1933 Act File No. 2-
1940 Act File No. 811-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 8 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 9 X
THE FFB LEXICON FUND
(Exact Name of Registrant as Specified in Charter)
2500 Westchester Avenue, Purchase, New York 10577
(Address of Principal Executive Offices)
(914) 694-2020
(Registrant's Telephone Number)
DAVID G. LEE,
C/O SEI CORPORATION
680 E. SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(Name and Address of Agent for Service)
Copies to:
JOSEPH J. McBRIEN , ESQ
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
JOHN H. GRADY, JR., ESQ. RICHARD W. GRANT, ESQ.
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
1800 M STREET, N.W. 2000 ONE LOGAN SQUARE
WASHINGTON, D.C. 20036 PHILADELPHIA, PA 19103
It is proposed that this filing will become effective (check appropriate box)
/ / Immediately upon filing pursuant to paragraph (b) or
/ / on (date) pursuant to paragraph (b) or
/X/ 60 days after filing pursuant to paragraph (a)(i) or
/ / on (date) pursuant to paragraph (a)(i) or
/ / 75 days after filing pursuant to
paragraph (a)(ii) or
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
/X/ filed the Notice required by that Rule on or about October 30, 1995; or
/ / intends to file the Notice required by that Rule on or about (date); or
/ / during the most recent fiscal year did not sell any securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to Rule
24f-2(b)(2), need not file the Notice.
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of THE FFB LEXICON FUND (the
"Trust"), relates to two of the Trust's portfolios: (1) THE FFB LEXICON FUND -
INTERMEDIATE TERM FUND, which after January 19, 1996 is expected to be renamed
the EVERGREEN FIXED INCOME FUND, and (2) THE FFB LEXICON FUND - INTERMEDIATE
TERM GOVERNMENT SECURITIES FUND, which after January 19, 1996 is expected to be
renamed the EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND. The
Prospectus and Statement of Additional Information included herein also contains
disclosure relating to two of the series of Evergreen Investment Trust, namely,
the Evergreen Fixed-Income Fund, which after January 19, 1996 is expected to be
renamed the Evergreen Short-Intermediate Bond Fund and Evergreen U.S. Government
Fund. Each fund offers of four separate classes of shares: (a) Class Y Shares,
(b) Class A Shares, (c) Class B Shares, and (d) Class C Shares.
CROSS REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No. Location in Prospectus(es)
Part A
Item 1. Cover Page Cover Page
Item 2. Synopsis and Fee Table Overview of the Fund(s);
Expense Information
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Cover Page; Description of
the Funds; General
Information
Item 5. Management of the Fund Management of the Fund(s);
General Information
Item 5A. Management's Discussion Management's Discussion of
Fund Performance
Item 6. Capital Stock and Other Securities Dividends, Distributions and
Taxes; General
Information
Item 7. Purchase of Securities Being Offered Purchase and Redemption of
Shares
Item 8. Redemption or Repurchase Purchase and Redemption of
Shares
Item 9. Pending Legal Proceedings Not Applicable
Location in Statement of
Part B Additional Information
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Objectives and
Policies;Investment
Restrictions; Other
Restrictions and
Operating Policies
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Management
Holders of Securities
Item 16. Investment Advisory and Other Services Investment Adviser;
Purchase of Shares
Item 17. Brokerage Allocation Allocation of Brokerage
Item 18. Capital Stock and Other Securities Purchase of Shares
Item 19. Purchase, Redemption and Pricing of Distribution Plans; Purchase
Securities Being Offered of Shares; Net Asset Value
Item 20. Tax Status Additional Tax Information
Item 21. Underwriters Distribution Plans; Purchase
of Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
******************************************************************************
<PAGE>
PROSPECTUS January 22, 1996
EVERGREEN(SM) INCOME FUNDS (Evergreen Tree Logo)
EVERGREEN U.S. GOVERNMENT FUND
EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
CLASS A SHARES
CLASS B SHARES
CLASS C 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 A, Class B and Class C 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, 1996 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) 807-2940.
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
<TABLE>
<S> <C>
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 12
Investment Practices and Restrictions 14
MANAGEMENT OF THE FUNDS
Investment Adviser 18
Distribution Plans and Agreements 19
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 20
How to Redeem Shares 23
Exchange Privilege 24
Shareholder Services 25
Effect of Banking Laws 25
OTHER INFORMATION
Dividends, Distributions and Taxes 26
General Information 27
</TABLE>
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 ("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 company in
the United States.
EVERGREEN SHORT-INTERMEDIATE BOND FUND (formerly Evergreen Fixed Income
Fund and previously known as 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 U.S. GOVERNMENT FUND (formerly First Union U.S. Government
Portfolio) seeks a high level of current income consistent with stability of
principal.
EVERGREEN INTERMEDIATE-TERM BOND FUND (formerly The FFB Lexicon
Fund -- Fixed Income Fund) seeks 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.
2
<PAGE>
EXPENSE INFORMATION
The table set forth below summarizes the shareholder transaction costs
associated with an investment in each Class A, Class B and Class C Shares of a
Fund. For further information see "Purchase and Redemption of Shares" and
"General Information -- Other Classes of Shares".
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as 4.75% None
a % of offering price)
Sales Charge on Dividend Reinvestments None None
Contingent Deferred Sales Charge (as a % of None 5% during the first year, 4% during the second
original purchase price or redemption year, 3% during the third and fourth years, 2%
proceeds, whichever is lower) during the fifth year, 1% during the sixth and
seventh years and 0% after the seventh year
Redemption Fee None None
Exchange Fee None None
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class C Shares
<S> <C>
Maximum Sales Charge Imposed on Purchases (as None
a % of offering price)
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge (as a % of 1% during the
original purchase price or redemption first year and 0%
proceeds, whichever is lower) thereafter
Redemption Fee None
Exchange Fee None
</TABLE>
The following tables show for each Fund the estimated annual operating
expenses (as a percentage of average net assets) attributable to each Class of
Shares, together with examples of the cumulative effect of such expenses on a
hypothetical $1,000 investment in each Class for the periods specified assuming
(i) a 5% annual return, and (ii) redemption at the end of each period and,
additionally for Class B and C, no redemption at the end of each period.
In the following examples (i) the expenses for Class A Shares assume
deduction of the maximum 4.75% sales charge at the time of purchase, (ii) the
expenses for Class B Shares and Class C Shares assume deduction at the time of
redemption (if applicable) of the maximum contingent deferred sales charge
applicable for that time period, and (iii) the expenses for Class B Shares
reflect the conversion to Class A Shares eight years after purchase (years eight
through ten, therefore, reflect Class A expenses).
EVERGREEN U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming
Assuming Redemption no
ANNUAL OPERATING EXPENSES** at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .50% .50% .50% After 1 Year $ 58 $ 68 $ 28 $ 18
12b-1 Fees* .25% .75% .75% After 5 Years $ 102 $ 116 $ 96 $ 96
Shareholder Service Fees -- .25% .25% After 10 Years $ 167 $ 180 $ 209 $ 180
Other Expenses .28% .28% .28%
Total 1.03% 1.78% 1.78%
<CAPTION>
Assuming
no
Redemption
Class C
<S> <C>
Management Fees $ 18
12b-1 Fees* $ 96
Shareholder Service Fees $ 209
Other Expenses
Total
</TABLE>
EVERGREEN SHORT-INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .50% .50% .50% After 1 Year $ 55 $ 67 $ 27 $ 17 $ 17
12b-1 Fees* .10% .75% .75% After 5 Years $ 82 $ 110 $ 90 $ 90 $ 90
Shareholder Service Fees -- .25% .25% After 10 Years $ 136 $ 160 $ 195 $ 160 $ 195
Other Expenses .15% .15% .15%
Total .75% 1.65% 1.65%
</TABLE>
EVERGREEN INTERMEDIATE-TERM BOND FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES** at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 58 $ 68 $ 28 $ 18 $ 18
12b-1 Fees* .25% .75% .75% After 3 Years $ 79 $ 86 $ 56 $ 56 $ 56
Shareholder Service Fees -- .25% .25% After 5 Years $ 102 $ 116 $ 96 $ 96 $ 96
Other Expenses .18% .18% .18% After 10 Years $ 167 $ 180 $ 209 $ 180 $ 209
Total 1.03% 1.78% 1.78%
</TABLE>
3
<PAGE>
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
EXAMPLES
Assuming Redemption Assuming no
ANNUAL OPERATING EXPENSES** at End of Period Redemption
Class A Class B Class C Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 58 $ 68 $ 28 $ 18 $ 18
12b-1 Fees* .25% .75% .75% After 3 Years $ 79 $ 86 $ 56 $ 56 $ 56
Shareholder Service Fees -- .25% .25% After 5 Years $ 102 $ 116 $ 96 $ 96 $ 96
Other Expenses .18% .18% .18% After 10 Years $ 167 $ 180 $ 209 $ 180 $ 209
Total 1.03% 1.78% 1.78%
</TABLE>
*Class A Shares can pay up to .75 of 1% of average assets as a 12b-1 fee. For
the forseeable future, the Class A Shares 12b-1 fees will be limited to .25 of
1% of average net assets for Evergreen U.S. Government Fund, Evergreen
Intermediate-Term Bond Fund and Evergreen Intermediate-Term Government
Securities Fund and .10 of 1% of average net assets for Evergreen
Short-Intermediate Bond Fund.
**The estimated annual operating expenses and examples do not reflect fee
waivers and expense reimbursements. Actual expenses for Class A, B and C Shares
net of fee waivers and expense reimbursements for the most recent fiscal period
ended were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
EVERGREEN U.S. GOVERNMENT FUND 1.04% 1.79% 1.79%
EVERGREEN INTERMEDIATE-TERM BOND FUND .80% N/A N/A
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND .70% N/A N/A
</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 each Class of
Shares of the Funds will bear directly or indirectly. The amounts set forth both
in the tables and in the examples for Evergreen U.S. Government Fund and
Evergreen Short-Intermediate Bond Fund are estimated amounts based on the
experience of each Fund for the six month period ended June 30, 1995. The
amounts set forth both in the tables and examples for Evergreen
Intermediate-Term Bond Fund and Evergreen Intermediate-Term Government
Securities Fund are based on the experience of each fund for year ended August
31, 1995. Such expenses have been restated to reflect current fee arrangements.
In the case of Funds that did not offer all of the above-referenced Classes of
shares during such periods, the amounts set forth in the tables are based on the
expenses incurred by the Classes that were offered. 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.
4
<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 SHORT-INTERMEDIATE BOND FUND (FORMERLY
EVERGREEN FIXED INCOME FUND) 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 (formerly and
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND) has been audited by
Arthur Andersen LLP, the Fund's independent auditors during such periods. A
report of KPMG Peat Marwick LLP or Arthur Andersen LLP 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>
CLASS B SHARES
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).......... $236,696
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 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>
Expenses............................................. 1.05% 1.00% .99% 1.80% 1.58%
Net investment income................................ 7.06% 6.93% 6.62% 6.31% 6.38%
<CAPTION>
CLASS B SHARES
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 (a)............................................... .80%++ .70% .55% .55% .55%++
Net investment
income (a)............................................... 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 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>
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 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>
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 SHORT-INTERMEDIATE BOND 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 SHORT-INTERMEDIATE BOND 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 SHORT-INTERMEDIATE BOND 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
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
12
<PAGE>
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".);
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, Inc. 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 FUND is
to maximize current yield consistent with the preservation of capital.
13
<PAGE>
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
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 denominated 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.
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.
14
<PAGE>
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.
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 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
15
<PAGE>
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
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.
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
16
<PAGE>
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.
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.
17
<PAGE>
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.
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
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<PAGE>
investment adviser to each Fund. First Union National Bank of North Carolina
("FUNB") is a subsidiary of 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 $96.7 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 throughout the United States.
CMG manages or otherwise oversees the investment of over $36 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 January 1, 1996, 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 EVERGREEN SHORT-INTERMEDIATE
BOND FUND and EVERGREEN U.S. GOVERNMENT FUND and .60 of 1% of the average daily
net assets 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 $10.4 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,
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.
DISTRIBUTION PLANS AND AGREEMENTS
Rule 12b-1 under the Investment Company Act of 1940 permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted for its Class A,
Class B and Class C shares a Rule 12b-1 plan (each, a "Plan" or collectively the
"Plans"). Under the Plans, each Fund may incur distribution-related and
shareholder servicing-related expenses which may not exceed an annual rate of
.75 of 1% of the aggregate average daily net assets attributable to the Class A,
Class B and Class C shares of EVERGREEN SHORT-INTERMEDIATE BOND FUND and
EVERGREEN U.S. GOVERNMENT FUND, .50 of 1% of the aggregate average daily net
assets of the Class A shares of EVERGREEN SHORT-INTERMEDIATE BOND FUND
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<PAGE>
and EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND and 1% of the
aggregate average daily net assets of the Class B and Class C shares of
EVERGREEN SHORT-INTERMEDIATE BOND FUND and EVERGREEN INTERMEDIATE-TERM
GOVERNMENT SECURITIES FUND. Payments under the Plans adopted with respect to
Class A shares are currently voluntarily limited to, (as a percentage of
aggregate average daily net assets attributable to Class A shares), .10 of 1%
for EVERGREEN SHORT-INTERMEDIATE BOND FUND and .25 of 1% for EVERGREEN U.S.
GOVERNMENT FUND, EVERGREEN SHORT-INTERMEDIATE BOND FUND and EVERGREEN
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND. The Plans provide that a portion
of the fee payable thereunder may constitute a service fee to be used for
providing ongoing personal services and/or the maintenance of shareholder
accounts. EVERGREEN SHORT-INTERMEDIATE BOND FUND and EVERGREEN U.S. GOVERNMENT
FUND have also adopted a shareholder service plan ("Service Plans") with respect
to their Class B and Class C shares, which permits each Fund to incur a fee of
up to .25 of 1% of the aggregate average daily net assets attributable to the
Class B and Class C shares for ongoing personal services and/or the maintenance
of shareholder accounts. Such service fee payments to financial intermediaries,
whether pursuant to a Plan or Service Plans, will not exceed .25 of 1% of the
aggregate average daily net assets attributable to each Class of shares of each
Fund. Each Fund has also entered into a distribution agreement (each a
"Distribution Agreement" or collectively the "Distribution Agreements") with
Evergreen Funds Distributor, Inc. ("EFD"). Pursuant to the Distribution
Agreements, each Fund will compensate EFD for its services as distributor at a
rate which may not exceed an annual rate of .25 of 1% of a Fund's aggregate
average daily net assets attributable to Class A shares and .75 of 1% of a
Fund's aggregate average daily net assets attributable to the Class B and Class
C shares. The Distribution Agreements provide that EFD will use the distribution
fee received from a Fund for payments (i) to compensate broker-dealers or other
persons for distributing shares of the Funds, including interest and principal
payments made in respect of amounts paid to broker-dealers or other persons that
have been financed (EFD may assign its rights to receive compensation under the
Plans to secure such financings), (ii) to otherwise promote the sale of shares
of the Fund, and (iii) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative, accounting and
other services with respect to the Funds' shareholders. The financing of
payments made by EFD to compensate broker-dealers or other persons for
distributing shares of the Funds may be provided by FUNB or its affiliates.
The Funds may not pay any distribution or services fees during any fiscal
period in excess of the amounts set forth above. Since EFD's compensation under
the Distribution Agreements is not directly tied to the expenses incurred by
EFD, the amount of compensation received by it under the Distribution Agreements
during any year may be more or less than its actual expenses and may result in a
profit to EFD. Distribution expenses incurred by EFD in one fiscal year that
exceed the level of compensation paid to EFD for that year may be paid from
distribution fees received from a Fund in subsequent fiscal years.
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to .75
of 1% and .25 of 1%, respectively, of the average annual net assets attributable
to that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per annum.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers, banks
or other financial intermediaries, or directly through EFD. The minimum initial
investment is $1,000, which may be waived in certain situations. There is no
minimum for subsequent investments. Investments of $25 or more are allowed under
the Systematic Investment Plan. Share certificates are not issued. In states
where EFD is not registered as a broker-dealer shares of a Fund will only be
sold through other broker-dealers or other financial institutions that are
registered. See the Share Purchase Application and Statement of Additional
Information for more information. Only Class A, Class B and Class C shares are
offered through this Prospectus (see "General Information" -- "Other Classes of
Shares").
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<PAGE>
Class A Shares-Front-End Sales Charge Alternative. You can purchase Class A
shares at net asset value plus an initial sales charge on purchases under
$1,000,000. On purchases of $1,000,000 or more, a contingent deferred sales
charge ("CDSC") equal to the lesser of 1% of the purchase price or the
redemption value will be imposed on shares redeemed during the first year after
purchase. The schedule of charges for Class A shares is as follows:
Initial Sales Charge
EVERGREEN U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 - $99,000 4.71% 4.50% 4.25%
$100,000 - $249,999 3.90% 3.75% 3.25%
$250,000 - $499,999 2.56% 2.50% 2.00%
$500,000 - $999,999 2.04% 2.00% 1.75%
$1,000,000 - $2,999,999 None None 1.00%
$3,000,000 - $4,999,999 None None .50%
Over $5,000,000 None None .25%
</TABLE>
EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN INTERMEDIATE TERM BOND FUND
EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
as a % of the Net as a % of the Commission to Dealer/Agent
Amount of Purchase Amount Invested Offering Price as a % of Offering Price
<S> <C> <C> <C>
Less than $50,000 3.36% 3.25% 2.75%
$50,000-$99,000 3.09% 3.00% 2.75%
$100,000-$249,999 2.56% 2.50% 2.25%
$250,000-$499,999 2.04% 2.00% 1.75%
$500,000-$999,999 1.52% 1.50% 1.25%
$1,000,000-$2,999,999 None None 1.00%
$3,000,000-$4,999,999 None None .50%
Over $5,000,000 None None .25%
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by:
institutional investors, which may include bank trust departments and registered
investment advisers; investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their clients and who
charge such clients a management, consulting, advisory or other fee; clients of
investment advisers or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such investment
advisers or financial planners on the books of the broker-dealer through whom
shares are purchased; institutional clients of broker-dealers, including
retirement and deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained with a Fund by
the broker-dealer; shareholders of record on October 12, 1990 in any series of
Evergreen Investment Trust in existence on that date, and the members of their
immediate families; employees of FUNB and its affiliates, EFD and any
broker-dealer with whom EFD has entered into an agreement to sell shares of the
Funds, and members of the immediate families of such employees; and upon the
initial purchase of an Evergreen mutual fund by investors reinvesting the
proceeds from a redemption within the preceding thirty days of shares of other
mutual funds, provided such shares were initially purchased with a front-end
sales charge or subject to a contingent deferred sale charge. Certain
broker-dealers or other financial institutions may impose a fee on transactions
in shares of the Funds.
Class A shares may also be purchased at net asset value by qualified and
non-qualified employee benefit and savings plans which make shares of the Funds
and the other Evergreen mutual funds available to their
21
<PAGE>
participants, and which: (a) are employee benefit plans having at least
$1,000,000 in investable assets, or 250 or more eligible participants; or (b)
are non-qualified benefit or profit sharing plans which are sponsored by an
organization which also makes the Evergreen mutual funds available through a
qualified plan meeting the criteria specified under (a). In connection with
sales made to plans of the type described in the preceding sentence that are
clients of broker-dealers, and which do not qualify for sales at net asset value
under the conditions set forth in the paragraph above, payments may be made in
an amount equal to .50 of 1% of the net asset value of shares purchased. These
payments are subject to reclaim in the event shares are redeemed within twelve
months after purchase.
When Class A shares are sold, EFD will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EFD may also pay fees to
banks from sales charges for services performed on behalf of the customers of
FUNB in connection with the purchase of shares of the Funds. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to .10 of 1% of the
average daily value on an annual basis of Class A shares held by their clients.
Certain purchases of Class A shares may qualify for reduced sales charges in
accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity
Discount, Statement of Intention, Privilege for Certain Retirement Plans and
Reinstatement Privilege. Consult the Share Purchase Application and Statement of
Additional Information for additional information concerning these reduced sales
charges.
Class B Shares-Deferred Sales Charge Alternative. You can purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within seven years after purchase. Shares obtained
from dividend or distribution reinvestment are not subject to the CDSC. The
amount of the CDSC (expressed as a percentage of the lesser of the current net
asset value or original cost) will vary according to the number of years from
the purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
Year Since Purchase Contingent Deferred Sales Charge
<S> <C> <C>
FIRST 5%
SECOND 4%
THIRD and FOURTH 3%
FIFTH 2%
SIXTH and SEVENTH 1%
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to
EFD. The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet distribution requirements for certain
qualified retirement plans or in the case of certain redemptions made under a
Fund's Systematic Cash Withdrawal Plan. Class B shares are subject to higher
distribution and/or shareholder service fees than Class A shares for a period of
seven years (after which it is expected that they will convert to Class A
shares). The higher fees mean a higher expense ratio, so Class B shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares. See the Statement of Additional Information for further details.
Class C Shares -- Level-Load Alternative. You can purchase Class C shares
without any initial sales charge and, therefore, the full amount of your
investment will be used to purchase Fund shares. However, you will pay a 1% CDSC
if you redeem shares during the first year after purchase. Class C shares incur
higher distribution and/or shareholder service fees than Class A shares but,
unlike Class B shares, do not convert to any other class of shares of the Fund.
The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares. Shares obtained from dividend or distribution reinvestment are not
subject to the CDSC. The maximum amount of Class C shares that may be purchased
is $500,000.
With respect to Class B shares and Class C shares, no CDSC will be
imposed on: (1) the portion of redemption proceeds attributable to increases in
the value of the account due to increases in the net asset value per share, (2)
shares acquired through reinvestment of dividends and capital gains, (3) shares
held for more than seven years (in the case of Class B shares) or one year (in
the case of Class C shares) after the end of the calendar month of acquisition,
(4) accounts following the death or disability of a shareholder, or (5) minimum
required distributions to a shareholder over the age of 70 1/2 from an IRA or
other retirement plan.
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 each Fund's net
assets attributable to that Class by the number of outstanding
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shares of that Class. Shares are valued each day the New York Stock Exchange
(the "Exchange") is open 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 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.
General. The decision as to which Class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares because 100% of your purchase is
invested immediately and because such shares will convert to Class A shares,
which incur lower ongoing distribution and/or shareholder service fees, after
seven years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year. Consult your financial intermediary for further information. The
compensation received by dealers and agents may differ depending on whether they
sell Class A, Class B or Class C shares. There is no size limit on purchases of
Class A shares.
In addition to the discount or commission paid to dealers, EFD will from
time to time pay to dealers additional cash or other incentives that are
conditioned upon the sale of a specified minimum dollar amount of shares of a
Fund and/or other Evergreen Mutual Funds. Such incentives will take the form of
payment for attendance at seminars, lunches, dinners, sporting events or theater
performances, or payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer and their immediate
family members to urban or resort locations within or outside the United States.
Such a dealer may elect to receive cash incentives of equivalent amount in lieu
of such payments. EFD may also limit the availability of such incentives to
certain specified dealers. EFD from time to time sponsors promotions involving
First Union Brokerage Services, Inc. ("FUBS"), an affiliate of each Fund's
investment adviser, and select broker-dealers, pursuant to which incentives are
paid, including gift certificates and payments in amounts up to 1% of the dollar
amount of shares of a Fund sold. Awards may also be made based on the opening of
a minimum number of accounts. Such promotions are not being made available to
all dealers.
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 its 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 its 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.
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 (less any
applicable CDSC for Class B or Class C shares) 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, a 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 Through Your Financial Intermediary. A Fund must receive
instructions from your financial intermediary before 4:00 p.m. Eastern time for
you to receive that day's net asset value (less any applicable CDSC for Class B
or C shares). Your financial intermediary is responsible for furnishing all
necessary documentation to a Fund and may charge you for this service. Certain
financial intermediaries may require that you give instructions earlier than
4:00 p.m.
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to State Street Bank and Trust Company ("State
Street") which is the registrar, transfer agent and dividend-disbursing agent
for each Fund. 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
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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 the phone number on the front page of this Prospectus between the
hours of 8:00 a.m. and 5:30 p.m. (Eastern time) each business day (i.e., any
weekday exclusive of days on which the Exchange or State 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 a 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 a 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 a
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 mutual funds through your financial
intermediary, or 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 mutual fund, is subject to the minimum investment and suitability
requirements of each Fund.
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. Shareholders are limited to five exchanges per calendar year, with a
maximum of three per calendar quarter. 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.
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No CDSC will be imposed in the event Class B or Class C shares are
exchanged for Class B or Class C shares, respectively, of other Evergreen mutual
funds. (If you redeem shares, the CDSC applicable to the Class B or Class C
shares of the Evergreen mutual fund originally purchased for cash is applied.)
Also, Class B shares will continue to age following an exchange for purposes of
conversion to Class A shares and determining the amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. A Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. Eastern time for
you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to a Fund and may charge
you for this service.
Exchanges by Telephone and Mail. You may exchange shares with a value of $1,000
or more by telephone by calling the phone number on the front page of this
Prospectus. 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, each Fund 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, EFD
or the toll-free number on the front 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 per month or
$75 per quarter. Each Fund reserves the right to close an account that through
liquidation or termination of the systematic investment plan has not reached a
minimum balance of $1,000 ($250 for retirement accounts) within 24 months of the
initial investment. You can open a systematic investment plan in the EVERGREEN
U.S. GOVERNMENT FUND and EVERGREEN SHORT-INTERMEDIATE BOND FUND for a minimum of
only $50 per month with no initial investment required.
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 $75. 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. Any applicable Class B CDSC will be
waived with respect to redemptions occurring under a Systematic Cash Withdrawal
Plan during a calendar year to the extent that such redemptions do not exceed
10% of (i) the initial value of the account plus (ii) the value, at the time of
purchase, of any subsequent investments.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Funds and the
other Evergreen mutual funds available to their participants. Investments made
by such employee benefit plans may be exempt from front-end sales charges if
they meet the criteria set forth under "Class A Shares-Front End Sales Charge
Alternative". Each Fund's investment 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.
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
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request for subsequent dividends and/or distributions to be paid in cash at
least three full business days prior to a 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 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 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 FUND net income dividends, if any, are
declared daily and paid monthly. For EVERGREEN SHORT-INTERMEDIATE BOND FUND,
EVERGREEN INTERMEDIATE-TERM 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.
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
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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, if any, 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. A shareholder who
acquires Class A shares of a Fund and sells or otherwise disposes of such shares
within ninety days of acquisition may not be allowed to include certain sales
charges incurred in acquiring such shares for purposes of calculating gain and
loss realized upon a sale or exchange of shares of the Fund.
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.
Organization. EVERGREEN SHORT-INTERMEDIATE BOND FUND and EVERGREEN U.S.
GOVERNMENT FUND are each separate investment series of Evergreen Investment
Trust (formerly First Union Funds), which is a Massachusetts business trust
organized in 1984. EVERGREEN SHORT-INTERMEDIATE BOND FUND and EVERGREEN
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND are separate investment 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 CDSC.
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, 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
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transfer agency fee with respect to the Class B shares will be higher than the
transfer agency fee with respect to the Class A shares or Class C shares.
Principal Underwriter. EFD, an affiliate of Furman Selz LLC, located at 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 not 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.
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.
In marketing a Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen mutual funds, products, and services, which may include:
retirement investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; and charitable
giving. In addition, the information provided to investors may quote financial
or business publications and periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques. The materials may also reprint, and use as advertising
and sales literature, articles from Evergreen Events, a quarterly magazine
provided free of charge to Evergreen Mutual fund shareholders.
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 provides that no Trustee or shareholder will be personally liable
for the obligations of the Trust and
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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 of 1933, as amended. 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.
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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 and 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., 230 Park Avenue, New York, New York 10169
536117 Rev. 02 (10/pkg.) 1/96
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PROSPECTUS January 22, 1996
EVERGREEN(SM) INCOME FUNDS (Evergreen Tree Logo)
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, 1996 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) 235-0064.
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 OBLIGATIONS OF
FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, ARE NOT ENDORSED OR
GUARANTEED BY FIRST UNION OR ANY SUBSIDIARIES OF FIRST UNION, AND ARE NOT
INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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
<TABLE>
<S> <C>
OVERVIEW OF THE FUNDS 2
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 5
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies 12
Investment Practices and Restrictions 14
MANAGEMENT OF THE FUNDS
Investment Adviser 18
PURCHASE AND REDEMPTION OF SHARES
How to Buy Shares 19
How to Redeem Shares 20
Exchange Privilege 21
Shareholder Services 22
Effect of Banking Laws 22
OTHER INFORMATION
Dividends, Distributions and Taxes 23
General Information 24
</TABLE>
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 ("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 company in
the United States.
EVERGREEN SHORT-INTERMEDIATE BOND FUND (formerly Evergreen Fixed Income
Fund and previously known as 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 U.S. GOVERNMENT FUND (formerly First Union U.S. Government
Portfolio) seeks a high level of current income consistent with stability of
principal.
EVERGREEN INTERMEDIATE-TERM BOND FUND (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.
2
<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 SHORT-INTERMEDIATE BOND 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.
4
<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 SHORT-INTERMEDIATE BOND FUND (FORMERLY
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 (FORMERLY THE FFB
LEXICON FUND -- FIXED INCOME FUND) and EVERGREEN INTERMEDIATE-TERM GOVERNMENT
SECURITIES FUND (FORMERLY THE FFB LEXICON FUND -- 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 LLP 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>
CLASS B SHARES
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).......... $236,696
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 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>
Expenses............................................. 1.05% 1.00% .99% 1.80% 1.58%
Net investment income................................ 7.06% 6.93% 6.62% 6.31% 6.38%
<CAPTION>
CLASS B SHARES
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 (a)............................................... .80%++ .70% .55% .55% .55%++
Net investment
income (a)............................................... 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 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>
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 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>
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 SHORT-INTERMEDIATE BOND 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 SHORT-INTERMEDIATE BOND 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 SHORT-INTERMEDIATE BOND 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
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
12
<PAGE>
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".);
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, Inc. 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 FUND is
to maximize current yield consistent with the preservation of capital.
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<PAGE>
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
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 denominated 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.
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.
14
<PAGE>
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. 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 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
15
<PAGE>
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
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.
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
16
<PAGE>
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.
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.
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<PAGE>
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.
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
First Union Corporation ("First Union"), the sixth largest bank holding company
in the United States. First Union is
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headquartered in Charlotte, North Carolina, and had $96.7 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
throughout the United States. CMG manages or otherwise oversees the investment
of over $36 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 January 1, 1996, 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 EVERGREEN SHORT-INTERMEDIATE
BOND FUND and EVERGREEN U.S. GOVERNMENT FUND and .60 of 1% of the average daily
net assets 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 $10.4 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,
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 mutual 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
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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 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
Mutual 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
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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 8:00 a.m. and 5:30 p.m. (Eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or State
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 Mutual 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 Mutual Fund, is subject to the minimum
investment and suitability requirements of each Fund.
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.
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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 $50 per month or
$75 per quarter.
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 $75. 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
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
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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 FUND 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.
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, if any, 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
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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.
Organization. EVERGREEN SHORT-INTERMEDIATE BOND FUND and EVERGREEN U.S.
GOVERNMENT 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, 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.
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
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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. 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.
25
<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 and 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., 230 Park Avenue, New York, New York 10169
536125
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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.
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.
Robert J. Jeffries + (72), 2118 New Bedford Drive, Sun City Center, FL- Trustee
Emeritus. Corporate consultant since 1967.
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 Short Intermediate Bond/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 Short Intermediate Bond/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 Short Intermediate Bond/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 Short Intermediate Bond/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 Short Intermediate Bond/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 Short Intermediate Bond/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 Short Intermediate Bond/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* Short Intermediate Bond/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* Short Intermediate Bond/Y 32,857,564 90.22%/81.91%
Trust Accounts
Attn: Ginny Batten
11th FL CMG-151
301 S. Tyron Street
Charlotte, NC 28288
<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
SHORT INTERMEDIATE Ended Year Ended Year Ended
BOND 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 $XXXX 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 January 19, 1996, 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
January 19, 1996, 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 $10.4 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 January 19, 1996. 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 January 19, 1996 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.
******************************************************************************
FFB LEXICON FUND
PART C. OTHER INFORMATION
Post-Effective Amendment No. 8
Item 24. Financial Statements and Exhibits:
(a) Financial Statements.
The Registrant's audited Financial Statements for the fiscal
year ended August 31, 1995 including the report of Arthur Andersen LLP
thereon are included in the Statement of Additional Information filed
as part of this Annual Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A. The Financial Statements included
in such Post-Effective Amendment No. 8 are:
Statement of Net Assets as of August 31, 1995
Statements of Operations For the Period Ended August
31, 1995 Statements of Changes in Net Assets as of
August 31, 1995 Financial Highlights as of August 31,
1995 Notes to Financial Statements as of August 31,
1995 Report of Independent Public Accountants dated
August 31, 1995
(b) Additional Exhibits.
(1) Registrant's Declaration of Trust(1)
(1a) Amendment to Registrant's Declaration of Trust*
(2) Registrant's By-Laws(1)
(5) Form of Investment Advisory Agreement with First Union National Bank*
(6) Distribution Agreement with Evergreen Funds Distributor, Inc.*
(8) Form of Custodian Agreement
(10) Opinion and Consent of Counsel2
(11) Consent of Independent Public Accountants*
(15) Form of Distribution Plan and Servicing Agreement of
the Registrant relating to Class A Share(3)
(15) Form of Distribution Plan and Servicing Agreement of
the Registrant relating to Class B and C Shares*
(16) Performance Quotation Computation (2)
(25) Not Applicable
- ------------------------------------
* Filed herewith.
1 Incorporated herein by reference to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A (File No. 33- 41918), filed
with the Securities and Exchange Commission on October 31, 1995.
1 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (File No. 33-41918), filed with the Securities and Exchange Commission
on June 26, 1991.
2 Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No. 33-41918), filed with
the Securities and Exchange Commission on October 21, 1991.
3 Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form N-1A (File No. 33-41918), filed with
the Securities and Exchange Commission on October 31, 1994.
Item 25. Persons Controlled By or Under Common Control with Registrant:
See the Prospectuses and the Statement of Additional Information
regarding the Registrant's control relationships. The Administrator is a
wholly-owned subsidiary of SEI Corporation which also controls the distributor
of the Registrant, SEI Financial Services Company, and other corporations
engaged in providing various financial and record keeping services, primarily to
bank trust departments, pension plan sponsors, and investment managers.
Item 26. Number of Holders of Securities:
The following information is given as of October 5, 1995:
Number of
Title of Class Record Holders
Class Y:
Evergreen Intermediate-Term Government Securities Fund 4
Evergreen Intermediate-Term Bond Fund 4
Class A:
Evergreen Intermediate-Term Government Securities Fund 17
Evergreen Intermediate-Term Bond Fund 12
Class B:
Evergreen Intermediate-Term Government Securities Fund 1
Evergreen Intermediate-Term Bond Fund 1
ClassC:
Evergreen Intermediate-Term Government Securities Fund 1
Evergreen Intermediate-Term Bond Fund 1
Item 27. Indemnification:
Article VIII of the Agreement of Declaration of Trust filed as
Exhibit 1 to the Registration Statement is incorporated by reference. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to trustees, directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, directors,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
<PAGE>
Item 28. Business or Other Connections of Investment Adviser
Evergreen Asset Management Corp. ("Evergreen Asset"), the investment
adviser to Registrant's Evergreen Fund series, and Lieber and Company, the
sub-adviser to Registrant's Evergreen Fund series also acts as such to one or
more of the separate investment series offered by The Evergreen Total Return
Fund, The Evergreen Limited Market Fund, Inc., The Evergreen Value Timing Fund,
The Evergreen Money Market Trust, The Evergreen American Retirement Trust, The
Evergreen Municipal Trust, Evergreen Global Real Estate Equity Trust and
Evergreen Foundation Fund, all registered investment companies. Stephen A.
Lieber, Chairman and Co-CEO, Theodore J. Israel, Jr., Executive Vice President,
Nola Maddox Falcone, President and Co-CEO, George R. Gaspari, Senior Vice
President and CFO and Joseph J. McBrien, Senior Vice President and General
Counsel, are the principal executive officers of Evergreen Asset and Lieber and
Company, were, prior to June 30, 1994 officers and/or directors or trustees of
the Registrant and the other funds for which the Adviser acts as investment
adviser.
For a description of the other business of the First Union National Bank of
North Carolina ("FUNB-NC"), which will serves as investment adviser to
Registrant's Evergreen Aggressive Growth Fund series, see the section entitled
"Investment Advisers" in Part A.
The Directors and principal executive officers of FUNB, are set forth in
the following table:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
BOARD OF DIRECTORS
Ben Mayo Boddie Raymond A. Bryan, Jr.
Chairman & CEO Chairman & CEO
Boddie-Noell Enterprises, Inc. T.A. Loving Company
P.O. Box 1908 P.O. Drawer 919
Rocky Mount, NC 27802 Goldsboro, NC 27530
John F.A.V. Cecil John W. Copeland
President President
Biltmore Dairy Farms, Inc. Ruddick Corporation
P.O. Box 5355 2000 Two First Union Center
Asheville, NC 28813 Charlotte, NC 28282
John Crosland, Jr. J. William Disher
Chairman of the Board Chairman & President
The Crosland Group, Inc. Lance Incorporated
135 Scaleybark Road P.O. Box 32368
Charlotte, NC 28209 Charlotte, NC 28232
Frank H. Dunn Malcolm E. Everett, III
Chairman and CEO President
First Union National Bank First Union National Bank
of North Carolina of North Carolina
One First Union Center 310 S. Tryon Street
Charlotte, NC 28288-0006 Charlotte, NC 28288-0156
James F. Goodmon Shelton Gorelick
President & Chief President
Executive Officer SGIC, Inc.
Capitol Broadcasting 741 Kenilworth Ave., Suite 200
Company, Inc. Charlotte, NC 28204
2619 Western Blvd.
Raleigh, NC 27605
Charles L. Grace James E. S. Hynes
President Chairman
Cummins Atlantic, Inc. Hynes Sales Company, Inc.
P.O. Box 240729 P.O. Box 220948
Charlotte, NC 28224-0729 Charlotte, NC 28222
Daniel W. Mathis Earl N. Phillips, Jr.
Vice Chairman President
First Union National Bank First Factors Corporation
of North Carolina P.O. Box 2730
One First Union Center High Point, NC 27261
Charlotte, NC 28288-0009
J. Gregory Poole, Jr. John P. Rostan, III
Chairman & President Senior Vice President
Gregory Poole Equipment Company Waldensian Bakeries, Inc.
P.O. Box 469 P.O. Box 220
Raleigh, NC 27602 Valdese, NC 28690
Nelson Schwab, III Charles M. Shelton, Sr.
Chairman & CEO Chairman & CEO
Paramount Parks The Shelton Companies, Inc
8720 Red Oak Boulevard, Suite 315 3600 One First Union Center
Charlotte, NC 28217 Charlotte, NC 28202
George Shinn Harley F. Shuford, Jr.
Owner and Chairman President and CEO
Shinn Enterprises, Inc. Shuford Industries
One Hive Drive P.O. Box 608
Charlotte, NC 28217 Hickory, NC 28603
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
EXECUTIVE OFFICERS
James Maynor, President, First Union Mortgage Corporation; Austin
A. Adams, Executive Vice President; Howard L. Arthur, Senior Vice
President; Robert T. Atwood, Executive Vice President and Chief
Financial Officer; Marion A. Cowell, Jr., Executive Vice
President, Secretary and General Counsel; Edward E. Crutchfield,
Jr., Chairman, CEO, First Union Corporation; Frank H. Dunn, Jr.,
Chairman and CEO; Malcolm E. Everett, III, President; John R.
Georgius, President, First Union Corporation; James Hatch, Senior
Vice President and Corporate Controller; Don R. Johnson,
Executive Vice President; Mark Mahoney, Senior Vice President;
Barbara K. Massa, Senior Vice President; Daniel W. Mathis, Vice
Chairman; H. Burt Melton, Executive Vice President; Malcolm T.
Murray, Jr., Executive Vice President; Alvin T. Sale, Executive
Vice President; Louis A. Schmitt, Jr., Executive Vice President;
Ken Stancliff, Senior Vice President and Corporate Treasurer;
Richard K. Wagoner, Executive Vice President and General Fund
Officer.
All of the Executive Officers are located at the following
address: First Union National Bank of North Carolina, One First
Union Center, Charlotte, NC 28288.
Item 29. Principal Underwriters
Evergreen Funds Distributor, Inc. The Director and principal executive
officers are:
Director Michael C. Petrycki
Officers Robert A. Hering President
Michael C. Petrycki Vice President
Gordon Forrester Vice President
Lawrence Wagner VP, Chief Financial Officer
Steven D. Blecher VP, Treasurer, Secretary
Elizabeth Q. Solazzo Assistant Secretary
Thalia M. Cody Assistant Secretary
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant's Custodian, State
Street Bank and Trust Company, 2 Heritage Drive, North Quincy, Massachusetts
02171 or the offices of Evergreen Asset Management Corp., 2500 Westchester
Avenue, Purchase, New York 10577.
Item 31. Management Services
Not Applicable.
<PAGE>
Item 32. Undertakings
Not Applicable.
NOTICE
A copy of the Agreement and Declaration of Trust for The Evergreen Lexicon
Funds is on file with the Secretary of State of the Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers, or Shareholders individually but are binding only upon the
assets and property of the Trust.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
has duly caused this Post-Effective Amendment No. 8 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York, State of New York, on the 19th day of
January, 1996.
The Evergreen Lexicon Fund
/s/ John J. Pileggi
by-----------------------------
John J. Pileggi, President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 8 to the Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.
Signatures Title Date
- ----------- ----- ----
/s/John J. Pileggi
- ----------------------- President and January 19, 1996
John J. Pileggi Treasurer
- ----------------------- Trustee January 19, 1996
Laurence B. Ashkin
/s/Foster Bam
- ----------------------- Trustee January 19, 1996
Foster Bam
/s/James S. Howell
- ----------------------- Trustee January 19, 1996
James S. Howell
/s/Gerald M. McDonnell
- ----------------------- Trustee January 19, 1996
Gerald M. McDonnell
/s/Thomas L. McVerry
- ----------------------- Trustee January 19, 1996
Thomas L. McVerry
/s/William Walt Pettit
- ----------------------- Trustee January 19, 1996
William Walt Pettit
/s/Russell A. Salton, III, M.D
- ------------------------------ Trustee January 19, 1996
Russell A. Salton, III, M.D
/s/Michael S. Scofield
- ----------------------- Trustee January 19, 1996
Michael S. Scofield
EXHIBIT INDEX
Sequentially
Numbered
Name Exhibit
Page
Amendment to Registrant's Declaration of Trust 1
Form of Investment Advisory Agreement with First Union 5
National Bank
Distribution Agreement with Evergreen Funds Distributor, Inc. 6
Form of Custodian Agreement 8
Consent of Independent Public Accountants 11
Form of Class B and C Distribution Plan and Servicing Agreement 15
THE FFB LEXICON FUND
Action By Trustees to Change The Name of the Trust, Redesignate Existing Classes
and Establish New Classes
The undersigned, being a majority of the Trustees of The FFB Lexicon
Fund, a Massachusetts business trust ("the Trust"), acting pursuant to Article
IX, Section 7 of the Declaration of Trust dated July 24, 1991, as amended, (the
"Declaration"), do hereby take the following actions:
1. Article III, Section 1 of the Declaration is hereby amended to
reflect a change in the name of the Trust from The FFB Lexicon Fund to The
Evergreen Lexicon Fund.
2. In accordance with the provisions of Article III, Section 1 of the
Declaration, the Intermediate Term Government Securities Fund and Fixed Income
Fund series of the Trust are hereby redesignated the "Evergreen Intermediate
Term Government Securities Fund" and "Evergreen Intermediate Term Bond Fund",
respectively.
3. In accordance with the provisions of Article III, Section 1 of the
Declaration, the two existing classes of shares of the Evergreen Intermediate
Term Government Securities Fund and Evergreen Intermediate Term Bond Fund, the
Investor Class and the Service Class, are hereby redesignated "Class A Shares"
and "Class Y Shares", respectively.
4. In accordance with the provisions of Article III, Section 1 of the
Declaration, two additional classes of shares of the Evergreen Intermediate Term
Government Securities Fund and Evergreen Intermediate Term Bond Fund are hereby
created, to be known as "Class B Shares" and "Class C Shares".
IN WITNESS WHEREOF, the undersigned have signed this instrument in
duplicate original counterparts and have caused a duplicate original to be
lodged among the records of the Trust this 19th day of January, 1996.
/s/Laurence B. Ashkin /s/Thomas L. McVerry
Trustee Trustee
/s/Foster Bam /s/William Walt Petit
Trustee Trustee
/s/James S. Howell /s/Russell A. Salton, III
Trustee Trustee
/s/Michael S. Scofield /s/Gerald M. McDonnell
Trustee Trustee
<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 Evergreen Lexicon Fund (the "Trust") on behalf of its
series portfolios the [Evergreen Short Intermediate Bond Fund][Evergreen
Intermediate Term Government Securities 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
*******************************************************************************
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated October 6, 1995,
on the August 31, 1995 financial statements of FFB Lexicon Funds, included in
the Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A of
FFB Lexicon Funds (No. 33-41918), and to all references to our Firm included in
or made part of Post-Effective Amendment No. 8 to Registration Statement File
No. 33-41918.
ARTHUR ANDERSEN LLP
Philadelphia, PA
January 15, 1996
DISTRIBUTION PLAN OF CLASS B SHARES
THE EVERGREEN LEXICON TRUST
EVERGREEN INTERMEDIATE TERM BOND FUND
Section 1. The Evergreen Lexicon Trust (the "Trust") may act as the
distributor of securities which are issued in respect of one or more of its
separate investment series, pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") according to the terms of this Distribution Plan
("Plan").
Section 2. The Trust may expend daily amounts at an annual rate of 1% of the
average daily net asset value of the Class B Shares ("Shares") of its Evergreen
Intermediate Term Bond Fund ("Fund") to finance any activity which is
principally intended to result in the sale of Shares including, without
limitation, expenditures consisting of payments to a principal underwriter of
the Fund (Principal Underwriter) or others in order: (i) to enable payments to
be made by the Principal Underwriter or others for any activity primarily
intended to result in the sale of Shares, including, without limitation, (a)
compensation to public relations consultants or other persons assisting in, or
providing services in connection with, the distribution of Shares, (b)
advertising, (c) printing and mailing of prospectuses and reports for
distribution to persons other than existing shareholders, (d) preparation and
distribution of advertising material and sales literature, (e) commission
payments, and principal and interest expenses associated with the financing of
commission payments, made by the Principal Underwriter in connection with the
sale of Shares and (f) conducting public relations efforts such as seminars;
(ii) to enable the Principal Underwriter or others to receive, pay or to have
paid to others who have sold Shares, or who provide services to holders of
Shares, a maintenance or other fee in respect of services provided to holders of
Shares, at such intervals as the Principal Underwriter may determine, in respect
of Shares previously sold and remaining outstanding during the period in respect
of which such fee is or has been paid; and/or (iii) to compensate the Principal
Underwriter for its efforts in respect of sales of Shares since inception of the
Plan. Appropriate adjustments shall be made to the payments made pursuant to
this Section 2 to the extent necessary to ensure that no payment is made by the
Fund with respect to any Class in excess of the applicable limit imposed on
asset
1
<PAGE>
based, front end and deferred sales charges under subsection (d) of Section 26
of Article III of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD"). In addition, to the extent any amounts
paid hereunder fall within the definition of an "asset based sales charge" under
said NASD Rule such payments shall be limited to .75 of 1% of the aggregate net
asset value of the Shares on an annual basis and, to the extent that any such
payments are made in respect of "shareholder services" as that term is defined
in the NASD Rule, such payments shall be limited to .25 of 1% of the aggregate
net asset value of the Shares on an annual basis and shall only be made in
respect of shareholder services rendered during the period in which such amounts
are accrued.
Section 3. This Plan shall not take effect with respect to any Fund until it
has been approved by votes of a majority of (a) the outstanding Shares of such
Series, (b) the Trustees of the Trust, and (c) those Trustees of the Trust who
are not "interested persons" of the Fund (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of this Plan or
any agreements of the Trust related hereto or any other person related to this
Plan ("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan. In addition, any agreement related to this Plan
and entered into by the Fund in connection therewith shall not take effect until
it has been approved by votes of a majority of (a) the Board of Trustees of the
Trust, and (c) the Disinterested Trustees of the Trust.
Section 4. Unless sooner terminated pursuant to Section 6, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect for additional periods that shall not exceed
one year so long as such continuance is specifically approved by votes of a
majority of both (a) the Board of Trustees of the Trust and (b) the
Disinterested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on this Plan.
Section 5. Any person authorized to direct the disposition of monies paid or
payable pursuant to this Plan or any related agreement shall provide to the
Trust's Board and the Board shall review at least quarterly a written report of
the amounts so expended and the purposes for which such expenditures were made.
Section 6. This Plan may be terminated at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees, or by vote of a majority of
the Shares of the Fund.
2
<PAGE>
Section 7. Any agreement of the Trust, with respect to any Fund, related to
this Plan shall be in writing and shall provide:
A. That such agreement may be terminated with respect to a Fund at any
time without payment of any penalty, by vote of a majority of the Disinterested
Trustees or by a vote of a majority of the outstanding Shares of such Fund on
not more than sixty days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 8. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 with respect to a Fund unless
such amendment is approved by a vote of at least a majority (as defined in the
1940 Act) of the outstanding Shares of such Fund, and no material amendment to
this Plan shall be made unless approved by votes of a majority of (a) the Board
of Trustees of the Trust, and (c) the Disinterested Trustees of the Trust, cast
in person at a meeting called for the purpose of voting on such amendment.
DATED:
January 19, 1996
3
<PAGE>
DISTRIBUTION PLAN OF CLASS C SHARES
THE EVERGREEN LEXICON TRUST
EVERGREEN INTERMEDIATE TERM BOND FUND
Section 1. The Evergreen Lexicon Trust (the "Trust") may act as the
distributor of securities which are issued in respect of one or more of its
separate investment series, pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") according to the terms of this Distribution Plan
("Plan").
Section 2. The Trust may expend daily amounts at an annual rate of 1% of the
average daily net asset value of the Class C Shares ("Shares") of its Evergreen
Intermediate Term Bond Fund ("Fund") to finance any activity which is
principally intended to result in the sale of Shares including, without
limitation, expenditures consisting of payments to a principal underwriter of
the Fund (Principal Underwriter) or others in order: (i) to enable payments to
be made by the Principal Underwriter or others for any activity primarily
intended to result in the sale of Shares, including, without limitation, (a)
compensation to public relations consultants or other persons assisting in, or
providing services in connection with, the distribution of Shares, (b)
advertising, (c) printing and mailing of prospectuses and reports for
distribution to persons other than existing shareholders, (d) preparation and
distribution of advertising material and sales literature, (e) commission
payments, and principal and interest expenses associated with the financing of
commission payments, made by the Principal Underwriter in connection with the
sale of Shares and (f) conducting public relations efforts such as seminars;
(ii) to enable the Principal Underwriter or others to receive, pay or to have
paid to others who have sold Shares, or who provide services to holders of
Shares, a maintenance or other fee in respect of services provided to holders of
Shares, at such intervals as the Principal Underwriter may determine, in respect
of Shares previously sold and remaining outstanding during the period in respect
of which such fee is or has been paid; and/or (iii) to compensate the Principal
Underwriter for its efforts in respect of sales of Shares since inception of the
Plan. Appropriate adjustments shall be made to the payments made pursuant to
this Section 2 to the extent necessary to ensure that no payment is made by the
Fund with respect to any Class in excess of the applicable limit imposed on
asset
1
<PAGE>
based, front end and deferred sales charges under subsection (d) of Section 26
of Article III of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD"). In addition, to the extent any amounts
paid hereunder fall within the definition of an "asset based sales charge" under
said NASD Rule such payments shall be limited to .75 of 1% of the aggregate net
asset value of the Shares on an annual basis and, to the extent that any such
payments are made in respect of "shareholder services" as that term is defined
in the NASD Rule, such payments shall be limited to .25 of 1% of the aggregate
net asset value of the Shares on an annual basis and shall only be made in
respect of shareholder services rendered during the period in which such amounts
are accrued.
Section 3. This Plan shall not take effect with respect to any Fund until it
has been approved by votes of a majority of (a) the outstanding Shares of such
Series, (b) the Trustees of the Trust, and (c) those Trustees of the Trust who
are not "interested persons" of the Fund (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of this Plan or
any agreements of the Trust related hereto or any other person related to this
Plan ("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan. In addition, any agreement related to this Plan
and entered into by the Fund in connection therewith shall not take effect until
it has been approved by votes of a majority of (a) the Board of Trustees of the
Trust, and (c) the Disinterested Trustees of the Trust.
Section 4. Unless sooner terminated pursuant to Section 6, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect for additional periods that shall not exceed
one year so long as such continuance is specifically approved by votes of a
majority of both (a) the Board of Trustees of the Trust and (b) the
Disinterested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on this Plan.
Section 5. Any person authorized to direct the disposition of monies paid or
payable pursuant to this Plan or any related agreement shall provide to the
Trust's Board and the Board shall review at least quarterly a written report of
the amounts so expended and the purposes for which such expenditures were made.
Section 6. This Plan may be terminated at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees, or by vote of a majority of
the Shares of the Fund.
2
<PAGE>
Section 7. Any agreement of the Trust, with respect to any Fund, related to
this Plan shall be in writing and shall provide:
A. That such agreement may be terminated with respect to a Fund at any time
without payment of any penalty, by vote of a majority of the Disinterested
Trustees or by a vote of a majority of the outstanding Shares of such Fund on
not more than sixty days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 8. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 with respect to a Fund unless
such amendment is approved by a vote of at least a majority (as defined in the
1940 Act) of the outstanding Shares of such Fund, and no material amendment to
this Plan shall be made unless approved by votes of a majority of (a) the Board
of Trustees of the Trust, and (c) the Disinterested Trustees of the Trust, cast
in person at a meeting called for the purpose of voting on such amendment.
DATED:
January 19, 1996
3
<PAGE>
DISTRIBUTION PLAN OF CLASS B SHARES
THE EVERGREEN LEXICON TRUST
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
Section 1. The Evergreen Lexicon Trust (the "Trust") may act as the
distributor of securities which are issued in respect of one or more of its
separate investment series, pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") according to the terms of this Distribution Plan
("Plan").
Section 2. The Trust may expend daily amounts at an annual rate of 1% of the
average daily net asset value of the Class B Shares ("Shares") of its Evergreen
Intermediate Term Government Securities Fund ("Fund") to finance any activity
which is principally intended to result in the sale of Shares including, without
limitation, expenditures consisting of payments to a principal underwriter of
the Fund (Principal Underwriter) or others in order: (i) to enable payments to
be made by the Principal Underwriter or others for any activity primarily
intended to result in the sale of Shares, including, without limitation, (a)
compensation to public relations consultants or other persons assisting in, or
providing services in connection with, the distribution of Shares, (b)
advertising, (c) printing and mailing of prospectuses and reports for
distribution to persons other than existing shareholders, (d) preparation and
distribution of advertising material and sales literature, (e) commission
payments, and principal and interest expenses associated with the financing of
commission payments, made by the Principal Underwriter in connection with the
sale of Shares and (f) conducting public relations efforts such as seminars;
(ii) to enable the Principal Underwriter or others to receive, pay or to have
paid to others who have sold Shares, or who provide services to holders of
Shares, a maintenance or other fee in respect of services provided to holders of
Shares, at such intervals as the Principal Underwriter may determine, in respect
of Shares previously sold and remaining outstanding during the period in respect
of which such fee is or has been paid; and/or (iii) to compensate the Principal
Underwriter for its efforts in respect of sales of Shares since inception of the
Plan. Appropriate adjustments shall be made to the payments made pursuant to
this Section 2 to the extent necessary to ensure that no payment is made by the
Fund with respect to any Class in
1
<PAGE>
excess of the applicable limit imposed on asset based, front end and deferred
sales charges under subsection (d) of Section 26 of Article III of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"). In addition, to the extent any amounts paid hereunder fall within the
definition of an "asset based sales charge" under said NASD Rule such payments
shall be limited to .75 of 1% of the aggregate net asset value of the Shares on
an annual basis and, to the extent that any such payments are made in respect of
"shareholder services" as that term is defined in the NASD Rule, such payments
shall be limited to .25 of 1% of the aggregate net asset value of the Shares on
an annual basis and shall only be made in respect of shareholder services
rendered during the period in which such amounts are accrued.
Section 3. This Plan shall not take effect with respect to any Fund until it
has been approved by votes of a majority of (a) the outstanding Shares of such
Series, (b) the Trustees of the Trust, and (c) those Trustees of the Trust who
are not "interested persons" of the Fund (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of this Plan or
any agreements of the Trust related hereto or any other person related to this
Plan ("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan. In addition, any agreement related to this Plan
and entered into by the Fund in connection therewith shall not take effect until
it has been approved by votes of a majority of (a) the Board of Trustees of the
Trust, and (c) the Disinterested Trustees of the Trust.
Section 4. Unless sooner terminated pursuant to Section 6, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect for additional periods that shall not exceed
one year so long as such continuance is specifically approved by votes of a
majority of both (a) the Board of Trustees of the Trust and (b) the
Disinterested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on this Plan.
Section 5. Any person authorized to direct the disposition of monies paid or
payable pursuant to this Plan or any related agreement shall provide to the
Trust's Board and the Board shall review at least quarterly a written report of
the amounts so expended and the purposes for which such expenditures were made.
Section 6. This Plan may be terminated at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees, or by vote of a majority of
the Shares of the Fund.
2
<PAGE>
Section 7. Any agreement of the Trust, with respect to any Fund, related to
this Plan shall be in writing and shall provide:
A. That such agreement may be terminated with respect to a Fund at any time
without payment of any penalty, by vote of a majority of the Disinterested
Trustees or by a vote of a majority of the outstanding Shares of such Fund on
not more than sixty days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 8. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 with respect to a Fund unless
such amendment is approved by a vote of at least a majority (as defined in the
1940 Act) of the outstanding Shares of such Fund, and no material amendment to
this Plan shall be made unless approved by votes of a majority of (a) the Board
of Trustees of the Trust, and (c) the Disinterested Trustees of the Trust, cast
in person at a meeting called for the purpose of voting on such amendment.
DATED:
January 19, 1996
3
<PAGE>
DISTRIBUTION PLAN OF CLASS C SHARES
THE EVERGREEN LEXICON TRUST
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
Section 1. The Evergreen Lexicon Trust (the "Trust") may act as the
distributor of securities which are issued in respect of one or more of its
separate investment series, pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") according to the terms of this Distribution Plan
("Plan").
Section 2. The Trust may expend daily amounts at an annual rate of 1% of the
average daily net asset value of the Class C Shares ("Shares") of its Evergreen
Intermediate Term Government Securities Fund ("Fund") to finance any activity
which is principally intended to result in the sale of Shares including, without
limitation, expenditures consisting of payments to a principal underwriter of
the Fund (Principal Underwriter) or others in order: (i) to enable payments to
be made by the Principal Underwriter or others for any activity primarily
intended to result in the sale of Shares, including, without limitation, (a)
compensation to public relations consultants or other persons assisting in, or
providing services in connection with, the distribution of Shares, (b)
advertising, (c) printing and mailing of prospectuses and reports for
distribution to persons other than existing shareholders, (d) preparation and
distribution of advertising material and sales literature, (e) commission
payments, and principal and interest expenses associated with the financing of
commission payments, made by the Principal Underwriter in connection with the
sale of Shares and (f) conducting public relations efforts such as seminars;
(ii) to enable the Principal Underwriter or others to receive, pay or to have
paid to others who have sold Shares, or who provide services to holders of
Shares, a maintenance or other fee in respect of services provided to holders of
Shares, at such intervals as the Principal Underwriter may determine, in respect
of Shares previously sold and remaining outstanding during the period in respect
of which such fee is or has been paid; and/or (iii) to compensate the Principal
Underwriter for its efforts in respect of sales of Shares since inception of the
Plan. Appropriate adjustments shall be made to the payments made pursuant to
this Section 2 to the extent necessary to ensure that no payment is made by the
Fund with respect to any Class in
1
<PAGE>
excess of the applicable limit imposed on asset based, front end and deferred
sales charges under subsection (d) of Section 26 of Article III of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc. (the
"NASD"). In addition, to the extent any amounts paid hereunder fall within the
definition of an "asset based sales charge" under said NASD Rule such payments
shall be limited to .75 of 1% of the aggregate net asset value of the Shares on
an annual basis and, to the extent that any such payments are made in respect of
"shareholder services" as that term is defined in the NASD Rule, such payments
shall be limited to .25 of 1% of the aggregate net asset value of the Shares on
an annual basis and shall only be made in respect of shareholder services
rendered during the period in which such amounts are accrued.
Section 3. This Plan shall not take effect with respect to any Fund until it
has been approved by votes of a majority of (a) the outstanding Shares of such
Series, (b) the Trustees of the Trust, and (c) those Trustees of the Trust who
are not "interested persons" of the Fund (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of this Plan or
any agreements of the Trust related hereto or any other person related to this
Plan ("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan. In addition, any agreement related to this Plan
and entered into by the Fund in connection therewith shall not take effect until
it has been approved by votes of a majority of (a) the Board of Trustees of the
Trust, and (c) the Disinterested Trustees of the Trust.
Section 4. Unless sooner terminated pursuant to Section 6, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect for additional periods that shall not exceed
one year so long as such continuance is specifically approved by votes of a
majority of both (a) the Board of Trustees of the Trust and (b) the
Disinterested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on this Plan.
Section 5. Any person authorized to direct the disposition of monies paid or
payable pursuant to this Plan or any related agreement shall provide to the
Trust's Board and the Board shall review at least quarterly a written report of
the amounts so expended and the purposes for which such expenditures were made.
Section 6. This Plan may be terminated at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees, or by vote of a majority of
the Shares of the Fund.
2
<PAGE>
Section 7. Any agreement of the Trust, with respect to any Fund, related to
this Plan shall be in writing and shall provide:
A. That such agreement may be terminated with respect to a Fund at any time
without payment of any penalty, by vote of a majority of the Disinterested
Trustees or by a vote of a majority of the outstanding Shares of such Fund on
not more than sixty days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 8. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 with respect to a Fund unless
such amendment is approved by a vote of at least a majority (as defined in the
1940 Act) of the outstanding Shares of such Fund, and no material amendment to
this Plan shall be made unless approved by votes of a majority of (a) the Board
of Trustees of the Trust, and (c) the Disinterested Trustees of the Trust, cast
in person at a meeting called for the purpose of voting on such amendment.
DATED:
January 19, 1996
3
********************************************************************************
- ----------------------------------------------------
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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