendment to
the Rule 12b-1 Plan that would materially increase the amount to be paid
thereunder with respect to the Class A shares, the Class A shareholders and the
Class B and Class C shareholders will vote separately by Class, and (VI) only
the Class B shares are subject to a conversion feature. Each Class has different
exchange privileges and certain different shareholder service options available.
The alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution services and
shareholder service fees (if applicable) and contingent deferred sales charges
on Class B shares prior to conversion, or the accumulated distribution services
and shareholder service fees (if applicable) on Class C shares, would be less
than the front-end sales charge and accumulated distribution services fee on
Class A shares purchased at the same time, and to what extent such differential
would be offset by the higher return of Class A shares. Class B and Class C
shares will normally not be suitable for the investor who qualifies to purchase
Class A shares at the lowest applicable sales charge. For this reason, the
Distributor will reject any order (except orders for Class B shares from certain
retirement plans) for more than $2,500,000 for Class B or Class C shares.
Class A shares are subject to a lower distribution services fee and no
shareholder service fee and, accordingly, pay correspondingly higher dividends
per share than Class B shares or Class C shares. However, because front-end
sales charges are deducted at the time of purchase, investors purchasing Class A
shares would not have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced front-end sales
charges who expect to maintain their investment for an extended period of time
might consider purchasing Class A shares because the accumulated continuing
distribution and shareholder service charges on Class B shares or Class C shares
may exceed the front-end sales charge on Class A shares during the life of the
investment. Again, however, such investors must weigh this consideration against
the fact that, because of such front-end sales charges, not all their funds will
be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
their funds invested initially, although remaining subject to higher continuing
distribution services and applicable shareholder service fees and, in the case
of Class B shares, being subject to a contingent deferred sales charge for a
seven-year period. For example, based on current fees and expenses, an investor
subject to the 4.75% front-end sales charge would have to hold his or her
investment approximately seven years for the Class B and Class C distribution
<PAGE>
services and shareholders service fees, to exceed the front-end sales charge
plus the accumulated distribution services fee of Class A shares. In this
example, an investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example does not take into
account the time value of money, which further reduces the impact of the Class B
and Class C distribution services and shareholder service fees on the
investment, fluctuations in net asset value or the effect of different
performance assumptions.
Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the seven year period
during which Class B shares are subject to a contingent deferred sales charge
may find it more advantageous to purchase Class C shares.
With respect to each Fund, the Trustees have determined that currently
no conflict of interest exists between or among the Class A, Class B, Class C
and Class Y shares. On an ongoing basis, the Trustees, pursuant to their
fiduciary duties under the 1940 Act and state laws, will seek to ensure that no
such conflict arises.
Front-end Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers choosing the
front-end sales charge alternative is the net asset value plus a sales charge as
set forth in the Prospectus for each Fund.
Shares issued pursuant to the automatic reinvestment of income
dividends or capital gains distributions are not subject to any sales charges.
The Fund receives the entire net asset value of its Class A shares sold to
investors. The Distributor's commission is the sales charge set forth in the
Prospectus for each Fund, less any applicable discount or commission "reallowed"
to selected dealers and agents. The Distributor will reallow discounts to
selected dealers and agents in the amounts indicated in the table in the
Prospectus. In this regard, the Distributor may elect to reallow the entire
sales charge to selected dealers and agents for all sales with respect to which
orders are placed with the Distributor.
Set forth below is an example of the method of computing the offering
price of the Class A shares of each Fund. The example assumes a purchase of
Class A shares of a Fund aggregating less than $100,000 subject to the schedule
of sales charges set forth in the Prospectus at a price based upon the net asset
value of Class A shares of each Fund at the end of each Fund's latest fiscal
year.
Net Per Share Offering
Asset Sales Price
Value Charge Date Per Share
U.S. Government $ 9.65 $.48 6/30/95 $ 10.13
Short Intermediate $ 10.02 $.50 6/30/95 $ 10.52
Bond
For the periods indicated, the following commissions were paid to and
amounts were retained by Federated Securities Corp., which, prior to July 7,
1995, was the principal underwriter of portfolios of the Trust:
31
<PAGE>
Six Months Period From
Ended Year Ended January 11, 1993
6/30/95 12/31/94 to 12/31/93
U.S. Government:
Commissions Received $104,303 $450,000 ---
Commissions Retained $ 3,599 $10,000 ---
Six Months
Ended Year Ended Year Ended
Fixed Income: 6/30/95 12/31/94 12/31/93
Commissions Received $39,906 $247,000 $98,000
Commissions Retained $1,334 $21,000 $15,000
For the periods indicated, the following commissions were paid to and
amounts were retained by SEI Financial Securities Company, which prior to XXXXX,
199x, was the principal unerwriter of portfolios of The Evergreen Lexicon Fund.
Year Ended Year Ended Year Ended
Intermediate Term Bond: 8/31/95 8/31/94 8/31/93
Commissions Received
Commissions Retained
Intermediate Term Government:
Commissions Received
Commissions Retained
Investors choosing the front-end sales charge alternative may under
certain circumstances be entitled to pay reduced sales charges. The
circumstances under which such investors may pay reduced sales charges are
described below.
Combined Purchase Privilege. Certain persons may qualify for the sales
charge reductions by combining purchases of shares of one or more Evergreen
mutual funds other than money market funds into a single "purchase", if the
resulting "purchase" totals at least $100,000. The term "purchase" refers to:
(i) a single purchase by an individual, or to concurrent purchases, which in the
aggregate are at least equal to the prescribed amounts, by an individual, his or
her spouse and their children under the age of 21 years purchasing shares for
his, her or their own account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single fiduciary
account although more than one beneficiary is involved; or (iii) a single
purchase for the employee benefit plans of a single employer. The term
"purchase" also includes purchases by any "company", as the term is defined in
the 1940 Act, but does not include purchases by any such company which has not
been in existence for at least six months or which has no purpose other than the
purchase of shares of a Fund or shares of other registered investment companies
at a discount. The term "purchase" does not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein are
credit card holders of a company, policy holders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
A "purchase" may also include shares, purchased at the same time through a
single selected dealer or agent, of any Evergreen mutual fund. Currently, the
Evergreen mutual funds include:
Evergreen Fund
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Total Return Fund
The Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Short-Intermediate Municipal Fund*
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Tax Exempt Money Market Fund
The Evergreen Money Market Fund
Evergreen Foundation Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Aggressive Growth Fund
Evergreen Balanced Fund*
Evergreen Utility Fund*
Evergreen Value Fund*
Evergreen Short Intermediate Bond Fund
Evergreen U.S. Government Fund
Evergreen Intermediate Term Bond Fund*
Evergreen Intermediate Term Government Securities Fund
Evergreen Emerging Markets Growth Fund*
Evergreen International Equity Fund*
Evergreen Treasury Money Market Fund*
Evergreen Florida Municipal Bond Fund*
Evergreen Georgia Municipal Bond Fund*
Evergreen North Carolina Municipal Bond Fund*
Evergreen South Carolina Municipal Bond Fund*
Evergreen Virginia Municipal Bond Fund*
Evergreen High Grade Tax Free Fund*
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen New Jersey Tax-Free Income Fund
* Prior to July 7, 1995, each Fund was named "First Union" instead of
"Evergreen."
<PAGE>
Prospectuses for the Evergreen mutual funds may be obtained without charge
by contacting the Distributor or the Adviser at the address or telephone number
shown on the front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may qualify for a Cumulative
Quantity Discount.
The applicable sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all Class A, Class B and Class C
shares of the Fund held by the investor and (b) all
such shares of any other Evergreen mutual fund held by
the investor; and
(iii) the net asset value of all shares described in paragraph
(ii) owned by another shareholder eligible to combine his or
her purchase with that of the investor into a
single "purchase" (see above).
<PAGE>
For example, if an investor owned Class A, B or C shares of an Evergreen
mutual fund worth $200,000 at their then current net asset value and,
subsequently, purchased Class A shares of a Fund worth an additional $100,000,
the sales charge for the $100,000 purchase would be at the 3.00% rate applicable
to a single $300,000 purchase of shares of the Fund, rather than the 3.75% rate.
To qualify for the Combined Purchase Privilege or to obtain the Cumulative
Quantity Discount on a purchase through a selected dealer or agent, the investor
or selected dealer or agent must provide the Distributor with sufficient
information to verify that each purchase qualifies for the privilege or
discount.
Statement of Intention. Class A investors may also obtain the reduced sales
charges shown in the Prospectus by means of a written Statement of Intention,
which expresses the investor's intention to invest not less than $100,000 within
a period of 13 months in Class A shares (or Class A, Class B and/or Class C
shares) of the Fund or any other Evergreen mutual fund. Each purchase of shares
under a Statement of Intention will be made at the public offering price or
prices applicable at the time of such purchase to a single transaction of the
dollar amount indicated in the Statement of Intention. At the investor's option,
a Statement of Intention may include purchases of Class A, B or C shares of the
Fund or any other Evergreen mutual fund made not more than 90 days prior to the
date that the investor signs a Statement of Intention; however, the 13-month
period during which the Statement of Intention is in effect will begin on the
date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege described above
may purchase shares of the Evergreen mutual funds under a single Statement of
Intention. For example, if at the time an investor signs a Statement of
Intention to invest at least $100,000 in Class A shares of the Fund, the
investor and the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to invest a total of
<PAGE>
$60,000 during the following 13 months in shares of the Fund or any other
Evergreen mutual fund, to qualify for the 3.75% sales charge on the total amount
being invested (the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Statement of Intention is 5% of such amount. Shares purchased with the first 5%
of such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed to pay the additional sales
charge, if necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released. To the extent
that an investor purchases more than the dollar amount indicated on the
Statement of Intention and qualifies for a further reduced sales charge, the
sales charge will be adjusted for the entire amount purchased at the end of the
13-month period. The difference in sales charge will be used to purchase
additional shares of the Fund subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention in conjunction
with their initial investment in Class A shares of the Fund should complete the
appropriate portion of the Subscription Application found in the Prospectus
while current Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting a Fund at the address or telephone number
shown on the cover of this Statement of Additional Information.
Investments Through Employee Benefit and Savings Plans. Certain qualified
and non-qualified benefit and savings plans may make shares of the Evergreen
mutual funds available to their participants. Investments made by such employee
benefit plans may be exempt from any applicable front-end sales charges if they
meet the criteria set forth in the Prospectus under "Class A Shares- Front End
Sales Charge Alternative". The Adviser may provide compensation to organizations
providing administrative and recordkeeping services to plans which make shares
of the Evergreen mutual funds available to their participants.
Reinstatement Privilege. A Class A shareholder, who has caused any or all
of his or her shares of the Fund to be redeemed or repurchased, may reinvest all
or any portion of the redemption or repurchase proceeds in Class A shares of the
Fund at net asset value without any sales charge, provided that such
reinvestment is made within 30 calendar days after the redemption or repurchase
date. Shares are sold to a reinvesting shareholder at the net asset value next
determined as described above. A reinstatement pursuant to this privilege will
not cancel the redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal tax purposes except that no loss will
be recognized to the extent that the proceeds are reinvested in shares of the
Fund. The reinstatement privilege may be used by the shareholder only once,
irrespective of the number of shares redeemed or repurchased, except that the
privilege may be used without limit in connection with transactions whose sole
purpose is to transfer a shareholder's interest in the Fund to his or her
individual retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of Additional
Information.
<PAGE>
Sales at Net Asset Value. In addition to the categories of investors set
forth in the Prospectus, each Fund may sell its Class A shares at net asset
value, i.e., without any sales charge, to: (i) certain investment advisory
clients of Evergreen Asset, FUNB or their affiliates; (ii) officers and present
or former Trustees of the Trusts; present or former trustees of other investment
companies managed by the Adviser; present or retired full-time employees of the
Adviser; officers, directors and present or retired full-time employees of the
Adviser, the Distributor, and their affiliates; officers, directors and present
and full-time employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives") of any such
person; or any trust, individual retirement account or retirement plan account
for the benefit of any such person or relative; or the estate of any such person
or relative, if such shares are purchased for investment purposes (such shares
may not be resold except to the Fund); (iii) certain employee benefit plans for
employees of the Adviser, the Distributor and their affiliates; (iv) persons
participating in a fee-based program, sponsored and maintained by a registered
broker-dealer and approved by the Distributor, pursuant to which such persons
pay an asset-based fee to such broker-dealer, or its affiliate or agent, for
service in the nature of investment advisory or administrative services. These
provisions are intended to provide additional job-related incentives to persons
who serve the Funds or work for companies associated with the Funds and selected
dealers and agents of the Funds. Since these persons are in a position to have a
basic understanding of the nature of an investment company as well as a general
familiarity with the Fund, sales to these persons, as compared to sales in the
normal channels of distribution, require substantially less sales effort.
Similarly, these provisions extend the privilege of purchasing shares at net
asset value to certain classes of institutional investors who, because of their
investment sophistication, can be expected to require significantly less than
normal sales effort on the part of the Funds and the Distributor.
Deferred Sales
Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative purchase Class B
shares at the public offering price equal to the net asset value per share of
the Class B shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold without a front-end
sales charge so that the full amount of the investor's purchase payment is
invested in the Fund initially.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used by the Distributor to defray the expenses of the
Distributor related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to selected dealers and agents for selling Class B shares. The
combination of the contingent deferred sales charge and the distribution
services fee and the applicable shareholder service fee enables the Fund to sell
the Class B shares without a sales charge being deducted at the time of
purchase. The higher distribution services fee and the applicable shareholder
service fee incurred by Class B shares will cause such shares to have a higher
expense ratio and to pay lower dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
seven years of purchase will be subject to a contingent deferred sales charge at
the rates set forth in the Prospectus charged as a percentage of the dollar
amount subject thereto. The charge will be assessed on an amount equal to the
lesser of the cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed on increases in
net asset value above the initial purchase price. In addition, no contingent
<PAGE>
deferred sales charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. The amount of the contingent deferred
sales charge, if any, will vary depending on the number of years from the time
of payment for the purchase of Class B shares until the time of redemption of
such shares.
In determining the contingent deferred sales charge applicable to a
redemption, it will be assumed, that the redemption is first of any Class A
shares or Class C shares in the shareholder's Fund account, second of Class B
shares held for over eight years or Class B shares acquired pursuant to
reinvestment of dividends or distributions, and third of Class B shares held,
longest during the eight-year period.
To illustrate, assume that an investor purchased 100 Class B shares at $10
per share (at a cost of $1,000) and in the second year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired 10
additional Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares, 10 Class B
shares will not be subject to charge because of dividend reinvestment. With
respect to the remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net asset value of $2
per share. Therefore, of the $600 of the shares redeemed $400 of the redemption
proceeds (40 shares x $10 original purchase price) will be charged at a rate of
4.0% (the applicable rate in the second year after purchase for a contingent
deferred sales charge of $16).
The contingent deferred sales charge is waived on redemptions of shares (i)
following the death or disability, as defined in the Code, of a shareholder, or
(ii) to the extent that the redemption represents a minimum required
distribution from an individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2.
Conversion Feature. At the end of the period ending seven years after the
end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee and the applicable
shareholder service fee imposed on Class B shares. Such conversion will be on
the basis of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of the conversion
feature is to reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Distributor to have been
compensated for the expenses associated with the sale of such shares.
For purposes of conversion to Class A, Class B shares purchased through the
reinvestment of dividends and distributions paid in respect of Class B shares in
a shareholder's account will be considered to be held in a separate sub-account.
Each time any Class B shares in the shareholder's account (other than those in
the sub-account) convert to Class A, an equal pro-rata portion of the Class B
shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel to the effect that (i) the
assessment of the higher distribution services fee and applicable shareholder
service fee and transfer agency costs with respect to Class B shares does not
result in the dividends or distributions payable with respect to other Classes
of a Fund's shares being deemed "preferential dividends" under the Code, and
(ii) the conversion of Class B shares to Class A shares does not constitute a
<PAGE>
taxable event under Federal income tax law. The conversion of Class B shares to
Class A shares may be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further conversions of Class
B shares would occur, and shares might continue to be subject to the higher
distribution services fee and applicable shareholder services fee for an
indefinite period which may extend beyond the period ending eight years after
the end of the calendar month in which the shareholder's purchase order was
accepted.
Level-Load Alternative--Class C Shares
Investors choosing the level load sales charge alternative purchase Class C
shares at the public offering price equal to the net asset value per share of
the Class C shares on the date of purchase without the imposition of a front-end
sales charge. However, you will pay a 1.0% contingent deferred sales charge if
you redeem shares during the first year after purchase. No charge is imposed in
connection with redemptions made more than one year from the date of purchase.
Class C shares are sold without a front-end sales charge so that the Fund will
receive the full amount of the investor's purchase payment and after the first
year without a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of his or her
Class C shares. The Class C distribution services fee and applicalbe shareholder
service fee enables the Fund to sell Class C shares without either a front-end
or contingent deferred sales charge. However, unlike Class B shares, Class C
shares do not convert to any other class shares of the Fund. Class C shares
incur higher distribution services fees and applicable shareholder service fees
than Class A shares, and will thus have a higher expense ratio and pay
correspondingly lower dividends than Class A shares.
Class Y Shares
Class Y shares are not offered to the general public and are available only
to (i) persons who at or prior to December 30, 1994 owned shares in a mutual
fund advised by Evergreen Asset, (ii) certain investment advisory clients of
Evergreen Asset, FUNB and their affiliates, and (iii) institutional investors.
Class Y shares do not bear any Rule 12b-1 distribution expenses and are not
subject to any front-end or contingent deferred sales charges.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "Other Information - General Information" in each Fund's Prospectus)
Capitalization and Organization
The Evergreen U.S. Government Fund and Evergreen Short Intermediate Bond
Fund(formerly Evergreen Fixed Income Fund), which prior to July 7, 1995 were
known as the First Union U.S. Government Portfolio and First Union Fixed Income
Portfolio respectively, are each separate series of Evergreen Investment Trust,
a Massachusetts business trust. On July 7, 1995, First Union Funds changed its
name to Evergreen Investment Trust. On December 14, 1992, The Salem Funds
changed its name to First Union Funds. The Trust is governed by a Board of
Trustees.
Evergreen Intermediate Term Bond Bond Fund and Evergreen Intermediate Term
Government Securities Fund, which prior to January 19, 1996, were known as the
Fixed Income Fund and the Intermediate Term Government Securities Fund,
respectively, are each separate series of The Evergreen Lexicon Fund, a
Massachusetts business trust. On January 19, 1996, The FFB Lexicon Fund changed
its name to the Evergreen Lexicon Fund.
<PAGE>
Each Fund may issue an unlimited number of shares of beneficial interest
without par value. All shares of these Funds have equal rights and privileges.
Each share is entitled to one vote, to participate equally in dividends and
distributions declared by the Funds and on liquidation to their proportionate
share of the assets remaining after satisfaction of outstanding liabilities.
Shares of these Funds are fully paid, nonassessable and fully transferable when
issued and have no pre-emptive, conversion or exchange rights. Fractional shares
have proportionally the same rights, including voting rights, as are provided
for a full share.
Under each Trust's Declaration of Trust, each Trustee will continue in
office until the termination of the Trust or his or her earlier death,
incapacity, resignation or removal. Shareholders can remove a Trustee upon a
vote of two-thirds of the outstanding shares of beneficial interest of the
Trust. Vacancies will be filled by a majority of the remaining Trustees, subject
to the 1940 Act. As a result, normally no annual or regular meetings of
shareholders will be held, unless otherwise required by the Declaration of Trust
of each Trust or the 1940 Act.
Shares have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of Trustees can elect 100%
of the Trustees if they choose to do so and in such event the holders of the
remaining shares so voting will not be able to elect any Trustees.
The Trustees of each Trust are authorized to reclassify and issue any
unissued shares to any number of additional series without shareholder approval.
Accordingly, in the future, for reasons such as the desire to establish one or
more additional portfolios of a Trust with different investment objectives,
policies or restrictions, additional series of shares may be created by one or
more Funds. Any issuance of shares of another series or class would be governed
by the 1940 Act and the law of the State of Massachusetts. If shares of another
series of the Trust were issued in connection with the creation of additional
investment portfolios, each share of the newly created portfolio would normally
be entitled to one vote for all purposes. Generally, shares of all portfolios
would vote as a single series on matters, such as the election of Trustees, that
affected all portfolios in substantially the same manner. As to matters
affecting each portfolio differently, such as approval of the Investment
Advisory Agreement and changes in investment policy, shares of each portfolio
would vote separately.
In addition any Fund may, in the future, create additional classes of
shares which represent an interest in the same investment portfolio. Except for
the different distribution related and other specific costs borne by such
additional classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of each Fund. The rights of the holders of
shares of a series of a Fund may not be modified except by the vote of a
majority of the outstanding shares of such series.
An order has been received from the Securities and Exchange Commission
permitting the issuance and sale of multiple classes of shares representing
interests in each Fund. In the event a Fund were to issue additional Classes of
shares other than those described herein, no further relief from the Securities
and Exchange Commission would be required.
<PAGE>
Distributor
Evergreen Funds Distributor, Inc. (the "Distributor"), 230 Park Avenue,
New York, New York 10169, serves as each Fund's principal underwriter, and as
such may solicit orders from the public to purchase shares of any Fund. The
Distributor is not obligated to sell any specific amount of shares and will
purchase shares for resale only against orders for shares. Under the Agreement
between the Fund and the Distributor, the Fund has agreed to indemnify the
Distributor, in the absence of its willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations thereunder, against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
Counsel
Sullivan & Worcester LLP, Washington, D.C., serves as counsel to the
Funds.
Independent Auditors
KPMG Peat Marwick LLP has been selected to be the independent auditors of
the Funds.
PERFORMANCE INFORMATION
Total Return
From time to time a Fund may advertise its "total return". Computed
separately for each class, the Fund's "total return" is its average annual
compounded total return for recent one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by the Securities
and Exchange Commission, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to the value of such
investment at the end of the period. For purposes of computing total return,
income dividends and capital gains distributions paid on shares of the Fund are
assumed to have been reinvested when paid and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been paid. The Fund
will include performance data for Class A, Class B, Class C and Class Y shares
in any advertisement or information including performance data of the Fund.
With respect to Intermediate Term Bond and Intermediate Term
Government, Class B and Class C shares were not being offered as of August 31,
1995. The average annual compounded total return for each Class of shares
offered by the Funds for the most recently completed one, five and ten year
fiscal periods is set forth in the table below.
U.S. GOVERNMENT 1 Year From
Ended (inception)*
6/30/95 to 6/30/95
Class A 5.70% 3.60%
Class B 4.90% 3.77%
Class C -- 8.33%
Class Y 11.30% 4.03%
<PAGE>
SHORT-INTERMEDIATE 1 Year 5 Years From
Ended Ended (inception)**
6/30/95 6/30/95 to 6/30/95
Class A 4.01% 6.97% 7.37%
Class B 3.00% --- 3.11%
Class C -- --- 5.79%
Class Y 9.31% --- 7.74%
Intermediate Term Bond
Class A (Investor)
Class Y (Institutional)
Intermediate-Term Government
Class A (Investor)
Class Y (Institutional)
1 Year From
Ended (inception)***
INTERMEDIATE TERM 8/31/95 to 8/31/95
BOND
Class A (Investor) 5.36%
Class B (Institutional) 5.61%
1 Year From
Ended (inception)+
INTERMEDIATE TERM 8/31/95 to 8/31/95
GOVERNMENT
Class A(Investor) 5.19%
Class Y(Institutional) 5.43%
* Inception date: Class A - January 12, 1993; Class B - January 12, 1993; Class
C - September 2, 1994; Class Y - August 25, 1993.
** Inception date: Class A - January 31, 1989; Class B - January 25, 1993; Class
C - September 2, 1994; Class Y - December 31, 1990.
***Inception date:
+ Inception date:
Average Annual Total Return
Class/Without Load
Fund With Load
One Five Ten Since
Year Year Year Inception
Intermediate Term Investor with load3 N/A N/A N/A 11.36
Bond Institutional without load1 10.13 N/A N/A 8.01
Investor without load3 N/A N/A N/A 5.17
Investor with load3 N/A N/A N/A 0.44
Intermediate-Term Institutional without load1 8.16 N/A N/A 6.25
Government Fund Investor without load3 N/A N/A N/A 3.90
Investor with load3 N/A N/A N/A (0.79)
A Fund's total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and quality of the
securities in a Fund's portfolio and its expenses. Total return information is
useful in reviewing a Fund's performance but such information may not provide a
basis for comparison with bank deposits or other investments which pay a fixed
yield for a stated period of time. An investor's principal invested in a Fund is
not fixed and will fluctuate in response to prevailing market conditions. YIELD
CALCULATIONS
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the Securities and
Exchange Commissions yield formula) for a given 30-day or one month period, net
of expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the Fund's net asset value per share
at the end of the period and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. The formula for
calculating yield is as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where a = Interest earned during the period
<PAGE>
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
Income is calculated for purposes of yield quotations in accordance
with standardized methods applicable to all stock and bond funds. Gains and
losses generally are excluded from the calculation. Income calculated for
purposes of determining a Fund's yield differs from income as determined for
other accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rate of distributions a Fund paid over the same
period, or the net investment income reported in a Fund's financial statements.
Yield information is useful in reviewing a Fund's performance, but
because yields fluctuate, such information cannot necessarily be used to compare
an investment in a Fund's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Shareholders should remember that yield
is a function of the kind and quality of the instruments in the Funds'
investment portfolios, portfolio maturity, operating expenses and market
conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
The yield of each Fund for the thirty-day period ended June 30, 1995
(with respect to U.S. Government and Short Intermediate Bond) and August 31,
1995 (with respect to Intermediate Term Bond and Intermediate Term Government)
for each Class of shares offered by the Funds is set forth in the table below:
U.S. Government
Class A - 5.99%
Class B - 5.24%
Class C - 5.25%
Class Y - 6.26%
Short Intermediate Bond
Class A - 5.95%
Class B - 5.04%
Class C - 5.04%
Class Y - 6.06%
<PAGE>
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
GENERAL
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, Lehman
Brothers Intermediate Government Bond Index, or any other commonly quoted index
of common stock and bond prices. The Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average and the Lehman Brothers Intermediate
Government Bond Index are unmanaged indices of selected common stock and bond
prices. A Fund's performance may also be compared to those of other mutual funds
having similar objectives. This comparative performance would be expressed as a
ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's broker
or to the Adviser at the address or telephone number shown on the front cover of
this Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the Registration
Statement filed by the Trusts with the Securities and Exchange Commission under
the Securities Act of 1933. Copies of the Registration Statement may be obtained
at a reasonable charge from the Securities and Exchange Commission or may be
examined, without charge, at the offices of the Securities and Exchange
Commission in Washington, D.C.
FINANCIAL STATEMENTS
Each Fund's financial statements appearing in their most current fiscal
year Annual Report to shareholders and the report thereon of the independent
auditors appearing therein, namely KPMG Peat Marwick LLP in the case of
Short Intermediate Bond and U.S. Government, and Arthur Andersen LLP in the case
of Intermediate Term Bond and Intermediate Term Government, are incorporated by
reference in this Statement of Additional Information. The Annual Reports to
Shareholders for each Fund, which contain the referenced statements, are
available upon request and without charge.
<PAGE>
APPENDIX A - NOTE, BOND AND COMMERCIAL PAPER RATINGS
NOTE RATINGS
Moody's Investors Service, Inc.: MIG-1 -- the best quality. MIG-2 -- high
quality, with margins of protection ample though not so large as in the
preceding group. MIG-3 -- favorable quality, with all security elements
accounted for, but lacking the undeniable strength of the preceding grades.
Market access for refinancing, in particular, is likely to be less well
established.
Standard & Poor's Ratings Group, Inc.: SP-1 -- Very strong or strong
capacity to pay principal and interest. SP-2 -- Satisfactory capacity to pay
principal and interest.
BOND RATINGS
Moody's Investors Service: Aaa -- judged to be the best quality, carry
the smallest degree of investment risk; Aa -- judged to be of high quality by
all standards; A -- possess many favorable investment attributes and are to be
considered as higher medium grade obligations; Baa -- considered as medium grade
obligations which are neither highly protected nor poorly secured. Moody's
Investors Service also applies numerical indicators, 1, 2 and 3, to rating
categories Aa through Baa. The modifier 1 indicates that the security is in the
higher end of its rating category; the modifier 2 indicates a mid-range ranking;
and 3 indicates a ranking toward the lower end of the category.
Standard & Poor's Ratings Group: AAA -- highest grade obligations,
possesses the ultimate degree of protection as to principal and interest; AA --
also qualify as high grade obligations, and in the majority of instances differ
from AAA issues only in small degree; A -- regarded as upper medium grade, have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions, interest and principal are regarded
as safe; BBB -- regarded as having adequate capacity to pay interest and repay
principal but are more susceptible than higher rated obligations to the adverse
effects of changes in economic and trade conditions. Standard & Poor's Ratings
Group applies indicators "+", no character, and "-" to the above rating
categories AA through BBB. The indicators show relative standing within the
major rating categories.
Duff & Phelps: AAA - highest credit quality, with negligible risk
factors; AA -- high credit quality, with strong protection factors and modest
risk, which may vary very slightly from time to time because of economic
conditions; A -- average credit quality with adequate protection factors, but
with greater and more variable risk factors in periods of economic stress. The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.
Fitch Investors Service: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with a very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions; and BBB -- satisfactory credit quality with adequate ability with
<PAGE>
46
regard to interest and principal, and likely to be affected by adverse changes
in economic conditions and circumstances. The indicators "+" and "-" to the AA,
A and BBB categories indicate the relative position of a credit within those
rating categories.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries
the smallest degree of investment risk. The modifiers 1, 2 and 3 are used to
denote relative strength within this highest classification.
Standard & Poor's Ratings Group: "A" is the highest commercial paper
rating category utilized by Standard & Poor's Ratings Group which uses the
numbers 1+, 1, 2 and 3 to denote relative strength within its "A"
classification.
Duff & Phelps: Duff 1 is the highest commercial paper rating category
utilized by Duff & Phelps which uses + or - to denote relative strength within
this classification. Duff 2 represents good certainty of timely payment, with
minimal risk factors. Duff 3 represents satisfactory protection factors, with
risk factors larger and subject to more variation.
Fitch Investors Service: F-1+ -- denotes exceptionally strong credit
quality given to issues regarded as having strongest degree of assurance for
timely payment; F-1 -- very strong credit quality, with only slightly less
degree of assurance for timely payment than F-1+; F-2 -- good credit quality,
carrying a satisfactory degree of assurance for timely payment.
<PAGE>
*******************************************************************************
The following pro forma financial information relates to the Evergreen
Managed Bond Fund and the Fixed Income Fund:
*******************************************************************************
- -------------------------------------------------------------------------------
Evergreen Intermediate Term Bond Fund
Pro-Forma Combining Financial Statements (unaudited)
Statement of Assets and Liabilities
August 31, 1995 (000's omitted)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Evergreen Lexicon
Managed Fixed Adjust- Pro-Forma
Bond Fund Income ments Combined
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
- -----------------------------------
Investments at value (cost $76,016 $95,193 $171,209
$169,091)
- -----------------------------------
Cash (6) 12 6
- -----------------------------------
Receivable for Fund shares sold 6 0 6
- -----------------------------------
Receivable for investment 0 24 24
securities sold
- -----------------------------------
Dividends and interest 1,075 989 2,064
receivable
- -----------------------------------
Prepaid expenses 4 24 28
- -------------------------------------------------------------------------------
Total assets 77,095 96,242 173,337
- -------------------------------------------------------------------------------
Liabilities:
- -----------------------------------
Payable for investment 0 0 0
securities purchased
- -----------------------------------
Payable for Fund shares redeemed 0 47 47
- -----------------------------------
Accrued expenses 19 74 93
- -------------------------------------------------------------------------------
Total liabilities 19 121 140
- -------------------------------------------------------------------------------
Net assets:
- -----------------------------------
Paid-in capital 72,466 95,824 168,290
- -----------------------------------
Accumulated net realized gain 3,352 (742) 2,610
- -----------------------------------
Undistributed net investment 179 0 179
income
- -----------------------------------
Net unrealized appreciation of 1,079 1,039 2,118
investments
===============================================================================
Net assets $77,076 $96,121 $173,197
===============================================================================
Net Assets: (000's omitted)
- -----------------------------------
Class A Shares N/A 160 160
- -----------------------------------
Class Y Shares 77,076 95,961 173,037
- -----------------------------------
- -----------------------------------
Shares of Beneficial Interest
Outstanding:
- -----------------------------------
Class A Shares N/A 15,566 15,566
- -----------------------------------
Class Y Shares 7,681,964 9,321,344 (191,580)16,811,728
- -----------------------------------
- -----------------------------------
Net Asset Value and Maximum
- -----------------------------------
Offering Price Per Share:
- -----------------------------------
Class A Shares - NAV N/A $10.30 $10.30
- -----------------------------------
Class Y Shares $10.03 $10.29 $10.29
- -----------------------------------
Class A Shares - Maximum Offering N/A $10.79 $10.79
Price
- -----------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Evergreen Intermediate Term Bond Fund
Pro-Forma Combining Financial Statements (unaudited)
Statement of Operations
Year Ended August 31, 1995 (000's Omitted)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Evergreen Lexicon
Managed Fixed Adjust- Pro-Forma
Bond Fund Income ments Combined
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
- --------------------------------------
Interest income $6,541 $5,740 $0 $12,281
- --------------------------------------------------------------------------------
Expenses:
- --------------------------------------
Advisory fee $435 $545 $87 (1) $1,067
- --------------------------------------
Administration fee 69 154 (142) (1) 81
- --------------------------------------
Custodian fee 57 0 (5) (2) 52
- --------------------------------------
Registration and filing fees 25 5 0 (2) 30
- --------------------------------------
Professional fees 23 21 (21) (2) 23
- --------------------------------------
Transfer agent fee 14 0 10 (1) 24
- --------------------------------------
Reports and notices to 25 21 (10) (2) 36
shareholders
- --------------------------------------
Trustees' fees and expenses 2 4 (4) (2) 2
- --------------------------------------
Insurance expense 3 2 (1) (2) 4
- --------------------------------------
Amortization of organization 0 3 (3) 0
expense
- --------------------------------------
Other 8 3 (3) 8
- --------------------------------------------------------------------------------
Total expenses 661 758 (92) 1,327
- --------------------------------------------------------------------------------
Less: Fee waivers 146 128 (274) (0)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net expenses 515 630 182 1,327
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net investment income $6,026 $5,110 ($182) $10,954
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments:
- --------------------------------------
Net realized loss on investments (2,224) (742) 0 (2,966)
- --------------------------------------
Net increase in unrealized 4,406 4,454 0 8,860
appreciation of investments
- --------------------------------------------------------------------------------
Net gain on investments 2,182 3,712 0 5,894
- --------------------------------------------------------------------------------
Net increase in net assets resulting $8,208 $8,822 ($182) $16,848
from operations
================================================================================
<FN>
(1) To reflect the surviving Fund's fee schedule.
(2) To reflect the elimination of duplicate fees.
</FN>
</TABLE>
Evergreen Intermediate Term Bond Fund
Pro Forma Combining Financial Statements (unaudited)
Portfolio of Investments August 31, 1995
<TABLE>
<CAPTION>
Evergreen Managed Lexicon Fixeded Pro Forma
Bond Fund Income Fund Combined
Principal Principal Adjust- Principal
Amount Value Amount Value ments Amount Value
(in 000's) (in 000's) (in 000's) (in 000's) (in 000's) (in 000's)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Corporate Bonds - 20.2%
Banking - 3.4%
Comerica, Inc., 7.125%, 12/1/13 $3,000 $2,820 $3,000 $2,820
Harris Bankcorp, Inc., 9.375%, $800 $908 800 908
6/1/01
NationsBank Corp., 8.125%, 6/15/02 2,000 2,128 2,000 2,128
--------------- -------------- -----------
4,948 908 5,856
--------------- -------------- -----------
Chemicals - 1.8%
ICI Wilmington, Inc., 7.625%, 3/15/97 3,000 3,062 3,000 3,062
--------------- -----------
Drug - 1.3%
Baxter International, Inc., 9.25%, 2,000 2,201 2,000 2,201
12/15/99
--------------- -----------
Finance and Insurance - 5.8%
Cenfed Financial Corp., 11.17%, 500 ** 542 500 542
12/15/01
First Colony Corp., 6.625%, 8/1/03 1,500 1,459 1,500 1,459
General Electric Capital Corp.,
Callable 12/15/96
@100, 7.98%, 12/15/07 2,500 2,557 2,500 2,557
Goldman Sachs Group, 6.375%, 6/15/00 1,000 ** 971 1,000 971
Household Finance Corp., 9.625%, 1,500 1,528 1,500 1,528
3/11/96
Lehman Brothers, Inc., 8.375%, 4/1/97 3,000 3,075 3,000 3,075
--------------- -------------- -----------
7,575 2,557 10,132
--------------- -------------- -----------
Food and Beverage - 0.9%
Grand Metro Investment Corp., 6.50%, 1,500 1,499 1,500 1,499
9/15/99
--------------- -----------
Foreign - 1.2%
Manitoba Province, 8.00%, 4/15/02 2,000 2,148 2,000 2,148
--------------- -----------
Industrial - 1.7%
Deere & Co., 8.95%, 06/15/19 600 686 600 686
Jet Equipment Trust, 9.41%, 6/15/10 2,000 ** 2,260 2,000 2,260
---------------
-------------- -----------
2,260 686 2,946
--------------- -------------- -----------
Tele-Communications - 1.6%
ALLTEL Corp., 6.50%, 11/1/13 3,100 2,825 3,100 2,825
--------------- -----------
Utilities - 2.5%
Carolina Power & Light Co., 8.625%, 2,000 2,262 2,000 2,262
9/15/21
Progress Capital Holdings, 8.17%, 2,000 2,028 2,000 2,028
9/13/96
--------------- -----------
4,290 4,290
--------------- -----------
Total Corporate Bonds (cost $34,347) 30,808 4,151 34,959
--------------- -------------- -----------
U.S. Government Obligations - 62.8%
U.S. Treasury Bonds - 16.3%
7.50%, 11/15/16 $15,000 $16,267 $15,000 $16,267
8.75%, 5/15/17 $1,400 $1,711 1,400 1,711
8.875%, 8/15/17 4,950 6,127 4,950 6,127
8.875%, 2/15/19 3,400 4,222 3,400 4,222
--------------- -------------- -----------
12,060 16,267 28,327
--------------- -------------- -----------
U.S. Treasury Notes - 36.4%
4.625%, 2/29/96 6,500 6,470 6,500 6,470
5.375%, 5/31/98 2,000 1,971 2,000 1,971
8.25%, 7/15/98 1,600 1,695 1,600 1,695
5.125%, 12/31/98 2,100 2,046 2,100 2,046
6.375%, 1/15/99 11,500 11,625 11,500 11,625
6.875%, 7/31/99 10,100 10,384 10,100 10,384
8.875%, 2/15/99 3,000 3,264 3,000 3,264
6.75%, 4/30/00 6,000 6,154 6,000 6,154
6.375%, 8/15/02 7,000 7,064 7,000 7,064
5.75%, 8/15/03 8,000 7,732 8,000 7,732
6.50%, 5/15/05 4,500 4,558 4,500 4,558
--------------- --------------
--------------- -------------- -----------
17,389 45,574 62,963
--------------- -------------- -----------
Government Agency - 10.1%
Federal Home Loan Banks, 7.70%, 3,000,000 3,247 3,000,000 3,247
9/20/04
Federal Home Loan Mortgage Corp., 1,290,502 1,315 1,290,502 1,315
7.50%, 5/1/09
Federal Home Loan Mortgage Corp., 1,392,818 1,419 1,392,818 1,419
7.50%, 5/1/09
Financial Assistance, 8.80%, 6/10/05 2,500 2,884 2,500 2,884
Government National Mortgage 1,477,196 1,487 1,477,196 1,487
Association, 7.50%, 9/15/23
Government National Mortgage 4,002,139 4,105 4,002,139 4,105
Association, 8.00%, 10/15/24
Government National Mortgage 1,126,867 1,183 1,126,867 1,183
Association, 9.00%, 4/15/20
Government National Mortgage 932,004 989 932,004 989
Association, 9.00%, 8/15/21
Government National Mortgage 784,102 823 784,102 823
Association, 9.50%, 2/15/21
---------------- --------------- -----------
14,568 2,884 17,452
---------------- --------------- -----------
Total U.S. Government Obligations 44,017 64,725 108,742
(cost $107,475)
---------------- --------------- -----------
Collateralized Mortgage Obligations
- - 9.4%
Federal Home Loan Mortgage Corp., 5,000 4,899 5,000 4,899
1555-PC, 5.50%, 11/15/04
Federal Home Loan Mortgage Corp., 5,000 4,892 5,000 4,892
1601-PC, 5.00%, 5/15/02
Federal Home Loan Mortgage Corp., 5,000 5,000 0
REMIC G021-B4, 4.80%, 11/25/08 4,870 4,870
Paine Webber Trust, P-3, 9.00%, 1,578 1,620 1,578 1,620
10/1/12
---------------- --------------- -----------
Total Collateralized Mortgage 0 16,281 16,281
Obligations (cost $16,612)
---------------- --------------- -----------
Yankee Obligations - 5.3%
Hydro-Quebec, 8.00%, 2/1/13 $3,000 $3,107 $3,000 $3,107
KFW International, 8.85%, 6/15/99 1,000 1,083 1,000 1,083
Petro Canada, 8.60%, 1/15/10 800 925 800 925
Svenska Handelsbanken, 8.35%, 1,000 1,085 1,000 1,085
7/15/04
Svenska Handelsbanken, 8.125%, 2,000 2,148 2,000 2,148
8/15/07
Westpac Banking Corp., 9.125%, 700 781 700 781
8/15/01
---------------- --------------- -----------
Total Yankee Obligations (cost 0 9,129 9,129
$8,559)
---------------- --------------- -----------
* Repurchase Agreement - 1.2%
Donaldson, Lufkin & Jenrette 1,191 1,191 1,191 1,191
Securities Corp., 6.00%,
dated 8/31/95, due 9/1/95 (amortized
cost)
Union Bank of Switzerland, 5.85%,
dated 8/31/95, due 9/1/95 (amortized 907 907 907 907
cost)
---------------- --------------- -----------
1,191 907 2,098
---------------- --------------- -----------
Total Investments - 98.9% (cost 76,016 95,193 171,209
$169,091)
Other Assets and Liabilities - net 1,060 928 1,988
1.1%
---------------- --------------- -----------
Total Net Assets - 100% $77,076 $96,121 $173,197
================ =============== ===========
<FN>
* Fully collateralized by U.S.
government and/or agency obligations
based on market
prices at the date of the
portfolio.
** Restricted security which is not
registered under the Securities Act
of 1933.
REMIC - Real Estate Mortgage
Investment Conduit
See Notes which are an integral part of the Pro Forma Financial Statements.
</FN>
</TABLE>
<PAGE>
Evergreen Intermediate Term Bond Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
August 31, 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
Managed Bond Fund (Evergreen)and FFB Fixed Income Fund (FFB Fixed) at August 31,
1995 and for the year then ended.
The Pro Forma Statements give effect to the proposed transfer of all assets and
liabilities of Evergreen shares in exchange for shares of FFB Fixed. 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 reorganization will be accomplished through an acquisition of substantially
all of the assets of Evergreen by FFB Fixed, and in addition assume certain
identified liabilities of the same. Thereafter there will be a distribution of
such shares of FFB Fixed to shareholders of Evergreen in liquidation and
subsequent termination thereof. The information contained herein is based on the
experience of each Fund for the year ended August 31, 1995 and is designed to
permit shareholders of the consolidating mutual funds to evaluate the financial
effect of the proposed Reorganization. The expenses of Evergreen and FFB Fixed
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.
2. Shares of Beneficial Interest-The Pro Forma net asset value per share assumes
the issuance of additional shares of FFB Fixed Class Y which would have been
issued at August 31, 1995 in connection with the proposed Reorganization. The
amount of additional shares assumed to be issued was calculated based on the net
assets of Evergreen as of August 31, 1995 of $77,076(reported in 000's), and the
net asset value per share of the respective share class of FFB Fixed of $10.29.
Additional shares issued were converted and distributed to the aforementioned
Fund according to its relative share value conversion ratio.
The Pro Forma shares outstanding of 15,566 Class A, 16,811,728 Class Y consist
of 7,490,384 additional shares of Class Y to be issued in the proposed
reorganization, as calculated above, in addition to the shares of FFB Fixed
outstanding as of August 31,1995.
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 Fund and the combined Fund, with certain expenses adjusted to reflect the
expected expenses of the combined entity. The investment advisory,administrative
personnel and service fees have been charged to the combined Fund based on the
fee schedule in effect for FFB Fixed at the combined level of average net assets
for the year ended August 31, 1995.
*******************************************************************************
THE FFB LEXICON FUND
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability and
Indemnification of Trustees" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1(a).Declaration of Trust. Incorporated by reference to the Registrant's
Registration Statement on Form N-1A filed on June 26, 1991 - Registration
No. 33-41918 ("Form N-1A Registration Statement")
1(b). Form of Certificate of Amendment to Declaration of Trust. Filed herewith.
2. Bylaws. Incorporated by reference to the Form N-1A Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit B to Prospectus contained in
Part A of this Registration Statement.
5. Not applicable.
6. Form of Investment Advisory Agreement between First Union National Bank of
North Carolina and the Registrant. Filed herewith.
7. Form of Distribution Agreement between Evergreen Funds Distributor, Inc.
and the Registrant. Filed herewith.
8. Not applicable.
9. Form of Custody Agreement between State Street Bank and Trust Company and
the Registrant. Filed herewith.
10. Not Applicable.
11. Opinion and consent of Morgan, Lewis & Bockius LLP. Filed herewith.
12. Tax opinion and consent of Sullivan & Worcester LLP. Filed herewith.
13. Not applicable.
14(a). Consent of KPMG Peat Marwick LLP, independent accountants, as to the use
of their report dated August 16, 1995 concerning the financial statements
of the Evergreen Managed Bond Fund for the fiscal year ended June 30, 1995.
Filed herewith.
14(b). Consent of Arthur Andersen LLP, independent accountants, as to the use of
their report dated October 6, 1995 concerning the financial statements of
the Fixed Income Fund for the fiscal year ended August 31, 1995. Filed
herewith.
15. Not applicable.
16. Power of Attorney. Incorporated by reference to the Form N-1A Registration
Statement.
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 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the
"Securities Act") and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Registration Statement to be signed on behalf by
the undersigned, thereunto duly authorized, in the City of Wayne, Commonwealth
of Pennsylvania on the 6th day of December, 1995.
The FFB Lexicon Fund
By: /s/ David G. Lee
----------------------
Name: David G. Lee
Title: President & Chief Executive
Officer
ATTEST:
/s/Jeffrey A. Cohen
Jeffrey A. Cohen
Controller & Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacity on the
dates indicated.
/s/John T. Cooney * Trustee December 6, 1995
John T. Cooney
/s/William M. Doran * Trustee December 6, 1995
William M. Doran
/s/Frank E. Morris * Trustee December 6, 1995
Frank E. Morris
/s/Robert A. Nesher * Trustee December 6, 1995
Robert A. Nesher
/s/Robert A. Patterson* Trustee December 6, 1995
Robert A. Patterson
/s/Gene Peters * Trustee December 6, 1995
Gene Peters
/s/James M. Storey * Trustee December 6, 1995
James M. Storey
/s/David G. Lee President & Chief
David G. Lee Executive officer December 6, 1995
/s/Jeffrey A. Cohen Controller & Chief
Jeffrey A. Cohen Financial Officer December 6, 1995
By: /s/David G. Lee
David G. Lee
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
N-14 EXHIBIT NO. Page
1(b) Form of Certificate of Amendment to Declaration of Trust
6. Form of Investment Advisory Agreement between First Union
National Bank of North Carolina and the Registrant
7. Form of Distribution Agreement between Evergreen Funds
Distributor, Inc. and the Registrant
9. Form of Custody Agreement between State Street Bank and Trust
Company and the Registrant
11. Opinion and Consent of Morgan, Lewis & Bockius LLP
12. Tax Opinion and Consent of Sullivan & Worcester LLP
14(a) Consent of KPMG Peat Marwick LLP
14(b) Consent of Arthur Andersen LLP
17(a) Form of Proxy
17(b) Registrant's Rule 24f-2 Declaration
OTHER EXHIBITS*
Annual Report of FFB Lexicon Funds - Fixed Income Fund dated August 31, 1995.
- -------------------
*Incorporated by Reference into Form N-14 Registration Statement.
*******************************************************************************
THE FFB LEXICON FUND
Amendment to Declaration of Trust and
Establishment and Designation of Classes
The undersigned, being a majority of the Trustees of The FFB Lexicon Fund,
a Massachusetts business trust (the "Trust"), acting pursuant to Section 4.3 of
the Declaration of Trust of the Trust dated July 24, 1991 (the "Declaration"),
hereby certify that they have duly adopted at a Meeting of Trustees held January
19, 1995 a resolution amending Section 1.1 of the Declaration to read as
follows:
Section 1.1 Name. The name of the trust established hereby (the
"Trust") is "Evergreen Lexicon Trust" and, insofar as may be
practicable, the Trustees shall conduct the Trust's activities, execute
all documents and sue or be sued under that name, which name (and the
word "Trust" wherever herein used) shall refer to the Trustees as
trustees, and not as individuals, or personally, and shall not refer to
the officers, agents, employees or Shareholders of the Trust. If the
Trustees determine that the Trust's use of such name is not advisable,
the Trustees may adopt such other name for the Trust as they deem
proper and the Trust may hold its property and conduct its activities
under such other name.
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 4.3 of the Declaration, do hereby: (i) redesignate the
series of shares of the Trust currently known as the "Fixed Income Fund" as the
Evergreen Intermediate Term Bond Fund; and (ii) redesignate the series of shares
of the Trust currently known as the "Intermediate Term Government Securities
Fund" as the Evergreen Intermediate Term Government Securities Fund.
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 4.3 of the Declaration, do hereby divide the shares of
beneficial interest of each Series, which currently consist of two classes, into
two additional classes, to create a total of four classes of shares, within the
meaning of said Sections, as follows:
1. The two existing classes of shares, currently known as "investor class"
and "institutional class" are designated "Class A Shares," and "Class Y Shares",
respectively."
2. The two new classes of shares are designated "Class B Shares," and
"Class C Shares."
3. Such Class A Shares, Class B Shares, Class C Shares, and Class Y Shares
shall be entitled to all of the rights and preferences accorded to shares of
beneficial interest of the Trust under the Declaration.
4. The purchase price, the method of determination of net asset value, the
price, terms and manner of redemption, and the relative dividend rights of
holders of such Class A Shares, Class B Shares, Class C Shares, and Class Y
Shares shall be as established by the Trustees of the Trust in accordance with
the provisions of the Declaration and set forth in the currently effective
prospectus and statement of additional information of the Trust relating to the
New Series, as amended from time to time, contained in the Trust's registration
statement under the Securities Act of 1933, as amended.
5. Such Class A Shares, Class B Shares, Class C Shares, and Class Y Shares
shall vote together as a single class except that shares of a class may vote
separately on matters affecting only that class and shares of a class not
affected by a matter will not vote on that matter.
6. A class of shares of the any Series may be terminated by the Trustees by
written notice to the Shareholders of the class.
The Declaration provides that the name of the Trust refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Trust but the Trust Property only shall be
liable.
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this instrument in
duplicate original counterparts and have caused a duplicate original to be
Laurence B. Ashkin Thomas L. McVerry
Trustee Trustee
Foster Bam William Walt Pettit
Trustee Trustee
James S. Howell Russell A. Salton, III
Trustee Trustee
Robert J. Jeffries Michael S. Scofield
Trustee Trustee
Gerald M. McDonnell
Trustee
<PAGE>
<PAGE>
[Form of Investment Advisory Agreement]
[Date]
First Union National Bank
of North Carolina
One First Union Center
Charlotte, North Carolina 28288
Ladies and Gentlemen:
The undersigned, The FFB Lexicon Fund (the "Trust") on behalf of its series
portfolio the Fixed Income Fund (the "Fund") is an investment company which
desires to employ its capital by investing and reinvesting the same in
securities in accordance with the limitations specified in its Declaration of
Trust and in its Prospectus as from time to time in effect, copies of which have
been, or will be, submitted to you, and in such manner and to such extent as may
from time to time be approved by the Trustees of the Trust. Subject to the terms
and conditions of this Agreement, the Trust on behalf of the Fund, desires to
employ First Union National Bank of North Carolina (the "Adviser") and the
Adviser desires to be so employed, to supervise and assist in the management of
the business of the Fund. Accordingly, this will confirm our agreement as
follows:
1. The Adviser shall, on a continuous basis, furnish reports, statistical
and research services, and make investment decisions with respect to the Fund's
portfolio of investments. The Adviser shall use its best judgment in rendering
these services to the Fund, and the Fund agrees as an inducement to the Adviser
undertaking such services that the Adviser shall not be liable for any mistake
of judgment or in any other event whatsoever, except for lack of good faith,
provided that nothing herein shall be deemed to protect the Adviser against any
liability to the Fund or to the shareholders of the Fund to which it would
otherwise be subject by reason of wilful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties hereunder or by reason of
the Adviser's reckless disregard of its obligations and duties hereunder.
2. The Adviser agrees that it will not make short sales of
the Fund's shares of beneficial interest.
<PAGE>
3. The Adviser agrees that in any case where an officer or director of the
Adviser is also an officer or director of another corporation, and the purchase
or sale of securities issued by such other corporation is under consideration,
such officer or director shall abstain from participation in any decision made
on behalf of the Fund to purchase or sell any securities issued by such other
corporation.
4. The Fund will pay the costs of all of its expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining its
registration under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933, as amended, and maintaining any registrations or
qualifications under the securities laws of the states in which the Fund's
shares are registered or qualified for sale, subsequent registrations and
qualifications share certificates, mailing, brokerage, issue and transfer taxes
on sales of the Fund's portfolio securities, custodian and stock transfer
charges, printing, legal and auditing expenses, expenses of shareholders'
meetings, and reports to shareholders.
5. In consideration of the Adviser performing its obligations hereunder,
the Fund will pay to the Adviser an advisory fee, payable monthly, at an annual
rate of 0.60% of the average daily net assets of the Fund.
6. The Fund understands that the Adviser acts as investment adviser to
other investment companies, and that affiliates of the Adviser act as investment
advisers to individuals, partnerships, corporations, pension funds and other
entities, and the Fund confirms that it has no objection to the Adviser or its
affiliates so acting.
7. This Agreement shall be in effect for a period of two years from the
date hereof. This Agreement shall continue in effect from year to year
thereafter, provided it is approved, at least annually, in the manner required
by the Act. The Act requires that this Agreement and any renewal thereof be
approved by a vote of a majority of Trustees of the Trust who are not parties
thereto or interested persons (as defined in the Act) of any such party, cast in
person at a meeting duly called for the purpose of voting on such approval, and
by a vote of the Trustees of the Trust or a majority of the outstanding voting
securities of the Fund. A vote of a majority of the outstanding voting
securities of the Fund is defined in the Act to mean a vote of the lesser of (i)
more than 50% of the outstanding voting securities of the Fund or (ii) 67% or
more of the voting securities present at the meeting if more than 50% of the
outstanding voting securities are present or represented by proxy.
<PAGE>
This Agreement may be terminated at any time, without payment of any
penalty, on sixty (60) days' prior written notice by a vote of a majority of the
Fund's outstanding voting securities, by a vote of a majority of the Trustees of
the Trust, or by the Adviser. This Agreement shall be automatically terminated
in the event of its assignment (as such term is defined in the Act).
8. This Agreement is made by the Trust, on behalf of the Fund pursuant to
authority granted by the Trustees, and the obligations created hereby are not
binding on any of the Trustees or shareholders of the Fund individually, but
bind only the property of the Fund.
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to the undersigned the enclosed copy hereof.
Very truly yours,
THE FFB LEXICON FUND
on behalf of
Fixed Income Fund
By:
ACCEPTED:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
DISTRIBUTION AGREEMENT
WHEREAS, The Evergreen Lexicon Trust (the "Trust"), has adopted one or
more Plans of Distribution with respect to certain Classes of shares of its
separate investment series (each a "Plan", or collectively the "Plans") pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act") which Plans authorize the Trust on behalf of the Funds to enter into
agreements regarding the distribution of such Classes of shares (the "Shares")
of the separate investment series of the Trust (the "Funds") set forth on
Exhibit A; and
WHEREAS, the Trust has agreed that Evergreen Funds Distributor, Inc. (the
"Distributor"), a Delaware corporation, shall act as the distributor of the
Shares; and
WHEREAS, the Distributor agrees to act as distributor of the Shares for the
period of this Distribution Agreement (the "Agreement");
NOW, THEREFORE, in consideration of the agreements hereinafter
contained, it is agreed as follows:
1. Services as Distributor-
1.1. The Distributor agrees to use appropriate efforts to promote each
Fund and to solicit orders for the purchase of Shares and will undertake such
advertising and promotion as it believes reasonable in connection with such
solicitation The services to be performed hereunder by the Distributor are
described in more detail in Section 7 hereof. . In the event that the Trust
establishes additional investment series with respect to which it desires to
retain Evergreen Funds Distributor, Inc. to act as distributor for one or more
Classes hereunder, it shall promptly notify the Distributor in writing. If the
Distributor is willing to render such services it shall notify the Trust in
writing whereupon such portfolio shall become a Fund and its designated Classes
of shares of beneficial interest shall become Shares hereunder.
1.2. All activities by the Distributor and its agents and employees as
the distributor of Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the 1940 Act by the Securities and Exchange Commission (the
"Commission") or any securities association registered under the Securities
Exchange Act of 1934, as amended.
1.3 In selling the Shares, the Distributor shall use its best efforts
in all respects duly to conform with the requirements of all Federal and state
laws relating to the sale of such securities. Neither the Distributor, any
selected dealer or any other person is authorized by the Trust to give any
information or to make any representations, other than those contained in the
Trust's registration statement (the "Registration Statement") or related Fund
prospectus and statement of additional information ("Prospectus and Statement of
Additional Information") and any sales literature specifically approved by the
Trust.
1.4 The Distributor shall adopt and follow procedures, as approved by
the officers of the Trust, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
1
<PAGE>
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
1.5. The Distributor will transmit any orders received by it for
purchase or redemption of Shares to the transfer agent and custodian for the
applicable Fund.
1.6 The Distributor shall provide persons acceptable to the Trust to
serve as officers of the Trust.
1.7. Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of Shares until such time as those officers deem it advisable to accept
such orders and to make such sales.
1.8. The Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others. The
Distributor shall offer and sell Shares only to such selected dealers as are
members, in good standing, of the NASD.
1.9 The Distributor agrees to adopt compliance standards, in a form
satisfactory to the Trust, governing the operation of the multiple class
distribution system under which Shares are offered.
2. Duties of the Trust.
2.1. The Trust agrees at its own expense to execute any and all
documents and to furnish, at its own expense, any and all information and
otherwise to take all actions that may be reasonably necessary in connection
with the qualification of Shares for sale in such states as the Trust and the
Distributor may designate.
2.2. The Trust shall furnish from time to time, for use in connection
with the sale of Shares such information with respect to the Funds and the
Shares as the Distributor may reasonably request; and the Trust warrants that
any such information shall be true and correct. Upon request, the Trust shall
also provide or cause to be provided to the Distributor: (a) unaudited
semi-annual statements of each Fund's books and accounts, (b) quarterly earnings
statements of each Fund, (c) a monthly itemized list of the securities in each
Fund, (d) monthly balance sheets as soon as practicable after the end of each
month, and (e) from time to time such additional. information regarding each
Fund's financial condition as the Distributor may reasonably request.
3. Representations of the Trust.
3.1. The Trust represents to the Distributor that it is registered
under the 1940 Act and that the Shares of each of the Funds have been registered
under the Securities Act of 1933, as amended (the "Securities Act"). The Trust
will file such amendments to its Registration Statement as may be required and
will use its best efforts to ensure that such Registration Statement remains
accurate.
4. Indemnification.
4.1. The Trust shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor within the meaning of Section
15 of the Securities Act against any loss, liability,
2
<PAGE>
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), which the Distributor or such
controlling person may incur under the Securities Act or under common law or
otherwise, arising out of or based upon any untrue statement, or alleged untrue
statement, of a material fact contained in the Registration Statement, as from
time to time amended or supplemented, any prospectus or annual or interim report
to shareholders of the Trust, or arising out of or based upon any omission, or
alleged omission, to state a material fact requires to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in conformity with, information
furnished to the Trust in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the
Trust in favor of the Distributor and any such controlling persons to be deemed
to protect such Distributor or any such controlling persons thereof against any
liability to the Trust or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case maybe, shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Trust of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Trust will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Trust elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Trust elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, but, in case the Trust does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or-defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Trust shall
promptly notify the Distributor of the commencement of any litigation or proceed
against it or any of its officers or directors in connection with the issuance
or sale of any of the shares.
4.2. The Distributor shall indemnify and hold harmless the Trust and
each of its directors and officers and each person, if any, who controls the
Trust against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in paragraph 4.1, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Trust in writing by or on behalf of the Distributor
for use in connection with the Registration Statement, as from time to time
amended, or the annual or interim reports to shareholders. In case any action
shall be brought against the Trust or any persons so indemnified, in respect of
which indemnity may be sought against the Distributor, the Distributor shall
have the rights and duties given to the Trust, and the Trust and each person so
indemnified shall have the rights and duties given to the Distributor by the
provisions of paragraph 4.1.
3
<PAGE>
5. Offering of Shares.
5.1. None of the Shares shall be offered by either the Distributor or
the Trust under any of the provisions of this Agreement, and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Trust, if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus and statement of
additional information as required by Section 10(b) (2) of the Securities Act,
as amended, is not on file with the Commission; provided, however, that nothing
contained in this paragraph 5.1 shall in any way restrict or have any
application to or bearing upon the Trust's obligation to repurchase Shares from
any shareholder in accordance with the provisions of the prospectus of each Fund
or the Trust's prospectus or Declaration of Trust.
6. Amendments to Registration Statement and Other Material Events.
6.1. The Trust agrees to advise the Distributor as soon as reasonably
practical by a notice in writing delivered to the Distributor: (a) of any
request or action taken by the Commission which is material to the Distributor's
obligations hereunder or (b) any material fact of which the Trust becomes aware
which affects the Distributor's obligations hereunder.
For purposes of this section, informal requests by or acts of
the Staff of the Commission shall not be deemed actions of or requests by the
Commission.
7. Compensation of Distributor.
7.1. (a) As promptly as possible after the first Business Day (as
defined in the Prospectus) of each month this Agreement is in effect, the Trust
shall compensate the Distributor for its distribution services rendered during
the previous month (but not prior to the Commencement Date); by making payment
to the Distributor in the amounts set forth on Exhibit A annexed hereto with
respect to each Class of Shares of each Fund to which this Agreement is
applicable. The compensation by the Trust of the Distributor is authorized
pursuant to the Plan or Plans adopted by the Trust pursuant to Rule 12b-l under
the 1940 Act.
(b) Under this Agreement, the Distributor shall: (i) make
payments to securities dealers and others engaged in the sale of Shares; (ii)
make payments of principal and interest in connection with the financing of
commission payments made by the Distributor in connection with the sale of
Shares (iii) incur the expense of obtaining such support services, telephone
facilities and shareholder services as may reasonably be required in connection
with its duties hereunder; (iv) formulate and implement marketing and
promotional activities, including, but not limited to, direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising; (v)
prepare, print and distribute sales literature; (vi) prepare, print and
distribute Prospectuses of the Funds and reports for recipients other than
existing shareholders of the Funds; and (vii) provide to the Trust such
information, analyses and opinions with respect to marketing and promotional
activities as the Trust may, from time to time, reasonably request.
(c) The Distributor shall prepare and deliver reports to the
Treasurer of the Trust on a regular, at least monthly, basis, showing the
distribution expenditures incurred by the Distributor in connection with its
services rendered pursuant to this Agreement and the Plan and the purposes
therefor, as well as any supplemental reports as the Trustees, from time to
time, may reasonably request.
4
<PAGE>
(d) The Distributor may retain as a sales charge the difference
between the current offering price of Shares, as set forth in the current
prospectus for each Fund, and net asset value, less any reallowance that is
payable in accordance with the sales charge schedule in effect at any given time
with respect to the Shares.
(e) The Distributor may retain any contingent deferred sales
charge ("CDSCs") payable with respect to the redemption of any Shares, provided
however, that any CDSCs received by the Distributor shall first be applied by
the Distributor or its assignee to any outstanding amounts payable or which may
in the future be payable by the Distributor or its assignee under financing
arrangements entered into in connection with the payment of commissions on the
sale of Shares.
(f) The Distributor may sell, assign, pledge or hypothecate its
rights to receive compensation hereunder. The Trust acknowledges that, in
connection with the financing of commission payments made by the Distributor in
connection with the sale of Shares, the Distributor may sell and assign, and/or
has sold and assigned, to Mutual Fund Funding 1994-1 the Distributor's interest
in certain items of compensation payable to the Distributor hereunder, and that
Mutual Fund Funding 1994-1 in turn may pledge or assign, and/or has assigned,
such interest to First Union Corporation as lender to secure such financing. It
is understood that an assignee may not further sell, assign, pledge, or
hypothecate its right to receive such reimbursement unless such sale,
assignment, pledge or hypothecation has been approved by the vote of the Board
of the Trust, including a majority of the Disinterested Trustees, cast in person
at a meeting called for the purpose of voting on such approval.
(g) In addition to the foregoing, and in respect of its services
hereunder and for similar services rendered to other investment companies for
which Evergreen Asset Management Corp. (the "Investment Adviser") serves as
investment adviser, the Investment Adviser may pay to the Distributor an
additional fee to be paid in such amount and manner as the Investment Adviser
and Distributor may agree from time to time.
8. Confidentiality, Non-Exclusive Agency.
8.1. The Distributor agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Trust all records and
other information relative to the Funds and its prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and to obtain approval in writing by
the Trust, which approval shall not be unreasonably withheld and may not be
withheld where the Distributor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Trust.
8.2. Nothing contained in this Agreement shall prevent the Distributor,
or any affiliated person of the Distributor, from performing services similar to
those to be performed hereunder for any other person, firm, or corporation or
for its or their own accounts or for the accounts of others.
9. Term.
9.1. This Agreement shall continue until June 30, 1997 and thereafter
for successive annual periods, provided such continuance is specifically
approved at least annually by (i) a vote of the majority of the Trustees of the
Trust and (ii) a vote of the majority of those Trustees of the Trust who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of the Plan, in this Agreement or any agreement
related to the Plan (the "Independent Trustees") by vote cast in person at a
meeting called for the purpose of voting on such approval. This
5
<PAGE>
Agreement is terminable at any time, with respect to the Trust, without penalty,
(a) on not less than 60 days' written notice by vote of a majority of the
Independent Trustees, or by vote of the holders of a majority of the outstanding
voting securities of the Trust, or (b) upon not less than 60 days' written
notice by the Distributor. This Agreement may remain in effect with respect to a
Fund even if it has been terminated in accordance with this paragraph with
respect to one or more other Funds of the Trust. This Agreement will also
terminate automatically in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities",
"interested persons", and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
10. Miscellaneous.
10.1. This Agreement shall be governed by the laws of the State
of New York.
10.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their constructions or effect.
10.3 The obligations of the Trust hereunder are not personally binding
upon, nor shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Trust and only the Trust's
property shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the 19th day of January,
1996.
EVERGREEN FUNDS DISTRIBUTOR, INC. EVERGREEN LEXICON TRUST
By:______________________ By: _____________________
Title: Gordon Forrester, Vice President Title: John J. Pileggi, President
6
<PAGE>
EXHIBIT A
To Distribution Agreement between Evergreen Funds Distributor, Inc.
and EVERGREEN REAL ESTATE EQUITY TRUST
FUNDS AND CLASSES COVERED BY THIS AGREEMENT:
Evergreen Intermediate Term Bond Fund
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS Y SHARES
Evergreen Intermediate Term Government Securities Fund
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS Y SHARES
Distribution Fees
1. During the term of this Agreement, the Trust will pay to the Distributor
a quarterly fee with respect to each of the Funds and Classes of Shares thereof
listed above. This fee will be computed at the annual rate of .25 of 1% of the
average net asset value on an annual basis of Class A Shares of each Fund; and
.75 of 1% of the average net asset value on an annual basis of Class B and Class
C Shares of each Fund.
2. For the quarterly period in which the Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on the
basis of the number of days that the Agreement is in effect during the quarter.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to
the Distribution Agreement between the parties dated January 19, 1996 to be
executed by their officers designated below as of the 19th day of January, 1996.
EVERGREEN FUNDS DISTRIBUTOR, INC. EVERGREEN LEXICON TRUST
By:______________________ By: _____________________
Title: Gordon Forrester, Vice President Title: John J. Pileggi, President
7
<PAGE>
CUSTODIAN CONTRACT
Between
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
<PAGE>
1. Employment of Custodian and Property
to be Held By It..............................................l
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian..............................2
2.1 Holding Securities.........................................2
2.2 Delivery of Securities.....................................3
2.3 Registration of Securities.................................8
2.4 Bank Accounts..............................................9
2.5 Payments for Shares........................................9
2.6 Availability of Federal Funds.............................10
2.7 Collection of Income......................................10
2.8 Payment of Fund Monies....................................ll
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased...................14
2.10 Payments for Repurchases or Redemptions
of Shares of the Fund.............................14
<PAGE>
2.11 Appointment of Agents.............................................15
2.12 Deposit of Fund Assets in Securities System.......................15
2.12A Fund Assets Held in the Custodian's Direct
Paper System....................................................l9
2.13 Segregated Account................................................20
2.14 Ownership Certificates for Tax Purposes...........................22
2.15 Proxies...........................................................22
2.16 Communications Relating to Portfolio
Securities......................................................22
2.17 Proper Instructions...............................................23
2.18 Actions Permitted Without Express Authority.......................24
2.19 Evidence of Authority.............................................25
3. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income...............25
4. Records.............................................................26
5. Opinion of Fund's Independent Accountants...........................27
6. Reports to Fund by Independent Public Accountants...................27
7. Compensation of Custodian...........................................28
8. Responsibility of Custodian.........................................28
9. Effective Period, Termination and Amendment.........................29
10.Successor Custodian.................................................31
11.Interpretive and Additional Provisions..............................32
12.Additional Funds....................................................33
13.Massachusetts Law to Apply..........................................33
14.Prior Contracts.....................................................33
<PAGE>
CUSTODIAN CQNTRACT
This Contract between The Evergreen XXXXXXXXX Trust, a business trust
organized and existing under the laws of Massachusetts, having its principal
place of business at 2500 Westchester Avenue, Purchase, New York 10528
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and WHEREAS, the Fund intends to initially offer shares in XXXX
series, the XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (such series
together with all other series subsequently established by the Fund and made
subject to this Contract in accordance with paragraph 12, being herein referred
to as the "Portfolio(s)"); NOW THEREFOR, in consideration of the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows: 1. Employment of Custodian and Property to be Held by It The Fund
hereby employs the Custodian as the custodian of the assets of the Portfolios of
the Fund pursuant to the provlsions of the Declaration of Trust. The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all
<PAGE>
securities and cash cf the Portfolios, and all payments of incnme, payments of
principal or capital distributions received by lt with respect to a11
securities owned by the Pcrtfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of
Section 2.17), the Custodian shall on behalf of the applicable Portfolio(s) from
time to time employ one or more sub-custodians, but only in accordance with an
applicable vote by the Board of Trustees of the Fund on behalf of the applicable
Portfolio(s), and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions or omissions
of any sub-custodian so employed than any such sub-custodian has to the
Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held
By the Custodian
2.1 Holding Securities. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, including all securities
owned by such Portfolio, other than (a) securities which are maintained pursuant
to Section 2.12 in a clearing agency which acts as a securities depository or in
a book-entry system authorized by the U.S. Department of the Treasury,
collectively rererred to herein as "Securities System" and (b) commercial paper
of an issuer for which State Street and and Trust Company acts as issuing and
paying agent ("Direct Paper ) which is deposited andJor maintained in the Direct
Paper System of the Custodian pursuant to Section 2.12A.
<PAGE>
2.2 Delivery of Securities. The Custodian shall release and deliver securities
owned by a Portfolio held by the Custodian or in a Securities System account of
the Custodian or in the Custodian's Direct Paper book entry system account
("Direct Paper System Account") only upon receipt of Proper Instructions from
the Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, and only in the following
cases:
1) Upon sale of such securities for the account of the Portfolio and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase agreement
related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in accordance
with the provisions of Section 2.12 hereof;
4) To the depository agent in connection with tender or other similar offers for
securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration 1s to be delivered to the
Custodian;
<PAGE>
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian or
into the name or nominee name of any agent appointed pursuant to Section
2.11 or into the name or nominee name of any sub-custodian appointed
pursuant to Article l; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate face amount
or number of units; provided that, in any such case, the new securities are
to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such case,
the Custodian shall have no responsibility or liability for any loss
arising from the delivery of such security prior to receiving payment for
such securities except as may arise from the Custodian's own negligence or
willful misconduct;
<PAGE>
8) For exchange or conversion pursuant to any plan of merger, consolidation,
recapitalization, reorganization or readjustment of the securities of the
issuer of such securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, are
to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities or
the surrender of interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund on behalf of the Portfolio,
which may be in the form of cash or obligations issued by the United States
government, its agencies or instrumental ities, except that in connection
with any loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the receipt of such
collateral;
11) For delivery as security in connection with any borrowings by the Fund on
behalf of the Portfolio requiring a pledge of assets by the Fund on behalf
of the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among the
Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange Act")
and a member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Portfolio of the Fund;
<PAGE>
13) For delivery in accordance with the provisions of any agreement among the
Fund on behalf of the Portfolio, the Custodian, and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures Trading Commission
and/or any Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by the Portfolio
of the Fund;
<PAGE>
14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for
the Fund, for delivery to such Transfer Agent or to the holders of shares
in connection with distributions in kind, as may be described from time to
time in the currently effective prospectus and statement of additional
information of the Fund, related to the Portfolio ("Prospectus"), in
satisfaction of requests by holders of Sharcs for repurchase or redemption;
and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer cf the Fund and certified by
the Secretary or an Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such
securities shall be made.
<PAGE>
2.3 Registration of Securities. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of the Portfolio or in the
name of any nominee of the Fund on behalf of the Portfolio or of any nominee of
the Custodian which nominee shall be assigned exclusively to the Portfolio,
unless the Fund has authorized in writing the appointment of a nominee to be
used in common with other registered investment companies having the same
investment adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.11 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted by the
Custodian on behalf of the Portfolio under the terms of this Contract shall be
in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Portfolio of the Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of this Contract,
and shall hold in such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of the Portfolio, other than
cash maintained by the Portfolio in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other banks or
trust companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940 and that each such
bank or trust company and the furds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by vote of a
majority of the Board of Trustees of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the distributor for
the Shares or from the Transfer Agent of the Fund and deposit into the account
of the appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund on behalf of each such Portfolio and the
Transfer Agent of any receipt by it of payments for Shares of such Portfolio.
2.6 Availability of Federal Funds. The Custodian shall, upon the receipt of
Proper Instructions from the Fund on behalf of a Portfolio, make federal funds
available to such Portfolio as of specified times agreed upon from time to time
by the Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's account.
2.7 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to registered securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date of payment by
the issuer, such securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to such Portfolio's custodian account.
Without limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on securities held
hereunder. Income due each rortfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Fund. rhe
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Portfolio is properly entitled.
<PAGE>
2.8 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund on
behalf of the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of securities, options, futures contracts or options
on futures contracts for the account of the Portfolio but only (a) against the
delivery of such securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or any bank, banking
firm or trust company doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its agent for this
purpose) regisiered in the name of the Portfolio or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section 2.12 hereof; (c) in the case
of a purchase involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.12A; (d) in the case of repurchase agreements
entered into between the Fund on behalf of the Portfolio and the Custodian, or
another bank, or a broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Portfolio of
securities owned by the Custodian along with written evidence of the agreement
by the Custodian to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a cocfirmation frcm a
broker and/or the applicable bank pursuant to PropeL rnstructions from the Fund
as defined in Section 2.:17;
2) In connection with conversion, exchange or surrender of securities owned
by the Portfolio as set forth in Section 2.2 hereof; 3) For the redemption or
repurchase of Shares issued by the Portfolio as set forth in Section 2.10
hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of the
Portfolio: interest, taxes, management, accounting, transfer agent and legal
fees, and operating expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of securities
sold short;
<PAGE>
7) For any other proper purpose, but only upon receipt of, in addition to
Proper Instructions from the Fund on behalf of the Portfolio, a certified copy
of a resolution of the Board of Trustees or of the Executive Committee of the
Fund signed by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to whom such payment is to be
made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and every case
where payment for purchase of securities for the account of a Portfolio is made
by the Custodian in advance of receipt of the securities purchased in the
absence of specific written instructions from the Fund on behalf of such
Portfolio to so pay in advance, the Custodian shall be absolutely liable to the
Fund for such securities to the same extent as if the securities had been
received by the Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of the Fund. From
such funds as may be available for the purpose but subject to the limitations of
the Declaration of Trust and any applicable votes of the Board of Trustees of
the Fund pursuant thereto, the Custodian shall, upon receipt of instructions
from the Transfer Agent, make funds available for payment to holders of Shares
who have delivered to the Transfer Agent 2 request for redemption or repurchase
of their Shares. In connection with the redemption or repurchase of Shares of a
Portfolio, the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a
holder of Shares, which checks have been furnished by the Fund to the holder of
Shares, when preqented to the Custodian in accordance with such procedures and
controls as are mutually agreed upon from time to time between the Fund and the
Custodian.
<PAGE>
2.11 Appointment of Agents. Subject to prior approval, the Custodian may at
any time or times in its discretion appoint (and may at any time remove) any
other bank or trust company which is itself qualified under the Investment
Company Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
<PAGE>
2.12 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities Exchange Act of 1934, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as "Securities System"
in accordance with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a Securities
System provided that such securities are represented in an account ("Account")
of the Custodian in the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the Portfolio
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of the
Portfolio upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (i ) the making of an entry
on the records of the Custodian to reflect such payment and transfer for the
account of the Portroliou The Custodian shall t ansfer securities sold for the
account of the Portfolio upon (i) receipt of advice from the Securities System
that payment for such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to reflect such transfer
and payment for the account of the Portfolio. Copies of all advices from the
Securities System of transfers of securities for the account of the Portfolio
shall identify the Portfolio, be maintained for the Portfolio by the Custodian
and be provided to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of each transfer to or
from the account of the Portfolio in the form of a written advice or notice and
shall furnish to the Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities System for the
account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio uith any report
obtained by the Custodian Qll the Securities System's accounting system,
internal accountir.g control and procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be, required by
Article 9 hereof; 6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for the benefit of the Portfolio for
any loss or damage to the Portfolio resulting from use of the Securities System
by reason of any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it may have
against the Securities System; at the election of the Fund, it shall be entitled
to be subrogated to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the Custodian may have
as a consequence of any such loss or damage if and to the extent that the
Portfolio hac not been made whole for any such loss or damage.
2.12A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will be
effected in the absence of Proper Instructions from the Fund on behalf of the
Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account ("Account") of the
Custodian in the Direct Paper System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to securities of the Portfolio
which are maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of the
Portfolio upon the making of an entry on the records of the Custodian to reflect
such payment and transfer of securities to the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the Portfolio upon
the making of an entry on the records of the Custodian to reflect such transfer
and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio, in the
form of a written advice or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Fund on behalf of the Portfolio
copies of daily transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with any
report on its system of internal accounting control as the Fund may reasonably
request from time to time.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio establish and
maintain a segregated account or accounts for and on behalf of each such
Portfolio, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the Cuctodian
pursuant to Section 2.12 hereof, (i) in accordance with tbe provisions of any
agreement among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio, (ii) for purposes of segregating cash or
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or sold by
the Portfolio, (iii) for the purposes of compliance by the Portfolio with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions from the Fund
on behalf of the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee sig!led by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes cf such segregated account and declaring such purposes to be
proper corporate purposes.
<PAGE>
2.14 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state tax
purposes in connection with receipt of income or other payments with respect to
securities of each Portfolio held by it and in connection with transfers of
securities.
2.15 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of the
Portfolio or a nominee of the Portfolio, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver to the
Portfolio such proxies, all proxy soliciting materials and all notices relating
to such securities. 2.16 Communications Relating to Portfolio Securities. The
Custodian shall transmit promptly to the Fund for each portfolio all written
information 'including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and notices of
exercise of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the Portfolio)
received by the Custodian from issuers of the securities being held for the
Yortfolio. With res?ect to tender or exchange offers, the Custodian shall
transmit promptly to the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Portfolio shall notify the Custodian
at least three business days prior to the date on which the Custodian is to take
such action.
2.17 Proper Instructions. Proper Instructions as used throughout this
Article 2 means a writing signed or initialled by one or more person or persons
as the Board of Trustees shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action is
requested. Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the authorization
by the Board of Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the Portfolios' assets. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.13.
<PAGE>
2.18 Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund on behalf of each applicable
Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fortfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Portfolio
except as otherwise directed by the Board of Trustees of the
Fund.
2.19 Evidence of Authority. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by or on
behalf of the Fund. The Custodian may receive and accept a certified copy of a
vote of the Board of Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
<PAGE>
3. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income. The Custodian shall keep the books of account
of each Portfolio and compute the net asset value per share of the outstanding
shares of each Portfolio. The Custodian shall also calculate daily the net
income of the Portfolio as described in the Fund's currently effective
prospectus related to such Portfolio and shall advise the Fund and the Transfer
Agent daily of the total amounts of such net income and shall advise the
Transfer Agent periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the daily
income of each Portfolio shall be made at the time or times described from time
to time in the Fund's currently effective prospectus related to such Portfolio.
4. Records The Custodian. shall with respect to each Portfolio create and
maintain all records relating to its activities and obligations under this
Contract in such manner as will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular attention to Section 31 thereof
and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and
any other law or administrative rules or procedures which may be applicable to
the Fund. All such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities owned by each
Portfolio and held by the Custodian and shall, when requested to do so by the
Fund and for such compensation as shall be agreed upon between the Fund and the
Custodian, include certificate numbers in such tabulations.
5. Opinion of Fund's Independent Accountant. The Custodian shall take all
reasonable action, as the Fund on behalf of each applicable Portfolio may from
time to time request, to obtain from year to year favorable Gpinions from the
Fund's independent accountanLs with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-lA, and Form N-SAR or other
annual reports to the Securities and Exchange Commission and with respect to any
other requirements of such Commission.
6. Reports to Fund by Independent Public Accountants. The Custodian shall
provide the Fund, on behalf of each of the Portfolios at such times as the Fund
may reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
7. Compensation of Custodian The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian, as agreed upon from
time to time between the Fund on behalf of each applicable Portfolio and the
Custodian.
<PAGE>
8. Responsibility of Custodian. So long as and to the extent that it is in
the exercise of reasonable care, the Custodian sha]l not be responsible for the
title9 validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be held
harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund. If the Fund on behalf
of a Portfolio requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund or the Portfolio being liable for the payment of the Custodian's money
or the Custodian incurring liability of some other form, the Fund on behalf of
the Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian Ln an amount and form satisfactory to
it. If the Fund requires the Custodian to advance the Custodian's cash or
securities for any purpose for the benefit of a Portfolio or in the event that
the Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of such Portfolio's
assets to the extent necessary to obtain reimbursement.
9. Effective Period, Termination and Amendment. This Contract shall become
effective as of its execution, shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than ninety (90) days after the date
of such delivery or mailing; provided, however that the Custodian shall not with
respect to a Portfolio act under Section 2.12 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees of the Fund llas approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has reviewed
the use by such Portfolio of such Securities System, as required in each case by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.12A hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of the Direct Paper System;
provided further, however, that neither party shall amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund on
behalf of one or more of the Portfolios may at any time by action of its Board
of Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction. Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
10. Successor Custodian. If a successor custodian for the Fund, of one or
more of the Portfolios shall be appointed by the Board of Trustees of the Fund,
the Custodian shall, upon termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities, funds
or other property of each such Portfolio held in a Securities System. If no such
successor custodian shall be appointed, the Custodian shall, in like manner,
upon receipt of a certified copy of a vote of the Board of Trustees of the Fund,
deliver at the office of the Custodian and transfer such securities, funds and
other properties in accordance with such vote. In the event that no written
order designating a successor custodian or certified copy of a vote of the Board
of Trustees shall have been delivered to the Custodian on or before the date
when such termination shall become effective, then the Custodian shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $100,000,00; all
securities, funds and Gther properties held by the C-Jstodian of behalf of each
applicable Portfolio and ail instruments held by the Custodian relative thereto
and all other property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract. In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote referred
to or of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions In connection with the operation
of this Contract, the Custodian anc the Fund on behalf of each of the
Portfolios, may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contrevene any applicable federal or state regulations or any provision of
the Declaration of Trust of the Fund. No interpret;ve or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
l2. Additional Funds. In the event that the Fund establishes one or more
series of Shares in addition to XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX with respect to which it desires to have
the Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
13. Massachusetts Law to Apply This Contract. shall be construed and the
provisions thereof interpreted under and in accordance with laws of The
Commonwealth of Massachusetts.
14. Prior Contracts This Contract supersedes and terminates, as of the date
hereof, all prior contracts between the Fund on behalf of each of the Portfolios
and the Custodian relating to the custody of the Fund's assets.
RIDER A
15. Trustees Not Bound.
The obligations of the Funds hereunder are not personally binding upon, nor
shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Fund and only the Fund's
property shall be bound.
See Rider A attached
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as of the XX day of XXXXXXX,
19XX.
<PAGE>
ATTEST XXXXXXXXXXXXXXXXXXXXX
By
ATTEST STATE STREET BANK AND TRUST
COMPANY
By
*******************************************************************************
<PAGE>
[Morgan, Lewis & Bockius LLP Letterhead]
December 6, 1995
The FFB Lexicon Fund
c/o CT Corporation
2 Oliver Street
Boston, MA 02109
Ladies and Gentlemen:
We have been requested by The FFB Lexicon Fund, a Massachusetts
business trust (the "Trust") established under a Declaration of
Trust dated July 24, 1991 (the "Declaration"), for our opinion
with respect to certain matters relating to the FFB Lexicon Fixed
Income Fund (the "Acquiring Fund"), a series of the Trust. We
understand that the Trust is about to file a Registration
Statement on Form N-14 for the purpose of registering shares of
the Trust under the Securities Act of 1933, as amended (the "1933
Act"), in connection with the proposed acquisition by the
Acquiring Fund of substantially all of the assets of the
Evergreen Managed Bond Fund (the "Acquired Fund"), a series of
Evergreen Investment Trust, a Massachusetts business trust, 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 acted as counsel to the Trust since its inception, and we
are familiar with the actions taken by its Trustees to authorize
the issuance of the Shares. We have reviewed the Declaration of
Trust, the By-laws, and the minute books of the Trust, and such
other certificates and documents as we deem necessary for the
purpose of this opinion, 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.
In our review, we have assumed the genuineness of all signatures,
the authenticity and completeness of all documents purporting to
be originals (whether reviewed by us in original
<PAGE>
or in copy form), and the conformity to the originals of all
documents purporting to be copies.
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 February 12, 1996, we are of the opinion that the shares
of the Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws,
will be legally issued, fully paid and non-assessable by the
Trust, subject to compliance with the 1933 Act, the Investment
Company Act of 1940, as amended and applicable state laws
regulating the offer and sale of securities.
This opinion is intended only for your use in connection with the
proposed Plan, and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as part of to
the Trust's Registration Statement on Form N-14 to be filed with
the Securities and Exchange Commission and to the reference to
our firm under the caption "Legal Matters" in the
Prospectuses/Proxy Statement filed as part of such 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,
Morgan, Lewis & Bockius LLP
<PAGE>
SULLIVAN & WORCESTER
A Registered Limited Liability Partnership
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
December 5, 1995
Evergreen Managed Bond Fund
2500 Westchester Avenue
Purchase, New York 10577
Fixed Income Fund
2 Oliver Street
Boston, Massachusetts 02109
Re: Acquisition of Assets of Evergreen Managed Bond Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain tax consequences of the
proposed acquisition of assets of Evergreen Managed Bond Fund ("Selling Fund"),
a series of Evergreen Investment Trust, a Massachusetts business trust, by the
Fixed Income Fund ("Acquiring Fund"), a series of The FFB Lexicon Fund, 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 December 6, 1995. We have relied,
without independent verification, upon the factual statements made therein, and
assume that there will be no change in material facts disclosed therein between
the date of this letter and the date of closing of the Reorganization. We
further assume that the Reorganization will be carried out in accordance with
the Reorganization Agreement. We have also relied upon the following
representations, each of which has been made to us by officers of Evergreen
Investment Trust on behalf of Selling Fund or of The FFB Lexicon Fund on behalf
of Acquiring Fund:
A. The Reorganization will be consummated substantially as described in the
Reorganization Agreement.
<PAGE>
B. 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 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.
C. 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 Acquiring Fund 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.
D. 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.
E. 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.
F. 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
<PAGE>
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.
G. 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.
H. There is no intercorporate indebtedness between Acquiring Fund and
Selling Fund.
I. 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.
J. 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.
K. 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.
L. 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.
M. 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.
N. Selling Fund is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Internal Revenue
Code of 1986, as amended (the "Code").
O. 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 Section 851 of the Code.
<PAGE>
P. 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 Section 851 of the Code.
Q. 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.
R. The foregoing representations are true on the date of this letter and
will be true on the date of closing of the Reorganization.
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:
1. 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 Section 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 Section 368(b) of the Code.
2. 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.
3. 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.
4. 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
<PAGE>
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.
5. 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.
6. 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.
7. 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 LLP
-----------------------------
SULLIVAN & WORCESTER LLP
<PAGE>
Independent Auditors' Consent
The Board of Trustees
of Evergreen Investment Trust:
We consent to the use of our report dated August 16, 1995 with respect to the
Evergreen Managed Bond Fund series of Evergreen Investment Trust incorporated
herein by reference in the Prospectus/Proxy Statement and included in this
Registration Statement on Form N-14 for The FFB Lexicon Fund and to the
references to our firm under the headings "Financial Statements and Experts" in
the Prospectus/Proxy Statement and "Financial Highlights" in the Prospectus
incorporated herein by reference.
KPMG Peat Marwick LLP
New York, New York
December 6, 1995
<PAGE>
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference into this Registration Statement of our report dated October 6, 1995
on the Fixed Income Fund series of The FFB Lexicon Funds included in the
Post-Effective Amendment No. 7 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.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 30, 1995
<PAGE>
VOTE THIS PROXY CARD TODAY
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
................................................................
EVERGREEN INVESTMENT TRUST - EVERGREEN MANAGED BOND FUND
SPECIAL MEETING OF SHAREHOLDERS -- FEBRUARY 12, 1996
The undersigned hereby appoints John J. Pileggi, Joan V. Fiore and Joseph J.
McBrien 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 Evergreen Managed Bond Fund (the
"Fund"), which the undersigned is entitled to vote at a Meeting of Shareholders
of the Fund to be held at 2500 Westchester Avenue, Purchase, New York 10577 on
February 12, 1996, 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:______________, 1996 _____________________________
------------------------------
Signature(s)
------------------------------
Title(s), if applicable
<PAGE>
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
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 PROPOSAL. IN THE ABSENCE OF ANY SPECIFICATION, THIS PROXY WILL BE
VOTED IN FAVOR OF THE PROPOSAL.
1. To approve the proposed Agreement and Plan of
Reorganization with the Fixed Income Fund.
[ ] YES [ ] NO [ ] ABSTAIN
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.
These items are discussed in greater detail in the Prospectus/Proxy
Statement. The Board of Trustees of Evergreen Investment Trust has fixed the
close of business on December , 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 OF THE PROSPECTUS/PROXY
STATEMENT.
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON July 26,1991.
FILE NO. _______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-lA
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
-------------------------
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
-------------------------
THE FFB LEXICON FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 342-5734
ROBERT A. NESHER,
C/O SEl CORPORATION
680 E. SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19067
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
JAMES C. DINAN RICHARD W. GRANT, ESOUIRE
COUNSEL MORGAN, LEWIS & BOCKIUS
FIRST FIDELTY BANK 2000 ONE LOGAN SOUARE
CORPORATION PHILADELPHIA, PA 19103
BROAD & WALNUT STREETS
PHILADELPHIA, PA 19103
/x/ Approximate date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, an indefinite number of units of beneficial interest is being registered
by this Registration Statement. Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission acting pursuant
to said Section 6(a) may determine.
********************************************************************************
- ----------------------------------------------------
THE FFB LEXICON FUNDS
- ----------------------------------------------------
ANNUAL REPORT
AS OF AUGUST 31, 1995
- --------------------------------------------------------------------------------
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
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. SEI Financial Services Company, the Distributor of the FFB Lexicon
Funds, is not affiliated with the bank.
- --------------------------------------------------------------------------------
<PAGE>
September 19, 1995
Dear Lexicon Shareholder:
In last year's annual report we described significant volatility in the markets
which resulted in unfavorable investment returns in both the bond and equity
sectors. Also discussed was our belief that modest economic growth along with
inflation at reasonable levels would create a favorable 1995 environment for
both fixed-income and equity investors. So far this year the markets have
responded positively to the aforementioned economic climate.
For the fiscal year ending August 31, 1995, the Capital Appreciation Fund and
the Select Value Fund had positive returns of 20.11% and 23.95%, respectively.
These returns compare favorably to the 21.45% return in the Standard & Poor's
500 Composite Index ("S&P 500") for the same period. The Small Company Growth
Fund had a total return of 19.23% as of August 31, 1995, compared to a 20.80%
return for the Russell 2000. The Fixed Income Fund and the Intermediate-Term
Government Securities Fund had positive returns for the fiscal year of 10.13%
and 8.16%, respectively versus an 11.49% return for the Lehman
Government/Corporate Index and 8.97% for the Lehman Intermediate-Term Government
Index.
During the past fiscal year, investors responded in a positive manner to actions
taken by the Federal Reserve and good economic news. The higher interest rates
during calendar year 1994 helped slow down economic growth and kept inflation
under control which provided for a much more stable economic environment. This
more stable economic environment and positive outlook has continued throughout
most of this year and no change appears to be in the offing as we proceed into
1996. The Federal Reserve responded in a positive manner earlier this calendar
year with a reduction in the federal funds rate of 25 basis points which gave
further credence to the health of the economy.
The past twelve months have been an excellent period for investors in general,
and equity investors specifically. We believe the economic environment will
continue to be a positive one with slow but steady growth and moderate
inflation, hence, our continued efforts and emphasis on stock selection to
achieve above average returns will be even more important as we head into 1996.
Corporate profitability has been exceptionally good and will likely be a key
ingredient to our stock selection process over the next several quarters. Simply
stated, we want to be invested in those stocks that meet or exceed expectations
rather than in stocks that are likely to have weaker earnings. With almost no
exceptions, investors have been very unkind to those companies that have
reported earnings below expectations. On the other hand, those companies that
have had favorable earnings reports have enjoyed further share price
appreciation.
Finally, we are also pleased to report that on June 18, 1995, First Fidelity
Bancorporation agreed to merge (the "merger") with and into a wholly-owned
subsidiary of First Union Corporation. Contingent upon the merger, which is
expected to be consummated by January 1, 1996, the FFB Lexicon family of mutual
funds will be combined (subject to various conditions, including shareholder
approval), with the Evergreen family of funds. We are excited about the
prospects of this fund merger and look forward to providing you access to one of
the most respected family of funds in existence over the past twenty years.
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.
Joseph F. Ready Ben L. Jones
Senior Vice President Senior Vice President &
Mutual Fund Services Chief Investment Officer
First Fidelity Bank, N.A. First Fidelity Bank, N.A.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
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 FFB Lexicon Funds) as of August 31, 1995, 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, 1995, 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 FFB Lexicon
Funds as of August 31, 1995, 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.
October 6, 1995
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
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 ending August 31, 1995, the
Fund's Institutional Class total return was 8.16% versus a total return of 8.97%
for the Lehman Brothers Intermediate- Term Government Index. The Fund slightly
underperformed the Index because of our negative policy posture which called for
a cautious approach with an average maturity and duration less than that of the
Index. During the rising interest rates environment of late 1994 this was a
distinct benefit. However, as the market rallied in the first quarter of 1995,
the performance lagged that of the Index. The discipline used to manage the Fund
is designed to react to longer term interest rate trends and not anticipate or
forecast directional moves in the market.
When the Federal Reserve Bank lowered the Fed Funds rate in early July our
policy went from negative to neutral and the duration of the Fund was lengthened
to just over 100% of the index. At present our outlook for interest rates is
positive based on an improved inflation outlook and economic growth that is
expected to remain within the range the Federal Reserve would consider its
non-inflationary potential. Currently, the Fund has an average maturity of 3.6
years and is composed of 75% Treasuries, 17% Federal agencies, 6% Mortgage
Securities, and 2% cash equivalents.
1
<PAGE>
- --------------------------------------------------------------------------------
------------------------------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1995
------------------------------------------------------------
------------------------------------------------------------
Intermediate-Term
Government Securities Fund
------------------------------------------------------------
[PIE CHART]
<TABLE>
<S> <C>
Treasury 75.5%
Agency 17.0%
CMO 5.6%
Cash Equivalents 1.9%
</TABLE>
- --------------------------------------------------------------------------------
Intermediate-Term Government Securities Fund
- --------------------------------------------------------------------------------
[CHART]
COMPARISON OF CHANGE IN THE VALUE
OF A $10,000 INVESTMENT
<TABLE>
<S> <C> <C> <C> <C> <C>
INITIAL INVESTMENT DATE 11/30/91 Aug-92 Aug-93 Aug-94 Aug-95
FFB LEXICON INTERMEDIATE-TERM
GOVERNMENT PORTFOLIO $10,000 $10,772 $11,637 $11,522 $12,462
LEHMAN BROTHERS INTERMEDIATE-TERM
GOVERNMENT INDEX $10,000 $10,840 $11,782 $11,750 $12,804
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
One Year Return Average Annualized Inception to Date
- --------------------------------------------------------------------------------
8.16% 6.25%
</TABLE>
Past performance is no indication of future performance.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
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. For the year ending August 31, 1995, the
Fund's Institutional Class total return was 10.13% versus a total return of
11.49% for the Lehman Brothers Government/Corporate Index. The Fund slightly
underperformed the Index because of our negative policy posture which called for
a cautious approach with an average maturity and duration less than that of the
Index. During the rising interest rates environment of late 1994 this was a
distinct benefit. However, as the market rallied in the first quarter of 1995,
the performance lagged that of the Index. The discipline used to manage the Fund
is designed to react to longer term interest rate trends and not anticipate or
forecast directional moves in the market.
When the Federal Reserve Bank lowered the Fed Funds rate in early July our
policy went from negative to neutral and the duration of the Fund was lengthened
to over 100% of the index. At present our outlook for interest rates is positive
based on an improved inflation outlook and economic growth that is expected to
remain within the range the Federal Reserve would consider its non-inflationary
potential. Currently, the Fund has an average maturity of 8.1 years and is
composed of 65% Treasuries, 3% Federal agencies, 17% Mortgage Securities, 4%
Corporates, 10% Yankee Obligations, and 1% cash equivalents.
3
<PAGE>
- --------------------------------------------------------------------------------
------------------------------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1995
------------------------------------------------------------
------------------------------------------------------------
Fixed Income Fund
------------------------------------------------------------
[PIE CHART]
<TABLE>
<S> <C>
U.S. Treasuries 65.0%
U.S. Agency 3.0%
Collateralized Mortgage Obligations 17.1%
Corporate Bonds 4.4%
Yankee Obligations 9.6%
Cash Equivalents 0.9%
</TABLE>
- --------------------------------------------------------------------------------
Fixed Income Fund
- --------------------------------------------------------------------------------
[CHART]
COMPARISON OF CHANGE IN THE VALUE
OF A $10,000 INVESTMENT
<TABLE>
<S> <C> <C> <C> <C> <C>
INITIAL INVESTMENT DATE 11/30/91 Aug-92 Aug-93 Aug-94 Aug-95
FFB LEXICON FIXED INCOME PORTFOLIO $10,000 $10,965 $12,380 $12,018 $13,236
LEHMAN BROTHERS GOVERNMENT/CORPORATE
BOND INDEX $10,000 $10,963 $12,342 $12,054 $13,440
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
One Year Return Average Annualized Inception to Date
- --------------------------------------------------------------------------------
10.13% 8.01%
</TABLE>
Past performance is no indication of future performance.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
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 convertible
into common stock.
PERFORMANCE SUMMARY & OVERVIEW. The Fund's Institutional Class achieved a
return of 20.11% for the fiscal year ending August 31, 1995. This compared to
the S&P 500 Composite Index return of 21.45% and Lipper Growth Average return of
22.45%.
During the fiscal year, the fund benefited from an overweighting in capital
goods and technology. However, these gains were moderated by the lag in returns
from basic industry and consumer cyclical holdings.
The Fund is committed to growth, an equity management style that should do
well in the future. Investor attention in expected to shift toward companies
that are able to generate steady above average earnings gains in a slow growth
world.
The Fund is focused toward a greater growth orientation to benefit from this
opportunity. Emphasis continues to be placed on fundamentally strong capital
goods, technology and service companies. In addition, the Fund maintains
substantial holdings 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, 1995
----------------------------------------------------------
----------------------------------------------------------
Capital Appreciation Equity Fund
----------------------------------------------------------
[PIE CHART]
----------------------------------------------------------
CAPITAL APPRECIATION EQUITY FUND
----------------------------------------------------------
<TABLE>
<S> <C>
Technology 28.2%
Utilities 1.6%
Transportation 1.5%
Utilities 1.6%
Cash Equivalents 1.4%
Basic Materials 7.7%
Capital Goods 5.7%
Consumer Cyclical 10.6%
Consumer Staples 13.8%
Finance 7.5%
Healthcare 16.0%
Telephone & Telecommunications 6.0%
</TABLE>
----------------------------------------------------------
TOP TEN HOLDINGS AS OF AUGUST 31, 1995
----------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Dell Computer 2.2%
2. Philip Morris 2.1
3. Lincare Holdings 2.0
4. Symbron International 2.0
5. Gymboree 1.9
6. Amgen 1.9
7. Cisco Systems 1.9
8. Applied Materials 1.9
9. EI DuPont de Nemours 1.9
10. LSI Logic 1.8
</TABLE>
- --------------------------------------------------------------------------------
Capital Appreciation Equity Fund
- --------------------------------------------------------------------------------
[CHART]
COMPARISON OF CHANGE IN THE VALUE
OF A $10,000 INVESTMENT
<TABLE>
<S> <C> <C> <C> <C> <C>
INITIAL INVESTMENT DATE 11/30/91 Aug-92 Aug-93 Aug-94 Aug-95
FFB LEXICON CAPITAL APPRECIATION
EQUITY PORTFOLIO $10,000 $11,080 $12,539 $12,993 $15,606
S&P 500 COMPOSITE INDEX $10,000 $11,286 $13,003 $13,714 $16,653
S&P/BARRA GROWTH INDEX $10,000 $11,145 $11,868 $12,675 $15,676
LIPPER GROWTH AVERAGE $10,000 $10,844 $12,835 $13,386 $16,067
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
One Year Return Average Annualized Inception to Date
- --------------------------------------------------------------------------------
20.11% 10.76%
</TABLE>
Past performance is no indication of future performance.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
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 S&P 500 Composite Index.
PERFORMANCE SUMMARY & OVERVIEW. The Fund recorded a total return of 23.95% for
the fiscal year ending August 31, 1995. The Fund's return exceeded the total
return of the S&P 500 Composite Index of 21.45%, and that of the Lipper Growth
and Income Index of 16.59%.
During the past twelve months the Fund has benefited from an overweighting in
two strong sectors, technology and financial. Worldwide demand for computers,
software, electronics, and telecommunications equipment continues to grow
rapidly. Although technology tends to have characteristics more typical of a
"growth" portfolio, we were able to find several stocks selling at attractive
valuations. However, in the wake of significant outperformance, fewer technology
stocks now meet our value-oriented parameters and thus, we have reduced our
weighting in this sector. Financial stocks continue to be emphasized due to the
attractive valuation and favorable outlook associated with banks and insurance
companies.
Our strategy is to identify individual stocks that are attractively priced
relative to their long-term prospects for growth in earnings and dividends.
Important factors to consider in a potential equity investment include strength
of management, product mix, and competitive position within the industry. We
believe that Citicorp, Chemical Banking, Philip Morris, Union Carbide, and
Philips Electronics reflect these strengths.
7
<PAGE>
- --------------------------------------------------------------------------------
----------------------------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1995
----------------------------------------------------------
----------------------------------------------------------
Select Value Fund
----------------------------------------------------------
[PIE CHART]
<TABLE>
<S> <C>
Finance 25.2%
Technology 10.5%
Utilities 16.1%
Basic Materials 9.8%
Capital Goods and Construction 5.1%
Consumer Cyclical 11.9%
Consumer Staples 13.7%
Energy 7.7%
</TABLE>
----------------------------------------------------------
TOP TEN HOLDINGS AS OF AUGUST 31, 1995
----------------------------------------------------------
<TABLE>
<C> <S> <C>
1. Philips Electronic, ADR 4.6%
2. Philip Morris 4.5
3. Comsat 4.3
4. Citicorp 3.9
5. Salomon 3.9
6. Ford Motor 3.8
7. Telefonos de Mexico, ADR 3.7
8. Sun Healthcare Group 3.6
9. YPF Sociedad Anonimn, ADR 3.5
10. Comdisco 3.4
</TABLE>
- --------------------------------------------------------------------------------
Select Value Fund
- --------------------------------------------------------------------------------
[CHART]
COMPARISON OF CHANGE IN THE VALUE
OF A $10,000 INVESTMENT
<TABLE>
<S> <C> <C> <C> <C>
INITIAL INVESTMENT DATE 11/30/92 Aug-93 Aug-94 Aug-95
FFB LEXICON SELECT VALUE PORTFOLIO $10,000 $11,521 $12,440 $15,419
S&P 500 COMPOSITE INDEX $10,000 $10,975 $11,575 $14,056
S&P/BARRA VALUE INDEX $10,000 $12,037 $12,540 $14,929
LIPPER GROWTH & INCOME AVERAGE $10,000 $11,066 $11,626 $13,586
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
One Year Return Average Annualized Inception to Date
- --------------------------------------------------------------------------------
23.95% 18.34%
</TABLE>
Past performance is no indication of future performance.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
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,
many having a market capitalization less than $500 million at time of initial
purchase.
PERFORMANCE SUMMARY & OVERVIEW. The Fund recorded a total return of 19.23% for
the fiscal year ending August 31, 1995, nearly in line with the total return of
20.80% achieved by the Frank Russell 2000 Index. Over the past year, small
stocks lagged the larger capitalization S&P Composite 500, though this trend
appears to have reversed in recent months.
The heaviest concentrations within the Fund are found in the finance and
technology sectors, which together account for nearly half of the Fund's
holdings. As these have been the two best performing sectors in the market over
the past year, the Fund has benefited from these overweighted exposures.
However, some of the smaller technology stocks selected in the Fund have failed
to keep pace with the exceedingly strong performance of their larger
capitalization counterparts. Clearly, smaller niche technology companies have on
balance failed to exhibit the market dominance or competitive strengths that
have propelled larger technology companies to record results over the past year.
Healthcare remains a third area of emphasis within the fund. As with many of
our finance and technology selections, healthcare appears to present many
opportunities to participate in highly visible and sustainable secular trends
often absent from other more mature market sectors. This distinction is
similarly reflected by our minimal positions in the energy and utility sectors.
9
<PAGE>
- --------------------------------------------------------------------------------
----------------------------------------------------------
PORTFOLIO BREAKDOWN AS OF AUGUST 31, 1995
----------------------------------------------------------
----------------------------------------------------------
Small Company Growth Fund
----------------------------------------------------------
[PIE CHART]
<TABLE>
<S> <C>
Consumer Cyclical 17.0%
Consumer Staples 12.0%
Energy 1.0%
Finance 18.7%
Healthcare 9.8%
Technology 13.5%
Utilities 1.3%
Transportation 2.6%
Cash Equivalents 4.2%
Basic Materials 6.3%
Capital Goods 13.6%
</TABLE>
----------------------------------------------------------
TOP TEN HOLDINGS AS OF AUGUST 31, 1995
----------------------------------------------------------
<TABLE>
<S> <C> <C>
1. Micro Warehouse 1.6%
2. T. Rowe Price & Associates 1.6
3. Watkins Johnson 1.5
4. HEALTHSOUTH Rehabilitation 1.5
5. Renal Treatment Centers 1.5
6. Health Management Associates 1.5
7. Respironics 1.5
8. Davidson & Associates 1.5
9. Equitable of Iowa 1.5
10. Agco 1.5
</TABLE>
- --------------------------------------------------------------------------------
Small Company Growth Fund
- --------------------------------------------------------------------------------
[CHART]
COMPARISON OF CHANGE IN THE VALUE
OF A $10,000 INVESTMENT
<TABLE>
<S> <C> <C> <C> <C>
INITIAL INVESTMENT DATE 11/30/92 Aug-93 Aug-94 Aug-95
FFB LEXICON SMALL COMPANY GROWTH PORTFOLIO $10,000 $11,057 $10,868 $12,958
FRANK RUSSELL 2000 STOCK INDEX $10,000 $11,659 $12,351 $14,920
NASDAQ/OTC INDEX $10,000 $11,381 $11,729 $15,631
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
One Year Return Average Annualized Inception to Date
- --------------------------------------------------------------------------------
19.23% 12.14%
</TABLE>
Past performance is no indication of future performance.
10
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER -- 81.0%
Abbey National
5.670%, 11/07/95 $ 2,000 $ 1,979
ABN AMRO
5.450%, 02/05/96 1,500 1,464
American Express Credit
5.930%, 09/12/95 2,000 1,996
American General Finance
5.870%, 09/14/95 3,000 2,994
Ameritech
5.540%, 03/05/96 2,000 1,943
Associates Corporation of North
America
5.650%, 11/06/95 2,000 1,979
AT & T
5.640%, 10/24/95 3,000 2,975
Bank of Nova Scotia
5.640%, 10/11/95 1,000 994
Bayerische Landesbank
Girozentrale
5.750%, 09/28/95 2,500 2,489
BTR Dunlop
5.680%, 11/21/95 3,000 2,962
Cargill
5.670%, 09/25/95 3,000 2,989
Ciesco
5.630%, 11/03/95 3,000 2,970
CIT Group Holdings
5.630%, 11/27/95 2,000 1,973
Coca Cola
5.750%, 09/14/95 2,000 1,996
Compagnie Bancaire
5.720%, 11/15/95 2,500 2,470
E.I. Du Pont De Nemours
5.660%, 11/09/95 1,500 1,484
5.500%, 01/17/96 1,500 1,468
Eksportfinans
5.880%, 09/08/95 3,000 2,996
Federal Farm Credit
5.570%, 02/16/96 1,000 974
Ford Motor Credit
5.720%, 10/27/95 2,000 1,982
5.630%, 12/12/95 2,000 1,968
General Electric Capital
5.660%, 11/16/95 2,000 1,976
5.630%, 12/14/95 2,000 1,967
Goldman Sachs
5.750%, 10/17/95 3,000 2,978
Hershey Foods
5.650%, 10/06/95 3,000 2,984
Merrill Lynch
5.650%, 12/08/95 2,000 1,969
Metlife Funding
5.620%, 10/26/95 2,000 1,983
Pitney Bowes Credit
5.670%, 12/01/95 2,000 1,971
Proctor and Gamble
5.750%, 09/19/95 1,000 997
Province of Alberta
5.650%, 12/28/95 2,000 1,963
Prudential Funding
5.750%, 09/27/95 2,000 1,992
Republic New York
5.620%, 10/13/95 2,000 1,987
Royal Bank of Canada
6.060%, 11/30/95 1,000 985
Shell Oil
5.620%, 11/16/95 2,000 1,976
Smith Barney
5.700%, 11/21/95 3,000 2,962
Toronto Dominion
5.570%, 02/01/96 2,000 1,953
Transamerica Finance Group
6.050%, 10/20/95 2,000 1,984
5.650%, 12/18/95 1,000 983
5.380%, 04/04/96 1,000 968
----------
Total Commercial Paper
(Cost $79,623) 79,623
----------
CERTIFICATES OF DEPOSIT -- 6.1%
Bank of Montreal
5.800%, 10/05/95 2,000 2,000
Commerzbank
5.780%, 09/06/95 2,000 2,000
Union Bank of Switzerland
5.820%, 02/20/96 2,000 2,000
----------
Total Certificates of Deposit
(Cost $6,000) 6,000
----------
BANKERS ACCEPTANCE -- 2.0%
Republic New York
5.600%, 01/24/96 2,000 1,955
----------
Total Bankers Acceptance
(Cost $1,955) 1,955
----------
U.S. GOVERNMENT AGENCY
OBLIGATION -- 1.0%
FHLMC
6.790%, 02/20/96 1,000 1,000
----------
Total U.S. Government Agency
Obligation
(Cost $1,000) 1,000
----------
REPURCHASE AGREEMENTS -- 10.3%
J.P. Morgan
5.83%, dated 08/31/95,
matures 09/01/95, repurchase
price $4,000,648,
(collateralized by FHLMC ARM
#420264, par value
$4,227,567, 6.243%, 07/01/34,
market value $4,080,000) 4,000 4,000
Prudential Securities 5.81%, dated 08/31/95, matures 09/01/95, repurchase
price $3,000,484, (collateralized by FNMA ARM #304032, par value $3,110,309,
6.257%, 11/01/22,
market value $3,060,000) 3,000 3,000
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Face
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS -- CONTINUED
Union Bank of Switzerland 5.85%, dated 08/31/95, matures 09/01/95, repurchase
price $3,171,875, (collateralized by FHLMC ARM #420178, par value
$3,259,823, 6.394%, 06/01/20,
market value $3,252,148) $ 3,171 $ 3,171
----------
Total Repurchase Agreements
(Cost $10,171) 10,171
----------
Total Investments -- 100.4%
(Cost $98,749) 98,749
----------
OTHER ASSETS AND
LIABILITIES -- -0.4%
Other Assets and Liabilities, Net (401)
----------
Total Other Assets and Liabilities (401)
----------
NET ASSETS:
Portfolio shares of the
Institutional Class
(unlimited
authorization -- no par
value) based on 98,346,838
outstanding shares of
beneficial interest 98,346
Net realized gain on investments 2
----------
Total Net Assets: -- 100.0% $ 98,348
=========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 1.00
=========
</TABLE>
ARM Adjustable Rate Mortgage
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
U. S. TREASURY OBLIGATIONS -- 74.7%
United States Treasury Notes
<S> <C> <C>
4.250%, 11/30/95 $ 800 $ 798
4.625%, 02/15/96 3,000 2,987
7.500%, 02/29/96 4,000 4,037
7.875%, 06/30/96 8,000 8,140
6.125%, 07/31/96 3,000 3,011
6.500%, 11/30/96 2,000 2,018
6.125%, 12/31/96 7,000 7,038
8.000%, 01/15/97 5,200 5,353
6.250%, 01/31/97 2,000 2,013
6.500%, 05/15/97 3,000 3,032
6.000%, 08/31/97 5,500 5,513
7.875%, 04/15/98 1,700 1,779
7.500%, 10/31/99 10,000 10,520
6.375%, 01/15/00 2,500 2,529
8.500%, 11/15/00 1,300 1,438
7.500%, 05/15/02 4,000 4,290
<CAPTION>
- ----------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
6.375%, 08/15/02 2,000 2,018
7.250%, 05/15/04 $ 4,000 $ 4,243
7.875%, 11/15/04 3,500 3,868
7.500%, 02/15/05 4,250 4,597
----------
Total U. S. Treasury Obligations
(Cost $77,792) 79,222
----------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 5.5%
FHLMC 1666-C
5.600%, 02/15/13 5,000 4,881
United States Department of
Veteran Affairs 1992-2C
7.000%, 05/15/12 1,000 996
----------
Total Collateralized Mortgage
Obligations (Cost $6,008) 5,877
----------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 16.8%
Federal Agriculture Mortgage
Corporation
6.440%, 05/28/96 2,100 2,110
Federal Home Loan Bank
8.600%, 01/25/00 1,300 1,417
Federal National Mortgage
Association
6.850%, 05/26/00 5,000 5,051
7.500%, 02/11/02 2,000 2,112
7.875%, 02/24/05 2,000 2,181
Student Loan Marketing
Association, callable
03/08/97 @ 100
7.670%, 03/08/00 2,000 2,036
Tennessee Valley Authority
6.375%, 06/15/05 2,000 1,980
World Bank
8.375%, 10/01/99 900 966
----------
Total U.S. Government Agency
Obligations
(Cost $17,393) 17,853
----------
REPURCHASE AGREEMENT -- 1.9%
Union Bank of Switzerland 5.85%, dated 08/31/95, matures 09/01/95, repurchase
price $1,989,843, (collateralized by FHLMC ARM #420178, par value
$2,044,646, 6.394%, 06/01/20,
market value $2,039,832) 1,990 1,990
----------
Total Repurchase Agreement
(Cost $1,990) 1,990
----------
Total Investments -- 98.9%
(Cost $103,183) 104,942
----------
OTHER ASSETS AND
LIABILITIES -- 1.1%
Other Assets and Liabilities,
Net 1,133
----------
Total Other Assets and Liabilities 1,133
----------
</TABLE>
12
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND -- CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class
(unlimited authorization--no
par value) based on
10,454,398 outstanding shares
of beneficial interest $ 106,500
Portfolio shares of the
Investor Class (unlimited
authorization--no par value)
based on 879 outstanding
shares of beneficial interest 9
Accumulated net realized loss
on investments (2,193)
Net unrealized appreciation on
investments 1,759
----------
Total Net Assets: -- 100.0% $ 106,075
=========
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 10.15
=========
Net Asset Value and Redemption
Price Per Share -- Investor
Class $ 10.15
=========
Maximum Offering Price Per
Share -- Investor Class
($10.15 / 95.5%) $ 10.63
=========
</TABLE>
ARM Adjustable Rate Mortgage
FHLMC Federal Home Loan Mortgage
Corporation
FIXED INCOME FUND
<TABLE>
<CAPTION>
U. S. TREASURY OBLIGATIONS -- 64.3%
<S> <C> <C>
United States Treasury Bond
7.500%, 11/15/16 $ 15,000 $ 16,267
United States Treasury Notes
4.625%, 02/29/96 6,500 6,470
5.375%, 05/31/98 2,000 1,971
6.375%, 01/15/99 11,500 11,625
6.750%, 04/30/00 6,000 6,154
6.375%, 08/15/02 7,000 7,064
5.750%, 08/15/03 8,000 7,732
6.500%, 05/15/05 4,500 4,558
----------
Total U. S. Treasury Obligations
(Cost $61,451) 61,841
----------
COLLATERALIZED MORTGAGE
OBLIGATIONS -- 16.9%
FHLMC 1555-PC
5.500%, 11/15/04 5,000
FHLMC 1601-PC
5.000%, 05/15/02 5,000 4,892
FHLMC REMIC G021-B4 4.800%,
11/25/08 5,000 4,870
Paine Webber Trust P-3
9.000%, 10/01/12 1,578 1,620
----------
Total Collateralized Mortgage
Obligations (Cost $16,612) 16,281
----------
U.S. GOVERNMENT AGENCY
OBLIGATION -- 3.0%
Financial Assistance
8.800%, 06/10/05 2,500 2,884
----------
Total U.S. Government Agency
Obligation (Cost $2,665) 2,884
----------
YANKEE OBLIGATIONS -- 9.5%
Hydro-Quebec
8.000%, 02/01/13 3,000 3,107
KFW International
8.850%, 06/15/99 1,000 1,083
Petro Canada
8.600%, 01/15/10 800 925
Svenska Handelsbanken
8.350%, 07/15/04 1,000 1,085
8.125%, 08/15/07 2,000 2,148
Westpac
9.125%, 08/15/01 700 781
----------
Total Yankee Obligations
(Cost $8,559) 9,129
----------
CORPORATE OBLIGATIONS -- 4.3%
Deere
8.950%, 06/15/19 600 686
General Electric Capital,
Callable 12/15/96 @ 100
7.980%, 12/15/07 2,500 2,557
Harris Bancorp
9.375%, 06/01/01 800 908
----------
Total Corporate Obligations
(Cost $3,960) 4,151
----------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.0%
Union Bank of Switzerland 5.85%, dated 08/31/95, matures 09/01/95, repurchase
price $907,451, (collateralized by FHLMC ARM #420178, par value $932,457,
6.394%, 06/01/20, market
value $930,261) $ 907 $ 907
----------
Total Repurchase Agreement
(Cost $907) 907
----------
Total Investments -- 99.0%
(Cost $94,154) 95,193
----------
OTHER ASSETS AND
LIABILITIES -- 1.0%
Other Assets and Liabilities,
Net 928
----------
Total Other Assets and Liabilities 928
----------
NET ASSETS:
Portfolio shares of the
Institutional Class
(unlimited
authorization -- no par
value) based on 9,321,344
outstanding shares of
beneficial interest 95,663
Portfolio shares of the
Investor Class (unlimited
authorization -- no par
value) based on 15,566
outstanding shares of
beneficial interest 161
Accumulated net realized loss on
investments ( 742)
Net unrealized appreciation on
investments 1,039
----------
Total Net Assets: -- 100.0% $ 96,121
=========
Net Asset Value, Offering Price
and Redemption Price Per Share
--
Institutional Class $ 10.29
=========
Net Asset Value and Redemption
Price Per Share -- Investor
Class $ 10.30
=========
Maximum Offering Price Per
Share -- Investor Class
($10.30 / 95.5%) $ 10.79
=========
</TABLE>
ARM Adjustable Rate Mortgage
FHLMC Federal Home Loan Mortgage
Corporation
REMIC Real Estate Mortgage
Investment Conduit
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION
EQUITY FUND
COMMON STOCK -- 98.3%
AGRICULTURE -- 1.6%
Pioneer Hi-Bred International 59,000 2,537
----------
Total Agriculture 2,537
----------
AUTOMOTIVE -- 2.9%
Danaher 65,500 2,162
Magna International, Class A 50,500 2,260
----------
Total Automotive 4,422
----------
BANKS -- 3.1%
Norwest 79,700 2,401
Wells Fargo 12,800 2,386
----------
Total Banks 4,787
----------
BUILDING & CONSTRUCTION -- 1.5%
Medusa 82,500 2,269
----------
Total Building & Construction 2,269
----------
CHEMICALS -- 3.2%
E.I. Du Pont De Nemours 44,500 2,909
Praxair 73,000 1,898
----------
Total Chemicals 4,807
----------
COMMUNICATIONS EQUIPMENT -- 2.6%
DSC Communications* 49,000 2,573
Ultratech Stepper* 37,500 1,481
----------
Total Communications Equipment 4,054
----------
COMPUTERS & SERVICES -- 16.5%
3Com* 70,000 2,730
Adaptec* 60,000 2,550
Applied Materials* 28,000 2,912
Cisco Systems* 45,000 2,953
Dell Computer* 44,000 3,387
EMC* 92,000 1,886
HBO 44,000 2,420
Intel 34,000 2,087
Medic Computer Sytems* 44,000 1,936
Oracle* 63,000 2,528
----------
Total Computers & Services 25,389
----------
ELECTRICAL SERVICES -- 1.6%
Belden 89,000 2,470
----------
Total Electrical Services 2,470
----------
ELECTRONICS -- 6.2%
Input/Output* 59,000 2,198
Lam Research* 29,300 1,765
LSI Logic* 57,000 2,807
Micron Technology 36,000 2,768
----------
Total Electronics 9,538
----------
</TABLE>
14
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
CAPITAL APPRECIATION EQUITY FUND -- CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
ENTERTAINMENT -- 4.3%
Carnival Cruise Lines, Class A 108,000 $ 2,349
Mattel 82,000 2,378
Walt Disney 35,000 1,964
----------
Total Entertainment 6,691
----------
FINANCIAL SERVICES -- 4.4%
Federal National Mortgage
Association 24,500 2,337
Reuters Holdings PLC ADR 36,000 1,886
T. Rowe Price & Associates 55,000 2,612
----------
Total Financial Services 6,835
----------
FOOD, BEVERAGE & TOBACCO -- 7.7%
Campbell Soup 40,000 1,830
Coca Cola 37,000 2,377
Kellogg 34,000 2,295
Philip Morris 44,000 3,284
UST 77,000 2,098
----------
Total Food, Beverage & Tobacco 11,884
----------
HOUSEHOLD PRODUCTS -- 3.1%
Colgate Palmolive 40,000 2,719
Gillette 49,000 2,046
----------
Total Household Products 4,765
----------
LUMBER & WOOD PRODUCTS -- 1.7%
Clayton Homes 113,000 2,670
----------
Total Lumber & Wood Products 2,670
----------
MACHINERY -- 4.2%
Agco 38,000 1,848
Dover 33,000 2,631
General Electric 35,100 2,067
----------
Total Machinery 6,546
----------
MEASURING DEVICES -- 2.9%
KLA Instruments* 22,000 1,881
Thermo Electron* 59,300 2,557
----------
Total Measuring Devices 4,438
==========
MEDICAL PRODUCTS & SERVICES -- 6.1%
Health Management Associates,
Class A* 68,000 2,278
HEALTHSOUTH Rehabilitation* 103,000 2,433
Lincare Holdings* 104,000 3,107
Vencor* 56,000 1,659
----------
Total Medical Products & Services 9,477
----------
MOTORCYCLES, BICYCLES &
PARTS -- 1.4%
Harley-Davidson 79,000 2,192
----------
Total Motorcycles, Bicycles & Parts 2,192
----------
<CAPTION>
- ----------------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS -- 9.8%
Abbott Laboratories 62,000 $ 2,403
Amgen* 62,000 2,968
Pfizer 44,600 2,202
Schering Plough 45,000 2,098
Sybron International* 74,000 3,034
Teva Pharmaceutical ADR 66,000 2,500
----------
Total Pharmaceuticals 15,205
----------
RAILROADS -- 1.5%
Illinois Central 60,000 2,303
----------
Total Railroads 2,303
----------
RETAIL -- 4.8%
Gymboree* 100,000 2,974
Lowe's Companies 57,700 1,919
Micro Warehouse* 53,000 2,531
----------
Total Retail 7,424
----------
STEEL & STEEL WORKS -- 1.2%
Nucor 39,000 1,911
----------
Total Steel & Steel Works 1,911
----------
TELEPHONE &
TELECOMMUNICATION -- 6.0%
Aspect Telecommunications* 47,000 2,244
AT&T 35,000 1,978
Equifax 66,500 2,585
MCI Communications 103,000 2,478
----------
Total Telephone & Telecommunication 9,285
----------
Total Common Stock
(Cost $121,799) 151,899
-----------
REPURCHASE AGREEMENT -- 1.4%
Union Bank of Switzerland 5.85%, dated 08/31/95, matures 09/01/95, repurchase
price $2,146,269, (collateralized by FHLMC ARM #420178, par value
$2,205,291, 6.394%, 06/01/20,
market value $2,200,099) $ 2,146 2,146
----------
Total Repurchase Agreement
(Cost $2,146) 2,146
----------
Total Investments -- 99.7%
(Cost $123,945) 154,045
----------
OTHER ASSETS AND LIABILITIES -- 0.3%
Other Assets and Liabilities, Net 447
----------
Total Other Assets and Liabilities 447
----------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Portfolio shares of the
Institutional Class
(unlimited authorization --
no par value) based on
11,396,346 outstanding shares
of beneficial interest $ 113,584
Portfolio shares of the
Investor Class (unlimited
authorization -- no par
value) based on 4,485
outstanding shares of
beneficial interest 57
Undistributed net realized gain
on investments 10,751
Net unrealized appreciation on
investments 30,100
---------
Total Net Assets: -- 100.0% $ 154,492
=========
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 13.55
=========
Net Asset Value and Redemption
Price Per Share -- Investor Class $ 13.55
=========
Maximum Offering Price Per
Share -- Investor Class
($13.55 / 95.5%) $ 14.19
=========
</TABLE>
* Non-income producing
security
ADR American Depository Receipt
ARM Adjustable Rate Mortgage
FHLMC Federal Home Loan Mortgage
Corporation
PLC Public Limited Company
SELECT VALUE FUND
<TABLE>
<CAPTION>
COMMON STOCK -- 94.9%
<S> <C> <C>
AIRCRAFT -- 2.0%
McDonnell Douglas 21,600 $ 1,733
----------
Total Aircraft 1,733
----------
APPAREL/TEXTILES -- 0.7%
V F 10,909 597
----------
Total Apparel/Textiles 597
----------
AUTOMOTIVE -- 3.9%
Ford Motor 111,100 3,402
----------
Total Automotive 3,402
----------
BANKS -- 11.6%
Baybanks 15,000 1,204
Chemical Banking 45,300 2,639
Citicorp 51,900 3,445
UJB Financial 21,630 749
Wells Fargo 10,950 2,041
----------
Total Banks 10,078
----------
BUILDING & CONSTRUCTION -- 2.0%
Empresas ICA ADR 141,050 1,693
----------
Total Building & Construction 1,693
----------
CHEMICALS -- 5.5%
Monsanto 22,600 2,144
Union Carbide 74,800 2,656
----------
Total Chemicals 4,800
----------
COMMUNICATIONS EQUIPMENT -- 9.8%
L.M. Ericsson Telephone ADR 104,000 2,223
Motorola 30,000 2,243
Philips Electronics ADR* 90,300 4,063
----------
Total Communications Equipment 8,529
----------
COMPUTERS & SERVICES -- 2.7%
Advanced Micro Devices* 24,200 817
Intel 25,000 1,534
----------
Total Computers & Services 2,351
----------
ELECTRICAL SERVICES -- 5.2%
Houston Industries 12,500 530
Montana Power 94,700 2,083
Pacificorp 103,300 1,872
----------
Total Electrical Services 4,485
----------
ENVIRONMENTAL SERVICES -- 0.0%
Attwoods Contingent
PLC -- Warrants* 40,382 0
----------
Total Environmental Services 0
----------
FINANCIAL SERVICES -- 4.0%
Salomon 89,750 3,444
----------
Total Financial Services 3,444
----------
FOOD, BEVERAGE & TOBACCO -- 6.6%
Chiquita Brands International 111,268 1,753
Philip Morris 53,500 3,992
----------
Total Food, Beverage & Tobacco 5,744
----------
INSURANCE -- 4.9%
American Financial Group 85,649 2,644
Loews 12,450 1,636
----------
Total Insurance 4,280
----------
LEASING & RENTING -- 3.4%
Comdisco 98,000 2,989
----------
Total Leasing & Renting 2,989
----------
MEDICAL PRODUCTS & SERVICES -- 3.7%
Sun Healthcare Group* 217,300 3,178
----------
Total Medical Products & Services 3,178
----------
METALS & MINING -- 3.9%
Cyprus AMAX Minerals 26,000 728
Potash of Saskatchewan 46,400 2,639
----------
Total Metals & Mining 3,367
----------
MISCELLANEOUS BUSINESS
SERVICES -- 2.1%
Banyan Systems* 156,200 1,855
----------
Total Miscellaneous Business
Services 1,855
----------
</TABLE>
16
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
SELECT VALUE FUND -- CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
PETROLEUM & FUEL PRODUCTS -- 3.6%
YPF Sociedad Anonima, ADR 177,700 $ 3,132
----------
Total Petroleum & Fuel Products 3,132
----------
PETROLEUM REFINING -- 3.7%
Amoco 27,100 1,728
Mobil 15,500 1,476
----------
Total Petroleum Refining 3,204
----------
PHOTOGRAPHIC EQUIPMENT &
SUPPLIES -- 2.0%
Eastman Kodak 29,900 1,723
----------
Total Photographic Equipment &
Supplies 1,723
----------
TELEPHONES &
TELECOMMUNICATION -- 10.0%
BCE 50,000 1,606
Comsat 164,100 3,816
Telefonos De Mexico, ADR 100,500 3,291
----------
Total Telephones & Telecommunication 8,713
----------
TRUCKING -- 0.9%
Pittston Services Group 30,000 761
----------
Total Trucking 761
----------
WHOLESALE -- 2.7%
Universal -- Virginia 103,500 2,329
----------
Total Wholesale 2,329
----------
Total Common Stock
(Cost $71,387) 82,387
----------
REPURCHASE AGREEMENT -- 7.4%
Union Bank of Switzerland 5.85%, dated 08/31/95, matures 09/01/95, repurchase
price $6,469,098, (collateralized by FHLMC ARM #420178, par value
$6,647,287, 6.394%, 06/01/20,
market value $6,631,638) $ 6,468 6,468
----------
Total Repurchase Agreement
(Cost $6,468) 6,468
----------
Total Investments -- 102.3%
(Cost $77,856) 88,856
----------
OTHER ASSETS AND
LIABILITIES -- -2.3%
Other Assets and Liabilities,
Net (2,003)
----------
TOTAL OTHER ASSETS AND LIABILITIES (2,003)
----------
NET ASSETS:
Portfolio shares of the
Institutional Class
(unlimited
authorization -- no par
value) based on 6,227,290
outstanding shares of
beneficial interest 69,315
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
Portfolio shares of the
Investor Class (unlimited
authorization -- no par
value) based on 11,471
outstanding shares of
beneficial interest $ 154
Undistributed net realized
gain on investments 6,384
Net unrealized appreciation
on investments 11,000
----------
Total Net Assets: -- 100.0% $ 86,853
=========
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 13.92
=========
Net Asset Value and Redemption
Price Per Share -- Investor
Class $ 13.92
=========
Maximum Offering Price Per
Share -- Investor Class
($13.92 / 95.5%) $ 14.58
=========
</TABLE>
* Non-income producing
security
ADR American Depository Receipt
ARM Adjustable Rate Mortgage
FHLMC Federal Home Loan Mortgage
Corporation
PLC Public Limited Company
SMALL COMPANY
GROWTH FUND
<TABLE>
<CAPTION>
COMMON STOCK -- 95.5%
AEROSPACE & DEFENSE -- 1.5%
<S> <C> <C>
Watkins Johnson 8,200 412
----------
Total Aerospace & Defense 412
----------
AUTOMOTIVE -- 2.4%
Superior Industries
International 10,100 299
Titan Wheel International 12,600 337
----------
Total Automotive 636
----------
BANKS -- 10.5%
Baybanks 4,200 337
Compass Bancshares 12,800 381
Cullen Frost Bankers 7,400 340
Firstier Financial 9,200 357
Mark Twain Bancshares 10,400 364
Union Planters 11,400 338
Wilmington Trust 11,800 360
Zions Bancorporation 6,400 354
----------
Total Banks 2,831
----------
CHEMICALS -- 1.2%
OM Group 11,000 330
----------
Total Chemicals 330
----------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Market
Description Shares Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS EQUIPMENT -- 5.0%
Black Box* 19,000 $ 314
Checkpoint Systems 13,000 312
Spectrian* 8,400 388
Ultratech Stepper* 8,000 316
----------
Total Communications Equipment 1,330
----------
COMPUTERS & SERVICES -- 2.1%
Input/Output* 9,000 335
Proxima* 12,000 224
----------
Total Computers & Services 559
----------
DRUGS -- 2.3%
North American Biological* 31,000 283
Sybron International* 8,400 344
----------
Total Drugs 627
----------
ELECTRICAL SERVICES -- 1.3%
Sierra Pacific Resources 16,000 344
----------
Total Electrical Services 344
----------
ENVIRONMENTAL SERVICES -- 1.0%
Newpark Resources* 14,600 270
----------
Total Environmental Services 270
----------
FINANCIAL SERVICES -- 1.6%
T. Rowe Price & Associates 9,000 428
----------
Total Financial Services 428
----------
FOOD, BEVERAGE & TOBACCO -- 1.3%
Chiquita Brands International 22,200 350
----------
Total Food, Beverage & Tobacco 350
----------
INSURANCE -- 5.3%
Equitable of Iowa 10,500 391
Pacific Physician Services* 16,200 284
Penncorp Financial Group 16,600 378
Reliastar Financial 9,800 372
----------
Total Insurance 1,425
----------
LEASING & RENTING -- 1.2%
Comdisco 10,600 323
----------
Total Leasing & Renting 323
----------
LUMBER & WOOD PRODUCTS -- 2.5%
Clayton Homes 15,000 354
Ply-Gem 17,000 319
----------
Total Lumber & Wood Products 673
----------
MACHINERY -- 5.2%
Agco 8,000 388
Briggs And Stratton 8,200 311
Indresco* 23,200 389
Zebra Technology* 5,400 315
----------
Total Machinery 1,403
----------
MEDICAL PRODUCTS & SERVICES -- 9.8%
FHP International* 11,000 272
HEALTHSOUTH Rehabilitation* 16,800 397
Lincare Holdings* 10,400 311
Medisense* 13,000 309
Renal Treatment Centers* 12,200 397
Respironics* 22,200 394
Spacelabs Medical* 13,600 355
Sun Healthcare Group* 12,200 178
----------
Total Medical Products & Services 2,613
----------
METALS & MINING -- 2.5%
Cleveland-Cliffs 7,800 353
Vigoro 7,400 326
----------
Total Metals & Mining 679
----------
MISCELLANEOUS BUSINESS
SERVICES -- 9.4%
Banyan Systems* 20,000 238
Cerner 10,400 356
Davidson & Associates* 7,600 390
Electronic Arts* 7,600 289
Frame Technology* 12,000 317
Health Management Systems* 10,400 320
Medic Computer Sytems* 7,200 317
Wackenhut Corrections* 14,400 283
----------
Total Miscellaneous Business
Services 2,510
----------
MISCELLANEOUS MANUFACTURING -- 1.1%
Belden 11,000 305
----------
Total Miscellaneous Manufacturing 305
----------
OIL & GAS EQUIPMENT -- 1.1%
Global Industries* 13,800 307
----------
Total Oil & Gas Equipment 307
----------
PETROLEUM REFINING -- 1.0%
Total Petroleum of North
America 24,600 271
----------
Total Petroleum Refining 271
----------
PRINTING & PUBLISHING -- 1.3%
Medusa 12,800 352
----------
Total Printing & Publishing 352
----------
PROFESSIONAL SERVICES -- 1.5%
Health Management Associates,
Class A* 11,800 395
----------
Total Professional Services 395
----------
REAL ESTATE INVESTMENT TRUST -- 3.6%
Avalon Properties 16,000 324
CBL And Associates Properties 15,800 348
Health And Retirement Property
Trust 19,600 301
----------
Total Real Estate Investment
Trust 973
----------
RETAIL -- 4.1%
Gymboree* 12,000 357
Micro Warehouse* 9,000 430
Waban* 16,200 306
----------
Total Retail 1,093
----------
</TABLE>
18
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
SMALL COMPANY GROWTH FUND -- CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Shares/Face Market
Description Amount (000) Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
RUBBER & PLASTIC -- 1.3%
Mark IV Industries 15,750 $ 350
----------
Total Rubber & Plastic 350
----------
SEMI-CONDUCTORS/INSTRUMENTS -- 2.5%
Augat 15,200 334
Three-Five Systems* 10,800 323
----------
Total Semi-Conductors/Instruments 657
----------
SPORTING AND ATHLETIC GOODS -- 1.3%
Callaway Golf 21,600 335
----------
Total Sporting and Athletic Goods 335
----------
TELEPHONES &
TELECOMMUNICATION -- 3.7%
Aspect Telecommunications* 7,000 334
Cellular Communications of
Puerto Rico 9,200 283
Comsat 15,600 363
----------
Total Telephones &
Telecommunication 980
----------
TRUCKING -- 2.6%
Pittston Services Group 13,000 330
Wabash National 9,800 358
----------
Total Trucking 688
----------
WHOLESALE -- 4.3%
FTP Software* 11,400 265
Handleman 26,400 251
Terra Industries 24,000 321
Universal-Virginia 13,600 306
----------
Total Wholesale 1,143
----------
Total Common Stock
(Cost $21,857) 25,592
----------
REPURCHASE AGREEMENT -- 4.2%
Union Bank of Switzerland 5.85%, dated 08/31/95, matures 09/01/95, repurchase
price $1,125,907, (collateralized by FHLMC ARM #420178, par value
$1,155,929, 6.394%, 06/01/20, market value
$1,153,207) $ 1,125 1,125
----------
Total Repurchase Agreement
(Cost $1,125) 1,125
----------
Total Investments -- 99.7%
(Cost $22,982) 26,717
----------
<CAPTION>
- ----------------------------------------------------------------
Market
Description Value (000)
- ----------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES -- 0.3%
Other Assets and Liabilities,
Net $ 82
----------
Total Other Assets and
Liabilities 82
----------
NET ASSETS:
Portfolio shares of the
Institutional Class
(unlimited
authorization -- no par
value) based on 1,987,456
outstanding shares of
beneficial interest 20,539
Portfolio shares of the
Investor Class (unlimited
authorization -- no par
value) based on 4,365 outstanding
shares of beneficial interest 52
Undistributed net realized gain
on investments 2,473
Net unrealized appreciation on
investments 3,735
---------
Total Net Assets: -- 100.0% $ 26,799
=========
Net Asset Value, Offering Price
and Redemption Price Per
Share -- Institutional Class $ 13.45
=========
Net Asset Value and Redemption
Price Per Share -- Investor
Class $ 13.46
=========
Maximum Offering Price Per
Share -- Investor Class
($13.46 / 95.5%) $ 14.09
=========
</TABLE>
* Non-income producing
security
ARM Adjustable Rate Mortgage
FHLMC Federal Home Loan Mortgage
Corporation
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
STATEMENT OF OPERATIONS (000)
- --------------------------------------------------------------------------------
FFB Lexicon Funds--for the period ended August 31, 1995
<TABLE>
<CAPTION>
----------
CASH
MANAGEMENT
FUND
----------
09/01/94
to
08/31/95
----------
<S> <C>
Dividend Income $ --
Interest Income 6,350
------
Total Investment Income 6,350
------
EXPENSES:
Administrator Fee 189
Investment Advisory/Custodian Fee 445
Waiver of Investment Advisory/Custodian Fee (44)
Professional Fees 26
Trustee Fees 6
Registration Fees 7
Printing Fees 37
Insurance and Other Fees 3
Pricing Expense 1
Distribution Fees--12b-1 --
Distribution Fees Waived --
Amortization of Deferred Organizational Costs 3
------
Total Expenses 673
------
NET INVESTMENT INCOME 5,677
------
Net Realized Gain (Loss) on Securities Sold --
Net Unrealized Appreciation of Investment Securities --
------
Net Realized and Unrealized Gain on Investments --
------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,677
======
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
Distribution Fees are incurred at the Investor Class level.
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
----------------- ----------- ------------ ----------- -----------
09/01/94 09/01/94 09/01/94 09/01/94 09/01/94
to 08/31/95 to 08/31/95 to 08/31/95 to 08/31/95 to 08/31/95
----------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
$ -- $ -- $ 2,010 $ 1,821 $ 281
6,589 5,740 346 315 84
------- ------ ------- ------- ------
6,589 5,740 2,356 2,136 365
------- ------ ------- ------- ------
180 154 235 115 40
634 545 1,035 506 177
(145) (128) (271) (123) (77)
25 21 37 22 7
5 4 7 3 --
7 5 11 5 3
23 21 30 17 5
2 2 3 1 1
4 3 5 2 1
-- -- -- -- --
-- -- -- -- --
3 3 3 3 3
------- ------ ------- ------- ------
738 630 1,095 551 160
------- ------ ------- ------- ------
5,851 5,110 1,261 1,585 205
------- ------ ------- ------- ------
(1,236) (742) 12,267 6,774 3,089
3,612 4,454 12,478 8,160 960
------- ------ ------- ------- ------
2,376 3,712 24,745 14,934 4,049
------- ------ ------- ------- ------
$ 8,227 $8,822 $26,006 $16,519 $4,254
======= ====== ======= ======= ======
</TABLE>
22
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (000)
- --------------------------------------------------------------------------------
FFB Lexicon Funds
<TABLE>
<CAPTION>
-------------------------
CASH
MANAGEMENT
FUND
-------------------------
09/01/94 09/01/93
to 08/31/95 to 08/31/94
-------------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 5,677 $ 2,729
Net Realized Gain (Loss) on Securities Sold -- --
Net Unrealized Appreciation (Depreciation) of Investments -- --
--------- ---------
Increase (Decrease) in Net Assets Resulting from Operations 5,677 2,729
--------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income:
Institutional Class (5,677) (2,729)
Investor Class -- --
Net Realized Gains:
Institutional Class -- --
Investor Class -- --
--------- ---------
Total Distributions (5,677) (2,729)
CAPITAL TRANSACTIONS:
Institutional Class:
Proceeds from Shares Issued 317,861 360,618
Reinvestment of Cash Distributions -- --
Cost of Shares Repurchased (355,200) (275,228)
--------- ---------
Increase (Decrease) in Net Assets Derived from Institutional Class Transactions (37,339) 85,390
Investor Class:
Proceeds from Shares Issued -- --
Reinvestment of Cash Distributions -- --
Cost of Shares Repurchased -- --
--------- ---------
Increase in Net Assets Derived from Investor Class Transactions -- --
--------- ---------
Increase (Decrease) in Net Assets Derived from Capital Transactions (37,339) 85,390
--------- ---------
Net Increase (Decrease) in Net Assets (37,339) 85,390
--------- ---------
NET ASSETS:
Beginning of Period 135,687 50,297
--------- ---------
End of Period $ 98,348 $ 135,687
========= =========
SHARE TRANSACTIONS:
Institutional Class:
Shares Issued 317,861 360,618
Shares Issued in Lieu of Cash Distributions -- --
Shares Repurchased (355,200) (275,228)
---------- ----------
Total Institutional Class Transactions (37,339) 85,390
Investor Class:
Shares Issued -- --
Shares Issued in Lieu of Cash Distributions -- --
Shares Repurchased -- --
---------- ----------
Total Investor Class Transactions -- --
---------- ----------
Increase (Decrease) in Capital Shares (37,339) 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.
23
<PAGE>
- --------------------------------------------------------------------------------
<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 08/31/95 to 08/31/94 to 08/31/95 to 08/31/94 to 08/31/95 to 08/31/94 to 08/31/95 to 08/31/94 to 08/31/95 to 08/31/94
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 5,851 $ 6,163 $ 5,110 $ 5,007 $ 1,261 $ 2,200 $ 1,585 $ 733 $ 205 $ 163
(1,236) (935) (742) 1,030 12,267 800 6,774 3,574 3,089 (103)
3,612 (6,583) 4,454 (9,057) 12,478 1,736 8,160 (1,240) 960 (640)
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
8,227 (1,355) 8,822 (3,020) 26,006 4,736 16,519 3,067 4,254 (580)
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
(5,850) (6,163) (5,105) (5,008) (1,262) (2,211) (1,584) (733) (206) (164)
-- -- (2) -- -- -- (1) -- -- --
(11) (580) (402) (1,744) (2,315) (1,930) (3,246) (951) -- --
-- -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
(5,861) (6,743) (5,509) (6,752) (3,577) (4,141) (4,831) (1,684) (206) (164)
19,834 27,243 16,023 32,873 17,125 32,576 32,761 24,452 3,904 7,547
5,214 6,200 4,955 6,340 3,497 4,116 4,569 1,645 198 162
(27,796) (38,069) (20,055) (24,609) (32,823) (35,892) (9,196) (11,452) (4,585) (5,732)
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
(2,748) (4,626) 923 14,604 (12,201) 800 28,134 14,645 (483) 1,977
9 -- 256 -- 57 -- 159 -- 52 --
-- -- 2 -- -- -- -- -- -- --
-- -- (97) -- -- -- (5) -- -- --
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
9 -- 161 -- 57 -- 154 -- 52 --
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
(2,739) (4,626) 1,084 14,604 (12,144) 800 28,288 14,645 (431) 1,977
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
(373) (12,724) 4,397 4,832 10,285 1,395 39,976 16,028 3,617 1,233
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
106,448 119,172 91,724 86,892 144,207 142,812 46,877 30,849 23,182 21,949
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
$106,075 $106,448 $ 96,121 $ 91,724 $154,492 $144,207 $86,853 $ 46,877 $26,799 $23,182
======== ======== ======== ======== ======== ======== ======= ======== ======= =======
1,999 2,638 1,605 3,114 1,459 2,838 2,697 2,094 339 644
526 606 499 609 326 360 403 143 17 14
(2,799) (3,746) (2,018) (2,394) (2,822) (3,174) (726) (988) (406) (502)
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
(274) (502) 86 1,329 (1,037) 24 2,374 1,249 (50) 156
1 -- 25 -- 4 -- 11 -- 4 --
-- -- -- -- -- -- -- -- -- --
-- -- (9) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------- -------- ------- -------
1 -- 16 -- 4 -- 11 -- 4 --
-------- -------- -------- -------- -------- --------- ------- -------- ------- -------
(273) (502) 102 1,329 (1,033) 24 2,385 1,249 (46) 156
-------- -------- -------- -------- -------- --------- ------- -------- ------- -------
</TABLE>
24
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--For the period ending August 31, 1995
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
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ----------------------------
CASH MANAGEMENT FUND
- ----------------------------
1995 $ 1.00 $ 0.05 -- $(0.05) -- $ 1.00 5.27%
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%*
- -------------------------------------------------------
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
- -------------------------------------------------------
INSTITUTIONAL CLASS
1995 $ 9.92 $ 0.55 $ 0.23 $(0.55) $ -- $ 10.15 8.16%
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%*
INVESTOR CLASS
1995(4) 9.95 0.19 0.20 (0.19) -- 10.15 3.90%
- ----------------------
FIXED INCOME FUND
- ----------------------
INSTITUTIONAL CLASS
1995 $ 9.93 $ 0.56 $ 0.40 $(0.56) $ (0.04) $ 10.29 10.13%
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%*
INVESTOR CLASS
1995(4) 9.98 0.18 0.33 (0.19) -- 10.30 5.17%
- ---------------------------------------
CAPITAL APPRECIATION EQUITY FUND
- ---------------------------------------
INSTITUTIONAL CLASS
1995 $ 11.60 $ 0.11 $ 2.14 $(0.11) $ (0.19) $ 13.55 20.11%
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%*
INVESTOR CLASS
1995(4) 11.63 0.01 1.92 (0.01) -- 13.55 16.63%
- ---------------------
SELECT VALUE FUND
- ---------------------
INSTITUTIONAL CLASS
1995 $ 12.17 $ 0.29 $ 2.39 $(0.29) $ (0.64) $ 13.92 23.95%
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%*
INVESTOR CLASS
1995(4) 12.64 0.09 1.29 (0.10) -- 13.92 10.94%
- -----------------------------------
SMALL COMPANY GROWTH FUND
- -----------------------------------
INSTITUTIONAL CLASS
1995 $ 11.38 $ 0.10 $ 2.07 $(0.10) -- $ 13.45 19.23%
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%*
INVESTOR CLASS
1995(4) 11.78 0.03 1.68 (0.03) -- 13.46 14.54%*
<CAPTION>
Ratio of
Ratio Net Investment
Ratio of of Expenses Income
Ratio of Net Investment to Average 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
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- --------------------
CASH MANAGEMENT FUND
- --------------------
1995 $ 98,348 0.61% 5.11% 0.65% 5.07% NA
1994 135,687 0.55% 3.16% 0.66% 3.05% NA
1993 50,297 0.55% 2.77% 0.61% 2.71% NA
1992(1) 77,773 0.55%* 3.76%* 0.66%* 3.65%* NA
- --------------------------------------------
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
- --------------------------------------------
INSTITUTIONAL CLASS
1995 $ 106,066 0.70% 5.54% 0.84% 5.40% 44.53%
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%
INVESTOR CLASS
1995(4) 9 0.80%* 5.42%* 1.34%* 4.88%* 44.53%
- -----------------
FIXED INCOME FUND
- -----------------
INSTITUTIONAL CLASS
1995 $ 95,961 0.69% 5.63% 0.83% 5.49% 72.51%
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%
INVESTOR CLASS
1995(4) 160 0.80%* 5.53%* 1.38%* 4.95%* 72.51%
- --------------------------------
CAPITAL APPRECIATION EQUITY FUND
- --------------------------------
INSTITUTIONAL CLASS
1995 $ 154,431 0.79% 0.92% 0.99% 0.72% 139.79%
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%
INVESTOR CLASS
1995(4) 61 0.95%* 0.24%* 1.53%* (0.34)%* 139.79%
- -----------------
SELECT VALUE FUND
- -----------------
INSTITUTIONAL CLASS
1995 $ 86,693 0.82% 2.35% 1.00% 2.17% 55.15%
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%
INVESTOR CLASS
1995(4) 160 0.95%* 2.13%* 1.47%* 1.61%* 55.15%
- -------------------------
SMALL COMPANY GROWTH FUND
- -------------------------
INSTITUTIONAL CLASS
1995 $ 26,740 0.67% 0.87% 1.00% 0.54% 113.94%
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%
INVESTOR CLASS
1995(4) 59 0.75%* 0.67%* 1.48%* (0.06)%* 113.94%
</TABLE>
(1) The Institutional Class of the Cash Management Fund commenced operations on
October 31, 1991.
(2) The Institutional Class of the Intermediate-Term Government Securities Fund,
the Fixed Income Fund and the Capital Appreciation Equity Fund commenced
operations on November 1, 1991.
(3) The Institutional Class of the Select Value Fund and the Small Company
Growth Fund commenced operations on November 2, 1992.
(4) The Investor Class of the Intermediate-Term Government Securities, the Fixed
Income, the Capital Appreciation Equity, Select Value and Small Company
Growth Funds commenced operations on May 2, 1995.
* Annualized
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
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
August 31, 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 which are 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 by complying with
the appropriate provisions of the Internal Revenue Code of 1986, as amended.
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. 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.
Net Asset Value Per Share--The net asset value per share of each Fund is
calculated on each business day, by dividing the total value of each Fund's
assets, less liabilities, by the number of shares outstanding. The maximum
offering price per share for the Investor shares of the Intermediate-Term
Government Securities Fund, the Fixed Income Fund, the Capital Appreciation
Equity Fund, the Select Value Fund and the Small Com-
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
pany Growth Fund is equal to the net asset value per share plus a sales load of
4.50%.
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.
Classes--Class-specific expenses are borne by that class. Income, expenses,
and realized and unrealized gains & losses are allocated to the respective
classes on the basis of relative daily net assets.
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 daily net assets.
3. ORGANIZATION COSTS AND
TRANSACTIONS WITH AFFILIATES:
The Trust incurred organization costs of approximately $136,000. 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 $39,000 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 27, 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
27
<PAGE>
- --------------------------------------------------------------------------------
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.
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 August 31, 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 $186,291 $59,367 $25,631
Sales 0 731 201,147 34,499 25,435
U.S. Gov't.
Purchases 44,777 60,471 0 0 0
U.S. Gov't. Sales 46,079 62,692 0 0 0
</TABLE>
At August 31, 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 August 31, 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 $1,965 $2,053 $31,310 $14,908 $4,344
Aggregate gross
unrealized
depreciation (206) (1,014) (1,210) (3,908) (609)
------ ------ ------- ------- ------
Net unrealized
appreciation $1,759 $1,039 $30,100 $11,000 $3,735
====== ====== ======= ======= ======
</TABLE>
Subsequent to October 31, 1994, the Funds recognized net capital losses for
tax purposes that have been deferred to 1995 and can be used to offset future
capital gains at August 31, 1995. The Funds also had capital losses carryforward
at August 31, 1995, to the extent provided in the regulations for Federal income
tax as follows:
<TABLE>
<CAPTION>
Capital loss Carryover Post 10/31/94
August 31, 1995-- Deferred
Fund Expiring 2003 Losses
---------------- ----------
<S> <C> <C>
Intermediate-Term
Government $955,860 $1,236,390
Securities
Fixed Income 117,850 623,727
</TABLE>
The Small Company Growth Fund utilized its entire capital loss carryforward
balance of $429,791 which was carried over from the previous year.
The Capital Appreciation Equity Fund had wash sales in the fiscal year
ended August 31, 1995 amounting to $367,572. These wash sale losses cannot be
used for income tax purposes and are deferred.
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, 1995 are as follows:
<TABLE>
<CAPTION>
Standard
& Poor's
-------
<S> <C>
US Government Securities 2.00%
Repurchase Agreements 10.30%
A-1 8.51%
A-1+ 79.19%
</TABLE>
Portfolio breakdowns are stated as a percentage of total portfolio value.
The US Government securities represent obligations issued or guaranteed by the
US Government and its agencies or instrumentalities. Repurchase agreements are
collateralized by U.S. Government or U.S. Government agency securities.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
FFB Lexicon Funds--August 31, 1995
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.
8. SUBSEQUENT EVENT:
On June 18, 1995, First Fidelity Bancorporation, the parent corporation of First
Fidelity Bank, N.A., the investment advisor to the FFB Lexicon Funds, agreed to
merge with First Union Corporation on or about January 1, 1996. Contingent upon
the merger and various other conditions, including shareholder approval, the FFB
Lexicon Family of Funds will be combined with the Evergreen Family of Funds.
Therefore, the Trustees of the FFB Lexicon Funds have called a special meeting
of shareholders of the Cash Management, Intermediate-Term Government Securities,
Fixed Income, Capital Appreciation Equity, Select Value and Small Company Growth
Funds to be held on November 21 to vote on the following proposals: Shareholders
of the Cash Management, Capital Appreciation Equity, Select Value and Small
Company Growth Funds will vote to approve or disapprove a proposed combination
of their respective Funds with investment companies in the Evergreen Family of
mutual funds which have similar investment objectives and polices. If approved
it is expected that such a combination would take place on January 19, 1996.
Shareholders of the Intermediate-Term Government Securities and Fixed Income
Funds will vote to approve or disapprove a change in the Investment Advisor from
the First Fidelity Bank, N.A. to First Union National Bank. Detailed information
about these proposed transactions are described in the Prospectus/Proxy
Statement mailed to shareholders.
29
<PAGE>
LEX-F-017-03
<PAGE>
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