<PAGE>
<PAGE>
COREFUNDS, INC.
GOVERNMENT INCOME FUND
530 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
June 1, 1998
Dear Shareholder,
As a result of the Merger of CoreStates Financial Corp with and into a
wholly-owned subsidiary of First Union Corporation effective April 30, 1998, I
am writing to shareholders of Government Income Fund (the "Fund"), a series of
CoreFunds, Inc., to inform you of a Special Shareholders' meeting to be held on
July 17, 1998. Before that meeting, I would like your vote on the important
issues affecting your Fund as described in the attached Prospectus/Proxy
Statement.
The Prospectus/Proxy Statement includes two proposals. The first proposal
requests that shareholders consider and act upon an Agreement and Plan of
Reorganization whereby all of the assets of the Fund would be acquired by
Evergreen U.S. Government Fund in exchange for either Class A or Class Y shares
of Evergreen U.S. Government Fund and the assumption by Evergreen U.S.
Government Fund of the identified liabilities of the Fund. You will receive
shares of Evergreen U.S. Government Fund having an aggregate net asset value
equal to the aggregate net asset value of your Fund shares. Details about
Evergreen U.S. Government Fund's investment objective, portfolio management
team, performance, etc. are contained in the attached Prospectus/Proxy
Statement. For federal income tax purposes, the transaction is a non-taxable
event for shareholders.
The second proposal requests shareholder consideration of an Interim Investment
Advisory Agreement between the Fund and CoreStates Investment Advisers, Inc.,
the Fund's current investment adviser. It is anticipated that the Interim
Investment Advisory Agreement will be in effect from April 30, 1998 to the date
the reorganization is consummated (scheduled for July 27, 1998).
<PAGE>
Information relating to the Interim Investment Advisory Agreement is contained
in the attached Prospectus/Proxy Statement.
The Board of Directors has approved the proposals and recommends that you vote
FOR these proposals.
I realize that this Prospectus/Proxy Statement will take time to review, but
your vote is very important. Please take the time to familiarize yourself with
the proposals. If you attend the meeting, you may vote your shares in person. If
you do not expect to attend the meeting, either complete, date, sign and return
the enclosed proxy card in the enclosed postage paid envelope or vote by calling
toll-free 1-800-733-8481 24 hours a day. Instructions on how to complete the
proxy card or vote by telephone are included immediately after the Notice of
Special Meeting.
If you have any questions about the proxy, please call our proxy solicitor,
Shareholder Communications Corporation at 800-733-8481 ext. 468. You may also
FAX your completed and signed proxy card to 800-733-1885. If we do not receive
your completed proxy card or your telephone vote after several weeks, you may be
contacted by Shareholder Communications Corporation, who will remind you to vote
your shares.
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
Kevin P. Robins
Vice President
CoreFunds, Inc.
<PAGE>
COREFUNDS, INC.
GOVERNMENT INCOME FUND
530 EAST SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 17, 1998
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Government Income Fund (the "Fund"), a series of CoreFunds,
Inc., will be held at the offices of the Evergreen Funds, 26th Floor, 200
Berkeley Street, Boston, Massachusetts 02116, on July 17, 1998 at 2:00
p.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of April 15, 1998, providing for the acquisition of all of
the assets of the Fund by Evergreen U.S. Government Fund, a series of Evergreen
Fixed Income Trust, ("Evergreen Government") in exchange for shares of Evergreen
Government and the assumption by Evergreen Government of the identified
liabilities of the Fund. The Plan also provides for distribution of these shares
of Evergreen Government to shareholders of the Fund in liquidation and
subsequent termination of the Fund. A vote in favor of the Plan is a vote in
favor of the liquidation and dissolution of the Fund.
2. To consider and act upon the Interim Investment Advisory Agreement
between the Fund and CoreStates Investment
Advisers, Inc.
3. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of the Fund, the Directors of CoreFunds, Inc. have fixed the
close of business on May 29, 1998 as the record date for the determination of
shareholders of the Fund entitled to notice of and to vote at the Meeting or any
adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Directors
James W. Jennings
<PAGE>
Secretary
June 1, 1998
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense involved in
validating your vote if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it
appears in the Registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of
the party signing should conform exactly to a name shown in the
Registration on the proxy card.
3. ALL OTHER ACCOUNTS: The capacity of the individual
signing the proxy card should be indicated unless it is reflected
in the form of Registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. John Doe, Treasurer
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr., Executor
<PAGE>
INSTRUCTIONS FOR TELEPHONE VOTING
To vote your proxy by telephone follow the four easy steps below. Or if you
prefer you may send back your signed proxy ballot in the postage paid envelope
provided.
1. Read the accompanying proxy information and ballot.
2. Identify the twelve-digit "CONTROL NO." in the middle portion of your ballot
on the left hand side. This control number is the key to casting your vote over
the telephone.
3. Dial 1-800-733-8481 ext. 468.
4. Follow the simple instructions.
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JUNE 1, 1998
Acquisition of Assets of
GOVERNMENT INCOME FUND
a series of
CoreFunds, Inc.
530 East Swedesford Road
Wayne, Pennsylvania 19087
By and in Exchange for Shares of
EVERGREEN U.S. GOVERNMENT FUND
a series of
Evergreen Fixed Income Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
Government Income Fund ("CoreFunds Government") in connection with a proposed
Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of CoreFunds Government for consideration at a Special Meeting of
Shareholders to be held on July 17, 1998 at 2:00 p.m. at the offices of the
Evergreen Funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116,
and any adjournments thereof (the "Meeting"). The Plan provides for all of the
assets of CoreFunds Government to be acquired by Evergreen U.S. Government Fund
("Evergreen Government") in exchange for shares of Evergreen Government and the
assumption by Evergreen Government of the identified liabilities of CoreFunds
Government (hereinafter referred to as the "Reorganization"). Evergreen
Government and CoreFunds Government are sometimes hereinafter referred to
individually as the "Fund" and collectively as the "Funds." Following the
Reorganization, shares of Evergreen Government will be distributed to
shareholders of CoreFunds Government in liquidation of CoreFunds Government and
such Fund will be terminated. Holders of Class A shares of CoreFunds Government
will receive Class A shares of Evergreen Government, and holders of Class Y
shares of CoreFunds Government will receive Class Y shares of Evergreen
Government. Each such class of shares of Evergreen Government has substantially
similar Rule 12b-1 distribution-related fees, if any, as the shares of the
respective class of CoreFunds Government held by them prior to the
Reorganization. No sales charge will be imposed in connection with Class A
shares of Evergreen Government received by holders of Class A shares of
CoreFunds Government. As a result of the proposed Reorganization, shareholders
of CoreFunds Government will receive that number of full and fractional shares
of Evergreen Government having an aggregate net asset value equal
<PAGE>
to the aggregate net asset value of such shareholder's shares of CoreFunds
Government. The Reorganization is being structured as a tax-free reorganization
for federal income tax purposes.
Evergreen Government is a separate series of Evergreen Fixed Income
Trust, an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The investment objective of
Evergreen Government is to seek a high level of current income consistent with
stability of principal. The investment objective of CoreFunds Government is
substantially identical -- to provide income while preserving principal
investment. Each Fund invests primarily in U.S. government securities.
Shareholders of CoreFunds Government are also being asked to approve
the Interim Investment Advisory Agreement with CoreStates Investment Advisers,
Inc. ("CSIA"), a subsidiary of First Union Corporation (the "Interim Advisory
Agreement"), with the same terms and fees as the previous advisory agreement
between CoreFunds Government and CSIA. The Interim Advisory Agreement will be in
effect for the period of time between April 30, 1998, the date on which the
merger of CoreStates Financial Corp with and into a wholly-owned subsidiary of
First Union Corporation was consummated, and the date of the Reorganization
(scheduled for on or about July 27, 1998).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Government that
shareholders of CoreFunds Government should know before voting on the
Reorganization. Certain relevant documents listed below, which have been filed
with the Securities and Exchange Commission ("SEC"), are incorporated in whole
or in part by reference. A Statement of Additional Information dated June 1,
1998, relating to this Prospectus/Proxy Statement and the Reorganization which
includes the financial statements of Evergreen Government dated April 30, 1997
and October 31, 1997 and of CoreFunds Government dated June 30, 1997 and
December 31, 1997, has been filed with the SEC and is incorporated by reference
in its entirety into this Prospectus/Proxy Statement. A copy of such Statement
of Additional Information is available upon request and without charge by
writing to Evergreen Government at 200 Berkeley Street, Boston, Massachusetts
02116 or by calling toll-free 1-800-343- 2898.
The two Prospectuses of Evergreen Government dated February 1, 1998,
its Annual Report for the fiscal year ended April 30, 1997 and its Semi-Annual
Report for the six month period ended October 31, 1997 are incorporated herein
by reference in their entirety, insofar as they relate to Evergreen Government
only,
<PAGE>
and not to any other fund described therein. The Prospectuses, which pertain (i)
to Class A, Class B and Class C shares and (ii) to Class Y shares, differ only
insofar as they describe the separate distribution and shareholder servicing
arrangements applicable to the classes. Shareholders of CoreFunds Government
will receive, with this Prospectus/Proxy Statement, copies of the Prospectus
pertaining to the class of shares of Evergreen Government that they will receive
as a result of the consummation of the Reorganization. Additional information
about Evergreen Government is contained in its Statement of Additional
Information of the same date which has been filed with the SEC and which is
available upon request and without charge by writing to or calling Evergreen
Government at the address or telephone number listed in the preceding paragraph.
The two Prospectuses of CoreFunds Government which pertain (i) to Class
A shares (Individual shares) and (ii) to Class Y shares (Institutional shares)
dated November 1, 1997, insofar as they relate to CoreFunds Government only, and
not to any other funds described therein, are incorporated herein in their
entirety by reference. Copies of the Prospectuses, related Statement of
Additional Information dated the same date, the Annual Report for the fiscal
year ended June 30, 1997 and the Semi-Annual Report for the six month period
ended December 31, 1997, are available upon request without charge by writing to
CoreFunds Government at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800- 355-2673.
Included as Exhibits A and B to this Prospectus/Proxy Statement are a
copy of the Plan and the Interim Advisory Agreement, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of any bank and 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 risk, including
possible
loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES..............................................7
SUMMARY ...................................................................11
Proposed Plan of Reorganization .....11
Tax Consequences .....13
Investment Objectives and Policies of the Funds .....13
Comparative Performance Information for each Fund .....14
Management of the Funds .....15
Investment Advisers .....15
Administrators .....16
Portfolio Management .. 17
Distribution of Shares .. 17
Purchase and Redemption Procedures .. 19
Exchange Privileges .....19
Dividend Policy .. 20
Risks .. 21
REASONS FOR THE REORGANIZATION........................................... 23
Agreement and Plan of Reorganization .. 26
Federal Income Tax Consequences .. 28
Pro-forma Capitalization .. 30
Shareholder Information .. 31
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES......................... 32
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS.......................... 35
Forms of Organization .. 35
Capitalization .. 35
Shareholder Liability .. 36
Shareholder Meetings and Voting Rights .. 36
Liquidation or Dissolution .. 37
Liability and Indemnification of Trustees .. 37
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT..................... 39
Introduction .. 39
Comparison of the Interim Advisory Agreement and
the Previous Advisory Agreement .. 40
Information About CoreFunds Government's
Investment Adviser .. 41
ADDITIONAL INFORMATION................................................... 41
VOTING INFORMATION CONCERNING THE MEETING................................ 42
<PAGE>
FINANCIAL STATEMENTS AND EXPERTS......................................... 45
LEGAL MATTERS............................................................ 46
OTHER BUSINESS........................................................... 46
APPENDIX A............................................................... 47
EXHIBIT A..................................................................A-1
EXHIBIT B..................................................................B-1
EXHIBIT C..................................................................C-1
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y and Class A shares of Evergreen Government set
forth in the following tables and in the examples are based on the expenses of
Evergreen Government for the ten month fiscal period ended April 30, 1997. The
amounts for Class Y and Class A shares of CoreFunds Government set forth in the
following tables and in the examples are based on the estimated expenses for
CoreFunds Government for the fiscal year ending June 30, 1998 as set forth in
the current Prospectuses of CoreFunds Government. The pro forma amounts for
Class Y and Class A shares of Evergreen Government are based on what the
combined expenses would have been for Evergreen Government for the fiscal period
ending April 30, 1997. All amounts are adjusted for voluntary expense waivers.
The following tables show for Evergreen Government, CoreFunds
Government and Evergreen Government pro forma, assuming consummation of the
Reorganization, the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class Y and Class A shares of each
Fund.
<PAGE>
<TABLE>
<CAPTION>
Comparison of Class Y and Class A Shares
of Evergreen Government With Class Y and
Class A Shares of CoreFunds Government
Evergreen CoreFunds
Government Government
Class Y Class A Class Y Class A
Shareholder Transaction
Expenses
<S> <C> <C> <C> <C>
Maximum Sales Load None 4.75% None 3.25%
Imposed on Purchases
(as a percentage of
offering price)
Maximum Sales Load None None None None
Imposed on Reinvested
Dividends (as a
percentage of offering
price)
Contingent Deferred None None None None
Sales Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower)
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee (After 0.50% 0.50% 0.47% 0.47%
Waiver) (1)
12b-1 Fees(2) None 0.25% None 0.25%
Other Expenses (After 0.23% 0.23% 0.23% 0.23%
----- ----- ----- -----
Waiver) (3)
Annual Fund Operating 0.73% 0.98% 0.70% 0.95%
===== ===== ===== =====
Expenses (4)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Evergreen Government Pro Forma
Shareholder Transaction Expenses
Class Y Class A
<S> <C> <C>
Maximum Sales Load Imposed on None 4.75%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on None None
Reinvested Dividends (as a
percentage of offering price)
Contingent Deferred Sales Charge None None
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower)
Annual Fund Operating Expenses (as
a percentage of average daily net
assets)
Management Fee 0.50% 0.50%
12b-1 Fees(2) None 0.25%
Other Expenses 0.22% 0.22%
--------- -------
Annual Fund Operating Expenses (4)
0.72% 0.97%
====== =======
</TABLE>
- ---------------
(1) The management fee for CoreFunds Government has been reduced from 0.50%
of average daily net assets to reflect the voluntary waiver by the
investment adviser.
(2) Class A shares of Evergreen Government can pay up to 0.75% of average
daily net assets as a 12b-1 fee. For the foreseeable future, the Class
A 12b-1 fees will be limited to 0.25% of average daily net assets.
(3) Absent voluntary waivers by CoreFunds Government's administrator, Other
Expenses would be 0.32% of average daily net assets.
(4) Annual Fund Operating Expenses for the Class Y and Class A shares of
CoreFunds Government would be
<PAGE>
0.82% and 1.07% for the year ending June 30, 1998, absent fee and
expense waivers. The investment adviser of Evergreen Government has
undertaken to limit the Fund's Annual Operating Expenses for a period
of at least two years to 0.82% and 1.07% for Class Y and Class A
shares, respectively.
Examples. The following tables show for Evergreen Government and
CoreFunds Government, and for Evergreen Government pro forma, assuming
consummation of the Reorganization, examples of the cumulative effect of
shareholder transaction expenses and annual fund operating expenses indicated
above on a $1,000 investment in each class of shares for the periods specified,
assuming (i) a 5% annual return and (ii) redemption at the end of such period.
In the case of Evergreen Government pro forma, the examples do not reflect the
imposition of the 4.75% maximum sales load on purchases since CoreFunds
Government shareholders who receive Class A shares of Evergreen Government in
the Reorganization will not incur any sales load.
<TABLE>
<CAPTION>
Evergreen Government
One Year Three Five Ten Years
Years Years
<S> <C> <C> <C> <C>
Class Y $7 $23 $41 $91
Class A $57 $77 $99 $162
CoreFunds Government
Three Five
One Year Years Years Ten Years
Class Y $7 $22 $39 $87
Class A $42 $62 $83 $115
</TABLE>
<TABLE>
<CAPTION>
Evergreen Government Pro Forma
Three Five
One Year Years Years Ten Years
<S> <C> <C> <C> <C>
Class Y $7 $23 $40 $89
Class A $10 $31 $54 $119
</TABLE>
<PAGE>
The purpose of the foregoing examples is to assist CoreFunds Government
shareholders in understanding the various costs and expenses that an investor in
Evergreen Government as a result of the Reorganization would bear directly and
indirectly, as compared with the various direct and indirect expenses currently
borne by a shareholder in CoreFunds Government. These examples should not be
considered a representation of past or future expenses or annual return. Actual
expenses may be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
the Prospectuses of Evergreen Government dated February 1, 1998 and the
Prospectuses of CoreFunds Government dated November 1, 1997 (which are
incorporated herein by reference), the Plan and the Interim Advisory Agreement,
the forms of which are attached to this Prospectus/Proxy Statement as Exhibits A
and B, respectively.
Proposed Plan of Reorganization
The Plan provides for the transfer of all of the assets of CoreFunds
Government in exchange for shares of Evergreen Government and the assumption by
Evergreen Government of the identified liabilities of CoreFunds Government. The
identified liabilities consist only of those liabilities reflected on the Fund's
statement of assets and liabilities determined immediately preceding the
Reorganization. The Plan also calls for the distribution of shares of Evergreen
Government to CoreFunds Government shareholders in liquidation of CoreFunds
Government as part of the Reorganization. As a result of the Reorganization, the
holders of Class A and Class Y shares of CoreFunds Government will become the
owners of that number of full and fractional Class A and Class Y shares,
respectively, of Evergreen Government having an aggregate net asset value equal
to the aggregate net asset value of the shareholders' shares of CoreFunds
Government, as of the close of business immediately prior to the date that
CoreFunds Government's assets are exchanged for shares of Evergreen Government.
See "Reasons for the Reorganization Agreement and Plan of Reorganization."
The Directors of CoreFunds, Inc., including the Directors who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Directors"), have concluded that the Reorganization would be in the best
interests of shareholders of CoreFunds Government, and that the interests of the
shareholders of CoreFunds Government will not be diluted as a result of the
<PAGE>
transactions contemplated by the Reorganization. Accordingly, the Directors have
submitted the Plan for the approval of CoreFunds Government's shareholders.
THE BOARD OF DIRECTORS OF COREFUNDS, INC.
RECOMMENDS APPROVAL BY SHAREHOLDERS OF COREFUNDS GOVERNMENT
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Fixed Income Trust have also approved the Plan
and, accordingly, Evergreen Government's participation in the Reorganization.
Approval of the Reorganization on the part of CoreFunds Government will
require the affirmative vote of a majority of CoreFunds Government's outstanding
shares, with all classes voting together as a single class at a Meeting at which
a quorum of the Fund's shares is present. A majority of the outstanding shares
entitled to vote, represented in person or by proxy, is required to constitute a
quorum at the Meeting. See "Voting Information Concerning the Meeting."
The merger of CoreStates Financial Corp ("CoreStates Financial") with
and into a wholly-owned subsidiary of First Union Corporation ("First Union")
(the "Merger") has been consummated and, as a result, by law the Merger
terminated the investment advisory agreement between CSIA and CoreFunds
Government. Prior to consummation of the Merger, CoreFunds Government received
an order from the SEC which permitted the implementation, without formal
shareholder approval, of a new investment advisory agreement between the Fund
and CSIA for a period of not more than 150 days (September 27, 1998) beginning
on the date of the closing of the Merger and continuing through the date the
Interim Advisory Agreement is approved by the Fund's shareholders. The Interim
Advisory Agreement has the same terms and fees as the previous investment
advisory agreement between CoreFunds Government and CSIA. The Reorganization is
scheduled to take place on or about July 27, 1998.
Approval of the Interim Advisory Agreement requires the affirmative
vote of (i) 67% or more of the shares of CoreFunds Government present in person
or by proxy at the Meeting, if holders of more than 50% of the shares of
CoreFunds Government outstanding on the record date are present, in person or by
proxy, or (ii) more than 50% of the outstanding shares of CoreFunds Government,
whichever is less. See "Voting Information Concerning the Meeting."
If the shareholders of CoreFunds Government do not vote to approve the
Reorganization, the Directors will consider other possible courses of action in
the best interests of shareholders.
<PAGE>
Tax Consequences
Prior to or at the completion of the Reorganization, CoreFunds
Government will have received an opinion of Sullivan & Worcester LLP that the
Reorganization has been structured so that no gain or loss will be recognized by
the Fund or its shareholders for federal income tax purposes as a result of the
receipt of shares of Evergreen Government in the Reorganization. The holding
period and aggregate tax basis of shares of Evergreen Government that are
received by CoreFunds Government's shareholders will be the same as the holding
period and aggregate tax basis of shares of the Fund previously held by such
shareholders, provided that shares of the Fund are held as capital assets. In
addition, the holding period and tax basis of the assets of CoreFunds Government
in the hands of Evergreen Government as a result of the Reorganization will be
the same as in the hands of the Fund immediately prior to the Reorganization,
and no gain or loss will be recognized by Evergreen Government upon the receipt
of the assets of the Fund in exchange for shares of Evergreen Government and the
assumption by Evergreen Government of the identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives and policies of Evergreen Government and
CoreFunds Government are substantially similar.
The investment objective of Evergreen Government is to achieve a high
level of current income consistent with stability of principal. The Fund invests
in debt instruments issued or guaranteed by the U.S. government, its agencies or
instrumentalities. In addition, the Fund may invest in mortgage-backed
securities and asset-backed securities and up to 20% of its total assets in
collateralized mortgage obligations, commercial paper and bonds or other debt
securities rated within the four highest categories by a nationally recognized
ratings service or which, if unrated, are considered to be of comparable quality
by the Fund's investment adviser.
The investment objective of CoreFunds Government is to provide income
as well as preservation of principal investment and liquidity by investing in a
portfolio of U.S. government guaranteed securities. The Fund invests exclusively
in U.S. Treasury securities, mortgage-backed securities (including
collateralized mortgage obligations) issued or guaranteed by U.S. government
agencies and repurchase agreements involving any of these obligations. See
"Comparison of Investment Objectives and Policies" below.
<PAGE>
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the respective Prospectuses and Statement of Additional Information of the
Funds. The following tables set forth the total return of the Class Y and Class
A shares of Evergreen Government for the one and five year periods ended March
31, 1998, of the Class Y and Class A shares of CoreFunds Government for the one
year period ended March 31, 1998 and for both Funds for the period from
inception through March 31, 1998. The calculations of total return assume the
reinvestment of all dividends and capital gains distributions on the
reinvestment date and the deduction of all recurring expenses (including sales
charges) that were charged to shareholders' accounts.
<TABLE>
<CAPTION>
Average Annual Total Return (1)
1 Year 5 Years From
Ended Ended Inception
March 31, March 31, To March Inception
1998 1998 31, 1998 Date
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Evergreen
Government
Class A 5.52% 4.97% 5.29% 1/12/93
shares
Class Y 11.05% N/A 5.85% 9/2/93
shares
CoreFunds
Government
Class A 7.51% N/A 5.19% 5/3/93
shares
Class Y 11.25% N/A 6.29% 4/1/93
shares
- --------------
</TABLE>
(1) Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average
annual total returns during the periods would have been lower.
Important information about Evergreen Government is also contained in
management's discussion of Evergreen Government's performance, attached hereto
as Exhibit C. This information also appears in Evergreen Government's most
recent Annual Report.
<PAGE>
Management of the Funds
The overall management of Evergreen Government and of CoreFunds
Government is the responsibility of, and is supervised by, the Board of Trustees
of Evergreen Fixed Income Trust and the Board of Directors of CoreFunds, Inc.,
respectively.
Investment Advisers
The investment adviser to Evergreen Government is the Capital
Management Group of First Union National Bank ("FUNB"). FUNB is a subsidiary of
First Union, the sixth largest bank holding company in the United States based
on total assets as of September 30, 1997. The Capital Management Group of FUNB
and its affiliates manage the Evergreen family of mutual funds with assets of
approximately $46 billion as of March 31, 1998. For further information
regarding FUNB and First Union, see "Organization and Service Providers -
Service Providers Investment Advisers" in the Prospectuses of Evergreen
Government.
FUNB manages investments and supervises the daily business affairs of
Evergreen Government subject to the authority of the Trustees. FUNB is entitled
to receive from the Fund an annual fee equal to 0.50% of the Fund's average
daily net assets.
CSIA serves as the investment adviser for CoreFunds Government. As
investment adviser, CSIA has overall responsibility for portfolio management of
the Fund. For its services as investment adviser, CSIA is entitled to receive a
fee at an annual rate of 0.50% of the Fund's average daily net assets.
Each investment adviser may, at its discretion, reduce or waive its fee
or reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Each investment adviser may reduce or cease these voluntary
waivers and reimbursements at any time.
Year 2000 Risks. Like other investment companies, financial and
business organizations and individuals around the world, Evergreen Government
could be adversely affected if the computer systems used by the Fund's
investment adviser and the Fund's other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Fund's other major service providers. At this time,
however,
<PAGE>
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund.
Administrators
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
Evergreen Government. As administrator, EIS provides facilities, equipment and
personnel to Evergreen Government and is entitled to receive an administration
fee from the Fund based on the aggregate average daily net assets of all the
mutual funds advised by FUNB and its affiliates, calculated in accordance with
the following schedule: 0.050% on the first $7 billion, 0.035% on the next $3
billion, 0.030% on the next $5 billion, 0.020% on the next $10 billion, 0.015%
on the next $5 billion and 0.010% on assets in excess of $30 billion.
SEI Fund Resources ("SEI") acts as the administrator for CoreFunds
Government and provides the Fund with certain administrative personnel and
services including certain legal and accounting services. SEI is entitled to
receive a fee for such services at the annual rate of 0.25% of the Fund's
average daily net assets. SEI will continue during the term of the Interim
Advisory Agreement as CoreFunds Government's administrator for the same
compensation as currently received.
Portfolio Management
Rollin C. Williams is the Portfolio Manager of Evergreen Government. Mr.
Williams has over 28 years of banking and investment management experience. In
addition to managing FUNB's Diversified Bond Group Trust, he is also responsible
for the management of over $2.2 billion in fixed income portfolios. Prior to
joining FUNB, Mr. Williams was the head of fixed income investment at Dominion
Trust Company in Roanoke, Virginia. Mr. Williams has been with FUNB since 1993
when it acquired Dominion Trust Company; he started with Dominion Trust Company
in 1988. Since joining FUNB, Mr. Williams has been a Vice President and Senior
Portfolio Manager.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen Government's shares. EDI distributes
the Fund's shares directly or through broker-dealers, banks (including FUNB), or
other financial intermediaries. Evergreen Government offers four classes of
shares: Class A, Class B, Class C and Class Y. Each class has separate
distribution arrangements. (See "Distribution-Related Expenses" below.) No class
bears the distribution expenses relating to the shares of any other class.
<PAGE>
In the proposed Reorganization, Class Y shareholders of CoreFunds
Government will receive Class Y shares of Evergreen Government, and Class A
shareholders of CoreFunds Government will receive Class A shares of Evergreen
Government. The Class Y and Class A shares of Evergreen Government have
substantially similar arrangements with respect to the imposition of Rule 12b-1
distribution and service fees as the Class Y and Class A shares of CoreFunds
Government. Because the Reorganization will be effected at net asset value
without the imposition of a sales charge, Evergreen Government shares acquired
by shareholders of CoreFunds Government pursuant to the proposed Reorganization
would not be subject to any initial sales charge or contingent deferred sales
charge as a result of the Reorganization.
The following is a summary description of charges and fees for the
Class Y and Class A shares of Evergreen Government which will be received by
CoreFunds Government shareholders in the Reorganization. More detailed
descriptions of the distribution arrangements applicable to the classes of
shares are contained in the respective Evergreen Government Prospectuses and the
CoreFunds Government Prospectuses and in each Fund's Statement of Additional
Information.
Class Y Shares. Class Y shares are sold at net asset value without any
initial or deferred sales charge and are not subject to distribution-related
fees. Class Y shares are only available to (i) all shareholders of record in one
or more of the Evergreen family of funds for which Evergreen Asset Management
Corp. ("Evergreen Asset") serves as investment adviser as of December 30, 1994,
(ii) certain institutional investors and (iii) investment advisory clients of
FUNB, Evergreen Asset or their affiliates. CoreFunds Government shareholders who
receive Evergreen Government Class Y shares in the Reorganization and who wish
to make subsequent purchases of Evergreen Government shares will be able to
purchase Class Y shares.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees. For a description of the initial sales charges
applicable to purchases of Class A shares, see "Purchase and Redemption of
Shares - How to Buy Shares" in the applicable Prospectus for Evergreen
Government. No initial sales charge will be imposed on Class A shares of
Evergreen Government received by CoreFunds Government's shareholders in the
Reorganization. Subsequent purchases of Class A shares will be subject to
initial sales charges.
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectuses and Statement of Additional Information.
<PAGE>
Distribution-Related Expenses. Evergreen Government has adopted a Rule
12b-1 plan with respect to its Class A shares under which the Class may pay for
distribution-related expenses at an annual rate which may not exceed 0.75% of
average daily net assets attributable to the Class. Payments with respect to
Class A shares are currently limited to 0.25% of average daily net assets
attributable to the Class. This amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
CoreFunds Government has adopted a Rule 12b-1 plan with respect to its
Class A shares under which the Class may pay for distribution-related expenses
at an annual rate of 0.25% of average daily net assets attributable to the
Class. Neither Evergreen Government nor CoreFunds Government has adopted a Rule
12b-1 plan with respect to its Class Y shares. A Rule 12b-1 plan can only be
adopted with shareholder approval.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectuses and Statement of Additional
Information.
Purchase and Redemption Procedures
Information concerning applicable sales charges and
distribution-related fees is provided above. Investments in the Funds are not
insured. The minimum initial purchase requirement for Evergreen Government is
$1,000. The minimum initial purchase requirement for Class A and Class Y shares
of CoreFunds Government is $500 and $1,000,000, respectively. There is no
minimum for subsequent purchases of shares of either Fund. Each Fund provides
for telephone, mail or wire redemption of shares at net asset value as next
determined after receipt of a redemption request on each day the New York Stock
Exchange ("NYSE") is open for trading. Additional information concerning
purchases and redemptions of shares, including how each Fund's net asset value
is determined, is contained in the respective Prospectuses for each Fund. Each
Fund may involuntarily redeem shareholders' accounts that have less than $1,000
($500 for CoreFunds Government Class A shares) of invested funds. All funds
invested in each Fund are invested in full and fractional shares. The Funds
reserve the right to reject any purchase order.
<PAGE>
Exchange Privileges
CoreFunds Government currently permits holders of Class A shares to
exchange such shares for Class A shares of another CoreFunds, Inc. portfolio.
Exchanges of Class Y shares are generally not permitted. Holders of shares of a
class of Evergreen Government generally may exchange their shares for shares of
the same class of any other Evergreen fund. CoreFunds Government shareholders
will be receiving Class Y and Class A shares of Evergreen Government in the
Reorganization and, accordingly, with respect to shares of Evergreen Government
received by CoreFunds Government shareholders in the Reorganization, the
exchange privilege is limited to the Class Y and Class A shares, as applicable,
of other Evergreen funds. Evergreen Government limits exchanges to five per
calendar year and three per calendar quarter. No sales charge is imposed on an
exchange. An exchange which represents an initial investment in another
Evergreen fund must amount to at least $1,000. The current exchange privileges,
and the requirements and limitations attendant thereto, are described in each
Fund's respective Prospectuses and Statement of Additional Information.
Dividend Policy
Each Fund declares dividends daily and distributes its income dividends
monthly. Distributions of any net realized gains of a Fund will be made at least
annually. Shareholders begin to earn dividends on the first business day after
shares are purchased unless shares were not paid for, in which case dividends
are not earned until the next business day after payment is received. Dividends
and distributions are reinvested in additional shares of the same class of the
respective Fund, or paid in cash, as a shareholder has elected. See the
respective Prospectuses of each Fund for further information concerning
dividends and distributions.
After the Reorganization, shareholders of CoreFunds Government who have
elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from Evergreen Government reinvested in
shares of Evergreen Government. Shareholders of CoreFunds Government who have
elected to receive dividends and/or distributions in cash will receive dividends
and/or distributions from Evergreen Government in cash after the Reorganization,
although they may, after the Reorganization, elect to have such dividends and/or
distributions reinvested in additional shares of Evergreen Government.
Each of Evergreen Government and CoreFunds Government has
qualified and intends to continue to qualify to be treated as a
<PAGE>
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). While so qualified, so long as each Fund distributes all of its
net investment company taxable income and any net realized gains to
shareholders, it is expected that a Fund will not be required to pay any federal
income taxes on the amounts so distributed. A 4% nondeductible excise tax will
be imposed on amounts not distributed if a Fund does not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements.
Risks
Since the investment objectives and policies of each Fund are
comparable, the risks involved in investing in each Fund's shares are similar.
There is no assurance that investment performances will be positive and that the
Funds will meet their investment objectives. For a discussion of each Fund's
objectives and policies, see "Comparison of Investment Objectives and Policies."
CoreFunds Government invests exclusively in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities while
Evergreen Government may invest up to 20% of its assets in securities other than
those issued or guaranteed by the U.S. government, its agencies or
instrumentalities. To the extent that Evergreen Government invests in non-U.S.
government securities, the Fund is subject to the risk of default in the payment
of interest and principal.
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.
At December 31, 1997, the dollar-weighted average maturity of Evergreen
Government's portfolio securities was 9.1 years and the dollar-weighted average
maturity of CoreFunds Government's portfolio securities was 8.5 years. Prices of
longer-term bonds tend to be more volatile in periods of changing interest rates
than prices of shorter-term securities.
<PAGE>
Zero-Coupon and Stripped Securities. Evergreen Government and CoreFunds
Government, 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 Fund may fluctuate
over a greater range than shares of other mutual funds investing in securities
making current distributions of interest and having similar maturities.
Risk Characteristics of Asset-Backed Securities. Evergreen Government,
unlike CoreFunds Government, may invest in asset- backed securities.
Asset-backed securities, issued by trusts and special purpose corporations, are
backed by a pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties. Asset-backed
securities present certain risks. For instance, in the case of credit card
receivables, these securities may not have the benefit of any security interest
in the related collateral. 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 automobile receivables permit the servicers 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 related automobile receivables. 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 the
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. The underlying assets (e.g., loans) are
also subject to prepayments which shorten the securities weighted average life
and may lower their return.
<PAGE>
REASONS FOR THE REORGANIZATION
On November 18, 1997, First Union entered into an Agreement and Plan of
Merger with CoreStates Financial, which provided, among other things, for the
Merger of CoreStates Financial with and into a wholly-owned subsidiary of First
Union. The Merger was consummated on April 30, 1998. As a result of the Merger
it is expected that FUNB and its affiliates will succeed to the investment
advisory and administrative functions currently performed for CoreFunds
Government by various units of CoreStates Financial and various unaffiliated
parties. It is also expected that CoreStates Financial and its subsidiaries will
no longer, upon completion of the Reorganization and similar reorganizations of
other portfolios of CoreFunds, Inc., provide investment advisory or
administrative services to investment companies.
Based on information received from CSIA and FUNB, at a meeting held on
February 6, 1998, all of the Directors present, including the Independent
Directors, considered and approved the Reorganization as in the best interests
of shareholders of CoreFunds Government and determined that the interests of
existing shareholders of CoreFunds Government will not be diluted as a result of
the transactions contemplated by the Reorganization. In addition, the Directors
approved the Interim Advisory Agreement with respect to CoreFunds Government.
As noted above, CoreStates Financial has merged with and into a
wholly-owned subsidiary of First Union. CoreStates Financial is the parent
company of CSIA, investment adviser to the mutual funds which comprise
CoreFunds, Inc. The Merger caused, as a matter of law, termination of the
investment advisory agreement between each series of CoreFunds, Inc. and CSIA
with respect to the Fund. CoreFunds, Inc. has received an order from the SEC
which permits CSIA to continue to act as CoreFunds Government's investment
adviser, without shareholder approval, for a period of not more than 150 days
from the date the Merger was consummated (April 30, 1998) to the date of
shareholder approval of a new investment advisory agreement. Accordingly, the
Directors considered the recommendations of CSIA in approving the proposed
Reorganization.
In approving the Plan, the Directors reviewed various factors about the
Funds and the proposed Reorganization. There are substantial similarities
between Evergreen Government and CoreFunds Government. Specifically, Evergreen
Government and CoreFunds Government have substantially similar investment
objectives and policies and comparable risk profiles. See "Comparison of
Investment Objectives and Policies" below. At the same time, the Board of
Directors evaluated the potential economies of scale associated with larger
mutual funds and
<PAGE>
concluded that operational efficiencies may be achieved upon the combination of
CoreFunds Government with Evergreen Government. As of December 31, 1997,
Evergreen Government's net assets were approximately $331 million and CoreFunds
Government's net assets were approximately $23 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that CoreFunds Government continue its existence and be separately
managed by FUNB or one of its affiliates, CoreFunds Government would be offered
through common distribution channels with the similar Evergreen Government.
CoreFunds Government would also have to bear the cost of maintaining its
separate existence. CSIA and FUNB believe that the prospect of dividing the
resources of the Evergreen mutual fund organization between two similar funds
could result in each Fund being disadvantaged due to an inability to achieve
optimum size, performance levels and greater economies of scale. Accordingly,
for the reasons noted above and recognizing that there can be no assurance that
any economies of scale or other benefits will be realized, CSIA and FUNB believe
that the proposed Reorganization would be in the best interests of each Fund and
its shareholders.
The Board of Directors of CoreFunds, Inc. met and considered the
recommendation of CSIA and FUNB, and, in addition, considered among other
things, (i) the terms and conditions of the Reorganization; (ii) whether the
Reorganization would result in the dilution of shareholders' interests; (iii)
expense ratios, fees and expenses of Evergreen Government and CoreFunds
Government and the agreement by Evergreen Government's investment advsier to
limit the Fund's annual operating expenses for a period of at least two years to
the current annual operating expenses (before waivers) of CoreFunds Government;
(iv) the comparative performance records of each of the Funds; (v) compatibility
of their investment objectives and policies; (vi) the investment experience,
expertise and resources of FUNB; (vii) the service and distribution resources
available to the Evergreen funds and the broad array of investment alternatives
available to shareholders of the Evergreen funds; (viii) the personnel and
financial resources of First Union and its affiliates; (ix) the fact that FUNB
will bear the expenses incurred by CoreFunds Government in connection with the
Reorganization; (x) the fact that Evergreen Government will assume the
identified liabilities of CoreFunds Government; and (xi) the expected federal
income tax consequences of the Reorganization.
The Directors also considered the benefits to be derived by
shareholders of CoreFunds Government from the sale of its assets to Evergreen
Government. In this regard, the Directors considered the potential benefits of
being associated with a
<PAGE>
larger entity and the economies of scale that could be realized by the
participation in such an entity by shareholders of CoreFunds Government.
In addition, the Directors considered that there are alternatives
available to shareholders of CoreFunds Government, including the ability to
redeem their shares, as well as the option to vote against the Reorganization.
Section 15(f) of the 1940 Act provides that when a change in the
control of an investment adviser occurs, the investment adviser or any of its
affiliated persons may receive any amount or benefit in connection therewith
under certain conditions. One condition is that for three years thereafter, at
least 75% of the board of directors of a surviving investment company are not
"interested persons" of the company's investment adviser or of the investment
adviser of the terminating investment company. Another condition is that no
"unfair burden" is imposed on the investment company as a result of the
understandings applicable thereto. The term "unfair burden" is considered under
the 1940 Act to include any arrangement during the two-year period after the
transaction whereby the investment adviser (or predecessor or successor
adviser), or any "interested person" of any such adviser, receives or is
entitled to receive any compensation, directly or indirectly, from the
investment company or its security holders (other than fees for bona fide
investment advisory or other services) or from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of the
investment company (other than fees for bona fide principal underwriting
services). FUNB advised CoreFunds, Inc. that it intends to comply with
conditions set forth in Section 15(f).
During their consideration of the Reorganization the Directors met with
Fund counsel regarding the legal issues involved. The Trustees of Evergreen
Fixed Income Trust also concluded at a meeting on February 11, 1998 that the
proposed Reorganization would be in the best interests of shareholders of
Evergreen Government and that the interests of the shareholders of Evergreen
Government would not be diluted as a result of the transactions contemplated by
the Reorganization.
The Directors of CoreFunds, Inc. have voted to retain their ability to
make claims under their existing Directors and Officers Errors and Omissions
Liability Insurance Policy for a period of three years following the
consummation of the Reorganization. CoreStates Financial and First Union have
agreed to take appropriate steps to insure that the cost of extending such
coverage will not be borne by CoreFunds Government's shareholders.
<PAGE>
THE DIRECTORS OF COREFUNDS, INC. RECOMMEND
THAT THE SHAREHOLDERS OF COREFUNDS GOVERNMENT APPROVE
THE PROPOSED REORGANIZATION.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).
The Plan provides that Evergreen Government will acquire all of the
assets of CoreFunds Government in exchange for shares of Evergreen Government
and the assumption by Evergreen Government of the identified liabilities of
CoreFunds Government on or about July 27, 1998 or such other date as may be
agreed upon by the parties (the "Closing Date"). Prior to the Closing Date,
CoreFunds Government will endeavor to discharge all of its known liabilities and
obligations. Evergreen Government will not assume any liabilities or obligations
of CoreFunds Government other than those reflected in an unaudited statement of
assets and liabilities of CoreFunds Government prepared as of the close of
regular trading on the NYSE, currently 4:00 p.m. Eastern time, on the business
day immediately prior to the Closing Date. The number of full and fractional
shares of each class of Evergreen Government to be received by the shareholders
of CoreFunds Government will be determined by multiplying the respective
outstanding class of shares of CoreFunds Government by a factor which shall be
computed by dividing the net asset value per share of the respective class of
shares of CoreFunds Government by the net asset value per share of the
respective class of shares of Evergreen Government. Such computations will take
place as of the close of regular trading on the NYSE on the business day
immediately prior to the Closing Date. The net asset value per share of each
class will be determined by dividing assets, less liabilities, in each case
attributable to the respective class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for Evergreen
Government, will compute the value of each Fund's respective portfolio
securities. The method of valuation employed will be consistent with the
procedures set forth in the Prospectuses and Statement of Additional Information
of Evergreen Government, Rule 22c-1 under the 1940 Act, and with the
interpretations of such Rule by the SEC's Division of Investment Management.
At or prior to the Closing Date, CoreFunds Government will have
declared a dividend or dividends and distribution or distributions which,
together with all previous dividends and distributions, shall have the effect of
distributing to the Fund's shareholders (in shares of the Fund, or in cash, as
the
<PAGE>
shareholder has previously elected) all of the Fund's net investment company
taxable income for the taxable period ending on the Closing Date (computed
without regard to any deduction for dividends paid) and all of its net capital
gains realized in all taxable periods ending on the Closing Date (after
reductions for any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, CoreFunds
Government will liquidate and distribute pro rata to shareholders of record as
of the close of business on the Closing Date the full and fractional shares of
Evergreen Government received by CoreFunds Government. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Fund's shareholders on Evergreen Government's share records of its
transfer agent. Each account will represent the respective pro rata number of
full and fractional shares of Evergreen Government due to the Fund's
shareholders. All issued and outstanding shares of CoreFunds Government,
including those represented by certificates, will be canceled. The shares of
Evergreen Government to be issued will have no preemptive or conversion rights.
After these distributions and the winding up of its affairs, CoreFunds
Government will be terminated. In connection with such termination, CoreFunds,
Inc. will file with the SEC an application for termination as a registered
investment company.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by CoreFunds Government's shareholders,
accuracy of various representations and warranties and receipt of opinions of
counsel, including opinions with respect to those matters referred to in
"Federal Income Tax Consequences" below. Notwithstanding approval of CoreFunds
Government's shareholders, the Plan may be terminated (a) by the mutual
agreement of CoreFunds Government and Evergreen Government; or (b) at or prior
to the Closing Date by either party (i) because of a breach by the other party
of any representation, warranty, or agreement contained therein to be performed
at or prior to the Closing Date if not cured within 30 days, or (ii) because a
condition to the obligation of the terminating party has not been met and it
reasonably appears that it cannot be met.
The expenses of CoreFunds Government in connection with the
Reorganization (including the cost of any proxy soliciting agent) will be borne
by FUNB whether or not the Reorganization is consummated. No portion of such
expenses will be borne directly or indirectly by CoreFunds Government or its
shareholders.
If the Reorganization is not approved by shareholders of CoreFunds
Government, the Board of Directors of CoreFunds, Inc.
<PAGE>
will consider other possible courses of action in the best
interests of shareholders.
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368(a) of the Code. As a
condition to the closing of the Reorganization, CoreFunds Government will
receive an opinion of Sullivan & Worcester LLP to the effect that, on the basis
of the existing provisions of the Code, U.S. Treasury regulations issued
thereunder, current administrative rules, pronouncements and court decisions,
for federal income tax purposes, upon consummation of the Reorganization:
(1) The transfer of all of the assets of CoreFunds Government solely in
exchange for shares of Evergreen Government and the assumption by Evergreen
Government of the identified liabilities, followed by the distribution of
Evergreen Government's shares by CoreFunds Government in dissolution and
liquidation of CoreFunds Government, will constitute a "reorganization" within
the meaning of section 368(a)(1)(C) of the Code, and Evergreen Government and
CoreFunds Government will each be a "party to a reorganization" within the
meaning of section 368(b) of the Code;
(2) No gain or loss will be recognized by CoreFunds Government on the
transfer of all of its assets to Evergreen Government solely in exchange for
Evergreen Government's shares and the assumption by Evergreen Government of the
identified liabilities of CoreFunds Government or upon the distribution of
Evergreen Government's shares to CoreFunds Government's shareholders in exchange
for their shares of CoreFunds Government;
(3) The tax basis of the assets transferred will be the same to
Evergreen Government as the tax basis of such assets to CoreFunds Government
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Evergreen Government will include the period during which the
assets were held by CoreFunds Government;
(4) No gain or loss will be recognized by Evergreen Government upon the
receipt of the assets from CoreFunds Government solely in exchange for the
shares of Evergreen Government and the assumption by Evergreen Government of the
identified liabilities of CoreFunds Government;
(5) No gain or loss will be recognized by CoreFunds Government's
shareholders upon the issuance of the shares of
<PAGE>
Evergreen Government to them, provided they receive solely such shares
(including fractional shares) in exchange for their shares of CoreFunds
Government; and
(6) The aggregate tax basis of the shares of Evergreen Government,
including any fractional shares, received by each of the shareholders of
CoreFunds Government pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares of CoreFunds Government held by such
shareholder immediately prior to the Reorganization, and the holding period of
the shares of Evergreen Government, including fractional shares, received by
each such shareholder will include the period during which the shares of
CoreFunds Government exchanged therefor were held by such shareholder (provided
that the shares of CoreFunds Government were held as a capital asset on the date
of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, a shareholder of CoreFunds Government
would recognize a taxable gain or loss equal to the difference between his or
her tax basis in his or her Fund shares and the fair market value of Evergreen
Government shares he or she received. Shareholders of CoreFunds Government
should consult their tax advisers regarding the effect, if any, of the proposed
Reorganization in light of their individual circumstances. It is not anticipated
that the securities of the combined portfolio will be sold in significant
amounts in order to comply with the policies and investment practices of
Evergreen Government. Since the foregoing discussion relates only to the federal
income tax consequences of the Reorganization, shareholders of CoreFunds
Government should also consult their tax advisers as to the state and local tax
consequences, if any, of the Reorganization.
Capital loss carryforwards of CoreFunds Government will be available to
Evergreen Government to offset capital gains recognized after the
Reorganization, subject to limitations imposed by the Code. These limitations
provide generally that the amount of loss carryforward which may be used in any
year following the closing is an amount equal to the value of all of the
outstanding stock of CoreFunds Government immediately prior to the
Reorganization, multiplied by a long-term tax-exempt bond rate determined
monthly by the Internal Revenue Service. The rate for February, 1998 was 5.23%.
A capital loss carryforward may generally be used without any limit to offset
gains recognized on sale of assets transferred by CoreFunds Government to
Evergreen Government pursuant to the Reorganization, to the extent of the excess
of the value of any such asset on the
<PAGE>
Closing Date over its tax
basis.
Pro-forma Capitalization
The following table sets forth the capitalizations of Evergreen
Government and CoreFunds Government as of December 31, 1997, and the
capitalization of Evergreen Government on a pro forma basis as of that date,
giving effect to the proposed acquisition of assets at net asset value. The pro
forma data reflects an exchange ratio of approximately 1.034 and 1.034 Class Y
and Class A shares, respectively, of Evergreen Government issued for each Class
Y and Class A share, respectively, of CoreFunds Government.
<TABLE>
<CAPTION>
Capitalization of CoreFunds Government,
Evergreen Government and Evergreen
Government (Pro Forma)
Evergreen
Government
(After
CoreFunds Evergreen Reorgani-
Government Government zation)
---------- ---------- ----------
<S> <C> <C> <C>
Net Assets
Class A........................ $1,827,358 $38,289,133 $40,116,491
Class B........................ N/A $142,045,706 $142,045,706
Class C........................ N/A $6,376,908 $6,376,908
Class Y........................ $21,030,682 $144,342,575 $165,373,257
------------ ----------- ------------
Total Net $22,858,040 $331,054,322 $353,912,362
Assets
Net Asset Value Per
Share
Class A........................ $10.03 $9.70 $9.70
Class B........................ N/A $9.70 $9.70
Class C........................ N/A $9.70 $9.70
Class Y........................ $10.03 $9.70 $9.70
Shares Outstanding
Class A........................ 182,133 3,946,029 4,134,358
Class B........................ N/A 14,639,305 14,639,305
Class C........................ N/A 657,251 657,251
Class Y........................ 2,097,233 14,876,034 17,044,616
--------- ---------- ----------
All Classes.................... 2,279,366 34,118,619 36,475,530
</TABLE>
The table set forth above should not be relied upon to
reflect the number of shares to be received in the
<PAGE>
Reorganization; the actual number of shares to be received will depend upon the
net asset value and number of shares outstanding of each Fund at the time of the
Reorganization.
Shareholder Information
As of May 29, 1998 (the "Record Date"), the following number of each
Class of shares of beneficial interest of CoreFunds Government was outstanding:
Class of Shares
- ---------------
Class Y........................................ 2,429,566
Class A........................................ 172,134
---------
All Classes.................................... 2,601,700
As of March 31, 1998, the officers and Directors of CoreFunds, Inc.
beneficially owned as a group less than 1% of the outstanding shares of
CoreFunds Government. To CoreFunds, Inc.'s knowledge, the following persons
owned beneficially or of record more than 5% of CoreFunds Government's total
outstanding shares as of March 31, 1998:
<TABLE>
<CAPTION>
Percentage Percentage of
of Shares Shares of
of Class Class After
Before Reorgani-
No. of Reorgani- zation
Name and Address Class Shares zation ---------
- ---------------- ----- ------ ---------
<S> <C> <C> <C> <C>
Patterson & Co. Y 2,332,407 98.80% 12.98%
PNB Personal Trust
Accounting
P.O. Box 7829
Philadelphia, PA
19101-7829
National Financial A 22,847 13.69% 0.57%
Services Corp.
For Exclusive Use
of Our Customers
200 Liberty Street
4th Floor
One World Financial
Center
New York, NY 10281-
1003
<PAGE>
Jean Taxin
5005 Woodbine Ave. A 9,242 5.54% 0.23%
Philadelphia, PA
19131-2403
Margaret Murray A 11,494 6.89% 0.28%
P.O. Box 5566
Philadelphia, PA
19143-0566
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectuses and Statement of
Additional Information of the Funds. The investment objective, policies and
restrictions of Evergreen Government can be found in the Prospectuses of
Evergreen Government under the caption "Description of the Funds - Investment
Objectives and Policies." Evergreen Government's Prospectuses also offer
additional funds advised by FUNB or its affiliates. These additional funds are
not involved in the Reorganization, their investment objectives and policies are
not discussed in this Prospectus/Proxy Statement, and their shares are not
offered hereby. The investment objective, policies and restrictions of CoreFunds
Government can be found in the respective Prospectuses of the Fund under the
caption "Information on the Funds." Unlike the investment objective of CoreFunds
Government, which is fundamental, the investment objective of Evergreen
Government is non-fundamental and can be changed by the Board of Trustees
without shareholder approval.
The investment objective of Evergreen Government 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.
In addition to U.S. government securities, Evergreen Government
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
<PAGE>
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.
Collateralized mortgage obligations ("CMOs") issued by single-purpose,
stand-alone entities. A CMO is a mortgage-backed security that manages the risk
of prepayment 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 the 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.
Evergreen Government may invest up to 20% of its total assets in (i)
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 (i.e., A-1 or A-2 by Standard & Poor's Ratings Group
("S&P"), Prime-1 or Prime-2 by Moody's Investors Service ("Moody's"), or
<PAGE>
F-1 or F-2 by Fitch Investors Service, L.P.), and (ii) 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 Fund's 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.
The investment objective of CoreFunds Government is to seek current
income while preserving principal value. CoreFunds Government pursues its
investment objective by investing exclusively in U.S. Treasury securities,
mortgage-backed securities issued or guaranteed by U.S. government agencies and
repurchase agreements involving any of these obligations.
Evergreen Government, unlike CoreFunds Government, may engage in
options and futures transactions. For a description of these transactions and
the risks related thereto, see the Prospectuses of Evergreen Government.
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectuses and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Prospectuses and Statement of Additional Information of
each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Forms of Organization
Evergreen Fixed Income Trust and CoreFunds, Inc. are open-end
management investment companies registered with the SEC under the 1940 Act,
which continuously offer shares to the public. Evergreen Fixed Income Trust is
organized as a Delaware business trust and is governed by its Declaration of
Trust, By-Laws and a Board of Trustees. CoreFunds, Inc. is organized as a
Maryland corporation and is governed by its Articles of Incorporation, ByLaws
and a Board of Directors. Each entity is also governed by applicable Delaware,
Maryland and federal law. Evergreen Government is a series of Evergreen Fixed
Income Trust and CoreFunds Government is a series of CoreFunds, Inc.
Capitalization
<PAGE>
The beneficial interests in Evergreen Government are represented by an
unlimited number of transferable shares of beneficial interest, $.001 par value
per share. CoreFunds, Inc.'s authorized shares consist of 30 billion shares of
common stock, par value $.001 per share, of which 100 million are classified as
Class Y shares and 100 million are classified as Class A shares of CoreFunds
Government. Evergreen Fixed Income Trust's Declaration of Trust and CoreFunds,
Inc.'s Articles of Incorporation permit the Trustees or Directors, respectively,
to allocate shares into an unlimited number of series, and classes thereof, with
rights determined by the Trustees or Directors, respectively, all without
shareholder approval. Fractional shares may be issued by either Fund. Each
Fund's shares represent equal proportionate interests in the assets belonging to
the Funds. Shareholders of each Fund are entitled to receive dividends and other
amounts as determined by the Trustees or Directors. Shareholders of each Fund
vote separately, by class, as to matters, such as approval of or amendments to
Rule 12b-1 distribution plans, that affect only their particular class and by
Fund as to matters, such as approval of or amendments to investment advisory
agreements or proposed reorganizations, that affect only their particular Fund.
Shareholder Liability
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result, to
the extent that Evergreen Fixed Income Trust or a shareholder is subject to the
jurisdiction of courts in those states, it is possible that a court may not
apply Delaware law, and may thereby subject shareholders of Evergreen Fixed
Income Trust to liability. To guard against this risk, the Declaration of Trust
of Evergreen Fixed Income Trust (a) provides that any written obligation of the
Trust may contain a statement that such obligation may only be enforced against
the assets of the Trust or the particular series in question and the obligation
is not binding upon the shareholders of the Trust; however, the omission of such
a disclaimer will not operate to create personal liability for any shareholder;
and (b) provides for indemnification out of Trust property of any shareholder
held personally liable for the obligations of the Trust. Accordingly, the risk
of a shareholder of Evergreen Fixed Income Trust incurring financial loss beyond
that shareholder's investment because of shareholder liability is limited to
circumstances in which: (i) the court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Trust itself is
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's
<PAGE>
business, and the nature of its assets, the risk of personal liability to a
shareholder of Evergreen Fixed Income Trust is remote.
Under Maryland law, shareholders of CoreFunds Government have no
personal liability as such for the acts or obligations of the Fund or CoreFunds,
Inc., as the case may be.
Shareholder Meetings and Voting Rights
Neither Evergreen Fixed Income Trust on behalf of Evergreen Government
nor CoreFunds, Inc. on behalf of CoreFunds Government is required to hold annual
meetings of shareholders. However, a meeting of shareholders for the purpose of
voting upon the question of removal of a Trustee or Director must be called when
requested in writing by the holders of at least 10% of the outstanding shares of
Evergreen Fixed Income Trust or CoreFunds, Inc. In addition, each is required to
call a meeting of shareholders for the purpose of electing Trustees or Directors
if, at any time, less than a majority of the Trustees or Directors then holding
office were elected by shareholders. Neither Evergreen Fixed Income Trust nor
CoreFunds, Inc. currently intends to hold regular shareholder meetings and
neither entity permits cumulative voting. Except when a larger quorum is
required by applicable law, with respect to Evergreen Government, twenty-five
percent (25%) of the outstanding shares entitled to vote, and with respect to
CoreFunds Government, a majority of the outstanding shares entitled to vote
constitutes a quorum for consideration of such matter. For Evergreen Government,
a majority of the votes cast and entitled to vote, and for CoreFunds Government,
a majority of the outstanding shares, is sufficient to act on a matter (unless
otherwise specifically required by the applicable governing documents or other
law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Fixed Income Trust, each
share of Evergreen Government will be entitled to one vote for each dollar of
net asset value applicable to each share. Under the voting provisions governing
CoreFunds Government, each share is entitled to one vote. Over time, the net
asset values of the mutual funds which are each a series of CoreFunds, Inc. have
changed in relation to one another and are expected to continue to do so in the
future. Because of the divergence in net asset values, a given dollar investment
in a fund with a lower net asset value will purchase more shares, and under
CoreFunds Government's voting provisions, have more votes, than the same
investment in a fund with a higher net asset value. Under the Declaration of
Trust of Evergreen Fixed Income Trust, voting power is related to the dollar
value of the shareholders' investment rather than to the number of shares held.
<PAGE>
Liquidation or Dissolution
In the event of the liquidation of Evergreen Government or CoreFunds
Government, the shareholders are entitled to receive, when and as declared by
the Trustees or Directors, respectively, the excess of the assets belonging to
such Fund or attributable to the class over the liabilities belonging to the
Fund or attributable to the class. In either case, the assets so distributable
to shareholders of the Fund will be distributed among the shareholders in
proportion to the number of shares of a class of the Fund held by them and
recorded on the books of the Fund.
Liability and Indemnification of Trustees
The By-Laws of CoreFunds, Inc. provide that a present or former
Director or officer is entitled to indemnification to the full extent
permissible under the laws of the State of Maryland and the 1940 Act against
liabilities and expenses with respect to claims related to his or her position
with CoreFunds, Inc., provided that no indemnification shall be provided to a
Director or officer against any liability to CoreFunds, Inc. or any shareholder
by reasons of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Under the Declaration of Trust of Evergreen Fixed Income Trust, a
Trustee is liable to the Trust and its shareholders only for such Trustee's own
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause
to believe that such Trustee's conduct was unlawful (collectively, "disabling
conduct"). A determination that the Trustee did not engage in disabling conduct
and is, therefore, entitled to indemnification may be based upon the outcome of
a court action or administrative proceeding or by (a) a vote of a majority of
those Trustees who are neither "interested persons" within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent legal counsel in a
written opinion. The Trust may also advance money for such litigation expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
<PAGE>
later determined to preclude indemnification and certain other
conditions are met.
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of Evergreen Fixed Income Trust, Articles
of Incorporation , ByLaws, Delaware and Maryland law and is not a complete
description of those documents or law. Shareholders should refer to the
provisions of such Declaration of Trust, Articles of Incorporation of CoreFunds,
Inc., By-Laws, Delaware and Maryland law directly for more complete information.
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Directors of CoreFunds, Inc. recommends that shareholders of
CoreFunds Government approve the Interim Advisory Agreement. The Merger became
effective on April 30, 1998. Pursuant to an order received from the SEC all fees
payable under the Interim Advisory Agreement will be placed in escrow and paid
to CSIA if shareholders approve the contract within 150 days of its effective
date. The Interim Advisory Agreement will remain in effect until the earlier of
the Closing Date for the Reorganization or two years from its effective date.
The terms of the Interim Advisory Agreement are essentially the same as the
Previous Advisory Agreement (as defined below). The only difference between the
Previous Advisory Agreement and the Interim Advisory Agreement, if approved by
shareholders, is the length of time each Agreement is in effect. A description
of the Interim Advisory Agreement pursuant to which CSIA continues as investment
adviser to CoreFunds Government, as well as the services to be provided by CSIA
pursuant thereto, is set forth below under "Advisory Services." The description
of the Interim Advisory Agreement in this Prospectus/Proxy Statement is
qualified in its entirety by reference to the Interim Advisory Agreement,
attached hereto as Exhibit B.
CSIA, a Pennsylvania corporation, is an indirect wholly-owned
subsidiary of First Union. CSIA's address is 1500 Market Street, Philadelphia,
Pennsylvania 19102. CSIA has served as investment adviser pursuant to an
Investment Advisory Agreement dated April 12, 1996. As used herein, the
Investment Advisory Agreement for CoreFunds Government is referred to as the
"Previous Advisory Agreement." At a meeting of the Board of Directors of
CoreFunds, Inc. held on February 6, 1998, the Directors, including a majority of
the Independent Directors, approved the Interim Advisory Agreement for CoreFunds
Government.
<PAGE>
The Directors have authorized CoreFunds, Inc., on behalf of CoreFunds
Government, to enter into the Interim Advisory Agreement with CSIA. Such
Agreement became effective on April 30, 1998. If the Interim Advisory Agreement
for CoreFunds Government is not approved by shareholders, the Directors will
consider appropriate actions to be taken with respect to CoreFunds Government's
investment advisory arrangements at that time. The Previous Advisory Agreement
was last approved by the Directors, including a majority of the Independent
Directors, on June 5, 1997.
Comparison of the Interim Advisory Agreement and the Previous
Advisory Agreement
Advisory Services. The management and advisory services to be provided
by CSIA under the Interim Advisory Agreement are identical to those currently
provided by CSIA under the Previous Advisory Agreement. Under the Previous
Advisory Agreement and Interim Advisory Agreement, CSIA manages the investment
portfolio of CoreFunds Government, makes decisions about and places orders for
all purchases and sales of the Fund's securities, and maintains certain records
relating to these purchases and sales.
Fees. The investment advisory fees for CoreFunds Government under the
Previous Advisory Agreement and the Interim Advisory Agreement are identical.
See "Summary - Investment Advisers."
Payment of Expenses and Transaction Charges. Under the Previous
Advisory Agreement, CSIA was required to pay all expenses incurred by it in
connection with its activities under the Agreement other than the cost of
securities (including brokerage commissions, if any) purchased for the Fund and
the cost of obtaining market quotations of portfolio securities held by the
Fund.
The Interim Advisory Agreement contains an identical provision.
Limitation of Liability. The Previous Advisory Agreement provided that
CSIA was not liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the performance of the Agreement, except
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of CSIA in the performance of its duties
or from reckless disregard by it of its obligations and duties under the
Agreement.
<PAGE>
The Interim Advisory Agreement contains an identical provision.
Termination; Assignment. The Interim Advisory Agreement provides that
it may be terminated without penalty by vote of a majority of the outstanding
voting securities of CoreFunds Government (as defined in the 1940 Act) or by a
vote of a majority of CoreFunds, Inc.'s entire Board of Directors on 60 days'
written notice to CSIA or by CSIA on 60 days' written notice to CoreFunds, Inc.
Also, the Interim Advisory Agreement will automatically terminate in the event
of its assignment (as defined in the 1940 Act).
The Previous Advisory Agreement contained identical provisions as to
termination and assignment.
Information About CoreFunds Government's Investment Adviser
CSIA, a registered investment adviser, manages, in addition to the
Fund, other funds of CoreFunds, Inc. The name and address of each executive
officer and director of CSIA is set forth in Appendix A to this Prospectus/Proxy
Statement.
During the fiscal years ended June 30, 1997, 1996 and 1995, CSIA
received from CoreFunds Government management fees of $87,561, $49,103 and
$22,528, respectively, and voluntarily waived fees of $13,544, $23,318 and
$33,796, respectively. CSIA is currently waiving a portion of its management
fee. See "Comparison of Fees and Expenses." CoreStates Bank, N.A. acts without
charge as custodian for CoreFunds Government.
The Board of Directors considered the Interim Advisory Agreement as
part of its overall approval of the Plan. The Board of Directors considered,
among other things, the factors set forth above in "Reasons for the
Reorganization." The Board of Directors also considered the fact that there were
no material differences between the terms of the Interim Advisory Agreement and
the terms of the Previous Advisory Agreement.
THE DIRECTORS OF COREFUNDS, INC. RECOMMEND
THAT THE SHAREHOLDERS OF COREFUNDS GOVERNMENT
APPROVE THE INTERIM ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
Evergreen Government. Information concerning the operation and
management of Evergreen Government is incorporated herein by reference from the
Prospectuses dated February 1, 1998, copies of which are enclosed, and Statement
of Additional Information of the same date. A copy of such Statement of
Additional
<PAGE>
Information is available upon request and without charge by writing to Evergreen
Government at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-343-2898.
CoreFunds Government. Information about the Fund is included in its
current Prospectuses dated November 1, 1997 and in the Statement of Additional
Information of the same date, that have been filed with the SEC, all of which
are incorporated herein by reference. Copies of the Prospectuses and Statement
of Additional Information are available upon request and without charge by
writing to CoreFunds Government at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-355-2673.
Evergreen Government and CoreFunds Government are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661- 2511 and Seven World Trade Center, Suite 1300, New York, New
York 10048.
The SEC maintains a Web site (http://www.sec.gov) that contains each
Fund's Statement of Additional Information and other material incorporated by
reference herein together with other information regarding Evergreen Government
and CoreFunds Government.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Directors of CoreFunds, Inc. to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., July 17, 1998, at the
offices of the Evergreen Funds, 200 Berkeley Street, 26th Floor, Boston,
Massachusetts 02116, and at any adjournments thereof. This Prospectus/Proxy
Statement, along with a Notice of the Meeting and a proxy card, is first being
mailed to shareholders of CoreFunds Government on or about June 8, 1998. Only
shareholders of record as of the close of business on the Record Date will be
entitled to notice of, and to vote at, the Meeting or any adjournment thereof.
The holders of a majority of the outstanding shares at the close of business on
the Record Date present in person or represented by proxy will constitute a
quorum for the Meeting.
<PAGE>
If the enclosed form of proxy is properly executed and returned in time
to be voted at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed Reorganization, FOR the Interim
Advisory Agreement and FOR any other matters deemed appropriate. Proxies that
reflect abstentions and "broker non- votes" (i.e., shares held by brokers or
nominees as to which (i) instructions have not been received from the beneficial
owners or the persons entitled to vote or (ii) the broker or nominee does not
have discretionary voting power on a particular matter) will be counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but will have the effect of being counted as votes against
the Plan and the Interim Advisory Agreement which must be approved by a
percentage of the shares present at the Meeting or a majority of the outstanding
voting securities.
A proxy may be revoked at any time on or before the Meeting by written
notice to the Secretary of CoreFunds, Inc. at the address set forth on the cover
of this Prospectus/Proxy Statement. Unless revoked, all valid proxies will be
voted in accordance with the specifications thereon or, in the absence of such
specifications, FOR approval of the Plan and the Reorganization contemplated
thereby and FOR approval of the Interim Advisory Agreement.
Approval of the Plan will require the affirmative vote of a majority of
the outstanding shares, with all classes voting together as a single class at
the Meeting at which a quorum of the Fund's shares is present. Approval of the
Interim Advisory Agreement will require the affirmative vote of (i) 67% or more
of the outstanding voting securities present at the Meeting if holders of more
than 50% of the outstanding voting securities are present, in person or by
proxy, at the Meeting, or (ii) more than 50% of the outstanding voting
securities, whichever is less, with all classes voting together as one class.
Each full share outstanding is entitled to one vote and each fractional share
outstanding is entitled to a proportionate share of one vote.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees of FUNB or CSIA, their affiliates or other
representatives of CoreFunds Government (who will not be paid for their
soliciting activities). Shareholder Communications Corporation ("SCC") and its
agents have been engaged by CoreFunds Government to assist in soliciting
proxies, and may call shareholders to ask if they would be willing to authorize
SCC to execute a proxy on their behalf authorizing the voting of their shares in
accordance with
<PAGE>
the instructions given over the telephone by the shareholders. In addition,
shareholders may call SCC at 1-800-733-8481 extension 468 between the hours of
9:00 a.m. and 11:00 p.m. Eastern time in order to initiate the processing of
their votes by telephone. SCC will utilize a telephone vote solicitation
procedure designed to authenticate the shareholder's identity by asking the
shareholder to provide his or her social security number (in the case of an
individual) or taxpayer identification number (in the case of an entity). The
shareholder's telephone instructions will be implemented in a proxy executed by
SCC and a confirmation will be sent to the shareholder to ensure that the vote
has been authorized in accordance with the shareholder's instructions. Although
a shareholder's vote may be solicited and cast in this manner, each shareholder
will receive a copy of this Prospectus/Proxy Statement and may vote by mail
using the enclosed proxy card. CoreFunds Government believes that this
telephonic voting system complies with applicable law and has reviewed an
opinion of counsel to that effect.
If you wish to participate in the Meeting, you may submit the proxy
card included with this Prospectus/Proxy Statement, vote by telephone, vote by
fax or attend in person. Any proxy given by you is revocable.
In the event that sufficient votes to approve the Reorganization are
not received by July 17, 1998, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such adjournment after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.
A shareholder who objects to the proposed Reorganization will not be
entitled under either Maryland law or the Articles of Incorporation of
CoreFunds, Inc. to demand payment for, or an appraisal of, his or her shares.
However, shareholders should be aware that the Reorganization as proposed is not
expected to result in recognition of gain or loss to shareholders for federal
income tax purposes and that, if the Reorganization is consummated, shareholders
will be free to redeem the shares of Evergreen Government which they receive in
the transaction at their then-current net asset value. Shares of CoreFunds
<PAGE>
Government may be redeemed at any time prior to the consummation of the
Reorganization. Shareholders of CoreFunds Government may wish to consult their
tax advisers as to any differing consequences of redeeming Fund shares prior to
the Reorganization or exchanging such shares in the Reorganization.
CoreFunds Government does not hold annual shareholder meetings. If the
Reorganization is not approved, shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of CoreFunds, Inc.
at the address set forth on the cover of this Prospectus/Proxy Statement such
that they will be received by the Fund in a reasonable period of time prior to
any such meeting.
The votes of the shareholders of Evergreen Government are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the Reorganization.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise CoreFunds Government whether other persons are beneficial owners
of shares for which proxies are being solicited and, if so, the number of copies
of this Prospectus/Proxy Statement needed to supply copies to the beneficial
owners of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of Evergreen Government as of April 30, 1997, and the
financial statements and financial highlights for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements and financial highlights of CoreFunds
Government incorporated in this Prospectus/Proxy Statement by reference from the
Annual Report of CoreFunds, Inc. for the year ended June 30, 1997 have been
audited by Ernst & Young LLP, independent auditors, as stated in their report,
which is incorporated herein by reference and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
<PAGE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen
Government will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Directors of CoreFunds, Inc. do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE DIRECTORS OF COREFUNDS, INC. RECOMMEND APPROVAL OF THE PLAN AND THE
INTERIM ADVISORY AGREEMENT, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE
CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN AND THE INTERIM ADVISORY
AGREEMENT.
June 1, 1998
<PAGE>
APPENDIX A
The names and addresses of the principal executive officers
and directors of CoreStates Investment Advisers, Inc. are as
follows:
<TABLE>
<CAPTION>
OFFICERS:
Name Address
- ---- -------
<S> <C>
David C. Francis, Chief First Union National Bank
Investment Officer 201 South College Street
Charlotte, North Carolina 28288-
1195
L. Robert Cheshire, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
John E. Gray, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
Dillon S. Harris, Jr., Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-
1195
J. Kellie Allen, Vice First Union National Bank
President 201 South College Street
Charlotte, North Carolina 28288-1195
DIRECTORS:
Name Address
- ---- -------
Donald A. McMullen First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
<PAGE>
Name Address
- ---- -------
William M. Ennis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
William D. Munn First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
</TABLE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 15th day of April, 1998, by and between Evergreen Fixed Income Trust, a
Delaware business trust, with its principal place of business at 200 Berkeley
Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its Evergreen
U.S. Government Fund series (the "Acquiring Fund"), and CoreFunds, Inc., a
Maryland corporation, with its principal place of business at 530 East
Swedesford Road, Wayne, Pennsylvania 19087 ("CoreFunds"), with respect to its
Government Income Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A and Class Y shares
of beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest or shares of common stock, as the case may be;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of the identified liabilities of the Selling Fund by the Acquiring
Fund on the terms and conditions hereinafter set forth are in the best interests
of the Acquiring Fund's shareholders;
WHEREAS, based on the information furnished by CoreStates Investment
Advisers, Inc. and First Union National Bank, the Directors of CoreFunds have
determined that the Selling Fund
<PAGE>
should exchange all of its assets and the identified liabilities for Acquiring
Fund Shares and that the interests of the existing shareholders of the Selling
Fund will not be diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the identified liabilities of the Selling Fund, as set forth
in paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.
<PAGE>
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the Reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the Reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the Reorganization, in each case calculated in accordance with such
Rule 2830.
<PAGE>
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's
assets to be acquired by the Acquiring Fund hereunder shall be
<PAGE>
the value of such assets computed as of the close of business on the New York
Stock Exchange on the business day next preceding the Closing Date (such time
and date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in the Trust's Declaration of Trust and the Acquiring
Fund's then current prospectuses and statement of additional information or such
other valuation procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2. Holders of Class A
and Class Y shares of the Selling Fund will receive Class A and Class Y shares,
respectively, of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about July 27, 1998 or such other date as the parties may agree to in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously immediately prior to the opening of business on the
Closing Date unless otherwise provided. The Closing shall be held as of 9:00
a.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA
02116, or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. CoreStates Bank, N.A., as
custodian for the Selling Fund (the "Custodian"), shall deliver
<PAGE>
at the Closing a certificate of an authorized officer stating that (a) the
Selling Fund's portfolio securities, cash, and any other assets shall have been
delivered in proper form to the Acquiring Fund on the Closing Date; and (b) all
necessary taxes including all applicable federal and state stock transfer
stamps, if any, shall have been paid, or provision for payment shall have been
made, in conjunction with the delivery of portfolio securities by the Selling
Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date, shall deliver at the
Closing a certificate of an authorized officer stating that its records contain
the names and addresses of the Selling Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver or
cause Evergreen Service Company, its transfer agent, to issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Secretary of CoreFunds or provide evidence satisfactory to the
Selling Fund that such Acquiring Fund Shares have been credited to the Selling
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts and other documents as such other party or its
counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents
and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland.
<PAGE>
(b) The Selling Fund is a separate investment series of a
Maryland corporation that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), is in
full force and effect.
(c) The current prospectuses and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of CoreFunds' Articles of Incorporation or By-Laws
or of any material agreement, indenture, instrument, contract, lease, or other
undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected in the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
<PAGE>
(g) The financial statements of the Selling Fund at December
31, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since December 31, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and outstanding
shares of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.4. The Selling Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for
<PAGE>
such assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the 1933 Act, other than as disclosed to the
Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Prospectus and Proxy Statement of the Selling Fund to
be included in the Registration Statement (as defined in paragraph 5.7)(other
than information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring
Fund represents and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
<PAGE>
(c) The current prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The financial statements of the Acquiring Fund at October
31, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Selling Fund) fairly reflect the financial condition of the Acquiring
Fund as of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since October 31, 1997 there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
<PAGE>
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(k) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only
<PAGE>
insofar as it relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. CoreFunds will call a meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as
practicable, but in any case within sixty days after the Closing
<PAGE>
Date, the Selling Fund shall furnish the Acquiring Fund, in such form as is
reasonably satisfactory to the Acquiring Fund, a statement of the earnings and
profits of the Selling Fund for federal income tax purposes that will be carried
over by the Acquiring Fund as a result of Section 381 of the Code, and which
will be reviewed by KPMG Peat Marwick LLP and certified by CoreFunds' President
and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 CAPITAL LOSS CARRYFORWARDS. As promptly as practicable, but in any
case within sixty days after the Closing Date, the Acquiring Fund and the
Selling Fund shall cause KPMG Peat Marwick LLP to issue a letter addressed to
the Acquiring Fund and the Selling Fund, in form and substance satisfactory to
the Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and
<PAGE>
substance reasonably satisfactory to the Selling Fund and dated as of the
Closing Date, to such effect and as to such other matters as the Selling Fund
shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been obtained under the
<PAGE>
1933 Act, the 1934 Act and the 1940 Act, and as may be required under state
securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business, other
than as previously disclosed in the Registration Statement.
Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Acquiring Fund at
which the contents of the Prospectus and Proxy Statement and related matters
were discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Prospectus and Proxy Statement (except to the extent indicated
in paragraph (g) of their above opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of the Trust's officers
and other representatives of the Acquiring Fund), no facts have come to their
attention that lead them to believe that the Prospectus and
<PAGE>
Proxy Statement as of its date, as of the date of the Selling Fund Shareholders'
meeting, and as of the Closing Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein regarding
the Acquiring Fund or necessary, in the light of the circumstances under which
they were made, to make the statements therein regarding the Acquiring Fund not
misleading. Such opinion may state that such counsel does not express any
opinion or belief as to the financial statements or any financial or statistical
data, or as to the information relating to the Selling Fund, contained in the
Prospectus and Proxy Statement or the Registration Statement, and that such
opinion is solely for the benefit of CoreFunds and the Selling Fund. Such
opinion shall contain such other assumptions and limitations as shall be in the
opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed
therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
6.3 The merger between First Union Corporation and CoreStates Financial
Corp shall be completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by CoreFunds'
President or Vice President and the Treasurer or Assistant Treasurer, in form
and substance satisfactory to the Acquiring Fund and dated as of the Closing
Date, to such effect and as to such other matters as the Acquiring Fund shall
reasonably request.
<PAGE>
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of CoreFunds.
7.3 The Acquiring Fund shall have received on the Closing Date an
opinion of Morgan, Lewis & Bockius LLP, counsel to the Selling Fund, in a form
satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and has the power to own all of its properties and
assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a
Maryland corporation registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund and, assuming due authorization, execution, and
delivery of this Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Maryland is required for consummation by the Selling Fund
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act, and as may be required under state
securities laws.
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of CoreFunds' Articles of Incorporation or By-laws, or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its properties may be bound or, to the knowledge
of such counsel, result in the
<PAGE>
acceleration of any obligation or the imposition of any penalty, under any
agreement, judgment, or decree to which the Selling Fund is a party or by which
it is bound.
(f) Only insofar as they relate to the Selling Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
government proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or before
the date of mailing of the Prospectus and Proxy Statement and the Closing Date,
required to be described in the Prospectus and Proxy Statement or to be filed as
an exhibit to the Registration Statement which are not described or filed as
required.
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling Fund or
any of its respective properties or assets and the Selling Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
(i) Assuming that a consideration therefor of not less than
the net asset value thereof has been paid, and assuming that such shares were
issued in accordance with the terms of the Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such issuance, all
issued and outstanding shares of the Selling Fund are legally issued and fully
paid and non-assessable.
Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Selling Fund at which
the contents of the Prospectus and Proxy Statement and related matters were
discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Prospectus and Proxy Statement (except to the extent indicated
in paragraph (f) of their above opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of CoreFunds' officers and
other representatives of the Selling Fund), no facts have come to their
attention that lead them to believe that the Prospectus and Proxy Statement as
of its date, as of the date of the Selling Fund Shareholders' meeting, and as of
the Closing Date, contained an
<PAGE>
untrue statement of a material fact or omitted to state a material fact required
to be stated therein regarding the Selling Fund or necessary, in the light of
the circumstances under which they were made, to make the statements therein
regarding the Selling Fund not misleading. Such opinion may state that they do
not express any opinion or belief as to the financial statements or any
financial or statistical data, or as to the information relating to the
Acquiring Fund, contained in the Prospectus and Proxy Statement or Registration
Statement, and that such opinion is solely for the benefit of the Trust and the
Acquiring Fund.
Such opinion shall contain such other assumptions and limitations as
shall be in the opinion of Morgan, Lewis & Bockius LLP appropriate to render the
opinions expressed therein, and shall indicate, with respect to matters of
Maryland law, that as Morgan, Lewis & Bockius LLP are not admitted to the bar of
Maryland, such opinions are based either upon the review of published statutes,
cases and rules and regulations of the State of Maryland or upon an opinion of
Maryland counsel.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
7.4 The merger between First Union Corporation and CoreStates Financial
Corp shall be completed prior to the Closing Date.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of CoreFunds' Articles of
Incorporation and By-Laws and certified copies of the resolutions evidencing
such approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
<PAGE>
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund followed by the distribution of the
Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of the
Selling Fund
<PAGE>
will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code and the Acquiring Fund and the Selling Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the identified
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
<PAGE>
(a) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
been obtained from and is consistent with the accounting records of the Selling
Fund; and
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying accounting
records of the Selling Fund or with written estimates by Selling Fund's
management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from KPMG Peat
Marwick LLP a letter addressed to the Acquiring Fund dated on the Closing Date,
in form and substance satisfactory to the Acquiring Fund, to the effect, that on
the basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards), the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
(c) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the
<PAGE>
Registration Statement and Prospectus and Proxy Statement agree with written
estimates by each Fund's management and were found to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank ("FUNB"). Such
expenses include, without limitation, (a) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees. In the event that the merger of First Union Corporation
and CoreStates Financial Corp is not completed, this Agreement shall terminate.
In such event, all expenses of the transactions contemplated by this Agreement
incurred by the Acquiring Fund will be borne by FUNB and all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund will be
borne by CoreStates Investment Advisers, Inc.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
<PAGE>
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, CoreFunds, the respective Trustees,
Directors or officers, to the other party or its Trustees, Directors or
officers, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of the State of Maryland,
without giving effect to the conflicts of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Trust personally, but shall bind only the
trust property of the Acquiring Fund, as provided in the Declaration of Trust of
the Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust on behalf of the Acquiring Fund and signed by
authorized officers of the Trust, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officers shall be
deemed to have been made by any of them individually or to impose any liability
on any of them personally, but shall bind only the trust property of the
Acquiring Fund as provided in the Declaration of Trust of the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
EVERGREEN FIXED INCOME TRUST
ON BEHALF OF EVERGREEN U.S.
GOVERNMENT FUND
By:
Name:
Title:
COREFUNDS, INC.
ON BEHALF OF GOVERNMENT INCOME
FUND
By:
Name:
Title:
<PAGE>
EXHIBIT B
INTERIM INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of April 30, 1998 between COREFUNDS, INC., a Maryland
corporation (hereinafter the "Company"), and CORESTATES INVESTMENT ADVISERS,
INC., a Pennsylvania corporation (hereinafter the "Investment Adviser").
WHEREAS, the Company is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company is authorized to issue shares of Common Stock in
separate classes representing shares in separate portfolios of securities and
other assets; and
WHEREAS, the Company desires to retain the Investment Adviser to
furnish investment advisory services to the Company and its portfolios, and the
Investment Adviser is willing to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Company hereby appoints the Investment Adviser to
act as investment adviser to the portfolios of the Company for the period and on
the terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
2. Delivery of Documents. The Company has furnished the Investment
Adviser with copies properly certified or authenticated of each of the
following:
a. the Company's Articles of Incorporation, as filed with the
Secretary of State of Maryland on September 11, 1984, and all amendments thereto
(such Articles, as presently in effect and as they shall from time to time be
amended or supplemented, are herein called the "Articles of Incorporation");
b. the Company's By-Laws and amendments thereto
(such By-Laws, as presently in effect and as they shall
from time to time be amended, are herein called the "By-Laws");
<PAGE>
c. resolutions of the Company's Board of
Directors authorizing the appointment of the Investment Adviser
and approving this Agreement;
d. the Company's Notification of Registration on
Form N-8A under the 1940 Act as filed with the Securities and
Exchange Commission on September 11, 1984 and all amendments
thereto;
e. the Company's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act") (File No. 2-93214) and under the
1940 Act as filed with the Securities and Exchange Commission and all amendments
thereto; and
f. the Company's most recent Prospectuses and Statement of
Additional Information (such Prospectuses and Statement of Additional
Information, as presently in effect and all amendments and supplements thereto,
are herein called the
"Prospectuses").
The Company will furnish the Investment Adviser from time to time with
copies of all amendments of or supplements to the foregoing.
3. Management. Subject to the supervision of the Company's Board of
Directors, the Investment Adviser will provide a continuous investment program
for each portfolio of the Company, including investment guidelines and
management with respect to all securities and investments and cash equivalents
held by the existing portfolios and such other portfolios (hereinafter
collectively, the "Portfolios") offered by the Company and identified by the
Company as appropriate. The Investment Adviser will determine from time to time
what securities and other investments will be purchased, retained, or sold by
the Company. The Investment Adviser will provide the services under this
Agreement in accordance with the Company's investment objective, policies, and
restrictions as stated in the Prospectuses and resolutions of the Company's
Board of Directors.
The Investment Adviser further agrees that it:
a. will conform with all applicable Rules and Regulations of
the Securities and Exchange Commission and will in addition conduct its
activities under this Agreement in accordance with any regulations of the
Comptroller of the Currency pertaining to the investment advisory activities of
national banks;
<PAGE>
b. will not make loans to any person to purchase
or carry the Company's shares or make loans to the Company;
c. will place orders pursuant to its investment determinations
for the Company on behalf of its Portfolios either directly with the issuer or
with any broker or dealer. In placing orders with brokers and dealers the
primary consideration of the Investment Adviser will be the prompt execution of
orders in an effective manner at the most favorable price. Subject to this
consideration, brokers or dealers who provide supplemental research to the
Investment Adviser may receive orders for transactions with the Company. In no
instance will portfolio securities be purchased from or sold to CoreStates
Financial Corp or any affiliated person of either the Company or CoreStates
Financial Corp;
d. will maintain all books and records with respect to the
Company's portfolio securities transactions and will furnish the Company's Board
of Directors such periodic and special reports as the Board may request;
e. will treat confidentially and as proprietary information of
the Company all records and other information relative to the Company and prior,
present, or potential shareholders, and will not use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Company, which approval shall not be unreasonably withheld and may not be
withheld where the Investment Adviser 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
Company;
f. will provide to the Company and the Company's other service
providers, at such intervals as may be reasonably requested by the Company,
information relating to (i) the performance of services by the Investment
Adviser hereunder, and (ii) market quotations of portfolio securities held by
the Company on behalf of its Portfolios;
g. will direct and use its best efforts to cause the broker or
dealer involved in any portfolio transaction with the Company to send a written
confirmation of such transaction to the Company's Custodian and Transfer Agent;
and
h. will not purchase shares of the Company for itself or for
accounts with respect to which it is exercising sole investment discretion in
connection with such transactions.
<PAGE>
4. Services Not Exclusive. The investment management services furnished
by the Investment Adviser hereunder are not to be deemed exclusive, and the
Investment Adviser shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Company are the property of the Company and further agrees
to surrender promptly to the Company any of such records upon the Company's
request. The Investment Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
6. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Company and the cost of obtaining market
quotations of portfolio securities held by the Company.
7. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, effective as of the date of this Agreement, the
Company will pay the Investment Adviser and the Investment Adviser will accept
as full compensation for services rendered to the Portfolios therefor, the fees
detailed in Appendix A attached to this Agreement; provided, however, that if
the total expenses borne by any Portfolio of the Company in any fiscal year of
the Company exceeds any expense limitations imposed by applicable state
securities laws or regulations, the Investment Adviser will reimburse the
Portfolio for a portion of such excess equal to the amount of such excess times
the ratio of the fees otherwise payable to the Investment Adviser hereunder to
the aggregate fees otherwise payable to the Investment Adviser hereunder and SEI
Fund Resources pursuant to an Administration Agreement between it and the
Company. The Investment Adviser's obligation to reimburse the Company on behalf
of its Portfolios hereunder is limited in any fiscal year of the Company to the
amount of the Investment Adviser's fee hereunder for such fiscal year; provided,
however, that notwithstanding the foregoing, the Investment Adviser shall
reimburse the Company for such excess regardless of the fees paid to it to the
extent that the securities laws or regulations of any state having jurisdiction
over the Company so require. Any such expense reimbursements will be estimated
daily and reconciled and paid on a monthly basis.
<PAGE>
8. Use of Investment Adviser's Name and Logo. The Company agrees that
it shall furnish to the Investment Adviser, prior to any use or distribution
thereof, copies of all prospectuses, statements of additional information, proxy
statements, reports to shareholders, sales literature, advertisements, and other
material prepared for distribution to shareholders of the Portfolios of the
Company or to the public, which in any way refer to or describe the Investment
Adviser or which include any trade names, trademarks, or logos of the Investment
Adviser or any affiliate of the Investment Adviser. The Company further agrees
that it shall not use or distribute any such material if the Investment Adviser
reasonably objects in writing to such use or distribution within ten business
days after the date such material is furnished to the Investment Adviser. The
provisions of this section shall survive the termination of this Agreement.
9. Limitation of Liability. The Investment Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Company in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Investment Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
10. Duration and Termination. This Agreement will become effective for
each Portfolio as of the date first above written. Subject to the provisions for
termination as provided herein, this Agreement shall remain in effect for each
Portfolio until the earlier of the Closing Date defined in the Agreement and
Plan of Reorganization dated as of April 15, 1998 with respect to each Portfolio
or for two years from the date first above written and from year to year
thereafter, provided such continuance is specifically approved at least annually
(a) by the vote of a majority of those members of the Company's Board of
Directors who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Company's Board of Directors or by vote
of a majority of the Portfolio's outstanding voting securities. Notwithstanding
the foregoing, this Agreement may be terminated at any time on sixty days
written notice, without the payment of any penalty, by the Company (by vote of
the Board of Directors or by vote of a majority of the Portfolio's outstanding
voting securities) or by the Investment Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting
<PAGE>
securities," "interested persons" and "assignment" shall have the same meaning
of such terms in the 1940 Act.)
11. Name Protection After Termination. In the event this Agreement is
terminated by either party or upon written notice from the Investment Adviser at
any time, the Company hereby agrees that it will eliminate from its corporate
name any references to the name "CoreFunds." The Company shall have the
nonexclusive use of the name "CoreFunds" in whole or in part so long as this
Agreement is effective or until such notice is given.
12. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved by vote of a majority of the Portfolio's outstanding
voting securities.
13. Miscellaneous. 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 construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Pennsylvania law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
COREFUNDS, INC.
By ____________________________
CORESTATES INVESTMENT ADVISERS, INC.
By ____________________________
<PAGE>
APPENDIX A
Portfolio Advisory Fee as a
Percentage of average
daily net assets
Growth Equity Fund .75%
Core Equity Fund .74%
Special Equity Fund 1.50%
Equity Index Fund .40%
International Growth Fund .80%
Balanced Fund .70%
Short-Intermediate Bond Fund .50%
Bond Fund .74%
Short Term Income Fund .74%
Government Income Fund .50%
Intermediate Municipal Bond Fund .50%
Pennsylvania Municipal Bond Fund .50%
New Jersey Municipal Bond Fund .50%
Global Bond Fund .60%
Cash Reserve .40%
Treasury Reserve .40%
Tax-Free Reserve .40%
Elite Cash Reserve .20%
Elite Government Reserve .20%
Elite Treasury Reserve .20%
Elite Tax-Free Reserve .20%
<PAGE>
Exhibit C
Evergreen
[EVERGREEN LOGO APPEARS HERE] -------------------------------------------------
U.S. GOVERNMENT FUND
FUND AT A GLANCE
As of April 30, 1997
<TABLE>
<CAPTION>
ONE YEAR
PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One year with sales charge 1.32% 0.60% 4.58% 6.63%
One year w/o sales charge 6.37 5.58 5.58 6.63
SEC 30-day yield/1/ with sales charge 6.13 5.37 5.36 6.38
Twelve month dividends per share $0.62 $0.55 $0.55 $0.65
<CAPTION>
AVERAGE
ANNUAL RETURNS CLASS A CLASS B CLASS C CLASS Y
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three years 5.04% 5.10% N/A 7.02%
Life of class/2/ 4.30 4.42 6.18% 4.75
All returns include the maximum applicable sales charge
<CAPTION>
CUMULATIVE
RETURNS CLASS A CLASS B CLASS C CLASS Y
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ten months w/o sales charge 5.30% 4.65% 4.65% 5.52%
Three years 15.90 16.10 N/A 22.58
Life of class/2/ 19.84 20.45 17.33 18.67
<CAPTION>
PORTFOLIO
CHARACTERISTICS
- -------------------------------------------------------------------------------------------------
<S> <C>
Total net assets $287.8 million
Average credit quality AAA
Average maturity 8.65 years
Average duration 4.27 years
</TABLE>
/1/ SEC yield is based on the Fund's net investment income over a 30-day period
and is calculated in accordance with Securities and Exchange Commission
guidelines.
/2/ Class A and B shares were introduced on 1/11/93. Class C shares were
introduced on 9/2/94. Class Y shares were introduced on 9/2/93.
PORTFOLIO COMPOSITION April 30, 1997
- --------------------------------------------------------------------------------
(as a percentage of net assets)
[GRAPH APPEARS HERE]
OBJECTIVE
- --------------------------------------------------------------------------------
A high level of current income consistent with stability of principal.
STRATEGY
- --------------------------------------------------------------------------------
The Fund seeks to meet its objectives by investing in debt instruments issued
or guaranteed by the U.S. government, its agencies or instrumentalities. The
Fund may also invest in mortgage-backed securities, which represent ownership
interests in mortgage pools of U.S. government agencies, such as Federal Home
Loan Mortgage Corporation and Government National Mortgage Association. Other
investments may include asset-backed securities, for which automobile and credit
card receivables are the most common collateral. Up to 20% of net assets may be
invested in collateralized mortgage obligations (CMOs), and other debt
securities considered appropriate. The Fund's net asset value is not insured and
is likely to fluctuate according to changes in interest rates. Experienced
professional management seeks to ensure broad diversification of issues and
maturities, helping to maximize opportunities and minimize the risks of changing
interest rates.
PORTFOLIO MANAGEMENT TEAM
- --------------------------------------------------------------------------------
Rollin C. Williams, a Vice President and Senior Fixed Income
Portfolio Manager of First Union Capital Management Group, is
portfolio manager of Evergreen U.S. Government Fund. An
investment professional with more than 27 years of banking and
investment management experience, he is responsible for the
management of over $2.1 billion in fixed income portfolios. Mr.
Williams is a Chartered Financial Analyst, and holds a B.B.A.
from Milton College as well as graduate studies from University
of Nebraska, Omaha. He is a member of the Association for
Investment Management and Research and the North Carolina
[PHOTO OF Society of Financial Analysts. Before joining First Union, Mr.
ROLLIN C. Williams was the head of fixed-income investments at Dominion
WILLIAMS Trust Company in Roanoke, Va. Mr. Williams has been with First
APPEARS Union since 1993 when Dominion was acquired by First Union
HERE] National Bank.
C-1
<PAGE>
Evergreen
U.S. GOVERNMENT FUND
- -------------------------------------------------- [EVERGREEN LOGO APPEARS HERE]
MANAGEMENT REPORT
June 1997
Dear Shareholders:
We are pleased to present the annual report for the Evergreen U.S. Government
Fund for the fiscal period which ended April 30, 1997. You may recall that you
recently received a semi-annual report for the period which ended December 31,
1996. We have changed your Fund's fiscal year, however, to end on April 30,
1997. This is part of an effort by Evergreen Keystone Funds to streamline and
increase the efficiency of fund administration. Funds with similar investment
objectives are being placed on the same fiscal year cycle. The next report you
will receive will be a semi-annual report for the period ending October 31,
1997. You should expect to receive it in December.
PERFORMANCE
Evergreen U.S. Government Fund performed very well during the period. In fact,
Class Y shares completed the period with top-quartile, 12-month performance
among the 175 funds in the U.S. Government Bond Fund Category of Lipper
Analytical Services, Inc., an independent mutual fund ranking service.
We attribute the Fund's solid performance during this period both to strong
duration management during a period when interest rates fluctuated
dramatically, and to an emphasis on mortgage-backed securities.
INVESTMENT CLIMATE
Throughout the 12-month period, U.S. economic growth remained extremely strong,
as evidenced by the inflation-adjusted annualized growth rate of 5.6% in the
first quarter of 1997. This strong growth, however, has made the financial
markets wary of any signs of inflationary pressure. After hitting a low point
in late November, 1996, interest rates began rising in anticipation of potential
Federal Reserve Board action to raise short-term rates to head off potential
inflation. In fact on March 25, the Federal Reserve Board raised the key Federal
Funds Rate by one-quarter of one percent, indicating it was concerned that
strong economic growth was "increasing the risk of inflationary imbalances."
Going forward, the financial markets continue to focus on any emerging
information that could suggest inflationary pressure and could result in further
hikes in short-term interest rates by the Federal Reserve.
STRATEGY
In response to rising interest rates and uncertainty about the Federal Reserve
Board's course of action, the duration of your Fund has been shortened from 4.78
years to 4.27 years over the 12-month period that ended April 30. Duration
adjustments were implemented in the Treasury sector by selling securities due in
2019 and buying shorter-term securities. In addition to shortening the duration,
we modestly increased the mortgage position of the Fund, primarily in the first
half of the year. A greater emphasis on mortgages serves as a more defensive
posture in times of interest rate increases, in that mortgages tend to show
greater price stability than Treasuries when prices start to fall. Over the past
12 months, the mortgage position of the Fund has been increased from 49.6% of
net assets to 53.6% on April 30, 1997. U.S. Treasuries accounted for 44.7% of
assets on April 30, with cash and other assets and liabilities accounting for
the remaining 1.7%.
WHY INVEST IN U.S. GOVERNMENT SECURITIES?
- --------------------------------------------------------------------------------
1. The most diverse and actively traded sector of the securities market, U.S.
government securities offer a wide selection of investment choices and
liquidity.
2. U.S. government securities represent the highest-quality issues in the
fixed-income market.
3. If held to maturity, U.S. Treasury bills, notes and bonds are guaranteed
by the U.S. government as to the payment of principal and interest. This
guarantee applies to the individual securities only and not to the shares of
U.S. government securities mutual funds.
OUTLOOK
Looking forward, we believe the bond market's participants will continue to
monitor both the Federal Reserve Board's actions and any signs of inflation
appearing in emerging economic data. Historically, the Federal Reserve has
tended not to take isolated steps in moving short-term interest rates in any
direction, whether up or down. In fact, the last time the Federal Reserve moved
rates only once was back in 1987. As a result, we believe it is likely that the
March 25 increase in short-term rates will not be an isolated event, and that
interest rates will rise further in the short term. Over the longer term,
however, we think interest rates are more likely to decline.
Consistent with this outlook, we expect over the next few months that the
duration of the Fund will be aggressively extended to take advantage of
opportunities as interest rates peak and start to decline, and bond prices
consequently rise.
The overall strategy of the Evergreen U.S. Government Fund continues to be to
provide the investor with a high quality portfolio that offers attractive
income.
Thank you for your investment in the Evergreen U.S. Government Fund.
Sincerely,
/s/ R.K. Wagoner
RICHARD K. WAGONER
Executive Vice President
Chief Investment Officer
First Union Capital Management Group
/s/ Rollin C. Williams, C.F.A.
ROLLIN C. WILLIAMS
Vice President
Senior Fixed Income Portfolio Manager
C-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
GOVERNMENT INCOME FUND
a Series of
COREFUNDS, INC.
530 East Swedesford Road
Wayne, Pennsylvania 19087
(800) 355-2673
By and In Exchange For Shares of
EVERGREEN U.S. GOVERNMENT FUND
a Series of
EVERGREEN FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Government Income Fund
("CoreFunds Government"), a series of CoreFunds, Inc., to Evergreen U.S.
Government Fund ("Evergreen Government"), a series of Evergreen Fixed Income
Trust, in exchange for Class A shares (to be issued to holders of Class A shares
of CoreFunds Government) and Class Y shares (to be issued to holders of Class Y
shares of CoreFunds Government) of beneficial interest, $.001 par value per
share, of Evergreen Government, consists of this cover page and the following
described documents, each of which is attached hereto and incorporated by
reference herein:
(1) The Statement of Additional Information of Evergreen
Government dated February 1, 1998, as amended;
(2) The Statement of Additional Information of CoreFunds
Government dated November 1, 1997;
(3) Annual Report of CoreFunds Government for the year ended June
30, 1997;
(4) Semi-Annual Report of CoreFunds Government for the six month
period ended December 31, 1997;
<PAGE>
(5) Annual Report of Evergreen Government for the ten month fiscal
year ended April 30, 1997; and
(6) Semi-Annual Report of Evergreen Government for the six month
period ended October 31, 1997.
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of Evergreen Government and CoreFunds Government dated June 1, 1998. A
copy of the Prospectus/Proxy Statement may be obtained without charge by calling
or writing to Evergreen Government or CoreFunds Government at the telephone
numbers or addresses set forth above.
The date of this Statement of Additional Information is June 1, 1998.
<PAGE>
